2 0 0 6cembre group’s expansion of product offer was achieved by launching leading-edge technology...

C o s t r u z i o n i E l E t t r o m E C C a n i C h E B r E s C i a n E

REPORT and ACCOUNTS 2 0 0 6

Cembre S.p.A.Head Office: Via Serenissima, 9, Brescia, ItalyShare Capital: EUR 8,840,000 (fully paid-up)

Registration no: 00541390175 (Commercial Register of Brescia)

This document contains translations of the officialfinancial statements and managements reports prepared

in the Italian language for the purpose of the Italian law.

�

R e p o R t a n d a c c o u n t s 2 0 0 6

INDEX

Group Structure

Report on Operations of the Cembre Group

- Attachment �: Consolidated Income Statement

Consolidated Financial Statements at December 31, 2006

- Consolidated Balance Sheet- Consolidated Income Statement- Consolidated Statement of Cash Flows- Statement of Changes in the Consolidated Shareholders' Equity- Notes to the Consolidated Financial Statements- Attachment- Auditing Report on Consolidated Financial Statements- Report of the Board of Statutory Auditors on Consolidated Financial Statements

Cembre SpA Report on Operations

- Attachment �: Income Statement - Attachment 2: Investments held by Directors and Statutory Auditors- Attachment 3: Corporate Boards

Financial Statements at December 31, 2006 of Cembre SpA

- Balance Sheet - Income Statement- Statement of Cash Flows- Statement of Changes in the Shareholders' Equity- Notes to the Financial Statements- Attachments- Auditing Report on Cembre S.p.A. Financial Statements- Report of the Board of Statutory Auditors on Cembre S.p.A. Financial Statements

Abstract of Shareholders General Meeting resolutions

12

19

27

63

75

124

Cembre S.p.A. Group headquarters located in Brescia, Italy

2

headqu

arters

* Source Cembre S.p.A.

to the needs of an increasingly demanding market offering high-quality products that are reliable, durable and safe. The wide product range, the capillary and efficient domestic and international

sales network and the strong focus on customer needs repre-sent the strengths of the Cembre Group and ensure a strong competi-tive advantage in a con-tinuously evolving world market.

Cembre is today the leading Italian manufacturer* and one of the largest European manufacturers of electric com-pression connectors and related installa-tion tools. The company’s extensive know-how in the field of electrical con-nectors, strong R&D acti-vity and the continuous innovation in manufactu-ring technologies and pro-duct specifications, allow Cembre to respond quickly

3

Prod

ucts

Cembre designs and manufactu-res a wide range of electrical connectors and tools for their installation. Cembre, in particu-lar, has adopted and developed a ‘com-pression’ connec-tion system that enables it to exploit the hardening pro-perties of selected metals (copper and aluminium), whereby these metals acquire greater strength and resistance when bent by force, thereby guaran-teeing the achievement of better performances by these types of connectors than would have otherwise been obtained by more conventional welding and mechanical clamping (screws and bolts) connec-tion methods.

PRODUCT RANGE

�

�

Compression connectors are characterised by lower electrical resistance and by excellent quality electrical contact.

Installation tools used for compressing the connectors and cutting the cables enable quick installation and the achievement of easy and safe optimal connec-tions. The range of tools

includes, according to the application, mechanical, pneumatic, hydraulic and electrical tools.

Strate

gy

�

The Cembre Group is growing rapidly and inve-sting strongly in the deve-lopment of its product range and the consoli-dation of its sales and distribution network, seeking to increase its presence in the internatio-nal markets.

R&D activities focuse primarily on the development of new products aimed at markets with the highest growth potential such as rail transport, civil and industrial

equipment. Implementation of new European Union safety regulations require the adoption

of modern connection systems as those manufactured by Cembre Group. Constant attention devoted to trends in demand and the monitoring of customer satisfaction allowed Cembre to develop

solutions in line with an increasingly demanding market, stretching the use of own technologies to a

growing number of applications.Cembre Group’s expansion of product

offer was achieved by launching leading-edge technology products,

including new battery powered hydraulic tools, a new range of professional mechanical tools, electrically insulated hydrau-lic tools, linked cable termi-nals insulated with halogen free

material, drills for wooden rail-sleepers etc. Whole families of alrea-dy existing products were moreover

updated and improved to enhance user friendliness and qualitative and per-

formance standards.

DEVELOPMENT OF THE PRODUCT RANGE

STRATEGIES

New unit for the insertionand extraction of

“Pandrol FastClip” type clipsfastening rails on

sleepers

B15, the smallest cord-less hydraulic tool, winner for the 'Design' cate-gory at the Innovation & Design Award "Augusto Morello" in the LivingLuce Enermotive 2007 ambit.

The wide knowledge of the sector and the strong presence on the territory allowed Cembre to iden-tify and understand the needs of the different local markets, adapting products to the specific requirements in terms of quality impo-sed by safety regulations in the different countries in which it operates.

The Web site allows the company to interact with customers, providing a number of services such as technical assistance, promotions, the presenta-tion of new products and the possibility to liaise with wholesalers operating in the territory.

�

www.cembre.com

WEB SITE

The sections "Products" and "Exhibitions"in the internet site

Intern

et

New range of hydraulic battery operated tools with vertical handle

Streng

thenin

g

�

Selection of our current hydraulic,

battery operated tools

Cembre made significant investments in the optimization of its manu-facturing activities and enlarging its production capacity at the Brescia, Birmingham and Bergamo facilities.In Brescia, Cembre have modern numerical control work centres as well as other equipment guaranteeing high flexibility and quality of the produc-tion. The Company has an automated warehouse and its own tinplating department which allows to reduce production time and costs, ensuring tight quality control.

The strengthening of production capacity and efficiency involved also the Birmingham plant, dedicated to the production of particular specific product lines for some markets.

General Marking Srl during the 2003 moved its operating headquarters nearby Bergamo, in a new bigger building suitable to cope with the develop-ment foreseen for the next years.

INCREASE IN PRODUCTION CAPACITY

Quali

tyQUALITYTo ensure a high quality standard, since 1990 Cembre’s Quality System has been certified by the Lloyd’s Register Quality Assurance in accordance with the ISO 9002 standard.Since 1992 the certification of the Quality System was extended also to the design process, in accordance with the ISO 9001 standard.

The activities of the Brescia head office, those of regio-nal offices in Italy and of subsidiaries in the United Kingdom, France, Spain, Norway, Germany and the United States are currently managed according to a sin-gle Quality System. In 1998, this Quality System was successfully audited for compliance with the ISO 9001 standard, following its 1994 successful

audit for certification by the Lloyd’s Register Certification regarding the design, manu-

facture and commercialisation of acces-sories for cables, electric connectors

and related equipment, and for the repair, overhaul and related recali-bration of equipment.

This ensures a high and uniform quality for the products and services

supplied by Cembre to its customers.

9

Multi-site Certificatesattesting the conformity toISO 9001-2000 standardshave been issued relating to the Group’s head office, its regional offices in Italy and its associated companies in the United Kingdom, France, Spain, Norway, Germany and the United States.

CNC Machine Department

Press and high speed press machines department

10 11

Manuf

acturing

Cembre Group’s growth has traditionally been driven by its ability to continually anticipate the evolution of the electrical connectors market, enabling it to develop new products with the highest standards in quality, reliability and safety, as well as to improve the performance of existing products.

MANUFACTURINGCembre quickly developed after its creation in 1969, until it became the leading company* in Italy, specialising in the manufacturing of electrical compression connectors and related installation tools, while gaining impor-tant market shares elsewhere in Europe, where it is now recognised as the leading crimping tools manufacturer.

Cembre is currently a group employing 476 persons, with a turnover in 2006 amounting to € 84,1 million.

Tin platingdepartment

* Source Cembre S.p.A.

The parent company, Cembre S.p.A., is based in Brescia where, on an area of aproxima-tely 115,000 square meters, are the Head Office, sales offices, technical offices, Research & Development, the automated warehouse, pro-duction facilities and test laboratories.

View of insulated connectors andterminal blocks assembly department

View of the automated warehouse

10 11

MADRID

PARIS

BIRMINGHAM

MUNICH

STOKKE

BARCELONA

Group companies and branch offices

Main importers

Agents in Italy

VALENCIA

BRESCIA

12

Group

Struc

ture

GROUP STRUCTURE

Cembre España S.L.Madrid (Spain)

Cembre S.a.r.l.Paris (France)

Cembre ASStokke (Norway)

Cembre GmbHMunich (Germany)

Cembre Inc.Edison (USA)

Cembre LtdBirmingham (UK)

Cembre SpABrescia (Italy)

General Marking SrlBrescia (Italy)

The Cembre Group consists of eight companies. The parent company is based in Brescia and is the largest manufacturer of the Group. Other manufacturing companies are the UK subsidiary, based in Birmingham, and Italian subsidiary General Marking, based in Brescia and with manufacturing facilities in Bergamo. The other five subsidia-ries are all commercial companies and are based in Paris, Madrid, Stokke (Norway), Munich, and Edison (New Jersey, USA).Direct presence in important Western European countries allows the Group to effecti-vely reach individual markets, establishing close contact with its customers and ensuring timely and qualified technical and sales assistance.Cembre operates in Italy through a capillary distribution network, with offices and own warehouses in Milan, Turin, Padua, Bologna and Rome. Other regions in Italy are served by agents trained to provide both technical and commercial assistance and by warehouses providing fast deliveries.The sales network assists customers in the choice of the product and the maintenance of tools, optimizing efficiency and speed of delivery. It also informs management of market trends, national standards and competitors.

Cembre Group is present in the USA market through Cembre Inc. located in Edison (New Jersey).

Marketing Companies

Production Units

13

Holdings situation at March 28, 2007

Cemb

re Ltd

Test Laboratory

Cembre Ltd is Cembre Group’s second largest manufacturing unit.Since its establishment in 1986, it has enjoyed constant growth and presently benefits from a good positioning in the market.

Cembre Ltd is located in a manufacturing centre on the north-eastern outskirts of Birmingham, England’s second largest city, in the heart of the Midlands region, recognised for its high concentration of manufacturing industries, particularly in the areas of steel and motor vehicles. It therefore provides Cembre with an excellent source of highly trained labour skilled in the advanced mechanical technologies fundamental to Cembre’s manufacturing needs. Its operations cover an area of 8,000 m2, of which 5,100 m2 are occupied by manufacturing facilities and office buildings.

Cembre Ltd is primarily focused on serving the specific needs of the United Kingdom market. In addition, its flexibility enables it to support other Group operations

Cembre LtdBirmingham

Productions Departments

14 15

Oelma Srl was acquired by Cembre in February 1999 and subsequently merged into the parent company from January 1, 2002.

Oelma’s product line consists of over 1,500 articles for industrial and civil applications.

linea

Brass terminal block and cable clamps

line

14 15

Oelm

aCable glands with increased safety

line

spiral

Polyamide, nickel plated brass and stainless steel cable glands and accessories

Gener

al Mark

ing

Manual cable marking systems

Warningand safetysigns

16

Pc-driven ink plotter marker printing system

General Marking srl was recently incorporated and is a wholly-owned subsidiary of Cembre SpA. The com-pany is active in the sector of industrial marking, manu-facturing cable marking equipment and products for the marking of cables and electrical components. The company has its registered office in Brescia, has ope-rating facilities in Calcinate (Bergamo) and a catalogue of over 12,000 articles.

“Industrial Marking Systems”

RINGcablesys

SIGNstick-onsys

Thermal transfer printer for identification and label-ling designed and manufac-tured by Cembre SpA.

Thermal transfer systemfor reel media printing

17

Cembre has progressed and developed steadily with the dedication and respon-sible attitude of all the staff. We can look forward to the future with confidence and commitment.

Our balance sheets are audited byReconta Ernst & Young since 1989.

C e m b r e S. p. A. Cembre S.p.A. Cembre Group

TURN OVER€ (millions)

CASH FLOW€ (millions)

STAFF(n°)

Development

28,4

25,8

23,2

20,7

18,1

15,5

12,9

10,3

7,7

5,20

31,0

33,6

36,2

38,7

41,3

43,9

46,5

49,1

51,6

54,2

56,8

59,4

62,0

64,6

67,2

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

69,8

72,4

75,0

77,6

80,2

82,8

85,4

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

5,2

4,1

3,1

2,1

1,0

0

6,2

7,2

11,4

12,4

13,4

8,3

1999 2000 2001 2002 2003

9,3

2004 2005 2006

10,3

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

100115130145160175190205220235250265280295310325340355370385

1999 2000

400415430445460475490

2001 2002 2003 2004 2005 2006

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20052006

4.6 5.8 7.1 8.8 10.9 11.4 14.4 16.4 18 18.5 18.4 20.5 26.7 28.7 33.5 37.8 45 50.4 56 56.9 59.9 65.3 70 84.1

0.6 0.8 1 1.4 1.8 1.7 2.2 2.4 2.6 2.3 2.5 2.8 4.5 4.1 5.8 5.5 7 7.5 7.9 7.2 7.5 8.6 10.3 12.5

107 122 128 141 142 153 172 174 176 183 183 192 214 216 285 312 353 384 417 453 468 462 463 476

TURNOVER€ (millions)

EXPORT€ (millions)%ofturnover

CASHFLOW€ (millions)

STAFF(N°)

C e m b r e S. p. A. Group

1.5 1.7 2.2 2.1 2.3 2.9 3.7 4.4 5.8 5.9 6.2 7.2 9.3 9.4 14.7 17.3 20.8 24 27.9 29.4 30.1 34 38.8 47

32 28 30 23 20 24 25.7 26.8 32 32 33.7 34.8 35 32.7 44 45.6 46.2 47.7 49.8 51.7 50.3 52.1 55.4 55.9

QUOTED ON THE ITALIAN STOCK EXCHANGE

Report on Operations of the Cembre Group for the financial year ended December 31, 2006

20

R e p o R t a n d a c c o u n t s 2 0 0 6 - c o n s o l i d a t e d F i n a n c i a l s t a t e m e n t s

Report on Operations of the Cembre Group for the financial year ended December 31, 2006

In 2006 sales of the Cembre Group grew by 20.2% to €84.1 million, up from €70 million in 2005.Consolidated domestic sales amounted to €37.1 million, increasing by 18.8%, while exports amoun-ted to €47 million, up 21.3% on the previous year. A total of 44.1% of Group sales in 2006 were represented by Italy (as compared with 44.6% in 2005), 45.8% by the rest of Europe (46.4% in 2005), and the remaining 10.1% by the rest of the World (9% in 2005).

Sales by geographical area:

(€’000) 2006 2005

Italy 37,120 31,239Rest of Europe 38,512 32,486Rest of the World 8,495 6,272

Total 84,127 69,997

Revenues by Group company (net of intragroup sales):

(€’000) 2006 2005

Parent company 46,770 38,943Cembre Ltd. (UK) 12,678 10,867Cembre S.a.r.l. (France) 5,340 5,245Cembre España S.L. 9,934 7,853Cembre GmbH (Germany) 4,513 3,409Cembre AS (Norway) 528 454Cembre Inc. (USA) 3,978 2,846General Marking srl (Italy) 387 380

Total 84,127 69,997

Figures for General Marking S.r.l. include only sales to third parties managed directly by the subsidiary. Part of General Marking’s sales to other Group companies that distribute products in their respective markets are not attributed to General Marking S.r.l. in the table above. Such sales grew by 70% from €914 thousand to €1,554 thousand.

In 2006, Group companies reported the following results, before the consolidation:

21


Ricavi delle vendite Risultato netto(€’000) 2006 2005 2006 2005

Parent company 65,580 53,463 6,665 4,739Cembre Ltd. (UK) 13,781 11,638 913 612Cembre S.a.r.l. (France) 5,364 5,257 281 255Cembre España S.L. 9,942 7,857 956 499Cembre AS (Norway) 529 454 43 38Cembre GmbH (Germany) 4,527 3,447 274 82Cembre Inc. (USA) 4,122 2,986 401 352General Marking S.r.l. (Italy) 1,941 1,295 45 (435)

For a more direct evaluation of the effect of foreign exchange translation, we include below sales figures of companies operating outside the euro area in the respective currency:

Currency Sales Net profit(€’000) 2006 2005 2006 2005

Cembre Ltd. (UK) £ 9,395 7,958 622 418Cembre AS (Norway) NOK 4,253 3,639 344 301Cembre Inc (USA) Us$ 5,175 3,714 504 438

To provide a better understanding of the Company’s financial performance for 2006, a Reclassified Consolidated Income Statement for the year ended December 31, 2006 and 2005 is enclosed as Atta-chment 1.Consolidated gross operating profit amounts to €19,132 thousand, representing a 22.7% margin on sales, up 30% on the previous year when it amounted to €14,718 thousand, representing a 21.0% margin on sales.Consolidated operating profit amounted to €15,942 thousand, representing an 18.9% margin on sales, up 44.6% on €11,023 thousand in 2005, when it represented a 15.7% margin on sales.Pre-tax profit amounted to €15,862 thousand, representing an 18.9% margin on sales, up on €11,192 thousand in 2005, when it represented a 16% margin on sales. The net financial position declined from €2.8 million at December 31, 2005, to €1.1 million at Decem-ber 31, 2006, after capital expenditure amounting in the year to €5.7 million.Net profit for the year amounted to €9,328 thousand, equal to 11.1% of sales, up 41.2% on €6,605 thousand in 2005, when it represented a 9.4% margin on sales.

Consolidation adjustments determined the following differences between the Financial Statements of the parent company at December 31, 2006 and the Consolidated Accounts at the same date:

22


Reconciliation between net profit and Shareholders’ Equity of the parent company and those resul-ting from the Consolidated Financial Statements

Shareholders’ Equity Net profit

Parent company’s statutory accounts 51,573 6,665

German subsidiary product warranty provision reversal (*) 16 3 Elimination of the write-down in the value of the investment in subsidiary General Marking S.r.l. 432 - Book value of consolidated companies 9,329 2,913 Elimination of intra-group profits included in the value of inventories (*) (1,926) (265)Conversion difference on elimination of intra-group payables and receivables 12 12

Consolidated Financial Statements 59,436 9,328

(*) Net of the related tax effect

The Group’s activity is not affected by cyclical or seasonal factors.

Definition of alternative performance indicatorsIn compliance with CONSOB Communication no. DEM/6064293 dated July 28, 2006, alternative performance indicators used to illustrate the financial and operating performance of the Company are described below:Gross Operating Profit (EBITDA): defined as the difference between sales revenues and costs for raw materials, services and personnel, and the net balance of operating income and costs. It represents the profit reported before amortization, financial flows and taxes.Operating Profit (EBIT): defined as the difference between the Gross Operating Profit and the expense for depreciation, amortization and write-downs. It represents the profit before financial flows and taxes.Net Financial Position: it represents the algebraic sum of cash and equivalents, financial receivables and current and non-current financial payables.

Capital expenditure

In 2006, capital expenditure on property, plant and equipment, gross of depreciation and disposals, amounted to €5.7 million, up sharply from €2.1 million in 2006.The increase is due to the intention of the Group to improve production processes with the adop-tion of new technologies and the widening of the product range to respond better to market needs. In line with the Group’s growth objectives were the acquisition of a plot of land adjacent to the Company’s head offices in Brescia for about €2.3 million, and investments in plant and machinery amounting to about €1.6 million.

Research & Development

In 2006 Research and Development activities focused in the field of cable terminals, railroad equi-pment, cable glands, hydraulic tools, and cable marking. Research costs were not capitalized, while development costs were instead capitalized. Research activities and projects launched or carried out in the year consisted in:

23


- the widening of the product range included in the catalogue with the introduction of new inno-vative products previously not available on the market; - the improvement of technologies and the efficiency of the production process; - the enhancement of the company’s presence in foreign markets

Activities focused on the continuation and completion of projects started in the previous year, and the launch of a new project for the development of innovative products in line with new market trends, in addition to the development of innovative processes.Research costs for the year included €437 thousand of personnel costs, €27 thousand relating to instruments and equipment, and €20 thousand of costs relating to technical advice and the acqui-sition of know-how. Development costs in the year included €35 thousand of personnel costs.A description of Research and Development activities by sector is included in the section that follows.

Research projects in the field of cable terminals

Work continued on the study and development of new cable terminals and joints, in addition to the optimization of the main cable terminal product line

Railroad Equipment Research projectsA number of projects in this field were launched or developed further, while projects underway include:- connectors for the maintenance of feeder wires supplying power to locomotives through panto-graphs; - a new series of products for the mechanical and electrical connection to rail tracks.

Cable glands Research projects

Development of the metric cable glands range continued with the design and manufacturing of the related dies, the development of brass and stainless steel cable glands and the study of the production process and manufacturing of dies and inserts for the related components.

Hydraulic Tools research projects

The following studies were undertaken in 2006:- new battery-operated tools for the compression of connectors, to be used with different types of dies, specific for the US market;- a new range of battery-operated two-speed hydraulic tools;- a hydraulic cable cutting tool; - a battery-operated hydraulic cable cutting tool; - a battery-operated hydraulic station;- a new small-size battery-operated hydraulic tool with interchangeable dies;- a new small-size battery-operated hydraulic tool with interchangeable dies specific for the US market.

24


Cable marking research projects

The development of the following products and the related dies for their manufacturing conti-nued:- a system for the labelling of pole terminal blocks consisting of labels and related supports;- a new thermal-transfer labelling system;- a range of cable labels for bobbin printing;- a clamp label manufacturing machine for heat-transfer printers.

Relationships with subsidiaries, parent companies and related parties

Detailed information regarding transactions with related parties is provided in the notes to the consolidated accounts.

Normative changes

Law 262/05 “Law on Savings”

To adapt its organizational structure and internal procedures to changes introduced by Law 262/05 on savings, in November the Company launched a project aimed at complying with new norms. Making use of the advice of an independent advisor specialized in internal auditing and risk analysis, the Company gathered financial and operating information, identifying through a quantitative/qualitative matrix the areas and processes with the highest degree of risk. Based on the results of this analysis, operating procedures aimed at monitoring the information flow and at ensuring the correctness of information published, were drafted in collaboration with employees in charge of affected activities, keeping into account current needs and procedures of the Company. To ensure compliance with internal processes, in the last phase of the project, control points iden-tified in the procedure will be tested for efficacy.

Legislative Decree 231/01 “Administrative Responsibilities of Entities”

Based on information gathered in the context of the 262 project, in February 2007 the Company launched a project aimed at complying with the provisions of Legislative Decree 231/01 on the Administrative Responsibilities of Entities. The first phase of the project involved the identifi-cation of the possible infringements in which the Company could incur and the areas subject to the highest risk in this context. The next phase will involve the development of an organizational model oriented towards compliance with the spirit of the law, of a code of conduct and reference protocols for the areas identified.

Own shares

At December 31, 2006, Cembre S.p.A. did not own any of its own shares nor did it own, either directly or through any of its subsidiaries, trust companies or intermediaries, any of its parent com-pany’s shares.In 2006, the Company did not acquire or shell any of its own shares.

25


Subsequent events

No event having significant effects on the financial or operating performance of the Cembre Group occurred after the closing of the financial year.

Outlook

In view also of good sales recorded in the first months of the year, the company expects a growth in activity in 2007 over the previous year, both in the domestic market and foreign markets. Profit levels are expected to remain positive.

Brescia, March 28, 2007

THE CHAIRMAN OF THE BOARD OF DIRECTORS OF PARENT COMPANY CEMBRE S.P.A.

Carlorosani

26


ATTAChmENT 1 TO ThE REPORT ON OPERATiONS OF ThE CEmbRE GROuP CONSOLIDATED INCOME STATEMENT

(€ '000) 2006 % 2005 % change %

Revenues from sales and services provided 84,127 100 69,997 100 20.2%

Other revenues 88 105

TOTAL REVENuES 84,215 70,102

Cost of goods and marchandise (35,818) (42.6) (22,599) (32.3) 58.5%

Cost of services received (12,413) (14.8) (10,395) (14.9) 19.4%

Lease and rental costs (1,047) (1.2) (1,014) (1.4) 3.3%

Personnel costs (22,276) (26.5) (20,579) (29.4) 8.2%

Other operating costs (404) (0.5) (470) (0.7) -14.0%

Change in inventories 6,399 7.6 (605) (0.9)

Increase in assets due to internal construction 607 0.7 508 0.7 19.5%

Write-down of current assets (124) (0.1) (209) (0.3) -40.7%

Accruals to provisions for risks and charges (8) (0.0) (21) (0.0) -61.9%

GROSS OPERATiNG PROFiT 19,131 22.7 14,718 21.0 30.0%

Tangible assets depreciation (3,092) (3.7) (3,364) (4.8) -8.1%

Intangible assets amortization (98) (0.1) (104) (0.1) -5.8%

Write-down of long-term assets - 0.0 (227) (0.3)

OPERATiNG PROFiT 15,941 18.9 11,023 15.7 44.6%

Financial income (expense) (6) (0.0) (142) (0.2) -95.8%

Foreign exchange gains (losses) (74) (0.1) 311 0.4

PROFiT bEFORE TAXES 15,861 18.9 11,192 16.0 41.7%

Income taxes (6,534) (7.8) (4,587) (6.6) 42.4%

NET PROFiT FROm ORDiNARY ACTiViTiES 9,327 11.1 6,605 9.4 41.2%

NET PROFiT FROm ASSETS hELD FOR DiSPOSAL - -

NET PROFiT 9,327 11.1 6,605 9.4 41.2%

Consolidated Financial Statementsat December 31, 2006

28


Consolidated Balance Sheet

(euro '000) Notes Dec. 31, 2006 Dec. 31, 2005

ASSETSof which: related parties

of which: related parties

A) NON-CURRENT ASSETS

Tangible assets 1 30,528 28,204

Intangible assets 2 143 154

Financial assets available for sale 3 5 5

Other non-current assets 4 92 100

Deferred tax assets 13 1,807 1,633

TOTAL NON-CURRENT ASSETS 32,575 30,096

B) CURRENT ASSETS

Inventories 5 26,047 19,746

Trade receivables 6 26,504 21,676

Tax receivables 7 7 -

Other receivables 8 459 166

Cash and cash equivalents 3,964 6,026

TOTAL CURRENT ASSETS 56,981 47,614

C) NON-CURRENT ASSETS AVAILABLE FOR SALE - -

TOTAL ASSETS(A+B+C) 89,556 77,710

LIABILITIES AND SHAREHOLDERS’ EQUITY

A) SHAREHOLDERS’ EQUITY

Capital stock 9 8,840 8,840

Reserves 9 41,268 37,237

Net profit 9 9,327 6,605

TOTAL SHAREHOLDERS’ EQUITY 59,435 52,682

B) NON-CURRENT LIABILITIES

Non-current financial liabilities 10 71 89

Employee Severance Indemnity and other personnel benefits 11 4,658 133 4,478 124

Provisions for risks and charges 12 288 295

Deferred tax liabilities 13 4,230 4,054

TOTAL NON-CURRENT LIABILITIES 9,247 8,916

C) CURRENT LIABILITIES

Current financial liabilities 10 2,822 3,139

Liabilities on derivative instruments 14 - 21

Trade payables 15 11,464 7,017

Tax payables 16 1,816 977

Other payables 17 4,772 4,958

TOTAL CURRENT LIABILITIES 20,874 16,112

D) LIABILITIES ON ASSETS HELD FOR DISPOSAL - -

TOTAL LIABILITIES (B+C+D) 30,121 25,028

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (A+B+C+D) 89,556 77,710

29


Consolidated Income Statement

(euro '000) Notes Dec. 31, 2006 Dec. 31, 2005of which: related parties


Revenues from sales and services provided 18 84,127 69,997

Other revenues 19 88 105

TOTAL REVENUES 84,215 70,102

Cost of goods and merchandise (35,818) (22,599)

Cost of services received 20 (12,413) (623) (10,395) (432)

Lease and rental costs 21 (1,047) (483) (1,014) (475)

Personnel costs 22 (22,276) (206) (20,579) (247)

Other operating costs 23 (404) (470)

Change in inventories 6,399 (605)

Increase in assets due to internal construction 607 508

Write-down of receivables (124) (209)

Accruals to provisions for risks and charges (8) (21)

GROSS OPERATING PROFIT 19,131 14,718

Tangible asset depreciation (3,092) (3,364)

Intangible asset amortization (98) (104)

Write-down of long-term assets - (227)

OPERATING PROFIT 15,941 11,023

Financial income (expense) 24 (6) (142)

Foreign exchange gains (losses) (74) 311

PROFIT BEFORE TAXES 15,861 11,192

Income taxes 25 (6,534) (4,587)

NET PROFIT FROM ORDINARY ACTIVITIES 9,327 6,605

NET PROFIT FROM ASSETS HELD FOR DISPOSAL - -

NET PROFIT 9,327 6,605

BASIC EARNINGS PER SHARE 26 0.55 0.39

30


Consolidated Statement of Cash Flows as at December 31, 2006

2006 2005(euro '000)

A) CASH FLOW FROM OPERATING ACTIVITIES

Net profit for the period 9,327 6,605

Depreciation, amortization and write-downs 3,190 3,697

(Gains)/Losses on disposal of assets (33) (32)

Net change in Employee Termination Indemnity 180 225

Net change in provisions for risks and charges (7) 14

Operating profit (loss) before change in working capital 12,657 10,509

(Increase) Decrease in trade receivables (4,828) (2,202)

(Increase) Decrease in inventories (6,300) 356

(Increase) Decrease in other receivables and deferred tax assets (475) 80

Increase (Decrease) of trade payables 4,448 (407)

Increase (Decrease) of other payables and deferred tax liabilities 828 (383)

Change in working capital (6,327) (2,556)

NET CASH FLOW (USED IN)/FROM OPERATING ACTIVITIES 6,330 7,953

B) CASH FLOW FROM INVESTING ACTIVITIES

Capital expenditure on fixed assets:

- intangible (87) (142)

- tangible (5,353) (1,910)

Proceeds from disposal of tangible, intangible, available-for-sale financial assets (30) 9

NET CASH FLOW (USED IN)/FROM INVESTING ACTIVITIES (5,470) (2,043)

C) CASH FLOW FROM FINANCING ACTIVITIES

(Increase) Decrease in other non current assets 8 45

Increase (Decrease) in bank loans and borrowings (314) (5,406)

Increase (Decrease) in other loans and borrowings (21) 32

Increase (Decrease) in derivative instruments (21) (9)

Change in reserves (24) 645

Dividends distributed (2,550) (1,698)

NET CASH FLOW (USED IN)/FROM FINANCING ACTIVITIES (2,922) (6,391)

D) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) (2,062) (481)

E) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,026 6,507

F) CASH AND CASH EQUIVALENTS AT END OF PERIOD (D+E) 3,964 6,026

31


CASH AND CASH EQUIVALENTS AT END OF PERIOD 3,964 6,026

Current financial liabilities (2,822) (3,139)

Non current financial liabilities (71) (89)

Liabilities on derivative instruments - (21)

NET CONSOLIDATED FINANCIAL POSITION 1,071 2,777

INTERESTS PAID IN THE YEAR (76) (194)

BREAKDOWN OF CASH AND CASH EQUIVALENTS AT END OF PERIOD

Cash 18 9

Banks 3,946 6,017

3,964 6,026

32


Stat

emen

t of C

hang

es in

the

Con

solid

ated

Sha

reho

lder

s' E

quity

for

the

Year

200

6

(€ '0

00)

Capi

tal

stock

Shar

e pr

emiu

m

rese

rve

Lega

l re

serv

e

Rese

rve

for o

wn

shar

es

Susp

en-

ded-

tax

rese

rves

Cons

olid

a-tio

n re

serv

e

Con-

vers

ion

diffe

renc

es

Extra

ordi

-na

ry re

serv

e

Ure

alize

d ga

ins

rese

rve

Exch

ange

ga

ins

rese

rve

Reta

i-ne

d ea

rnin

gsN

et p

rofit

Tota

l Sh

areho

lders'

Eq

uity

Bal

ance

at

Dec

embe

r 31

, 200

48,

840

12,2

451,

366

(291

)68

2,40

7(3

85)

15,2

103,

840

--

3,83

047

,130

Con

vers

ion

diffe

renc

es(6

5)37

631

1

Elim

inat

ion

of o

wn

shar

es29

129

1

Allo

catio

n of

pr

evio

us y

ear n

et

profi

t (1)

297

1,02

581

0(3

,830

)(1

,698

)

Sale

of o

wn

shar

es43

43

Oth

er c

hang

es41

(41)

-

Net

pro

fit fo

r 200

56,

605

6,60

5

Bal

ance

at

Dec

embe

r 31

, 200

58,

840

12,2

451,

663

-68

3,36

7(9

)16

,104

3,79

9-

-6,

605

52,6

82

Con

vers

ion

diffe

renc

es(2

1)(3

)(2

4)

Allo

catio

n of

pr

evio

us y

ear n

et

profi

t (1)

105

1,86

72,

069

14(6

,605

)(2

,550

)

Oth

er c

hang

es14

(14)

-

Net

pro

fit fo

r 200

69,

327

9,32

7

Bal

ance

at

Dec

embe

r 31

, 200

68,

840

12,2

451,

768

-68

5,21

3(1

2)18

,187

3,79

9-

-9,

327

59,4

35

(1) D

ivid

ends

reso

lved

by

the

Shar

ehol

ders

' Mee

ting

are

incl

uded

in th

e To

tal S

hare

hold

ers'

Equi

ty c

olum

n un

der A

lloca

tion

of p

revi

ous y

ear n

et p

rofit

.

33


Notes to the Consolidated Financial StatementsI. CORPORATE INFORMATION

CembreS.p.A.isajoint-stockcompanywithregisteredofficeinBrescia,ViaSerenissima9.CembreS.p.A.anditssubsidiaries(hereinafterreferredtojointlyas“theCembreGroup”or“theGroup”) are active primarily in the manufacturing and sale of electrical connectors and relatedtools.ThepublicationoftheConsolidatedFinancialStatementsofCembreS.p.A.forthehalf-yearendedDecember31,2006wasauthorizedbyaresolutionoftheBoardofDirectorsdatedMarch28,2007.CembreS.p.A.iscontrolledbyLysneS.p.A.,aholdingcompanybasedinBergamo,thatdoesnotdirectorcoordinateitssubsidiary.

II. FORM AND CONTENT

ThepresentConsolidatedFinancialStatementsatDecember31,2006werepreparedundertheIn-ternationalFinancialReportingStandards(IFRS)adoptedbytheEuropeanUnionandtherelatedimplementationregulationsissuedinapplicationofarticle9ofLegislativeDecreeno.38/2005.PrinciplesadoptedinthepreparationofthepresentconsolidatedreportarethoseformallyapprovedbytheEuropeanUnion,inforceatDecember31,2006.Thetablethatfollowscontainsalistofinternationalaccountingprinciplesandinterpretationsap-provedbytheIASBthatbecameeffectivestartingin2006,whichweretakenintoaccount,whereapplicable,inthepreparationofthepresentFinancialStatements:

Effective

AmendmentstoIAS19‘EmployeeBenefits’:ActuarialGainsandLosses,GroupPlansandDisclosures Jan.1,2006

IFRIC4:Determiningwhetheranarrangementcontainsalease Jan.1,2006

IFRS6:MineralResources Jan.1,2006

IFRIC5:InterestsinDecommissioningFunds Jan.1,2006

AmendmenttoIAS39:TheFairValueOption Jan.1,2006

AmendmenttoIAS39:CashFlowHedgeAccounting Jan.1,2006

AmendmentstoIAS39andIFRS4:FinancialGuaranteeContracts Jan.1,2006

Thefollowingprincipleswillbecomeeffectiveatthedatesspecifiedbelow:

Descrizione Effective

IFRS7:FinancialInstruments:Disclosures Jan.1,2007

IFRIC8:ScopeofapplicationofIFRS2 Jan.1,2007

IFRIC9:Subsequentvaluationofimplicitderivatives Jan.1,2007

IFRIC11:IFRS2–GroupandTreasurySharestransactions Jan.1,2008

IFRIC12:Contractsforservicesunderconcession Jan.1,2008

IFRS8::Operatingsegments Jan.1,2009

Theapplicationwhereappropriateoftheabovestandardswillnothaveasignificantimpactonthevaluationofassets,liabilities,costsandrevenuesoftheGroup.

34


ItemsintheConsolidatedBalanceSheetwererecordedatthehistoricalcost,withtheexceptionoffinancialderivatives,recordedatfairvalue.Unlessotherwise indicated,figures reported in thefinancial statementsandthe relatednotesareexpressedinthousandsofeuro.

Principles of consolidation

The Consolidated Financial Statements of the Cembre Group include the statutory accounts atDecember 31, 2006 of Cembre S.p.A. and of its subsidiaries. Accounting principles adopted inthepreparationofthefinancial statementsof subsidiariesareconsistentwiththoseof theparentcompany.In the consolidated financial statements, assets, liabilities, costs and revenues of consolidatedcompanies are consolidated line-by-line.Thebookvalueof investments in subsidiaries isnettedagainsttherespectiveshare intheShareholders’Equityheld, inclusiveofadjustmentstothefairvalueoftherelatedassetsandliabilitiesatthedateoftheiracquisition.Theresidualdifferenceisattributedtogoodwill.ThefollowingcompanieswereconsolidatedatDecember31,2006:

% held

1. CembreLtd(UK) 100% 2. CembreSarl*(France) 100% 3. CembreEspañaSL*(Spain) 100% 4. CembreAS(Norway) 100%5. CembreGmbh*(Germany) 100%6. CembreInc**(US) 100%7. GeneralMarkingSrl(Italy) 100%*5%shareheldthroughCembreLtd**29%shareheldthroughCembreLtd

TheconsolidationareaisunchangedwithrespectDecember31,2005.

III. CONSOLIDATION PRINCIPLES AND VALUATION CRITERIA

Form of the financial statements

Thefinancialstatementsarepreparedasfollows:- currentandnon-currentassetsandliabilitiesarereportedseparatelyinthebalancesheet;- theanalysisofcostsintheincomestatementiscarriedoutbasedonthenatureofthesame;- thestatementofcashflowsispreparedbyapplyingtheindirectmethod.Finally,withreferencetoCONSOBRegulationno.15519datedJuly27,2006,amountspertainingtorelatedparties,wheresignificant,areexposedinaseparatedcolumnofIncomeStatementandBalanceSheet.

Consolidation principles

The Consolidated Financial Statements of the Cembre Group include the statutory accounts atDecember 31, 2006 of Cembre S.p.A. and those of its subsidiaries. The financial statements of

35


consolidatedsubsidiariesareconsolidatedundertheline-by-linemethod,thusincludingallitems,irrespectiveof the shareheldby theGroup,of theeliminationof intragroup transactionsandofunrealizedgainsontransactionswiththirdparties.Thebookvalueofinvestmentswasnettedagainsttherelatedshareintheshareholders’equityofconsolidatedcompanies,attributingtoassetsandliabilitiestherespectivecurrentvalueatthetimecontrolwasacquiredandrecordingcontingentliabilities,whereappropriate.Wherepositive,theresidualamountwasrecordedamongnon-currentassetsasgoodwill.Negativeresidualdifferenceswererecordedintheincomestatement.Allsubsidiariesarewholly-ownedandinnocasethereforehaveminorityinterestsbeenrecorded.

Translation of financial statements expressed in currencies other than the euro

ThefunctionalcurrencyoftheGroupistheeuro.Financial statements denominated in functional currencies other than the euro are translatedaccordingtothefollowingcriteria:- assets and liabilities are translated at the exchange rate applicable at the date of the financial

statements;- incomestatementitemsaretranslatedattheaverageexchangeratefortheyearortheperiod;- foreign-exchangetranslationdifferencesarerecordedinaspecificShareholders’Equityreserve.

Atthetimeatwhichaforeignsubsidiaryisdisposedof,accumulatedforeign-exchangedifferencesre-cordedunderShareholders’EquityrelatingtothesamearetakentotheIncomeStatement.Exchangeratesappliedinthetranslationoffinancialstatementsofsubsidiariesareshowninthetablebelow:

Currency Exchange rate at Dec. 31, 2006 Average exchange rate for 2006

Britishpound(€/£) 0.6715 0.6817

USdollar($/€) 1.3170 1.2556

Norwaykroner(NOK/€) 8.2380 8.0472

Property, plant and equipment

Property,plantandequipmentarerecordedatthehistoricalcostandreportednetofaccumulateddepreciationandlossesinvalue.Ordinarymaintenanceandrepaircostsarenotcapitalized,andarechargedtotheincomestatementintheyearinwhichtheyareincurred.Depreciationcommenceswhentheassetisavailableforuseandiscalculatedonastraightlinebasisovertheestimatedresidualusefullifeoftheasset,takingintoaccountitsresidualvalue.Depreciationratesappliedreflecttheusefullifegenerallyattributedtothevariousclassesofassetsandareunchangedfromthepreviousyear.Theseare:

-Buildingsandlightinstallations: 2%–10%-Plantandmachinery: 5%–25%-Industrialandcommercialequipment: 6%–25%-Otherassets: 6%–33%.

Landhasanundeterminedusefullifeandisthereforenotsubjecttodepreciation.Thebookvalueofproperty,plantandequipmentissubjectedtoimpairmenttestwheneverevents

36


orchangesoccurredindicatethatthebookvalueofthesamecannolongerberetrievedinlinewiththedepreciationscheduleoriginallyset.Wheneverthereexistssuchanindication,theassetsorcashgeneratingunitsarewrittendowntoreflecttheirexpectedrealizablevalue.Theresidualvalueofassets,theirusefullifeandmethodsappliedarereviewedannuallyandadjusted,wherenecessary,attheendofeachyear.TangibleassetsareeliminatedfromtheBalanceSheetatthetimeoftheirsaleorwhentherenolongerexiststheexpectationoffutureeconomicbenefitsfromitsuseordisposal.Lossesandgains(calculatedasthedifferencebetweennetrevenuesfromthedisposalandbookvalueoftheasset)arerecordedintheIncomeStatementintheyearinwhichtheyaredisposedof.

Leased assets

Assetsheldunderafinanciallease,throughwhichallrisksandbenefitsrelatingtoownershiparetransferredtotheGroup,arerecordedunderassetsattheloweroftheircurrentvalueandthepresentvalueofminimumleasepaymentsdueaccordingtothecontract,includingthebulletpaymentdueattheendoftheleasetoexercisetherepurchaseoption.Theliabilitycorrespondingtotheleasecontractisrecordedunderfinancialliabilities.Leasedassetareclassifiedundertherespectivecategoryamongproperty,plantandequipment,anddepreciatedovertheshorterperiodbetweenthetermoftheleaseandtheexpectedresidualusefullifeoftheasset.Leasecontracts,inwhichthelessorholdsallrisksandenjoysallbenefitsderivingfromtheleasedasset,areclassifiedasoperatingleasesandrecordedascostsintheIncomeStatementoverthetermofthecontract.

Intangible assets

Intangibleassetsarerecordedunderassets,asprovidedbyIAS38(Intangibleassets),wheneveritisprobablethatfutureeconomicbenefitsaregeneratedthroughuseandwhenthecostoftheintangibleassetcanbedeterminedinareliablemanner.Intangibleassetsacquiredseparatelyareinitiallycapitalizedatcost,whilethoseacquiredthroughmergersarecapitalizedattheirfairvalueatthetimeofacquisition.With the exception of development costs, assets constructed internally cannot be recorded asintangibleassets.Aftertheinitialrecording,intangibleassetsarecarriedinthebalancesheetatcost,netofaccumulatedamortizationcalculatedonastraight-linebasisovertheirexpectedusefuleconomiclife,andofwrite-downscarriedoutasaresultofdurablelossesinvalue.Intangibleassetshavinganindefiniteusefullifearenotamortizedandsubjectedperiodicallytoanimpairmenttesttoassesspossiblelossinvalue.

Theusefullifegenerallyattributedtothevariousclassesofassetsisthefollowing:

-concessionsandlicenses: 5to10years-software licenses 3years-developmentcosts: 5years-trademarks: 10to20years

Amortizationcommenceswhentheassetisavailableforuse,thatis,whenitisinapositionandinthenecessaryconditiontooperateinthemannerintendedbythemanagementofthecompany.Thebookvalueof intangible assets is subjected to impairment testwhenever events or changesoccurred indicate that the book value of the same can no longer be retrieved in line with the

37


amortizationscheduleoriginallyset.Wheneverthereexistssuchanindicationandthebookvalueoftheassetexceedsitsrealizablevalue,thevalueoftheassetiswritten-downtoitsexpectedrealizablevalue.

Financial assets

Financialassetsareinitiallyrecordedatcost,inclusiveofaccessorypurchasecosts,representingthefairvalueofthepricepaid.Aftertheinitialrecording,financialassetsarevaluedinaccordancewiththeirfinalpurposeasdescribedbelow.

Financial assets valued at fair value, whose change is recorded in the Income Statement

Thesearefinancialassetsheldfortradingpurposes,acquiredforthepurposeofobtainingaprofitfromshort-termfluctuationsinprice.Unlessspecificallydesignatedaseffectivehedginginstruments,derivativesareclassifiedasfinancialassetsheldfortradingpurposes.

Gainsandlossesonfinancialassetsheldfortradingpurposesarerecordedintheincomestatement.

Financial assets held to maturity

Thesearefinancialassetsotherthanderivativesthatgeneratefixedfinancialflowsorflowsthatmaybedetermined,thathaveasetmaturityandwhichtheGroupintendstoandiscapableofholdingtomaturity.FinancialassetsthattheGroupdecidestoholdforanindefiniteperiodoftimedonotfallunderthiscategory.Long-termfinancial investmentsheld tomaturity, suchasbonds, after their initial recordingareaccounted forat theamortizedcost,using theeffective rateof interestmethod, representing therateatwhichestimatedfuturepaymentsorcollectionsovertheexpectedusefullifeoftheassetarediscountedtotheirpresentvalue.Theamortizedcostiscalculatedkeepingintoaccountdiscountsandpremiums,amortizedoverthetermofthefinancialasset.

Loans extended and receivables

Loansandreceivablesarenon-derivativefinancialassetsprovidingforfixedpaymentsorpaymentsthatmaybedetermined,notlistedonanactivemarket.Suchassetsarerecordedattheamortizedcostusingtheactualdiscountratemethod.GainsandlossesarerecordedintheIncomeStatementwheneverloansextendedandreceivablesareeliminatedfromtheaccountsortheyexperiencelossesinvalue,inadditiontotheamortizationprocess.

Financial assets available for sale

Thecaptionincludesfinancialassetsthatdonotfallundertheabovecategories.Aftertheinitialrecording,theseareaccountedforatfairvalue,whilegainsandlossesarerecordedunderaspecificShareholders’Equityreserveuntiltheassetsarenotsoldoralossinvalueisascertained.Insuchcase,gainsandlossesaccruedarechargedtotheincomestatement.In the case of securities widely traded on a regulated market, the fair value is determined withreferencetothelistedpriceattheclosingoftradingonthedateofthefinancialstatements.Inthecaseoffinancialassetsforwhichtheredoesnotexistanactivemarket,thefairvalueisdeterminedthroughvaluationtechniquesbasedonthepricerecordedinrecenttransactionsbetweenunrelatedpartiesoronthebasisofthecurrentmarketvalueofasimilarinstrument,orondiscountedcashflowsoroptionpricingmodels.Investmentsinothercompaniesfallinthiscategory.

38


Loss in value of financial assets

TheGroupverifiesatleastyearlythepossiblelossinvalueofindividualfinancialassets.Thesearerecordedonlyatthetimewhenthereexistsobjectiveevidence,attheoccurrenceofoneormoreevents,thattheassethasexperiencedalossofvaluewithrespecttoitsinitialrecordedvalue.

Treasury shares

TreasurysharesarerecordedasareductionofShareholders’Equityinaspecificreserve.Thepurchase,sale,issueorcancellationoftreasurysharesdoesnotdeterminetherecordingofanygainorlossintheIncomeStatement.

Inventories

Inventoriesarevaluedatthelowerofcostandtheirexpectedrealizablevalue,representedbytheirnormalsaleprice,netofcompletionandsellingcosts.Thecostofinventoriesincludestheacquisitioncost,thetransformationcostandothercostsincurredtotakeinventoriestotheircurrentlocationandstate.Thecostofinventoriesisdeterminedundertheweighted-averagemethod,inclusiveofthecostofbeginninginventories.Provisions for slow-moving stock are accrued for finished products, materials and other supplies,keepingintoaccounttheirexpectedusefullifeandretrievablevalue.

Payables and receivables

Receivablesarerecordedinitiallyatfairvalueandsubsequentlycarriedattheamortizedcost,written-downincaseof loss invalue.Payablesarenormallyvaluedattheamortizedcost,adjustedunderexceptionalconditionsforchangesinvalue.

Cash and cash equivalents

Cashandcashequivalentsarerecordedatfacevalue.

Loans

Loansareinitiallyrecordedatcost,correspondingtothefairvalueoftheamountreceived,netofaccessorycostsincurredintheextensionoftheloan.After the initial recording, loans are valued at the amortized cost, using the effective interestmethod.

Translation of amounts denominated in currencies other than the euro

Transactionsdenominatedincurrenciesotherthantheeuroareinitiallyaccountedforineuroattheexchange rate at the date of the transaction. Currency translation differences arising at the time atwhichforeigncurrencyreceivablesarecollectedandpayablesarepaidout,arerecordedintheincomestatement.Atthedateofthefinancialstatements,monetaryassetsandliabilitiesdenominatedincurrenciesotherthantheeuro–consistingofcashonhandorassetsandliabilitiestobereceivedorpaidout,whoseamountissetandmaybedetermined–aretranslatedintoeuroattheexchangerateatthedateofthefinancialstatements,recordingintheincomestatementthecurrencytranslationdifferencewhereappropriate.Non-monetary items denominated in currencies other than the euro are translated into euro at theexchange rate at the time of the transaction, representing the historical exchange rate. FunctionalcurrenciesadoptedbyGroupcompaniescorrespondtothecurrenciesoftherespectivecountyinwhichsubsidiariesarebased.

39


Provisions for risks and charges

Provisions forrisksandchargesareaccruedagainstknownliabilitieswhoseamountandexpirationcannothoweverbedeterminedatthedateofthefinancialstatements.Accrualsaremadewhentheexistenceofacurrentobligation,legalorimplicit,derivingfromapastevent,thefulfilmentofwhichisexpectedtorequiretheuseofresourceswhoseamountcanbereliablyestimated,isprobable.Provisionsarevaluedatthefairvalueofliabilities.Whenthefinancialeffectandthetimingofthecashoutflowcanbeestimatedinareliablemanner,provisionsincludetheinterestcomponent,recordedintheIncomeStatementamongfinancial income(expense).Provisionsaccruedarereviewedateachaccountingdateandadjustedtobringthemintolinewiththebestestimateavailableatthatdate.

Employee benefits

Post-employmentbenefitsfallingunderthecategoryofdefinedbenefitplansandotherlong-termbenefits are subjected to actuarial valuations. The resulting liability recorded in the financialstatementsisrepresentedbythecurrentvalueoftherelatedliabilityoftheCompany,netofassetssetasidetoservicepost-employmentbenefitplans.UnderIAS19,theEmployeeSeveranceIndemnityisclassifiedamongdefinedbenefitplans.ItistobenotedthattheGroupoptednottousetheso-calledcorridorapproachandtorecordgainsandlossesresultingfromchangesinactuarialassumptionsdirectlyintheincomestatement.

Elimination of financial assets and liabilities

FinancialassetsareeliminatedwhentheCompanyceasestoholdrightstoreceivefinancialflowsderivingfromthesameorwhensuchrightsaretransferredtoanotherentity,thatiswhenrisksandbenefitsofthefinancialinstrumentceasetohaveaneffectonthefinancialpositionandoperatingperformanceoftheGroup.Afinancialliabilityiswritten-offexclusivelywhentherelatedobligationiscancelled,fulfilledorexpired.Anymaterialchangeinthecontractualtermsrelatingtotheliabilityresultinitscancellationandintherecordingofanewliability.AnydifferencebetweenthebookvalueandtheamountpaidtoextinguishtheliabilityisrecordedintheIncomeStatement.

Revenues

Revenuesarevaluedatthecurrentvalueoftheamountreceivedorreceivable.

Disposal of assetsTherevenueisrecognizedwhentheGrouphastransferredtherisksandbenefitsconnectedwiththeownershipofthegood,andceasestoexercisetheactivityassociatedwithownershipandtheactualcontrolovertheassetsold.

Services renderedRevenuesarerecordedbasedonthestageofcompletionoftheoperationatthedateofthefinancialstatements.Whentheresultoftheservicerenderedcannotbereliablyestimated,revenuesarerecordedonlytotheextentofretrievablecosts.Thestageofcompletionisdeterminedbyvaluingworkcarriedoutorbydeterminingtheproportionbetweencostsincurredandtotalestimatedcoststocompletion.

InterestInterestisrecordedintheperiodinwhichitaccrues,usingtheeffectiveinterestmethod.

DividendsDividendsarerecordedwhentherightofshareholderstoreceivethemarises.

40


Grants

Grantsarerecordedwhenthereexistsareasonablecertaintythatthesamewillactuallybereceivedandthecompanymeetstheconditionsfortheentitlementtothegrant.Grants linked tocost components (e.g.operatinggrants) are recordedunder “other revenues” andamortizedoverseveralyearssothatrevenuesmatchthecoststheyareintendedtocompensate.Thefairvalueofgrantslinkedtoassets(e.g.grantsonthepurchaseofplantandequipmentorgrantsforcapitalizedR&Dcosts),issuspendedunderlong-termliabilitiesandreleasedtotheincomestatementunder“otherrevenues”overtheusefullifeoftheassettowhichitrelates,thusintheperiodoverwhichthedepreciationexpenserelatingtotheassetischargedtotheincomestatement.

Financial charges

Financialchargesarerecordedasacostintheperiodinwhichtheyaccrue.

Cost of goods purchased and services

Thecostofgoodspurchasedandservicesreceivedisrecordedintheincomestatementbasedontheaccrualmethod.

Income taxes (current, prepaid and deferred)

CurrenttaxesaredeterminedbasedonarealisticestimateofthetaxexpensefortheperiodinaccordancewithtaxregulationsapplicableintherespectivecountriesinwhichGroupcompaniesoperate.TheGrouprecordsdeferredandprepaidtaxesarisingfromtemporarydifferencesbetweenthebookvalueofassetsandliabilitiesandtherelatedvaluesreportedfortaxpurposes,inadditiontodifferencesinthevalueofassetsandliabilitiesgeneratedbyconsolidationadjustments.Prepaidtaxesarerecordedonlywherethereexistsreasonablecertaintyoftheirretrievalthroughfutureprofitswithintheterminwhichtaxbenefitsareenjoyed.Deferredtaxassetsarerecordedalsowherethereexistdeductiblelossesortaxcreditswheneveritisdeemedprobablethatsufficientfutureprofitswillbegeneratedinthemedium-term(3to5years).Financial derivatives

Derivativefinancialinstrumentsarevaluedatmarketvalue(fairvalue).Aderivativefinancialin-strumentcanbeacquiredfortradingorhedgingpurposes.Gainsandlossesonfinancialinstrumentsacquiredfortradingpurposesarechargedtotheincomestatement.Derivativesacquiredforhedgingpurposesmaybeaccountedforunderthehedgeaccountingmethod–offsettingtherecordingofthederivativeintheincomestatementwithadjustmentstothevalueofassetsandliabilitieshedged–onlywhenderivativesmeetspecificcriteria.Hedgederivativesareclassifiedas“fairvaluehedges”whentheyareacquiredtohedgeagainsttheriskoffluctuationsinthemarketvalueoftheunderlyingassetorliabilityorfluctuationsinthefinancialflowsderivingfromthesame,bothinthecaseofexistingassetsandliabilitiesorthosederivingfromafuturetransaction.Inthecaseoffairvaluehedges,gainsandlossesontherestatementofthemarketvalueofaderivativeinstrumentaretakentotheincomestatement.Withregardtothehedgingoffinancialflows,gainsandlossesonthehedgeinstrumentarerecordedunderShareholders’Equitywhentheyrelatetotheportionofthehedgeconsideredeffective,whiletheportionnothedgedisrecordedintheincomestatement.

Earnings per share

Earningspersharearecalculatedbydividingconsolidatednetprofitbytheweightedaveragenumberofsharesincirculationfortheperiod.

41


Fullydilutedearningspershare(calculatedbysubtractingfromconsolidatednetprofitthecostofconvertingallstockoptionsintoordinaryshares)areobtainedbyadjustingthenumberofsharesincirculationassumingtheexerciseofstockoptionshavingadilutingeffect.

Use of estimates

Inaccordancewith IAS/IFRS, theGroupmadeuseof estimates andassumptionsbasedonpriorexperienceandotherfactorsdeemeddeterminant,butnotcertain.Actualdatacouldthereforedifferfromestimatesandprojectionsmade.EstimateddataisreviewedperiodicallyandadjustmentsmadetothesamearetakentotheIncomeStatementfortheperiodinwhichthereviewtakesplaceincasethereviewaffectonlyoneperiod,or,subsequentaccountingperiodsincaseitaffectsalsothesame.Belowwedescribereviewprocessesandkeyassumptionsusedbymanagementinapplyingaccountingprinciples.

Provision for doubtful accountsThe provision for doubtful accounts reflects management estimates regarding losses on tradereceivables. Losses on trade receivables expected by the Group are based on past experience onsimilarportfoliosofreceivables,currentoverduesvs.historicaloverdues,lossesandcollections,theclosemonitoringof credit risk and creditworthiness of customers, in addition toprojectionsoneconomicandmarketconditions.

Retrievable value of non-current assetsNon-currentassetsincludeproperty,plantandequipment,intangibleassets,investmentsandotherfinancialassets.Whenevercircumstancessorequire,themanagementreviewsperiodicallythebookvalueofnon-currentassetsheldandusedbytheGroup,inadditiontoassetstobedisposedof.Suchactivityiscarriedoutusingestimatesofexpectedcashflowsfromthesaleoftheassetandofadequatediscountratesusedincalculatingthepresentvalueofthesame.Wheneverthebookvalueofanon-currentassetexperiencesalossinvalue,theGrouprecordsawrite-downequal to thedifferencebetween thebookvalueof theassetand its retrievablevalueeitherthroughuseordisposalofthesame.

Post-retirement benefitsIntheestimationofpost-retirementbenefitstheGroupmakesuseoftraditionalactuarialtechniquesbasedonstochasticsimulationsofthe“Montecarlo”type.Assumptionsmaderelatetothediscountrate,theannualinflationrateandtheannualincreaseinretributions.Actuarial advisors of the Company make also use of demographic projections based on currentmortalityrates,employeedisablementandresignationrates.

Retrievability of deferred tax assetsTheGroupcalculatesdeferredtaxassetsonthebasisofprofitsandexpectedfuturemarketconditionsinviewofcurrentsalecontractsandabilityofexpectedfutureprofitstooffsettaxcredits,inadditiontotheexpectedvarianceofthesame.

Potential liabilitiesIncarryingoutitsactivity,managementconsultswithitslegalandtaxadvisorsandexperts.TheGroupascertainsaliabilityarisingfromlitigationwheneveritdeemsprobablethatafinancialoutlaywillbemadeinthefutureandwhentheamountofresultinglossescanbereasonablyestimated.Incaseafinancialoutlaybecomespossiblebutitsamountcannotbedetermined,suchoccurrenceisreportedinthenotes.

42


IV. INFORMATION BY SECTOR

Cembreadoptedasitsprimaryreportingfocusinformationbygeographicalareabasedonthelocationinwhichtheoperationsofthecompanyarebasedortheproductionprocesstakesplace.InformationbysectorofactivityisnotprovidedastheCembreGroupoperatesinasinglesectordenominated“Electricconnectorsandrelatedtools”.AsrequiredunderIAS14,sectorinformationbygeographicalarea,basedonthelocationinwhichtheoperationsofthecompanyarebasedortheproductionprocesstakesplaceisprovidedbelow:

2006 ItalyRest of Europe

Rest of World

Elimination of intragroup

transactionsTotal

Revenues Salestocustomers 47,157 32,992 3,978 - 84,127SalestootherGroupcompanies 20,438 1,150 143 (21,731) -Revenuesbysector 67,595 34,142 4,121 (21,731) 84,127

Operatingprofitbysector 11,668 3,598 676 - 15,942

Overheadcostsnotassigned -

Operatingprofit 15,942Financialincome(expense) (80)Incometaxes (6,534)Net profit 9,328

2005 ItalyRest of Europe

Rest of World

Elimination of intragroup

transactionsTotal

Revenues Salestocustomers 39,323 27,828 2,846 - 69,997SalestootherGroupcompanies 15,523 826 139 (16,488) -Revenuesbysector 54,846 28,654 2,985 (16,488) 69,997

Operatingprofitbysector 8,379 2,217 427 - 11,023

Overheadcostsnotassigned -

Operatingprofit 11,023Financialincome(expense) 169Incometaxes (4,587)

Net profit 6,605

AsthebreakdownofsalesbygeographicalareaisdifferentfromthatoftherelatedGroupactivities,abreakdownofsalesbygeographicalareaofcustomersisshownbelow.

2006 2005Italy 37,120 31,239Europe 38,512 32,486RestofWorld 8,495 6,272 84,127 69,997

43


Thebreakdownofassetsandliabilitiesisshownbelow:

Dec. 31, 2006 ItalyRest of Europe

Rest of World

Total

Assets and Liabilities Assetsofthesector 63,217 25,791 2,472 91,480Unassignedassets (1,925)Totalassets 89,555Liabilitiesofthesector 25,531 4,306 300 30,137Unassignedliabilities (18)Totalliabilities 30,119Other information by sector Capitalexpenditure: -Tangibleassets 4,896 668 43 5,607-Intangibleassets 81 6 - 87

5,694Depreciationandamortization: -Property,plantandequipment 2,461 593 38 3,092-Intangibleassets 90 8 - 98

Write-downs - - - -

Accrualstoprovision foremployeebenefits 613 25 - 638

Averageno.ofemployees 341 125 10 476

Dec. 31, 2005 ItalyRest of Europe

Rest of World

Total

Assets and Liabilities Assetsofthesector 49,054 21,867 2,228 73,149Unassignedassets 4,561Totalassets 77,710

Liabilitiesofthesector 18,120 3,958 232 22,310Unassignedliabilities 2,718Totalliabilities 25,028

Other information by sector Capitalexpenditure: -Tangibleassets 1,328 481 101 1,910-Intangibleassets 138 4 - 142

Depreciationandamortization: -Property,plantandequipment 2,764 573 27 3,364-Intangibleassets 87 17 - 104

Write-downs 227 - - 227

Accrualstoprovisionforemployeebenefits 675 - - 675

Averageno.ofemployees 336 118 9 463

44


V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. PROPERTY, PLANT AND EQUIPMENT

Land and buildings

Plant and machinery

Equip-ment

Other assets

Leased assets

Work in progress

Total

Historicalcost 23,836 26,609 6,331 5,726 229 254 62,985

Accumulateddepreciation (4,524) (20,872) (4,972) (4,325) (88) - (34,781)

Balance at Dec. 31, 2005 19,312 5,737 1,359 1,401 141 254 28,204

Increases 2,313 2,084 421 436 58 295 5,607

Currencytranslationdifferences

78 9 (1) (6) - - 80

Depreciation (433) (1,577) (467) (544) (71) - (3,092)

Netdivestments - (4) - (13) - (254) (271)

Reclassifications 9 - - (8) (1) - -

Balance at Dec. 31, 2006 21,279 6,249 1,312 1,266 127 295 30,528

Land and buildings

Plant and machinery

Equip-ment

Other assets

Leased assets

Work in progress

Total

Historicalcost 23,671 25,879 6,198 5,466 220 92 61,526

Accumulateddepreciation (4,082) (19,282) (4,444) (3,973) (109) - (31,890)

Balance at Dec. 31, 2004 19,589 6,597 1,754 1,493 111 92 29,636

Increases 55 864 142 509 86 254 1,910

Currencytranslationdifferences

106 19 - 15 - - 140

Depreciation (438) (1,735) (539) (598) (54) - (3,364)

Netdivestments - (6) - (20) - (92) (118)

Reclassifications - (2) 2 2 (2) - -

Balance at Dec. 31, 2005 19,312 5,737 1,359 1,401 141 254 28,204

Capitalexpenditurein2006consistsprimarilyofpurchasesmadebytheparentcompany.Inparticular,theCompanyacquiredintheyearaplotoflandadjacenttoitsheadofficeinBresciaforabout€2.3millionandaworkstationfor€0.4million.LeasedassetsconsistexclusivelyofmotorvehiclesusedbytheSpanishsubsidiary.

45


2. INTANGIBLE ASSETS

Development costs Software Liceses Total

Historicalcost 146 2,242 93 2,481

Accumulatedamortization (40) (2,198) (89) (2,327)

Balance at Dec. 31, 2005 106 44 4 154

Increases 35 46 6 87

Amortization (36) (57) (5) (98)

Reclassifications 0 5 (5) 0

Balance at Dec. 31, 2006 105 38 0 143

3. FINANCIAL ASSETS AVAILABLE FOR SALE

TheyrepresentequityinvestmentsinConsorzioNazionaleImballaggiandInn.tec.S.r.l.,atechnologyinnovationconsortium,bothwithregisteredofficeattheBresciaProvinceheadoffice.Duetotheimmaterialityoftheamountsandthedifficultyofdeterminingthefairvalueoftheinve-stments,thesearevaluedatcost.

4. OTHER NON-CURRENT ASSETS

Theitemincludesexclusivelysecuritydeposits.

5. INVENTORIES

Dec. 31, 2006 Dec. 31, 2005 Change

Rawmaterials 6,377 4,405 1,972

Workinprogressandsemi-finishedgoods 6,617 4,986 1,631

Finishedgoods 13,053 10,355 2,698

Total 26,047 19,746 6,301

Thevalueoffinishedgoodsinventoriesisadjustedthroughaprovisionforslow-movingstockamoun-tingapproximatelyto€1,648thousand.In2006,theprovisiondeclinedby€5thousandduetocur-rencytranslationdifferencesandgrewby€154thousandduetoaccruals.

46


6. TRADE RECEIVABLES

Dec. 31, 2006 Dec. 31, 2005 Change

Grosstradereceivables 27,070 22,181 4,889

Provisionfordoubtfulaccounts (568) (505) (63)

Total 26,502 21,676 4,826

Tradereceivablesbygeographicalarea

Dec. 31, 2006 Dec. 31, 2005 Change

Italy 14,525 13,008 1,517Europe 10,554 8,422 2,132NorthAmerica 709 40 669Oceania 449 389 60MiddleEast 277 137 140Other 556 185 371Total 27,070 22,181 4,889

Asshowninthetableabove,thegrowthinsalesresultedinaparallelincreaseintradereceivables,particularlyintheEuropeanmarket.Averagecollectiontimeremainedhoweverstable,upslightlyfrom113daysin2005to117daysin2006.

7. TAX RECEIVABLES

Dec. 31, 2006 Dec. 31, 2005 Change

Taxcredits 7 - 7Total 7 - 7

TheamountrelatestotaxreceivablesoftheFrenchsubsidiary.

8. OTHER RECEIVABLES

Dec. 31, 2006 Dec. 31, 2005 Change

Receivablesfromemployees 23 32 (9)VATreceivable 375 93 282Other 61 41 20Total 459 166 293

ItemOtherincludesmainlyadvancestosuppliersandbillsreceivable.

47


9. SHAREHOLDERS’ EQUITY

AtDecember31,2006,thecapitalstockoftheparentcompanyamountedto€8,840thousand,andwasmadeupof17millionordinarysharesofparvalue€0.52each,fullyunderwrittenandpaid-up.AtDecember31,2006theCompanydidnotholdtreasuryshares.AreconciliationbetweentheShareholders’EquityandnetprofitoftheparentcompanyandtheConsolidatedShareholders’EquityandnetprofitisprovidedintheReportonoperations.ChangesinindividualcomponentsoftheConsolidatedShareholders’EquityareshownintheSta-tementofChangesintheConsolidatedShareholders’EquityincludedintheConsolidatedFinancialStatements.Theconsolidationreserveismadeupasfollows:

Dec. 31, 2006 Dec. 31, 2005

Eliminationofinvestmentsinsubsidiaries 6,861 5,046

Eliminationofunrealizedintra-groupgainsincludedinthevalueofinventories

(1,660) (1,640)

EliminationofCembreGmbHproductwarrantyprovision 12 12

Currencytranslationdifferencesonintra-grouppayablesandreceivables

- (51)

5,213 3,367

10. FINANCIAL LIABILITIES

Effective

interest rate (%)Maturity

Dec. 31, 2006

Dec. 31, 2005

Bankoverdraftsoftheparent 3.8-7.0 ondemand 2,567 303

BankoverdraftsofCembreLtd(limit£400thousand)

6(rate+1.5spread) ondemand 99 354

GeneralMarkingS.r.l.loan 3.9 July2007 100 -GeneralMarkingS.r.l.loan 3.2 July2006 - 2,200LoantoCembreInc.($200thousand) 4.22 March2006 - 170 LeasingSpanishsubsidiary(short-termportion) 3.75-4.59 2006-2010 56 59

Deferrals - 53

CURRENT FINANCIAL LIABILITIES 2,822 3,139 LeasingSpanishsubsidiary(long-termportion) 3.75-4.59 2006-2010 71 89

NON-CURRENT FINANCIAL LIABILITIES 71 89

48


Thepresentvalueofminimumfutureleasepayments,discountedattheaverageratepaidoncurrentleasecontracts,isshowninthetablethatfollows:

Year Cash flow No. of days Current value2007 56 365 542008 41 730 382009 28 1,095 252010 2 1,460 2Total 127 119

Difference 8

Avg. discounting rate 3.52%

Long-termportionofleasingcommitmentsbymaturity:

2008 2009 2010 Total

Minimumleasepayments 41 28 2 71

Discountedamounts 38 25 2 65

TheparentcompanygrantedguaranteesagainstloansprovidedtosubsidiaryGeneralMarkingS.r.l..

11. EMPLOYEE SEVERANCE INDEMNITY AND OTHER RETIREMENT BENEFITS

TheitemincludestheEmployeeSeveranceIndemnityaccruedforemployeesofItaliancompanies.Specialretirementbenefits,dueinaccordancewithFrenchregulationstopersonsemployedinFranceatthetimeofretirement,arealsoincludedintheprovision.AsrequiredunderIAS19,EmployeeSeveranceIndemnityliabilitieswerediscountedtotheirpresentvaluethroughrecognizedactuaries.Thetable that follows showschanges in theprovision in2006andtheactuarialeffect, recordedunderpersonnelcosts.

Dec. 31, 2006 Dec. 31, 2005

Beginning balance 4,478 4,253

Accruals 639 675

Uses (536) (603)

Actuarialeffect 77 153

Closing balance 4,658 4,478

Actuarialcalculationsarebasedonthefollowingassumptions:- life expectancy statistics relating to the probability of death or inability of employees, were

obtainedbyconfrontingINPSstudiesandISTATfiguresontheItalianpopulation;- thediscountingrate,inflationrateandrevaluationrateappliedtoexpectedpersonnelretributions

andtoemployeeterminationindemnitiesareshowninthetablebelow:

49


Dec. 31, 2006

Dec. 31, 2005

Annualdiscountingrate 4.25% 4.00%Annualinflationrate 2.00% 2.00%Realannualrateofincreaseinretributionsduetocareeradvancements 1.00% 1.00%Totalannualrateofincreaseinretributions 3.00% 3.00%Grossannualrateofincreaseinemployeeterminationindemnities 3.00% 3.00%

12. RISK PROVISIONS

Changesinriskprovisionsfortheyearareshownbelow:

Social Security

(INAIL) litigation

Customer indemnities

Other Total

Dec. 31, 2005 231 50 14 295Accruals - 7 - 7Uses - - (14) (14)Dec. 31, 2006 231 57 - 288

13. DEFERRED TAX ASSETS AND LIABILITIES

Dec. 31, 2006 Dec. 31, 2005Deferred tax liabilities Averagecostvaluationofinventories (562) (259)Accelerateddepreciation (1,371) (1,500)EliminationofCembreGmbHproductwarrantyprovision (10) (8)Reversaloflanddepreciation (32) (32)Revaluationofland (2,255) (2,255)

Gross deferred tax liabilities (4,230) (4,054)

Deferred tax assetsEliminationofunrealizedintra-groupprofitsincludedinthevalueofinventories 1,143 985

Write-downofinventories 335 335Goodwillamortization 63 69Write-downofinvestment 7 13Discountingofemployeeterminationindemnity 166 164Riskprovision 6 6Other 87 61

Gross deferred tax assets 1,807 1,633Net deferred tax liabilities (2,423) (2,421)

50

R E P O R T A N D A C C O U N T S 2 0 0 6 - C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

14. FINANCIAL LIABILITIES ON DERIVATIVE INSTRUMENTS

Dec. 31, 2006 Dec. 31, 2005 ChangeFair value Interest Rate Swap - 21 (21)

At December 31, 2005, the parent company was a party in an interest rate swap having a nominal value of €2.5 million, on which the Company paid a fi xed interest of 2.81% and paid a fl oating interest equal to the 3-month Euribor. The swap was terminated at maturity on July 24, 2006.

15. TRADE PAYABLESDec. 31, 2006 Dec. 31, 2005 Change

Payable to suppliers 11,392 7,015 4,377Advances 70 2 68Total 11,462 7,017 4,445

Trade payables by geographical area Dec. 31, 2006 Dec. 31, 2005 ChangeItaly 8,153 5,392 2,761Europe 3,089 1,518 1,571North America 61 21 40Oceania 80 82 (2)Other 9 2 7Total 11,392 7,015 4,377

16. TAX PAYABLES

Dec. 31, 2006 Dec. 31, 2005 ChangeCurrent taxes payable 1,816 977 839

17. OTHER PAYABLES

Other payables are made up as follows:

Dec. 31,

2006Dec. 31,

2005Change

Payables to employees 870 825 45Employee withholding taxes payable 785 830 (45)Bonuses owed to customers 895 1,452 (557)VAT and similar foreign taxes payable 454 428 26Commissions payable 233 157 76Payable to Statutory Auditors and similar foreign boards 48 50 (2)Payable to Directors 11 0 11

51


Socialsecuritypayables 1,382 1,153 229Payableonsundrytaxes 48 44 4Other 46 19 27Total 4,772 4,958 (186)

18. REVENUES FROM SALES AND SERVICES PROVIDEDIn2006,revenuesgrewby20.2%onthepreviousyear.Domesticsalesrepresented44.1%oftotalsales,up18.8%on2005,whilesalesintherestofEuroperepresented45.8%ofthetotal,up18.6%onthepre-viousyear.Salesintherestoftheworldgrewsharplyby35.5%andrepresented10.1%oftotalsales.

19. OTHER REVENUES Dec. 31, 2006 Dec. 31, 2005 ChangeCapitalgains 34 54 (20)Usesofprovisions - 16 (16)Reimbursements 22 - 22Other 32 35 (3)Total 88 105 (17)

Reimbursementsrelatetoinsurancedamagesreceivedintheyear.

20. COST OF SERVICES

Dec. 31, 2006 Dec. 31, 2005 ChangeSubcontractedwork 3,117 2,040 1,077Electricity,heatingandwater 1,087 868 219Transportofgoodssold 2,027 1,682 345Fuel 239 242 (3)Travellingexpenses 609 595 14Maintenanceandrepair 1,071 964 107Consulting 775 808 (33)Advertisingandpromotion 362 302 60Insurance 457 414 43Boards’compensation 809 624 185Postageandtelephone 360 344 16Commissions 348 299 49Securityandcleaning 290 352 (62)Bankcharges 126 121 5Other 736 740 (4)Total 12,413 10,395 2,018

Theincreaseinthecostofservicesiscloselyconnectedwiththegrowthinsales.

52


21. LEASES AND RENTALS

Theitemismadeupasfollows: Dec. 31, 2006 Dec. 31, 2005 ChangeRentandrelatedcosts 715 655 60Vehicleleasing 332 359 (27)Total 1,047 1,014 33

22. PERSONNEL COSTS

Dec. 31, 2006 Dec. 31, 2005 ChangeWagesandsalaries 16,999 15,338 1,661Socialsecuritycontributions 4,323 4,178 145Employeeterminationindemnity 794 896 (102)Retirementbenefits 87 76 11Othercosts 73 91 (20)Total 22,276 20,579 1,697

AtDecember31,2006,employeeterminationindemnitiesincluded€77thousandofdiscountingcosts.Theaveragenumberofemployeesbycategoryisshowninthetablebelow:

Dec. 31, 2006 Dec. 31, 2005 ChangeManagers 15 16 (1)Administrativeandcommercialstaff 224 222 2Workers 237 225 12Total 476 463 13

Duetotheincreaseinactivity,in2006theparentcompanyemployed13temporaryworkers,thecostofwhichamountedto€271thousand,includedunderwagesandsalaries.AveragenumberofemployeesbyGroupcompany:

Managers Administrative Workers Total and commercial staff CembreS.p.A. 7 141 178 326GeneralMarkingS.r.l. - 6 9 15CembreLtd 3 23 33 59CembreSarl 1 19 1 21CembreEspañaSL 1 20 10 31CembreAS - 2 - 2CembreInc 2 6 2 10CembreGmbH 1 7 4 12Total 15 224 237 476

53


23. OTHER OPERATING COSTS

Otheroperatingcostsaremadeupasfollows: Dec. 31, 2006 Dec. 31, 2005 ChangeSundrytaxes 224 231 (7)Lossesonreceivables 10 25 (15)Capitallosses 4 21 (17)Donations 38 41 (3)Other 128 152 (24)Total 404 470 (66)

ItemOtherincludesprevalentlypropertytaxespaidbytheUKsubsidiary.

24. FINANCIAL INCOME (EXPENSE)

Dec. 31, 2006 Dec. 31, 2005 Change

Loansandbankoverdrafts (70) (194) 124Otherfinancialcharges (6) (20) 14 (76) (214) 138

Interestearnedonbankaccountbalances 61 70 (9)Otherfinancialincome 9 2 7 70 72 (2)

Financial income (expense) (6) (142) 136

25. INCOME TAXES

Leimpostesulredditosonocosìcomposte: Dec. 31, 2006 Dec. 31, 2005 ChangeCurrenttaxes (6,562) (4,849) (1,713)Deferredtaxes 28 262 (234) (6,534) (4,587) (1,947)

Thetablethatfollowsshowsareconciliationbetweenthetheoreticaltaxexpense,calculatedatthenormaltaxrateoftheparentcompany(Corporate(IRES)+RegionalTaxonProductiveActivities(IRAP)=37.25%),andtheactualtaxexpenserecordedintheconsolidatedaccounts.

2006 2005 amount % tax rate amount % tax rateProfitbeforetaxes 15,862 11,192 Theoretical tax expense 5,909 37.25% 4,169 37.25%Effectofnon-deductiblecosts 747 4.71% 902 8.06%Effectoftax-exemptincomeanddeductions (604) -3.81% (887) -7.93%Effectoftax-deductiblelossesofsubsidiaries (76) -0.48% (346) -3.09%EffectofdifferentIRAPtaxableincome 703 4.43% 623 5.57%Effectofdifferentforeigntaxrates (145) -0.91% 126 1.13%Actual tax expense recorded 6,534 41.19% 4,587 40.98%

54


Thetablethatfollowsshowsthevalueoftemporarydifferencesandlosscarry-forwardsaccruedthatcouldgiverisetotherecordingofdeferredtaxassets.Suchassetswerenotrecorded,astheirretrievalisnotdeemedprobable:

Subsidiary Item Tax rate Amount Deferred tax asset

GeneralMarking: Losscarry-forwards 33% 901 297

Temporarydifferencesonintangibleassetamortization 37.25% 259 96

Non-deductibleaccruals 37.25% 200 75

CembreAS: Losscarry-forwards 28% 44 12

Losscarry-forwardsofGeneralMarkingS.r.l.relatetofinancialyearsbefore2004andmaynotthere-forebedeductedfromthenetincomeoftheparentcompanyinthecontextofthetaxconsolidationprocedure.Deferredandprepaidtaxesaremadeupasfollows:

Dec. 31, 2006 Dec. 31, 2005Deferred tax liabilities Valuationofreservesataveragecost (303) (59)Accelerateddepreciation 129 210EliminationofCembreGmbHproductwarrantyprovision (2) -

(176) 151Deferred tax assetsEliminationofunrealizedintra-groupgainsincludedinthevalueofinventories 158 11

Amortizationofgoodwill (6) (5)Write-downofinvestment (6) (7)DiscountingofEmployeeSeveranceIndemnity 2 51Riskprovision - 2Other 26 61

174 113

Previousyears’taxes 26 (6)Foreign-exchangetranslationdifferences 4 4

Deferred tax assets accrued in the period 28 262

26. EARNINGS PER SHARE

Earningspersharearecalculatedbydividingnetprofitbytheweightedaveragenumberofsharesincirculationfortheperiod,excludingownshares.

Dec. 31, 2006 Dec. 31, 2005Consolidatednetprofit(€‘000) 9,328 6,605No.ofordinaryshares(‘000) 17,000 17,000Earnings per share (€) 0.55 0.39

55


27. DIVIDENDS

OnMay25,2006(withex-dividenddateMay22)thecompanydistributedadividendamountingto€2,550thousandonnetprofitfortheyearendedDecember31,2005,equalto€0.15foreachshareentitledtodividends 2006 2005Resolved and paid in the year Balanceduefor2005dividend:€0.15euro(2004:€0.1) 2,550 1,698

Proposal submitted to the Shareholders’ Meeting (not recorded as liability at December 31) Balanceduefor2006dividend:€0.22(2005:€0.15) 3,740 2,550

ProposeddividendssubmittedforapprovaltotheShareholders’Meeting(notrecordedasaliabilityatDecember31)amountto€3,740thousand.

28. COMMITMENTS AND RISKS

AtDecember31,2006,guaranteesgrantedbytheCembreGroupwere:

Dec. 31, 2006 Dec. 31, 2005 ChangeGuaranteesgranted 138 108 30

29. NET FINANCIAL POSITION

AtDecember31,2006,thenetfinancialpositionoftheCembreGroupamountedto€1,071thousand,decliningontheendofthepreviousyeardueprimarilytocapitalexpenditureonproperty,plantandequipment.Theincreaseinassetsresultedalsoinahigherrecourseoftheparentcompanytooperatingloans(overdraftsandadvances),partlyoffsetbyloansoutstandingoftheparentcompanyandthehighercashflow,andnegativelyaffectedbythepaymentofdividendsdistributedfor2005(€2,550thousand).AtDecember31,2006,theGroupdidnothaveoutstandingloanscontainingcovenantsornegativepledges.ThetablethatfollowsprovidesadetailofthenetconsolidatedfinancialpositionasprovidedbyConsobRegulationDEM/6064313datedJuly28,2006:

Dec. 31, 2006 Dec. 31, 2005A Cash 18 9B Bankdeposits 3,946 6,017C Cash and equivalents (A+B) 3,964 6,026 D Financial receivables - -E Currentbankdebt (2,766) (3,080)F Payablesonderivatives - (21)G Othercurrentfinancialpayables (56) (59)H Current financial debt (E+F+G) (2,822) (3,160)I Net current financial position (C+D+H) 1,142 2,866J Non-currentbankdebt - -K Othernon-currentfinancialdebt (71) (89)L Non-current financial debt (J+K) (71) (89)M Net financial position (I+L) 1,071 2,777

56


30. RELATED PARTIES

The table that follows shows transactions between the parent company and its subsidiaries atDecember31,2006.

Receivables Payables Revenues ExpensesCembreLtd. 1,787 30 6,557 113CembreS.a.r.l. 637 2 2,296 19CembreEspañaS.L. 2,204 - 4,829 7CembreAS 86 - 269 -CembreGmbH 564 - 2,521 5CembreInc. 710 81 2,135 125GeneralMarkingsrl 89 310 277 1,180Total 6,077 423 18,884 1,449

CembreS.p.A.leasedanindustrialbuildingtosubsidiaryGeneralMarkingS.r.l..Rentforthebuildingfor2006amountsto€94thousand.Withreferencetoassetsandliabilitiesrelatingtosubsidiariesshownabove,weconfirmthattransactionswiththesameandwithrelatedpartiesfallwithinthescopeofnormaloperatingactivities.AmongassetsleasedtoCembrebythirdpartiesareanindustrialbuildingadjacenttotheCompany’sregisteredofficemeasuringatotalof5,960squaremetersonthreefloors,inadditiontotheMilan,PaduaandBolognasalesofficesownedbycompanyThaImmobiliareS.p.A.,withregisteredofficeinBergamo,controlledbyAnnaMariaOnofri,GiovanniRosaniandSaraRosani,directorsofCembreS.p.A..Leasepaymentsfor2006amountedto€332thousandforthebuildingadjacenttotheCompany’sheadoffice,€60thousandfortheSestoS.Giovanni(Milan)office,€49thousandfortheSelvazzano(Padua)offi-ce,and€42thousandfortheBolognaoffice.Rentreceivedfor2006isinlinewithmarketconditions.ItisintheCompany’sinteresttobenefitfromthecontinuityofofficespacereducingtheriskofearlyterminationofleases.Attheendof2006,allamountsduetoThaImmobiliarehadbeensettled.CembreS.p.A.doesnothavedirectrelationshipswithitsparentcompanyLysneS.p.A.ofanyothernaturethanthatoftheexerciseofshareholders’rightsonthepartoftheparent.LysneS.p.A.doesnotcarryoutanymanagementorcoordinationactivitywithrespecttoCembreS.p.A.

Boards’ compensation

In2006,compensationfortheBoardofDirectorsandtheBoardofStatutoryAuditorsamountedto:

StatutoryAuditors DirectorsEmolumentsasdirectorsandauditorsofCembreS.p.A. 57 548Emolumentsasdirectorsofsubsidiaries - 18Retributionasemployees - 206Non-monetarybenefits - 19

Non-monetarybenefitsrelatetotheuseofacompanycarandinsurancepoliciesunderwrittenontheirbehalf.Compensation of Directors and Statutory Auditors is detailed in Attachment 1 of the presentdocument.

57


31. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

TheGroupdoesnotmakesignificantuseofderivativeinstrumentstohedgeagainstinterestriskandcur-rencyexposure.AtDecember31,2006,thesolehedgingcontractsweretwocurrency(€)forwardpurchaseagreementsstipulatedbyUKsubsidiaryCembreLtd.,amountingto€300thousandeach,expiredandreimbursedrespectivelyonJuly21,2007andFebruary16,2007.

Interest rate risk

TheGroupnormallystipulatesfloatingrateloancontracts.Tohedgeagainstexposuretointerestratefluctuations(cashflowhedge)thecompanyentersintointerestrateswaptransactions.AtDecember31,2006,noloanremainedoutstanding.

Currency risk

Despiteastronginternationalpresence,theGroupdoesnothaveasignificantexposuretocurrencyrisk(onanoperatingorequitybasis),asitoperatesmainlyintheeuroarea,thecurrencyinwhichitstradetransactionsaremainlydenominated.ExposuretocurrencyriskisdeterminedmainlybysalesinUSdollars,BritishpoundsandNorwaykroners.ThesizeofthesetransactionsisnotsignificantininfluencingtheoverallperformanceoftheGroup.Tohedgepartoftheriskderivingfrompurchasesofsuppliesineurofromtheparentcompany,UKsu-bsidiaryCembreLtd.enteredintoforwardcurrencypurchaseagreementstoacquireeuro,asdescribedinthetablethatfollows.

Date of contract Amount in euro

Forward exchange-rate (€/£)

£ amount Expiration

Actual exchange-rate (€/£)

Forward £ amount Effect

Nov.30,2006 300,000 1.4772 203,086 Jan.12,2007 1.5114 198,495 (4,591)Dec.15,2006 300,000 1.4820 202,429 Feb.16,2007 1.4857 201,930 (499)

Asapparent,thehedgeresultedina€5thousandlossattheexpirationdate.

Liquidity risk

TheexposureoftheGrouptoliquidityriskisnotmaterial.

Credit risk

Exposuretocreditriskrelatesexclusivelytotradereceivables.NoneoftheareasinwhichtheGroupoperatesposesrelevantcreditrisks.Operatingprocedureslimitthesaleofproductsorservicestocustomerswhodonotpossessanadequatecreditprofileorprovideguarantees.

Price risk

TheexposureoftheGrouptopriceriskisminimalandrelatesexclusivelytomarketconditions.

Thebookvalueoffinancialinstrumentsisinlinewiththeirfairmarketvalue,asforthemostparttheyhaveshort-termmaturities.

58


32. SUBSEQUENT EVENTS

No event having significant effects on the Group’s financial position or operating performanceoccurredaftertheclosingofthefinancialyear.

33. CONSOLIDATED COMPANIES

TheconsolidationareaisunchangedfromDecember31,2005.Companiesconsolidatedline-by-lineare:

Company Registered office Share capital

Share held at Dec. 31,

2006

Share held at Dec. 31,

2005

CembreLtdSuttonColdfield(Birmingham)

£1,700,000 100% 100%

CembreSarl Morangis(Paris) €1,071,000 100%(*) 100%(*)

CembreEspañaSL Coslada(Madrid) €1,902,000 100%(*) 100%(*)

CembreAS Stokke(Norway) NOK2,400,000 100% 100%

CembreGmbH Monaco(Germany) €512,000 100%(*) 100%(*)

CembreIncEdison

(NewJersey-Usa)US$840,000 100%(**) 100%(**)

GeneralMarkingsrl Brescia(Italy) €99,000 100% 100%

(*)ofwhich5%heldthroughCembreLtd.(**)ofwhich29%heldthroughCembreLtd.

Brescia,March28,2007

THE CHAIRMAN OF THE BOARD OF DIRECTORS OF PARENT COMPANY CEMBRE S.P.A.

Carlorosani

59


Att

achm

ent

to t

he N

otes

to

the

Con

solid

ated

Fin

anci

al S

tate

men

ts o

f th

e C

embr

e G

roup

DIR

EC

TO

RS

AN

D S

TA

TU

TO

RY

AU

DIT

OR

S’ C

OM

PE

NSA

TIO

N

PO

SIT

ION

C

OM

PEN

SAT

ION

(€

)

Posi

tion

Te

rm(

1)Em

olum

ents

for

posi

tion

Non

-mon

etar

ybe

nefit

s(2)

Bonu

sesa

nd

othe

rinc

entiv

es

Oth

er

com

pens

atio

n

CA

RLO

RO

SAN

IC

hairm

an&

Chi

efE

xecu

tive

Offi

cer

trie

nnio

200

6-20

0816

4,60

03,

495

AN

NA

MA

RIA

ON

OFR

IV

ice

Cha

irman

&M

anag

ing

Dire

ctor

trie

nnio

200

6-20

0812

2,60

02,

858

GIO

VA

NN

IRO

SAN

IM

anag

ing

Dir

ecto

rtr

ienn

io2

006-

2008

110,

600

3,35

06,

000

(3)

SAR

AR

OSA

NI

Dir

ecto

rtr

ienn

io2

006-

2008

25,0

003,

017

33,4

43(

4)

GIO

VA

NN

IDE

VEC

CH

ID

irec

tor

trie

nnio

200

6-20

0825

,200

3,08

212

,000

(3)

ALD

OB

OT

TIN

IBO

NG

RA

NI

Dir

ecto

rtr

ienn

io2

006-

2008

25,2

003,

601

172,

102

(4)

MA

RIO

CO

MA

NA

Dir

ecto

rtr

ienn

io2

006-

2008

49,6

34

PAO

LOL

ECH

ID

irec

tor

trie

nnio

200

6-20

0825

,200

GU

IDO

AST

OR

ICh

airm

ano

fthe

Boa

rdo

fSta

tuto

ryA

udito

rstr

ienn

io2

006-

2008

24,5

63

AN

DR

EAB

OR

EAT

TI

Stat

utor

yA

udit

ortr

ienn

io2

006-

2008

17,0

68

LEO

NE

SCU

TT

ISt

atut

ory

Aud

itor

trie

nnio

200

6-20

0815

,448

(1)

The

exp

irat

ion

ofth

ete

rmc

oinc

ides

wit

hth

eap

prov

alo

fthe

200

8Fi

nanc

ialS

tate

men

tsfo

rbot

hB

oard

ofD

irec

tors

and

Boa

rdo

fSt

atut

ory

Aud

itor

s.

(2)

Mad

eup

by

frin

geb

enef

itsr

epre

sent

edb

yth

eus

eof

ac

ompa

nyc

ara

ndin

sura

nce

cove

rage

.

(3)

Ret

ribu

tion

forp

osit

ions

hel

din

subs

idia

ries

.

(4)

Gro

ssre

trib

utio

nfo

rem

ploy

men

t.

60


Report of the Board of Statutory Auditors on ConsolidatedFinancial Statements of the Cembre Group at December 31, 2006

(Pursuant to article 41 of legislative decree 127/1991)

ToourShareholders:theConsolidatedFinancialStatementsforthe2005financialyeardeliveredtotheBoardofStatutoryAuditorswithinthetermprovided,consistingofBalanceSheet,IncomeStatement,Notestotheaccounts,StatementofCashFlowsandStatementofChangesintheShareholders’EquityandReportonOperations,closereportingaconsolidatednetprofitof€9,327,000,ascomparedwith€6,605,000inthepreviousyear.SaiddocumentsweremadeavailabletoYou,asprovidedbycurrentregulations,andwerepreparedonthebasisofthefinancialstatementsofGroupcompaniesapprovedbytherespectiveBoardsandsubjecttotheverificationsofauditingboards,whereexisting,andinanycasetoanauditbyinde-pendentauditors.Thedateof theConsolidatedFinancialStatements isDecember31,2006andthe financialyearcoincideswiththatofallconsolidatedcompaniesandoftheparentcompany,namelytheperiodfromJanuary1,2006toDecember31,2006.Financialstatementsofconsolidatedcompanieswerereclassifiedandadjustedasnecessarytoper-formtheconsolidationand,wherenecessary,adjustedtobringthemintolinewiththeaccountingprinciplesadoptedbytheGroup.TheNotestotheconsolidatedaccountsprovideadetailofBalanceSheetandIncomeStatementitemsandillustrateaccountingprinciples,consolidationprinciplesandvaluationcriteriaappliedinthepreparationofthesame.ThesewerecommunicatedtouswithinthetermsetbyLawandarepreparedunderInternationalFinancialReportingStandard(IFRS)adoptedbytheEuropeanUnionandincompliancewithregu-lationsissuedtoimplementarticle9ofLegislativeDecree38/2005.Withregardtoriskmanagement,thenatureandrelevanceofrisksrelatingtofinancialinstruments,interestrates,currency,liquidity,creditandpricesarereported.AccountingprinciplesandvaluationcriteriaadoptedbyconsolidatedcompaniesareconsistentwiththoseoftheGroupandincompliancewithcurrentregulations.Theconsolidationarea,unchanged fromthepreviousyear, includes theparentcompanyandallsubsidiariesconsolidatedapplyingtheline-by-linemethod,consistentwithIFRS.Transactionswithrelatedpartieswerecarriedoutintheinterestofindividualcompaniesinvolvedandatcurrentmarketconditions.TheinternalcontrolsystemusedintheGroup,methodsappliedintheconsolidationandauditingstandardsappliedbytheIndependentAuditorsintheauditoftheConsolidatedFinancialStatementsandtheauditaccountswereverifiedbytheBoardofStatutoryAuditors.Instructionsimpartedtosubsidiariespursuanttoarticle114,paragraph2,ofLegislativeDecreeno.58/1998appearadequate.Intheverificationsandchecksweperformed,wedidnotencounteranyatypicalorunusualtran-sactionnorhaveencounteredelementsrequiringtheBoardofStatutoryAuditorstoexpresscriticalevaluationsonsuchissues.

61


Adequateinformationonrisks,commitmentsandrelatedpartieswasprovided.InNovember2006theparentcompanylaunchedaprojectaimedatcomplyingwithchangesin-troducedbyLaw262/05onsavings.Makinguseoftheadviceofanindependentadvisorspecializedininternalauditingandriskanalysis,theCompanygatheredfinancialandoperatinginformation,identifyingtheareasandprocesseswiththehighestdegreeofrisk.Basedontheresultsofthisanalysis,operatingproceduresaimedatmonitoringtheinformationflowandatensuringtheeffectivenessofchecksperformedperiodically,weredrafted.InFebruary2007theparentcompanylaunchedaprojectaimedatcomplyingwiththeprovisionsofLegislativeDecree231/01ontheAdministrativeResponsibilitiesofEntities,identifyingpossibleinfringementsinwhichtheCompanycouldincurandtheareassubjecttothehighestriskinthiscontextwiththeendofdevelopinganorganizationalmodelandcodeofconductandreferencepro-tocolsfortheareasidentified.ThestructureoftheConsolidatedFinancialStatementscanthereforebedeemedastechnicallycor-rectandoverallincompliancewithcurrentnormsandregulations.InformationprovidedintheReportonOperationsregardingtheoperatingandfinancialsituationoftheGroup,itsoperatingperformancein2006andtheoutlookfor2007ofGroupcompaniesisadequate.TheexaminationcarriedoutbyusontheReportonOperationshasshownthatitisconsistent,clear,correctandinlinewiththeConsolidatedFinancialStatements.CheckscarriedoutbyIndependentAuditorsRecontaErnst&Young,appointedfortheauditingoftheaccounts,ascertainedthattheamountsreportedinthefinancialstatementsareconsistentwiththeaccountingrecordsoftheparentcompanyandthoseofitssubsidiaries,asadjustedandreclassifiedunderIFRS,andwiththerelatedinformationformallyprovidedbythesame.SuchresultsandinformationprovidedbysubsidiariestotheparentcompanyinthecontextofthepreparationoftheConsolidatedFinancialStatements,wereexaminedbytheIndependentAuditorsintheframeworkofproceduresfollowedintheauditoftheConsolidatedFinancialStatementswhileaccountingrecordswereexaminedbyinternalcontrolboardsofindividualcompanies,asappropria-te.TheAuditingReportdoesnotcontaincommentsorexceptions.Incompliancewitharticle41,par.3ofLegislativeDecreeno.127,datedApril9,1991,suchaccoun-tingrecordsandinformation,andthustheirimpactontheConsolidatedFinancialStatements,withtheexceptionoftheissuesspecifiedabove,werenotauditedbytheBoardofStatutoryAuditors.WethereforeexpressafavourableopinionontheConsolidatedFinancialStatementsoftheCembreGroup,inclusiveoftherelatedattachments,fortheyearendedDecember31,2006,asassessedincompliancenormsthatregulatetheirpreparation.

Brescia,April11,2007

TheBoardofStatutoryAuditors

GuidoAstori Chairman AndreaBoreatti PermanentAuditor LeoneScutti PermanentAuditor

62


Cembre S.p.A. Report on Operations forthe financial year ended December 31, 2006

64

R e p o R t a n d a c c o u n t s 2 0 0 6 - F i n a n c i a l s t a t e m e n t s

Cembre S.p.A. Report on Operationsfor the financial year ended December 31, 2006

To our Shareholders:we submit to Your attention the Financial Statements for the year ended December 31, 2006, in which Cembre S.p.A. reported net profits of €6,665,345. In the present Report we summarise the most significant events and transactions that occurred in the year and describe our Company’s ex-pectations for 2007.Sales of Cembre S.p.A grew both in Italy and abroad. The growth in sales was helped by the recovery of the market, the steady renewal of the product range and the development of new products by our technical department, allowing us to remain competitive and to respond more effectively to the needs of our customers.

Sales by geographical area:

(€’000) 2006 2005

Italy 37,174 31,113

Rest of Europe 21,976 17,668

Rest of the World 6,430 4,682

Total 65,580 53,463

Sales revenues grew by 22.7% from €53,463 thousand in 2005 to €65,580 thousand in 2006 due to the positive market trend that affected all of Cembre’s operating areas. Domestic sales grew by 19.5%, while sales in other European countries posted a 24.4% increase, and sales in the rest of the World grew by 37.3%.

The largest distribution channel continues to be that of wholesalers of electrical supplies, accounting both in Italy and abroad for about 60% of overall sales.

Gross operating profit (EBITDA) amounted to €14,266 thousand, representing a 21.8% margin on sales, up 24.6% on the previous year when it amounted to €11,446 thousand, representing a 21.4% margin on sales. Despite the increase in the price of raw materials, the gross operating margin impro-ved thanks to a reduction in the weight of personnel costs, declining from 26.3% of sales to 23.1%, and operating efficiency gains resulting mainly from process innovation.

Operating profit (EBIT) grew from €8,809 thousand, representing a 16.5% margin on sales, to €11,937 thousand, representing an 18.2% margin on sales.

The balance between financial income and expense, amounting to positive €63 thousand, improved from negative €432 thousand in 2005. In the previous year, the balance included the €432 thou-

65

R E P O R T A N D A C C O U N T S 2 0 0 6 - F I N A N C I A L S T A T E M E N T S

sand write-down of the investment in subsidiary General Marking S.r.l., while financial income and expense were equivalent.

Net profit improved by 40.6% to €6,665 thousand, representing a 10.2% margin on sales, up from €4,739 thousand in 2005, when it represented an 8.9% margin on sales.

Despite the €4,967 thousand cash flow generated by operations, cash and equivalents declined in the year from €3,110 thousand in 2005 to €1,200 thousand. The decline is due prevalently to investing activities which absorbed €4,535 thousand, to the distribution of dividends and the extension of a €2 million loan to subsidiary General Marking.

In 2006, the net financial position remained positive at €0.7 million, after strong investments made in the year which are discussed below.

The following table summarizes financial highlights of subsidiaries:

Currency Sales Net profit (loss)

2006 2005 2006 2005

Cembre Ltd. (UK) € 13,780,930 11,638,004 912,519 611,587

Cembre S.a.r.l. (F) € 5,363,607 5,257,476 281,143 255,268

Cembre España S.L. € 9,941,831 7,856,861 956,265 499,420

Cembre AS (N) € 528,546 454,314 42,783 37,590

Cembre GmbH (D) € 4,527,220 3,447,402 273,699 81,831

Cembre Inc (Usa) € 4,121,515 2,985,559 401,230 351,820

General Marking srl (I) € 1,941,221 1,294,682 44,974 (461,642)

For a more direct evaluation of the effect of foreign exchange translation, we include below sales figures of companies operating outside the euro area in the respective currency:

Currency Sales Net profit (loss)

2006 2005 2006 2005

Cembre Ltd. (GB) £ 9,394,876 7,958,023 622,092 418,201

Cembre AS (NOR) NOK 4,253,311 3,638,702 344,285 301,069

Cembre Inc (Usa) US $ 5,174,968 3,714,306 503,784 437,696

66


Average exchange rates applied in the translation of the above amounts were:

Currency 2006 2005

British Pound 0.6817 0.6838

US Dollar 1.2556 1.2441

Norway Kroner 8.0472 8.0092

Definition of alternative performance indicators

In compliance with CONSOB Communication no. DEM/6064293 dated July 28, 2006, alternative performance indicators used to illustrate the financial and operating performance of the Company are described below:Gross Operating Profit (EBITDA): defined as the difference between sales revenues and costs for raw materials, services and personnel, and the net balance of operating income and costs. It re-presents the profit reported before amortization, financial flows and taxes.Operating Profit (EBIT): defined as the difference between the Gross Operating Profit and the expense for depreciation, amortization and write-downs. It represents the profit before financial flows and taxes.Net Financial Position: it represents the algebraic sum of cash and equivalents, financial receivables and current and non-current financial payables.

Adoption of International Accounting Principles (IAS/IFRS)

Cembre S.p.A. adopted IAS/IFRS in the preparation of its consolidated financial statements starting from the 2006 Half-year Report. Financial data for the 2005 financial year was reclassified and recal-culated for comparative purposes in line with international accounting principles. A reconciliation of figures reported in the previous year under Italian GAAP and further information is reported in the notes.

Capital expenditure

In 2006, capital expenditure on property, plant and equipment, gross of depreciation and disposals, amounted to about €4.5 million, as compared with €1.3 million in 2005. Expenditure consisted primarily in the acquisition of a plot of land adjacent to the Company’s head offices in Brescia for about €2.3 million, of investments in plant and machinery, amounting to about €1.6 million, and industrial equipment, amounting to about €0.4 million.

Revaluation of property, plant and equipment

In compliance with article 10 of Law 72/1983, a list of property, plant and equipment recorded in the Balance Sheet at December 31, 2006 and revalued in the year is provided below:

67


Law Law Law Total 576/75 72/83 413/91

Land and buildings - 248,220 687,441 935,661

Plant and equipment 2,386 123,748 - 126,134

Other assets 303 7,664 - 7,967

2,689 379,632 687,441 1,069,762

Research & Development

In 2006 Research and Development activities focused in the field of cable terminals, railroad equi-pment, cable glands, hydraulic tools, and cable marking. Research costs were not capitalized, while development costs were instead capitalized. Research activities and projects launched or carried out in the year consisted in:- the widening of the product range included in the catalogue with the introduction of new innovative products previously not available on the market;

- the improvement of technologies and the efficiency of the production process; - the enhancement of the company’s presence in foreign markets. Activities focused on the continuation and completion of projects started in the previous year, and the launch of a new project for the development of innovative products in line with new market trends, in addition to the development of innovative processes.Research costs for the year included €437,253 of personnel costs, €27,053 relating to instruments and equipment, and €20,414 of costs relating to technical advice and the acquisition of know-how. Development costs in the year included €34,948 of personnel costs.A description of Research and Development activities by sector is included in the section that fol-lows.

Research projects in the field of cable terminals

Work continued on the study and development of new cable terminals and joints, in addition to the optimization of the main cable terminal product line.

Railroad Equipment Research projects

A number of projects in this field were launched or developed further, while projects underway in-clude:- connectors for the maintenance of feeder wires supplying power to locomotives through panto-

graphs; - a new series of products for the mechanical and electrical connection to rail tracks.

Cable glands Research projects

Development of the metric cable glands range continued with the design and manufacturing of the related dies, the development of brass and stainless steel cable glands and the study of the production process and manufacturing of dies and inserts for the related components.

68


Hydraulic Tools research projects

The following studies were undertaken in 2006:- new battery-operated tools for the compression of connectors, to be used with different types of dies,

specific for the US market;- a new range of battery-operated two-speed hydraulic tools;- a hydraulic cable cutting tool; - a battery-operated hydraulic cable cutting tool; - a battery-operated hydraulic station;- a new small-size battery-operated hydraulic tool with interchangeable dies;- a new small-size battery-operated hydraulic tool with interchangeable dies specific for the US

market.

Cable marking research projects

The development of the following products and the related dies for their manufacturing continued:- a system for the labeling of pole terminal blocks consisting of labels and related supports;- a new thermal-transfer labeling system;- a range of cable labels for bobbin printing;- a clamp label manufacturing machine for heat-transfer printers.

Relationships with subsidiaries, parent companies and related parties

Transactions concluded between Cembre S.p.A. and its subsidiaries in 2006 were exclusively of a commercial nature and are summarized in the table below:

(€) Receivables Payables Revenues Purchases

Cembre Ltd. 1,786,848 29,579 6,556,476 113,416

Cembre S.a.r.l. 636,918 2,199 2,296,295 18,745

Cembre España S.L. 2,204,077 - 4,829,235 6,804

Cembre AS 86,130 - 269,153 -

Cembre GmbH 564,493 190 2,520,598 4,954

Cembre Inc. 710,050 81,193 2,135,449 124,916

General Marking srl 88,505 288,551 277,026 1,180,000

TOTAL 6,077,021 401,712 18,884,231 1,448,835

Cembre S.p.A. issued a letter of patronage in favor of subsidiary General Marking, amounting to €500,000.Parent company Cembre S.p.A. leased an industrial building to subsidiary General Marking. In 2006 rent for the building amounted to €94 thousand. Cembre S.p.A. also currently leases property for a cumulative annual rent of €483,149 from Tha Immobiliare S.p.A., with registered office in Bergamo, owned by Anna Maria Onofri, Giovanni Rosani and Sara Rosani. With reference to assets and liabilities relating to subsidiaries shown above, we confirm that transactions with the same and with related parties fall within the scope of normal operating activities.In 2006, Cembre S.p.A. extended to subsidiary General Marking a €2,000,000 one-year loan expiring January 27, 2007 at a fixed 2.5% rate of interest. At December 31, 2006, interest accrued on the loan amounted to €46,438, to be paid out upon expiration. The loan was renewed for one year at a fixed

69


interest of 3%.Cembre S.p.A. does not have direct relationships with its parent company Lysne S.p.A. of any other nature than that of the exercise of shareholders’ rights on the part of the parent. Lysne S.p.A. does not carry out any management or coordination activity with respect to Cembre S.p.A.

Own shares

At December 31, 2006, Cembre S.p.A. did not own any of its own shares nor did it own, either di-rectly or through any of its subsidiaries, trust companies or intermediaries, any of its parent company’s shares.In 2006, the Company did not acquire or shell any of its own shares.

Risk management and financial instruments

Cembre S.p.A. does not make significant use of derivative instruments to hedge against interest risk and currency exposure. The sole contract in which the Company was a counterpart at December 31, 2005, was an interest rate swap having a nominal value of €2.5 million which was terminated and settled on July 24, 2006.

Interest rate risk

Cembre S.p.A. normally stipulates floating-rate loan contracts. To hedge against exposure to interest rate fluctuations (cash flow hedge) the company enters into interest rate swap transactions.At December 31, 2006, no loan was outstanding.

Currency risk

Despite a strong international presence, Cembre S.p.A. does not have a significant exposure to currency risk (on an operating or equity basis), as it operates mainly in the euro area, the currency in which its trade transactions are mainly denominated.The size of transactions involving foreign currencies is not significant in influencing the overall perfor-mance of the Company.

Liquidity risk

As shown by the low recourse to outside financing sources, the exposure of the Group to liquidity risk is not material.

Credit risk

Exposure to credit risk relates exclusively to trade receivables.None of the areas in which the Company operates poses relevant credit risk.Operating procedures limit the sale of products or services to customers who do not possess an adequate credit profile or provide guarantees.

Price risk

The exposure of the Company to price risk is minimal and relates exclusively to market conditions.The book value of financial instruments is in line with their fair market value, as for the most part they have short-term maturities.

Handling of personal information

Cembre S.p.A. (responsible for the handling of personal information) drafted a Privacy Plan through its Director for the Handling of Private Information.

70


Normative changes

Law 262/05 “Law on Savings”

To adapt its organizational structure and internal procedures to changes introduced by Law 262/05 on savings, in November the Company launched a project aimed at complying with new norms. Making use of the advice of an independent advisor specialized in internal auditing and risk analysis, the Company gathered financial and operating information, identifying through a quantitative/qualitative matrix the areas and processes with the highest degree of risk. Based on the results of this analysis, operating procedures aimed at monitoring the information flow and at ensuring the correctness of information published, were drafted in collaboration with employees in charge of affected activities, keeping into account current needs and procedures of the Company.To ensure compliance with internal processes, in the last phase of the project, control points identified in the procedure will be tested for efficacy.

Legislative Decree 231/01 “Administrative Responsibilities of Entities”

Based on information gathered in the context of the 262 project, in February 2007 the Company laun-ched a project aimed at complying with the provisions of Legislative Decree 231/01 on the Administra-tive Responsibilities of Entities. The first phase of the project involved the identification of the possible infringements in which the Company could incur and the areas subject to the highest risk in this context. The next phase will involve the development of an organizational model oriented towards compliance with the spirit of the law, of a code of conduct and reference protocols for the areas identified.

Subsequent events

No event having significant effects on Cembre’s financial or operating performance occurred after the closing of the financial year.

Outlook

The company expects a growth in activity in 2007, both in the domestic market and foreign markets. Profit levels are expected to remain positive.

Secondary offices

The Company has no secondary registered office.

Proposal for the Allocation of the Company’s Net Profit for the 2006 financial year

In order to complete the Company’s planned investments and benefit from self-financed growth, it is advisable that at least a portion of net profit generated be retained. In seeking the approval for our actions by submitting to you the present Financial Statements and Report on Operations, we also invite you to approve our proposed allocation of net profit for 2006, amounting to €6,665,345.58 (rounded off to €6,665,345) – in consideration of the fact that the legal reserve has already reached 20% of the share capital – as follows:

- €0.22 to be distributed to each of the Company’s 17,000,000 shares entitled to dividends, for a total of €3,740,000, payable from May 31, 2007, and an ex-dividend date of May 28, 2007;

- the remainder, amounting to €2,925,345.58, to the extraordinary reserve.

71


In view of the fact that there do not exist gains on currently translation at December 31, 2006, the reserve for gains on foreign exchange conversion differences, created upon the allocation of 2005 net profit and amounting to €14,504.38, was reversed and consequently accrued to the extraordinary reserve.

Attachments

This Report on Operations includes the following Attachments:

Attachment 1: Reclassified Income Statement of Cembre S.p.A. for the year ended December 31, 2006;Attachment 2: Company shares held by Board Members;Attachment 3: Corporate Boards.

Brescia, March 28, 2007

THE CHAIRMAN OF THE BOARD OF DIRECTORS

Carlorosani

72


Attachment 1 - Cembre S.p.A. Report on Operations INCOME STATEMENT

2006 % 2005 % change

Revenues from sales and services provided 65,579,826 100 53,462,743 100 22.7%

Other revenues 139,931 128,103

TOTAL REVENUES 65,719,757 53,590,846

Cost of goods and marchandise (31,773,332) (48.4) (19,504,085) (36.5) 62.9%

Cost of services received (8,967,575) (13.7) (7,275,291) (13.6) 23.3%

Lease and rental costs (746,094) (1.1) (720,980) (1.3) 3.5%

Personnel costs (15,151,565) (23.1) (14,034,149) (26.3) 8.0%

Other operating costs (169,522) (0.3) (219,862) (0.4) -22.9%

Change in inventories 4,870,842 7.4 (683,287) (1.3)

Increase in assets due to internal construction 606,986 0.9 507,530 0.9 19.6%

Write-down of current assets (115,673) (0.2) (199,501) (0.4) -42.0%

Accruals to provisions for risks and charges (7,941) (0.0) (14,915) (0.0) -46.8%

GROSS OPERATING PROFIT 14,265,883 21.8 11,446,306 21.4 24.6%

Tangible assets depreciation (2,239,102) (3.4) (2,549,883) (4.8) -12.2%

Intangible assets amortization (89,823) (0.1) (87,097) (0.2) 3.1%

OPERATING PROFIT 11,936,958 18.2 8,809,326 16.5 35.5%

Financial income (expense) 62,939 0.1 (431,959) (0.8)

Foreign exchange gains (losses) (80,131) (0.1) 253,293 0.5

PROFIT BEFORE TAXES 11,919,766 18.2 8,630,660 16.1 38.1%

Income taxes (5,254,421) (8.0) (3,891,690) (7.3) 35.0%

NET PROFIT FROM ORDINARY ACTIVITIES 6,665,345 10.2 4,738,970 8.9 40.6%

NET PROFIT FROM ASSETS HELD FOR DISPOSAL - - 0.0%

NET PROFIT 6,665,345 10.2 4,738,970 8.9 40.6%

73


Att

achm

ent

2 –

Cem

bre

S.p.

A. R

epor

t on

Ope

rati

ons

CO

MPA

NY

SH

AR

ES H

ELD

BY

CO

RPO

RA

TE

BO

AR

DS’

MEM

BER

S

C

OM

PAN

Y SH

AR

ES H

ELD

SH

AR

ES

SHA

RES

SH

AR

ES H

ELD

O

WN

ERSH

IP

OW

NER

SHIP

AT D

EC. 3

1, 2

005

PUR

CH

ASE

D

SOLD

AT

DEC

. 31,

200

6 R

IGH

TS

MET

HO

D

Lysn

e S.

p.A

. (1)

C

embr

e S.

p.A

. 9,

059,

892

- -

9,05

9,89

2 fu

ll di

rect

ly

Car

lo R

osan

i C

embr

e S.

p.A

. 1,

040,

000

- -

1,04

0,00

0 fu

ll di

rect

ly

Ann

a M

aria

Ono

fri

Cem

bre

S.p.

A.

900,

096

- -

900,

096

full

dire

ctly

Sara

Ros

ani

Cem

bre

S.p.

A.

560,

000

- -

560,

000

full

dire

ctly

Gio

vann

i Ros

ani

Cem

bre

S.p.

A.

540,

000

- -

540,

000

full

dire

ctly

Ald

o B

ottin

i Bon

gran

i C

embr

e S.

p.A

. 36

0,00

0 -

- 36

0,00

0 fu

ll di

rect

ly

Gio

vann

i De

Vec

chi

Cem

bre

S.p.

A.

280,

000

- -

280,

000

full

dire

ctly

Mar

io C

oman

a C

embr

e S.

p.A

. 10

,000

-

- 10

,000

fu

ll di

rect

ly

And

rea

Bor

eatt

i C

embr

e S.

p.A

. 1,

500

- -

1,50

0 fu

ll di

rect

ly

Stat

utor

y A

udit

ors a

nd D

irec

tors

not

list

ed a

bove

did

not

hol

d C

embr

e S.

p.A

. sha

res a

t Dec

embe

r 31,

200

5 an

d di

d no

t acq

uire

Cem

bre

S.p.

A. s

hare

s in

2006

.

(1)

The

shar

e ca

pita

l of L

ysne

S.p

.A.,

Cem

bre

S.p.

A.’s

par

ent c

ompa

ny, i

s hel

d by

Ann

a M

aria

Ono

fri,

Gio

vann

i Ros

ani a

nd S

ara

Ros

ani.

74


Attachment 3 – Cembre S.p.A. Report on OperationsCORPORATE BOARDS

Board of Directors

Chairman and Managing Director Carlo Rosani

Vice Chairman and Managing Director Anna Maria Onofri

Managing Director Giovanni Rosani

Director Sara RosaniDirector Giovanni De VecchiDirector Aldo Bottini BongraniIndependent Director Mario ComanaIndependent Director Paolo Lechi di Bagnolo

Secretary

Giorgio Rota

Board of Statutory Auditors

Chairman Guido Astori

Permanent Auditor Leone ScuttiPermanent Auditor Andrea Boreatti

Substitute Auditor Maria Grazia LizziniSubstitute Auditor Giorgio Astori

The above list is updated at March 28, 2007.

The Board of Directors and Board of Statutory Auditor’s term expires with the approval of the Financial Statements at December 31, 2008.The Chairman and Managing Director Carlo Rosani holds by statute (article 18) powers of legal re-presentation of the Company. The Board of Directors conferred to the Chairman all the ordinary ma-nagement powers not specifically reserved to it by law. The Board of Directors conferred to Managing Director Giovanni Rosani all the ordinary management powers not specifically reserved to it by law and exclusive powers over the organization, management and monitoring of the internal control system.In case of absence or impediment of the Chairman and of Managing Director Carlo Rosani, Vice Chair-man and Managing Director Anna Maria Onofri holds all ordinary management powers not reserved to the Board by law, with the exception of the appointment of professionals. All Managing Directors must keep the Board of Directors informed of all relevant transactions concluded in the context of their mandate. The Board of Directors has approved rules that define which particularly relevant transactions may be concluded exclusively by the same.

Cembre S.p.A. Financial Statements at December 31, 2006

76


Balance SheetNotes Dec. 31, 2006 Dec. 31, 2005

ASSETS of which: related parties


A) NON CURRENT ASSETS

Proprty, plant and equipment 1 22,347,764 20,128,118

Intangible assets 2 135,227 144,612

Investments in subsidiaries 3 8,115,406 8,115,406

Financial assets available for sale 4 5,224 5,224

Other non-current assets 5 10,160 10,160

Deferred tax assets 11 628,253 647,845

TOTAL NON-CURRENT ASSETS 31,242,034 29,051,311

B) CURRENT ASSETS

Inventories 6 19,147,506 14,276,664

Trade receivables 7 16,823,315 14,310,271

Trade receivables from subsidiaries 8 6,077,021 6,077,021 5,153,679 5,153,679

Financial receivables from subsidiaries 9 2,046,438 2,046,438 -

Other assets 10 406,484 73,478

Cash and cash equivalents 12 1,199,796 3,109,815

TOTAL CURRENT ASSETS 45,700,560 36,923,907

C) NON-CURRENT ASSETS AVAILABLE FOR SALE - -

TOTAL ASSETS (A+B+C) 76,942,594 65,975,218



Capital stock 13 8,840,000 8,840,000

Reserves 13 36,067,821 33,878,850

Net profit 13 6,665,345 4,738,970

TOTAL SHAREHOLDERS’ EQUITY 51,573,166 47,457,820


Non-current financial liabilities 16 - -

Employee Severance Indemnity and other personnel benefits 15 4,511,572 132,808 4,352,301 123,672

Provisions for risks and charges 14 288,154 280,602

Deferred tax liabilities 11 4,059,331 3,898,528

TOTAL NON-CURRENT LIABILITIES 8,859,057 8,531,431


Current financial liabilities 16 2,567,102 291,753

Liabilities on derivative instruments 16 - 21,024

Trade payables 17 9,669,634 5,863,600

Trade payables to subsidiaries 18 423,003 423,003 195,770 195,770

Tax payables 19 986,873 449,647

Other Payables 20 2,863,759 3,164,173

TOTAL CURRENT LIABILITIES 16,510,371 9,985,967

D) LIABILITIES ON ASSETS HELD FOR DISPOSAL - -

TOTAL LIABILITIES (B+C+D) 25,369,428 18,517,398

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 76,942,594 65,975,218

77


Income StatementNotes Dec. 31, 2006 Dec. 31, 2005



Revenues from sales and services provided 21 65,579,826 18,810,371 53,462,743 14,520,235

Other revenues 22 139,931 94,513 128,103 93,132

TOTAL REVENUES 65,719,757 53,590,846

Cost of goods and merchandise 23 (31,773,332) (1,328,334) (19,504,085) (898,446)

Cost of services received 24 (8,967,575) (651,754) (7,275,291) (440,978)

Lease and rental costs 25 (746,094) (483,149) (720,980) (475,222)

Personnel costs 26 (15,151,565) (205,545) (14,034,149) (246,731)

Other operating costs 27 (169,522) (219,862)

Change in inventories 4,870,842 (683,287)

Increase in assets due to internal construction 606,986 507,530

Write-down of receivables (115,673) (199,501)

Accruals to provisions for risks and charges 28 (7,941) (14,915)

GROSS OPERATING PROFIT 14,265,883 11,446,306

Tangible asset depreciation 1 (2,239,102) (2,549,883)

Intangible asset amortization 2 (89,823) (87,097)

Write-down of long-term assets - -

OPERATING PROFIT 11,936,958 8,809,326

Financial income (expense) 29 62,939 46,438 (431,959)

Foreign exchange gains (losses) 30 (80,131) 253,293

PROFIT BEFORE TAXES 11,919,766 8,630,660

Income taxes 31 (5,254,421) (3,891,690)

NET PROFIT FROM ORDINARY ACTIVITIES 6,665,345 4,738,970

NET PROFIT FROM ASSETS HELD FOR DISPOSAL - -

NET PROFIT 6,665,345 4,738,970

78


Statement of Cash Flows as at December 31, 2006

2006 2005

A) CASH FLOW FROM OPERATING ACTIVITIES

Net profit for the period 6,665,345 4,738,971

Depreciation, amortization and write-downs 2,328,925 2,636,980

(Gains)/Losses on disposal of assets (4,518) (6,919)

Net change in Employee Severance Indemnity 159,271 199,585

Net change in provisions for risks and charges 7,552 (328,884)

Operating profit (loss) before change in working capital 9,156,575 7,239,733

(Increase) Decrease in trade receivables (3,436,386) (1,432,266)

(Increase) Decrease in inventories (4,870,841) 683,287

(Increase) Decrease in other receivables and deferred tax assets (313,414) (99,379)

Increase (Decrease) of trade payables 4,033,267 (946,545)

Increase (Decrease) of other payables and deferred tax liabilities 397,615 (595,329)

Change in working capital (4,189,759) (2,390,232)

NET CASH FLOW (USED IN)/FROM OPERATING ACTIVITIES 4,966,816 4,849,501

B) CASH FLOW FROM INVESTING ACTIVITIES

Capital expenditure on fixed assets:

- intangible (80,438) (137,718)

- tangible (4,467,968) (1,252,797)

- financial - (1,108,423)

Proceeds from disposal of tangible, intangible, available-for-sale financial assets 13,738 121,567

NET CASH FLOW (USED IN)/FROM INVESTING ACTIVITIES (4,534,668) (2,377,371)

C) CASH FLOW FROM FINANCING ACTIVITIES

(Increase) Decrease in other non current assets (54) 44,784

(Increase) Decrease of financial receivables (2,046,438) -

Increase (Decrease) in bank loans and borrowings 2,275,349 (2,772,137)

Increase (Decrease) in derivative instruments (21,024) (8,601)

Change in reserves - 333,817

Dividends distributed (2,550,000) (1,698,000)

NET CASH FLOW (USED IN)/FROM FINANCING ACTIVITIES (2,342,167) (4,100,137)

D) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) (1,910,019) (1,628,007)

E) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,109,815 4,737,822

F) CASH AND CASH EQUIVALENTS AT END OF PERIOD (D+E) 1,199,796 3,109,815

79


CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,199,796 3,109,815

Financial receivables from subsidiaries 2,046,438 -

Current financial liabilities (2,567,102) (291,753)

Non current financial liabilities - -

Liabilities on derivative instruments - (21,024)

NET FINANCIAL POSITION 679,132 2,797,038

INTEREST PAID IN THE PERIOD (37,689) (57,219)

BREAKDOWN OF CASH AND CASH EQUIVALENTS AT END OF PERIOD

Cash 7,189 1,016

Banks 1,192,607 3,108,799

1,199,796 3,109,815

80


Stat

emen

t of C

hang

es in

the

Shar

ehol

ders

' Equ

ity fo

r th

e 20

06 F

inan

cial

Yea

r

Cap

ital

stoc

k

Shar

e pr

emiu

m

rese

rve

Lega

l re

serv

e

Res

erve

fo

r tr

easu

ry

shar

es

Susp

en-

ded-

tax

rese

rves

Extr

aor-

dina

ry

rese

rve

Exch

ange

ga

ins

rese

rve

Ure

aliz

ed

gain

s re

serv

e

Ret

aine

d ea

rnin

gsN

et p

rofit

Tota

lSh

areh

olde

rs'

Equi

ty

Balan

ce at

Janu

ary

1, 2

005

8,84

0,00

012

,244

,869

1,36

6,44

5(2

91,0

52)

68,4

1212

,020

,869

-3,

902,

133

5,93

1,35

7-

44,0

83,0

33

Elim

inat

ion

of o

wn sh

ares

291,

052

291,

052

Allo

catio

n of

pre

viou

s yea

r net

pr

ofit (

1)29

6,56

83,

936,

789

(5,9

31,3

57)

(1,6

98,0

00)

Sale

of o

wn sh

ares

42,7

6542

,765

Net

pro

fit fo

r 200

54,

738,

971

4,73

8,97

1

Balan

ce at

Dec

embe

r 31,

200

58,

840,

000

12,2

44,8

691,

663,

013

-68

,412

16,0

00,4

23-

3,90

2,13

3-

4,73

8,97

147

,457

,821

Allo

catio

n of

pre

viou

s yea

r net

pr

ofit (

1)10

4,98

72,

069,

480

14,5

04(4

,738

,971

)(2

,550

,000

)

Oth

er ch

ange

s14

,504

(14,

504)

-

Net

pro

fit fo

r 200

66,

665,

345

6,66

5,34

5

Balan

ce at

Dec

embe

r 31,

200

68,

840,

000

12,2

44,8

691,

768,

000

-68

,412

18,0

84,4

07-

3,90

2,13

3-

6,66

5,34

551

,573

,166

(1) D

ivid

ends

reso

lved

by

the

Shar

ehol

ders

' Mee

ting

are

incl

uded

in th

e To

tal S

hare

hold

ers'

Equi

ty c

olum

n un

der A

lloca

tion

of p

revi

ous y

ear n

et p

rofit

81


Notes to the Financial Statements of Cembre S.p.A. at December 31, 2006

I. CORPORATE INFORMATION

CembreS.p.A.isajoint-stockcompanywithregisteredofficeinBrescia,ViaSerenissima9.CembreS.p.A.(hereinafterreferredtoasthe“Company”)isactiveprimarilyinthemanufacturingandsaleofelectricalconnectorsandrelatedtools.Thepublicationof theFinancialStatementsofCembreS.p.A. for theyearendedDecember31,2006wasauthorizedbyaresolutionoftheBoardofDirectorsdatedSeptember28,2007.CembreS.p.A.iscontrolledbyLysneS.p.A.,aholdingcompanybasedinBergamo,thatdoesnotdirectorcoordinateitssubsidiary.

II. FORM AND CONTENT OF THE FINANCIAL STATEMENTS

ThepresentFinancialStatementsatDecember31,2006werepreparedundertheInternationalFi-nancialReportingStandards(IFRS)adoptedbytheEuropeanUnionandtherelatedimplementationregulationsissuedinapplicationofarticle9ofLegislativeDecreeno.38/2005.IncompliancewithEURegulationno.1606datedJuly19,2002,theCembreGroupadoptedIFRSissuedby the InternationalAccountingStandardsBoard (“IASB”) inpreparing itsConsolidatedFinancialStatements.BasedonItalianregulationsissuedtoimplementsaidEUregulations,fromfinancialyear2006theFinancialStatementsofCembreS.p.A.werepreparedunderIFRS.Accoun-tingprinciplesappliedareinlinewiththoseadoptedunderIFRSinthepreparationoftheopeningBalanceSheetatJanuary1,2005,asrestatedunderIFRS,andthoseappliedinthepreparationofthe2005IncomeStatementandBalanceSheetatDecember31,2005,asrestatedunderIFRSandpublishedinnote38“ImpactoftheapplicationofIAS/IFRS”ofthepresentnotes,towhichwerefer.SuchnotesincludesareconciliationbetweenthenetincomeandShareholders’EquityreportedunderItalianGAAP,andthenetincomeandShareholders’EquityreportedunderIFRSinpreviousyears,asrestatedforcomparativepurposesincompliancewithIFRS1–First-timeadoptionofIFRSandtherelatedexplanatorynotes.AnumberofreclassificationsweremadewithrespecttofigurespublishedintheAppendixtotheHalf-yearReportatJune30,2006.Figuresforthepreviousyearprovidedforcomparativepurposeswereconsequentlyreclassified.ThesechangesdidnothaveaneffectonthenetincomeandSha-reholders’Equity.Thetablethatfollowscontainsalistofinternationalaccountingprinciplesandinterpretationsap-provedbytheIASBthatbecameeffectivestartingin2006,whichweretakenintoaccount,whereapplicable,inthepreparationofthepresentFinancialStatements:

Effective

AmendmentstoIAS19‘EmployeeBenefits’:ActuarialGainsandLosses,GroupPlansandDisclosures Jan.1,2006

IFRIC4:Determiningwhetheranarrangementcontainsalease Jan.1,2006

IFRS6:MineralResources Jan.1,2006

IFRIC5:InterestsinDecommissioningFunds Jan.1,2006

AmendmenttoIAS39:TheFairValueOption Jan.1,2006

AmendmenttoIAS39:CashFlowHedgeAccounting Jan.1,2006

AmendmentstoIAS39andIFRS4:FinancialGuaranteeContracts Jan.1,2006

82


Thefollowingprincipleswillbecomeeffectiveatthedatesspecifiedbelow:Effective

IFRS7:FinancialInstruments:Disclosures Jan.1,2007

IFRIC8:FieldofapplicationofIFRS2 Jan.1,2007

IFRIC9:Subsequentvaluationofimplicitderivatives Jan.1,2007

IFRIC11:IFRS2–GroupandTreasurySharestransactions Jan.1,2008

IFRIC12:Contractsforservicesunderconcession Jan.1,2008

IFRS8:Operatingsegments Jan.1,2009

Theapplication,whereappropriate,oftheabovestandardswillnothaveasignificantimpactonthevaluationofassets,liabilities,costsandrevenuesoftheCompany.Items in the Balance Sheet were recorded at the historical cost, with the exception of financialderivatives,recordedatfairvalue.Unlessotherwise indicated,figures reported in thefinancial statementsandthe relatednotesareexpressedinthousandsofeuro.

III. ACCOUNTING PRINCIPLES AND VALUATION CRITERIA

Form of the Financial Statements

Thefinancialstatementsarepreparedasfollows:-currentandnon-currentassetsandliabilitiesarereportedseparatelyintheBalanceSheet;-theanalysisofcostsintheIncomeStatementiscarriedoutbasedonthenatureofthesame;-theStatementofCashFlowsispreparedbyapplyingtheindirectmethod.Finally,withreferencetoCONSOBRegulationno.15519datedJuly27,2006,amountspertainingtorelatedparties,wheresignificant,areexposedinaseparatedcolumnofIncomeStatementandBalanceSheet.

Property, plant and equipment

Property,plantandequipment is recordedat thehistoricalcostandreportednetofaccumulateddepreciationandlossesinvalue.Ordinarymaintenanceandrepaircostsarenotcapitalized,andarechargedtotheincomestatementintheyearinwhichtheyareincurred.Depreciationcommenceswhentheassetisavailableforuseandiscalculatedonastraightlinebasisovertheestimatedresidualusefullifeoftheasset,takingintoaccountitsresidualvalue.Depreciationratesappliedreflecttheusefullifegenerallyattributedtothevariousclassesofassetsandareunchangedfromthepreviousyear.Theseare:

-Buildingsandlightinstallations: 3%–10%-Plantandmachinery: 10%–15.5%-Industrialandcommercialequipment: 25%-Otherassets: 12%–25%

83


Landhasanundeterminedusefullifeandisthereforenotsubjectedtodepreciation.Thebookvalueofproperty,plantandequipmentissubjectedtoimpairmenttestwhenevereventsorchangesoccurredindicatethatthebookvalueofthesamecannolongerberetrievedinlinewiththedepreciationscheduleoriginallyset.Wheneverthereexistssuchanindication,theassetsorcashgeneratingunitsarewrittendowntoreflecttheirexpectedrealizablevalue.Theresidualvalueofassets,theirusefullifeandmethodsappliedarereviewedannuallyandadjusted,wherenecessary,attheendofeachyear.TangibleassetsareeliminatedfromtheBalanceSheetatthetimeoftheirsaleorwhentherenolongerexiststheexpectationoffutureeconomicbenefitsfromitsuseordisposal.Lossesandgains(calculatedasthedifferencebetweennetrevenuesfromthedisposalandbookvalueoftheasset)arerecordedintheIncomeStatementintheyearinwhichtheyaredisposedof.

Leased assets

Assetsheldunderafinanciallease,throughwhichallrisksandbenefitsrelatingtoownershiparetransferredtotheGroup,arerecordedunderassetsattheloweroftheircurrentvalueandthepresentvalueofminimumleasepaymentsdue,accordingtothecontract,includingthebulletpaymentdueattheendoftheleasetoexercisetherepurchaseoption.Theliabilitycorrespondingtotheleasecontractisrecordedunderfinancialliabilities.Leasedassetareclassifiedundertherespectivecategoryamongproperty,plantandequipment,anddepreciatedovertheshorterperiodbetweenthetermoftheleaseandtheexpectedresidualusefullifeoftheasset.LeasecontractsinwhichthelessorholdsallrisksandenjoysallbenefitsderivingfromtheleasedassetareclassifiedasoperatingleasesandrecordedascostsintheIncomeStatementoverthetermofthecontract.

Intangible assets

Intangibleassetsarerecordedunderassets,asprovidedbyIAS38(Intangibleassets),wheneveritisprobablethatfutureeconomicbenefitsaregeneratedthroughuseandwhenthecostoftheintangibleassetcanbedeterminedinareliablemanner.Intangibleassetsacquiredseparatelyareinitiallycapitalizedatcost,whilethoseacquiredthroughmergersarecapitalizedattheirfairvalueatthetimeofacquisition.With the exception of development costs, assets constructed internally cannot be recorded asintangibleassets.Aftertheinitialrecording,intangibleassetsarecarriedinthebalancesheetatcost,netofaccumulatedamortization calculated on a straight-line basis over their expected useful economic life, and ofwrite-downscarriedoutasaresultofdurablelossesinvalue.Intangibleassetshavinganindefiniteusefullifearenotamortizedandsubjectedperiodicallytoanimpairmenttesttoassesspossiblelossinvalue.Theusefullifegenerallyattributedtothevariousclassesofassetsisthefollowing:

-concessionsandlicenses: 5to10years-softwarelicenses 3years-developmentcosts: 5years-trademarks: 10to20years

Amortizationcommenceswhentheassetisavailableforuse,thatis,whenitisinapositionandinthenecessaryconditiontooperateinthemannerintendedbythemanagementofthecompany.Thebookvalueof intangible assets is subjected to impairment testwhenever events or changesoccurred indicate that the book value of the same can no longer be retrieved in line with the

84


amortizationscheduleoriginallyset.Wheneverthereexistssuchanindicationandthebookvalueoftheassetexceedsitsrealizablevalue,thevalueoftheassetiswritten-downtoitsexpectedrealizablevalue.

Investments

Investmentsinsubsidiariesarerecordedatcost,adjustedwherenecessaryforlossesinvalue.The difference, emerging upon acquisition, between the acquisition cost and the portion of theShareholders’Equityacquiredisthereforeincludedinthebookvalueoftheinvestment.Investmentsinsubsidiariesaresubjectedtoanimpairmenttestwheneverindicatorsofalossinvaluearedetected.Wheneveritappearsthataninvestmentinasubsidiaryhasexperiencedalossinvalue,thesameisrecordedintheIncomeStatementasawrite-down.Wheneverlossesofasubsidiaryexceedthebookvalueoftheinvestment,thevalueofthesameiswritten-downtozeroandlossesexceedingsuchvaluearerecordedinaspecificliabilityprovision.Incasethelossissubsequentlyreversedorreduced,therelatedamountiswritten-upintheIncomeStatementuptotheoriginalcostoftheinvestment.

Financial assets

Financialassetsareinitiallyrecordedatcost,inclusiveofaccessorypurchasecosts,representingthefairvalueofthepricepaid.Aftertheinitialrecording,financialassetsarevaluedinaccordancewiththeirfinalpurposeasdescribedbelow.

Financial assets valued at fair value, whose change is recorded in the Income Statement

Thesearefinancialassetsheldfortradingpurposes,acquiredforthepurposeofobtainingaprofitfromshort-termfluctuationsinprice.Unlessspecificallydesignatedaseffectivehedginginstruments,derivativesareclassifiedasfinancialassetsheldfortradingpurposes.Gainsandlossesonfinancialassetsheldfortradingpurposesarerecordedintheincomestatement.

Financial assets held to maturityThesearefinancialassetsotherthanderivativesthatgeneratefixedfinancialflowsorflowsthatmaybedetermined,thathaveasetmaturityandwhichtheGroupintendstoandiscapableofholdingtomaturity.

FinancialassetsthattheGroupdecidestoholdforanindefiniteperiodoftimedonotfallunderthiscategory.

Long-termfinancial investmentsheld tomaturity, suchasbonds, after their initial recordingareaccounted forat theamortizedcost,using theeffective rateof interestmethod, representing therateatwhichestimatedfuturepaymentsorcollectionsovertheexpectedusefullifeoftheassetarediscountedtotheirpresentvalue.

Theamortizedcostiscalculatedkeepingintoaccountdiscountsandpremiums,amortizedoverthetermofthefinancialasset.

Loans extended and receivables

Loansandreceivablesarenon-derivativefinancialassetsprovidingforfixedpaymentsorpaymentsthatmaybedetermined,notlistedonanactivemarket.Suchassetsarerecordedattheamortizedcostusingtheactualdiscountratemethod.

85


GainsandlossesarerecordedintheIncomeStatementwheneverloansextendedandreceivablesareeliminatedfromtheaccountsortheyexperiencelossesinvalue,inadditiontotheamortizationprocess.

Financial assets available for sale

Thecaptionincludesfinancialassetsthatdonotfallundertheabovecategories.Aftertheinitialrecording,theseareaccountedforatfairvalue,whilegainsandlossesarerecordedunderaspecificShareholders’Equityreserveuntiltheassetsarenotsoldoralossinvalueisascertained.Insuchcase,gainsandlossesaccruedarechargedtotheincomestatement.In the case of securities widely traded on a regulated market, the fair value is determined withreferencetothelistedpriceattheclosingoftradingonthedateofthefinancialstatements.Inthecaseoffinancialassetsforwhichtheredoesnotexistanactivemarket,thefairvalueisdeterminedthroughvaluationtechniquesbasedonthepricerecordedinrecenttransactionsbetweenunrelatedpartiesoronthebasisofthecurrentmarketvalueofasimilarinstrument,orondiscountedcashflowsoroptionpricingmodels.Investmentsinothercompaniesfallinthiscategory.

Loss in value of financial assets

TheGroupverifiesatleastyearlythepossiblelossinvalueofindividualfinancialassets.Thesearerecordedonlyatthetimewhenthereexistsobjectiveevidence,attheoccurrenceofoneormoreevents,thattheassethasexperiencedalossofvaluewithrespecttoitsinitialrecordedvalue.

Treasury shares

TreasurysharesarerecordedasareductionofShareholders’Equityinaspecificreserve.Thepurchase,sale,issueorcancellationoftreasurysharesdoesnotdeterminetherecordingofanygainorlossintheIncomeStatement.

Inventories

Inventoriesarevaluedatthelowerofcostandtheirexpectedrealizablevalue,representedbytheirnormalsaleprice,netofcompletionandsellingcosts.Thecostofinventoriesincludestheacquisitioncost,thetransformationcostandothercostsincurredtotakeinventoriestotheircurrentlocationandstate.Thecostofinventoriesisdeterminedundertheweighted-averagemethod,inclusiveofthecostofbeginninginventories.Provisionsforslow-movingstockareaccruedforfinishedproducts,materialsandothersupplies,keepingintoaccounttheirexpectedusefullifeandretrievablevalue.

Payables and receivables

Receivablesarerecordedinitiallyatfairvalueandsubsequentlycarriedattheamortizedcost,written-downincaseof loss invalue.Payablesarenormallyvaluedattheamortizedcost,adjustedunderexceptionalconditionsforchangesinvalue.

Cash and cash equivalents

Cashandcashequivalentsarerecordedatfacevalue.

Loans

Loansareinitiallyrecordedatcost,correspondingtothefairvalueoftheamountreceived,netofaccessorycostsincurredintheextensionoftheloan.

86


After the initial recording, loans are valued at the amortized cost, using the effective interestmethod.

Translation of amounts denominated in currencies other than the euro

Transactionsdenominatedincurrenciesotherthantheeuroareinitiallyaccountedforineuroattheexchangerateatthedateofthetransaction.Currencytranslationdifferencesarisingatthetimeatwhichforeigncurrencyreceivablesarecollectedandpayablesarepaidout,arerecordedintheincomestatement.Atthedateofthefinancialstatements,monetaryassetsandliabilitiesdenominatedincurrenciesother than the euro – consisting of cash on hand or assets and liabilities to be received or paidout,whoseamountissetandmaybedetermined–aretranslatedintoeuroattheexchangerateatthedateof thefinancial statements, recording in the income statement thecurrency translationdifferencewhereappropriate.Non-monetaryitemsdenominatedincurrenciesotherthantheeuroaretranslatedintoeuroattheexchangerateatthetimeofthetransaction,representingthehistoricalexchangerate.

Provisions for risks and charges

Provisionsforrisksandchargesareaccruedagainstknownliabilitieswhoseamountandexpirationcannothoweverbedeterminedatthedateofthefinancialstatements.Accrualsaremadewhentheexistenceofacurrentobligation,legalorimplicit,derivingfromapastevent,thefulfilmentofwhichisexpectedtorequiretheuseofresourceswhoseamountcanbereliablyestimated,isprobable.Provisionsarevaluedatthefairvalueofliabilities.Whenthefinancialeffectandthetimingofthecashoutflowcanbeestimatedinareliablemanner,provisionsincludetheinterestcomponent,re-cordedintheIncomeStatementamongfinancialincome(expense).Provisionsaccruedarereviewedateachaccountingdateandadjustedtobringthemintolinewiththebestestimateavailableatthatdate.

Employee benefits

Post-employmentbenefitsfallingunderthecategoryofdefinedbenefitplansandotherlong-termbenefitsaresubjecttoactuarialvaluations.TheresultingliabilityrecordedinthefinancialstatementsisrepresentedbythecurrentvalueoftherelatedliabilityoftheCompany,netofassetssetasidetoservicepost-employmentbenefitplans.UnderIAS19,theEmployeeSeveranceIndemnityisclassifiedamongdefinedbenefitplans.ItistobenotedthattheGroupoptednottousetheso-calledcorridorapproachandtorecordgainsandlossesresultingfromchangesinactuarialassumptionsdirectlyintheincomestatement.

Elimination of financial assets and liabilities

FinancialassetsareeliminatedwhentheCompanyceasestoholdrightstoreceivefinancialflowsderivingfromthesameorwhensuchrightsaretransferredtoanotherentity,thatiswhenrisksandbenefitsofthefinancialinstrumentceasetohaveaneffectonthefinancialpositionandoperatingperformanceoftheCompany.Afinancialliabilityiswritten-offexclusivelywhentherelatedobligationiscancelled,fulfilledorexpired.Anymaterialchangeinthecontractualtermsrelatingtotheliabilityresultinitscancellationandintherecordingofanewliability.AnydifferencebetweenthebookvalueandtheamountpaidtoextinguishtheliabilityisrecordedintheIncomeStatement.

RevenuesRevenuesarevaluedatthecurrentvalueoftheamountreceivedorreceivable.

87


Disposal of assets

TherevenueisrecognizedwhentheGrouphastransferredtherisksandbenefitsconnectedwiththeownershipofthegood,andceasestoexercisetheactivityassociatedwithownershipandtheactualcontrolovertheassetsold.

Services rendered

Revenuesarerecordedbasedonthestageofcompletionoftheoperationatthedateofthefinancialstatements.Whentheresultoftheservicerenderedcannotbereliablyestimated,revenuesarerecordedonlytotheextentofretrievablecosts.Thestageofcompletionisdeterminedbyvaluingworkcarriedoutorbydeterminingtheproportionbetweencostsincurredandtotalestimatedcoststocompletion.

Interest

Interestisrecordedintheperiodinwhichitaccrues,usingtheeffectiveinterestmethod.

Dividends

Dividendsarerecordedwhentherightofshareholderstoreceivethemarises.

Grants

Grantsarerecordedwhenthereexistsareasonablecertaintythatthesamewillactuallybereceivedandthecompanymeetstheconditionsfortheentitlementtothegrant.Grants linked tocost components (e.g.operatinggrants) are recordedunder “other revenues” andamortizedoverseveralyearssothatrevenuesmatchthecoststheyareintendedtocompensate.Thefairvalueofgrantslinkedtoassets(e.g.grantsonthepurchaseofplantandequipmentorgrantsforcapitalizedR&Dcosts),issuspendedunderlong-termliabilitiesandreleasedtotheincomestatementunder“otherrevenues”overtheusefullifeoftheassettowhichitrelates,thusintheperiodoverwhichthedepreciationexpenserelatingtotheassetischargedtotheincomestatement.

Financial charges

Financialchargesarerecordedasacostintheperiodinwhichtheyaccrue.

Cost of goods purchased and services

Thecostofgoodspurchasedandservicesreceivedisrecordedintheincomestatementbasedontheaccrualmethod.

Income taxes (current, prepaid and deferred)

CurrenttaxesaredeterminedbasedonarealisticestimateofthetaxexpensefortheperiodinaccordancewithtaxregulationsapplicableintherespectivecountriesinwhichGroupcompaniesoperate.TheCompanyrecordsdeferredandprepaidtaxesarisingfromtemporarydifferencesbetweenthebookvalueofassetsandliabilitiesandtherelatedvaluesreportedfortaxpurposes,inadditiontodifferencesinthevalueofassetsandliabilitiesgeneratedbyconsolidationadjustments.Prepaidtaxesarerecordedonlywherethereexistsreasonablecertaintyoftheirretrievalthroughfutureprofitswithintheterminwhichtaxbenefitsareenjoyed.Deferredtaxassetsarerecordedalsowherethereexistdeductiblelossesortaxcreditswheneveritisdeemedprobablethatsufficientfutureprofitswillbegeneratedinthemedium-term(3to5years).

88


Financial derivatives

Derivative financial instruments are valued at market value (fair value). A derivative financialinstrumentcanbeacquiredfortradingorhedgingpurposes.Gainsandlossesonfinancialinstrumentsacquiredfortradingpurposesarechargedtotheincomestatement.Derivativesacquiredforhedgingpurposesmaybeaccountedforunderthehedgeaccountingmethod–offsettingtherecordingofthederivativeintheincomestatementwithadjustmentstothevalueofassetsandliabilitieshedged–onlywhenderivativesmeetspecificcriteria.Hedgederivativesareclassifiedas“fairvaluehedges”whentheyareacquiredtohedgeagainsttheriskoffluctuationsinthemarketvalueoftheunderlyingassetorliabilityorfluctuationsinthefinancialflowsderivingfromthesame,bothinthecaseofexistingassetsandliabilitiesorthosederivingfromafuturetransaction.Inthecaseoffairvaluehedges,gainsandlossesontherestatementofthemarketvalueofaderivativeinstrumentaretakentotheincomestatement.Withregardtothehedgingoffinancialflows,gainsandlossesonthehedgeinstrumentarerecordedunderShareholders’Equitywhentheyrelatetotheportionofthehedgeconsideredeffective,whiletheportionnothedgedisrecordedintheincomestatement.

Use of estimates

InaccordancewithIAS/IFRS,theCompanymadeuseofestimatesandassumptionsbasedonpriorexperienceandotherfactorsdeemeddeterminant,butnotcertain.Actualdatacouldthereforedifferfromestimatesandprojectionsmade.EstimateddataisreviewedperiodicallyandadjustmentsmadetothesamearetakentotheIncomeStatementfortheperiodinwhichthereviewtakesplaceincasethereviewaffectonlyoneperiod,or,subsequentaccountingperiodsincaseitaffectsalsothesame.Belowwedescribereviewprocessesandkeyassumptionsusedbymanagementinapplyingaccountingprinciples.

Provision for doubtful accountsTheprovisionfordoubtfulaccountsreflectsmanagementestimatesregardinglossesontraderecei-vables.LossesontradereceivablesexpectedbytheCompanyarebasedonpastexperienceonsimilarpor-tfoliosofreceivables,currentoverduesvs.historicaloverdues,lossesandcollections,theclosemoni-toringofcreditriskandcreditworthinessofcustomers,inadditiontoprojectionsoneconomicandmarketconditions.

Retrievable value of non-current assetsNon-currentassetsincludeproperty,plantandequipment,intangibleassets,investmentsandotherfinancialassets.Whenevercircumstancessorequire,themanagementreviewsperiodicallythebookvalueofnon-currentassetsheldandusedbytheCompany,inadditiontoassetstobedisposedof.Suchactivityiscarriedoutusingestimatesofexpectedcashflowsfromthesaleoftheassetandofadequatediscountratesusedincalculatingthepresentvalueofthesame.Wheneverthebookvalueofanon-currentassetexperiencesalossinvalue,theCompanyrecordsawrite-downequaltothedifferencebetweenthebookvalueoftheassetanditsretrievablevalueeitherthroughuseordisposalofthesame.

Post-retirement benefitsIntheestimationofpost-retirementbenefitstheCompanymakesuseoftraditionalactuarialtech-niquesbasedonstochasticsimulationsofthe“Montecarlo”type.Assumptionsmaderelatetothe

89


discountrate,theannualinflationrateandtheannualincreaseinretributions.ActuarialadvisorsoftheCompanymakealsouseofdemographicprojectionsbasedoncurrentmortalityrates,employeedisablementandresignationrates.

Retrievability of deferred tax assetsCembreS.p.A.calculatesdeferredtaxassetsonthebasisofprofitsandexpectedfuturemarketcon-ditionsinviewofcurrentsalecontractsandabilityofexpectedfutureprofitstooffsettaxcredits,inadditiontotheexpectedvarianceofthesame.

Potential liabilitiesIncarryingoutitsactivity,managementconsultswithitslegalandtaxadvisorsandexperts.TheCompanyascertainsaliabilityarisingfromlitigationwheneveritdeemsprobablethatafinancialoutlaywillbemadeinthefutureandwhentheamountofresultinglossescanbereasonablyestimated.Incaseafinancialoutlaybecomespossiblebutitsamountcannotbedetermined,suchoccurrenceisreportedinthenotes.

IV. NOTES TO THE FINANCIAL STATEMENTS OF CEMBRE S.P.A.

1. TANGIBLE ASSETS

Land and buildings

Plant and machinery

EquipmentOther assets

Work in progress

Total

Historicalcost 18,433,415 23,994,725 4,661,845 3,529,526 253,399 50,872,910

Accumulateddepreciation (3,995,977) (19,713,695) (4,238,395) (2,796,725) - (30,744,792)

Bal. at Dec. 31, 2005 14,437,438 4,281,030 423,450 732,801 253,399 20,128,118

Increases 2,259,930 1,608,205 366,126 195,363 291,743 4,721,367

Depreciation (332,693) (1,357,651) (266,428) (282,330) - (2,239,102)

Netdivestments - (558) - (8,662) (253,399) (262,619)

Bal. at Dec. 31, 2006 16,364,675 4,531,026 523,148 637,172 291,743 22,347,764

Land and buildings

Plant and machinery

EquipmentOther assets

Work in progress

Total

Historicalcost 18,433,414 23,525,892 4,550,601 3,488,750 92,286 50,090,943

Accumulateddepreciation (3,658,917) (18,348,159) (3,909,235) (2,634,781) - (28,551,092)

Bal. at Jan. 1, 2005 14,774,497 5,177,733 641,366 853,969 92,286 21,539,851

Increases - 643,296 126,479 229,622 253,399 1,252,796

Depreciation (337,060) (1,533,827) (344,395) (334,600) - (2,549,882)

Netdivestments - (6,172) - (16,190) (92,286) (114,648)

Bal. at Dec. 31, 2005 14,437,437 4,281,030 423,450 732,801 253,399 20,128,117

90


Inthecontextofthedevelopmentofactivities,theCompanyacquiredintheyearaplotoflandadjacenttoitsheadofficeinBresciaforabout€2.3million.Expenditureintheyearonplantandequipmentconsistedprimarilyintheinternalconstructionofmachineryworth€450thousand,theacquisitionofanautomatedworkstationfor€445thousandandofapackagingsystemfor€140thousand.Disposalsintheyearforeithersaleordecommissioningdidnotgiverisetotherecordingofsignificantcapitalgainsorlosses.Expenditureonequipmentintheyearconsistsalmostexclusivelyinthemanufacturingandacquisi-tionofcasts,ofwhich€255thousandwerebuiltinternally.Increases inotherassetsconsistprevalently intheacquisitionofofficeelectronicequipmentandhardware(€67thousand)andtheacquisitionofmotorvehicles(€97thousand).Decreasesarere-presentedbydisposalsanddecommissioningcarriedoutintheyear.Theabovechangesinproperty,plantandequipmentaredetailedinatableattachedtothepresentnotes.

2. INTANGIBLE ASSETS

Development costs Software Total

Historicalcost 146,250 2,089,017 2,235,267

Accumulatedamortization (40,085) (2,050,570) (2,090,655)

Balance at Dec. 31, 2005 106,165 38,447 144,612

Increases 34,948 45,490 80,438

Amortization (36,240) (53,583) (89,823)

Balance at Dec. 31, 2006 104,873 (30,354) 135,227

Developmentcostsrelatetothedevelopmentoftheproductrangewiththeintroductionofanumberofnewproducts.Intangibleassetsareamortizedsystematically,overfiveyearsinthecaseofdevelopmentcosts,andoverthreeyearsinthecaseofsoftwarelicenses.

3. INVESTMENTS IN SUBSIDIARIES

Subsidiary Dec. 31, 2005 Changes Write-downs Dec. 31, 2006

CembreLtd 3,437,433 - - 3,437,433CembreSarl 1,048,197 - - 1,048,197CembreEspanaSL 1,810,004 - - 1,810,004CembreAS 293,070 - - 293,070CembreGmbH 481,508 - - 481,508CembreInc. 888,671 - - 888,671GeneralMarkingS.r.l. 156,523 - - 156,523

Total 8,115,406 - - 8,115,406

91


Thetablebelowshowsfinancialhighlightsofsubsidiaries,allofwhicharedirectlyowned:

Subsidiary Share capital Sh. Equity Net profit % (€) (€) (€) held

CembreLtd(SuttonColdfield-Birmingham,UK) 2,531,645 8,167,324 912,519 100

CembreSarl(Morangis–Paris,France) 1,071,000 2,785,905 281,143 95(a)

CembreEspañaSL(Coslada–Madrid,Spain) 1,902,000 4,068,406 956,265 95(a)

CembreAS(Stokke-Norway) 291,334 246,753 42,783 100

CembreGmbH(Munich-Germany) 512,000 1,482,079 273,699 95(a)

CembreInc.(Edison,NewJersey-USA) 1,093,393 1,524,029 401,230 71(b)

GeneralMarkingS.r.l.(Brescia-Italy) 99,000 200,782 44,974 100

(a)theremaining5%heldthroughCembreLtd.(b)theremaining29%heldthroughCembreLtd.

ShareCapital,Shareholders'EquityandNetProfitfiguresaboverelatetotherespectiveFinancialStatementsatDecember31,2006approvedbytheBoardsoftheabovesubsidiaries.ShareCapitalandReservesoriginallynotexpressedineuroweretranslatedattheyear-endexchangerates,whileNetProfitfiguresweretranslatedintoeuroattheaverageexchangeratefortheyear.InthecaseofNorwegiansubsidiaryCembreAS,thebookvalueatwhichtheinvestmentiscarriedintheaccountsoftheparentishigherthantherelatedportionoftheShareholders'Equityheld.Thisisjustifiedbyprofitexpectations,confirmedbythenetprofitreportedin2006.

4. FINANCIAL ASSETS AVAILABLE FOR SALE

Descrizione Dec. 31, 2006 Dec. 31, 2005

Inn.tec.srl 5,165 5,165Conai 59 59

Total 5,224 5,224

TheaboverepresentequityinvestmentsinConsorzioNazionaleImballaggiandInn.tec.Srl,atech-nologyinnovationconsortium,bothwithregisteredofficeattheBresciaProvinceheadoffice.

5. OTHER NON-CURRENT ASSETS

Theitemincludesexclusivelysecuritydeposits.

92


6. INVENTORIES

Dec. 31, 2006 Dec. 31, 2005 Change

Rawmaterials 5,515,644 3,781,941 1,733,703

Workinprogressandsemi-finishedgoods 6,509,493 4,909,330 1,600,163

Finishedgoods 7,122,369 5,585,393 1,536,976

Total 19,147,506 14,276,664 4,870,842

Theprovisionforslow-movingstockisunchangedfromthepreviousyearandamountsto€900thou-sand.Theprovisionwaschargeddirectlytothevalueoffinishedproductstobringtheirvalueintolinewiththeirexpectedrealizablevalue.

7. TRADE RECEIVABLES FROM CUSTOMERS

Dec. 31, 2006 Dec. 31, 2005 Change

Grosstradereceivables 17,328,080 14,759,586 2,568,494

Provisionfordoubtfulaccounts (504,765) (449,315) (55,450)

Total 16,823,315 14,310,271 2,513,044

Tradereceivablesbygeographicalarea:

Dec. 31, 2006 Dec. 31, 2005 Change

Italy 14,487 12,949 1,538Europe 1,477 1,098 379NorthAmerica 124 32 92Oceania 443 381 62MiddleEast 277 137 140Restoftheworld 520 163 357Total 17,328 14,760 2,568

Theprovisionfordoubtfulaccountsisreviewedperiodicallyonthebasisoftheretrievabilityofin-dividualexposures.Wheneverbankruptcyproceduresareopened,theamountreceivablefromtherelatedcustomeriswritten-off.

Changesintheprovisionfordoubtfulaccountsintheyearareshownbelow:

Dec. 31, 2005 Increases Decreases Dec.31, 2006

Provisionfordoubtfulaccounts 449,315 115,673 (60,223) 504,765

93


8. TRADE RECEIVABLES FROM SUBSIDIARIES

Subsidiary Dec. 31, 2006 Dec. 31, 2005 Change

Cembre Ltd (UK) 1,786,848 1,119,335 667,513Cembre Sarl (France) 636,918 252,626 384,292Cembre España SL (Spain) 2,204,077 2,374,071 (169,994)Cembre AS (Norway) 86,130 94,564 (8,434)Cembre GmbH (Germany) 564,493 571,097 (6,604)Cembre Inc. (US) 710,050 704,462 5,588General Marking S.r.l. (Italy) 88,505 37,524 50,981

Total 6,077,021 5,153,679 923,342

9. OTHER RECEIVABLES

Dec. 31, 2006 Dec. 31, 2005 Change

Receivables from employees 15,723 19,691 (3,968)VAT receivable 348,497 16,346 332,151Other 42,264 37,440 4,824Total 406,484 73,477 333,007

Item Other includes mainly advances to suppliers.

10. LOANS EXTENDED TO SUBSIDIARIES

In 2006, Cembre S.p.A. extended to subsidiary General Marking S.r.l. a €2,000,000 one-year loan expiring January 27, 2007 at a fi xed 2.5% rate of interest. At December 31, 2006, interest accrued on the loan amounted to €46 thousand, to be paid out upon expiration. Such amount was classifi ed among current assets under Financial receivables from subsidiaries. The loan was renewed for one year.

11. DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets are recorded prevalently against the provision for slow moving stock described above, and against the discounting of employee termination indemnities, limited to the portion of the accrual that may not be deducted for tax purposes.Deferred tax liabilities are instead recorded prevalently against the revaluation of land carried out upon the fi rst-time application of IFRS, against the valuation of inventories at the average cost (as for tax purposes these are valued at LIFO), in addition to the reversal of accelerated depreciation (also adopted for tax purposes). Further information is provided in the note on Income taxes.There are no receivables expiring over 5 years.

94


Dec. 31, 2006 Dec. 31, 2005Deferred tax liabilities Averagecostvaluationofinventories (561,791) (259,077)Accelerateddepreciation (1,210,353) (1,352,264)Reversaloflanddepreciation (32,066) (32,066)Revaluationofland (2,255,121) (2,255,121)

Gross deferred tax liabilities (4,059,331) (3,898,528)

Deferred tax assets Write-downofinventories 335,250 335,250Goodwillamortization 62,739 68,651Write-downofinvestment 6,534 13,068Discountingofemployeeterminationindemnity 165,965 163,845Riskprovision 6,297 6,297Provisionfordoubtfulaccounts 33,000 33,000Other 18,468 27,734

Gross deferred tax assets 628,253 647,845Net deferred tax liabilities (3,431,078) (3,250,683)

Theredonotexistothertemporarydifferencesoraccrualsthatmaygeneratedeferredtaxliabilitiesnotaccountedfor.

12. CASH AND CASH EQUIVALENTS

Thebalancerepresentscashonhandandliquidassetsatthedateofthefinancialstatements.

13. SHAREHOLDERS’ EQUITY

AtDecember31,2006,thecapitalstockofCembreS.p.A.amountedto€8,840,000,andwasmadeupof17millionordinarysharesofparvalue€0.52each,fullyunderwrittenandpaid-up.Thelegalreserveamountsto20%ofthesharecapital.InviewofthefactthattheredonotexistgainsoncurrentlytranslationatDecember31,2006,thereserve forgainsonforeignexchangeconversiondifferencescreatedupontheallocationof2005netprofitandamountingto€14,504,wasreversedandconsequentlyaccruedtotheextraordinaryreserve.Thetablethatfollowsshowstheorigin,possibleusesandavailabilityfordistributionofequityreserves.

Nature/description Amount Uses Portion available

Share capital 8,840,000 Equity reserves: Sharepremiumreserve 12,244,869 ABC 12,244,869Revaluationreserve 585,159 AB ---Suspended-taxreserves 68,412 B ---

95


Reserves accrued from earnings: Legalreserve 1,768,000 B ---ReservefortransitiontoIAS/IFRS 3,902,133 B ---Extraordinaryreserve 17,499,248 ABC 17,499,248

Total 44,907,821 29,744,117

Portionnotavailablefordistribution 2,495,983 Portionavailablefordistribution 27,248,134

Legend:A=capitalincreases;B=coverageoflosses;C=distributiontoShareholders.

14. PROVISIONS FOR RISKS AND CHARGES

Social Security

(INAIL) litigation

Supplementary customer indemnity

Total

At December 31, 2005 230,698 49,904 280,602Accruals - 7,552 7,552Uses - - -At December 31, 2006 230,698 57,456 288,154

TheprovisionforrisksonSocialSecurity(INAIL)litigationwasaccruedtocoverpossibleliabilitiesarising fromretroactivechanges in theclassificationof riskscontestedby the institution,againstwhichCembreS.p.A.filedananalyticalandmotivatedappeal.Thecompetentfirst-degreeCourtruledinfavouroftheCompany.Whileotherdegreesofappealarependingitwasdeemedappropriatetoleavetheprovisionunchanged.

15. EMPLOYEE TERMINATION INDEMNITY

Changesintheprovisionareshownbelow.

Dec. 31, 2006 Dec. 31, 2005

Beginning balance 4,352,301 4,152,716

Accruals 595,916 646,261

Uses (511,567) (596,017)

Discountingeffect 74,922 149,341

Closing balance 4,511,572 4,352,301

AsrequiredunderIAS19,EmployeeSeveranceIndemnityliabilitieswerediscountedtotheirpresentvaluethroughrecognizedactuaries.Actuarialcalculationsarebasedonthefollowingassumptions:- life expectancy statistics relating to the probability of death or inability of employees, were

96


obtainedbyconfrontingINPSstudiesandISTATfiguresontheItalianpopulation;- thediscountingrate,inflationrateandrevaluationrateappliedtoexpectedpersonnelretributions

andtoemployeeterminationindemnitiesareshowninthetablebelow:

Dec. 31, 2006 Dec. 31, 2005

Annualdiscountingrate 4.25% 4.00%

Annualinflationrate 2.00% 2.00%

Realannualrateofincreaseinretributionsduetocareeradvancements 1.00% 1.00%

Totalannualrateofincreaseinretributions 3.00% 3.00%

Grossannualrateofincreaseinemployeeterminationindemnities 3.00% 3.00%

Termination indemnities matured in the year and paid out to resigning employees amounts to€17,894.Thisamountisnotincludedintheaccrualfortheyear.

16. FINANCIAL LIABILITIES AND DERIVATIVE INSTRUMENTS

Effective interest rate Expiration

Dec. 31, 2006

Dec. 31, 2005

Bankoverdrafts 3.8-7.0 ondemand 2,567,102 291,753Current financial liabilities 2,567,102 291,753

Totalbankpayablesincludesprincipal,interestandaccessorycostsaccruedandpayable. Dec. 31, 2006 Dec. 31, 2005 ChangeFairvalueInterestRateSwap - 21,024 (21,024)

AtDecember31,2005,theCompanywasapartyinaninterestrateswaphavinganominalvalueof€2.5million,onwhichtheCompanypaidafixedinterestof2.81%andpaidafloatinginterestequaltothe3-monthEuribor.TheswapwasterminatedatmaturityonJuly24,2006.

17. TRADE PAYABLES TO SUPPLIERS

Dec. 31, 2006 Dec. 31, 2005 ChangePayabletosuppliers 9,599,174 5,861,692 3,737,482Advances 70,460 1,908 68,552Total 9,669,634 5,863,600 3,806,034

Tradepayablestosuppliersarerecordednetoftradediscounts.Cashdiscountsareinsteadrecordedatthetimeofpayment.Thenominalvalueoftradepayablesisadjustedforreturnsandtradediscounts(invoicingadjustmen-ts)agreeduponwiththecounterpart.

Tradepayablesbygeographicalarea:

97


Dec. 31, 2006 Dec. 31, 2005 ChangeItaly 7,892 5,246 2,646Europe 1,616 526 1,090NorthAmerica 2 6 (4)Oceania 80 82 (2)Other 9 2 7Total 9,599 5,862 3,737

18. TRADE PAYABLES TO SUBSIDIARIES

Dec. 31, 2006 31/12/2005 Change

CembreLtd(UK) 29,579 25,639 3,940GeneralMarkingS.r.l.(Italy) 309,842 163,155 146,687CembreGmbH(Germany) 190 2,583 (2,393)CembreEspaña(Spain) - 2,121 (2,121)CembreSarl(France) 2,199 2,190 9CembreInc.(US) 81,193 82 81,111

Total 423,003 195,770 227,233

19. TAX PAYABLES

Dec. 31, 2006 31/12/2005 ChangeCurrenttaxespayable 986,873 449,647 537,226

ThestrongincreaseincurrenttaxespayableisduetothehighertaxableincomeresultingfromthegoodperformanceoftheCompany.

20. OTHER PAYABLES

Dec. 31, 2006 Dec. 31, 2005 ChangePayablestoemployees 711,237 634,445 76,792Employeewithholdingtaxespayable 651,434 561,730 89,704Bonusesowedtocustomers 215,077 830,999 (615,922)Commissionspayable 232,524 157,360 75,164PayabletoStatutoryAuditors 25,233 11,161 14,072Socialsecuritypayables 990,524 932,407 58,117Payableonothertaxesandwithholdingtaxes 16,847 12,972 3,875Other 20,883 23,099 (2,216)Total 2,863,759 3,164,173 (300,414)

98


21. REVENUES FROM SALES AND SERVICES PROVIDEDRevenuesbygeographicalarea:

(€’000) Dec. 31, 2006 Dec. 31, 2005 ChangeItaly 37,174 31,113 6,061RestofEurope 21,976 17,668 4,308Restoftheworld 6,430 4,682 1,748Total 65,580 53,463 12,117

ChangesarecommenteduponintheReportonOperations.

22. OTHER REVENUES

Dec. 31, 2006 Dec. 31, 2005 ChangeCapitalgainsondisposalofassets 6,576 27,105 (20,529)Rent 94,512 93,132 1,380Other 38,843 7,866 30,977Total 139,931 128,103 11,828

23. COST OF RAW MATERIAL AND GOODS

Dec. 31, 2006 Dec. 31, 2005 ChangeRawmaterialsandgoods 28,835,227 17,283,788 11,551,439Consumablesandauxiliarymaterials 2,850,334 2,160,265 690,069Transportandcustoms 87,771 60,032 27,739Total 31,773,332 19,504,085 12,269,247

24. COST OF SERVICES

Dec. 31, 2006 Dec. 31, 2005 ChangeSubcontractedwork 3,071,211 1,994,575 1,076,636Transport 1,187,336 942,526 244,810Maintenanceandrepair 854,414 774,207 80,207Electricity,heatingandwater 946,949 752,484 194,465Consulting 527,650 634,487 (106,837)Directors’compensation 577,869 379,538 198,331StatutoryAuditors’compensation 57,079 53,156 3,923Commissions 313,777 275,521 38,256Postageandtelephone 174,135 165,319 8,816Fuel 136,437 132,936 3,501Travellingexpenses 163,368 187,424 (24,056)

99


Insurance 199,476 186,490 12,986Canteen 206,533 196,124 10,409Bankexpenses 79,275 85,885 (6,610)Personneltraining 25,159 22,313 2,846Advertisingandpromotion 34,672 65,674 (31,002)Securityandcleaning 251,652 313,783 (62,131)Other 160,583 112,849 47,734Total 8,967,575 7,275,291 1,692,284

25. LEASES AND RENTALS

Dec. 31, 2006 Dec. 31, 2005 ChangeRentandrelatedcosts 533,280 525,630 7,650Vehicleleasing 212,814 195,350 17,464Total 746,094 720,980 25,114

Leaseandrentalcostsaremadeupbyrentpaidonbuildingsleasedfromothersandrelatedparties,asdescribedintheReportonOperations,andbymotorvehiclesleasecosts.

26. PERSONNEL COSTSTheitemincludesthecostofemployees,inclusiveofpaidholidaysandaccrualsmadepursuanttocurrentregulationsandcollectivelabourcontracts.Employeeterminationindemnitiesincludetheaccrualfortheyearcomprehensiveoftherevaluationoftheprovision,theamountaccruedbyem-ployeesterminatingemploymentintheyearandthesharebornebyemployeesofcontributionstotheCOMETAintegrativepensionfund.

Dec. 31, 2006 Dec. 31, 2005 ChangeWagesandsalaries 11,129,850 9,981,471 1,148,379Socialsecuritycontributions 3,221,813 3,137,499 84,314Employeeterminationindemnity 744,105 863,862 (119,757)Retirementbenefits 7,408 6,090 1,318Othercosts 48,389 45,227 3,162Total 15,151,565 14,034,149 1,117,416

Theaveragenumberofemployeesbycategoryisshowninthetablebelow:

Dec. 31, 2006 Dec. 31, 2005 ChangeManagers 7 8 (1)Administrativeandcommercialstaff 141 142 (1)Workers 178 171 7Total 326 321 5

In2006CembreS.p.A.employed13personsonshort-termcontractsforatotalcostof€271thousand.Theamountwasclassifiedunderwagesandsalaries.

100


27. OTHER OPERATING COSTS

Otheroperatingcostsaremadeupasfollows:Dec. 31, 2006 Dec. 31, 2005 Change

Sundrytaxes 117,544 134,983 (17,439)Donations 37,950 40,550 (2,600)Other 14,028 44,329 (30,301)Total 169,522 219,862 (50,340)

28. RISK PROVISIONS

Dec. 31, 2006 Dec. 31, 2005 ChangeCustomerindemnities 7,941 7,764 177Other - 7,151 (7,151)Total 7,941 14,915 (6,974)

Theprovisionofcustomerindemnitiesamountsto€7,941thousandandwasaccruedagainstpossiblechargesinthecaseoftheterminationofagencymandates.

29. FINANCIAL INCOME (EXPENSE

Dec. 31, 2006 Dec. 31, 2005 Change

Loansandbankoverdrafts (37,689) (48,379) 10,690Otherfinancialcharges - (440,486) 440,486 (37,689) (488,865) 451,176

Interestfromsubsidiaries 46,438 - 46,438Interestearnedonbankaccountbalances 46,158 55,534 (9,376)Otherfinancialincome 8,032 1,372 6,660 100,628 56,906 43,722

Financial income (expense) 62,939 (431,959) 494,898

In2005,otherfinancialchargesincludedthe€432thousandwrite-downinthevalueoftheinvestmentinGeneralMarkingS.r.l..InterestfromsubsidiariesconsistofinterestaccruedontheloanextendedtosubsidiaryGeneralMarkingS.r.l.describedinthenoteonRelatedparties.

30. FOREIGN EXCHANGE GAINS AND LOSSES

Dec. 31, 2006 Dec. 31, 2005 ChangeRealizedforeignexchangegains 17,652 262,096 (244,444)Realizedforeignexchangelosses (76,273) (23,307) (52,966)Gainsonforeignexchangetranslation 3,605 14,504 (10,899)Lossesonforeignexchangetranslation (25,115) - (25,115)Total (80,131) 253,293 (333,424)

101


31. INCOME TAXES

Theaccrualtothetaxprovisionismadeinaccordancewithexpectedtaxableincome,takingintoac-countadjustmentsmadetoincomereportedinthestatutoryaccounts.CembreS.p.A.optedtotakeadvantageforyears2004-2006oftaxconsolidationprocedures,whilesub-sidiaryGeneralMarkingS.r.l.chosetoparticipateinthetaxconsolidationoftheparentcompany.ThischoiceresultedinabenefitforCembreS.p.A.of€21,257,recordedasareductionofcurrenttaxes.Thetablethatfollowsshowsareconciliationbetweenthetheoreticaltaxexpense,calculatedatthenormaltaxrate,andtheactualtaxexpense.

IRES IRAP TOTAL

Profit before taxes 11,919,766 (*) 11,919,766Theoretical tax expense 3,933,523 1,186,915 5,120,438

Taxeffectonincreases 635,434 23,602 659,036Taxeffectondecreases (453,741) (50,055) (503,796)Effectoftaxconsolidation (21,257) - (21,257)Actual tax expense recorded 4,093,959 1,160,462 5,254,421

(*)TaxableincomeforthepurposesofIRAP(regionaltaxonproductiveactivities)amountsto€27,927,419.

Deferredandprepaidtaxesaremadeupasfollows:

Dec. 31, 2006 Dec. 31, 2005

Averagecostvaluationofinventories (302,714) (59,717)Accelerateddepreciation 141,911 213,811Goodwillamortization (5,912) (5,912)Write-downofinvestment (6,534) (6,534)Discountingofemployeeterminationindemnity 2,120 49,283Riskprovision - 2,663Provisionfordoubtfulaccounts - 33,000Other (9,266) 21,809

Total deferred and prepaid taxes (180,395) 248,403

32. DIVIDENDS

OnMay25,2006(withex-dividenddateMay22)thecompanydistributedadividendamountingto€2,550thousandonnetprofitfortheyearendedDecember31,2005,equalto€0.15foreachshareentitledtodividends. 2006 2005Resolved and paid in the year Balanceduefor2005dividend:€0.15(2004:€0.1) 2,550 1,698

Proposal submitted to the Shareholders’ Meeting (not recorded as liability at December 31) Balanceduefor2006dividend:€0.22(2005:€0.15) 3,740 2,550

ProposeddividendssubmittedforapprovaltotheShareholders’Meeting(notrecordedasaliabilityatDecember31)amountto€3,740thousand.

102


33. COMMITMENTS AND RISKS

AtDecember31,2006,guaranteesgrantedbyCembreS.p.A.were:

Dec. 31, 2006 Dec. 31, 2005 ChangeGuaranteesgranted:-tosubsidiaries 500,000 2,369,535 (1,869,535)-toothers 136,318 105,923 30,395Total 636,318 2,475,458 (1,839,140)

GuaranteesgrantedtosubsidiariesconsistofaletterofpatronageissuedinfavourofGeneralMarkingSrl.

34. NET FINANCIAL POSITION

AtDecember31,2006,thenetfinancialpositionofCembreS.p.A.amountedto€679,132,decli-ningontheendofthepreviousyeardueprimarilytocapitalexpenditureintheyear.Theincreaseinassetsresultedalsoinahigherrecoursetooperatingloans(overdraftsandadvances),partlyoffsetbythehighercashflow,negativelyaffectedalsobythepaymentofdividendsdistributedfor2005(€2,550thousand).AtDecember31,2006,theCompanydidnothaveoutstandingloanscontainingcovenantsornegativepledges.ThetablethatfollowsprovidesadetailofthenetfinancialpositionasprovidedbyConsobRegulationDEM/6064313datedJuly28,2006:

Dec. 31, 2006 Dec. 31, 2005

A Cash 7,189 1,016B Bankdeposits 1,192,607 3,108,799C Cash and equivalents (A+B) 1,199,796 3,109,815D Financialreceivablesfromsubsidiaries 2,046,438 -E Financial receivables 2,046,438 -D Currentbankdebt (2,567,102) (291,753)E Payablesonderivatives - (21,024)G Current financial debt (D+E) (2,567,102) (312,777)H Net current financial position (C+E+G) 679,132 2,797,038 M Non-current financial debt - - N Net financial position (H+M) 679,132 2,797,038

35. RELATED PARTIES

The table that follows shows transactionsbetweenCembreS.p.A.and its subsidiariesatDecember31,2006,limitedtosalesandpurchases.Debitandcreditbalancesareshownintherelatedparagraphsofthepresentnotes.

Subsidiary Sales PurchasesCembreLtd. 6,556,476 113,416CembreS.a.r.l. 2,296,295 18,745CembreEspañaS.L. 4,829,235 6,804CembreAS 269,153 -CembreGmbH 2,520,598 4,954CembreInc. 2,135,449 124,916GeneralMarkingS.r.l. 277,026 1,180,000Total 18,884,231 1,448,835

103


PursuanttoaCONSOBrequirement,theCompany’s(CembreS.p.A)shareholdingsover10%heldinlimitedliabilitypubliclytradedcompaniesandunlistedjoint-stockcompaniesatDecember31,2006,areshowninthetablebelow.TheCompanyholdsfulltitletotheinvestmentslistedbelow.

Share % held % of Company Head office capital

directly indirectly through total voting

rights

CembreLtd SuttonColdfield Gbp1,700,000 100% 100% 100% (Birmingham -UK)

CembreSarl Morangis €1,071,000 95% 5% CembreLtd 100% 100% (Paris -France)

Cembre Coslada €1,902,000 95% 5% CembreLtd 100% 100% EspañaSL (Madrid-Spain)

CembreAS Stokke Nok2,400,000 100% 100% 100% (Norway)

CembreGmbH Munich €512,000 95% 5% CembreLtd 100% 100% (Germany)

CembreInc. Edison Us$1,440,000 71% 29% CembreLtd 100% 100% (New Jersey-USA)

General Brescia €99,000 100% 100% 100% MarkingS.r.l. (Italy)

CembreS.p.A.leasedanindustrialbuildingtosubsidiaryGeneralMarkingS.r.l..Rentforthebuildingfor2006amountsto€94thousand.AmongassetsleasedtoCembrebythirdpartiesareanindustrialbuildingadjacenttotheCompany’sregisteredofficemeasuringatotalof5,960squaremetersonthreefloors,inadditiontotheMilan,PaduaandBolognasalesofficesownedbycompanyThaImmobiliareS.p.A.,withregisteredofficein Bergamo, controlled by Anna Maria Onofri, Giovanni Rosani and Sara Rosani, directors ofCembreS.p.A..Leasepaymentsfor2006amountedto€332thousandforthebuildingadjacenttotheCompany’sheadoffice,€60thousandfortheSestoS.Giovanni(Milan)office,€49thousandfortheSelvazzano(Padua)office,and€42thousandfortheBolognaoffice.Rentreceivedfor2006isinlinewithmarketconditions.ItisintheCompany’sinteresttobenefitfromthecontinuityofofficespacereducingtheriskofearlyterminationofleases.Attheendof2006,allamountsduetoThaImmobiliarehadbeensettled.Withreferencetoassetsandliabilitiesrelatingtosubsidiariesshownabove,weconfirmthattransactionswiththesameandwithrelatedpartiesfallwithinthescopeofnormaloperatingactivities.CembreS.p.A.doesnothavedirectrelationshipswithitsparentcompanyLysneS.p.A.ofanyothernaturethanthatoftheexerciseofshareholders’rightsonthepartoftheparent.LysneS.p.A.doesnotcarryoutanymanagementorcoordinationactivitywithrespecttoCembreS.p.A.

36. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

Duetoitsminimalexposure,CembreS.p.A.doesnotmakesignificantuseofderivativeinstrumentstohedgeagainstinterestriskandcurrencyexposure.

Interest rate riskCembreS.p.A.normallystipulatesfloatingrateloancontracts.Tohedgeagainstexposuretointerestratefluctuations(cashflowhedge)thecompanyentersintointerestrateswaptransactions.AtDecember31,2006,noloanremainedoutstanding.Bankdebtconsistsexclusivelyofoverdrafts.

104


Currency risk

Despite a strong international presence, Cembre S.p.A. does not have a significant exposure tocurrencyrisk(onanoperatingorequitybasis),asitoperatesmainlyintheeuroarea,thecurrencyinwhichitstradetransactionsaremainlydenominated.ExposuretocurrencyriskisdeterminedmainlybysalesinUSdollars,BritishpoundsandNorwaykroners.ThesizeofthesetransactionsisnotsignificantininfluencingtheoverallperformanceoftheCompany.

Liquidity risk

TheexposureoftheCompanytoliquidityriskisnotmaterial.

Credit risk

Exposuretocreditriskrelatesexclusivelytotradereceivables.NoneoftheareasinwhichCembreS.p.A.operatesposesrelevantcreditrisks.Operating procedures limit the sale of products or services to customers who do not possess anadequatecreditprofileorprovideguarantees.

Price risk

TheexposureoftheCompanytopriceriskisminimalandrelatesexclusivelytomarketconditions.Thebookvalueoffinancialinstrumentsisinlinewiththeirfairmarketvalue,asforthemostparttheyhaveshort-termmaturities.

37. SUBSEQUENT EVENTS

NoeventhavingsignificanteffectsontheCompany’sfinancialpositionoroperatingperformanceoccurredaftertheclosingofthefinancialyear.

38. IMPACT OF THE APPLICATION OF IAS/IFRS

IncompliancewithLegislativeDecreeno.38datedFebruary28,2005,andasprovidedbyIFRS1,theCompanypreparedinformationregardingthetransitiontoInternationalFinancialReportingStandards(IFRS).Inparticular,tofulfildisclosurerequirementscontainedinparagraphs39a,39band40ofIFRS1ontheeffectofthefirst-timeadoptionofIFRS,CembrefollowedtheexamplecontainedinIFRS1IG63.Tothisend,thefollowingwereprepared:

• notesregardingthefirst-timeapplicationofIFRS• IFRSBalanceSheetat January1,2005andatDecember31,2005, inaddition to the IFRS

IncomeStatementfortheyearendedDecember31,2005;• the reconciliation between the Consolidated Shareholders' Equity under Italian GAAP and

underIFRSatthefollowingdates: -dateoftransitiontoIFRS(January1,2005); -closingdateofthelastfinancialyearinwhichtheFinancialStatementswerepreparedunder

ItalianGAAP(December31,2005);• the reconciliation between net profit reported for last financial year in which the Financial

StatementswerepreparedunderItalianGAAP(December31,2005)andthatreportedunderIFRSforthesameyear;

• thereconciliationbetweentheBalanceSheetatthedateoftransitiontoIFRS(January1,2005)andthatpreparedunderIFRSforthesameyear;

105


• the reconciliationbetweentheBalanceSheetat thedateof the lastfinancialyear inwhichtheFinancialStatementswerepreparedunderItalianGAAP(December31,2005)andthatpreparedunderIFRSforthesameyear;

• the reconciliation between the Net Financial Position under Italian GAAP and that underIFRSatJanuary1,2005andDecember31,2005;

• theStatementofCashFlowspreparedunderIFRSatDecember31,2005.

Asdiscussedmoreindetailbelow,IFRSBalanceSheetsandIncomeStatementwereobtainedbyapplyingtofiguresresultingfromtheapplicationofItalianGAAP,theappropriateIFRSadjustmentsandreclassifications,carriedouttoreflectchangesinthecriteriaforthepresentation,recordingandvaluationofitemsrequiredunderIFRS.Statementsandreconciliationsarepreparedonlyforthepurposesofthefirst-timepreparationoftheFinancialStatementsunderIFRS,asapprovedbytheEUCommission.SaidStatements therefore lackcomparativefigures and the relatednotes thatwouldbe requiredtoprovideatrueandcorrectrepresentationofthefinancialpositionandtheresultsofCembreincompliancewithIFRS.ItmustbenotedthatCembreS.p.A.adoptsforthefirsttimeIFRSinthepreparationofitsstatutoryaccountssubsequentlytotheadoptionofthesameinthepreparationofitsconsolidatedaccounts.TheCompanyhasthusrecordedthesameamountsforassetsandliabilitiesinbothaccounts,withtheexceptionofadjustmentsmadeintheconsolidation.

First-time application of IFRS 1

AsrequiredunderIFRS1,at thedateof transitiontothenewaccountingprinciples(January1,2005),thecompanypreparedaconsolidatedbalancesheetinwhich:- allandexclusivelyassetsandliabilitieswhoserecordingisallowedunderthenewaccounting

principleswererecorded;- itemspreviouslyreportedinthefinancialstatementsinamannerdifferentfromthatrequired

underIFRSwerereclassified;- IFRSwereappliedinthevaluationofallassetsandliabilitiesrecorded.The effect of the adjustment to new accounting principles of beginning balances of assets andliabilitieswasrecordedunderShareholders’Equityinaspecificretainedearningsreserve,netoftherelatedtaxeffectrecordedeachtimeinthedeferredtaxprovisionorunderdeferredtaxassets.TheadoptionofIFRSimpliedtheuseofestimatesformerlyformulatedunderItalianGAAP,unlesssuchadoptionrequirestheformulationofestimatesusingdifferentmethods.Uponthefirst-timeapplicationofIAS/IFRS,ithasbeennecessarytomakechoicesamongexemptionsallowedunderIFRS1.ThemostsignificantchoicesmadebyCembrewere:- aggregationsofcompaniescarriedoutbeforethetransitiondatewerenotreviewedretrospectively

by restating both assets and liabilities in line with their current value at the time of theiracquisitionbytheCompany;

- theuseinthevaluationoffixedassets,limitedtoland,ofthefairvalueinplaceofcost.

Accounting principles and valuation criteria

IAS/IFRSaccountingprinciplesandvaluationcriteriausedinthepreparationofthebalancesheetatJanuary1,2005andofthefinancialstatementsatDecember31,2005areillustratedinsection3ofthepresentdocument.

Effect of the adoption of IFRS on the Balance Sheet at January 1, 2005

Asummarybalancesheetatthedateoftransition,reclassifiedbyseparatingcurrentandnon-currentassetsandliabilitiesisprovidedbelow.

106


Balance Sheet at January 1, 2005

(€’000)Reclassified

Italian GAAP

Reclassification due to adoption of

IAS/IFRS

Effect of adoption of IAS/IFRS

IAS/IFRS

Note Note

ASSETS

A) NON-CURRENT ASSETS

Tangibleassets 14,715 3 685 6-9 6,140 21,540 Intangibleassets 779 3 (685) - 94 Investmentsinsubsidiaries 7,007 - - 7,007 Financialassetsavailableforsale 5 - - 5 Othernon-currentassets 346 2 (291) - 55 Deferredtaxassets 433 - 7 115 548

TOTAL NON-CURRENT ASSETS 23,285 (291) 6,255 29,249

B) CURRENT ASSETS

Inventories 14,425 - 8 535 14,960 Tradereceivables 18,032 - - 18,032 Taxreceivables 16 5 (16) - - Otherreceivables 98 1-5 (24) - 74 Cashandcashequivalents 4,737 - - 4,737

TOTAL CURRENT ASSETS 37,308 (40) 535 37,803

C) NON-CURRENT ASSETS AVAILABLE FOR SALE

TOTAL ASSETS (A+B+C) 60,593 (331) 6,790 67,052



Capitalstock 8,840 - - 8,840 Reserves 31,577 2 (291) 6-7-8-9 3,956 35,242 Netprofit - - - -

TOTAL SHAREHOLDERS’ EQUITY 40,417 (291) 3,956 44,082


Non-currentfinancialliabilities - - - - EmployeeSeveranceIndemnityandotherpersonnelbenefits 3,806 - 7 347 4,153 Provisionsforrisksandcharges 639 4 (30) - 609 Deferredtaxliabilities 1,566 - 6-8-9 2,487 4,053

TOTAL NON-CURRENT LIABILITIES 6,011 (30) 2,834 8,815


Currentfinancialliabilities 3,041 1 23 - 3,064 Liabilitiesonderivativeinstruments - 4 30 - 30 Tradepayables 7,042 1 (37) - 7,005 Taxpayables 1,576 1-5 (573) - 1,003 Otherpayables 2,506 1-5 547 - 3,053

TOTAL CURRENT LIABILITIES 14,165 (10) - 14,155

D) LIABILITIES ON ASSETS AVAILABLE FOR SALE

TOTAL LIABILITIES (B+C+D) 20,176 (40) 2,834 22,970

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (A+B+C+D) 60,593 (331) 6,790 67,052

107


NOTES

Reclassifications1. AsinternationalaccountingstandardsdonotprovidefortherecordingunderShareholders’Equity

ofaccruedincome,prepaidexpenses,accruedliabilitiesanddeferredincome,inthebalancesheetpreparedunderIAS/IFRS,amountspreviouslyrecordedundercurrentassetsamong“Otherpaya-bles”(amountingtoaresidualvalueof€40thousand),andundercurrentliabilitiesamong“Otherpayables” (amounting to€23 thousand),were reclassified amongother current liabilities itemsaccordingtotheirnature.

2. UnderItalianGAAP,ownsharesarerecordedamongassetsandagainstsuchrecordingareserveisaccruedunderShareholders’Equity.UnderIAS/IFRSownsharesareinsteadrecordedasareduc-tionoftheShareholders’Equityusing,alsointhiscase,aspecificreserve.Thedifferentaccountingtreatmentreduces,atJanuary1,2005,theShareholders’Equityby€291thousand,againsttheelimi-nationfromassetsofanequivalentamountrelatingtoownshares,andthesimultaneousrecordingofanegativereserveofthesameamount.

3. Costsrelatingtoimprovementsmadetoassetsleased(€685thousand,netoftherelatedaccumulateddepreciation),thatmeettherequirementofbeingidentifiableanddistinctfromtheassettowhichtheyrelate,werereclassifiedfrom“Intangibleassets”to“Tangibleassets”.

4. AsprovidedbyIAS32wehavereclassified€30thousandintoaspecificcurrentliabilityitemde-nominated“Financialliabilitiesonderivativeinstruments”,thefairvalueoftheinterestrateswapunderwrittenbyCembre,previouslyrecordedunderotherprovisions.

5. AsunderIFRSitemTaxreceivablesincludeonlydirecttaxes,wehavereclassified€16thousandinVATreceivablesamongOtherreceivablesand€570ofpayablesonotherwithholdingtaxesandothertaxesunderOtherpayables.

Value adjustments

6. IncompliancewithIAS16,theGroupreportedlandseparatelyfrombuildings,alsoincasethesewereacquiredjointly.Landhasinfactasanormanunlimitedusefullifeandisthereforenotsubjectedtodepreciation.

Inparticular: -thevalueoflandwasseparatedfrombuildingsandamountsto€611thousand. Suchvaluewasdeterminedthroughanexpertopinion; -thevalueatJanuary1,2005ofaccumulateddepreciationrelatingtoland,equalto€86thousand, waseliminated. Theadjustment,netoftherelatedtaxeffect,resultedina€54thousandincreaseintheSharehol-

ders’EquityatJanuary1,2005.7. ItalianGAAPrequiretherecordingoftheliabilityfortheEmployeeSeveranceIndemnityon

thebasisofthenominalamountdueatthedateofthefinancialstatements.IAS19classifiestheEmployeeSeveranceIndemnityamongpost-employmentbenefitsasadefinedbenefitplan.Suchclassificationrequirestheliabilityaccruedtobevaluedaccordingtoactuarialcriteria,usingtheprojectedunitcreditmethodwhichconsistsintheprojectionoffutureoutflowsonthebasisofhistoricaldataandthepopulationcurve,inadditiontothediscountingoftheseflowsonthebasisofamarketinterestrate.Theapplicationofsuchvaluationmethodresultedina€347thousandincreaseinthevalueoftheEmployeeSeveranceIndemnityatJanuary1,2005,andacorrespon-dingdeclineintheShareholders’Equity,netoftherelatedtaxeffect,of€233thousand.

8. AsIASdonotallowthevaluationofinventoriesatLIFO,thesamehavebeenvaluedattheaveragecost.Theapplicationofsuchvaluationmethodresultedina€535thousandincreaseinthevalueofinventories,a€200thousandincreaseindeferredtaxesanda€335increaseintheShareholders'Equity.

108


9. Havingassessedthroughanindependentsurveythatthevalueoflandrecordedinthefinancialstatementsdifferedsignificantlyfromthemarketvalueofthesame,asallowedunderIFRS1,inthetransitiontoIAS,landwasrecordedatitsfairvalueatthedateofthetransitioninplaceofcost.Theresultingincreaseinthevalueoflandisequalto€6,054thousand,whiletheeffectontheShareholders’Equity,netoftaxes,isequalto€3,799thousand.

10. Adjustmentstoitem“Deferredtaxliabilities”aredeterminednetofthedeferredtaxeffectgenera-tedbyincreasesinassetsordecreasesinliabilitiesresultingfromtheintroductionofIAS/IFRS.

Totaladjustmentsamountto€2,487thousandandconsistof:

Reversalofaccumulateddepreciationonland(note6) 32Valuationofinventoriesataveragecost(note8) 200Fairvaluevaluationofland(note9) 2,255Total 2,487

Effect of the introduction of IAS on the Shareholders’ Equity of Cembre S.p.A.: summary

ThetablethatfollowsshowsmainchangesintheShareholders’EquityatJanuary1,2005.

RECONCILIATION OF SHAREHOLDERS’ EQUITY AT JAN. 1, 2005(€’000) Note SHAREHOLDERS’ EQUITY UNDER ITALIAN GAAP 40.417 Reclassificationofownshares 2 (291)Reversalofaccumulateddepreciationonland 6 86DiscountingofEmployeeSeveranceIndemnity 7 (347)Valuationofinventoriesattheaveragecost 8 535Fairvaluevaluationofland 9 6.054 Taxeffectofreversalofaccumulateddepreciationonland 6 (32)TaxeffectofdiscountingofEmployeeSeveranceIndemnity 7 114Taxeffectofvaluationofinventoriesattheaveragecost 8 (199)Taxeffectoffairvaluevaluationofland 9 (2.255)

SHAREHOLDERS’ EQUITY UNDER IAS/IFRS 44,082

Effect of the adoption of ifrs on the 2005 Income Statement and Balance Sheet at December 31, 2005

INCOME STATEMENT FOR THE YEAR ENDED DEC. 31, 2005

BelowwereportareconciliationoftheincomestatementfortheyearendedDecember31,2005preparedunderItalianGAAPandIAS/IFRS.Asaresultofreclassificationsandadjustmentsshownintheincomestatementreconciliationthat

109


follows, revenues decline from €53,661 thousand to €53,463 thousand, the operating profi t from €8,878 thousand to €8,810 thousand, and net profi t from €4,867 thousand to €4,739 thousand.The income statement that follows was prepared under IFRS 1:

Income Statement for the year ended December 31, 2005


Italian GAAP

Reclassification due to adoption

of IAS/IFRS


IAS/IFRS

Note Importi Note Importi Revenues from sales and services provided 53,661 2 (198) - 53,463 Other revenues 247 2 (119) - 128 TOTAL REVENUES 53,908 (317) - 53,591 Cost of goods and merchandise (19,504) - - (19,504) Cost of services received (7,279) 2-4 4 - (7,275) Lease and rental costs (720) 2 (1) - (721) Personnel costs (13,872) 2-4 (13) 5 (149) (14,034) Other operating costs (468) 2 248 - (220) Change in inventories (843) - 6 160 (683) Capitalized costs 508 - - 508 Write-down of receivables (200) - - (200) Accruals to provisions for risks and charges (15) - - (15) GROSS OPERATING PROFIT 11,515 (79) 11 11,447 Tangible asset depreciation (2,474) 1 (76) - (2,550) Intangible asset amortization (163) 1 76 - (87) OPERATING PROFIT 8,878 (79) 11 8,810 Financial income (expense) (364) 3 (68) - (432) Foreign exchange gains (losses) 253 - - 253 PROFIT BEFORE TAXES 8,767 (147) 11 8,631 Income taxes (3,900) 2-3 19 5-6 (11) (3,892)

NET PROFIT 4,867 (128) - 4,739

NOTES

Reclassifi cations

1. The reclassification of leasehold improvement costs from “Intangible assets” to “Tangible assets”, resulted in the reclassification of €76 thousand from the related amortization

110


2. AsprovidedbyIAS1,extraordinaryitems,amountingunderItalianGAAPtonegative€146thousand,werereclassifiedasfollows:

- Revenues:€198decline; - Otheroperatingrevenues:€119thousanddecline; - Personnelcosts:€3thousandincrease; - Costofservicesreceived:€6thousandincrease; - Leasesandrentals:€1thousandincrease; - Otheroperatingcosts:€248thousanddecrease; - Taxes:€6thousandincrease. Revenuesamountingto€86thousandrelatingtothereversalofaccumulateddepreciationon

landwerealsoreclassifiedintotheExtraordinaryreserve.3. UnderIAS32,revenuesfromthesaleofownshareswerenettedfromtheincomestatementand

recordeddirectlyasanincreasetotheShareholders’Equity.Thisreclassification,equalto€68thousand,resultedina€43thousandreductionintheprofitfortheyear,netoftherelatedtaxeffect.

4. UnderIAS19,thecostoftemporaryworkers,amountingto€10thousand,arereclassifiedunderPersonnelcosts.

Value adjustments

5. ThedifferentaccountingtreatmentofemployeebenefitsinvolvingtherecalculationoftheEm-ployeeSeveranceIndemnityusingactuarialtechniques,resultedina€149thousandincreaseinpersonnelcosts,anda€49thousanddeclineintaxes,representingtherelatedtaxeffect.

6. AsIASdonotallowthevaluationof inventoriesatLIFO,thesamehavebeenvaluedat theaveragecost.Theapplicationofsuchvaluationmethodresultedina€101thousandincreaseinthevalueofinventories,netoftherelatedtaxeffect.

Effect on net profit for 2005: summary

Thetablethatfollowsshowsmainchangesoccurredinthenetprofit.Adjustmentsareclassifiedbytype,inlinewiththetableabove.

RECONCILIATION OF NET PROFIT FOR 2005(€’000) Note NET PROFIT UNDER ITALIAN GAAP 4,867

Reversalofaccumulateddepreciationonland 2 (86)RevenuesfromsaleofownsharesrecordedunderShareholders'Equity 3 (68)DiscountingofEmployeeSeveranceIndemnity 4 (149)Valuationofinventoriesataveragecost 5 161

TaxeffectofrevenuesfromsaleofownsharesrecordedunderShareholders'Equity 3 25TaxeffectofdiscountingofEmployeeSeveranceIndemnity 4 49Taxeffectofvaluationofinventoriesataveragecost 5 (59)

NET PROFIT UNDER IAS/IFRS 4,739

BALANCE SHEET AT DECEMBER 31, 2005

AsummaryBalanceSheetatDecember31,2005,reclassifiedbyseparatingcurrentandnon-currentassetsandliabilitiesisprovidedbelow.

111


Balance Sheet at December 31, 2005


Italian GAAP

Reclassification due to adoption of

IAS/IFRS


IAS/IFRS

Note Note

ASSETS

A) NON-CURRENT ASSETS Tangibleassets 13,465 2 609 8 6,054 20,128 Intangibleassets 754 2 (609) - 145

Investmentsinsubsidiaries 8,115 - - 8,115 Financialassetsavailableforsale 5 - - 5 Othernon-currentassets 10 - - 10 Deferredtaxassets 484 - 7 164 648

TOTAL NON-CURRENT ASSETS 22,833 - 6,218 29,051

B) CURRENT ASSETS Inventories 13,582 - 9 695 14,277 Tradereceivables 19,464 - - 19,464 Taxreceivables 16 5 (16) - - Otherreceivables 88 1-5 (15) - 73 Cashandcashequivalents 3,110 - - 3,110

TOTAL CURRENT ASSETS 36,260 (31) 695 36,924

C) NON-CURRENT ASSETS AVAILABLE FOR SALE

TOTAL ASSETS (A+B+C) 59,093 (31) 6,913 65,975



Capitalstock 8,840 - - 8,840 Reserves 29,880 4 129 6-7-8-9 3,870 33,879 Netprofit 4,867 4,739

TOTAL SHAREHOLDERS’ EQUITY 43,587 129 3,870 47,458


Non-currentfinancialliabilities - - - - EmployeeSeveranceIndemnityandotherpersonnelbenefits 3,856 - 7 496 4,352 Provisionsforrisksandcharges 302 3 (21) - 281 Deferredtaxliabilities 1,352 - 6-8-9 2,546 3,898

TOTAL NON-CURRENT LIABILITIES 5,510 (21) 3,042 8,531


Currentfinancialliabilities 291 - - 291 Liabilitiesonderivativeinstruments - 3 21 - 21 Tradepayables 6,088 1 (28) - 6,060 Taxpayables 1,024 5 (574) - 450 Otherpayables 2,593 1-5 571 - 3,164

TOTAL CURRENT LIABILITIES 9,996 (10) - 9,986

D) LIABILITIES ON ASSETS AVAILABLE FOR SALE

TOTAL LIABILITIES (B+C+D) 15,506 (31) 3,042 18,517

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (A+B+C+D) 59,093 98 6,912 65,975

112


NOTES

Reclassifications

1. As international accounting standards do not provide for the recording under Shareholders’Equityofaccruedincome,prepaidexpenses,accruedliabilitiesanddeferredincome,intheba-lancesheetpreparedunderIAS/IFRS,amountspreviouslyrecordedundercurrentassetsamong“Otherreceivables”(amountingtoaresidualvalueof€31thousand)werereclassifiedamongothercurrentliabilitiesitemsaccordingtotheirnature.

2. Costsincurredinimprovementsmadetoassetsleased(€609thousand,netoftherelatedaccu-mulateddepreciation),thatmeettherequirementofbeingidentifiableanddistinctfromtheassettowhichtheyrelate,werereclassifiedfrom“Intangibleassets”to“Tangibleassets”.

3. Theriskprovisiononinterestrateswaps,amountingto€21thousand,wasreclassifiedunderaspecificitemdenominated“Financialliabilitiesonderivativeinstruments”.Thisreflectsthecurrentvalueofthespreadbetweencashflowsfromhedgedloansandthosefromthehedginginstrument.

4. AsprovidedunderIAS32,revenuesfromthesaleofownsharesheldarenettedfromtheincomestatementandrecordeddirectlyasanincreaseintheShareholders’Equity.Thisreclassification,netoftherelatedtaxeffect,resultedinareductionoftheprofitfortheperiodof€43thousand,whileithadnoeffectontheShareholders’Equity.Theadditional€86thousandchangeinthereservesisjustifiedbythereclassificationofextraordinaryitems,asdescribedinnote2totheincomestatement.

5. AsunderIFRSitemTaxreceivablesincludeonlydirecttaxes,wehavereclassified€16thousandinVATreceivablesamongOtherreceivables,and€574thousandofpayablesforwithholdingtaxesandothertaxes,amongOtherpayables.

Value adjustments

6. IncompliancewithIAS16,theGroupreportedlandseparatelyfrombuildings,alsoincasethesewereacquiredjointly.Landhasinfactasanormanunlimitedusefullifeandisthereforenotsubjectedtodepreciation.

Inparticular:

-thevalueoflandwasseparatedfrombuildingsandamountsto€611thousand;

-thevalueatDecember31,2005ofaccumulateddepreciationrelatingtoland,equalto€86thousand,waseliminated.UnderIFRS,suchamountwasreclassifiedasanincreaseoftheExtraor-dinaryreserve.Therelatedtaxeffectresultedina€32thousandincreaseintheShareholders’EquityatDecember31,2005.

7. ItalianGAAPrequiretherecordingoftheliabilityfortheEmployeeSeveranceIndemnityonthebasisofthenominalamountdueatthedateofthefinancialstatements.IAS19classifiestheEmployeeSeveranceIndemnityamongpost-employmentbenefitsasadefinedbenefitplan.Suchclassificationrequirestheliabilityaccruedtobevaluedbasedonactuarialcriteria,usingtheprojectedunitcreditmethodwhichconsistsintheprojectionoffutureoutflowsonthebasisofhistoricaldataandthepopulationcurve,inadditiontothediscountingoftheseflowsonthebasisofamarket interest rate.Theapplicationof suchvaluationmethodresulted ina€496thousandincreaseinthevalueoftheEmployeeSeveranceIndemnityatDecember31,2005,andacorrespondingdecreaseintheShareholders’Equity,netoftherelatedtaxeffect,of€332thousand

8. Havingassessedthroughanindependentsurveythatthevalueoflandrecordedinthefinancial

113


statementsdifferedsignificantlyfromthemarketvalueofthesame,asallowedunderIFRS1,inthetransitiontoIASlandwasrecordedatitsfairvalueatthedateofthetransitioninplaceofcost.Theresultingincreaseinthevalueoflandisequalto€6,054thousand,whiletheeffectontheShareholders’Equity,netoftaxes,isequalto€3,799thousand

9. AsIASdonotallowthevaluationofinventoriesatLIFO,thesamehavebeenvaluedattheaveragecost.Theapplicationofsuchvaluationmethodresultedina€696thousandincreaseinthevalueofinventories,a€259thousandincreaseindeferredtaxesanda€437increaseintheShareholders'Equity

10. Adjustmentstoitem“Deferredtaxassets”aredeterminedbythedeferredtaxeffectgeneratedbydecreasesinassetsorincreasesinliabilitiesresultingfromtheintroductionofIAS/IFRS.Totaladjustmentsamountto€164thousandandrelatetothetaxeffectoftheincreaseintheEmployeeSeveranceIndemnityresultingfromitsdiscounting.

11. Adjustmentstoitem“Deferredtaxliabilities”aredeterminedbythedeferredtaxeffectgeneratedbyincreasesinassetsordecreasesinliabilitiesresultingfromtheintroductionofIAS/IFRS.Totaladjustmentsamountto€2,546thousandandconsistof:

Reversalofaccumulateddepreciationonland(note6) 32Averagecostvaluationofinventories(note9) 259Fairvaluevaluationofland(note8) 2,255Total 2,546

Effect of the adoption of IAS/IFRS on the Shareholders’ Equity: summary.

ThetablethatfollowsshowsmainchangesintheShareholders’EquityatDecember31,2005.

RECONCILIATION OF SHAREHOLDERS’ EQUITY AT DECEMBER 31, 2005 (€’000) Note SHAREHOLDERS’ EQUITY UNDER ITALIAN GAAP 43,587 DiscountingofEmployeeSeveranceIndemnity 7 (496)Valuationoflandatfairvalue 8 6,054Averagecostvaluationofinventories 9 695

Taxeffectofreversalofaccumulateddepreciationonland 6 (32)TaxeffectofdiscountingofEmployeeSeveranceIndemnity 7 164Taxeffectoffairvaluevaluationofland 8 (2,255)Taxeffectofvaluationofinventoriesattheaveragecost 9 (259) SHAREHOLDERS’ EQUITY UNDER IAS/IFRS 47,458

Effect of the adoption of IAS/IFRS on the net financial position at January 1, 2005 and December 31, 2005 – summary

The table that follows shows the effect of the adoption of IAS/IFRS commented above on the

114


financialpositionofCembreS.p.A.atJanuary1,2005andDecember31,2005:

RECONCILIATION OF NET FINANCIAL POSITION Jan. 1, 2005 Dec. 31, 2005(€’000) NET FINANCIAL POSITION UNDER ITALIAN GAAP 1,987 2,819

Nettingofownshares (291) -Reclassificationofdiscountedbills (23) -Reclassificationofprovisionforinterestrateswaplosses (30) (21)

NET FINANCIAL POSITION UNDER IAS/IFRS 1,643 2,798

Theeffectontheopeningnetfinancialposition(atJanuary1,2005)isduetothenettingofownshares(€291thousand),thereclassificationofdiscountedbills(€23thousand)andthereclassifica-tionoftheprovisionforlossesoninterestrateswaps(€30thousand).



Carlorosani

115


Att

achm

ent

1 -

Not

es t

o th

e Fi

nanc

ial S

tate

men

ts o

f C

embr

e S.

p.A

.C

HA

NG

ESIN

TA

NG

IBLE

ASS

ETS

(in

Euro

)

G

ROSS

BOO

KVA

LUE

D

EPRE

CIAT

ION

N

ETB

OOK

VALU

E

Ba

lance

at

Incre

ases

Decre

asesa

nd

Balan

ceat

Ac

cumu

lated

Depr

eciat

ion

Uses

ofpr

ovisi

onfo

rAc

cumu

lated

Ne

tboo

kNe

tboo

k

Dec.

31,2

005

wr

ite-d

owns

De

c.31,

2006

de

prec

iation

at

ex

pens

eac

cumu

lated

de

prec

iation

at

value

va

lue

Dec.

31,2

005

depr

eciat

ion

Dec.

31,2

006

atDe

c.31

,200

6at

Dec.

31,2

005

Land

andb

uildin

gs18

,433,4

14

2,25

9,930

(5

,087)

20

,688,2

58

3,995

,977

33

2,692

(5

,087)

4,

323,5

82

16,36

4,675

14

,437,4

37

Plan

tan

dmac

hine

ry2

3,994

,725

1,60

8,205

(3

9,945

)25

,562,9

85

19,71

3,695

1,35

7,652

(3

9,388

)21

,031,9

59

4,531

,026

4,28

1,030

Equip

ment

4

,661,8

45

366,1

27

-

5,02

7,972

4,2

38,39

6

266,4

28

-

4,50

4,824

52

3,148

42

3,449

Othe

rasse

ts3

,529,5

26

195,3

62

(217

,438)

3,

507,4

50

2,796

,724

28

2,330

(2

08,77

6)

2,87

0,278

63

7,172

73

2,802

5

0,61

9,51

0

4,4

29,6

24

(262

,470

) 5

4,78

6,66

5

30,7

44,7

92

2,

239,

102

(2

53,2

51)

32,

730,

643

22

,056

,021

1

9,87

4,71

8

Wor

kin

prog

ressa

nd

253

,399

291,7

43

(253

,399)

29

1,743

291,7

43

253,3

99

adva

nces

(1)

TOTA

L 5

0,87

2,90

9

4,7

21,3

67

(515

,869

) 5

5,07

8,40

7

30,7

44,7

92

2,

239,

102

(2

53,2

51)

32,

730,

643

22

,347

,764

2

0,12

8,11

7

(1)I

ncrea

sesan

dwrit

e-dow

nsre

latin

gtow

orki

npr

ogres

sand

adva

nces

inclu

detr

ansfe

rsma

de.

116


Att

achm

ent

no. 2

– N

otes

to

the

Fina

ncia

l Sta

tem

ents

of

Cem

bre

S.p.

A.

DIR

EC

TO

RS

AN

D S

TA

TU

TO

RY

AU

DIT

OR

S’ C

OM

PE

NSA

TIO

N

POSI

TIO

N

CO

MPE

NSA

TIO

N(€

)

Posi

tion

Term

(1)

Emol

umen

tsfo

rpo

siti

on

Non

-mon

etar

ybe

nefit

s(2)

Bonu

sesa

nd

othe

rinc

entiv

esO

ther

co

mpe

nsat

ion

CA

RLO

RO

SAN

IC

hairm

an&

Chi

efE

xecu

tive

Offi

cer

2006

-200

816

4,60

03,

495

AN

NA

MA

RIA

ON

OFR

IV

ice

Cha

irman

&M

anag

ing

Dire

ctor

2006

-200

812

2,60

02,

858

GIO

VA

NN

IRO

SAN

IM

anag

ing

Dir

ecto

r20

06-2

008

110,

600

3,35

06,

000

(3)

SAR

AR

OSA

NI

Dir

ecto

r20

06-2

008

25,0

003,

017

33,4

43(

4)

GIO

VA

NN

IDE

VEC

CH

ID

irec

tor

2006

-200

825

,200

3,08

212

,000

(3)

ALD

OB

OT

TIN

IBO

NG

RA

NI

Dir

ecto

r20

06-2

008

25,2

003,

601

172,

102

(4)

MA

RIO

CO

MA

NA

Dir

ecto

r20

06-2

008

49,6

34

PAO

LOL

ECH

ID

irec

tor

2006

-200

825

,200

GU

IDO

AST

OR

ICh

airm

anof

theB

oard

ofS

tatu

tory

Aud

itors

2006

-200

824

,563

AN

DR

EAB

OR

EAT

TI

Stat

utor

yA

udit

or20

06-2

008

17,0

68

LEO

NE

SCU

TT

ISt

atut

ory

Aud

itor

2006

-200

815

,448

(1)

The

exp

irat

ion

ofth

ete

rmc

oinc

ides

wit

hth

eap

prov

alo

fthe

200

8Fi

nanc

ialS

tate

men

tsfo

rbot

hB

oard

ofD

irec

tors

and

Boa

rdo

fSta

tuto

ryA

udit

ors.

(2)

Mad

eup

by

frin

geb

enef

itsr

epre

sent

edb

yth

eus

eof

ac

ompa

nyc

ara

ndin

sura

nce

cove

rage

.

(3)

Ret

ribu

tion

forp

osit

ions

hel

din

subs

idia

ries

.

(4)

Gro

ssre

trib

utio

nfo

rem

ploy

men

t.

117


Attachment 3 - Notes to the Financial Statements of Cembre S.p.A. FINANCIALHIGHLIGHTSOFCOMPANIESINCLUDEDINTHE

CONSOLIDATIONPURSUANTTOARTICLE2429OFTHEITALIANCIVILCODE

(ineuro) Totalnoncurrent Totalcurrent Totalassets Shareholders' Totalliabilities Totalliabilitiesand

assets assets Equity Shareholders' Equity

CembreLtd 5,585,476 6,192,054 11,777,530 8,167,324 3,610,206 11,777,530

CembreSarl 502,552 3,756,915 4,259,466 2,785,905 1,473,561 4,259,466

CembreEspañaSL 937,623 6,909,153 7,846,776 4,068,406 3,778,370 7,846,776

CembreAS 2,965 371,294 374,260 246,753 127,507 374,260

CembreGmbH 56,719 2,316,286 2,373,005 1,482,079 890,926 2,373,005

CembreInc 192,903 2,368,381 2,561,283 1,524,029 1,037,255 2,561,283

GeneralMarkingS.r.l. 1,626,911 1,292,891 2,919,802 200,782 2,719,020 2,919,802

Total Grossoperating Operating Profitbefore Taxes Net sales profit profit taxes profit

CembreLtd 13,783,351 1,674,630 1,274,472 1,309,948 (397,428) 912,519

CembreSarl 5,373,733 474,932 432,223 425,335 (144,192) 281,143

CembreEspañaSL 9,975,564 1,582,942 1,446,260 1,449,659 (493,394) 956,265

CembreAS 528,546 46,045 44,364 42,783 - 42,783

CembreGmbH 4,555,508 420,166 400,553 401,354 (127,655) 273,699

CembreInc 4,123,506 714,487 676,026 674,915 (273,685) 401,230

GeneralMarkingS.r.l. 1,941,507 326,744 104,795 44,529 445 44,974

Thetranslationofamountsdenominatedincurrenciesotherthaneurowascarriedoutinaccordan-cewiththemethodsdescribedinthenotestotheConsolidatedFinancialStatementsatDec.31,2006.



Carlorosani

118


Report of the Board of Statutory Auditors on the Financial Statements at December 31, 2006 of Cembre S.p.A.

(Pursuant to article 153 of legislative decree No. 58/98 and article 2429 of the Italian Civil Code)

To our Shareholders:pursuant to article 153 and in compliance with responsibilities assigned to the Board by article 149 of legislative decree no. 58, dated February 24, 1998, pursuant to article 2429, paragraph 2, of the Italian Civil Code, the Board of Statutory Auditors reports to the Shareholders’ Meeting called to approve the 2006 Financial Statements on the monitoring activity carried out and on omissions and censurable facts observed, in addition to expressing a recommendation on the Financial Statements, their approval and other pertinent issues.

In pursuit of its mandate, the Board of Statutory Auditors:- attended in 2006 one Shareholders’ Meeting, five meetings of the Board of Directors and three

meetings of the Internal Audit Committee, all carried out pursuant to provisions of the By-laws, Laws and norms that regulate their functioning;

- in 2006 the Board of Statutory Auditors met 5 times and held a number of meetings by telephone, in addition to holding 3 meetings with the Company’s independent auditors.

- obtained from the Board of Directors quarterly information on main operations of economic and financial relevance carried out by the Company and its subsidiaries. With this regard, we can reaso-nably state that operations resolved and/or carried out complied with the Law and the provisions of the By-laws, were not imprudent, did not involve an excessive amount of risk, were not in potential conflict of interest or in contrast with Shareholders’ resolutions taken or such as to compromise the integrity of the company’s assets;

- acquired direct knowledge and monitored, to the extent required by our task, the adequacy of the organizational structure of the Company, gathering information from persons in charge of the orga-nization of the Company and through meetings with the independent auditors involving exchange of data and relevant information. To such regard we have no particular comment to make;

- monitored the adequacy of the internal auditing system and of the administrative and accounting system, in addition to the reliability of the latter in providing a fair representation of the Company’s operations, by obtaining information on an ongoing basis from persons responsible for each sector, also reviewing company records and the results of work carried out by independent auditors, moni-toring the activity of the person in charge of Internal Audit and the Internal Audit Committee.

119


The internal audit system is constantly updated and covers the parent company and its subsidiaries, verifying compliance with internal procedures, both operating and administrative, and that these are able to ensure the correct and efficient management of the company and to prevent and mana-ge, whenever possible, financial and operating risks as well as possible frauds that may damage the company.

In November the Company launched a project aimed at complying with changes introduced by Law 262/05 on savings. Making use of the advice of an independent advisor specialized in internal auditing and risk analysis, the Company gathered financial and operating information, identifying the areas and processes with the highest degree of risk. Based on the results of this analysis, operating procedu-res aimed at monitoring the information flow and at ensuring the effectiveness of checks performed periodically, were drafted.

In February 2007 the Company launched a project aimed at complying with the provisions of Legi-slative Decree 231/01 on the Administrative Responsibilities of Entities, identifying possible infrin-gements in which the Company could incur and the areas subject to the highest risk in this context with the end of developing an organizational model and code of conduct and reference protocols for the areas identified.

Instructions imparted to subsidiaries pursuant to article 114, paragraph 2, of Legislative Decree no. 58/1998 appear adequate.

There did not emerge relevant data and information pursuant to article 150, comma 2 of Legislative Decree no. 58/98 to be disclosed in the present report.

The Board of Statutory Auditors did not receive any report pursuant to article 2408 of the Italian Civil Code or has any knowledge of any other denunciation pursuant to the same received by others.In its monitoring activity and based on information obtained, the Board of Statutory Auditors did not encounter omissions, censurable facts, irregularities or in any case significant events worth reporting to relevant Authorities or of mention in the present report.

The Board of Directors transmitted to us, within the term set by law, the Report on the first six mon-ths of 2006, publishing it pursuant to rules set by Consob, complying with publishing requirements of quarterly reports.

Likewise, the Board of Directors transmitted to us the Balance Sheet, Income Statement, Statement of Cash Flows and Statement of Changes in the Shareholders’ Equity, together with the Notes to the accounts. The Report on Operations for the 2006 financial year illustrates events occurred after the date of the financial statements and the outlook for 2007.

With regard to Consob communications, we can attest that:- Adequate information was provided on the effect of the transition to international accounting

principles, highlighting in particular the effect of the first-time adoption of IFRS with notes and reconciliations of Balance Sheet, Income Statement, Statement of Cash Flows and Statement of Changes in the Shareholders’ Equity and related results, as adjusted and reclassified under IFRS, to reflect changes in the criteria of presentation, recording and valuation adopted;

120


- In compliance with Consob communication dated July 28, 2006, the Report on Operations includes performance indicators (significant results, contribution margins, aggregate data);

- information provided by Directors in the Report on Operations can be deemed exhaustive and complete. The notes to the accounts provide detailed information on the form and content of the Financial Statements, accounting principles and valuation criteria adopted;

- in compliance with the Finance Law (Legislative Decree 58/98), the Board of Statutory Auditors was constantly kept informed of issues relevant to its mandate;

- in the verifications and checks we performed on the Company, we did not encounter any atypical or unusual transaction.

- with regard to transactions between Group companies, the Report on Operations describes and explains exchanges of goods and services between the Company and its subsidiaries or other related parties, attesting that the same were carried out at market conditions, keeping into account the quality of goods and services exchanges;

- in the field of risk management and financial instruments, the nature and amount of interest rate, currency, liquidity, credit and price risk were reported;

- The Audit Report does not contain reference to lack of disclosure or related observations and pro-posals;

- in the year we delivered the opinions requested to the Board of Statutory Auditors pursuant to the law;

- in compliance with article 149 n.1 lett.c) bis of Legislative Decree no. 58, February 24, 1998, we acknowledge that, as it appears in the Report on Corporate Governance, the Cembre Group partici-pates and complies with the Self-conduct code issued by the Committee for Corporate Governance of listed companies, as integrated and implemented, to ensure that the corporate governance system adopted is in line with the related regulations issued.

The adoption of the said Code was verified by the Board of Statutory Auditors and represented the object, in its various aspects, of the Report on Corporate Governance that the Board of Directors made available and to which we refer for a more complete and adequate information on the subject.In addition to the auditing of the statutory accounts and consolidated financial statements, Cembre S.p.A. appointed Reconta Ernst & Young to audit the Consolidated Financial Statements at June 30, 2007 and the Quarterly Reports for the same year, including the review, verification and auditing of tax returns and Forms 770, together with the auditing of IFRS reconciliations at June 30, 2006, as published, for a total compensation of €4,000, in addition to the reimbursement of expenses and VAT, as provided by law.

The statutory accounts for which we verified compliance with laws regulating its format and prepara-tion through checks carried out by us within the limits of our task as provided by article 149 of Legisla-tive Decree no. 58, February 24, 1998, and information provided by the Independent Auditors, report a net income of €6,665,345, as compared with a net income of €4,738,970 in the previous year.The Board of Statutory Auditors therefore proposes to the Shareholders’ Meeting the approval of the Balance Sheet, Income Statement, Notes to the accounts, Statement of Cash Flows and Statement of Changes in the Shareholders’ Equity, complete with the Report on Operations in addition to the

121


proposed allocation of net profit, in the form submitted by the Board of Directors.

Brescia, April 11, 2007

The Board of Statutory Auditors

Dott. Guido Astori Chairman Dott. Andrea Boreatti Permanent Auditor Rag. Leone Scutti Permanent Auditor

122


Abstract of 14 May 2007 Shareholders General Meeting resolutions regarding the Financial Statements for the year ending 31 December 2006

124


Abstract of 14 May 2007 Shareholders General Meeting resolutions re-garding the Financial Statements for the year ending 31 December 2006

Shareholders General Meeting approved Cembre S.p.A. Financial Statements for the financial year ending 31 December 2006 and the documents annexed. Shareholders General Meeting approved the allocation of the Company’s 2006 financial year net profit of €6,665,345.58 (rounded of to €6,665,345 in Financial Statements) as follows:

- dividend payments to shareholders, in the amount of €0.22 for each of the Company’s 17,000,000 outstanding shares € 3,740,000

- to the extraordinary reserve € 2,925,345

The dividend is payable from 31 May 2007 with a date of record of 28 May 2007.

The consolidated financial statements for the financial year ending 31 December 2006 and documents annexed have been presented to Shareholders General Meeting.

Via Serenissima, 9 - 25135 Brescia (Italy)Phone: 030 3692.1

Telefax: 030 3365766P.O. Box 392 - 25100 Brescia (Italy)

www.cembre.comE-mail: [email protected]

2 0 0 6cembre group’s expansion of product offer was achieved by launching leading-edge technology...

Documents