1. SUMMARYinvestor.psf.it/files/catalogue/attachments/Annual report...INDIPENDENT AUDITOR’S...

1. SUMMARY

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1SUMMARY1. SUMMARY PAG. 1

2. REGISTERED OFFICE AND CORPORATE BODIES PAG. 2

3. GROUP STRUCTURE PAG. 3

4. HISTORY OF POLIGRAFICA SAN FAUSTINO PAG. 4

5. THE GROUP AND ITS CORE BUSINESS PAG. 5

6. COMPANY MISSION PAG. 7

7. LETTER TO THE SHAREHOLDERS PAG. 8

8. STOCK EXCHANGE DATA PAG. 9

9. 2005 CONSOLIDATED FINANCIAL STATEMENTS PAG. 10

10. STATUTORY AUDITOR’ S REPORT: CONSOLIDATED FIN. STAT. PAG. 41

11. INDIPENDENT AUDITOR’S REPORT: CONSOLIDATED FIN. STAT. PAG. 43

12. REPORT OF THE BOARD OF DIRECTORS PAG. 46

13. FINANCIAL STATEMENTS PAG. 52

14. STATUTORY AUDITOR’ S REPORT: CONSOLIDATED FIN. STAT. PAG. 76

15. INDIPENDENT AUDITOR’S REPORT: CONSOLIDATED FIN. STAT. PAG. 79

16. PSF HOME PAGE PAG. 82

17. MEDIATTIVA HOME PAGE PAG. 83

18. CANTOALTO HOME PAGE PAG. 84

2. REGISTERED OFFICE AND CORPORATE BODIES

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2REGISTERED OFFICE AND CORPORATE BODIES

REGISTERED OFFICE Via Valenca, 1525030 CASTREZZATO (BS)

STATUTORY COMMITTEES

BOARD OF DIRECTORS Chairman and Managing Director Alberto FrigoliManaging Director Giuseppe FrigoliManaging Director Emilio FrigoliDirector Francesco FrigoliDirector Giovanni FrigoliIndependent Director Carlo Alberto Carnevale MafféIndependent Director Alberto Piantoni

STATUTORY AUDITORS’ COMMITTEE Statutory Auditor Francesco CuroneStatutory Auditor Umberto Bisesti

INVESTOR RELATIONS I.R. Manager Anna Lambiase([email protected])

3. GROUP STRUCTURE

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3GROUP STRUCTURE

Subsidiary companies

BB S.r.l.: specialized in e-commerce

Laser 5 S.r.l.:specialized in graphic and digital typesetting

Mediattiva S.r.l.:web agency e internet provider

Litografia Spada S.r.l.: specialized in prestige paper labels

4. HISTORY OF POLIGRAFICA SAN FAUSTINO

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4HISTORY OF POLIGRAFICA SAN FAUSTINO When Adolfo Frigoli founded “Tipo-Litografia S. Faustino” in 1957, the company's business wasthat of a top-class print shop. However, the company’s profile rapidly changed with the adoptionof innovative technologies. The company’s founder maintains that without these technologies, itwould have been impossible to grow. With the same goals - innovation and technology and pro-cess integration – the company continued to expand until it became Poligrafica S. Faustino S.r.l inthe 1980s, when its purely local scope expanded to the European level. Over the course of the lastten years, the company’s responsiveness to market demand has led it to broaden its range of spe-cialization, including the addition of several kinds of digital printing and multimedia solutions tomore typical activities involving the production of continuous forms, self-adhesive labels and pa-per-transformation applications. Today, this integration of segments enables Poligrafica S. Fausti-no to showcase new products and services, making it unique on the market for its ability to meeta significant number of communications needs. “Printernet”, the expression accompanying the company’s new logo was created by combiningthe words “printing” and “Internet”, embodying the Group’s past and future. The current projectinvolves providing online printing services. The first tangible example of this, already being usedby the parent company’s customers, is PSF on Line, which allows customers to access an archiveof personalized products when requesting changes, reprints, estimates for particular jobs andwhen looking to obtain a host of information within a constantly-evolving environment whose limitsare difficult to detect.

5. THE GROUP AND ITS CORE BUSINESS

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5THE GROUP AND ITS CORE BUSINESS The GROUP is active in the following three business areas:- printed items used in promotional/advertising activities - promotional and advertising items andsupports- self-adhesive labels- web agencies and Internet services The first area of activity includes both personalized continuous forms and printed items for promo-tional activities (mailings with cards, reply postcards, coupons, games and contests) as well as anumber of niche products, such as personalized packs of tissues bearing logos, photographs andadvertising messages.The use of information technology in this first business area has helped to broaden the company’srange of highly specialized products and services, such as document management in outsourcingand integrated direct marketing services.The self-adhesive label segment includes booklet labels consisting of a variable number of pages;pocket labels (or rather self-adhesive labels comprising a sealed pouch containing a folded printedinsert); and special labels printed with state-of-the-art technologies. These products are geared mainly towards the pharmaceuticals, food, chemicals and cosmeticsindustries, as well as other situations that require a considerable amount of information to be prin-ted in the smallest space possible to provide effective support in the provision of instructions andthe promotional communications of a client company. Within this particular business area, the pro-ductive flexibility achieved by using the most advanced forms of technology allows us to satisfycustomers’ varying needs with personalized products.Thanks to the acquisition of Litografia Spada S.r.l. in 2003 the Group speeded up its transformationtowards label sector. Within this particular business area, in addition to an important existing po-sition, a strong know-how has been achieved together with very important clients in prestige paperlabel sector. The Group’s new business segment concerns e-commerce, the Web and various online applica-tions. The Group uses integrated means of communications to design and create various forms ofcommunication made to order.Internet-related services, such as the creation of websites, domain-name registration, hosting andweb pages together with software for multi-channel publishing complete the Group’s range of in-novative products.The quotation to the new Market in October 1999 meant to an historical company like PoligraficaS. Faustino speeding up the growth strategy both in traditional business and in the most innovativeareas and anticipating the sector evolution investing in sectors with high profitability.

5. THE GROUP AND ITS CORE BUSINESS

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6. COMPANY MISSION

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6COMPANY MISSION

Performing Company efficiency growthbased on the opportunities offered by

the Internet and digital technologies

aiming towards customer satisfaction by increasing service completeness and high

quality on competitive terms

marking company growth by investing in highly specialized staff and high-tech

research

in order to create value for shareholders

7. LETTER TO THE SHAREHOLDERS

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7LETTER TO THE SHAREHOLDERS

Dear Sirs,another eventful year has passed for our company.The general context didn’t allow the accomplishment of important performances, but the work atthe base of the company success has been performed with intensity, persistence and results.The outstanding moments in our company were the productive and commercial reorganizationwith relative personnel lightening. Such operation has been accomplished by both parties withgreat responsibility and dialogue has never been faded.We would like to thank for that all those who have been involved in this operation and that havepermitted its accomplishment avoiding discussions and unfruitful controversies.Taken these measures, the positive results should be to be seen in the next few months.The capital increase of ten million Euro was accomplished. This guaranteed the necessary resour-ces to our company in order to perform the foreseen plans. Many aggregation opportunities were surveyed but the results were irrelevant. This being one ofthe aspects that is engaging us most also considering the fact that the ideal dimensions to com-pete on a European level can be reached only through suitable acquisitions.The Capability of the trading management in the Internet is still one of our defining features. Can-toalto is our ideal solution even if until now it has found secondary applications.The incidence of the transition costs, with relative information exchange, has a defining influencein determining the sale prices.The graphic products of the e-commerce allow a very strong reduction of these costs making com-petitive the company that use them.The difficulty to use it is caused by the limited diffusion of Internet inside some companies and bythe mistrust towards the on-line payments.These years’ experience is leading towards the overcome of such prejudices. Thanks to the incre-ase of the fast lines, we think that times are good for an evolution.The present accounting period will see our attention focused on this front. The success of our pla-tform will be characterized by a defining turning point in our activities.We shouldn’t be penalized by still non-encouraging previsions on the national sector.We deeply hope to be able to return your trust in order to reach the most satisfactory of results.

The ChairmanAlberto Frigoli

8. STOCK EXCHANGE DATA

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8STOCK EXCHANGE DATA

Source: Twice Sim

Issue price Euro 37.00Price at 30/12/05 Euro 32.73Number of shares n. 1,162,357Nominal value for share 5.16Residual Floating % 55.90%Shareholders (> 2%):Alberto Frigoli 8.83%Giuseppe Frigoli 8.78%Francesco Frigoli 8.81%Emilio Frigoli 8.84%Giovanni Frigoli 8.84%Total capitalization as at 31/12/05 38.04 Euro ml

9. 2005 CONSOLIDATED FINANCIAL STATEMENTS

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92005 CONSOLIDATED FINANCIAL STATEMENTS

POLIGRAFICA S. FAUSTINO S.P.A.

2005

CONSOLIDATED FINANCIAL STATEMENTS


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9.1 DIRECTORS’ COMMENTS

9.1.1 MARKET EVOLUTION AND NEW STRATEGIC FOCUSES

Graphic sector is still static.The productive outsourcing of many important companies determines a shift in the number of or-ders in countries with minor production costs, so as to reduce the dimensions of the local marketand to strengthen the competitors’ competition.The administrative forms have been replaced by electronic distributed information and by the di-gital filing – sectors we are present in thanks to Mediattiva.Label and packaging sectors have reached a modest marginality and a small growth.Promotional sector has given growth signals and is still the sector with the best marginality.This is a sector that requires a huge renewal capability and, in particular with big quantities, thecompetitors are Europeans printers.Promotion activities require new communication strategies, both in the contents and in the forms.This is the only way in which we can captivate the clients’ attention.New products aren’t always compatible with industrial activities, which require repetitiveness.The most complex solutions can be obtained only by strongly specialized companies and Poligra-fica is one of the sector’s leaders.In this period, in Italy, no relevant fusion has occurred, confirming the reticence of the operators tounite themselves into industrial structures that could compete at a European level.This would be a necessity that is often confirmed by the sector’s information sources and by thecategory’ representatives, but in this moment there are no developments.We agree with this vision, but we have had problems because of the modest appeal of the targets.

9.1.2 FINANCIAL AND ECONOMIC HIGHLIGHTS

A breakdown of sales by business area is provided in the table below:

Total sales of the last accounting period has remain almost the same as 2004.The decrease in the graphic sector (particularly in the labels sector bound to the promotional field)was counterbalanced by the significative increase (+38%) of the Web-Services offered by Mediat-tiva that, anyway, still represents a limited part of the Group activity.

NET SALES 2005 % 2004 %(Million Euro)- Graphic products 33.65 96% 34.02 97%- Web agency services 1.54 4% 1.12 3%Sales 35.19 100% 35.14 100%(abroad) (2.75) (3.48)


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Below are economic highlights for the Group:

As a consequence of a significative reorganization of the Sales-net and of the agency relationships,the service costs got an extraordinary and unrepeatable impact of about euro 0.80 million. Suchbigger contributions have been partially counterbalanced by significative savings obtained in thetransport and other services costs.Employees are less than in the previous accounting period, as a consequence of the strategies forthe increase of efficiency and of the new technological automations.Gross operative result with the same business volume of last year shows preliminary expectationsfor a positive marginality recovery.

9.1.3 INVESTMENTS During the accounting period the investments regarded immaterial activities for about Euro 0.11million and various material immobilizations for about Euro 0.70 million. This is almost totally re-ferred to acquisitions in financial tenancy.

9.1.4 RESEARCH AND DEVELOPMENT ACTIVITIES

During the accounting year many resources were dedicated to develop new solutions destined tothe promotion market, and for the request of new patents.The realization of unusual products, capable of capturing the attention of the consumers, is todaythe most promising developing way.Our structure and experience allow us to compete in a European standard with good results.Such productions are still inaccessible to be most “economical” countries.The versatility of our equipments allow us to face a good deal of these conditions without furtherinvestments.

9.1.5 PERSONNEL The table below indicates the Group personnel as at year’s end:

CONSOLIDATED INCOME STATEMENT (million Euro) 31/12/05 31/12/04

Sales 35,19 35,14Other operating income and revenues 0,65 0,54Total operating revenues and income 35,84 35,68Materials and change in inventory 8,90 8,96Services 13,53 13,20Payroll costs 8,42 8,69Other net operating costs (revenues) 2,06 1,92Total operating costs 32,91 32,77EBITDA 2,93 2,91Depreciation, amortization and gain/loss on non current disposal

(3,43) (3,10)

EBIT (0,50) (0,19)Financial net income (cost) (0,30) (0,37)Income before tax (0,80) (0,56)Income taxes (0,21) (0,22)Net result for the period (1,01) (0,78)

31/12/05 31/12/04Managers 4 3Clerical employees 65 72Manual workers 190 208Total 259 283


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9.1.6 CONSOLIDATED NET FINANCIAL POSITION

The significative contributions coming from two parts of social capital increase (for a countervalueof Euro 5.02 million) that were accomplished in the accounting period, have reduced to zero thefinancial debit and increased the already positive relationship between the own means and thethird ones, as reported here below.

The table below provides a breakdown of the consolidated balance sheet structure

9.1.7 RELATED PARTIES The Group carried out no significant transactions with related parties.

9.1.8 ECONOMIC HIGHLIGHTS OF GROUP COMPANIES

Poligrafica S. Faustino S.p.a. (holding)

The Group’s sales show an increase of 0.5% in comparison with last accounting period and arenow about Euro 30.15 million.Through the growth of the alternative communication systems, the graphic products on paper sup-port has registered a decrease in particular in the promotional sector.

Euro/mln 2005 2004

Cash and banks 7.27 3.08Short term bank and leasing loans (2.86) (3.59)Total A) 4.41 (0.51)Medium-long term bank and leasing loans (4.52) (6.46)Total B) (4.52) (6.46)

Net financial position (A+B) (0.11) (6.97)

CONSOLIDATED 31-dec-05 31-dec-04 ChangeEuro/mln Euro/mln Euro/mln

A) Net current assetsTrade receivables 12.84 12.87 (0.03)Inventory 3.82 4.31 (0.49)Other current assets 0.94 0.71 0.23Trade payables (6.22) (5.96) (0.26)Other current liabilities (1.97) (2.08) 0.11A) Total net current assets 9.41 9.85 (0.44)B) Net fixed assetsIntangible assets 1.75 2.00 (0.25)Tangible assets 12.68 15.11 (2.43)Financial investments 0.00 0.00 0Other non-current assets 0.51 0.44 0.07B) Total net fixed assets 14.94 17.55 (2.61)C) Medium and long term liabilities 2.84 3.05 (0.21)D) Invested capital (A+B-C) 21.51 24.35 (2.84)Covered by::E) Net financial debtShort term loans 2.86 3.59 (0.73)Cash and banks (7.27) (3.08) (4.19)Medium/long term debt 4.52 6.46 (1.94)E) Net financial debt 0.11 6.97 (6.86)F) EquityCapital stock 6.00 5.22 0.78Reserves 14.86 11.63 3.23

20.86 16.85 4.01Minority interest 0.54 0.53 0.01F) Total Equity 21.40 17.38 4.02G) Total coverage (E+F) 21.51 24.35 (2.84)


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In order to overcome these sectorial dynamics and considering the difficulties arising from the in-creasing competition aggression, Poligrafica S.Faustino decided to speed up the investments andthe structure reorganization in order to gain productive efficiencies and the automation of the pro-cesses.In particular, some internal and external functions have been revisited: on one hand they determi-ned the centralization in Poligrafica San Faustino of all the graphic activities (previously developedby Laser5 Srl now on liquidity), and on the other hand they made it necessary to drop the numberof productive and commercial employees through the modifications of the contractual conditionsdecided with the agents.The accounting year report has registered the impact of the above mentioned reorganization(about Euro 0.80 million) and of further Euro 0.43 million that came from the devaluation of thesharing of the controlled Laer5 Srl now on liquidity.The result before taxes is negative for Euro 1.07 million after ammotizations for Euro 1.02 million.Such results are referred to an accounting period report following the Italian account principles.The impact of the new contact rules according to the IAS following the financial methods is abso-lutely to be valued. This would imply an increase of the net burdens for about Euro 0.42 million(before taxes)

Subsidiary companies

Here below we are summarysing the accounting period’s activity of the controlled companiesLaser5 Srl on liquidity (100%), BB Srl (100%), Mediattiva Srl (65%) and Litografia Spada Srl (51%):

Laser 5 S.r.l. on liquidity The characteristic activity of Laser 5 Srl (controlled for 100%) includes graphic and web services,printing and designs for digital photography and virtual catalogues.On the 15th of December 2005, consequently to the complete personnel transfer to Poligrafica SanFaustino on the 1st December 2005, Laser5 Srl, its activity being completely effectuated towardsthe Group, was set on liquidity. Considering the substantial fulfilment of the liquidity on the 31st ofDecember 2005, it has been decided to fund with the integral methods the data of the accountingyear report in comparison with the previous year’s.The activity accomplished during 11 months produced the following economic elements:Sales (internal of the group) Euro 2.21 millionPersonnel cost Euro 1.27 millionNet result euro 0.03 millionIt is also to point out that the employees, the assets and the residual activities and passivities aretotally on collected by The Group by the end of the accounting period through internal transfersand/or clearings. The adjustments to level the accounting period elements to the ias are absolutelyirrelevant.

BB S.r.l. BB S.r.l. invested in the Cantoalto project that is used today in the managing processes of oligraficaS. Faustino. The revenues of BB (equal to Euro 240 thousand) are exclusively bound to the use ofthe platform by the Group. The managing costs are the result of amortizations and financial char-ges. The profit and loss account closed with a net profit equal to Euro 49 thousand by the 31st ofDecember 2005.The adjustments to level the accounting year report of the IAS are absolutely irrelevant.


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Mediattiva S.r.l. Mediattiva Srl is the Web Agency of Poligrafica S.Faustino Spa. It is a high specialized company forInternet based solutions. The core activity of Mediattiva is the “e-business strategy, design and de-velopment”The company is owned for the 65% by Poligrafica San Faustino, 26% Brescia On Line Srl and forthe remaining 9% by the management. The accounting year at the 31st December 2005 pointedout a net return of Euro 30 thousand (in comparison with a net loss of Euro 21 Thousand in 2004),after taxes for Euro 75 thousand.Total sales were equal to Euro 1,674 thousand, with an increase of 21% in comparison with 2004(1,389).Sales include services for the Group for Euro 132 thousand, with a decrease in comparison withthe date of the previous accounting period (Euro 269 thousand).The adjustments to level the accounting year report of the IAS are absolutely irrelevant.

Litografia Spada S.r.l. Litografia Spada is specialized in the production of prestigious labels for wine, liquors and otherbeverages. The quote of 51% was bought by Poligrafica S.Faustino S.p.A. with a notary’s act onthe 17th of April 2003.

Sales are Euro 6.15 million and show an increase of 42% in comparison with the previous accoun-ting period, in particular thanks to some orders of the big distribution sector. Such increase, to-gether with some savings on the consumptions and on the personnel costs, allowed to reach aneconomical balance . The result before taxes is positive for about Euro 66 thousand (it was negativeof Euro 156 thousand by the end of 2004). The net result shows a modest loss (Euro 18 thousand)after taxes for Euro 84 thousand.The adjustments to level the accounting year report of the IAS are absolutely irrelevant, except forthe leasing rates according to the finacial methods that would imply bigger net honoraries on theprofit and loss report.

9.1.9 SUBSEQUENT EVENTS On the 3rd of February 2006 the Board of directors of the Group decided to offer Société Généraleto subscribe the sixth part of the new shares coming from the capital increase decided on the 13thof July 2004 (according to the agreements of the 9th of July 2004). On 22nd of February 2006 theaccomplishment of the operation of the capital increase has been announced.In the months following the closing of the accounting period, no important events have happened.

9.1.10 FORESEEABLE BUSINESS DEVELOPMENT

The accomplished restoration in the previous accounting year should allow to get a marginality re-coil.The patents acceptance will drive the future investments.The research activity and analysis to growth through external ways goes on, but it is impossible tomake previsions so far.

On behalf of the Board of Directors

The ChairmanALBERTO FRIGOLI


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9.2 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET 31/12/05 31/12/04

Euro (.000)

NON CURRENT ASSETSTangible fixed assets 12,683 15,113Intangible assets 1,750 2,000Equity investments 1 1Non-current receivables 39 38Deferred tax assets (prepaid taxes) 469 404Total non current assets 14,942 17,556

CURRENT ASSETSInventories 3,818 4,312Trade receivables 12,844 12,870Tax receivables 126 6Other current receivables 809 691Current financial assets 0 0Cash and banks 7,273 3,085Total current assets 24,870 20,964

TOTAL ASSETS 39,812 38,520

NET EQUITY AND LIABILITIES

NET EQUITYShare capital 5,998 5,224Other reserves 14,443 10,197Retained earnings 422 1,428Total equity attributable to Holding Company 20,863 16,849Minority interests 534 526Total Net Equity 21,397 17,375

NON-CURRENT LIABILITIESLoans 4,524 6,460Employee severance indemnity and retirement reserves

2,358 2,364

Reserves for risks and contingencies 0 0Deferred tax liabilities 477 690Other non-current liabilities 0 0Total non-current liabilities 7,359 9,514

CURRENT LIABILITIESLoans 2,857 3,594Trade payables 6,224 5,955Tax payables 656 571Other payables 1,319 1,511Total current liabilities 11,056 11,631

TOTAL NET EQUITY AND LIABILITIES 39,812 38,520


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CONSOLIDATED INCOME STATEMENT Euro (.000) 31/12/2005 31/12/2004

OPERATING REVENUESSales 35,190 35,140Other operating income and revenues 651 536Total operating revenues and income 35,841 35,676

OPERATING COSTSMaterials 8,401 9,111Change in inventory 494 (153)Services 13,533 13,203Payroll costs 8,419 8,689(less) Costs for capitalised in-house work (63) (276)Other net operating costs (revenues) 2,123 2,193Total operating costs 32,907 32,767

EBITDA 2,934 2,909

Depreciation and amortisation (-) (3,437) (3,356)Capital gains (losses) on disposal of non current 0 254Write-downs/write backs of non current assets 0 0

EBIT (503) (193)

Financial income 68 15Financial expenses (365) (382)

BEFORE TAX RESULT (800) (560)Income taxes (206) (219)NET RESULT FOR THE PERIOD (1,006) (779)NET RESULT FOR MINORITY 3 (99)NET RESULT FOR GROUP INTEREST (1,009) (680)


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CONSOLIDATED CASH FLOW STATEMENT

(Euro/’000) 2005 2004

A) OPENING NET SHORT TERM DEBT (509) (2,261)

B) Operating cash flowNet result for the period (minority included) (1,006) (779)Depreciation and amortisation- of intangible assets 357 393- of tangible fixed assets 3,080 2,963Net book value on disposal of fixed assets 48 154Change in deferred tax assets and liabilities (278) (219)Change in other non current liabilities (6) 186Cash flow from operating activities before changes in current assets and liabilities

2,195 2,698

(Increase) Decrease of trade receivables 26 (810)(Increase) Decrease of inventories 494 (153)(Decrease) Increase of trade payables 269 (154)Other non current items’ changes (345) (85)

Total operating cash flow (B) 2,639 1,496

Intangible assets (107) (643)Tangible assets (698) (5,310)Other investments (1) 241

Cash flow used for investments (C) (806) (5,712) D) Cash flows from financing activitiesChange in medium/long term loans, net (1,936) 1,614Dividends and other change in equity 5,020 4,169Other changes 8 185

Net cash flow from financing activities (D) 3,092 5,968

E) TOTAL CASH FLOW FOR THE PERIOD (B + C + D) 4,925 1,752

F) Net short term financial position (debt) at end of year

4,416 (509)

Detailed short term financial position 31/12/05 31/12/04

Cash and banks 7,273 3,085Short term loans from banks (1,185) (1,888)Short term loans from lease companies (1,672) (1,706)

4,416 (509)


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TABLE OF EQUITY MOVEMENTS


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9.3

9.3.1 PRELIMINARY STATEMENTS The 2005 consolidated accounting period report has been made following for the first time the In-ternational Financial Reporting Standards (IFRS) issued by the International Accounting StandardsBoard (IASB). The reference to the IFRS include also all the present International Accouning Stan-dards (IAS). This was issued in thousands of Euro and was compared with the consolidated dataof the previous accounting period that were collected with an homogeneity of principles. It is for-med by the balance sheet, the profit and loss account, the statement of sources and application offunds, variations of shareholder’s equity sheet and the comment notes.The consolidated profit and loss account was issued according to the principle of the historic costexept for some revaluations of the material fixed assets in the previous accounting periods.The Group decided to issue the profit and loss sheet at the 31st of December 2005 using the na-tional accounting principles and so the present document is “partially in accordance with the IFRSprinciples” as far as the profit and loss document is concerned.

First application of the international accounting principles

As integration and fulfilment of what has already been described in the periodical relations (30thof June 2005 and 30th September 2005), the reconciliation sheet of the dates according the Italianand International accounting principles at the 31st December 2004 is reported in one paragraph.In this the explicative notes for the illustration of the most important differences are exposed.The utilized data for the consolidation are taken from the profit and loss accounting documents bythe administrators of single controlled companies. Such dates are properly modified and classified,if necessary, to uniform them to the Italian accounting principles and to the classification criteriain the Group.

9.3.2 BASIS OF CONSOLIDATION AND GROUP COMPANIES Consolidation area is unvaried and includes the following companies:

Poligrafica S. Faustino S.p.A., the parent (holding) company, whose production can be divided into2 typologies belonging to graphic sector: Self-adhesive labelsPrinted forms and other graphic innovative productsProduction integrations, common departments, together with the fact that products are realizedonly on order, do not allow to divide the business into 2 separate areas.

BB S.r.l. (100%) After the coming into use of B2B Cantoalto platform, BB personnel, already involved in e-commer-ce and marketing activities, has been transferred to the Holding Company starting from January1st 2004. BB receives a fee from the Holding for the use of the platform.

Laser 5 S.r.l.on liquidity from the 15th of December 2005 (100%): in order to reorganize and sem-plify the production, which imply the unification of all the graphic activities previously made by thecontrolled Laser 5 Srl into the Group, all the employees and remaining activities and passivities ofLaser 5 Srl were absorbed by the Group by the end of the accounting year. The society on liquida-tion is kept in the integral consolidation area, in order to make the dates conform.Mediattiva S.r.l.(65%): specialized in Internet communication and software development. It dealswith archives and database, advertising and promotional activity through the Internet and Intranet,with development of services tied to the use of information systems and computer nets.

Litografia Spada S.r.l.(51%): specialized in production of prestige paper labels and headquarte-red in Venaria (To).


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Company name

There are no other subsidiary or associated companies out of consolidation area.

BASIS OF CONSOLIDATION The main consolidation criteria adopted in the preparation of consolidated financial statements arelisted below:The carrying value of investments is deleted against the related shareholders’ equity, and assetsand liabilities of subsidiaries are consolidated on a line by line basis. Positive or negative differen-ces resulting from said elimination are valued and charged to assets, liabilities and/or sharehol-ders’ equity depending on the specific element that originated said differences.Minority shareholders’ interests in equity or net income, if any, are classified separately, under“minority reserves” and “minority result”.

Intercompany payables and receivables as well as income and expenses relating to the companiesincluded in consolidation (on a line by line basis) are deleted. In particular, income or loss, if signi-ficant, resulting from intercompany transactions with third parties that has not been realized yet,is deleted.

Segment information A segment is a distinctly identifiable part of a Group which supplies a combination of related pro-ducts and services (business segment) or supplies products and service in a specific economicarea (geographical segment). The PSF Group substantially operates in just one business segments(personalized graphic products), except for the web agency activity performed by Mediattiva whi-ch, however, is not relevant (less than 5%) compared with total Group activity. Similarly the marketbusiness area involves Euro area with local market absolute priority. Consequently, the segmentinformation envisaged by IAS No. 14 is not provided.

ACCOUNTING PRINCIPLES

Accounting tables and schemes Consolidated balance-sheet includes the minimum content required by international accountingstandards which consists of the distinction in current and non current assets and liabilities, basedon the expectation to be realized within or after twelve months from the balance sheet date.Income statement is based on the structure by nature.

The main accounting principles applied in the preparation of quarterly report are summarized herebelow:

Holding Company Registered Office Capital Stock

Poligrafica S. Faustino S.p.A. Castrezzato Euro 5,997,762.12

Subsidiaries (full consolidation) Registered Office Capital Stock ControlB.B. S.r.l. Castrezzato Euro 10,000 100% DirectLaser 5 S.r.l. on liquidity Castrezzato Euro 10,500 100% DirectMediattiva S.r.l. Castrezzato Euro 78,000 65% DirectLitografia Spada S.r.l. Venaria (TO) Euro 125,000 51% Direct


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Property, plant and equipment They are stated at cost or revaluated cost (deemed cost) net of accumulated depreciation (exceptfor land which is not depreciated). The cost of purchase or production includes additional chargesand the direct and indirect production costs. Building cost includes a revaluation undertaken in thepast based on a specific monetary revaluation regulation. Anyway, the revaluated cost does notexceed the market value of buildings.Depreciation of tangible assets is computed on a straight line basis set on the residual useful lifeof assets and their impairment. A review is periodically carried out to assess impairment of assets.Tangible assets include an amount (not significant) related to implementation cost of leased buil-ding, depreciated on a straight line basis set on the residual time of lease contract.

Leased assets Fixed assets acquired via finance lease contracts are accounted for using the financial method andare shown among assets at purchased value less depreciation applying the same policy followedfor owned tangible assets. Set against this the amounts payable to the financial lessor are postedamong short- and medium/long-term payables. In addition the portion of interest relating to theperiod is posted among financial expenses.

Goodwill Goodwill is the difference between the purchase price and fair value of subsidiaries’ identifiableassets and liabilities on the date of acquisition.As regards acquisitions completed prior to the date of IFRS adoption, PSF decided for not applyingIFRS No. 3 (concerning business combination) and consequently goodwill emerging in relation topast acquisition has not been recalculated following the option provided by IFRS No.1. Thereforegoodwill has been posted in accordance with Italian GAAP net of amortisation posted as up to De-cember 31st 2003 and net of any losses due to a permanent reduction in value.As from transition date, goodwill is not amortized – since it is an intangible asset with an indefiniteuseful life- but it is periodically subject to impairment test to check for any reduction in value.

Other intangible assets According to IAS No. 38, other intangible assets, acquired or internally produced, are booked onlyif it is probable that the use of asset will generate future economic benefits and when the assetcost can be measured reliably.In particular other intangible assets include development cost of Cantoalto platform, used for thee-commerce and productive procedures concerning personalized graphic products.Booked costs are amortized on a straight line basis and set on their estimated useful life and/orfuture use.

Impairment of asset value With reference to tangible and intangible assets, at each balance-sheet date the Group performsan impairment test in order to verify the existence of impairment losses; when the booked valueexceeds the recoverable amount the impairment losses are charged to the income statement ofthe period.

Types Useful life(min-max years)

Buildings 10-33Plants and machineries 4-10Other fixtures and fittings, tools and equipment 4-5Other 4-8


23

Investments and other non current assets Investments in not relevant companies are stated at purchase cost, adjusted, when needed, to re-flect impairment, if any. Debt securities are valued at their realizable value.

Inventories Inventories are stated at the lower of market value and purchase or production cost. The individualitems of inventory, to which different valuation methods have been applied, are valued at cost, cal-culated using the weighted average cost method.

Receivables Receivables are stated for the value expected to be collected.

Current financial assets Financial assets not held on a permanent basis are carried at the higher of purchase cost and theamount expected to be received upon sale of the same (“fair value” based on market prices). Dif-ferences arising from value market comparison are charged to income statement.

Reserves for risks and contingencies Reserves for risks and contingencies are provisioned to cover losses and debts, the existence ofwhich is certain or probable, but whose amount or date of occurrence cannot be determined at theend of the accounting period. Provisions are recognised in the balance-sheet only when a legal orconstructive

Employee severance indemnity The employee severance indemnity represents the amounts accrued by staff pursuant to the pro-visions of legal provisions and current labour contracts, net of any advance payments, if any. Re-garding the evaluation of this liability there are no unequivocal indications from national technicalCommittees; consequently we resolved to maintain the accounted provisions, without applying theactuarial basis also considering non significant the eventual impact of actualisation.

Payables Payables are stated at their face value.

Loans Loans are initially recognised at cost, net of related cost of acquisition. This value is adjusted toallow for any difference between initial cost and repayment value.

Revenue recognition Revenues are posted net of return sales, discounts, allowances and bonuses, as well as of the ta-xes and duties directly associated with sale of goods and rendering of services.Sales revenues are recognised when the company has transferred the significant risks and rewar-ds associated with ownership of the goods.

Income taxes Provisions for tax liabilities are determined based on analytical calculations of taxes payable in thecurrent financial year by individual companies in compliance with current tax legislation. In addi-tion, should there be any temporary un-deductible income and expenses, booked on a accrual ba-sis, the related prepaid/deferred taxes are posted to the income statement. Deferred tax assets


24

arising from fiscal loss are included when e recognize the future recoverability. Similarly deferredand prepaid tax arising from consolidation and IFRS adjustments are posted to the income state-ment too.

9.3.3 NOTES TO CONSOLIDATED BALANCE SHEET

(DATES IN THOUSANDS EURO)

NON CURRENT ASSETS

- Tangible fixed assets

Balance at 31/12/05 12,683Balance at 31/12/04 15,113

Difference (2,430)

LandsHistorical Cost 1,018Revaluation 0Devaluation 0Net book value at 31/12/04 1,018Increase 0Disposals 0Net book value at 31/12/05 1,018

BuildingsCost (413/91revaluation included for 249 thousand euro) 5,344Accumulated depreciation (1,230)Net book value at 31/12/04 4,114Increase 0Disposals 0Depreciation of the year (160)Net book value at 31/12/05 3,954

Plants and machineryHistorical Cost 18,303Accumulated depreciation (9,030)Net book value at 31/12/04 9,273Increase 492Net disposal (45)Depreciation of the year (2,610)Net book value at 31/12/05 7,110


25

- Intangible assets

Originary starting costs are Euro 940 thousand (now reduced to Euro 846 thousand) for the acqui-sition of Litografia Spada Srl in 2003 and Euro 395 thousand were for the acquisition of one partof BOL (“Brescia On Line”) Business made in October 2004.The development costs comprehend the costs for the construction and implementation of infor-matic platform of e-commerce used also for the production management of the graphic supports.

Other fixtures, fittings, tools and equipmentHistorical Cost 1,666RevaluationAccumulated depreciation (1,365)DevaluationNet book value at 31/12/04 301Increase 137Disposals -Depreciation of the year (146)Net book value at 31/12/05 292

Other tangible assetsHistorical Cost 2,232RevaluationAccumulated depreciation (1,918)DevaluationNet book value at 31/12/04 314Increase 57Disposals (3)Depreciation of the year (143)Net book value at 31/12/05 225

Impovements on third account’s structuresCost 128Accumulated depreciation (35)Net book value at 31/12/04 93Increase 12Disposals -Depreciation of the year (21)Net book value at 31/12/05 84


Difference (250)

Description Value at Increase Amortization Other Value at31/12/04 Changes (*) 31/12/05

Goodwill 1,241 1,241Development costs 567 18 (208) 377Software 192 89 (149) 132

2,000 107 (357) 0 1,750


26

- Sharings and other non current credits.

Equity investments in other companies relate to small interests in the consortia Conai Corepla eComieco. The credits towards the others are made by cautional deposits for suppliers.

-Deferred tax assets

The credits for taxes anticipated and/or active postponements had the following modifications:

Sales at the 31st of December 2005 is made by anticipated taxes and/or active postponed on:

COURRENT ASSETS

Inventory

The “Raw materials and consumables” item includes various types of papers, inks, plates and lessimportant consumables.The “Finished goods and goods for resale” item includes articles in-house produced as well asother resale goods such as easy reading forms and other limited size goods.

Financial investments 31/12/05 31/12/04Equity investments in other companies 1 1Other receivables 39 38

40 39

Balance at 31/12/05 469Balance at 31/12/04 404

Difference 65

Description Euro- on fiscal loss 332- temporary differences 72Anticipated/postponed active taxes at 31st December 2004. 404- Return on elements of the previous accounting period. (21)- Return on imported fiscal loss. (109)- on 2005 temporary differences 22- on 2005 fiscal loss 173Deferred tax assets at 01.01.05 469

- on fiscal losses 370- on temporary differences 99Total as at 31/12/05 469

Inventory 31/12/05 31/12/04- raw materials and consumables 1,876 2,136- work in progress 1,100 1,309- finished goods and goods for resale 842 867

3,818 4,312


27

The “Work in progress” item includes goods in the process of being produced as at 31st Decem-ber, which are valued at production cost.The diminishing of all typologies in stock is the consequence of the productive and managing re-organization of the stocks that concerned in a hiher level the Group.

Accounts receivables

- Receivable from the administration

Details of receivable from the administration:

- Other courrent receivables


Difference (26)

Description 31/12/05 31/12/04Trade receivables:Italy 12,192 12,331CEE Area 694 628Outside CEE Area 57 42(minus) Devaluation Credit funds (99) (131)

Total 12,844 12,870


Difference 120

Receivable from the administration 31/12/05 31/12/04Inland revenue c/rit. 16 0VAT receivable 87 6Irpeg-Irap receivable 23 0

126 6


Difference 118


28

Details of “other receivables”:

The increase of the credits is mostly referred to credits for indemnities to be obtained for Euro 270thousand.

Details of prepayments and accrued income:

- Current financial activities The group has no financial activities that are not fixed assets.

Cash at bank and in hand

The balance represents cash on hand and at banks and similar items as at 31st December 2005.The change of cash/bank balances is adequately explained in the consolidated cash - flow state-ment.

EQUITY

Composition 31/12/05 31/12/04Advance payments made to suppliers 1 26Various credits 667 396Rates and deferred assets. 141 269

809 691

Description 31/12/05 31/12/04Re-discount on the rentals 4 18Financial prepaid costs 59 170Other 78 81

141 269

Description 31/12/05 31/12/04- Bank and postal current account 7,269 3,078- Bank and postal current account 4 7

7,273 3,085


Difference 4,022


29

The elements that determine the Shareholder’s equity may be so listed:

B.o.D of Poligrafica S. Faustino S.p.A. has approved in July 13th 2004 a capital increase reservedto Société Générale for Euro 10,000,000 maximum exchange value to be completed in differenttraches by 24 months from the approval date. The operations of capital increase acted as follows:

For further information please see the sheet about the variations of net shareholder’s equity.

Result for share

Details of resul for share calculated dividing Group’s net result by number of issued shares, in con-sideration of capital increase:

Equity 31/12/05 31/12/04

Capital stock 5,998 5,224

Share premium account 14,202 9,956Revaluation reserve 241 241

Reserves 14,443 10,197

Legal reserve 175 175Other reserves 1,287 1,405

Transition reserve IFRS 887 1,244Retained earnings (918) (716)

Profit (loss) for the financial period (1,009) (680)Profits (loss) accumulated 422 1,428

Totale group equity 20,863 16,849

Capital and reserves of third parties 531 625Pedriod Profit (loss) of third parties 3 (99)

Minorities interests 534 526Totale group equity 21,397 17,375

Date N° of issued shares Capital Stock Share premiumaccount Total amount

02/09/2004 50,000 258,000 1,681,000 1,939,00008/10/2004 12,357 63,762 415,442 479,20426/11/2004 50,000 258,000 1,492,000 1,750,000Total 2004 112,357 579,762 3,588,442 4,168,204

10/06/2005 50,000 258,000 1,311,000 1,569,00030/09/2005 100,000 516,000 2,935,000 3,451,000Total 2005 150,000 774,000 4,246,000 5,020,000

TOTAL 262,357 1,353,762 7,834,442 9,188,204


30

NON-CURRENT PASSIVITIES

-Fundings

Amounts owed to banks and payable after more than twelve months are made up of the following:

- loan granted in 2002 by the bank S.Paolo IMI; original amount: Euro 300,000; outstandingamount after financial year 2006: Euro 66,777; final repayment: October 2007;- loan granted in 2003 by the bank S.Paolo IMI; original amount: Euro 500,000; outstandingamount after financial year 2006: Euro 138,470; final repayment: January 2008;- loan granted in 2003 by the bank S.Paolo IMI; original amount: Euro 200,000; outstandingamount after financial year 2006: Euro 55,393; final repayment: March 2008;- loan granted in 2003 by the bank Banca Regionale Europea; original amount: Euro 1,500,000;outstanding amount after financial year 2006: Euro 796,641. Final repayment: April 2010No amounts owed to banks are secured.Concerning the financial contacts on equipments and machineries, the Group has 21 contracts 4of which were signed during 2005 for a new debt of Euro 237 thousand.

- Employee severance indemnity quiescence funds

Profit (loss) for share 2005 2004

Total ordinary shares 1,162,357 1,012,357Totale preference share 0 0

Mean number ordinary shares 1,053,179 909,031Mean number preference shares 0 0

Net result Euro/000 (1,009) (680)

Profit (loss) for shareEuro (0.9581) (0.7480)


Difference (1,936)

Description 31/12/05 31/12/04- Owed to banks - Medium long term loans 1,057 1,516- Debts towards soc.Leasing M/L 3,467 4,944

4,524 6,460


Difference (6)

Description Balance at Decrease Provision Balance at31/12/04 31/12/05

Employee severance indemnity 2,317 (474) 468 2,311Agents’ termination indemnity 47 - - 47

2,364 (474) 468 2,358


31

- Postponed passivity taxes

Postponed passivity taxes are composed for Euro 165 thousand by fiscal postponed effects on thefiscal operations already made in the previous accounting period (Euro 173 thousand – diminishedof euro 8 thousand as a consequence of the partial return in the accounting period), to whom thepostponed fiscal effects that originate from the funding structures and by the application of diffe-rent accounting principles following the IAS. The most important component is to be referred to theretretment accordino to the financial methods of the contracts of leasing that produces each yearan effect of mopping up on the profit and loss account.

CURRENT PASSIVITIES

- Financing

The debts towards the banks within 12 months represent the passive exposures of account numerof the Group’s companies for about Euro 459 thousand. The remaining quote in brief term, for Euro726 thousand in total, of the loans signed by the Group (Euro 425 thousand) and of the controlledLitografia Spada (Euro 301 thousand). For further considerations you can see what has been re-ported about the financings between non-current passivities.

- Commercial debts


Difference (213)


Difference (737)

Description 31/12/05 31/12/04- Owed to banks - short term loans 1,185 1,888- Debts towards Leasing company in brief term 1,672 1,706

2,857 3,594


Difference 269

Description 31/12/05 31/12/04

Trade payables:Italy 5,117 5,098CEE Area 595 440Area Extra-CEE 6 12Towards clients of goods to deliver in different 506 405

Total 6,224 5,955


32

- Debts for taxes

- Other current passivities

Debts towards the others are almost totally formed by debts towards the employees for salaries topay, holidays and fees for the administrators and others.

9.3.4 NOTES TO CONSOLIDATED INCOME STATEMENT

OPERATING REVENUES

Total sales of the accounting period didn’t change significantly in comparison with the year 2004.


Difference 85

Description 31/12/05 31/12/04IRPEF (personal income tax) 585 482VAT - 64IRES-IRAP (corporate income taxes) 71 25

656 571


Difference (192)

Description 31/12/05 31/12/04Owed to social institutes 501 535Other payables 764 893Accruals and deferred income 54 83

1,319 1,511

2005 Accounting period 35,8412004 Accounting period 35,676

Difference +0.5%

Operating revenues 2005 % 2004 %

- Graphic products 33,648 96% 34,019 97%- Web agency services 1,542 4% 1,121 3%

Revenues on sales and performance. 35,190 35,140 100%

- Other revenues and proceeds 637 514- Regional txes in trading account 14 22Other revenues and proceeds 651 536Total revenues and operative proceeds 35,841 35,676


33

The dip of the graphic sector (more precisely, the promotional sector) was counteballanced by thesignificant increase (+38%) of the web services offered by Mediattiva that, anyway, represent astill limited part of the Group activities.Sales on the foreign market (Euro area) are 8% of all sales in 2005 and are Euro 2,754 thousand(it was Euro 3,480 thousand in the previous accounting period).

“Other revenues and proceeds” are made by financial compensations (Euro 270 thousand), ordi-nary capital gains from alienation of assets (Euro 250 thousand), aquirements bonus (Euro 50thousand) and various repayments (Euro 67 thousand).

OPERATIVE COSTS

Raw materials are made up of various types of papers (5,282 thousand Euro), inks, chemical pro-ducts and adhesive (839 thousand Euro). Consumables and goods for sale equal 2,057 thousandEuro. The purchases of other materials, components, hardware and software (purchased for sub-sequent sale) amounted to 223 thousand Euro.

The most significant variation regarded the commissions and other commercial costs. The wholeincreasingly component of the commercial costs has a peculiar feature as it is correlated to a si-gnificative reorganization of the sales structure and of the agency relationships that determinedmajor non refundable costs for about Euro 760 thousand. The significative sparings obtained bythe transports and remaining cost (“other costs”).

2005 Accounting year 32,9072004 Accounting year 32,767

Difference +0.4%

Acquisitions and remainders variations 2005 2004

Acquisitions of raw mateials, consumable storse and goods.

8,401 9,111

Variation of the remainders. 494 (153)8,895 8,958

Incidence on the sales 25.3% 25.5%

Services 2005 2004

Outsourced production 4,018 4,063Motive power 389 370Transports 746 885Postal charges and services 1,903 1,779Sales commissions 4,336 3,788Consultant fees 1,042 1,004Utilities 118 111Other costs 981 1,203Total 13,533 13,203

Incidence on the sales 38.5% 37.6%


34

As highlighted in the schedule detailing the company’s workforce, the average number of indivi-duals employed during the financial year under review was lower than the average recorded theprevious year towards a new internal reorganization activity aimed to the recovery of efficiency,considering the incidence of new technological automations.The item is made up of all staff costs, including social charges, the cost of unused holiday allowan-ces, additional bonuses and the allowances provided for by law and collective agreements.

Immobilizations for internal workings are decreasing and comprehend capitalized costs as resultof the implementation of the accounting and managing softwares used by the group.

Rent costs referred for 78 thousand Euro to the cost of a leased industrial building in Venaria (To)and for 116 thousand Euro to the hiring of typesetting equipment and vehicles.

EBITDA

Personnel costs 2005 2004

Wages and salaries 6,007 6,193Social security costs 1,938 2,019Provision for severance indemnity 468 473Other costs 6 4Total 8,419 8,689Variation % (3.1%)Sales Incidence 23.9% 24.3%

Staff numbers 31/12/05 Average 31/12/04 Average

Staff 4 4 3 4Managers 65 66 72 66Employees 190 197 208 205Total 259 267 283 275

Costs for capitalizing internal workings 2005 2004(to deduce)Total 63 276

Other costs and net operative (proceeds) 2005 2004

Rent costs 194 180Compensations for managers 1,645 1,638Compensations for board of cotrollers 38 36Contingent assets (110) (163)Contingent liability 4 21Other generic expenses 352 481Total 2,123 2,193

2005 2004

Ebitda 2,934 2,909

% on sales 8.33% 8.27%


35

Considering the negative impact deriving from the unrepeatable costs for the reorganization of thecommercial structure, whose impact was pointed out as comment of the services. The gross ope-rative result, at the same business volume as last accounting year’s, gives preliminary guidelineson the positive expectations of marginality recovery. The reduction on the personnel cost and onthe productive costs will have more consistent effects during the next accounting period.

For further considerations on the amortizations, please see what was reported on the prospects ofthe variation of immobilizations.Capital gain of last accounting year was relative to the partial alienation of shares of the controlledMediattiva Srl.

EBIT

The net financial component is important considering the business volume of the Group. The im-provement is a consequence of the liquidity that was reliable through the social increase of capital.

Amortisation, realizations and write-downs/write backs 2005 2004

Amortisation tangible assets (-) (3,080) (2,963)Amortisation tangible assets (-) (357) (393)Capital gains (losses) on disposal of non current assets

0 254

Write-downs/write backs of non current assets 0 0Total (3,437) (3,102)

2005 2004

Ebit (503) (193)

% on sales (1.4%) (0.5%)

Financial income 2005 2004

Bank interests receivable 61 6Other financial income 6 8Exchange gain 1 1

Total 68 15

Financial charges 2005 2004

Bank interests payable (77) (92)Interests on medium long term loans (64) (89)Passive interests on financial leasings. (222) (199)Other financial charges (2) (2)Losses gain - -

Total (365) (382)

NET FINANCIAL INCOME AND CHARGES (297) (367)


36

For further information, please see the details and comments already exposed for the anticipatedtaxes and for postponed taxes.

OTHER DISCLOSURES

Remunerations of Directors and Statutory Auditors

Remunerations (in thousand Euro) paid to the members of the Holding Board of Directors by theGroup Companies:

(a)= compensations for managers(b)= compensations for other N/A= not valid

Remunerations (in thousand Euro) paid by the Group Companies to the members of the StatutoryAudit Committee of the Holding:

Income taxes 2005 2004

IRPEG (146) (5)IRAP (431) (443)Deferred taxes reversal included 371 229

Total (206) (219)

Holding B.B. Laser 5 Mediattiva Lit. SpadaName of Director (a) (a) (a) (a) (a)

Frigoli Alberto 269 0 0 0 0Frigoli Giuseppe 269 0 0 0 10Frigoli Francesco 13 0 245 0 10Frigoli Emilio 269 0 0 0 10Frigoli Giovanni 13 0 245 0 0Carnevale Maffé Carlo Alberto 13 N/A N/A N/A N/APiantoni Alberto 13 N/A N/A N/A N/A

Name of Auditor PSFremuneration

L. Spadaremuneration

Bisesti Umberto 12 3Curone Francesco 8 N/ABisesti Umberto 8 N/A


37

RECONCILIATION TO THE IAS Similarly to what has already been undelined in the third quarter report, here below the reconcilia-tion prospects of the consolidated data by the 31st December 2004 are listed in order to comparethem with the 2005 profit and loss statement. The financial aspects and the profit and loss statement following the required principles ofD.Lgs.127/1991 have been refiled accordino to the presentation criteria that are normally used forprepairing the profit and loss statements IFRS.

CONSOLIDATED BALANCE SHEET 31/12/04 Amendments 31/12/04Euro (.000) Italian P.C. IFRS

NON CURRENT ASSETSTangible fixed assets 6,474 8,639 15,113Intangible assets 2,532 (532) 2,000Equity investments 1 1Non-current receivables 38 38Deferred tax assets (prepaid taxes) 404 404Total non current assets 9,449 8,107 17,556

CURRENT ASSETSInventories 4,312 4,312Trade receivables 12,870 12,870Tax receivables 6 6Other current receivables 909 (218) 691Current financial assets 0 0Cash and banks 3,085 3,085Total current assets 21,182 (218) 20,964

TOTAL ASSETS 30,631 7,889 38,520

NET EQUITY AND LIABILITIESNET EQUITYShare capital 5,224 5,224Other reserves 10,197 10,197Retained earnings 544 884 1,428Total equity attributable to Holding Company 15,965 884 16,849Minority interests 568 (42) 526Total Net Equity 16,533 842 17,375

NON-CURRENT LIABILITIESLoans 1,516 4,944 6,460Employee severance indemnity and retirement reserves 2,364 2,364Reserves for risks and contingencies 0 0Deferred tax liabilities 173 517 690Other non-current liabilities 0 0Total non-current liabilities 4,053 5,461 9,514

CURRENT LIABILITIESLoans 1,888 1,706 3,594Trade payables 6,075 (120) 5,955Tax payables 571 571Other payables 1,511 1,511Total current liabilities 10,045 1,586 11,631

TOTAL NET EQUITY AND LIABILITIES 30,631 7,889 38,520


38

(a)= operative costs in the prospects following the Italian accounting principles include the costsfor other’s goods and in particular the financial leasings. Similarly, extraordinary elements, notbeing considered so according to the IAS, are included to the operative costs and proceeds.(b)= partial capital gain from alienation of one participation.

NOTES TO THE CONSOLIDATED BALANCE SHEET RECONCILIATIONa) Applying the finance method to leases, as required by IAS No. 17, the net book value of tangible

fixed assets acquired by means of leases contracts was booked in the opening net equity pre-pared according to IFRS, adjusted by accumulated depreciation; likely, all the implementationcosts, booked among intangibles for Italian GAAP, were restated into machinery net of relateddepreciation.

b) The division of land value from buildings has determined a write off of building depreciation forthe period and for the previous years.

c) Write off of fiscal items concerned depreciation realized on buildings during previous years inorder to take advantage from relevant fiscal benefit; according to Italian principles the effectswere attributed respectively to contingent assets and contingent liabilities, not to retained ear-nings;

d) Intangible assets were analyzed according to IAS No. 38 and the amounts relating some start-up and expansion costs were written-off; according to IAS 17 the expenses relating financial le-ased plants and machineries were re-allocated to fixed assets;

e) Goodwill arising from mergers may no longer be amortized on a straight-line basis but has to besubjected to an impairment test in order to determine any loss in value. According to IFRS n.3the companies’ aggregations performed before IAS transition are accounted at the same valuesdetermined according to Italian accounting principles

f) Current assets decrease may be referred to the write-off of prepaid leasing expenses, as a con-sequence of financial method application

CONSOLIDATED INCOME STATEMENT Euro (.000) 31/12/04Italian P.C. Amendments 31/12/04

IFRS

OPERATING REVENUESSales 35,140 35,140Other operating income and revenues 536 536Total operating revenues and income 35,676 0 35,676

OPERATING COSTSMaterials 9,111 9,111Change in inventory (153) (153)Services 13,203 13,203Payroll costs 8,689 8,689(less) Costs for capitalised in-house work (276) (276)Other net operating costs (revenues) (a) 3,458 (1,265) 2,193Total operating costs 34,032 (1,265) 32,767

EBITDA 1,644 1,265 2,909

Depreciation and amortisation (-) (1,796) (1,560) (3,356)Capital gains (losses) on disposal of non current assets (b) 254 254Write-downs/write backs of non current assets 0 0

EBIT 102 (295) (193)

Financial income 15 15Financial expenses (182) (200) (382)

BEFORE TAX RESULT (65) (495) (560)Income taxes (341) 122 (219)NET RESULT FOR THE PERIOD (406) (373) (779)NET RESULT FOR MINORITY (87) (12) (99)NET RESULT FOR GROUP INTEREST (319) (361) (680)


39

g) The effect on net equity of the transition to IFRS is composed by the impact as of the date oftransition (January 1st 2004) booked in a net equity reserve net of deferred tax and the differen-ce (before tax) on the result of the period.

h) Applying the financial method to leases, we have to include into the current and non current lia-bilities the financial debt (only capital) due to loans received. Provisions for employee severanceindemnity: regarding the evaluation of this liability there are no unequivocal indications from na-tional technical Committees; depending on the nature of this indemnity, a different result might-be determined. Owing to these uncertainties, together with the high range of estimationconcerning wage, salary and employees’ dynamics we resolved to maintain the accounted pro-visions, also considering non significant the eventual impact of actuarial methodology.

i) The increase of the current liabilities is correlated with the imputation of short run shares of re-siduary debts towards leasing-companies so as redetermined after the application of the finan-cial method.

NOTES TO THE CONSOLIDATED INCOME STATEMENT RECONCILIATIONa) The operating costs decrease arises from the financial method application on lease contracts,

booked on operating costs according to Italian GAAP layoutb) Applying IAS to tangible and intangible assets, depreciation and amortization costs have been

restated and in particular the financial method application on lease contracts caused a signifi-cant increase of depreciation.

c) The financial method application on lease contracts generates an increase of interests.

RECONCILIATION CONSOLIDATED CASH FLOW STATEMENT

(Euro/’000) Italian P.C. 2004 Amend-ments 2004 IFRS

A) OPENING NET SHORT TERM DEBT (1,443) (818) (2,261)B) Operating cash flowNet result for the period (minority included) (406) (373) (779)Net write off of fiscal items (291) 291 -Depreciation and amortisation- of intangible assets 709 (316) 393- of tangible fixed assets 1,087 1,876 2,963Net book value on disposal of fixed assets 154 - 154Change in deferred tax assets and liabilities - (219) (219)Change in other non current liabilities 186 0 186Cash flow from operating activities before changes in current assets 1,439 1,259 2,698

(Increase) Decrease of trade receivables (810) 0 (810)(Increase) Decrease of inventories (153) 0 (153)(Decrease) Increase of trade payables (154) 0 (154)Other non current items’ changes (123) 38 (85)

Total operating cash flow (B) 199 1,297 1,496

Intangible assets (909) 266 (643)Tangible assets (428) (4,882) (5,310)Other investments 241 - 241

Cash flow used for investments (C) (1,096) (4,616) (5,712)D) Cash flows from financing activitiesChange in medium/long term loans, net (777) 2,391 1,614Dividends and other change in equity 4,169 - 4,169Other changes 145 40 185

Net cash flow from financing activities (D) 3,537 2,431 5,968

E) TOTAL CASH FLOW FOR THE PERIOD (B + C + D) 2,640 (888) 1,752

F) Net short term financial position (debt) at end of year 1,197 (1,706) (509)


40

CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP For further information and details about this, please see the reconciliation statement between thecompany’s net assets and the net income, being the results of the situation at the 31st December2005 of the Group (according to Italian Principles) and those emerging from the consolidation con-sidering the amendments for the conformity to IAS.

(*)= for the totality it is about adjusytments of production startings and/or differences already in-serted in the consolidated accounting documents of previous accounting periods.


The ChairmanALBERTO FRIGOLI

Formed by: 31/12/04 Amendments 31/12/04

Available Cash 3,085 0 3,085Brief term debts towards banks (1,888) 0 (1,888)Debts towards leasing societies. - (1,706) (1,706)

1,197 (1,706) (509)

(Euro/000) Period result Shareholder’sequity

Group (according to the Italian principles) (1,148) 20,755

Result of the companies totally integrated 88 88Profits (loss) of previous accounting periods of the companies totally integrated.

- (113)

Cancellation of the evaluation of consolidated partecipations

433 433

Internal profit elimination (158) (158)Other amendments of consolidation of previous accounting periods (*)

- (842)

Reserves for the minority - 568Adjustments effects (221) 666

Consolidated (1,006) 21,397

10. STATUTORY AUDITOR’ S REPORT: CONSOLIDATED FIN. STAT.

41

10STATUTORY AUDITOR’ S REPORT: CONSOLIDATED FIN. STAT.


42

11. INDIPENDENT AUDITOR’S REPORT: CONSOLIDATED FIN. STAT.

43

11INDIPENDENT AUDITOR’S REPORT: CONSOLIDATED FIN. STAT.


44


45

12. REPORT OF THE BOARD OF DIRECTORS

46

12REPORT OF THE BOARD OF DIRECTORS

POLIGRAFICA S. FAUSTINO SPA25030 CASTREZZATO (BS) - Via Valenca 15

Capital Share: Euro 5,997,762.12 (totally paid)Tax code number and number of Brescia Firms’

Register: 01251520175R.E.A. of Brescia: n. 250377

REPORT OF THE BOARD OF DIRECTORSAS AT 31ST DECEMBER 2005


47

12.1 MARKET EVOLUTION AND NEW STRATEGIC FOCUSES

Graphic sector is still static.The productive outsourcing of many important companies determines a shift in the number of or-ders in countries with minor production costs, so as to reduce the dimensions of the local marketand to strengthen the competitors’ competition.The administrative forms have been replaced by electronic distributed information and by the di-gital filing – sectors we are present in thanks to Mediattiva.Label and packaging sectors have reached a modest marginality and a small growth.Promotional sector has given growth signals and is still the sector with the best marginality.This is a sector that requires a huge renewal capability and, in particular with big quantities, thecompetitors are Europeans printers.Promotion activities require new communication strategies, both in the contents and in the forms.This is the only way in which we can captivate the clients’ attention.New products aren’t always compatible with industrial activities, which require repetitiveness.The most complex solutions can be obtained only by strongly specialized companies and Poligra-fica is one of the sector’s leaders.In this period, in Italy, no relevant fusion has occurred, confirming the reticence of the operators tounite themselves into industrial structures that could compete at a European level.This would be a necessity that is often confirmed by the sector’s information sources and by thecategory’ representatives, but in this moment there are no developments.We agree with this vision, but we have had problems because of the modest appeal of the targets.

12.2 COMPANY PERFORMANCE

The graphic projects have registered a recovery of about 5% in the second half-year, closing theaccounting period with a net increase of 0.53%.Such performance is entirely attributable to the gaining of new orders on the internal market, con-sidering the flexure of the sales on the foreign markets (its incidence being equal to 9% in compa-rison with 12% of 2004)

SALES 2005 2004 Variation(Thousand Euro) %Sales 30,150 29,991 0.53%(abroad) (2,716) (3,440) (21.05%)

SALES I sem. 05 I sem. 04 II Sem. 05 II Sem. 04( Thousand Euro)Sales 15,220 15,766 14,930 14,225Variation in comparison with the previous accounting (3.5%) +4.96%


48

Poligrafica S. Faustino S.p.A. financial highlights for the year ended 31st December 2005:

As a consequence of the growth of the alternative informative systems, the paper support pro-ducts has registered a flexion in particular on the promotional sector.In order to face these sector aspects and considering the tensions deriving from the increasingnumber of competitors, Poligrafica San Faustino was forced to strengthen the investments and thestructural reorganization. The aim was to obtain productive efficiencies through the automation ofprocesses and through the technological innovation.In such a context, some important interventions on the productive (personnel) and commercialstructure have been accomplished, which determined non-refundable additional costs of about0.80 million Euro.Some internal and external functions have been revisited. This brought to the concentration of allthe Graphic activities in Poligrafica San Faustino (this being previously developed by Laser 5 S.r.l.)and to the thin out of the commercial and operative personnel by changing the payment conditions.The above mentioned additional costs are essentially to be seen in the increase of the service co-sts, while the personnel costs have received some compensative dynamics.The variations on the gross operative marginality (- Euro 0.49 Million) and on the operative result(- Euro 0.44 million) are the results of such impact.The Result before taxes (negative for Euro 1.07 million) has received a further impact of Euro 0.43million deriving from the devaluation of the participation of Laser5 S.r.l. in liquidation.

12.3 INVESTMENTS During the accounting period of 2005, the company has acquired and implemented its productiveguidelines through direct acquirements (about Euro 0.71 million) and in financial location (Euro0.18 million).Procedure and program costs (about Euro 0.10 million) have been sustained to adjust the companysoftware system.

Poligrafica S. Faustino S.p.A. 31/12/05 31/12/04INCOME STATEMENT Million EuroSales 30.15 29.99Other income and revenues 0.77 0.75Total revenues 30.92 30.74Materials and change in inventory 7.27 7.23Services 15.10 14.45Operating rents 0.07 0.05Other operating expenses 1.16 1.17Total costs and expenses 23.60 22.90Gross profit 7.32 7.84Personnel costs 5.51 5.54EBITDA 1.81 2.30Financial lease costs 1.56 1.20Depreciation and amortization 1.02 1.43EBIT (0.77) (0.33)Net financial income (expenses) 0.03 (0.08)Income before extra, items and tax (0.74) (0.41)Net extraordinary income (expenses) (0.33) 0.52Income before tax (1.07) 0.11Taxes (0.82) (0.23)Profit (loss) for the period (1.15) (0.12


49

12.4 RESEARCH AND DEVELOPMENT ACTIVITIES

During the accounting year many resources were dedicated to develop new solutions destined tothe promotion market, and for the request of new patents.The realization of unusual products, capable of capturing the attention of the consumers, is todaythe most promising developing way.Our structure and experience allow us to compete in a European standard with good results.Such productions are still inaccessible to be most “economical” countries.The versatility of our equipments allow us to face a good deal of these conditions without furtherinvestments.

12.5 PERSONNEL The table below indicates the personnel of the Holding as at year’s end.

On 1st December 2005 the whole personnel of Laser5 S.r.l. (3 office employees and 36 workers)were hired anew.

12.6 NET FINANCIAL POSITION

During the 2005 accounting year the capital increase reserved to the Société Générale (approvedon 13th of July 2004) has eventually increased. This determined the emission of 150,000 new sha-res for about Euro 5.02 million.The effects of these incomes are to be seen in the increase of the reliable liquid on 31st of Decem-ber 2005.

12.7 OWN SHARES The Board’s statement of the 20th of April 2005 has confirmed the authorization to buy shares (un-til a maximum of Euro 3.60 million) that haven’t been the object of any transaction during the ac-counting period.As at 31st December 2005 the company has no own shares.

12.8 RELATED PARTIES Poligrafica San Faustino S.p.A. is characterised by important productive and commercial integra-tions in the field of the graphic realizations.In particular, Poligrafica S.Faustino S.p.a. made the following transactions with other companiesof the group:Litografia Spada S.r.l.: sales for Euro 2,459 thousands. Re-debit of expenses for Euro 5,000 andobtained manufacturing for Euro 188 thousands.Laser5 S.r.l.(on liquidation): re-debit of the common costs for Euro 76,000 and manufacturingobtained through graphic process for Euro 2,208 thousand . Material immobilizations for Euro 300thousand were bought.

31/12/05 31/12/04Managers 4 3Employees 40 41Manual workers 161 131Total 205 175

Euro/Mln 2005 2004

Cash and banks 7.17 3.05Short-term bank loans (0.43) (0.88)Total A) 6.74 2.17Medium long-term bank loans (1.06) (1.48)Total B) (1.06) (1.48)

Net financial position (A+B) 5.68 0.69


50

Mediattiva S.r.l.: re-debit of common costs for about Euro 108 thousand, obtained manufacturingand services for Euro 67 thousand, software implementations and internet platforms for Euro 61thousand.BB S.r.l.: canons for utility of platform Cantoalto for Euro 240 thousand.No transactions with other correlated parts have been accomplished. At about 31st of Decemberthere are no credits and debits of commercial nature.

12.9 CORPORATE GOVERNANCEThe Board of the Company approved in 2000 a “Self-discipline code” whose rules and compositionhave been transmitted to the Italian Stock Exchange.The occurred modifications during 2005 will be the object of a relation reliable to the public accor-ding to the time and ways of the “Instructions of the Regulation of the Organized Markets and Ma-naged by the Italian Stock Exchange”.The Board of the Shareholders of the 20th of April 2005 appointed Prof. Carlo Alberto CarnevaleMaffè, born in Vigevano (PV) on the 9th of September 1961, as Director. Afterwards he was ap-pointed by the board of Directors member and president of the Board of internal controllers andmember of the Remuneration Committee.The Board of Directors appointed Mr. Massimiliano Frigoli, born in Chiari on the 4th of December1971, responsible for the Company Internal Control.Since January 2003 “A Self-Discipline Code” (“Internal Dealing”) about the reserved operations ofsingle entities on the shares quoted in the Group by people defined as “relevant”.The documents are available on line under the section “Investor Relations” of the site http://www.psf.it

12.10 ACCOUNTING STANDARDS The accounting year documents at the 31st of December 2005 were made according to the cur-rent national accounting principles.Anyway, the suitable analysis and studies to make the accounting documents following the Inter-national Accounting Standards have already been purchased. The elements that need modifica-tions to adjust them to the international principles have also been identified.As foreseen, the accounting documents of the year 2006 will be the first ones to be in accordancewith the IAS.

12.11 PRIVACY In order to satisfy dispositions on data security as prescribed by Law Decree 196 of 2003, the com-pany has preliminarily informed personnel, suppliers, customers and has gathered information andconsent. Programmatic document on security has already been developed and approved.The Italian version will be completed by March 2006.


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12.12 SHARES HELD BY DIRECTORS, STATUTORY AUDITORS, GENERAL MANAGERS AND THEIR SPOUSES (EXCL. THOSE LEGALLY SEPARATED) AND UNDER AGE CHILDREN

Frigoli family holds 44.102 % of stock capital as at 31st December 2005.

12.13 SUBSEQUENT EVENTS On the 3rd of February 2006 the Board of directors of the Group decided to offer Société Généraleto subscribe the sixth part of the new shares coming from the capital increase decided on the 13thof July 2004 (according to the agreements of the 9th of July 2004). On 22nd of February 2006 theaccomplishment of the operation of the capital increase has been announced.In the months following the closing of the accounting period, no important events have happened.

12.14 FORESEEABLE BUSINESS DEVELOPMENT

The accomplished restoration in the previous accounting year should allow to get a marginality re-coil.The patents acceptance will drive the future investments.The research activity and analysis to growth through external ways goes on, but it is impossible tomake previsions so far.

12.15 PROPOSAL FOR RESULT ALLOCATION

The B.o.D. suggests covering Poligrafica S. Faustino S.p.A. 2005 loss by reducing the others re-serves of 1,148,293 Euro.


The Chairman ALBERTO FRIGOLI

Name Surname Position N° of shares31/12/2004

N° of shares ac-quiredN° of shares sold N° of shares

31/12/05 % Stock capital

Alberto Frigoli Managing Director 102,625 0 0 102,625 8.829Giuseppe Frigoli Managing Director 102,056 0 0 102,056 8.780Emilio Frigoli Managing Director 102,698 0 0 102,698 8.835Francesco Frigoli Director 102,441 0 0 102,441 8.813Giovanni Frigoli Director 102,808 0 0 102,808 8.845Umberto Bisesti Auditor 0 17 - 17 0.002Francesco Curone Auditor 0 30 30 - 0.003

13. FINANCIAL STATEMENTS

52

13FINANCIAL STATEMENTS

POLIGRAFICA S. FAUSTINO SPA25030 CASTREZZATO (BS) ITALY

Via Valenca 15Share Capital Euro 5,997,762.12Tax code number 01251520175

VAT Code 00614280980Number of Brescia Firms’ Register

01251520175

2005 FINANCIAL STATEMENTS


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13.1 FINANCIAL STATEMENTSASSETS (EURO unit ) 31/12/2005 31/12/2004A) SUBSCRIBED CAPITAL UNPAID 0 0B) FIXED ASSETSI Intangible assets1) Formation and start-up expenses 2,940 3,9202) Costs of research, development and advertising - -4) Concessions, licenses, trade marks and similar rights

112,501 156,482

6) Intangible assets in progress and payments on account

- -

7) Other 379,644 557,412Total intangible assets 495,085 717,814II Tangible assets1) Land and buildings 4,752,258 4,924,3712) Plants and machinery 941,701 737,4223) Other fixtures and fittings, tools and equipment 215,213 204,3934) Other 212,915 278,353Total Tangible assets 6,122,087 6,144,539III Investments1) Equity investments in:a) Subsidiary companies 2,094,920 2,400,876b) Associated companies 0d) Other companies 834 8342) Accounts receivable:d) other entities 10327 5,171Total Investments 2,106,081 2,406,881TOTAL FIXED ASSETS (B) 8,723,253 9,269,234C) CURRENT ASSETSI Inventory1) Raw materials and consumables 1,615,141 1,907,0902) Work in progress and components 848,876 850,2864) Finished goods and goods for resale 562,745 652,900Total inventory 3,026,762 3,410,276II Accounts receivable1) Trade receivablesDue within the year 10,142,062 11,104,7062) Receivable from subsidiary companiesDue within the year 1,211,741 277,4343) Receivable from associated companiesDue within the year 04-bis) Receivable from tax administration 75,029 04-ter) Deferred tax assets 266,964 104,3915) Other receivablesDue within the year 666,385 422,707Due over 12 months 0Total accounts receivable 12,362,181 11,909,238III Investments which are not permanentTotal investments which are not permanent 0 0IV Cash at bank and in hand1) Banks and postal current account 7,164,285 3,048,8082) Bank cheques 0 03) Cash on hand 2,143 3,311Total 7,166,428 3,052,119TOTAL CURRENT ASSETS (C) 22,555,371 18,371,633D) PREPAYMENTS AND ACCRUED INCOME- Various 221,621 329,974Total prepayments and accrued income (D) 221,621 329,974TOTAL ASSETS (A+B+C+D) 31,500,245 27,970,841


54

LIABILITIES and EQUITY (EURO Unit) 31/12/2005 31/12/2004

A) Shareholders’ EquityI Capital Stock 5,997,762 5,223,762II Share premium account 14,201,530 9,955,530III Revaluation reserve 241,206 241,206IV Legal Reserve 175,153 175,153V Statute Reserves 0 0VI Reserve for shares in the portfolio 0 0VII Other reserves 1,287,434 1,405,107IX Profit (loss) for the financial period (1,148,293) (117,673)Total Shareholders’ Equity 20,754,792 16,883,085B) Provisions for contingencies and charges2) Deferred tax liabilities 165,973 172,8263) Other provisions 46,500 46,500Total provisions for contingencies and charges 212,473 219,326C) Employee severance indemnity 1,944,641 1,580,395D) Debts and other payables4) Amounts owed to banksShort term borrowings 425,169 879,448Medium/long term loans 1,057,281 1,482,0836) Advances receivedDue within one year 506,637 404,7897) Trade payablesDue within one year 4,967,561 4,642,4239) Amounts owed to subsidiary companiesDue within one year 128,551 546,23710) Amounts owed to associated companiesDue within one year 012) Amounts owed to tax administrationDue within one year 510,273 370,54413) Amounts owed to social security institutionsDue within one year 403,656 355,26514) Other payableDue within one year 573,984 581,561Total (D) 8,573,112 9,262,350E) Accruals and deferred income Various 15,227 25,685Total (E) 15,227 25,685TOTAL LIABILITIES and EQUITY (A+B+C+D+E) 31,500,245 27,970,841

MEMORANDUM ACCOUNTS

Total memorandum accounts 0 0


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POLIGRAFICA S. FAUSTINO S.p.A – INCOME STATEMENT

(EURO unit) 31/12/2004 31/12/2003

A) VALUE OF PRODUCTION1) Sales of goods and services 30,150,300 29,990,8822) Change in finished goods and work in process inventory

(91,566) 182,336

4) Work performed for own purposes and capitalized - 99,6425) Other revenues and income 773,171 645,916Total A) 30,831,905 30,918,776B) COST OF PRODUCTION6) For raw materials, consumables and goods 6,882,505 7,438,1547) For services 15,097,889 14,449,1118) For use of assets owned by others 1,630,013 1,248,5519) For employeesa) wages and salaries 3,879,836 3,920,689b) social security costs 1,303,615 1,310,116c) provision for severance indemnity 308,100 304,609e) other costs 4,022 2,61210) Value adjustments:a) amortization of intangible assets 322,051 364,944b) depreciation of tangible assets 695,423 969,792d) allowance for doubtful debtors - 96,00411) Change in raw mat,,consum, and goods for resale 291,948 (28,520)14) Other operating charges 1,155,612 1,168,004Total B) 31,571,014 31,244,066DIFFERENCE (A-B) (739,109) (325,290)C) FINANCIAL INCOME AND CHARGES16) Other financial incomeb) from financial investment 0c) from other not permanent investment 0d) other income 66,235 13,82617) Interest payable and similar charges-Due to third parties (63,209) (98,183)17-bis) exchange gain (loss) (16) 1,374Total C) 3,010 (82,983)D) VALUE ADJUSTMENTS IN INVESTMENTS19) Devaluationa) of equity investments (432,831) (163,111)Total D) (432,831) (163,111)E) EXTRAORDINARY INCOME AND CHARGES20) Extraordinary income-various 103,754 879,92321) Extraordinary charges- various (1,042) (194,447)Total E) 102,712 685,476PROFIT OR LOSS BEFORE INCOME TAXES (1,066,218) 114,09222) Income taxes (82,075) (231,765)26) Total profit (loss) (1,148,293) (117,673)


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13.2 NOTES TO FINANCIAL STATEMENTS

13.2.1 ACCOUNTING STANDARDS AND VALUATION CRITERIA

Data are expressed in Euro unit, unless otherwise stated. The criteria used in preparing 2003 financial statements are in compliance with the provisions ofArticle 2423 and following of the Italian Civil Code and in accordance with the accounted standardsissued by the Consiglio Nazionale dei Dottori Commercialisti and and they appear to be unchangedin in comparison with the ones of last accoung period.As far as this is concerned, the Poligrafica S.Faustino S.p.A. accounting documents of 2006 will bemade following the International Accounting Standards that are already utilized for the drawing upof the consolidated accounting documents of the Group.

Accounting data is valued in accordance with criteria for prudence and on the assumption that thecompany is an ongoing concern. The profits reported in the accounts refer exclusively to those re-alized during the year up until the reporting date. All income and charges pertaining to the yearunder review have been taken into account, regardless of the date on which they are collected orpaid, as have risks and losses pertaining to the year, even where actually incurred after the end ofthe year. Heterogeneous elements making up individual accounting items have been valued sepa-rately. Balance-sheet assets that are to be used on a long-term basis have been considered as partof fixed assets.A short description of the accounting standards and valuation criteria adopted in the preparationof consolidated accounts is given below:

Intangible assets Intangible assets are stated at purchase or production cost including collateral charges, less amor-tization computed on a straight line basis and based on their estimated useful life and/or futureuse.

Tangible assets Tangible assets are stated at cost less accumulated depreciation. Cost is either the purchase costor the production one including any direct and indirect costs related to internal production. Costsare re-valued under revaluation law provisions, however they shall not exceed market value. Po-sitive balances resulting from revaluation are charged to "revaluation reserve" under shareholders’equity.Depreciation of tangible assets is computed on a straight line basis set on the residual useful lifeof assets and their impairment. A review is periodically carried out to assess impairment of assets.The maximum ordinary depreciation rates allowed by legislation in force were deemed adequateand therefore applied.

Investments Investments and own shares are stated at purchase cost, adjusted when needed to reflect impair-ment, if any.Debt securities are valued at their realizable value.

Inventories Inventories are stated at the lower of market value and purchase or production cost. The individualitems of inventory, to which different valuation methods have been applied, are valued at cost, cal-culated using the weighted average cost method.

Accounts receivable Receivables are stated for the value expected to be collected.


57

Investments which are not permanent Investments not held on a permanent basis are carried at the lower of acquisition cost and theamount expected to be received upon sale of the same (based on market prices). Cost is restoredwhenever the reasons for an investment being previously written down in value prove unjustifiable.

Prepaid expenses and accrued income This heading includes revenues relating to the current period but receivable in subsequent periodsand expenses paid in the current period but relating to subsequent periods.

Provision for contingencies and charges Provision for contingencies and charges are meant to exclusively cover losses or liabilities of a de-termined nature, certain or likely to occur, but whose amount or term are not known at the closingdate period.

Employee severance indemnity The employee severance indemnity represents the amounts accrued by staff pursuant to the pro-visions of legal provisions and current labour contracts, net of any advance payments, if any.

Accounts payable Payables are stated at their nominal value.

Deferred income and accrued expenses This heading includes accrued expenses relating to the current period but to be paid in a futureperiod as well as revenues received in the current period but relating to subsequent financial pe-riods.

Commitments and contingencies Guarantees and warranties are reported under memo accounts at their contract value for the por-tion of principal associated debt. No guarantees other than real security issued against exposuresalready reported as liabilities are stated. Contingent liabilities - adverse future events likely to occur- are described and provided for, based on consistency criteria, under provision for contingencies.No provision is made for remote risks.

Reporting of income and revenues, expenses and charges Income and revenues, expenses and charges, including all taxes and duties not related to income,are charged to the accounts after deducting returns, discounts, bonuses and rebates, as well asany taxes directly related to the sale of products and the provision of services. Financial incomeand expenses are recognized on an accrual basis.

Income taxes Provisions for tax liabilities are based on analytical calculations of taxes payable in the current fi-nancial year in compliance with current tax legislation. In addition, should there be any temporaryun-deductible income and expenses, booked on a accrual basis, the related prepaid/deferred ta-xes are posted to the income statement too. Deferred tax assets arising from fiscal loss are inclu-ded.


58

13.2.2 NOTES TO BALANCE SHEET ASSETS

B) FIXED ASSETS

- I Intangible assets

The above mentioned components don’t include indefinite lasting immaterial goods.

Intangible assets are valued and amortized on a straight line basis set on their residual useful life.The remaining equipments expenses comprehend the legal expenses of various company opera-tions on the capital, made in the past accounting years.The increases in the items “concessions, licenses and similar” include investments in new softwa-re; 43,896 Euro of the total amount realized by the subsidiary Mediattiva S.r.l.Other intangible assets increase of about 17.427 Euro referring to informastic platforms developedby the controlled Mediattiva S.r.l.

- II Tangible assets


Change (222,729)

Description Historical Accumulated . Net value atcost Amort. at 31/12/05 at 31/12/05

Research and development 5,165 5,165 0Concessions, licences etc 768,778 612,296 156,482Start-up costs 74,404 70,484 3,920Other intangibles 1,135,298 577,886 557,412Intangible assets in progress 0 0 0

1,983,645 1,265,831 717,814

Description Net value at Increase Decrease Amortization Net value at31/12/05 31/12/05

Research and development 0 0 0 0Concessions, licences etc 156,482 81,895 (125,876) 112,501Start-up costs 3,920 0 0 (980) 2,940Other intangibles 557,412 17,427 (195,195) 379,644Intangible assets in progress 0 0

717,814 99,322 0 (322,051) 495,085

Balance at 31/12/05 6,122,087Balance at 31/12/04 6,144,539

Change (22,452)


59

Total revaluation of tangible assets The building at Castrezzato, adapted for office use and production facilities underwent monetaryrevaluation, pursuant to the provisions of Law 413/1991 for 249,017 Euro.

Single investments were not significant except for the acquisition of graphic equipements by thecontrolled Laser 5 Srl for about Euro 290 thousand, supported by technical assistance. Amongother investments there was the aquirement of some printing equipments for about Euro 151,000;some composition equipements for 51,000 Euro and packaging equipments for 19,000 Euro. Ge-neric equipments cost 33,000 Euro. Various equipment items were paid 117,000 Euro (cut-offsand cylinders). Office pieces of furniture (mostly PCs) were also bought for about 45,000 Euro.From the alienation of a printing machine a capital gain for about 242,000 Euro, while the dismissalof other goods didn’t bring important consequences.

The company holds significant assets under financial lease. Lease rents – including a portion ofinterests payable - are reported under "leaseholds" in the income statement.Following the commonly adopted practise and accepted by the Italian legislation said assets areaccounted for using the equity method under which overall rents are charged to the income sta-tement and leased assets are posted to the balance sheet at the end of the lease term, reportingexclusively their bargain purchase option value.Should the lessee decide for lease capitalisation - which better reflects the lease economic mate-riality - as indicated in the International Accounting Standard (I.A.S.) No. 17, to account for lease,finance expenses on residual capital and depreciation are to be reported in the income statementwhereas leaseholds - stated as assets - and residual amounts payable - recognised as liabilities -are to be stated in the balance sheet.

Description Historical Revaluation Devaluation Accumulated Value atcost depreciation 31/12/04

Land and buildings 6,113,070 249,017 - 1,437,716 4,924,371Plants and machinery 4,159,183 - - 3,421,761 737,422Other fixtures, tools and equipment 1,468,865 - - 1,264,472 204,393Other tangible assets 1,977,720 - - 1,699,367 278,353 Total 13,718,838 249,017 - 7,823,316 6,144,539

Description Increase Disposals Depreciation Depreciation Value atDecrease for the year 31/12/2005

Land and buildings 0 0 0 (172,113) 4,752.,258Plants and machinery 543,871 (79,599) 48,941 (308,934) 941,701Other fixtures, tools and equipment 117,390 0 0 (106,570) 215,213Other tangible assets 45,086 (89,235) 86,517 (107,806) 212,915 Total 706,347 (168,834) 135,458 (695,423) 6,122,087


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The table below shows the overall impact of the adoption of this accounting method on the finan-cial statements.

At the end of the accounting period , the Group has residual rates to pay (capital and intersts) andredemption to expire on 15 leasing contracts for an amount of 4,415,890 Euro.

- III Investments

The movements during the year may be summarized as follows:

Equity investments are valued at cost, which may be adjusted to take any permanent losses in va-lue into account.In the accounting period the sharings have been involved in the following operations:Laser5 S.r.l.: initial share increase of Euro 163,111 for the loss covering lodgement and reesta-blishment of the capital stock made on the 7th of March 2005; clean up of the sharing as a con-sequence of the liquidation of Laser5 S.r.l. accomplished on the 31st of December 2005. Anegative component of Euro 433 thousand was generated because of the closing allocation.

(in EURO/000)Assets (increasing value):Gross fixed assets (all equipments and machines) 10,469(deduction) amortization funds (5,332)Net value 5,137Minor positive re-discount (100)Liabilities (increasing amount):Amounts due to financial leasing companies (for capital quotas) (4,155)Minor passive accruals 5Minor debts towards suppliers 22Deferred tax liabilities (37.25%) (339)Net equity effect 570Income statementDepreciation (increase) (1,825)Interest payable (increase) (157)Decrease of charges for use of assets owned by others 1,564Result before tax (418)Tax 156Net result (262)


Change (300,800)

Investments Value at Increase Decrease Value at31/12/2004 31/12/2005

Subsidiary companiesLitografia Spada S.r.l. 1,449,600 1,449,600Laser 5 srl 305,956 163,111 (469,067) -BB Srl 313,748 313,748Mediattiva S.r.l. 331,572 331,572

2,400,876 163,111 (469,067) 2,094,920Other companies 834 - - 834Total equity investments 2,401,710 163,111 (469,067) 2,095,754Accounts receivables 5,171 5,156 10,327Own shares 0 0TOTAL INVESTMENTS 2,406,881 168,267 (469,067) 2,106,081


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Differences between cost of investment and related equity of subsidiary companies are justified byactual higher value of assets. In particular higher value of BB and Litografia Spada S.r.l. is also ju-stified by profit estimation for next years.

Investments also include the stakes held by the company in the consortia Conai Corepla and Co-mieco (total amount 834 Euro), as well as caution money paid to suppliers: caution money net in-crease to 5,156 Euro.

KEY INFORMATIONS FOR SUBSIDIARIES COMPANIES

SUBSIDIARIES

LASER 5 S.r.l. on liquidation Registered office: Castrezzato (BS) Strada Vicinale del Finiletto Ang. Via ValencaCapital Stock: Euro 10,500Shareholders’ equity at 31/12/2005: Euro 36,2362005 profit (loss): Euro 25,736Company interest: 100 %

BB S.r.l. Registered office: Castrezzato (BS) Via Valenca, 15Capital Stock: Euro 10,000Shareholders’ equity at 31/12/2005: Euro 91,966200% profit (loss): Euro 49,414Company interest: 100 % Book value: Euro 313,748

MEDIATTIVA S.r.l. Registered office: Castrezzato (BS) Via Valenca, 15Capital Stock: Euro 78,000Shareholders’ equity at 31/12/2005: Euro 508,3392005 profit (loss): Euro 30,565Company interest: 65 % Book value: Euro 331,572

LITOGRAFIA SPADA S.r.l. Registered office: Venaria (TO) Via Druento, 286Capital Stock: Euro 125,000Shareholders’ equity at 31/12/2005: Euro 800,2982005 profit (loss): Euro (17,695)Company interest: 51 % Book value: Euro 1,449,600

OWN SHARES

The General Meeting of Shareholders held on 20th April 2005 authorized the Company to buy ownshares within a maximum amount of 3,600,000 Euro and within legal limits.In this respect we report that the Company as at 31st December 2005 has no own shares and hasmade non trasactions on own shares during the year.


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C) CURRENT ASSETS

- I Inventory

The “Raw materials and consumables” item includes various types of paper, inks, plates and lessimportant consumables.The “Finished goods and goods for resale” item includes in-house produced articles as well asother resale goods such as easy reading forms and other limited size goods.The “Work in progress” item includes goods in the process of being produced as at 31st Decem-ber, which are valued at production cost.The reduction of all these stoppage typoligies is the consequence of the productive and managingreorganization of the stocks.

- II Accounts receivable

Receivable from foreign clients as at 31st December 2005 as follows:

EEC Area Euro 681,749Outside EEC Area Euro 56,825


Change (383,514)

Description Value at Increase Decrease Value at31/12/04 31/12/05

Raw materials and consumables 1,907,090 (291,949) 1,615,141Work in progress 850,286 (1,410) 848,876Finished goods and goods for resale 652,900 (90,155) 562,745Partial Payment 0 Total 3,410,276 0 (383,514) 3,026,762


Change 452,943

Description 31/12/05 31/12/04

- Trade receivabledue within one year 10,197,789 11,200,710(less) Provision for doubtful receivables (55,727) (96,004)Receivable from subsidiariesdue within one year 1,211,741 277,434Receivable from tax administration 75,029 0Deferred tax assets 266,964 104,391Receivable from othersdue within one year 666,385 422,707Total 12,362,181 11,909,238


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The company’s provision for doubtful debtors is considered adequate for the purposes of coveringlosses expected to be incurred on receivables undergoing litigation proceedings and doubtfuldebts. Amounts owed by subsidiary companies refer to Mediattiva S.r.l. (41,870 Euro), BB S.r.l. (75 thou-sand Euro), Litografia Spada S.r.l. (1,094,871 Euro).

L’incremento dei crediti vari è attribuibile all’iscrizione di indennizzi assicurativi da ricevere.

Detail of deferred tax assets:

Deferred taxes on fiscal losses are justified by 5 year tax estimate equal to the fiscal losses de-tected and amounting to 729,980 Euro.

- III Investments which are not permanent

- IV Cash at bank and in hand

31/12/05 31/12/04Taxed debits- to VAT credit 35,664 0- to inland revenue c/ retentions 16,201 0- Inland Revenue Net Balance c/IRAP 23,164 0

Deferred Tax Assets- on previous year fiscal losses 240,895 67,132- on temporary differences 26,069 37,259Advance payment to suppliers 385 26,103Other receivables 666,000 396,604Total 1,008,378 527,098

Euro

Total deferred tax assets as at 01.01.05 104,391- Adjustment of “Unico” Model 270- reversal on previous year differences (11,757)- on 2004 temporary differences 568- on 2004 fiscal loss (33% of 129,582) 173,492Total as at 31.12.05 266,964


Change 0


Change 4,114,309


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The balance represents cash on hand and at banks and similar items as at 31st December 2005.The change of cash/bank balances is adequately explained in the consolidated cash - flow state-ment.

LIABILITIES

A) Shareholders’ Equity

Share capital comprises N° 1,162,357 ordinary shares, each with nominal value of 5.16 Euro.

The general meeting of shareholders held in March 20th 2005 resolved to cover 2004 loss throughextraordinary availiable reserve.

Description 31/12/05 31/12/04Bank and postal accounts 7,164,285 3,048,808Bank cheques 0 0Cash in hand 2,143 3,311Total 7,166,428 3,052,119


Change (108,353)

Detailed description 31/12/05 31/12/04Prepaid leasing charges 99,903 105,665Prepaid expense on long-term financial operations 58,667 169,618Other prepaid expense 63,051 54,691Total 221,621 329,974


Change 3,871,707

SHAREHOLDERS’ Balance at Result Other Profit (loss) Balance at31/12/2004 allocation movements for the period 31/12/2005

EQUITY- Capital Stock 5,223,762 774,000 5,997,762- Share premium account 9,955,530 4,246,000 14,201,530- Revaluation Reserve 241,206 241,206- Legal Reserve 175,153 175,153- Own shares’ reserve 0 0- Other reserves 1,405,107 (117,673) 1,287,434- Profit (loss) for the period (117,673) 117,673 (1,148,293) (1,148,293)Total 16,883,085 0 5,020,000 (1,148,293) 20,754,792


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B.o.D of Poligrafica S. Faustino S.p.A. has approved in July 13th 2004 a capital increase reservedto Société Générale for Euro 10,000,000 maximum exchange value to be completed in differenttraches by 24 months from the approval date. The operations of capital increase acted as follows:

Types:A= for capital increaseB= for loss coverC= for dividend distribution

(a)= according to the art. 2431 of civil code, share premium account may not be distributed untilthe legal reserve equal 20% of capital stock. As at 31st December 2005 the limit was 1,199,552Euro therefore share premium account will be available after increasing legal reserve of 1,024,399Euro.

(b) =It should also be noted that one item amounting to 2,940 Euro must be considered unavailableuntil the residual value of formation and start-up expenses (carried as part of intangible assets)have been completely amortized.

(c) = Cover of 2002 and 2003 losses; 2004 cover loss (117,673 Euro) has already been reportedin the table concerning movements of shareholders' equity.

B) Provisions for contingencies and charges

Date N° of issued shares Capital Stock Share premium Total amount02/09/2004 50,000 258,000 1,681,000 1,939,000

08/10/2004 12,357 63,762 415,442 479,20426/11/2004 50,000 258,000 1,492,000 1,750,000Total 2004 112,357 579,762 3,588,442 4,168,204

10/06/2005 50,000 258,000 1,311,000 1,569,00030/09/2005 100,000 516,000 2,935,000 3,451,000Total 2005 150,000 774,000 4,246,000 5,020,000

TOTAL 262,357 1,353,762 7,834,442 9,188,204

Description 31/12/2004 Usability(Type)

UsabilityAmount Utilization in last three years

For losscover

For otherpurposes

Capital Stock 5,997,762Capital reservesShare premium account 14,201,530 A, B, C (a) 14,201,530Capital grant according to art,1 D,l,31/7/87 n, 318 124,260 A, B 124,260Contribution according to L,317/91 44,612 A, B 44,612

Revaluation reserve 241,206 A, B, C 241,206Retained earningsLegal reserve 175,153 B 0Extraordinary reserve 1,118,562 A, B, C (b) 1,118,562 (c) 514,531

Total capital stock and reserve 21,903,085


Change (6,853)


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Deferred taxes liabilities include allocation arising in 2004 from writing off of fiscal items of advan-ved depreciation on immovables. The secrease is the consequence of the partial return referredto fiscal recoveries on amortizations of the accounting period.

The “other funds” reflects the amount prudential estimated to cover the termination of relationshi-ps with agents.

C) Employee severance indemnity

The increase of the above item was due to an increase in allocations made during the year(293,350 Euro), net of down payments and amounts paid when contracts were terminated(234,621 Euro) and tax advances (4,844 Euro), to whom Euro 310.361 for indennities of the per-sonnel of the ex-Laser5 Srl till the hiring date (1st of December 2005) in Poligrafica S.Fausino Spawere added.

The amount reported reflects the actual amounts owed by the company as at 31st December tostaff employed by the company as at that date, in connection with special service payments andseverance payments arising from the termination of employment contracts, net of amounts paidin advance,

D) DEBTS AND OTHER PAYABLES

Description 31/12/05 31/12/04Deferred tax liabilities 165,973 172,826Other funds 46,500 46,500Total 212,473 219,326


Change 364,246


Change (689,238)

Description Due within Due over Due after Total12 months 12 months 5 years

Payables to banks 425,169 1,057,281 1,482,450Advances 506,637 506,637Trade payables 4,967,561 4,967,561Payables to subsidiaries 128,551 128,551Taxes payable 510,273 510,273Payables to social security institutes 403,656 403,656Other payables 573,984 573,984Total 7,515,831 1,057,281 0 8,573,112


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Debts towards foreign suppliers as at 31st December 2005 as follows:

EEC Area Euro 322,674Outside EEC Area Euro 5,746

Amounts owed to banks and payable within twelve months relate to the overdrafts with banks (391Euro) and the current portion of medium and long-term loans (424,778 Euro) highlighted below.During 2004 Poligrafica S. Faustino took out no new medium and long-term loans and the fundingsthat had been bestowed in 2000 by Monte dei Paschi di Siena Bank were finally extinguished.

Amounts owed to banks and payable after more than twelve months are made up of the following:

- loan granted in 2002 by the bank S.Paolo IMI; original amount: Euro 300,000; outstandingamount after financial year 2006: Euro 66,777; final repayment: October 2007;- loan granted in 2003 by the bank S.Paolo IMI; original amount: Euro 500,000; outstandingamount after financial year 2006: Euro 138,470; final repayment: January 2008;- loan granted in 2003 by the bank S.Paolo IMI; original amount: Euro 200,000; outstandingamount after financial year 2006: Euro 55,393; final repayment: March 2008;- loan granted in 2003 by the bank Banca Regionale Europea; original amount: Euro 1,500,000;outstanding amount after financial year 2006: Euro 796,641. Final repayment: April 2010;

No amounts owed to banks are secured.

The “advances received” item is made up of amounts received in advance from customers(60,825 Euro), short term caution money (123,062 Euro) and goods to be delivered (322,750 Euro).

Amounts owed to subsidiary companies are made up of amounts payable to Mediattiva S.r.l.(49,587 Euro) and Litografia Spada S.r.l. (78,964 Euro).

Amounts owed to the tax administration as follows:

Other payables are mainly made up of amounts due to employees in respect of salaries and wagesdue for payment, additional months and summer bonuses and accrued but not enjoyed vacations.

E) ACCRUALS AND DEFERRED INCOME

Description Amount

IRPEF (personal income tax) for employees and freelance 509,134Debit for other taxes to pay (1,139)Total 510,273


Change (10,458)


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Detail as follows:

Such items relate to the period under review, and are carried on an accrual basis.

MEMORANDUM ACCOUNTS

The undertakings relative to expiring dates (redemption rates) of the leasing contacts have alreadybeen object of specific indication in the relative paragraph of the retreating according the financialmethod (IAS 17).According to the financial debit, no mortaging warranty has been bestowed nor guaranties relea-sed.

13.2.3 NOTES TO INCOME STATEMENT

A) VALUE OF PRODUCTION

Sales increased of 0.53% compared with previous year.Among the specific productive typologies, made exclusively on demand, a certain recovery of thelabel sector was to be seen after the dip of the first six months as consequence of the stagnantsales of the promotional sector. Such result was the consequence of the filling of the investments(through the financial location) in machineries and instruments for the process automation and thetechnological innovation.

2005 foreign sales account for 9% on total sales and amount to 2,716 thousand Euro (15% in com-parison with 3,440 thousand Euro in 2004). They mainly belong to Euro zone.

Description AmountAccruals on interest payable 10,078Other accruals 5,149Total 15,227


Change 0

VALUE OF PRODUCTION 2005 2004Euro Euro

Sales 30,150,300 29,990,882

- Other revenues and income 773,171 645,916

Total sales and revenues 30,923,471 30,636,798

- Work performed for own purposes and capitalized 0 99,642- Change in finished goods and work in progress (91,566) 182,336

Total value of production 30,831,905 30,918,776


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Other revenues were made up of rewards from purchases (35,000 Euro), income from servicescharged to subsidiary companies (172,342 Euro), ordinary gains on disposals (249,145 Euro), fromproceeds relative to an insurance damages for about Euro 270,000 and expense reimbursementsand sundry income (46,684 Euro).

The variations in stocks for work in progress, semi-finished goods, and finished goods reflect themovements of the balances reported for the items in question and point out the results reached inthe further rationalization of the stock management (together with the stock reduction of the rawmaterials).

B) COST OF PRODUCTION

The item “Cost of raw materials, consumables and goods for sale”, together with the change ofstocks, is closely related to the sale growth and to the different mix in products.Considering the growth of unit prices and the change of stocks, the percentage of raw materialconsumption grew of 1%.

Raw materials are made up of various types of papers (4,437,413 Euro compared with 5,495,822in 2004), inks, chemical products and adhesive (715,968 Euro respect to 513,663 Euro in 2004).Consumables and goods for sale equal 1,729,124 Euro (1,428,669 Euro in 2004).

Among the service costs there was a decrease of the costs, an increase of the mailing costs andthe huge increase of commercial costs. As far as this is concerned, the whole increasingly com-ponent of commercial costs gain an extraordinary status, as it is correlated to a significant reorga-nization of the sales-net and of the agency elements. The increase of the consulting and co-operation costs comes from the outsourcing of previously in-house made functions.

Cost of raw materials 2005 2004

Raw materials, consumables and goods for sale 6,882,505 7,438,154

Total 6,882,505 7,438,154

Cost of services 2005 2004

Outsourced production 6,182,097 6,123,872Motive power 324,412 305,962Transport 685,019 844,638Postal charges 1,902,593 1,779,049Sales commissions and other trade charges 4,280,957 3,752,382Consultant fees 847,452 559,281Utilities 86,684 111,197Other costs 788,675 972,729

Total 15,097,889 14,449,111

Costs for use of assets owned by others 2005 2004

Rents paid 65,810 54,701Leasing charges 1,564,203 1,193,850

Total 1,630,013 1,248,551


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Rents paid increase is referred to cars for hire.Leasing charges totally refer to plant and machinery. During 2005 3 new contracts have been si-gned.Concerning the effects arising from valuing leasing arrangements by the financial method, pleaserefer to comments dealing with tangible assets for further information.

The item is made up of all staff costs, including social charges, the cost of unused holiday allowan-ces, additional bonuses and the allowances provided for by law and collective agreements,The variations in the personnel costs are the result of the general employees reduction, also con-sidering the hiring of all the controlled and now on liquidation Laser5 Srl employees on the 1st ofDecember 2005.

General expenses and other charges include insurance and cleaning costs, duties, bank chargesand other general expenses.

A-B Difference between value and cost of production

Personnel costs 2005 2004

Wages and salaries 3,879,836 3,920,689Social security costs 1,303,615 1,310,116Provision for severance indemnity 308,100 304,609Other costs 4,022 2,612

Total 5,495,573 5,538,026

Value adjustments 2005 2004

Depreciation of tangible assets 695,423 969,792Amortization of intangible assets 322,051 364,944Total amortization and depreciation 1,017,474 1,334,736Allowance for doubtful debtors 0 96,004Total 1,017,474 1,430,740

Other operating charges 2005 2004

Directors’ fees and related charges 894,151 888,323Statutory auditors’ fees 28,043 25,532General expenses and other charges 233,418 254,150

Total 1,155,612 1,168,004

2005 2004

Difference between value and cost of production (739,109) (325,290)

% on sales (2.45) (1.1)


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The total marginality redution is the consequence of the negative trend of the 1st six months of2005 (the margine being already negative for about Euro 653 thousand on the 30th of June 2005)and is the consequence of the major costs of the above mentioned reorganization.

C) FINANCIAL INCOME AND CHARGES

D) VALUE ADJUSTMENTS IN RESPECT OF INVESTMENTS

The devaluation charge recorded for 432,831 Euro relates to the loss deriving from the liquidationof the controlled Laser 5 S.r.l..

Financial income 2005 2004

Interest receivable from banks 60,005 5,746Other interest receivable 6,230 8,080

Total income 66,235 13,826

Financial charges 2005 2004

Interest payable on overdrafts 2,964 11,492Interest payable on loans 59,613 86,129Other interest payable 632 562

Total financial charges 63,209 98,183

Exchange Gain (loss) 2005 2004

Exchange gains 622 1,411Exchange losses (638) (37)

Net Exchange Gain (loss) (16) 1,374Net financial income (charge) 3,010 (82,983)

Value adjustments on investments 2005 2004

Devaluation of equity investments (432,831) (163,111)Total D) (432,831) (163,111)


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E) EXTRAORDINARY INCOME AND CHARGES

Contingent gains and losses include no single considerable amouts.

INCOME TAXES

The schedule below reconciles the income (loss) before tax and the income (loss) for fiscal purpo-ses.

The active postponed taxes and the relating return come from temporary fiscal recoveries for re-presentation expenses and capital loss deductionable in 5 accounting periods. Among the perma-nent recoveries the devaluation that follows the liquidation of Laser 5 S.r.l. is particularly important.Here below is the detailled statement reported in the anticipated taxes paragraph.

Extraordinary income and charges 2005 2004

Write off of fiscal items (for fiscal depreciation) 0 463,963Contingent gains 103,754 156,277Gain on disposal of Inevision S.r.l. investment 0 312Gain on disposal of Mediattiva S.r.l. investment 0 259,371

Total extraordinary gains 103,754 879,923

Tax charge on write off of fiscal items 0 (172,826)Contingent losses (1,042) (7,020)Depreciation of Antea S.r.l. 0 (14,601)

Total extraordinary charges (1,042) (194,447)Net extraordinary amounts 102,712 685,476

2004 2003IRES of the accounting period. - -IRAP (251,231) (277,167)IRES active was generated on fiscal losses 174,059 42,762Reversal of deferred tax assets and liabilities (4,903) 2,640NET TAX CHARGE (82,075) (231,765)

Feeder Prospect between the result and the fiscal rateability 2005 2004

Result before tax (1,066,218) 114,092

IRPEG/IRES (corporate income tax)Write off of fiscal items and relative absorption 18,399 (291,137)Temporary differences which are deductible in last years 6,018 43,143Previous year temporary differences which are deductible in the year

(35,627) (35,142)

Permanent net differences 551,695 39,464Total differences 540,485 (243,674)Taxability amount for corporate tax (IRPEG/IRES) (525,733) (129,582)IRES Deferred tax assets (33%) (173,492) (42,762)

Taxability amount for IRAP (local business tax) 5,911,316 6,521,577IRAP (4.25%) 251,231 277,167


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13.2.4 OTHER DISCLOSURES STAFF NUMBERS

Fees (Euro) paid to the Directors of Poligrafica S. Faustino S.p.A. for financial year2005

In this company there is no Executive Board.

Fees (Euro) paid or payable to the Statutory Board of Auditors of Poligrafica S.Faustino S.p.A. for financial year 2005

31/12/05 Average 31/12/04 Average

Managers 4 4 3 4Clerical employees 40 40 41 38Manual workers 161 133 131 130

Total 205 177 175 172

Name Position Period Expiration date Fees for Non monetary Bonus and Otherservices (Euro) benefits incentives fees

Alberto Frigoli Man. Director 12 months 2006 approval 268,500 - - -Giuseppe Frigoli Man. Director 12 months 2006 approval 268,500 - - -Emilio Frigoli Man. Director 12 months 2006 approval 268,500 - - -Francesco Frigoli Director 12 months 2006 approval 12,911 - - 10,650Giovanni Frigoli Director 12 months 2006 approval 12,911 - - 10,650Alberto Piantoni Director 12 months 2006 approval 12,911Carlo Alberto Carnevale Maffè Director 12 months 2006 approval 12,911

Name Position Period Expiration date Fees forservices (Euro)

Non monetarybenefits

Bonus andincentives Other fees

Umberto Bisesti (born 1973) Chairman 12 months 2006 approval 11,898 - - -Francesco Curone Auditor 12 months 2006 approval 8,072 - - -Umberto Bisesti (born 1968) Auditor 12 months 2006 approval 8,072 - - -


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13.2.5 CASH FLOW STATEMENTEuro (000) 2005 2004

A) OPENING CASH SURPLUS (BORROWING) 2,173 (744)

B) OPERATING ACTIVITIESResult for the period (1,148) (118)Write off of fiscal items net effect - (291)Amortization and depreciation charges- for intangible assets 322 363- for tangible assets 695 972Net book value of disposals 33 154Change in risk provisions and employee severance indemnity

357 103

Cash flow from operating activities before change in current assets and liabilities

259 1,183

(Increase) Decrease of amounts owed by:- clients, subsidiaries and associated companies 28 (408)- others (480) (136)(Increase) Decrease in inventory: 383 (211)(Decrease) Increase in amounts owed to suppliers (93) (64)(Decrease) Increase in amounts owed to tax 140 (8)(Decrease) Increase in other non-financial payables 143 12Net change in prepayments, accrued income, accruals and deferred income

98 (34)

Total CASH FLOW FROM OPERATIONS (B) 478 334

C) CASH FLOW FROM INVESTMENTS ACTIVITIESInvestments in fixed assets:- intangible assets (99) (356)- tangible assets (706) (322)- investments 305 (117)

Total CASH FLOW FROM INVESTMENTS ACTIVITIES (C)

(500) (795)

D) FINANCIAL ACTIVITIESNet change in non-current assets (5) 21Net change in medium/long term loans received (425) (811)Change in capital stock and reserves 5,020 4,168

Total CASH FLOW FROM FINANCIAL ACTIVITIES 4,590 3,378

E) CASH FLOW FOR THE PERIOD (B+C+D) 4,568 2,917

F) CASH SURPLUS (BORROWING) AT YEAR’S END, 6,741 2,173

EURO/000 31/12/2005 31/12/2004

Cash and credit balances held with banks 7,166 3,052Amounts owed to banks (425) (879)

6,741 2,173


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NET FINANCIAL POSITION (Euro/000)

The table below provides a breakdown of the company’s balance sheet structure:

For and on behalf ofThe Board of Directors

Alberto Frigoli - Chairman

31/12/2005 31/12/2004Cash and credit balances held with banks 7,166 3,052Amounts owed to banks (425) (879)Total A) 6,741 2,173Medium and long term borrowing (1,057) (1,482)Total B) (1,057) (1,482)NET FINANCIAL POSITION (A+B) 5,684 691

Euro/000 31/12/2005 31/12/2004

A) Net current assetsNet trade debtors 11,354 11,382Inventory 3,027 3,410Other current assets 1,230 857Trade creditors (5,096) (5,593)Other current liabilities (2,010) (1,334)

8,505 8,722B) Net fixed assetsIntangible assets 495 718Tangible assets 6,122 6,145Investments 2,096 2,401Amounts receivable over 12 months 10 5

8,723 9,269C) Medium-long term provisionsEmployee severance indemnity 1,945 1,580Other 212 219

2,157 1,799D) NET INVESTED CAPITAL (A+B-C) 15,071 16,192

Covered by:E) Net borrowingShort-term loans received 425 879Cash and short term loans provided (7,166) (3,052)Medium/long term loans received 1,057 1,482

(5,684) (691)F) Capital and reservesSubscribed capital 5,998 5,224Reserves 15,905 11,777Result for the period (1,148) (118)

20,755 16,883

G) TOTAL COVERAGE (E+F) 15,071 16,192


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14STATUTORY AUDITOR’ S REPORT: CONSOLIDATED FIN. STAT.


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15 INDIPENDENT AUDITOR’S REPORT: CONSOLIDATED FIN. STAT.


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