Annual Report 2006 by carletto

2006 Annual Report

Contents Presentation General information Italcementi S.p.A. Directors, Officers and Auditors Italcementi Group in the world Financial highlights Italcementi S.p.A. on the Stock Exchange

5 6 9 10

Annual Report Directorsâ&#x20AC;&#x2122; report Results and significant events for the year The international economy and industry trends Business and financial performance in 2006 Performance by country and business Energy Project Dealings with related parties Information systems Sustainable development Engineering technical support, research and development Innovation Group e-business initiatives Disputes Significant post balance-sheet events Outlook

17 19 20 29 42 43 45 46 51 52 53 54 55 56

Consolidated financial statements Financial statements Notes Annexes Report of the Independent Auditors

58 62 119 128

Parent company financial statements Financial statements Report of the Independent Auditors Summary of resolutions

130 134 136

Corporate governance Italcementi S.p.A. Corporate governance Annexes

139 160

2006 Annual Report

The photos represent the cement plants of the Group in North America.

Italcementi S.p.A Via G. Camozzi, 124 - 24121 Bergamo - Italy Share capital e 282,548,942 Bergamo Companies Register Company subject to management control and co-ordination by Italmobiliare S.p.A.

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

2006 Annual Report Presentation Annual Report Corporate governance

General information

Italcementi S.p.A. Directors, Officers and Auditors Italcementi Group in the world Financial highlights Italcementi S.p.A. on the Stock Exchange

5 6 9 10

Italcementi S.p.A. Directors, Officers and Auditors (Positions held at the date of the Shareholders’ Meeting)

Antonio Catani

Honorary Chairman

Board of Directors (Terms ends on approval of financial statements at 12.31.2006)

Giampiero Pesenti Giovanni Giavazzi Pierfranco Barabani Carlo Pesenti Alberto Bombassei Alberto Clô Federico Falck Danilo Gambirasi Bruno Isabella Karl Janjöri Italo Lucchini Sebastiano Mazzoleni Yves René Nanot Massimo Pellegrini Marco Piccinini Ettore Rossi Attilio Rota Emilio Zanetti Paolo Santinoli

1 1

Chairman Deputy Chairman Executive Deputy Chairman Chief Executive Officer - CEO

4 3- 4 3- 4

2- 4 2

1 4

3- 4 - 5 1- 3 - 4 2- 4 6

Secretary to the Board

Board of Statutory Auditors (Term ends on approval of financial statements at 12.31.2008)

Acting Auditors Maria Martellini Claudio De Re Claudio Cavalli Substitute Auditors Eugenio Mercorio Dino Fumagalli Pietro Curcio Rodolfo Danielli Reconta Ernst & Young S.p.A. 1 2 3 4 5 6

Chairman

Chief Operating Officer - COO Independent Auditors

Member of the Executive Committee Member of the Remuneration Committee Member of the Internal Control Committee Independent Director (in accordance with the Code of Conduct) Member of the Compliance Committee Secretary to the Executive Committee

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Italcementi Group in the world (as of 31 December 2006)

NORTH AMERICA ESSROC CIMENT QUEBEC ESSROC SAN JUAN RIVERTON

MOROCCO

CIMENTS DU MAROC

EGYPT SUEZ CEMENT TOURAH CEMENT

HELWAN

TURKEY

RMB

SET ANADOLU AFYON

2006 Annual Report Presentation Annual Report Corporate governance

General information

Italcementi S.p.A. Directors, Officers and Auditors Italcementi Group in the world Financial highlights Italcementi S.p.A. on the Stock Exchange

FRANCE

ITALY

SPAIN

CIMENTS FRANÇAIS CIMENTS CALCIA GSM UNIBÉTON AXIM

ITALCEMENTI CALCESTRUZZI CTG SOCIETÀ DEL GRES AXIM

FINANCIERA Y MINERA

5 6 9 10

BULGARIA DEVNYA CEMENT VULKAN

BELGIUM CCB

GREECE HALYPS CEMENT

CYPRUS VASSILIKO CEMENT

KAZAKHSTAN SHYMKENT CEMENT

INDIA ZUARI CEMENT SRI VISHNU

TERMINALS

Albania, Gambia and Sri Lanka Mauritania (grinding center)

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THAILAND JALAPRATHAN CEMENT ASIA CEMENT

Letter to the stakeholders

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

Giampiero Pesenti Chairman

Carlo Pesenti Chief Executive Officer

2006 Annual Report Presentation Annual Report Corporate governance

General information

Italcementi S.p.A. Directors, Officers and Auditors Italcementi Group in the world Financial highlights Italcementi S.p.A. on the Stock Exchange

5 6 9 10

Financial highlights Breakdown of consolidated revenues by business (in millions of euro)

Cement

2005

2006

%change

3,161

3,848

21.7

Sales volumes and internal transfers by business 2006

2005

* change at constant size

Ready mixed concrete/Aggregates

1,618

1,751

8.3

221

255

15.4

5,000

5,854

64.0 59.3

Other businesses Total

17.1*

56.3

+13.6%

53.8

+10.2%

* changes at constant size and exchange rates +13.4% 21.0

2005

2006

63.2%

65.7%

+3.0%

+4.1%*

4.4%

32.4%

29.9%

Cement and clinker (Mt)

+8.1%* Aggregates (Mt)

+2.3%* Ready mixed concrete (Mmc)

Recurring gross operating profit

Group business and financial highlights 2006 IFRS

2005 IFRS

2004 IFRS

2003

2002

Revenues

5,854

5,000

4,528

4,285

4,262

Recurring gross operating profit

1,447

1,153

1,091

1,061

1,109

Gross operating profit *

1,434

1,137

1,096

1,061

1,109

Operating profit

(in millions of euro)

21.6

in milions of euro 1,447

1.012

766

788

656

711

Net profit for the year

651

541

465

376

357

Group net profit

449

391

351

277

274

Investments in fixed assets

773

1,209

378

373

812

1,153 European

55.9%

50.6%

Union

10.8% North America

Total shareholdersâ&#x20AC;&#x2122; equity

4,660

4,356

3,090

2,825

2,837

Group shareholdersâ&#x20AC;&#x2122; equity

3,298

3,037

2,399

2,186

2,128

Net debt

2,210

2,215

1,569

1,798

2,086

22,868

21,854

17,377

17,102

17,838

11.4%

Other

Number of employees at December 31

32.7%

38.6%

2005

2006

* compared with recurring gross operating profit, includes non-recurring income and expense

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Italcementi S.p.A. on the Stock Exchange 1 Share capital and shareholders

1.a Share Capital at 12.31.2006

At 12.31.2006 Italcementi S.p.A. share capital was e 282,548,942 represented by 282,548,942 shares with a par value of e 1 each, of which 177,117,564 ordinary shares and 105,431,378 savings shares.

Free float 34.364%

Ordinary shares 63%

Goldman Sachs Goldman Sachs Asset Management 2.968% Schroder Investment Management Limited 2.034%

Italmobiliare 58.737%

Savings shares 37%

Own Shares 1.898%

1.b Ordinary shares Survey of shareholders with over 2% of the share capital at 12.31.2006. of the share capital at 12.31.2006.based on information in the shareholders' register, from Consob, and other available information).

Foreign Banks 18% Italian Banks 8%

1.c Ordinary shares Breakdown of free float Shareholders listed in the shareholders' register: 15,586.

Private Individuals 22%

Foreign Funds 32%

Ticker symbol BLOOMBERG: REUTERS: ISIN: 10

Italcementi ordinary shares

Italian Companies 4% Conto Omnibus 3% Italian Insurance Companies 3% Foreign Companies 3% Italian Funds 3% Foreign Insurance Companies 3% Other 1%

Italcementi bearer savings shares

Italcementi registered savings shares

IT IM

ITR IM

ITAI.MI

ITAIn.MI

IT0001465159

IT0001465167

IT0001465175

2006 Annual Report Presentation Annual Report Corporate governance

General information

Italcementi S.p.A. Directors, Officers and Auditors Italcementi Group in the world Financial highlights Italcementi S.p.A. on the Stock Exchange

5 6 9 10

2 Share prices and market capitalization Share price From 01.02.2006 to 02.28.2007

Capitalization

(euro)

(milions of euro)

at 01.02.06

high

low

at 02.28.07

at 01.02.06

high

low

Ordinary shares

15.725

24.130

15.335

22.600

2,785

4,274

2,716

4,003

Savings shares

10.629

15.734

10.384

14.603

1,121

1,659

1,095

1,540

3,906

5,933

3,811

5,543

“Ultimo Mibtel” index

26,958

33,318

26,543

31,868

“S&P/MIB” index

35,962

42,993

34,850

41,155

Total

at 02.28.07

“Ultimo Mibtel” index

26 Feb. 07

29 Jan. 07

12 Feb. 07

01 Jan. 07

15 Jan. 07

18 Dec. 06

04 Dec. 06

20 Nov. 06

23 Oct. 06

06 Nov. 06

09 Oct. 06

25 Sept. 06

28 Aug. 06

Italcementi savings shares

11 Sept. 06

31 July 06

14 Aug. 06

03 July 06

17 July 06

19 June 06

22 May 06

05 June 06

24 Apr. 06

08 May 06

10 Apr. 06

27 Mar. 06

27 Feb. 06

13 Mar. 06

30 Jan. 06

13 Feb. 06

16 Jan. 06

Italcementi ordinary shares

"Ultimo Mibtel" and "S&P/MIB" indices

48,000 46,000 44,000 42,000 40,000 38,000 36,000 34,000 32,000 30,000 28,000 26,000

25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 02 Jan. 06

Italcementi shares (euro)

2.a Italcementi share prices, "Ultimo Mibtel" index and "S&P/MIB" index

“S&P/MIB” index

2.b Italcementi shares, "Ultimo Mibtel" index and "S&P/MIB" index performance

Italcementi ordinary shares www.italcementigroup.com

Italcementi savings shares

“Ultimo Mibtel” index

26 Feb. 07

12 Feb. 07

29 Jan. 07

15 Jan. 07

01 Jan. 07

18 Dec. 06

04 Dec. 06

20 Nov. 06

06 Nov. 06

23 Oct. 06

09 Oct. 06

25 Sept. 06

11 Sept. 06

28 Aug. 06

31 July 06

14 Aug. 06

17 July 06

03 July 06

19 June 06

05 June 06

22 May 06

08 May 06

24 Apr. 06

10 Apr. 06

27 Mar. 06

13 Mar. 06

27 Feb. 06

13 Feb. 06

30 Jan. 06

16 Jan. 06

155 150 145 140 135 130 125 120 115 110 105 100 95 02 Jan. 06

Value

(base 01.02.2006 = 100)

“S&P/MIB” index 11

2.c Average monthly capitalization 5,500,000,000 5,000,000,000 4,500,000,000 4,000,000,000

euro

3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000,000 500,000,000 0 January 2006

February

March

April

May

Italcementi savings shares

June

July

August

September

Italcementi ordinary shares

October

November December

January 2007

February

Total Capitalization

3 Trading volume on the Italian Stock Exchange (euro)

Month

January 2006 February March April May June July August September October November December January 2007 February

Ordinary shares Number of traded shares

Average monthly price

15,059,465 12,701,845 18,975,998 12,739,045 28,412,645 20,005,296 14,788,206 14,296,963 16,975,279 17,302,161 14,859,917 8,913,016 14,186,663 18,488,616

15.731 16.589 18.738 20.441 20.386 18.638 19.446 19.193 20.006 20.623 20.811 21.134 22.345 23.110

227,705,115

Savings shares Trade value

Number of traded shares

Average monthly price

Trade value

236,905,190 210,711,692 355,580,766 260,401,576 579,226,293 372,851,113 287,568,548 274,399,240 339,602,397 356,821,233 309,244,902 188,365,401 316,997,964 427,273,073

5,362,108 5,188,699 6,905,110 4,303,125 12,896,048 8,773,188 3,569,027 4,034,710 3,725,330 6,856,368 8,420,859 4,476,828 8,650,320 6,779,903

10.620 11.367 12.901 13.874 13.695 12.174 12.421 12.207 12.801 13.111 13.058 13.155 14.063 14.925

56,948,196 58,981,762 89,079,997 59,700,988 176,614,144 106,807,211 44,331,274 49,250,089 47,688,954 89,895,695 109,959,196 58,894,168 121,651,041 101,190,765

4,515,949,388

89,941,623

1,170,993,480

2006 Annual Report Presentation Annual Report Corporate governance

General information

Italcementi S.p.A. Directors, Officers and Auditors Italcementi Group in the world Financial highlights Italcementi S.p.A. on the Stock Exchange

5 6 9 10

euro

3.a Turnover

600,000,000 560,000,000 520,000,000 480,000,000 440,000,000 400,000,000 360,000,000 320,000,000 280,000,000 240,000,000 200,000,000 160,000,000 120,000,000 80,000,000 40,000,000 0 January 2006

February

March

April

May

June

Italcementi savings shares

July

August

September

October

November

December

January 2007

February

Italcementi ordinary shares

4 Financial indicators (euro)

Italcementi S.p.A. Market price (annual average official prices): - Ordinary share - Savings share Dividends: - Ordinary share - Savings share Dividend yield (on annual average official prices): - Ordinary share - Savings share

2006

2005

2004

2003

2002

19.297 12.589

13.312 9.498

10.773 7.050

9.590 5.649

9.527 4.982

0.360 (1)

0.330

0.300

0.270 (2) 0.270

0.390 (1)

0.360

0.330

0.300 (2) 0.300

2.48% 3.79%

2.78% 4.68%

1.87% 3.10%

2.82% 5.31%

2.83% 6.01%

(1) proposal of Board of Directors, March 7, 2007 (2) for 2003 dividend, paid in 2004, an additional extraordinary dividend of 0.05 euro was paid to both classes of share as part of the celebrations marking the company's 140 th anniversary.

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Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 Results and significant events for the year 17 The international economy and industry trends 19 Business and financial performance in 2006 20 Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56

Annual Report

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Directors’ report Following the adoption by the European Union of Regulation no. 1606 of 2002, the Italcementi S.p.A. consolidated financial statements for 2006 have been drawn up in compliance with the International Accounting and Financial Reporting Standards (IAS/IFRS), as are the comparatives for financial year 2005, which have already been published. The changes that have taken place in the reporting standards and interpretations compared to 2005 are set out in detail in the notes, in the section “Declaration of compliance with the IFRS”. According to the aforementioned Regulation, the principles to be adopted do not include the standards and interpretations published by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) at December 31, 2006, but not adopted by the European Union at that date. Furthermore, the European Union adopted additional standards/interpretations, which Italcementi S.p.A. will apply as from January 1, 2007, having decided not to elect early application. A full description of the changes in the consolidation area is provided in the notes. The most important changes compared to 2005 concern the companies in the cement sector in Egypt, which were consolidated on a line-by-line basis for the entire period in 2006 and for only part of the period in 2005: as from April 2005 the companies in the Suez Cement Group; as from August 2005 Helwan Cement Ltd. (previously Asec Cement Company, which merged into the Suez Group). As from June 1, 2006, following acquisition of full control, the Indian company Zuari Cement Ltd. and its subsidiary Sri Visnu Cement Ltd., previously consolidated on a proportionate basis, have been consolidated on a line-by-line basis. As from October 1, 2006 the ready mixed concrete business in Egypt has been consolidated on a line-by-line basis. This business is conducted by Ready Mix Beton Egypt S.A.E. (RMBE) and Ready Mix Beton S.A.E. (RMB).

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

Results and significant events for the year In a still generally upbeat international economic climate, the construction sector as a whole expanded, although growth slowed in the second part of the year, owing to disparate market trends in the so-called mature countries. In this favorable economic scenario, and with the enlargement in the consolidation area, the Group reported record results in 2006, despite the impact of the sustained rise in energy prices and in operating expenses generally, which intensified in the final part of the year.

Results Consolidated revenues totaled 5,854.1 million euro, up 17.1% from 2005 (+13.4% at

constant size and exchange rates); recurring gross operating profit of 1,446.9 million euro was up by 25.5% from 2005; operating profit, after a sharp rise in amortization and depreciation charges owing to the

enlargement in the consolidation area, rose by 32.2% to 1,012.3 million euro; net profit for the year, despite higher finance costs and tax expense, grew by 20.5% to

651.4 million euro; Group net profit rose by 14.9%, from 391.2 million euro to 449.5 million euro. Minority

interests, thanks to the contribution from the Egyptian companies, rose by 35.2%. Net debt at December 31, 2006, stood at 2,210.3 million euro, down slightly (4.7 million euro) from the end of 2005 thanks to significant cash flow from operations, which offset the high level of industrial and financial investments and dividends paid. Total shareholders’ equity, at 4,660.2 million euro, rose by 304.1 million euro from December 31, 2005, while Group shareholders’ equity stood at 3,298.5 million euro, up by 261.4 million euro.

Significant events in the year Since January 1, 2006, the international authorities no longer consider Turkey a hyperinflationary country. Therefore, International Accounting Standard 29 (Financial Reporting in Hyperinflationary Economies) is no longer applied to the financial statements of the Group’s Turkish companies. At the end of May, through the sub-holding Ciments Français S.A., the Group purchased the interest held by Zuari Industries Ltd. in the equally owned joint venture Zuari Cement Ltd., thus achieving full control of the Indian subsidiary. The investment, including the non-voting preference shares held by Zuari Industries Ltd., was 112.7 million euro. During 2006, through the French sub-holding SADECIB, the Group acquired for 89.4 million euro an equity investment, consisting of “class B” shares and representing approximately 29.1% of the entire share capital, in the Turkish company Goltas Cimento. This class of shares has limited rights compared to the other shares-“class A”-that make up the company’s share capital, which entitle holders, inter alia, to appoint the members of the Board of Directors. The investment was undertaken with a view to strengthening the Group in the Mediterranean area and to realizing a possible profitable merger with our industrial facilities in the neighboring region of central Anatolia. Goltas Cimento owns an efficient cement plant in south-west Turkey, with annual production capacity of 2.1 million metric tons of clinker, a controlling interest in a company (Goltas RMC) active in ready mixed concrete, and a significant internal hydroelectric power production capacity. In October, Suez Cement Company formalized the agreement, with an investment of around 11 million euro, to buy an equity investment of 52% in the share capital of Ready Mix Beton Egypt S.A.E. and Ready Mix Beton S.A.E., leading companies in Egypt’s ready mixed concrete www.italcementigroup.com

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

sector. The operation will enable the Group to achieve significant synergies with the acquisition of an operator running 9 plants, 5 of which in the Cairo area where the Suez Cement Group has 3 cement plants, in a sector offering good growth prospects. In December, Italcementi S.p.A. signed a partnership agreement with the Mercury Group, one of the leading industrial groups in Kazakhstan, and the Sembol Group, the division of Turkey’s Tamince group active in the construction sector, to realize two new cement plants in south-east and west Kazakhstan. The integration of the new plants (equipped with leading-edge technology and each with a production capacity of 1.3 million metric tons) with the Shymkent Cement production facility will create the largest operator in the sector in central Asia with a total capacity of over 3 million metric tons. Italcementi, which will manage the new plants, will have an equity investment of 50%, while the other partners will control the remaining 50%. In December, the cornerstone was laid for the ITCLab, Innovation and Technology Central Laboratory, the Italcementi Group’s new research and innovation center located in the “Kilometro Rosso” science park just outside Bergamo, which will house a variety of interdisciplinary public and private research initiatives. The ITCLab project, assigned to Richard Meier, envisages the construction, by early 2009, of a building on a surface area of 11,000 square meters, of which 7,500 will be set aside exclusively for research laboratories. The building will also be a center of excellence in terms of sustainable architecture and environmental compatibility, with the aim of obtaining certification for compliance with the “Leadership in Energy and Environmental Design” standards, the most important and exacting American ratings system for energy and the environment in the construction sector. As set out in more detail in notes no. 13 and no. 15, during 2006, to service its stock option plans, Italcementi S.p.A. availed itself of the authorization granted to the Board of Directors by the Shareholders' Meeting of April 13, 2006, to purchase 1,022,538 ordinary treasury shares, representing approximately 0.6% of the ordinary share capital, for an overall amount of approximately 18.9 million euro. Following the exercise during the year of 1,606,057 options by plan beneficiaries, Italcementi S.p.A. sold a corresponding number of ordinary treasury shares at an average unit price of 9.0026 euro, based on the prices set at the option grant dates. As a consequence, at December 31, 2006, Italcementi S.p.A. held 3,361,583 ordinary treasury shares, representing 1.9% of total ordinary share capital.

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

The international economy and industry trends 2006 saw the consolidation of the upward cycle in the world economy, which, for the fourth consecutive year, recorded growth rates well above the long-term averages; the favorable economic phase also spread to areas, like the euro zone, whose growth rates had long been more limited. In these conditions, the rise in energy prices up until the summer of 2006 produced only a marginal slowdown in the international cycle. Although inflation showed signs of accelerating, it remained broadly under control. The average euro exchange rate with the dollar was substantially stable for the third consecutive year, albeit with widely differing trends during the year. The strengthening in the European economy, especially in Germany, and the more restrictive stance adopted by the European Central Bank caused a gradual appreciation of the euro, while the improvement in internal demand helped to limit the negative impact on euro zone exports. The construction sector continued to benefit from the solid income trend and low interest rates. However, after a long period marked by a common upward trend, conditions began to differ on the individual domestic markets in the mature countries, with fears of market saturation, especially in the residential segments most exposed to speculative bubbles, becoming a significant factor in some countries. In the United States, residential construction went into recession in the second half of 2006. The downturn was abrupt and affected the aggregate industry result, despite the continuation of healthy business levels in the private and public non-residential sectors. In the euro zone countries where the Group operates, a slight increase in the Italian construction market was in contrast to excellent trends in all the other markets, particularly Spain and Greece. In the emerging countries where the Group operates, the overall situation was very positive, with various markets enjoying double-digit growth and healthy business activity everywhere; the exception was Thailand, where the uncertain political situation has induced a mood of great caution among domestic and foreign business operators, which has now also affected the construction sector.

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Business and financial performance in 2006 Key consolidated figures

2006

(in millions of euro)

2005

% change vs. 2005

Revenues

5,854.1

4,999.6

17.1

Recurring gross operating profit % of revenues

1,446.9 24.7

1,152.7 23.1

25.5

Other non-recurring income (expense)

(12.4)

(16.1)

(23.2)

1,434.5 24.5

1,136.6 22.7

26.2

(420.3)

(368.5)

14.1

(1.9)

(2.3)

(15.4)

1,012.3 17.3

765.8 15.3

32.2

(105.4)

(48.9)

115.4

11.3

18.6

(39.2)

Profit before tax % of revenues

918.3 15.7

735.5 14.7

24.8

Income tax expense

(266.9)

(195.0)

36.9

Net profit for the year % of revenues

651.4 11.1

540.6 10.8

20.5

Group net profit

449.5

391.2

14.9

Minority interest

201.9

149.4

35.2

Cash flow from operating activities

890.5

723.6

Investments in fixed assets

773.2

1,209.4

Gross operating profit % of revenues Amortization and depreciation Impairment Operating profit % of revenues Finance income (cost) Share of results of associates

23.1 (36.1)

Quarterly trend Full year 2006

4Q 2006

3Q 2006

2Q 2006

1Q 2006

Revenues % change vs. 2005

5,854.1 17.1

1,462.6 14.4

1,481.5 12.0

1,619.8 15.1

1,290.2 30.3

Recurring gross operating profit % change vs. 2005 % of revenues

1,446.9 25.5 24.7

315.9 4.3 21.6

398.3 12.8 26.9

467.0 36.9 28.8

265.7 70.8 20.6

Gross operating profit % change vs. 2005 % of revenues

1,434.5 26.2 24.5

296.1 2.7 20.2

398.9 13.0 26.9

470.7 43.2 29.1

268.7 61.4 20.8

Operating profit % change vs. 2005 % of revenues

1,012.3 32.2 17.3

185.0 0.2 12.6

291.8 15.3 19.7

368.0 54.6 22.7

167.6 86.1 13.0

Net profit for the period % of revenues

651.4 11.1

127.0 8.7

184.7 12.5

251.7 15.5

87.9 6.8

Group net profit % of revenues

449.5 7.7

96.9 6.6

122.6 8.3

179.6 11.1

50.3 3.9

2,210.3

2,305.0

2,572.5

2,162.3

(in millions of euro)

Net debt (at period end)

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Fourth quarter 2006 In the fourth quarter of 2006, the Group recorded a positive trend in year-on-year sales volumes in all the core businesses: +3.1% in cement and clinker, +18.1% in aggregates and +6.6% in ready mixed concrete, on a constant size basis. The progress in cement and clinker sales involved all the regions except for North America (-2.0%), and reflected growth in domestic sales volumes (+7.2%), while less profitable exports fell. The trend in cement sales prices was positive, with improvements everywhere, although performance varied significantly from one market to another. Consequently, the fourth quarter saw further significant growth in revenues compared to the same period in 2005 (+14.4%), but progress in operating results was largely annulled by the increase in both variable and fixed operating expenses. The former were particularly influenced by the rise in fuel prices, above all in petroleum coke, one of the Groupâ&#x20AC;&#x2122;s main energy sources, and by significant purchases of clinker and cement from third parties to make up for the saturation of available capacity or momentary production shortfalls in some countries. Fixed costs were mainly affected by higher employee expenses largely arising on contractual commitments stipulated in the second half of the year, higher costs for plant maintenance work, and higher general and administrative expenses. 2006 fourth-quarter net profit was down on the prior-year fourth-quarter result, largely influenced by finance costs, net of finance income and tax expense, whereas significant nonrecurring income was posted in the fourth quarter of 2005. Sales volumes and internal transfers Sales volumes by geographical region

European Union North America Med Rim emerging countries

(*)

Cement and clinker

Aggregates **

Ready mixed concrete

(in millions of metric tons)

(in millions of m3)

2006 % change on 2005 Historic Constant size

2006

26.7

4.2

3.6

55.9

8.8

7.6

17.1

1.9

1.8

7.0

(1.3)

0.2

(6.4)

0.2

0.4

% change on 2005 Historic Constant size

20.1

31.7

1.7

2.7

24.2

3.4

12.9

8.0

Asia

9.4

19.4

7.6

0.5

1.0

(6.9)

Trading

6.4

38.4

(5.7)

n.s.

64.0

13.6

4.1

59.3

10.2

8.1

21.6

3.0

2.3

Eliminations Total

European Union: Italy, France, Belgium, Spain, Greece - North America: U.S.A., Canada - Med Rim emerging countries: Egypt (Suez Cement as from April 2006, Asec Cement as from August 2006, RMB and RMBE as from October 2006), Turkey, Bulgaria, Morocco - Asia: India, Thailand, Kazakhstan (*) amounts refer to companies consolidated on a line-by-line basis and, pro-quota, to companies consolidated on a proportionate basis (**) excluding outgoes on work-in-progress account n.s.: not significant

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At constant size, Group sales volumes in 2006 grew in all business sectors. The positive trend in volumes achieved in the first nine months of 2006 continued in the fourth quarter, helped by healthy demand and favorable weather. On a constant size basis, sales volumes of cement and clinker progressed in all the macro regions with the exception of North America, which was negatively affected by the trend in the residential sector in the second half. There was notable growth in Trading and in all the Asian countries, including Thailand which, with a stable domestic market, increased its exports. The limited progress in Med Rim emerging countries reflected significant growth on domestic markets (+10.9% overall), and a consequent fall in volumes available for export. In the European Union, growth was driven by France, Italy and Greece. In the aggregates sector, all the main markets where the Group operates saw progress, especially in the fourth quarter, with the most significant contributions from Spain, France, Italy and Morocco. In ready mixed concrete, thanks to an impressive fourth quarter, sales volumes rose. Growth in the European Union was driven by the positive trend in France. In the other markets, the trend was positive in Turkey and Morocco, while Thailand fell back. Revenues and operating results Contribution to consolidated revenues 2006

2005 %

(in millions of euro)

Change 2006/2005 %

% (*)

Line of business Cement and clinker

(1-2)

3,847.9

65.7

3,161.4

63.2

21.7

1,751.5

29.9

1,617.5

32.4

8.3

8.0

Other

254.7

4.4

220.7

4.4

15.4

14.4

Total

5,854.1

100.0

4,999.6

100.0

17.1

13.4

3,612.7

61.7

3,266.8

65.3

10.6

10.2

659.7

11.3

603.1

12.1

9.4

10.4

1,028.8

17.5

761.3

15.2

35.1

26.9

337.7

5.8

242.4

4.8

39.3

17.4

Ready mixed concrete and aggregates

(1)

16.1

Geographical area European Union North America Med Rim emerging countries Asia

(2)

Trading Total

(1)

215.2

3.7

126.0

2.5

70.8

73.3

5,854.1

100.0

4,999.6

100.0

17.1

13.4

(*) at constant size and exchange rates (1) including the Egyptian operations (Suez, Helwan, RMB/RMBE) consolidated in 2006 (2) including line-by-line consolidation of Zuari Cement Group as from June 2006

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Revenues and operating results by geographical area (in millions of euro)

Revenues

Recurring GOP

GOP

Operating profit

2006 % change vs. 2005

2006

% change vs. 2005 22.0

2006

% change vs. 2005

3,663.2

10.9

732.1

13.6

750.1

16.3

527.0

659.7

9.4

156.6

19.6

155.7

20.4

110.3

20.5

1,105.5

37.2

428.2

40.5

399.0

38.9

284.4

43.9

361.2

39.1

101.9

53.2

101.6

52.1

67.1

68.1

Cement and clinker trading

328.7

55.9

19.6

72.9

19.6

39.5

17.8

38.9

Other and inter-area eliminations

(264.2)

44.7

8.5

n.s.

8.5

n.s.

5.7

n.s.

26.2 1,012.3

32.2

European Union North America Med Rim emerging countries (1) Asia

(2)

Total

5,854.1

17.1 1,446.9

25.5 1,434.5

(1) including the Egyptian operations (Suez, Helwan, RMB/RMBE) consolidated in 2006 (2) including the line-by-line consolidation of Zuari Cement Group as from June 2006 n.s.: not significant

The 17.1% increase in revenues compared to 2005 was due to: - the increase in business volumes for 13.4%; - the changes in the consolidation area, with a positive net effect of 4.4%; - the negative exchange-rate effect for - 0.7%. The improved business performance in all countries driven by the combined effect of volumes and sales prices accounted for more than three quarters of the Groupâ&#x20AC;&#x2122;s strong revenue growth. The greatest contribution came from France, Italy, North America (thanks to the price effect and despite the fall in volumes) and Turkey. The effect arising from the enlargement in the consolidation area was mainly due to the line-byline consolidation of the operations in Egypt and India (the latter were previously consolidated on a proportionate basis), while the limited negative exchange-rate effect reflected largely insignificant contrasting trends, dominated ultimately by the depreciation of the Turkish lira against the euro. Recurring gross operating profit (1,446.9 million euro) and gross operating profit (1,434.5 million euro) rose by 25.5% and 26.2% compared to 2005. Apart from the consolidation effect, significant on an annual basis, but much less important in the second half than in the first, growth was driven by sales prices and the improvement in volumes which more than offset the negative trend in operating expenses, both fixed (in particular personnel and maintenance) and, above all, variable (purchases of clinker and cement from third parties to meet the high level of consumption in many countries, raw materials and energy). The countries that made the largest contributions were France, Italy and North America, in absolute terms, and Trading, Bulgaria, Kazakhstan and Greece, in percentage terms. The percentage ratio of gross operating profit on revenues increased from 23.1% in 2005 to 24.7%. Gross operating profit was affected by net non-recurring expense of 12.4 million euro (net expense of 16.1 million euro in 2005), consisting mainly of the provisions for the restructuring plans announced in Egypt for Suez Cement and for Tourah of 25.4 million euro overall, and net capital gains of 18.0 million euro. Operating profit (1,012.3 million euro), after a significant rise in amortization and depreciation charges (from 368.5 million euro in 2005 to 420.3 million euro), principally due to the www.italcementigroup.com

enlargement in the consolidation area, rose by 32.2%, with a ratio to revenues of 17.3% compared to 15.3% in 2005. Even at 2005 exchange rates and size, the growth described above remained at significant levels, with an improvement of 16.8% in recurring gross operating profit and 23.3% in operating profit. Finance costs and other items Finance costs, net of finance income, rose by 56.5 million euro, from 48.9 million euro to 105.4 million euro; the ratio to revenues was limited (1.8%). Interest expense on debt stood at 105.7 million euro, up 22.5 million euro from 2005 (83.2 million euro); this was mainly due to the increase in average debt as a result above all of the consolidation for the full year of the Egyptian cement companies. The residual increase of 34.0 million euro in net finance costs was due for approximately 18 million euro to net exchange-rate losses, compared to net gains in 2005, and to lower dividends. In 2005 finance items reflected significant effects (around 16 million euro) from exchange-rate gains on the net monetary position in Turkey, income arising on the Suez Cement share capital transactions, and capital gains on sales of equity investments. The share of results of associates, 11.3 million euro, was lower than in 2005 (18.6 million euro). This was due entirely to the partial inclusion in 2005 of the results of the Suez Cement Group, consolidated with the equity method up to March 31, 2005. Net profit Profit before tax in 2006 was 918.3 million euro, up 24.8% from 2005 (735.5 million euro). Income tax expense, 266.9 million euro, rose by 36.9% (71.9 million euro) compared to 2005, which benefited from significant non-recurring tax income (relating in particular to the settlement of tax treatment on floating rate subordinated securities in France, with a positive effect of approximately 43 million euro on deferred tax). 2006 income tax expense also benefited from positive non-recurring effects due to the resolution of disputes from previous years and the impact on deferred tax of the reduction in tax rates in some countries, for an overall total of around 28 million euro. Group net profit, 449.5 million euro, grew by 14.9% compared to 2005 (391.2 million euro). The result reflected the greater impact of minority interests which rose from 149.4 million euro to 201.9 million euro, mainly as a consequence of the increased contribution of the Egyptian cement companies.

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Investments in fixed assets Investments by geographical area

(*)

2006

2005

PP&E and investment property 2006 2005

2006

2005

Total investments in fixed assets 2006 2005

7.6

74.7

332.4

296.6

15.8

10.5

355.8

381.8

68.3

71.0

68.3

71.0

Med Rim emerging countries

107.3

599.5

59.6

51.7

0.3

0.1

167.2

651.3

Asia

113.2

1.3

38.5

16.9

151.7

18.2

3.6

13.1

3.6

13.1

42.5

73.2

(in millions of euro)

European Union North America

Trading

Financial assets

Intangible assets

Other

40.8

70.8

1.2

0.5

1.2

Total

268.9

746.3

503.6

450.5

16.6

11.8

Change in payables for fixed assets

0.3

(1.4)

(16.3)

2.2

Total investments in fixed assets

269.2

744.9

487.3

452.7

16.6

11.8

789.2 1,208.6 (16.0)

0.8

773.2 1,209.4

(*) amounts refer to the area for which the investment is intended

Financial and industrial investment was high in 2006, although lower than in 2005 when the acquisitions of Suez Cement and Helwan took place. Overall investments in fixed assets totaled 773.2 million euro (1,209.4 million euro in 2005). Capital expenditure totaled 487.3 million euro (452.7 million euro in 2005) and focused on enhancing and rationalizing industrial facilities, mainly in the European Union (a grinding center in Novi Ligure near Alessandria in Italy, a new production line in Malaga in Spain) and North America (a new line at the Martinsburg cement plant). Once again great attention was paid to protection of the environment, safety and improvement of working conditions, with investments accounting for 23% of total capital expenditure. Investments in financial assets of 269.2 million euro (744.9 million euro in 2005) mainly referred to the acquisitions, described under significant events, in India (Zuari Cement Ltd.), Turkey (Goltas Cimento), and Egypt (RMB / RMBE), as well as the purchase of treasury shares by Ciments FranĂ§ais S.A. for 37.6 million euro.

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Equity structure, cash flows and net debt Condensed balance sheet 2006

2005

Property, plant and equipment and investment property

4,028.2

3,299.0

Goodwill and intangible assets

1,885.1

1,860.5

(in millions of euro)

Investments in associates and other assets

704.6

917.1

Non-current assets

6,617.9

6,706.6

Current assets

2,796.2

2,680.5

Total assets

9,414.1

9,387.1

Group shareholders’ equity

3,298.5

3,037.1

Minority interests

1,361.7

1,319.0

Total shareholders’ equity

4,660.2

4,356.1

Non-current liabilities

2,972.2

2,887.8

Current liabilities

1,781.7

2,143.1

Total liabilities

4,753.9

5,030.9

Total shareholders’ equity and liabilities

9,414.1

9,387.1

Summary of cash flows 2006

(in millions of euro)

2005

Net debt at December 31, 2004

(1,569.2)

Application of IAS 32 and IAS 39

(166.6)

Net debt at January 1, 2005

(1,735.8)

Net debt at December 31, 2005

(2,215.0)

Cash flow from operating activities

890.5

723.6

Investments: Tangible and intangible assets

(504.0)

Financial assets

(269.2)

Total investments Divestments Dividends paid Share capital increases subscribed by minorities Increase in treasury shares

(744.9) (773.2)

(1,209.4)

43.2

104.8

(209.2)

(142.0)

230.5

(4.6)

(10.2)

Net debt of acquisitions

(18.6)

(174.3)

Other

76.6

(2.3)

4.7

(479.2)

Change in net debt Net debt at period end

(464.5)

(2,210.3)

(2,215.0)

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Net debt breakdown December 31, 2006

December 31, 2005

Cash, cash equivalents and current financial assets

(387.6)

(471.8)

Short-term financing

479.4

957.0

Medium/long-tern financial assets

(20.8)

(339.6)

(in millions of euro)

Medium/long-term financing

2,139.3

2,069.4

Net debt

2,210.3

2,215.0

Net debt at December 31, 2006, of 2,210.3 million euro, was down by 4.7 million euro compared to December 31, 2005 (the breakdown of the “Net financial position” is illustrated in the notes). This slight improvement was made possible by significant cash flow from operations (890.5 million euro), which more than offset investments in fixed assets (773.2 million euro). The breakdown of net debt, analyzed in the notes, was influenced by the buy-back of “Floating rate subordinated securities” by Ciments Français S.A. and Unibéton S.A. in June, for a symbolic amount. This transaction had no impact on the consolidated income statement since the tax treatment of the securities in question had already been accounted for in 2005; it led to the cancellation of 327.8 million euro of short-term financing and of the associated posting in medium/long-term financial assets. Key financial data December 31, 2006

December 31, 2005

2,210.3

2,215.0

4,660.2

4,356.1

47.4

50.8

Net debt

2,210.3

2,215.0

Recurring gross operating profit

1,446.9

1,152.7

1.53

1.92

December 31, 2006

December 31, 2005

1,446.9

1,152.7

(absolute values in millions of euro)

Net debt Consolidated shareholders’ equity “Gearing”%

“Leverage”

Recurring gross operating profit Net finance costs “Coverage”

105.4

48.9

13.73

23.57

Leverage and coverage have been calculated on rolling year income statement data.

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Shareholders’ equity Total shareholders’ equity at December 31, 2006, was 4,660.2 million euro, an increase of 304.1 million euro from December 31, 2005, of which 261.4 million euro for Group shareholders’ equity and 42.7 million euro for minority interests. The changes in total shareholders’ equity compared to the situation at the start of the year are set out in the “Statement of movements in consolidated total shareholders’ equity”. The main increases concerned net profit for the year (651.4 million euro) and changes in the consolidation area (34.2 million euro). The main reductions arose from the decrease in translation reserves (207.0 million euro), mainly due to the revaluation of the euro at the spot exchange rate at the end of the year against the Egyptian lira, US dollar and Turkish lira, and from dividends paid (203.2 million euro). At December 31, 2006, Italcementi S.p.A. held 3,361,583 ordinary treasury shares (1.9% of ordinary share capital) to service stock option plans and 105,500 savings treasury shares (0.1% of the savings share capital). Reconciliation between parent company net profit and shareholders’ equity and Group net profit and shareholders’ equity (in millions of euro)

Net profit of the parent company (Italcementi S.p.A.) Consolidation adjustments: - Net profits of the consolidated companies (in accordance with Group accounting principles) - Elimination of intragroup dividends received in the year - Reversal of impairment (revaluations) in consolidated equity investments - Elimination of intracompany (gains) losses and other changes - Consolidated net profit - Minority interests - Group net profit

Shareholders’ equity of parent company (Italcementi S.p.A.) Consolidation adjustments: - Elimination of carrying amount of the consolidated equity investments • Carrying amount of the consolidated equity investments • Shareholders’ equity of consolidated companies in accordance with Group accounting principles - Elimination of effects of intragroup transactions - Consolidated shareholders’ equity - Minority interests - Group shareholders’ equity

2006 112.3 1,187.5 (497.4) (149.0) (2.0) 651.4 201.9 449.5 December 31, 2006 2,195.7

(11,084.7) 13,568.7 (19.5) 4,660.2 1,361.7 3,298.5

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Performance by country and business The Group in 2006 Cement: full-cycle cement plants grinding centers trading terminals

60 15 3

Aggregates: quarries

152

Ready mixed concrete: plants

588

EUROPEAN UNION Italy (in millions of euro)*

Revenues

2006

2005

1,619.5

1,482.4

Recurring gross operating profit

230.7

195.6

Gross operating profit

244.7

215.8

Operating profit

140.7

118.7

Capital expenditure

165.5

147.0

Personnel (heads)**

5,153

5,172 Full-cycle cement plants:

* consolidated country data before intragroup eliminations ** including the personnel of C.T.G. S.p.A. in France and employees of the BravoSolution Group abroad

Grinding centers: Aggregates quarries: Batching units:

18 9 52 248

Cement (in millions of euro)*

Revenues

2006

2005

1,043.1

931.6

Recurring gross operating profit

177.8

140.6

Gross operating profit

188.5

154.5

Operating profit

112.4

85.4

Capital expenditure

139.4

127.3

Personnel (heads)

3,022

3,063

* consolidated business data before intragroup eliminations

According to our estimates, cement consumption in 2006 reached a new record high, with moderate growth compared to 2005, driven by residential construction and civil construction works, and broad stability in non-residential construction. In regional terms growth was seen in the Center, South and Islands, while demand slackened in the North due to the reduction in consumption on some major projects (Olympic Games in Piedmont and the high-speed railway). Cement and clinker sales volumes were slightly up compared to 2005, with a stronger fourth quarter compared to the corresponding period in 2005, and average unit prices improving www.italcementigroup.com

throughout the country. The positive price trend in the second part of the year was, nonetheless, undermined in some areas by the competitive pressure caused by the entry of a new operator. Against a rise in revenues of 12.0%, recurring gross operating profit increased by 26.5%. The aforementioned volume and price effects contributed to this improvement, although they were offset by significant increases in variable production costs, especially energy costs and employee expenses. Conversely, costs relating to the deficit for CO2 emissions decreased, mainly thanks to the optimization of production factors and the fall, compared to 2005, of prices on the emission rights market. The grinding centers purchased in 2005 in the province of Ravenna and at Montalto di Castro, came fully on line in 2006. In September 2006 commissioning began on a new grinding center in Novi Ligure, which substitutes two old centers converted into cement deposits. With regard to environmental activities, Integrated Pollution Prevention and Control approvals were obtained for four cement plants and applications were filed for two other production units. Slight falls are foreseen in cement consumption and sales prices in 2007. Ready mixed concrete and aggregates (in millions of euro)*

Revenues

2006

2005

568.8

562.8

Recurring gross operating profit

26.3

36.7

Gross operating profit

27.2

38.0

Operating profit

13.1

21.8

Capital expenditure

16.9

20.9

Personnel (heads)

962

964

* consolidated business data before intragroup eliminations

In 2006, according to our estimates, the ready mixed concrete market saw little change compared to 2005, with an upturn in the second half when weather was more favorable. The reduction in work on the high-speed railway continued in 2006. In this scenario Group ready mixed concrete sales were in line with the market and consistent with a sales policy designed to maintain margins; sales of aggregates increased. The positive trend in ready mixed concrete prices and the increase in sales of aggregates were the basis for the slight rise in revenues. At the same time, the negative trend in operating expenses in ready mixed concrete and an unfavorable change in the sales mix in the aggregates sector produced a sharp fall in operating results.

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France (in millions of euro)*

Revenues

2006

2005

1,488.4

1,330.3

Recurring gross operating profit

340.4

303.3

Gross operating profit

343.8

288.3

Operating profit

276.1

220.9

Capital expenditure

88.9

80.4

Personnel (heads)**

3,864

3,847

* consolidated operating data before intragroup eliminations ** excluding the personnel of C.T.G. S.p.A. and BravoSolution in France, including the personnel of Trabel in Belgium

Full-cycle cement plants:

Grinding centers:

Aggregates quarries: Batching units:

79 197

Cement (in millions of euro)*

Revenues

2006

2005

849.1

756.8

Recurring gross operating profit

240.7

221.5

Gross operating profit

240.2

215.9

Operating profit

208.7

183.9

49.1

43.8

1,516

1,532

Capital expenditure Personnel (heads) * consolidated business data before intragroup eliminations

In 2006 cement consumption made solid progress (+6.1%) at regional level, with the exception of the North-West where growth was slower. In this scenario cement and clinker sales at Ciments Calcia S.A. rose by over 7% compared to 2005, thanks to a favorable regional mix. The trend in sales prices was also positive, if partly offset by higher logistics costs for the distribution network due to strong demand. The saturation of production capacity to meet growing demand led to an increase in cement and clinker purchases with a subsequent sharp rise in operating expenses, including the cost of fuel and lower remuneration for the use of animal meal. The rise in fixed costs was mainly caused by employee expenses, maintenance and general expenses. The solid business performance generated a significant improvement in operating results, compared to 2005. Demand is expected to remain positive in 2007, albeit at lower levels compared to 2006, thanks above all to the residential sector and price solidity.

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Ready mixed concrete and aggregates (in millions of euro)*

2006

2005

703.3

632.6

Recurring gross operating profit

82.7

66.3

Gross operating profit

85.9

57.8

Operating profit

55.4

28.1

Capital expenditure

31.9

32.2

1,391

1,406

Revenues

Personnel (heads) * consolidated business data before intragroup eliminations

UnibĂŠton sales volumes in the ready mixed concrete sector rose by 6.6% compared to 2005 thanks to a favorable market and the significant contribution of some important infrastructure orders. The solid trend in volumes and prices largely offset the increase in variable costs (raw materials and transport) and the slight rise in fixed costs. GSM performance in the aggregates sector was steady (a 4.4% rise in volumes at constant size). Growth was slower than in cement and ready mixed concrete, owing to an unfavorable regional mix and the contrasting trend in the public works sector compared to construction. The positive trend in sales volumes and a positive consolidation area effect supported progress in operating results.

Belgium (in millions of euro)*

Revenues

Full-cycle cement plants: Aggregates quarries: Batching units:

1 3

2006

2005

212.3

198.4

Recurring gross operating profit

43.1

42.2

Gross operating profit

43.3

37.1

Operating profit

15.5

10.0

Capital expenditure

13.8

14.0

Personnel (heads)

554

584

* consolidated country data before intragroup eliminations

The market made strong progress (+7.5%), but was exposed to the significant impact of imports, which accounted for almost a quarter of consumption according to estimates. Cement sales at Compagnie des Ciments Belges (CCB) on the domestic market rose by 1.1% with a positive trend in sales prices. Fierce competitive pressure limited ready mixed concrete sales (-8.3%) which, nonetheless, benefited from a significant improvement in sales prices; aggregates sales (+6.3%) were buoyed by a sales policy promoting use in the pre-fabrication industry. Overall, the rise in sales prices led to growth in revenues and offset in part the increases in operating expenses in the cement sector (raw materials and electricity) and in the ready mixed concrete sector (raw materials, personnel, maintenance). No significant changes are forecast in the business sectors for the current year. 32

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Spain (in millions of euro)*

Revenues

2006

2005

341.1

297.8

Recurring gross operating profit

84.9

77.5

Gross operating profit

85.2

77.6

Operating profit

66.6

61.1

Capital expenditure

58.4

48.5

Personnel (heads)

837

833

Full-cycle cement plants:

Aggregates quarries:

Batching units:

* consolidated country data before intragroup eliminations

In 2006 cement consumption continued to rise (+8%), to approximately 56 million metric tons, but the impact of imports grew (+9%, covering almost a quarter of the market) and trends differed widely in the regions where the Group operates: strong growth in the Basque country, a slight fall in Andalusia. In this scenario Group cement sales volumes rose by 3.2% compared to 2005, thanks to a positive trend in the North of the country. Aggregates sales made impressive progress from 2005 (+16.8%), while sales of ready mixed concrete increased slightly (+1.3%), benefiting from a marked improvement in prices. Overall, the positive trend in volumes and, above all, in sales prices boosted revenues and operating results, despite the latter being affected by the rise in both variable costs (mainly cement and clinker purchases) and fixed costs (personnel and maintenance). Start-up tests for the new production line in Malaga, with a production capacity of approximately 1 million metric tons of clinker per annum, are currently underway. The new line will enable the company to meet demand more effectively and achieve significant savings in production costs and emission levels; it is expected to begin operations in March 2007. For 2007 further growth is expected in cement consumption; trends are expected to be broadly stable in the markets where the company operates with investments in civil engineering works offsetting the fall in the residential sector.

Greece (in millions of euro)*

Revenues

2006

2005

114.2

95.2

Recurring gross operating profit

33.0

26.9

Gross operating profit

33.1

27.1

Operating profit

28.1

22.2

Capital expenditure

5.8

6.7

Personnel (heads)

301

296

* consolidated country data before intragroup eliminations

Full-cycle cement plants:

Aggregates quarries:

Batching units:

In 2006 growth continued in the Greek economy and in the construction sector in particular, driven by lively demand in the residential sector and a limited upturn of public work projects. Domestic cement consumption, according to our estimates, reached a new record high of 11.3 million metric tons. www.italcementigroup.com

In this scenario cement and clinker exports fell to meet the increased demand on the more profitable domestic market. Total cement and clinker sales, including exports, made solid progress of 10.8%. The aggregates and ready mixed concrete sectors also performed well (a rise in sales volumes of 4.1% and 10.1% respectively) despite the fierce competition in aggregates. Helped by the market situation, average sales prices for cement and ready mixed concrete improved; they remained stable in the aggregates sector despite competitive pressures. Overall, the sharp growth in revenues buoyed operating results, which made strong progress despite the rise in operating expenses (raw materials, fuel and personnel in particular). For 2007 cement consumption should stay close to the levels of 2006.

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NORTH AMERICA (in millions of euro)*

2006

2005

Revenues

659.7

603.1

Recurring gross operating profit

156.6

130.9

Gross operating profit

155.7

129.3

Operating profit

110.3

91.5

68.3

71.0

1,704

1,727

Capital expenditure Personnel (heads) * consolidated figures for the geographical area before intragroup eliminations

In a still upbeat economy, the construction sector slackened due to the sharp slowdown in the residential sector. Good performance in public works and non-residential private construction failed to offset this trend and cement consumption fell in the second part of the year compared to same period in 2005.

Full-cycle cement plants:

Grinding centers:

Aggregates quarries

Batching units:

Group cement sales volumes followed the market trend. After a first quarter with strong growth, helped by particularly favorable weather, sales fell as the year progressed, recording a full-year downturn of 1.3% compared to 2005. Despite the fall in volumes, revenues in local currency rose by 10.4% compared to 2005, thanks to strong price rises during the first quarter of 2006. This led to an improvement in operating results with recurring gross operating profit, expressed in local currency, up by 21.0%, despite the rise in operating expenses, in particular for electricity, personnel and maintenance. During 2006 purchase orders were issued for the main machinery and work commenced on the new line at the Martinsburg cement plant. The plant will have production capacity of 1.6 million metric tons of clinker per annum and will enable significant improvements in efficiency and production capacity. For 2007 cement consumption in the markets where the Group operates is expected to fall, owing to the continuing weakness of the residential sector.

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MED RIM EMERGING COUNTRIES Egypt (in millions of euro)*

2006

2005** 264.9

Revenues

491.3

Full-cycle cement plants:

Recurring gross operating profit

222.2

123.7

Batching units:

Gross operating profit

197.5

107.3

Operating profit

125.5

59.9

Capital expenditure Personnel (heads)

25.0

19.0

5,123

4,537

* consolidated country data before intragroup eliminations ** 2005 reflects partial values for the companies in the Suez Group and Helwan, consolidated on a line-by-line basis as from April 1 and August 1, 2005 respectively

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

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Morocco (in millions of euro)*

2006

2005

Revenues

244.5

220.5

Recurring gross operating profit

104.4

96.5

Gross operating profit

100.1

96.3

Operating profit

81.3

79.2

Capital expenditure

14.8

13.1

1,040

1,031

Personnel (heads)

Full-cycle cement plants:

Grinding centers:

Aggregates quarries:

* consolidated country data before intragroup eliminations

Batching units:

3 19

In 2006 the Moroccan economy achieved significant growth with a positive impact on the construction sector, helped by investments in infrastructure, modernization of industrial and tourist sites, and social construction projects. In a market growing at an estimated 10.4%, Group cement sales volumes on the domestic market rose by 9.2% (+ 4.0% overall, including cement and clinker exports) with a favorable trend in sales prices. Sales volumes were also positive in ready mixed concrete (+11.3%), with prices rising faster than operating expenses and, above all, in aggregates (+27.3%), where volumes more than offset the fall in sales prices. Overall, higher sales volumes and prices boosted revenues. Operating results improved, but were affected by a sharp rise in variable costs in the cement sector, in particular energy and raw materials. Following the introduction of town-planning restrictions in the Agadir area where the Group had planned a series of investment projects, in November 2006 a new agreement was signed with the Government of Morocco. The agreement, worth approximately 320 million euro, envisages realization of part of the projects in the area of Ait-Baha about 55 kilometers from Agadir. In October an agreement promoting energy production from renewable sources was signed with the national electricity board (ONE), providing for a wind energy installation with an output of 10 MW. For 2007 demand on the cement market is expected to remain lively, with growth not dissimilar to that recorded in 2006.

Bulgaria (in millions of euro)*

Revenues

2006

2005

124.2

99.7

Recurring gross operating profit

46.3

34.5

Gross operating profit

46.5

34.4

Operating profit

37.3

25.9

Capital expenditure

8.5

8.4

Personnel (heads)

550

525

Full-cycle cement plants:

Aggregates quarries:

* consolidated country data before intragroup eliminations

The bright prospects linked to entry into the European Union, the growth of domestic demand and the noteworthy influx of foreign capital were the main features of the Bulgarian economy www.italcementigroup.com

during 2006. In the construction sector, cement consumption grew by 20%, according to our estimates, driven by the non-residential sector and public works buoyed by loans linked to the EU pre-entry stage. In this scenario Group cement sales on the domestic market grew by 24.5%. On the other hand, cement and clinker exports fell as a consequence of the rise in local demand with higher margins, causing an overall improvement of 5.1% in cement and clinker sales volumes. Average sales prices were boosted by rising demand, especially in the second part of the year. Operating results reached the highest level since acquisition by the Group thanks to the aforementioned impact of volumes and prices, with a limited rise in some operating expenses (fuel, personnel and maintenance in particular). In October 2006 the project for the new production line at the Varna plant was announced, for approximately 185 million euro (one of the most important foreign industrial investments in Bulgaria). This will boost production capacity by approximately 50%. The new line will replace the old, technologically obsolete systems, bringing significant improvements in environmental and industrial performance. At a ceremony held in January 2007 at the Ministry of Industry & Energy in Sofia, the Bulgarian authorities awarded the Group a â&#x20AC;&#x153;First Class Investment Certificateâ&#x20AC;?, which will ease the approvals procedure to complete the investment. The extremely favorable market conditions of 2006 are expected to continue in 2007.

Turkey (in millions of euro)*

Revenues

Full-cycle cement plants: Grinding centers: Batching units:

4 1 17

2006

2005

245.5

220.4

Recurring gross operating profit

55.4

50.1

Gross operating profit

54.9

49.3

Operating profit

40.3

32.7

Capital expenditure

11.3

11.2

Personnel (heads)

881

831

* consolidated country data before intragroup eliminations

Despite financial conditions subject to some instability, GDP made significant progress with positive repercussions on cement consumption and Group sales volumes on the domestic market (+13.5%); this allowed plants to operate at full capacity (a 10.2% rise in overall cement and clinker sales volumes, including exports). Sales prices recorded a very favorable trend and had a positive impact on revenues and operating results. In the ready mixed concrete sector, the important residential projects launched in the second quarter of 2006 boosted Group sales volumes, up by 7.4% compared to 2005. The growth in the market also enabled a more selective sales policy with strong increases in sales prices. Overall, the increase in business volumes, together with the positive price effect, helped revenues and operating results, limiting the impact of the increase in operating expenses, in particular raw materials and fuel. Despite the large public deficit (partly offset by higher foreign investment flows) and uncertain political situation, the 2007 elections and the major civil engineering projects indicate that performance will continue to be positive in 2007.

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ASIA Thailand (in millions of euro)*

Revenues

2006

2005

208.5

185.7

Recurring gross operating profit

52.2

52.0

Gross operating profit

52.4

52.2

Operating profit

29.9

31.2

Capital expenditure

10.6

11.4

1,158

1,167

Personnel (heads) * consolidated country data before intragroup eliminations

2006 was a year of political instability resulting in the coup dâ&#x20AC;&#x2122;ĂŠtat of September 19 and the terrorist attacks at the end of the year. Despite the growth of the Thai economy thanks above all to exports, which were not particularly affected by the appreciation of the local currency, the construction sector was hit by the postponement of major infrastructure projects, with a consequent fall in cement consumption. Group sales on the domestic market were largely stable (+0.2%), while cement and clinker exports grew, leading to an overall rise in sales volumes of 4.3%.

Full-cycle cement plants:

Aggregates quarries:

Batching units:

Sales volumes in the ready mixed concrete sector fell by 6.9% owing to the fall in demand caused by the downsizing of some major projects. Overall, operating results expressed in euro were largely in line with 2005. In local currency, a slight downturn was reported, caused, in the cement sector, by the increase in operating expenses (in particular energy and maintenance), which was only partly offset by the positive impact of prices and export volumes; the slackening in ready mixed concrete was caused by the negative impact of sales volumes and above all by the rise in production costs (transport and raw materials), albeit with a positive trend in sales prices. Market demand is expected to slow slightly in 2007, due to the uncertain political situation and postponement of major infrastructure projects.

India (in millions of euro)*

2006**

2005

Revenues

116.0

48.7

Recurring gross operating profit

38.9

5.9

Gross operating profit

38.1

5.9

Operating profit

28.8

2.0

Capital expenditure

22.3

2.0

Personnel (heads)

782

404

Full-cycle cement plants:

* consolidated country data before intragroup eliminations ** the Indian companies, previously consolidated on a proportionate basis, have been consolidated on a line-by-line basis since June 1, 2006

At the end of May 2006, following the acquisition of a further equity investment of 50% in Zuari Cement Ltd., the Group obtained full control of the company.

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In 2006 the Indian economy continued to expand rapidly, with a positive impact on the construction sector and public works in particular. This favorable situation contributed to the strong increase in cement consumption and Group sales on the domestic market (+12.3%); sales including exports rose by 11.1%. The excellent market trend in South India and the saturation of production capacity also generated a notable increase in average sales prices. The impact of volumes and, above all, the price effect, boosted operating results significantly. Operating expenses, which rose slightly, benefited from the containment of electricity costs as a result of an agreement, effective since August 2005, with a local producer with whom the construction of an electricity power plant is currently underway. New installation initiatives include projects for a new clinker production line with a capacity of 5,500 metric tons/day at Yerraguntla and a grinding center with a capacity of 850,000 metric tons/year at Chennai. Further market growth is expected in 2007, helped by state investments in new infrastructure and expansion in the residential sector.

Kazakhstan (in millions of euro)*

Full-cycle cement plants:

2006

2005

Revenues

36.8

25.2

Recurring gross operating profit

10.8

8.7

Gross operating profit

11.1

8.7

8.4

6.7

Operating profit Capital expenditure

5.6

3.5

Personnel (heads)

462

442

* consolidated country data before intragroup eliminations

The economy continued to expand strongly in 2006, as did the construction sector; according to our estimates, cement consumption was 6.4 million metric tons, an increase of 21% compared to 2005. Against this favorable background, cement sales at Shymkent rose by 22.2% with a sharp rise in sales prices. Operating results consequently benefited from the strong growth in revenues, but were limited in part by higher operating expenses, in particular energy, personnel and maintenance. As noted, in December a partnership agreement was announced with the Mercury Group and the Sembol Group for construction of two new cement plants in south-east and west Kazakhstan. Market expansion is expected to continue in 2007.

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Cement and clinker trading (in millions of euro)*

Revenues

2006

2005

328.7

210.8

Recurring gross operating profit

19.6

11.4

Gross operating profit

19.6

14.0

Operating profit

17.8

12.8

Capital expenditure

3.6

13.1

Personnel (heads)

352

335

Grinding centers:

Terminals:

* consolidated operating data before intragroup eliminations

2006 cement and clinker sales volumes rose strongly (+38.4%) compared to 2005, thanks to growing demand from the Group and third parties. The strong expansion in sales led to a marked improvement in operating results, despite a slight increase in employee expenses.

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Energy Project During 2006 further progress was made toward obtaining the authorizations for construction of the new thermoelectric plants run by Italgen S.p.A. Among projects still considered active, the main project is Villa di Serio (province of Bergamo). In November 2006, the Region of Lombardy said it was aware of the variation to the gas pipeline route proposed by the local authorities and the Province of Bergamo. Following this communication, forwarded to the Ministry of Economic Development by Italgen S.p.A., on January 22, 2007 a Services Conference was held to include the variation in the authorization procedure. In March 2006, in accordance with the Ministerial Decree of February 6, 2006, Italgen S.p.A. took part in the auction for the recognition of tariff incentives for the production of photovoltaic energy at 359 e /MWh for a period of 20 years. In October the Italian State Electricity Services Agency approved the tariff incentives for the production of two facilities, both located at Italcementi S.p.A. cement plants at Vibo Valentia and Salerno. Each of the two plants will have an installed power capacity of 500 kWp. Among Group initiatives, Italgen S.p.A. is involved in the project to build a wind energy installation with an output of 10 MW in Morocco. In 2006, approximately 93% of available net energy (853 GWh) was sold by Italgen S.p.A. to Group companies in Italy, allowing Italcementi S.p.A. to meet approximately 46% of its requirements. Italgen S.p.A. closed 2006 with revenues of 100.7 million euro, well up on revenues in 2005 (53.0 million euro), as a result of the expansion of services to all the Italcementi S.p.A. plants, Group companies and associates which previously were not served.

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Dealings with related parties For the purposes of the consolidated financial statements, dealings with related parties concerned: - the parent company Italmobiliare S.p.A. and its subsidiary companies; - Italcementi S.p.A. subsidiaries not consolidated on a line-by-line basis; - associates; - other related parties. Transactions with related parties reflect Italcementi S.p.A.’s interest in leveraging the synergies within the Group to enhance production and commercial integration, employ competencies efficiently and rationalize use of corporate divisions and financial resources. All dealings with related parties, whether financial or relating to the exchange of goods and services, are conducted at normal market conditions. No atypical or unusual transactions took place during the year.

Dealings with the parent company Italmobiliare S.p.A. and its subsidiaries Italcementi S.p.A. is subject to management and coordination by Italmobiliare S.p.A. Italcementi S.p.A. provides Italmobiliare S.p.A. and that company’s subsidiaries with personnel administration services, and receives and provides services. It also provides Italmobiliare S.p.A. with a share register management service and administration services for shareholders’ meetings. Following the introduction in the Italian tax system of the “tax consolidation” regime, Italcementi S.p.A. and a number of its Italian subsidiaries have elected national tax consolidation pursuant to articles 117-129 of the Consolidated Income Tax Act (TUIR), with Italmobiliare S.p.A. as the consolidating company.

Dealings with subsidiaries and associates Dealings with subsidiaries that are not consolidated on a line-by-line basis and with associates are of a trading nature (exchange of goods and/or services) and financial nature.

Dealings with other related parties Dealings with other related parties include the administrative, financial, contractual, tax and corporate consultancy services provided by Finsise S.p.A., whose majority shareholder is Italo Lucchini, a director of Italcementi S.p.A. The contractually agreed considerations paid in 2006 for these services amounted to 290 thousand euro. During the year legal and corporate consultancy services were provided by Stefania Giavazzi, a relation in the second degree of consanguinity of the Deputy Chairman Giovanni Giavazzi, for considerations totaling 7 thousand euro; technical services were provided by Gabrio Rossi, a relation in the first degree of consanguinity of the director Ettore Rossi, for considerations totaling 13 thousand euro. In addition, legal services were provided, for considerations totaling 376 thousand euro, by the Dewey Ballantine law office, of which Luca Minoli, a director of the parent company Italmobiliare S.p.A., is a partner. In 2006 Italcementi S.p.A. disbursed an amount of 911 thousand euro to the Italcementi Cav. Lav. Carlo Pesenti foundation to cover management costs and the realization of initiatives falling within the aims of the foundation. www.italcementigroup.com

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In relation to the contract with the foundation for the supply of administrative and corporate services and the provision of staff, Italcementi S.p.A. charged an amount of 171 thousand euro. CTG S.p.A. provided the foundation with services for 42 thousand euro regarding construction of the professional training center for young students in Sri Lanka. Transactions with related parties and remuneration paid to Directors and the Chief Operating Officer of Italcementi S.p.A. for positions held within the Group are illustrated in the notes. Information on Italcementi S.p.A.â&#x20AC;&#x2122;s dealings with related parties is provided in the specific sections in the Italcementi S.p.A. directorsâ&#x20AC;&#x2122; report and explanatory notes.

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Information systems The IT division was reorganized to improve management of requirements arising from the review of corporate processes in connection with planned organic and non-organic growth, by capitalizing on the IT investments made in previous years. Further improvements were introduced in the reference model and the procedures for integration of standard Group solutions for new acquisitions or reorganizations. This model will be implemented in early 2007 in the Indian and Kazakh companies. As part of the development of specific solutions aimed at improving efficiency and quality, France and Belgium continued roll-out of the new specialized information system for management of batching units. Other important changes were made to support improvements in administrative and operating processes. In Italy a new system became operational for the management of real estate assets. This is a major upgrade of the previous system, with a view to simpler and more efficient operations. The new organization for international procurements is now supported by a specialized IT system, which integrates and enhances existing systems to extend the functions of the Easy-supplier services portal and ensure effective process integration. The solution, developed with the contribution of BravoSolution systems, will be extended to all Group companies by the end of 2007. As part of the on-going cost-cutting drive, the infrastructure of the North American companies is being updated in line with Group standards, the telecommunications infrastructure is being upgraded and service levels are being standardized.

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Sustainable development In 2006 the Group’s commitment to environmental protection and social responsibility continued in all countries and business sectors, with initiatives coordinated by the Group’s internal “Sustainable Development Steering Committee” (SDSC). A report has been drawn up on sustainable development activities during 2006 (“Sustainable Development Report 2006”) and reference should be made to this for analysis of objectives, initiatives and results. As a member of the World Business Council for Sustainable Development (WBCSD), the Group implements the undertakings of the Cement Sustainability Initiative (CSI) protocol, signed jointly with ten other leading cement producers. The undertakings are integrated in a specific action plan distributed to and systematically applied by all Group companies. Since 2002, in line with the strategic objectives of its sustainable development policy, the Group has identified a series of priorities and guidelines. Action taken in 2006 as part of this program was as follows: - monthly monitoring of CO2 emissions, with performance target setting and evaluation and promotion of projects to reduce emissions; - development and promotion of responsible techniques for the use of fuel, raw materials and additives to reduce other types of emission; - proactive involvement in discussions on allocation plans for CO2 emission rights with the participation of Group management; - promotion of continuous measuring systems and formulation of performance indicators for other types of emission (NOX, SOX, powders); - increased controls on the main harmful emissions through testing and application of reduction techniques, with a special focus on Best Available Techniques (BAT); - systematic monitoring and assessment of Sustainable Development awareness and conduct, through internal questionnaires, quarterly reports, visits to all the companies concerned every three years, and implementation of environmental management systems. During 2004, a specific local training program was launched to enhance the Group Sustainable Development values. By 2006 this program had been activated at all Group companies operating in the cement sector, including the newly acquired Egyptian companies.

Prevention of environmental risks Environmental risk prevention programs have been introduced by all the Group subsidiaries and environmental management systems (including ISO 14001) have been implemented in many countries. At the end of 2006, 41 cement plants out of 60 had ISO 14001 certification: 15 in Italy, 9 in France-Belgium, 3 in Spain, 1 in Greece, 5 in Egypt, 3 in Morocco, 2 in Bulgaria, 1 in Turkey, and 2 in Thailand. In 2007, action is underway to extend certification to 10 more Group cement plants.

Raw materials and alternative fuels In 2006, the ratio of alternative fuels to total Group energy consumption was 4.4%, down compared to 2005 (5.5%) owing to the consolidation of the Egyptian companies which currently do not use this energy source. Excluding this effect, the proportion of alternative fuels slightly increased and continued to represent an important element in energy needs for France, Belgium and the USA. In France/Belgium, nine kilns out of ten have been converted to handle alternative fuels. In Italy, numerous initiatives have been launched in various cement plants to broaden the 46

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range of alternative fuels used and reduce the impact of individual price changes, consequently limiting the overall cost. In Bulgaria, Greece, India, Morocco, Spain and Turkey, waste incineration programs are being implemented in cooperation with the local authorities. During 2006, there was a marked reduction in alternative sources in Italy, France and Belgium, where the expected fall in animal meal availability continued. On the other hand, new possibilities are slowly opening up in relation to biomasses: tests and authorization procedures have been successfully completed as for the three cement plants in Thailand. Also in Thailand, the research and development program in cooperation with Thammasart University continued on the new mix for special “marine cement” applications, using biomass combustion ash as a raw material.

Emissions control and reduction During the year the Group continued with its policy to modernize and/or install continuous emissions monitoring systems (CEMS) on its kilns. At the end of 2006, 79% of its kilns (69 out of a total of 87) were equipped with such systems. In conformity with the commitments under the CSI protocol for emissions control, monitoring programs are planned at least on an annual basis for some micro-pollutants; analyses of these substances have been carried out at the plants which use alternative fuels. In relation to the limits set by the European Union for NOX emissions and the regulation for coincineration of waste, tests began on reducing emissions by using the Best Available Techniques (BAT).

European Union CO2 emissions trading system The Group has been controlling and documenting its CO2 emissions since 1990, the base year for the Kyoto Protocol; starting with the data for 2006, it submits the main emissions indicators of its companies to an independent certification process. At European Union level, the certification process has been in place since 2005 since the Group’s clinker production plants are subject to the Emission Trading directive which has been extended as from 2007 to the plants in Bulgaria. Regarding operations outside the European Union, the Kyoto Protocol recognizes projects to reduce CO2 emissions implemented in countries that adhere to the Protocol but to which emission limits are not applied, through a procedure known as the “clean development mechanism” (CDM). A European sub-directive (known as the “Linking Directive”) allows conversion of credits obtained under the process into emission rights which can be traded on the European emissions market. The Group actively works to identify and develop internal opportunities, in particular in Morocco, Egypt and Thailand. The process for the recognition of credits for implemented operations is currently underway for a 10 Mw wind power installation at the grinding center in Layooune, Morocco. In North America, the strategy of the Canadian government as regards climate change should include intensity targets for greenhouse gas emissions by 2015. It is likely that these targets will also be applied to the Essroc plant in Picton (Ontario). For 2006, Group emissions were higher than the assigned quotas, with a deficit of approximately 100,000 metric tons, compared to an allocation of 15.7 million metric tons of CO2. The main reasons were the high business levels and a structural deficit at Italcementi S.p.A., caused by an overall under-allocation to the cement sector in Italy for the period 2005-07, which made recourse to the emission trading rights market necessary. In relation to the second application period of the Directive (2008-12), the Group has planned a series of technological measures, www.italcementigroup.com

including plant revamping in Italy and Bulgaria, to reduce average emissions during the period. On the basis of the available allocation plans, currently under review following comments received from the European Commission, and expected performance improvements, the Group quota deficit, for this second period, should be lower than for 2005-07. The Italcementi S.p.A. consolidated accounts recognize the deficits (relating almost exclusively to Italcementi S.p.A.) of the individual companies at market value at December 31, 2006 (based on the Powernext price of 6.48 euro per metric ton). The emission rights price has fallen in recent months (the price per metric ton at the end of February 2007 was approximately 0.9 euro), but the forward prices for rights to be used in the second allocation period are approximately 12-13 euro per metric ton higher. Within the Group, management of CO2 emissions has been assigned to a central body responsible for monthly monitoring of emissions, forecasting and formulation of trading strategies to limit the economic impact of emissions. The trading strategy includes transfer of emission rights among Group companies, access to the options and spot market and to loans deriving from the Kyoto Protocol mechanisms (e.g., the CDM), after careful consideration of the related level of risk.

â&#x20AC;&#x153;Zero accidentsâ&#x20AC;? project In 2006 the Group commitment to safety resulted in a further reduction in the overall accident frequency rate, which fell by 10.8% from 2005. This does not include operations in Egypt, given their recent acquisition; Egypt has been monitored since the start of 2006, but there are no comparative figures for 2005. The self-assessment process, introduced at individual country level in 2005, was extended to the individual production units in 2006. A program to enhance the project with the full involvement of managers at different levels was put into place in Italy and France, while training initiatives continued in various countries, primarily to analyze the causes of accidents.

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Human resources The breakdown of staff by country is as folllows: (number of employees)*

December 31, 2006

December 31, 2005

Italy

5,027

22.0

5,020

23.0

France

4,091

17.9

4,080

18.7

Belgium

587

2.6

615

2.8

Spain

858

3.7

855

3.9

Greece

298

1.3

296

1.4

North America

1,697

7.4

1,727

7.9

Egypt

5,105

22.3

4,537

20.8

Morocco

1,043

4.6

1,031

4.7

Bulgaria

552

2.4

525

2.4

Turkey

887

3.9

831

3.8

1,152

5.0

1,167

5.3

India

779

3.4

404

1.8

Kazakhstan

456

2.0

442

2.0

Trading

326

1.4

315

1.4

0.1

22,868

100.0

21,854

100.0

Thailand

Other

(1)

Total

* employees of companies consolidated on a line-by-line or proportionate basis. If proportionate, the number of employees is also proportionate (1) BravoSolution UK

The increase of 1,014 heads in Group employees compared to December 31, 2005 was mainly due to the recent acquisitions in Egypt in the ready mixed concrete sector (Ready Mix Beton Egypt S.A.E. and Ready Mix Beton S.A.E.) and the line-by-line consolidation of the Indian companies; previously Indian employees were stated on a proportionate basis. During 2006, staff management and development activities focused on supporting cultural and organizational projects at head office and in subsidiaries, as well as projects to enhance human capital to support the Group’s international growth. A review of the rewards system led to an update of the managerial incentives program for key positions; the variable part of remuneration will have an increased weighting, with the aim of raising commitment to company targets and providing additional rewards for top performing management. Important measures were taken to develop, together with the local unions, a new remuneration system in the Egyptian subsidiaries, and to make pay levels more competitive in some developing countries like India, where the situation on the labor market is becoming increasingly critical. Also in Egypt and India, the quantity and quality of local managers was enhanced with a widespread recruitment of highly specialized new managerial resources. An injection of new international resources also concerned the Kazakh subsidiary, while extensive new recruitment programs were introduced in the central technical units, responsible for realizing the Group’s investment projects. Among the central functions, procurements underwent a broad reorganization and rationalization, supported by a competence mapping plan for all subsidiaries. A similar plan was completed in the ready mixed concrete sector and the update of the existing plan for the Group’s cement plants was completed in over 90% of production units. Work continued to support international integration, in part through overseas secondment of managers with special skills: the number of seconded managers from various subsidiaries has www.italcementigroup.com

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surpassed one hundred and is growing annually at double-digit figures. In order to make the secondment process more transparent and effective, a policy formalizing procedures and conditions has been introduced. Finally, to improve management of medium/long-term career development, a growth potential assessment system was tested and is now operational: initially the system was applied to young managers with international career prospects, now it is also used for senior management figures. Under organizational development, a Manual of Powers and Responsibilities was finalized to ensure integrated management of the system of company proxies with the Corporate Governance principles of the Organization, Management and Control Model. For each corporate process, the manual contains: a map of powers, lists of powers for positions with powers of signature, organization notices, resolutions of the Board of Directors and proxies. On this basis a review was launched to simplify proxies and bring the entire business processes system (Processes Charter), organization (Organization Notices), authorities and powers (Proxies) into line with the goals of integration, transparency and usability. The project, currently being developed in some Italian companies, will be launched at foreign subsidiaries during 2007. To maximize the spread of organizational know-how, an intranet site named B.E.S.T. (Business Excellence Support Tools) has been developed as the Group reference database in this field. Regarding adoption of models within the Group, various initiatives are underway (e.g., in France and Egypt) to promote common development of procedures using the same models, tools and methods. Italcementi S.p.A. administration and control activities were reorganized, with a redefinition of the mission and responsibilities of the Administration & Control Department. This latest reorganization completes the alignment of the entire Italcementi S.p.A. organization with Corporate Governance principles and the Group’s new growth needs. Training was provided in accordance with the needs and priorities in the Group’s and the subsidiaries’ strategic plans. The institutional programs for key resources and subsidiary executives were attended by growing numbers of people from the most recently acquired subsidiaries, in particular from Egypt. Training continued for the “Corporate Governance”, “Zero Accidents” and “Sustainable Development” programs in all the subsidiaries, with local courses using centrally developed teaching aids and direct support. Programs to support key projects included realization of a first workshop for the marketing of new products and services, meetings to improve project management, a series of activities on international procurement issues and a seminar on market analysis methods: besides developing skills and promoting exchanges of know-how within specific “professional communities”, these activities are designed to help the Group achieve its targets for international growth, innovation and industrial and organizational efficiency. Major cooperation projects included: definition of a training model for the start-up of new plants (Malaga); joint development of managerial training programs for managers and directors at FyM, Devnya and Halyps; training for young cement plant engineers (Essroc) and maintenance skills development (CTG). Particular attention was paid to the Egyptian subsidiary, where local technical training courses were started as well as training programs for sales and marketing experts: these programs will be intensified and extended in 2007 and subsequent years. Support for young people in the Group takes the form of welcome programs, internships, training and initial orientation, as well as contacts and cooperation with schools and universities.

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Engineering, technical support, research and development (CTG S.p.A. - Group Technical Center) During 2006, CTG S.p.A. conducted research and development, engineering and technical support for Group subsidiaries in Italy and abroad, realizing services for 51.3 million euro (+6.3% compared to 2005). Staff at December 31, 2006 numbered 409 heads (399 at December 31, 2005 and 405 at June 30, 2006), of whom 298 in Bergamo and 111 in Guerville. In keeping with its mission, on behalf of Group companies CTG carried out research, engineering, and assistance for the realization of new structures and the modernization of existing plants, assistance with the operation and maintenance of cement and aggregates plants and batching units, as well as R&D projects. Among the main initiatives undertaken in relation to projects for the realization of new installations and constructions: in North America, the new production line with a capacity of 1.6 million metric tons/year at Martinsburg (orders issued for purchase of the main machinery and start-up of site works), in India, the new production line with a capacity of 5,500 metric tons/day at Yerraguntla and the grinding center with a capacity of 850 thousand metric tons/year at Chennai (environmental permits, purchase orders for the main machinery and analytical engineering currently underway). In Spain the revamping project continued on the cement plant in Malaga, which should come into operation in March 2007. In reference to cement plant revamping, numerous projects are being defined: Rezzato and Matera in Italy, Devnya in Bulgaria, as well as the new greenfield clinker plant in Morocco and the enhancement of Vassiliko in Cyprus. With reference to assistance, measures were undertaken to improve product quality, technological and production efficiency, and new installations were started up and/or commissioned at a number of Group's cement plants. CTGâ&#x20AC;&#x2122;s research work concentrated on materials and processes. Special attention was given to technology transfers for new ready mixed concrete and special cement application techniques. In additives, new acrylic superfluid formulations were finalized in a pilot plant and subsequently tested on ready mixed concrete, both in the laboratory and in the field, using various types of cement. Tests are underway to synthesize polymers to be applied to prefabricated ready mixed concrete. In extrusion mortars, a new formulation was tested for the production of blocks and panels using white cement. Chemical durability tests were completed on pipes and simple joints were constructed. In high performance lime concretes, tests were carried out with three different types of design and additives mix. Physical and mechanical tests are currently underway in cooperation with CISE universities. In addition, the first European patent for limestone for ready mixed concrete was obtained. Work relating to binders and additives for mortars and photocatalytic ready mixed concrete continues on various fronts.

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

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

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

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Significant post balance-sheet events No significant events have taken place since closure of the financial year that require amendments to or additional comments on the Groupâ&#x20AC;&#x2122;s business, financial and equity situation at December 31, 2006.

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Outlook For the current year, a moderate slowdown could occur in international economic growth after years of strong expansion, largely as a consequence of the economic weakening in the USA. After a period of growth of exceptional duration, intensity and breadth, the outlook for the construction industry remains positive, although stronger differences are expected to emerge from one country to another. More specifically, North America will be affected by the current recession in residential building, although the impact will be buffered by steady performance in public works and industrial building; in the EU countries in which the Group operates, a moderate slowdown in construction industry growth is probable. Among emerging countries, the expansionary phase of the last few years appears set to continue, although the difficult political climate in Thailand is creating uncertainty in that country. In this situation, the Group expects modest growth in sales volumes accompanied by continued growth in the overall price trend. These effects, together with the upgrades to production facilities and the organizational changes to improve operating efficiency, should enable the Group to meet the cost increases that are foreseeable for 2007. The Groupâ&#x20AC;&#x2122;s objective for 2007, in terms of operating results, is to confirm the strong levels posted for financial year 2006.

Bergamo, March 7, 2007 The Board of Directors Chairman Giampiero Pesenti

Consolidated financial statements

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Financial statements Balance sheet (in thousands of euro)

Non-current assets Property, plant and equipment Investment property Goodwill Intangible assets Investments in associates Other investments Deferred tax assets Other non-current assets

Notes

12.31.2006

12.31.2005

Change

1 2 3 4 5 6 18 7

4,005,906 22,260 1,836,834 48,236 124,047 452,202 40,056 88,344 6,617,885

3,905,753 23,234 1,812,029 48,446 130,498 334,146 29,852 422,598 6,706,556

100,153 (974) 24,805 (210) (6,451) 118,056 10,204 (334,254) (88,671)

8 9

683,189 1,472,493 239,530 15,863 65,443 319,693 2,796,211 9,414,096

690,515 1,277,934 218,044 24,822 53,038 416,152 2,680,505 9,387,061

(7,326) 194,559 21,486 (8,959) 12,405 (96,459) 115,706 27,035

282,549 615,741 (42,914) 2,443,089 3,298,465 1,361,704 4,660,169

282,549 687,069 (38,333) 2,105,813 3,037,098 1,319,004 4,356,102

(71,328) (4,581) 337,276 261,367 42,700 304,067

16 15 17 18

2,119,271 202,878 311,268 318,774 20,065 2,972,256

2,053,290 207,002 289,414 321,974 16,143 2,887,823

65,981 (4,124) 21,854 (3,200) 3,922 84,433

16 16

295,471 182,078 770,462 1,280 65,165 467,215 1,781,671 4,753,927 9,414,096

799,938 155,848 715,704 1,342 61,183 409,121 2,143,136 5,030,959 9,387,061

(504,467) 26,230 54,758 (62) 3,982 58,094 (361,465) (277,032) 27,035

Total non-current assets Current assets Inventories Trade receivables Other current assets Income tax assets Investments and financial receivables Cash and cash equivalents

10 Total current assets

Total assets Shareholders' equity Share capital Reserves Treasury shares Retained earnings

11 12 13 Group shareholders' equity

Minority interests

14 Total shareholders' equity

Non-current liabilities Interest-bearing loans and long-term borrowings Employee benefit liabilities Provisions-non-current Deferred tax liabilities Other non-current liabilities Total non-current liabilities Current liabilities Bank overdrafts and short-term borrowings Interest-bearing loans and short-term borrowings Trade payables Provisions - current Income tax liabilities Other current liabilities

17 19 20 Total current liabilities Total liabilities

Total shareholders' equity and liabilities

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2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

Income statement Notes

2006

2005

Revenues Other revenues Change in inventories Internal work capitalized

5,854,101 77,412 (7,026) 37,458

100.0

4,999,631 53,181 21,798 26,719

100.0

Goods and utilities expense Services expense Employees expense Other operating income (expense) Recurring gross operating profit Net capital gains on sale of fixed assets Non-recurring employees expense for reorganization Other non-recurring income (expense) Gross operating profit Amortization and depreciation Impairment Operating profit Finance income Finance costs Gains (losses) on exchange rates and derivatives Share of results of associates Profit before tax Income tax expense Net profit for the year Attributable to: Equity holders of the parent Minority interest Earnings per share (EPS) - Basic savings share ordinary share - Diluted savings share ordinary share

22 23 24 25

(2,126,774) (1,333,566) (911,652) (143,056) 1,446,897 18,014 (25,449) (4,969) 1,434,493 (420,252) (1,936) 1,012,305 45,589 (146,040) (4,914) 11,324 918,264 (266,867) 651,397

(in thousands of euro)

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26 26 26 27

28 28 28 29 30

449,462 201,935

11.1

(1,735,516) (1,219,379) (848,995) (144,701) 1,152,738 24,620 (37,588) (3,177) 1,136,593 (368,461) (2,289) 765,843 72,084 (133,712) 12,714 18,614 735,543 (194,971) 540,572

7.7 3.4

391,162 149,410

24.7

24.5

17.3

15.7

Change Amount % 854,470 17.1

23.1

294,159

25.5

22.7

297,900

26.2

15.3

246,462

32.2

14.7

182,721

24.8

10.8

110,825

20.5

7.8 3.0

58,300 52,525

14.9 35.2

31 € 1.630 € 1.600

€ 1.422 € 1.392

€ 1.627 € 1.597

€ 1.418 € 1.388

Statement of movements in consolidated total shareholders' equity Minority Total interests shareholder's equity

Attributables to Equity holders of the parent

(in millions of euro)

Reserves

Balances at January 1, 2005

Share capital

Share premium reserve

Fair value reserve for available-forsale financial assets

Fair value reserve for derivative financial instruments

Other reserves

Translation reserves

Treasury shares

Retained earnings

Total capital and reserves

282.5

344.3

129.5

(11.4)

1.9

(36.4)

(28.1)

1,807.4

2,489.6

695.5

3,185.1

45.6

0.8

46.5

8.9

2.4

11.4

2.4

0.3

2.7

156.7

98.2

254.9

Change in fair value on: Available-for-sale financial assets

45.6

Derivative financial instruments

8.9

Stock options

2.4

Currency translation differences

156.7

Net gains/(losses) recognized directly in equity

45.6

8.9

2.4

156.7

213.7

101.8

315.4

391.2

149.4

540.6

391.2

604.8

251.2

856.0

Dividends

(86.7)

(55.7)

(142.4)

Other

(1.6)

230.5

(10.2)

(4.4)

41.3

197.5

238.8

2,105.8

3,037.1

1,319.0

4,356.1

20.3

1.5

21.8

9.3

1.8

11.1

(119.3)

(87.7)

(207.0)

Net profit for the period Total recognized income (expense) for the period

45.6

8.9

2.4

156.7

Distribution of profits:

Share capital increases Treasury share buyback

(10.2)

Treasury share sale Change in consolidation area

45.6

Balances at December 31, 2005

282.5

344.3

175.1

(2.5)

49.8

120.3

(38.3)

Change in fair value on: Available-for-sale financial assets

20.3

Derivative financial instruments

9.3

Currency translation differences

(119.3)

Financing of net investment

(3.1)

Change in consolidation area

17.6

Net gains/(losses) recognized directly in equity

20.3

9.3

14.5

(16.9) (119.3)

Net profit for the period Total recognized income (expense) for the period

20.3

9.3

Stock options

14.5

(119.3)

(3.1)

(0.9)

(4.0)

0.7

33.6

34.2

(16.9)

(92.2)

(51.8)

(144.0)

449.5

201.9

651.4

432.5

357.3

150.1

507.4

3.7

0.6

4.3

3.7

Distribution of profits: Dividends

(95.2)

Treasury share buyback Treasury share sale Balances at December 31, 2006

0.1 282.5

344.4

195.4

6.8

68.1

1.0

(95.2)

(108.0)

(203.2)

(18.9)

14.3

14.4

3,298.5

1,361.7

4,660.2

(42.9)

2,443.1

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2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

Consolidated cash flow statement (in thousands of euro)

A) Cash flow from operating activities: Profit before tax Adjustments for: Amortization, depreciation and impairment Reversal undistributed results of associates Capital (gains)/losses on sale of fixed assets Change in employee benefit liabilities and other provisions Stock options Reversal finance costs Cash flow from operating activities before tax, finance income/costs and change in working capital: Change in working capital Cash flow from operating activities before tax and finance income/costs: Net finance costs paid Dividends received Taxes paid Total A) B) Cash flow from investing activities: Investments in fixed assets: Intangible assets Property, plant and equipment and investment properties Financial (equity investments) net of cash acquisitions (*) Total investments Proceeds from divestments of fixed assets Total divestments Change in other long-term financial assets and liabilties Total B) C) Cash flow from financing activities: New interest-bearing loans and long-term borrowings Repayments of long-term financing Change in short-term financing Net change in treasury shares Dividends paid Share capital increases by minorities Other changes in shareholders' equity Other sources and applications Total C) D) Currency translation differences and other changes E) Cash flows for the year, net (A+B+C+D) F) Cash and cash equivalents at beginning of period Cash and cash equivalents at the end of period (E+F) (*) cash of acquired and consolidated companies

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2006

2005

918,264

735,543

422,886 (739) (23,624) 25,095 4,316 101,079

370,207 (15,947) (39,445) 35,117 2,654 76,555

1,447,277 (175,282)

1,164,684 (62,365)

1,271,995 (113,810) 12,895 (280,581) 890,499

1,102,319 (117,036) 11,106 (272,830) 723,559

(16,617) (487,381) (261,649) (765,647)

(11,789) (452,676) (680,357) (1,144,822)

43,209 43,209

104,758 104,758

17,286 (705,151)

(24,056) (1,064,120)

692,072 (258,412) (475,073) (4,581) (209,131) 9,922 (13,357) (258,560) (23,247) (96,459) 416,152 319,693

478,358 (201,788) 138,297 (10,227) (142,038) 230,500 18,310 (49,154) 462,258 28,274 149,971 266,181 416,152

7,507

64,495

Notes The Italcementi S.p.A. consolidated financial statements as at and for the year to December 31, 2006 were approved by the Board of Directors on March 7, 2007. At the meeting, the Board authorized publication of the financial statements in a press release dated March 8, 2007, containing key information from the financial statements.

Accounting policies Italcementi S.p.A. is a corporate entity established in accordance with the laws of the Republic of Italy. It is subject to management and coordination by Italmobiliare S.p.A., whose key data from the most recently approved financial statements are provided in an annex to the parent companyâ&#x20AC;&#x2122;s separate financial statements. Italcementi S.p.A. and its subsidiaries form the â&#x20AC;&#x153;Italcementi Groupâ&#x20AC;?, an international player whose main lines of business are hydraulic binders, ready mixed concrete and aggregates. The Group is also active in other areas, some of which are instrumental to its core businesses: materials for the construction industry, additives, transport, energy, engineering, ebusiness.

Declaration of compliance with the IFRS These consolidated financial statements have been drawn up in compliance with the international financial reporting standards (IFRS) applicable at December 31, 2006 adopted by the EC Commission. In compliance with European Regulation no. 1606 of July 19, 2002, the principles adopted do not include the standards and interpretations published by the IASB and the IFRIC through December 31, 2006, that had not been adopted by the European Union at that date. Since December 31, 2005, a number of principles and interpretations adopted by the European Union have come into force and have been applied in the 2006 financial statements, specifically:

IFRIC 4 Determining whether an arrangement contains a lease IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental funds IFRIC 6 Waste electrical and electronic equipment

and the amendments to IAS 19 (Employee benefits), IAS 21 (Effects of changes in foreign exchange rates), IAS 39 (Financial instruments) and IFRS 6 (Exploration for and evaluation of mineral assets). Application of these principles and interpretations has not had a material impact for the Group. During 2006 the European Union adopted additional principles and interpretations whose application will affect the Italcementi Group as from January 1, 2007, given that early application of the principles in question has not been elected. Specifically:

IFRS 7 IFRIC 7 IFRIC 8 IFRIC 9

Financial instruments: disclosures Applying the restatement approach under IAS 29 - financial reporting in hyperinflationary economies Scope of IFRS 2 Reassessment of embedded derivatives

These principles and interpretations, to the extent to which they are applicable, are not expected to have a material impact.

Accounting policies and basis of presentation The consolidated accounts adopt the cost principle, with the exception of derivative financial instruments and financial assets held for sale or for trading, which are stated at fair value. The carrying amounts of hedged assets and liabilities are adjusted to account for changes in fair value on the basis of the hedged risks. The consolidated financial statements are presented in euro and all amounts in the accounting schedules and in the notes are rounded to thousands of euro, unless otherwise specified.

Presentation Annual Report Corporate governance

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Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

The basis of presentation of the Group financial statements is as follows: - current and non-current assets and current and non-current liabilities are presented as separate classifications on the face of the balance sheet. Current assets, which include cash and cash equivalents, are assets that the Group intends to realize, sell or consume during its normal business cycle; current liabilities are liabilities that the Group expects to settle during the normal business cycle or in the twelve months after the balance sheet date; - on the income statement, costs are analyzed by the nature of the expense; - on the cash flow statement, the indirect method is used.

Use of estimates The preparation of the consolidated financial statements and the notes in conformity with the IFRS requires management to make estimates that affect the values of assets, liabilities, income and expense, such as amortization, depreciation and provisions, and the disclosures of contingent assets and liabilities in the notes. Since these estimates assume operating continuity and are determined using the information available at the time, they could diverge from the actual future results. Assumptions and estimates are particularly sensitive with regard to measurement of fixed assets, which depend on forecasts of future results and cash flows, provisions for disputes and restructurings and commitments in respect of pension plans and other long-term benefits. Management conducts regular reviews of assumptions and estimates, and immediately recognizes any adjustments in the financial statements.

Principles of consolidation The consolidated accounting schedules are based on the accounts at December 31, 2006, of the parent company Italcementi S.p.A. and the consolidated companies. Where necessary, the accounts have been adjusted to ensure alignment with the Group’s classification criteria and accounting principles. Subsidiaries Subsidiaries are companies in which the Group has the power to determine, directly or indirectly, administrative and management decisions and to obtain the benefits thereof. Generally speaking, control is assumed to exist when the Group holds, directly or indirectly, more than one half of voting rights, including potential voting rights deriving from convertible securities. Subsidiaries are consolidated on a line-by-line basis as from the date at which control is obtained and until control is transferred out of the Group. Associates Associates are companies in which the Group has significant influence over administrative and management decisions even though it does not hold control. Generally speaking, significant influence is assumed to exist when the Group holds, directly, or indirectly, at least 20% of voting rights. Equity investments in associates are valued with the equity method, under which they are recognized initially at cost, and subsequently adjusted to reflect changes in the value of the Group’s interest in the associate’s equity. The Group’s interest in the associate’s net profit or loss is recognized in a specific income statement line item from the date at which the Group exerts significant influence until it relinquishes such influence. Joint ventures Joint ventures are companies whose business operations are controlled by the Group jointly with one or more other parties, under contractual arrangements. Joint control presupposes that strategic, financial and management decisions are taken with the unanimous consent of the parties that control the venture. Equity investments in joint ventures are consolidated on a proportionate basis, whereby assets, liabilities, income and expense are recognized line-by-line proportionately to the Group’s interest. The balance sheets and income statements of joint ventures are consolidated from the date on which joint control is assumed and until such control is relinquished.

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Transactions eliminated during consolidation All intragroup balances and transactions, including any unrealized gains in respect of third parties, are eliminated in full. Unrealized losses in respect of third parties deriving from intragroup transactions are eliminated, except in cases where it will not subsequently be possible to recover such losses. Unrealized gains in respect of third parties deriving from transactions with associates are eliminated against the equity investment carrying amount, while losses are eliminated proportionately to the Groupâ&#x20AC;&#x2122;s interest, unless it will not subsequently be possible to recover such losses. Consolidation area A list of the companies consolidated on a line-by-line basis, on a proportionate basis and with the equity method is provided in annex 1 to these notes.

Business combinations On first-time adoption of the IFRS, as allowed by IFRS 1, the Group elected not to apply IFRS 3 retrospectively to business combinations that took place before January 1, 2004.

Cost of business combinations Business combinations are recognized at purchase cost as provided by IFRS 3. Purchase cost is the sum of the fair values of the assets and liabilities acquired, contingent liabilities assumed and equity instruments issued at the transaction date, plus costs directly attributable to the purchase. Apportionment of the cost of business combinations The cost of business combinations is apportioned by recognizing the fair value of identifiable assets, liabilities and contingent liabilities at the acquisition date. Positive differences between the purchase cost and the interest in the fair value of the identifiable assets, liabilities and contingent liabilities at purchase are recognized as goodwill, under assets. Negative differences are taken immediately to the income statement. If on initial recognition the purchase cost of a business combination can only be determined provisionally, the apportioned amounts are adjusted within twelve months of the acquisition date. Minority interests Minority interests are recognized at the fair value of the net acquired assets. Business combinations achieved in stages When a business combination is achieved in stages, through a series of share purchases, each transaction is accounted for separately, using the cost and fair value information available at the date of each transaction to determine any goodwill. When control of an entity is obtained through a subsequent purchase, the previously held interest is revalued to reflect the fair value of the identifiable assets, liabilities and contingent liabilities at the date of the subsequent purchase; the revaluation offset is recognized in equity attributable to the Group. Purchase of interests held by minorities In the absence of a specific IFRS treatment, the Group applies the following criterion: purchases of interests held by minorities after control has been obtained do not require a revaluation of identifiable assets and liabilities. The difference between the purchase cost and the equity interest acquired is recognized as goodwill; similarly, in the absence of specific IFRS indications, transactions that reduce the interest held, without loss of control, are treated as sales to minorities and the difference between the interest sold and the price paid is recognized in the income statement. 64

Presentation Annual Report Corporate governance

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2006 Annual Report 5 16 58 62 119 128

Translation of foreign currency postings The reporting currency of the subsidiaries located outside the euro zone is usually the local currency. Transactions in currencies other than the reporting currency Foreign currency transactions are initially translated into the reporting currency with the exchange at the transaction date. At closure of the reporting period, foreign currency monetary assets and liabilities are translated into the reporting currency at the closing exchange rate. Exchange rate gains and losses are taken to the income statement. Non-monetary foreign currency assets and liabilities valued at cost are translated at the exchange rate ruling at the transaction date; those valued at fair value are translated with the exchange rate at the date fair value was determined. Translation of the financial statements of foreign entities At closure of the reporting period, the assets, including goodwill, and liabilities of consolidated companies that report in currencies other than the euro are translated into the presentation currency of the Group’s consolidated accounts at the exchange ruling at close. Income statement items, with the exception of companies operating in hyperinflationary economies (see below), are translated at the average rate for the period. Gains and losses arising from the translation of opening shareholders’ equity at the closing exchange rates and those arising from the different method used to translate profit and loss for the period are recognized in a specific equity item. In the event of subsequent disposal of a foreign entity, the cumulative translation differences are taken to the income statement. As allowed under IFRS 1, cumulative translation differences at the date of first-time adoption of the IFRS have been reclassified in “Retained earnings” under shareholders’ equity and therefore will not be taken to the income statement in the event of subsequent disposal. Accounting treatment of companies operating in hyperinflationary economies (Turkey) As from January 1, 2006, Turkey is no longer considered a hyperinflationary economy; consequently IAS 29 “Financial reporting in hyperinflationary economies” is no longer applied to the Group’s Turkish companies. With regard to the 2005 comparatives, the financial statements of the Turkish companies are denominated in new Turkish lira (local currency and accounting currency) using the historical cost method, in the unit of measurement applicable at the close of the reporting period. The carrying amounts of non-monetary assets and liabilities are adjusted to reflect the change in the general price index between the purchase date and the closure of the reporting period. The adjusted accounts are subsequently translated into the consolidated presentation currency (euro) by applying the criterion described above in “Translation of the financial statements of foreign entities” for companies that adopt an accounting currency other than the euro, with the exception of the income statement items which are translated at the closing exchange rate. The gain or loss on the net monetary position is taken to the income statement, under “Finance income/(costs)”.

Property, plant and equipment Measurement Property, plant and equipment is recognized at cost, less accumulated depreciation and impairment losses. Cost includes the purchase or production cost and directly attributable costs of bringing the asset to the location and the conditions required for its operation. Production cost considers the cost of materials and direct labor costs. Finance costs relating to the purchase, construction and production of an asset are recognized as expense as incurred. The carrying amount of some assets existing at the IFRS first-time adoption date of January 1, 2004, reflects revaluations applied in prior periods in connection with specific local laws, based on the real economic value of the assets in question. Assets acquired through business combinations are stated at fair value, determined on a provisional basis at the purchase date and subsequently adjusted within the following twelve months. Subsequent to initial recognition, property, plant and equipment is carried at cost depreciated over the asset’s useful life, less any impairment losses. www.italcementigroup.com

Assets under construction are recognized at cost and are depreciated when they enter useful life. When an asset consists of components with a significant cost and different useful lives, initial recognition and subsequent measurement are effected separately for each component. Subsequent expense Repair and maintenance expense is normally recognized as incurred. Component replacement costs are treated as separate assets and the net carrying amount of the replaced component is expensed. Depreciation Depreciation is generally calculated on a straight-line basis over the estimated useful life of each component of an asset. Land is not depreciated, with the exception of land used for quarrying operations. Asset useful life determines the depreciation rate until a subsequent review of residual useful life. The range of useful lives used for the various categories of assets is disclosed in the notes. Quarries Costs for the preparation and excavation of land to be quarried are amortized as the economic benefits of such costs are obtained. Quarry land is depreciated at rates reflecting the quantities extracted in the period in relation to the estimated total to be extracted over the period in which the quarry is to be worked. The Group makes specific provision for quarry environmental restoration obligations. Since the financial resources required to settle such obligations are directly related to the degree of use, the charge cannot be defined at inception with an offset to the asset cost, but is provided to reflect the degree of use of the quarry.

Leases Finance leases, which transfer to the Group all risks and rewards incident to ownership of the leased asset, are recognized from the lease inception date at the lower of the leased asset fair value or the present value of the lease payments. Lease payments are apportioned between finance costs and reductions against the residual liability so as to obtain a constant rate of interest on the outstanding liability. The policies used for depreciation and subsequent measurement of leased assets are consistent with those used for the Groupâ&#x20AC;&#x2122;s own property, plant and equipment. Lease contracts where all risks and rewards incident to ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognized as expense on a straight-line basis over the lease term.

Investment properties Investment properties are land and/or buildings held to earn rentals and/or for capital appreciation, rather than for use in the production or supply of goods and services. Investment properties are initially recognized at purchase cost, including costs directly attributable to the purchase. Subsequent to initial recognition, investment properties are measured at amortized cost.

Goodwill Goodwill arising from business combinations is measured initially at cost and since January 1, 2004, is no longer subject to amortization. As from the purchase date, goodwill is apportioned to the cash-generating units that are expected to benefit from the synergies created by the acquisition and is tested on an annual basis or more frequently if indications of impairment emerge. When goodwill is attributed to a cash-generating unit part of whose assets are disposed of, the goodwill associated with the sold assets is taken into account when determining the capital gain or loss arising from the transaction.

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

Intangible assets Intangible assets purchased separately are capitalized at cost, while those acquired through business combinations are recognized at provisionally estimated fair value at the purchase date and adjusted where necessary within the following twelve months. Subsequent to initial recognition, intangible assets are carried at cost amortized over asset useful life. Other than goodwill, the Group has not identified intangible assets with an indefinite useful life.

Impairment of assets Goodwill is tested for impairment on an annual basis or more frequently if indications of impairment emerge. Tangible assets and amortizable intangible assets are tested for impairment if indications of impairment emerge. Impairment is the difference between the asset net carrying amount and its recoverable amount. Recoverable amount is the greater of fair value, less costs to sell, of an asset or cash-generating unit, and its value in use, determined as the present value of future cash flows. Fair value less costs to sell is determined through application of relevant valuation models adopting appropriate income multipliers, quoted share prices on an active market for similar enterprises or other available fair value indicators applicable to the assets being measured. In determining value in use, assets are measured at the level of cash-generating units on a continuing operations basis. Estimated future cash flows are discounted at a rate determined for each cash-generating unit using the weighted average cost of capital method (WACC). If an impairment loss on an asset other than goodwill subsequently reverses in full or in part, the asset net carrying amount is increased to reflect the new estimated recoverable amount, which may not exceed the amount that would have been reflected in the absence of the impairment loss. Impairment losses and impairment reversals are taken to the income statement.

Financial assets All financial assets are recognized initially at cost at the purchase date, which corresponds to fair value plus additional costs attributable to the purchase. Subsequent to initial recognition, assets held for trading are classified as current financial assets and carried at fair value; any gains or losses are taken to income. Assets held to maturity are classified as current financial assets, if they mature within one year; otherwise they are classified as non-current assets and subsequently carried at amortized cost. Amortized cost is determined using the effective interest rate method, taking account of any acquisition discounts or premiums, which are apportioned over the entire period until maturity, less any impairment losses. Other financial assets are classified as available for sale and recognized at fair value. Any gains or losses are shown in a separate equity item until the assets are sold, recovered or discontinued, or until they are found to be impaired, in which case the cumulative gains or losses in equity are taken to the income statement. Equity instruments that are not listed on an active market or whose fair value cannot be measured reliably are carried at cost.

Inventories Inventories are measured at the lower of purchase/production cost (using the weighted average cost method) and net realizable value. Purchase cost includes costs incurred to bring assets to their present location, less allowances for obsolete and slowmoving items. Production cost of finished products and semi-finished goods includes the cost of raw materials, direct labor and a portion of general production costs, determined on the basis of normal plant operations. Financial costs are not included. The net realizable value of raw and ancillary materials and consumables is their replacement cost. The net realizable value of finished products and semi-finished goods is the estimated selling price in the ordinary course of business, less estimated cost of completion and estimated costs to sell.

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Trade receivables and other receivables Trade receivables and other receivables are stated at nominal value, less allowances for uncollectible amounts, which are provided as doubtful debts are identified.

Cash and cash equivalents Cash and cash equivalents consists of cash on hand, bank demand deposits and other treasury investments with original maturity of not more than three months. The definition of cash and cash equivalents in the cash flow statements is identical to that in the balance sheet.

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

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Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

Past service cost Changes in liabilities resulting from a change to an existing defined benefit plan are recognized as expense on a straightline basis over an average period until the benefits are vested. Costs for benefits that vest immediately upon changes to a plan are recognized as expense as incurred. Curtailment and settlement Gains or losses on the curtailment or settlement of a defined benefit plan are recognized as income or expense when the curtailment or settlement occurs. The gain or loss includes changes in the present value of the obligation, changes in the fair value of plan assets, actuarial gains or losses and past service costs not previously accounted for. At the curtailment or settlement date, the obligation and the fair value of the plan assets are re-measured using current actuarial assumptions.

Share-based payments The Group has decided to apply IFRS 2 as from January 1, 2004. Options for the subscription and purchase of shares granted by Group companies to employees and directors give rise to recognition of a cost classified under employee expenses, with a corresponding increase in equity. In accordance with IFRS 2, only options granted after November 7, 2002, whose rights had not vested at December 31, 2003, have been measured and recognized at the transition date. Options for the subscription and purchase of shares are measured at fair value at the grant date and amortized over the vesting period. Fair value is determined using the binomial method, and taking account of dividends. Future volatility is determined on the basis of historic market prices, after correction for extraordinary events or factors. The cost of options is reviewed on the basis of the actual number of options that have vested at the beginning of the exercise period.

Provisions for risks and charges The Group recognizes provisions for risks and charges when a present or constructive obligation arises as a result of a past event, the amount of which can be reliably estimated, and use of resources is probable to settle the obligation. Provisions reflect the best estimate of the amount required to settle the obligation or transfer it to third parties at the balance sheet date. If the present value of the financial resources that will be used is material, provisions are determined by discounting expected future cash flows at a rate that reflects the current market assessment of the time value of money and, where appropriate, the risks specific to the liability. When discounting is performed, movements in provisions due to the effect of time or changes in interest rates are recognized in financial items. Changes in estimates are recognized as income or expense for the period. The Group recognizes a separate provision for environmental restoration obligations on land used for quarry work, determined in relation to the use of the quarry in question. Pending publication of a standard/interpretation on accounting treatment of greenhouse gas emission quotas, after the withdrawal of IFRIC 3 by the International Accounting Standards Board, the Group recognizes a separate provision when emissions are greater than the allowed quota. Restructuring costs are provided when the Group company concerned has approved a detailed formal plan that has already been implemented or notified to the relevant third parties.

Loans and borrowings Loans and borrowings are initially recognized at the fair value of the consideration paid/received less charges directly attributable to the financial asset/liability. After initial recognition, loans and borrowings are measured at amortized cost using the effective interest rate method. In view of their contractual characteristics, “Floating rate subordinate securities” are classified as “Interest-bearing loans and long-term borrowings”.

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Trade payables and other payables Trade payables and other payables are stated at the fair value of the original consideration received.

Revenues, other revenues, interest income and dividends Sale of goods and services Revenues are recognized to the extent that the economic benefits associated with the sale of goods or rendering of services are collected by the Group and the amount in question can be reliably determined. Revenues are recognized at the fair value of the consideration received or due, taking account of any trade discounts given and volume discounts. Revenues from the sale of goods are recognized when the company transfers the material risks and rewards incident to ownership of the goods to the purchaser. Rental income Rental income is recognized as other revenues, as received. Interest income Interest income is classified as finance income on an accrual basis using the effective interest rate method. Dividends Dividends are recognized as finance income as shareholders’ right to receive payment arises, in accordance with local laws.

Government grants Government grants are recognized when there is a reasonable certainty that they will be received and all the requirements on which receipt depends have been fulfilled. Grants related to the purchase or production of fixed assets (grants related to assets) are recognized as deferred income and taken to the income statement over the useful life of the underlying assets.

Derivative financial instruments The Group uses derivative financial instruments such as foreign currency forward contracts and interest-rate swaps and options to hedge exchange-rate and interest-rate risks. Derivative financial instruments are measured and recognized at fair value. The fair value of foreign currency forward contracts is determined on the basis of the current forward exchange rates for contracts with similar maturity profiles. The fair value of interest-rate contracts is determined on the basis of discounted flows using the zero coupon curve. Hedging transactions Derivative financial instruments are designated as hedging instruments or as non-hedging instruments. Transactions that qualify for application of hedge accounting are classified as hedging transactions; other transactions are designated as trading transactions, even if they are performed for the purposes of risk management. For accounting purposes, hedging transactions are classified as “fair value hedges” if they cover the risk of changes in the fair value of the underlying asset or liability; or as "cash flow hedges” if they hedge cash flows arising from an existing asset or liability or from a future transaction, which are exposed to variability. With regard to fair value hedges, fair value gains and losses on the derivative instruments are taken to income immediately. Similarly, the underlying assets or liabilities are measured at fair value and any gain or loss attributable to the hedged risk is recognized as an income or expense offset.

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

If the movement refers to an interest-bearing financial instrument, it is amortized on the income statement until maturity. With regard to cash flow hedges (foreign currency forward contracts, fixed-rate interest swaps), movements in intrinsic value are reflected in a separate equity item, while time-based changes and the non-effective hedge component are recognized in the income statement. The effective component and non-effective component are calculated using the methods indicated in IAS 39. Gains or losses arising from changes in the fair value of derivatives designated for trading are recorded as income or expense. When the financial instrument matures, is sold, settled, exercised or no longer qualifies for hedge accounting, the derivative is no longer treated as a hedging contract. In this case, gains or losses on the derivative are retained in equity until the hedged transaction takes place. If the Group no longer expects the hedged transaction to take place, the net gain or loss in equity is taken to the income statement.

Income taxes Current income taxes are provided in accordance with local tax laws in the countries in which the Group operates. Deferred tax is recognized using the balance sheet liability criterion, based on temporary differences between the tax base of assets and liabilities and their carrying amount in the balance sheet. Deferred tax liabilities are recognized on all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable income will be available against which such differences, losses or credits may be reversed. Taxable or deductible temporary differences do not generate recognition of deferred tax liabilities or assets only in the following cases: taxable temporary differences arising from the initial recognition of goodwill, unless goodwill is tax-deductible; taxable or deductible temporary differences arising from initial recognition of an asset or a liability in transactions that are not business combinations and affect neither accounting profit nor taxable profit at the transaction date; equity investments in subsidiaries, associates and joint ventures when - the Group is able to control the timing of the reversal of the taxable temporary differences and it is probable that such differences will not reverse in the foreseeable future; - it is not probable that the deductible temporary differences will reverse in the foreseeable future and that taxable income will be available against which the temporary difference can be used. Deferred tax assets are reviewed at the end of every reporting period and reduced to the extent that sufficient taxable income is no longer likely to be available in the future against which the assets can be used in full or in part. Deferred tax assets and liabilities are determined at tax rates expected to apply when the deferred tax asset (liability) is realized (settled), based on rates that have been enacted or substantially enacted at the balance sheet date. Taxes relating to items recognized directly in equity are recognized in equity, not income.

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Changes to the accounts In accordance with Consob resolution no. 15519 of 07.27.2006, the consolidated income statement presents line items reflecting non-recurring transactions in 2006; for comparative purposes, line items reflecting non-recurring transactions, previously classified under a single line item captioned “Other income/(expense)”, have been opened on the face of the 2005 income statement. The “Finance income/(costs)” caption has been opened into three line items: “Finance income”, “Finance costs” and “Net exchange rate differences and net derivatives”; for comparative purposes, corresponding line items have been opened on the face of the 2005 income statement. These changes have not generated any change in Gross operating profit, Operating profit, Profit before tax and consolidated Net profit for the period.

Non-recurring transactions The tables below itemize the most significant non-recurring transactions and their impact on total shareholders’ equity, financial position and net profit: 2006 (in thousands of euro)

Book values

Shareholders' equity amount % 4,660,169

Net profit for the year amount % 651,397

Net debt amount

2,210,312

Net capital gains on sale of fixed assets

18,014

0.4

18,014

2.8

Non-recurring employee expenses for reorganizations

(25,449)

0.5

(25,449)

3.9

(4,969)

0.1

(4,969)

0.8

Other non-recurring income (expense) Tax on non-recurring transactions Non-recurring taxes Total Figurative value without non-recurring transactions

175

14,002 1,773 4,658,396

0.3 0.04

14,002 1,773 649,624

2.1 0.3

36,039

36,039 2,174,273

1.6

2005 (in thousands of euro)

Book values

Shareholders' equity amount % 4,356,102

Net profit for the year amount % 540,572

Net debt amount

2,215,048

Net capital gains on sale of fixed assets

24,620

0.6

24,620

4.6

30,380

1.4

Non-recurring employee expenses for reorganizations

(37,588)

0.9

(37,588)

7.0

(17,243)

0.8

Other non-recurring income (expense)

(3,177)

0.1

(3,177)

0.6

Tax on non-recurring transactions

3,435

0.1

3,435

0.6

42,819 30,109 4,325,993

1.0 0.7

42,819 30,109 510,463

7.9 5.6

Non-recurring taxes Total Figurative value without non-recurring transactions

13,137 2,201,911

0.6

Presentation Annual Report Corporate governance

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2006 Annual Report 5 16 58 62 119 128

Dealings with related parties The table below illustrates dealings with related parties in 2006: Revenues (purchases) goods and services

(in thousands of euro)

Parent company

Other income (expense)

356

(730) Parent company subsidiaries

(*)

4,640 (80)

Subsidiaries and associates

26,020 (44,231)

Other related parties Total

31,229 (45,727)

% impact on book items

2,980

(1)

(10,214) 1,736

Financial receivables (payables) 40 -

904

166

6,620

5,177

(31)

(1,216)

(2,595)

213 (686)

Interest Trade and other income receivables (expense) (payables)

(911) 1,003 (911)

(145)

(397)

175

11,429

5,217

(32)

(11,972)

(2,595)

0.5%

1.3%

0.4%

0.7%

1.4%

1.0%

0.6%

1.0%

0.1%

(*) subsidiaries of Italmobiliare S.p.A.

Receivables and payables in respect of the parent company, Italmobiliare S.p.A., mainly refer to the effects of the tax consolidation. Dividends paid to the parent company Italmobiliare S.p.A. in 2006 amounted to 34,331 thousand euro. Revenues from and purchases of goods and services with respect to subsidiaries and associates mainly concern transactions with companies consolidated on a proportionate basis, notably SociĂŠtĂŠ des Carrieres du Tournaisis, Medcem S.r.l. and Les Calcaires Girondins S.a.s., and with companies valued at equity, including the Ciments Quebec Inc. group, General Cave S.r.l. and Cementi della Lucania S.p.A.

Compensation paid to directors and the chief operating officer The table below sets out compensation paid during the financial year to the directors and the chief operating officer of Italcementi S.p.A. for positions held in the Group: 2006

2005

Short-term benefits: compensation and remuneration

8,452

7,466

Post-employment benefits: provision for leaving and end-of-term entitlements

1,013

892

3,484

(in thousands of euro)

Other long-term benefits: length-of-service bonues and incentives Share-based payments (stock options) Total

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673

545

10,145

12,387

Equity investments in joint ventures The Group’s most important joint ventures in 2006 were the French construction materials companies and the Medcem S.r.l. shipping company. In 2005 the Group’s most important joint ventures were the Indian companies in the Zuari Cement Co. group. As from June 1, 2006, following acquisition of the outstanding interest, these companies have been consolidated on a line-by-line basis. The following table sets out the portion of assets and liabilities and revenues and expenses reflected in the Group consolidated financial statements: December 31, 2006

(in millions of euro)

December 31, 2005

Current assets

24.5

9.2

Non-current assets

36.3

74.3

Total assets

60.8

83.5

Current liabilities

23.4

22.9

Non-current liabilities

26.4

11.5

Total liabilities

49.8

34.4

2006

2005

Revenues

43.2

49.0

Expenses

(34.0)

(49.1)

9.2

(0.1)

Profit before tax

Exchange rates used to translate the financial statements of foreign entities Exchange rates for 1 euro: Average rate Currencies

Closing rate

Full year 2006

Full year 2005

December 31, 2006

December 31, 2005

US dollar

1.25559

1.24409

1.31700

1.17970

Canadian dollar

1.42363

1.50873

1.52810

1.37250

Pound sterling

0.68178

0.68380

0.67150

0.68530

Cypriot pound

0.57578

0.57683

0.57820

0.57350

11.03713

11.01431

11.14700

10.86370

New Turkish lira

1.79888

1.66956

1.85860

1.59040

Swiss franc

1.57287

1.54828

1.60690

1.55510

Thai baht

47.59148

50.06249

46.77000

48.43700

Indian rupee

56.90788

54.82889

58.29750

53.16790

Mauritanian ouguiya

337.25189

329.04844

353.74600

316.86700

Albanian lek

123.09208

124.02465

124.13400

122.36200

Sri Lanka rupee

130.55918

125.05847

141.51700

120.44900

7.21051

7.20893

7.52399

6.77443

158.10469

165.23860

167.23300

157.79800

Moroccan dirham

Egyptian lira Kazakhstan tenge

The exchange rates used to translate the financial statements of the foreign entities are those published by the Ufficio Italiano Cambi (UIC), with the exception of the rates for the “New Turkish lira”, published by the Turkish Central Bank. 74

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

Consolidation area The following changes took place in the consolidation area with respect to December 31, 2005: Change

Company

Entered the consolidation area On a line-by-line basis

Ready Mix Beton SAE (Egypt) Ready Mix Beton (Egypte) SAE (Egypt) Lyulyaka E.A.D. (Bulgaria) Arteskos 98 JSC (Bulgaria) Arteskos AD (Bulgaria) Trabel Affretement (France) Axim Building Technologies S.A. (Spain) Cie pour l’Investissement Financier en Inde (France) C.T.G. USA LLC (USA) Shqiperia Cement Company SHPK (Albania) Italgen Maroc S.A. (Morocco)

On a proportionate basis

Dragages Transports & Travaux Maritimes S.A. (at 50%) (France)

(*)

Sabliers de l’Odet (at 49.5%) (France) Sablimaris (at 49.8%) (France) Merged companies Merging company

Merged company

Anadolu (renamed Set Cimento)

Set Cimento (Turkey)

Compagnie des Ciments Belges S.A.

Ath Beton (Belgium)

(*) previously consolidated with the equity method

The main changes in the consolidation area were as follows: the 2006 consolidation area includes the results of the Egyptian companies in the Suez group (Suez Cement Co., Tourah Cement Co., Suez Bag and Helwan ) as from January 1, 2006; whereas in 2005, the Asec Cement Company (renamed Helwan) was consolidated on a line-by-line basis as from August 1, 2005, and Suez Cement Company, Tourah Cement Co. and Suez Bag were consolidated on a line-by-line basis as from April 1, 2005; the Indian subsidiaries Zuari Cement Ltd., Sri Vishnu Cement Ltd. and Sitapuram Power have been consolidated on a line-by-line basis since June 1, 2006; previously they were consolidated on a proportionate basis; the Egyptian companies Ready Mixed Beton S.A.E. (RMB) and Ready Mixed Beton Egypte S.A.E. (RMBE), purchased in 2006, have been consolidated on a line-by-line basis as from October 1, 2006. Annex 1 lists the significant equity investments in subsidiaries, joint ventures and associates, and indicates the respective method of consolidation.

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Segment reporting The Group’s primary reporting format is by geographical sectors; the secondary format is by business sectors. The geographical areas in which the Group operates that provide the basis for the primary reporting format are: Italy, France-Belgium, Spain, Greece-Cyprus, North America, Egypt, Morocco, Bulgaria, Turkey, Thailand, India, Kazakhstan, Trading and Other. Trading includes cement and clinker marketing activities in countries where Group terminals are located: Gambia, Mauritania, Sri Lanka and Albania, as well as direct exports to markets not covered by Group subsidiaries. “Other” is a residual category for the operations of the Ciments Français S.A. sub-holding, essentially provision of services to subsidiaries. It also includes liquid and solid fuel procurements for Group companies. The Group management and organizational structure essentially reflects the primary geographical format. The business sectors that provide the basis for the secondary reporting format are: operations relating to the production and sale of cement/clinker,

operations relating to construction materials: ready mixed concrete and aggregates,

other operations such as: transport, additives for cement and ready mixed concrete, PVC and clay pipes, e-business and energy.

Business operations are organized and managed by country and by type of activity. The Group’s geographical sectors consist of the fixed assets of the individual entities located and operating in the geographical areas indicated above; sales refer mainly to the local market, exports are generally with other Group entities; exports to external countries are conducted through the Group companies of the international Trading sector. Consequently the revenues of the entities in each geographical sector, net of revenues within the Group, arise essentially in the areas in which the fixed assets are located. The cement/clinker business delivers a portion of its production to the ready mixed concrete sector. The transfer prices applied to goods and services trading are regulated on the basis of arm’s length transactions.

Primary segment The table below sets out primary sector revenues and results at December 31, 2006. Revenues

Intragroup revenues

Contributive revenues

Recurring gross operating profit

Gross operating profit

Operating profit

Share of results of associates

Italy

1,619,509

59,617

1,559,892

230,675

244,690

140,686

(113)

France-Belgium

1,617,160

4,093

1,613,067

383,496

387,112

291,575

367

Spain

341,082

13,303

327,779

84,858

85,199

66,640

Greece-Cyprus

114,229

2,217

112,012

33,046

33,117

28,071

4,959

North America

659,745

156,599

155,715

110,259

6,013

Egypt

491,314

58,514

432,800

222,166

197,478

125,534

Morocco

244,475

440

244,035

104,394

100,095

81,311

Bulgaria

124,248

17,195

107,053

46,278

46,469

37,296

Turkey

245,457

552

244,905

55,393

54,941

40,266

Thailand

208,495

23,587

184,908

52,221

52,408

29,918

India

115,996

38,859

38,139

28,836

36,750

10,849

11,067

8,362

(55)

Cement & clinker trading

328,655

118,747

209,908

19,644

19,553

17,833

152

Other

253,040

247,789

5,251

8,396

8,487

5,695

(elimin. inter-country transactions)

(546,054)

5,854,101

1,446,897

1,434,493

1,012,305

11,324

(in thousands of euro)

Kazakhstan

Total

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

The table below sets out primary sector revenues and results at December 31, 2005. Revenues

Intragroup revenues

Contributive revenues

Recurring gross operating profit

Gross operating profit

Operating profit

Share of results of associates

Italy

1,482,431

44,621

1,437,810

195,606

215,802

118,721

614

France-Belgium

1,457,305

4,954

1,452,351

345,561

325,403

230,944

885

(in thousands of euro)

Spain

297,849

11,946

285,903

77,477

77,634

61,059

Greece-Cyprus

95,198

4,464

90,734

26,850

27,058

22,201

3,919

North America

603,068

130,898

129,288

91,511

1,448

Egypt

264,940

19,742

245,198

123,693

107,340

59,915

11,748

Morocco

220,506

3,432

217,074

96,547

96,321

79,178

Bulgaria

99,702

20,016

79,686

34,480

34,353

25,898

Turkey

220,434

1,047

219,387

50,063

49,314

32,714

Thailand

185,749

17,193

168,556

52,002

52,186

31,241

India

48,691

5,867

5,920

1,993

Kazakhstan

25,196

8,675

8,706

6,696

Cement & clinker trading

210,808

84,831

125,977

11,363

14,012

12,843

Other

228,732

(6,354)

(6,508)

(8,835)

(elimin. inter-country transactions)

(440,978)

(236)

4,999,631

1,152,738

1,136,593

765,843

18,614

Total

The table below sets out other primary sector data at December 31, 2006. December 31, 2006 Non-current operating assets

Current operating assets

Operating liabilities

Full year 2006 Invested capital

Capital expenditure

Depreciation PPE and amortization intangible assets

Impairment

(963)

(in thousands of euro)

Italy France-Belgium Spain

894,918

886,694

547,963

1,318,322

180,385

(103,041)

1,484,608

724,573

574,486

1,695,973

103,657

(95,599)

483,436

143,149

105,016

529,062

58,363

(18,011)

(549)

Greece-Cyprus

63,053

58,062

27,996

93,762

5,781

(4,495)

(552)

North America

515,642

164,040

136,015

563,883

68,342

(45,457)

Egypt

1,268,669

116,146

117,605

1,307,492

24,984

(71,944)

Morocco

245,198

67,123

61,822

256,058

14,804

(18,790)

Bulgaria

133,619

23,637

21,055

138,787

8,790

(9,173)

Turkey

211,248

79,541

43,351

253,490

11,375

(14,675)

Thailand

323,744

69,279

35,452

360,675

10,553

(22,489)

India

227,978

15,533

27,215

222,952

22,276

(9,298)

(5)

Kazakhstan

21,537

8,350

2,769

27,586

5,659

(2,695)

(10)

Cement & clinker trading

23,572

65,105

42,399

47,985

3,659

(1,794)

Other

6,731

68,832

39,959

36,904

1,638

(2,792)

(elimin. inter-country transactions)

1,215

(109,373)

(110,476)

2,126

5,905,168

2,380,691

1,672,627

6,855,057

520,266

Total

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(420,252)

(1,936)

The table below sets out other primary sector data at December 31, 2005. December 31, 2005 Non-current operating assets

Current operating assets

Full year 2005

Operating liabilities

Invested capital

Capital expenditure

(in thousands of euro)

Italy France-Belgium Spain Greece-Cyprus North America

Depreciation PPE and amortization intangible assets

Impairment

(1,022)

826,004

818,836

526,296

1,197,233

155,373

(96,059)

1,471,421

504,173

535,491

1,504,792

96,353

(94,071)

(388)

440,517

106,960

78,589

474,166

48,465

(16,202)

(373)

62,206

49,306

25,875

86,221

6,887

(4,195)

(661) -

552,840

175,430

150,919

601,551

71,010

(37,777)

1,342,082

132,398

84,011

1,409,453

18,975

(47,425)

Morocco

257,918

56,833

56,808

261,481

13,076

(17,225)

Bulgaria

129,994

23,169

20,024

135,537

8,520

(8,455)

Turkey

252,594

58,255

41,043

274,299

11,294

(16,600)

Thailand

Egypt

324,636

60,407

30,834

356,892

11,391

(20,945)

India

71,409

8,798

8,171

72,036

2,008

(3,927)

Kazakhstan

20,248

5,840

1,717

24,787

3,492

(2,084)

Cement & clinker trading

22,621

44,390

30,936

37,374

13,159

(1,170)

7,889

205,723

54,058

173,539

2,303

(2,326)

Other (elimin. inter-country transactions) Total

1,213

(91,966)

(93,110)

2,357

5,783,592

2,158,552

1,551,662

6,611,718

462,306

(368,461)

(2,289)

Non-current operating assets include net property, plant and equipment, goodwill, net intangible assets, quarry rights paid in advance and other non-current assets other than tax and financial assets. Current operating assets include inventories, trade receivables and other current assets other than tax and financial assets. Operating liabilities include trade payables, provisions and other liabilities other than tax liabilities and loans and borrowings. Invested capital reflects operating assets less operating liabilities net of provisions.

Secondary segment Contributive revenues

Capital expenditure

Operating assets

2006

2005

2006

2005

12.31.2006

12.31.2005

Cement and clinker

3,847,908

3,161,426

415,154

363,804

6,631,820

6,368,240

Ready mixed concrete and aggregates

1,751,477

1,617,549

69,692

85,104

1,269,623

1,098,309

Other

254,716

220,656

35,420

13,398

384,416

475,595

Total

5,854,101

4,999,631

520,266

462,306

8,285,859

7,942,144

(in thousands of euro)

Presentation Annual Report Corporate governance

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2006 Annual Report 5 16 58 62 119 128

Assets Non-current assets 1) Property, plant and equipment Land and buildings

Quarries

Technical plant, materials and equipment

Other

Total

857,252

425,394

2,199,348

423,759

3,905,753

(in thousands of euro)

Net carrying amount at December 31, 2005 Gross amount

1,812,904

619,393

5,909,890

695,390

9,037,577

Accumulated depreciation

(955,652)

(193,999)

(3,710,542)

(271,631)

(5,131,824)

Net carrying amount at December 31, 2005

857,252

425,394

2,199,348

423,759

3,905,753

32,314

19,043

194,260

257,901

503,518

142,738

3,427

245,181

(214,098)

177,248

(2,709)

(908)

(6,352)

(1,930)

(11,899)

Depreciation

(52,774)

(19,593)

(312,035)

(23,644)

(408,046)

Currency translation differences

(43,861)

(6,171)

(97,339)

(13,297)

(160,668)

Additions Change consolidation area and other Disposals

Net carrying amount at December 31, 2006

932,960

421,192

2,223,063

428,691

4,005,906

1,868,373

631,982

6,192,200

701,395

9,393,950

Accumulated depreciation

(935,413)

(210,790)

(3,969,137)

(272,704)

(5,388,044)

Net carrying amount at December 31, 2006

932,960

421,192

2,223,063

428,691

4,005,906

Gross amount

Additions totaled 503.5 million euro and mainly referred to capital expenditure in Europe for 332.3 million euro, including Italy 165.4, France 88.9, Spain 58.4, and in North America for 68.3 million euro. Currency translation differences arose mainly from the changes in the dollar, the Turkish lira and the Egyptian lira against the euro. Other information Fixed assets pledged as security for bank loans were carried at a net amount of 388.7 million euro at December 31, 2006 (510.9 million euro at December 31, 2005), of which 267.3 million euro referred to fixed assets of Helwan Cement Company. Fixed assets held under finance leases and rental contracts were carried at a net amount of 37.2 million euro at December 31, 2006 (12.0 million euro at December 31, 2005). They consisted largely of “plant and machinery” and “automobiles and aircraft”. The increase was largely due to the rental contract signed by Italcementi S.p.A. in 2006 for a grinding plant in Novi Ligure, for an overall amount of 29.5 million euro. The carrying amount of this asset at December 31, 2006, net of depreciation for the period, was 28.5 million euro. Expense included in the value of “Property, plant and equipment” at December 31, 2006, amounted to 37.5 million euro. The useful lives adopted by the Group for the main asset categories are as follows: - Civil and industrial buildings 10 - 33 years - Plant and machinery 5 - 30 years - Other property, plant and equipment 3 - 10 years The range between the above minimum and maximum limits indicates the presence of components with different useful lives within each asset category.

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2) Investment property (in thousands of euro)

Net carrying amount at December 31, 2005

23,234

Gross amount

40,119

Accumulated depreciation

(16,885)

Net carrying amount at December 31, 2005

23,234

Additions

131

Disposals

(863)

Depreciation

(572)

Currency translation differences

252

Other Net carrying amount at December 31, 2006

78 22,260

Gross amount

38,997

Accumulated depreciation

(16,737)

Net carrying amount at December 31, 2006

22,260

Investment properties are carried at amortized cost; fair value at December 31, 2006, was 133.7 million euro.

3) Goodwill The change in goodwill with respect to December 31, 2005 was as follows: (in thousands of euro)

Net carrying amount at December 31, 2005

1,812,029

Acquisitions and changes in consolidation area

101,309

Sales Impairment Currency translation differences Net carrying amount at December 31, 2006

(942) (75,562) 1,836,834

The main acquisitions and changes in the consolidation area in 2006 were as follows: line-by-line consolidation of the Zuari Cement Ltd. group generated additional goodwill of 78.2 million euro (see note 3.1.1); the acquisition of the Egyptian companies RMB and RMBE generated goodwill of 11.9 million euro; the asset and liability values relating to the acquisition of the Suez group were finalized in 2006, generating an increase of 10.0 million euro in goodwill (at the acquisition exchange rate) (note 3.1.2). the final attribution in 2006 of asset and liability values relating to the acquisition of Cemill S.p.A., now merged with Cementificio di Montalto S.p.A., generated a decrease of 2.6 million euro in goodwill; the adjustment arose from recognition of the grinding centerâ&#x20AC;&#x2122;s plant and machinery at 4.2 million euro and recognition of deferred tax liabilities for 1.6 million euro. Goodwill impairment arose mainly at the Greek subsidiary Domiki Beton, for 0.6 million euro, and a number of Spanish subsidiaries, for 0.3 million euro. Currency translation differences arose mainly from the changes in the Egyptian lira, the Turkish lira and the dollar against the euro.

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

Business combinations 3.1 Acquisitions during the year India In May 2006 an agreement was reached to acquire from Zuari Industries Limited the outstanding share in the equally owned joint venture Zuari Cement Limited. Previously Zuari Cement Ltd. and its subsidiaries Sri Vishnu and Sitapuram Power had been consolidated on a proportionate basis at 50%; consolidation on a line-by-line basis began as from June 1, 2006. The acquisition, including non-voting preference shares, is carried at 112.7 million euro. The notes below reflect the impact on the Group of line-by-line consolidation of the Indian companies. Egypt During 2006 Suez Cement Co. acquired 52% of the Ready Mixed Beton S.A.E. (RMB) and 52% of Ready Mixed Beton Egypte S.A.E. (RMBE) for 10.9 million euro; these two companies are the leading Egyptian producers of ready mixed concrete. The acquisition will offer important synergies with the manufacturing operations of the Suez Cement Co. group. The Groupâ&#x20AC;&#x2122;s 2006 results include the results of the Egyptian companies as from January 1, 2006. In financial year 2005, Suez Cement Co., Tourah Portland Cement Co. and Suez Bag were consolidated on a line-by-line basis as from April 1, Helwan Cement as from August 1. 3.1.1 Acquisition of Zuari Cement Ltd. Consolidated financial statements Zuari Cement Ltd. group

Book value of acquisitions

Change in fair value

Fair value attributed to acquisition

(in millions of euro)

Net property, plant and equipment and other non-current assets

96.2

24.3

120.5

Inventories

7.3

0.1

7.4

Trade receivables and other current assets

6.8

Cash and cash equivalents

9.9

Trade payables and other current liabilities

(17.9)

Deferred tax liabilities

(5.9)

(2.9)

(8.8)

Provisions for risks and charges

(2.2)

(8.0)

(10.2)

Loans and borrowing (short/long term)

(38.3)

Minority interests

(0.4)

Fair value of acquired net assets

69.0

Interest held previously Goodwill Revaluation of interest held previously

(27.8) 78.2 (6.7)

Cost of acquisition

112.7

Share purchase price

108.7

Cost relating to acquisition Cost of acquisition

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4.0 112.7

The total net outlay for the acquisition was as follows: (in millions of euro)

Price paid for previous acquisitions

106.4

Cash and cash equivalents acquired with the proportionate method

(35.4)

Net outlay for previous acquisitions Price paid in 2006

71.0 112.7

Cash and cash equivalents acquired Net outlay in 2006

(5.0) 107.7

The line-by-line consolidation of the Zuari Cement Limited group (consolidated on a proportionate basis until May 31, 2006) had the following effects on the 2006 consolidated financial statements: (in millions of euro)

Zuari Cement Ltd. group

(*)

44.6

Gross operating profit

15.3

Operating profit

11.4

Finance income (costs)

(0.6)

Income tax expense

(3.4)

Net profit for the period

7.3

Net profit attributable to the Group

7.3

Revenues

Net profit attributable to minority interests

(*) after intragroup eliminations

Had the financial statements of the Zuari Cement Limited group been consolidated line-by-line as from January 1, 2006, the additional contribution to 2006 consolidated results would have been as follows: (in millions of euro)

Revenues

(*)

Zuari Cement Ltd. group 27.0

Gross operating profit

7.6

Operating profit

4.8

(*) after intragroup eliminations

Presentation Annual Report Corporate governance

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2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

3.1.2 Acquisition of Suez Cement Company Consolidated financial statements Suez Cement Company group (including Helwan Cement)

Book value of acquisitions

(in millions of euro)

Net property, plant and equipment and other non-current assets Inventories Trade receivables and other current assets Cash and cash equivalents Trade payables and other current liabilities Deferred tax liabilities Provisions for risks and charges Loans and borrowing (short/long term) Minority interests Fair value of acquired net assets Interest held previously Goodwill Revaluation of interest held previously Cost of acquisition

458.5 121.0 26.3 64.4 (87.2) (4.4) (44.5) (246.3)

Temporary fair value attributed to acquisition 778.8 106.7 26.3 64.4 (87.2) (65.6) (47.0) (240.9) (222.7) 312.7 (217.6) 561.6 (59.6) 597.1

Change in fair value (1)

55.4 (2.1) (11.5) (37.3) 4.4 10.0 (14.4) -

Fair value attributed to acquisition 834.1 104.6 26.3 64.4 (87.2) (77.1) (47.0) (240.9) (260.0) 317.1 (217.6) 571.6 (74.0) 597.1

(1) at exchange rate on March 31, 2005, for Suez and on July 31, 2005, for Helwan

The line-by-line consolidation of the Suez Cement Co. group as from April 1, 2005 (valued with the equity method until March 31, 2005) and of Helwan as from August 1, 2005, had the following effects on the 2005 consolidated financial statements: Suez Cement Company (in millions of euro)

Revenues (*) Gross operating profit Operating profit Finance income (costs) Income tax expense Share of result of associates Net profit attributable to the Group Net profit attributable to minority interests

173.2 70.5 34.8 (11.9) (9.4) 11.7 19.7 5.5

Helwan Cement Company 72.0 36.8 25.1 (5.6) (3.9) 0 7.3 8.3

Total

245.2 107.3 59.9 (17.5) (13.3) 11.7 27.0 13.8

(*) after intragroup eliminations

Had the financial statements of the Egyptian companies acquired during 2005 (the Suez group on April 1 and Helwan on August 1) been consolidated line-by-line from January 1, 2005, their contribution to the 2005 consolidated results would have been as follows: (in millions of euro)

Revenues (*) Gross operating profit Operating profit

Suez Cement Co. group 418.1 178.2 102.4

(*) after intragroup eliminations

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3.1.3 Acquisition of the RMB group Consolidated financial statements RMB group

Book value of acquisitions

Change in fair value

Fair value attributed to acquisition

Net property, plant and equipment and other non-current assets

3.0

8.0

11.0

Inventories

1.9

Trade receivables and other current assets

1.5

Cash and cash equivalents

1.7

Trade payables and other current liabilities

(4.9)

(in millions of euro)

Deferred tax liabilities Provisions for risks and charges Loans and borrowing (short/long term) Minority interests

(*)

Fair value of acquired net assets Goodwill Cost of acquisition

1.9

(4.9) (1.6)

(1.6)

(0.9)

(0.9) (4.2) 4.5 6.4 10.9

(*) before put option

Share purchase price Cost relating to acquisition Cost of acquisition

10.8 0.1 10.9

Suez Cement Co. granted RMB minority shareholders a put option on their shares, exercisable at any time. In compliance with the international financial reporting standards relating to business combinations, the commitment in question at December 31, 2006 (9.6 million euro) is classified under â&#x20AC;&#x153;Other current liabilitiesâ&#x20AC;? (note 20), minority interests have been reversed and the difference of 5.5 million euro added to goodwill. The total outlay for the acquisition was as follows: (in millions of euro)

Price paid in 2006

10.9

Cash and cash equivalents acquired

(1.8)

Net outlay in 2006

9.1

3.2.4 Goodwill testing

Goodwill acquired in a business combination is apportioned to the cash-generating units (CGUs). The Group tests goodwill recoverability at least once a year or more frequently if indications of impairment emerge. The tests conducted for 2006 led to recognition of an impairment loss of 552 thousand euro (662 thousand euro in 2005) attributable entirely to the Greek subsidiary Domiki Beton, which is active in ready mixed concrete in Crete.

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

The most significant goodwill values for Group CGUs are set out below: Net carrying amount for goodwill December 31, 06 December 31, 05 552,571 551,123 222,883 223,220 104,734 107,465 532,840 570,146 100,049 21,920 323,757 338,155 1,836,834 1,812,029

(in thousands of euro)

Cash-generating units France/Belgium Spain Morocco Egypt India Other Total

The method adopted to determine CGU recoverable value is described under "Impairment of assets”, in the section on principles of consolidation. The main assumptions used for the computation are set out below: (in %)

Cash-generating units France/Belgium Spain Morocco Egypt India

Discount factor before tax 2006 2005 9.3 8.5 8.9 8.1 11.4 10.5 11.2 11.3 12.6 11.7

Growth rate 2006 2005 0.8 0.8 1.3 1.3 1.8 1.8 4.0 4.0 4.0 -

The discount factors for each country are determined by applying a country-risk premium based on estimated long-term inflation to euro-zone deflated WACC.

4) Intangible assets Concessions

Licenses and patents

10,152 15,067 (4,915) 10,152 3,005 (1) 1,481 (1,779) (2,394) 10,464 13,952 (3,488) 10,464

18,665 62,317 (43,652) 18,665 11,665 (10,013) 60 (4,834) (425) 5,818 20,936 70,614 (49,678) 20,936

(in thousands of euro)

Net carrying amount at December 31, 2005 Gross amount Accumulated amortization Net carrying amount at December 31, 2005 Additions Disposals Change in consolidation area Amortization Currency translation differences Other Net carrying amount at December 31, 2006 Gross amount Accumulated amortization Net carrying amount at December 31, 2006

Other intangible assets 19,629 52,561 (32,932) 19,629 1,654 (111) 30 (5,021) 25 630 16,836 51,592 (34,756) 16,836

Total

48,446 129,945 (81,499) 48,446 16,324 (10,125) 1,571 (11,634) (400) 4,054 48,236 136,158 (87,922) 48,236

“Concessions” are amortized over the life of the conventions in question; amortization of quarrying right concessions is determined at rates reflecting the ratio of extracted material to total to be extracted. Licenses and patents refer mainly to use of software licenses for indefinite periods of time and are amortized over five years. www.italcementigroup.com

Additions and disposals of “licenses and patents” refer in the main to CO2 rights acquired from third parties by Italcementi S.p.A. to cover the deficits at the end of 2005 and 2006; the 2005 rights were subsequently delivered to the Italian Ministry of the Environment, during the first half of 2006.

5) Investments in associates This caption reflects equity interests, including goodwill, in associates. The main associates are listed below: Value of investments

Share of result

December 31, December 31, 2006 2005

2006

2005

Ciment Québec

55.3

62.2

9.1

5.1

Vassiliko Cement Works

54.8

51.2

5.0

3.9 11.7

(in millions of euro)

Suez Cement Group

Others

13.9

17.1

(2.8)

(2.1)

Total

124.0

130.5

11.3

18.6

The adjustments applied to values for the main associates, for compliance with Group principles, are set out below: Total assets 2006 2005

Total liabilities 2006 2005

Revenues 2006 2005

Net profit 2006 2005

Ciment Québec

134.6

146.9

32.1

31.7

110.7

95.8

18.1

11.0

Vassiliko Cement Works

175.5

149.3

20.6

16.8

91.1

78.2

19.8

12.0

(in millions of euro)

6) Other equity investments This non-current asset caption reflects equity investments in the “available for sale” category as required by IAS 39. (in thousands of euro)

At December 31, 2005

334,146

Acquisitions

101,762

Sales

Fair value taken to equity

20,399

Change in consolidation area and other changes

(3,812)

Currency translation differences At December 31, 2006

Acquisitions consisted mainly of the purchase of shares in the Turkish company Goltas, for 89.4 million euro.

(293) 452,202

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

Other equity investments at December 31, 2006, were as follows: Number of shares

December 31, 2006

Mediobanca S.p.A.

11,522,996

205,063

R.C.S. Mediagroup S.p.A.

16,749,744

(in thousands of euro)

Investments in listed companies 63,532

Others

74,339

Total

342,934

Investments in non-listed companies

109,268

Total

452,202

The fair value of listed investments is determined on the basis of the official share price on the last accounting day. The fair value of non-listed companies, specifically the most significant investment, Asment, is determined with reference to the official share prices of comparable companies. Non-listed equity investments stated at cost are carried at 34.5 million euro.

7) Other non-current assets “Other non-current assets” are as follows:

(in thousands of euro)

Bank deposits relating to FRSS

December 31, 2006

December 31, 2005

327,752

Derivative instruments

19,864

11,835

Concessions and licenses paid in advance

14,052

16,587

Non-current receivables

38,049

43,513

Guarantee deposits

11,723

17,328

Other

4,656

5,583

Total

88,344

422,598

“Other non-current assets” at December 31, 2006 amounted to 88,344 thousand euro (422,598 thousand euro at December 31, 2005). This significant reduction was essentially due to the transaction on “floating rate subordinated securities” (FRSS) conducted by Ciments Français and Unibeton, who exercised their FRSS buyback options on June 23 and June 29, 2006, respectively, for a symbolic amount, as contractually agreed. Consequently, the two companies are no longer required to pay interest to FRSS holders, nor are they any longer entitled to collect interest accruing on the related bank deposits. As a result of the transaction, the loan in question (see note 16) and the related bank deposits of 327.8 million euro classified under non-current assets were cancelled, with no impact on consolidated net profit for the year.

www.italcementigroup.com

8) Inventories December 31, 2006

December 31, 2005

Raw and ancillary materials and consumables

438,109

426,760

Work in progress and semi-finished goods

113,964

137,561

Finished goods

119,460

116,639

(in thousands of euro)

Payments on account Total

11,656

9,555

683,189

690,515

Inventories are carried net of write-down provisions totaling 88.9 million euro (84.7 million euro at December 31, 2005), mainly against the risk of slow-moving ancillary and consumable materials.

9) Trade receivables

(in thousands of euro)

Gross amount Provision for bad debts Net amount

December 31, 2006

December 31, 2005

1,539,461

1,341,729

(66,968)

(63,795)

1,472,493

1,277,934

Trade receivables bear no interest and are due within 12 months, a term consistent with conditions on the markets in which the Group operates. The five-year trade factoring programs stipulated by Ciments Calcia and Arena came to an end in November 2006 and December 2006 respectively. At the end of December 2006, Ciments Calcia and Unibeton stipulated new five-year factoring programs. Factored receivables amounted to 32 million euro at December 31, 2006. The new factored receivables comply with IAS 39 since the risks associated thereto are transferred with the receivables, for approximately 90% of the factored amount. The balance sheet therefore continues to recognize: - the increase in factored receivables of 1.8 million euro, under other current liabilities; - the portion of non-transferred receivables for 2.7 million euro stated under trade receivables, with an offset of 2.5 million euro in loans and borrowings and of 0.2 million euro in miscellaneous receivables.

10) Cash and cash equivalents December 31, 2006

December 31, 2005

Bank/postal demand accounts and cash on hand

79,761

176,009

Mutual funds

48,300

42,850

Short-term deposits

191,632

197,293

Total

319,693

416,152

(in thousands of euro)

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

Short-term deposits have varying maturities within three months, in relation to the Group’s cash requirements; interest matures at the respective short-term rates. The fair value of cash and cash equivalents was 319,693 and 416,152 thousand euro at December 31, 2006, and December 31, 2005, respectively. The decrease arose largely from use of cash to repay a portion of Suez Cement Co. debt and distribute a bonus dividend at Tourah. Cash and cash equivalents are also shown under “Closing cash and cash equivalents” on the cash flow statement.

Share capital and reserves 11) Share capital At December 31, 2006, parent company fully paid-up share capital amounted to 282,548,942 euro represented by 282,548,942 shares with a par value of 1 euro each, as follows: December 31, 2006

December 31, 2005

Change

Ordinary shares

177,117,564

Savings shares

105,431,378

Total

282,548,942

Number of shares

12) Reserves Share premium reserve This reserve stood at 344,442 thousand euro (344,316 thousand euro at December 31, 2005). The increase of 126 thousand euro reflected the capital gain net of tax on the sale of ordinary treasury shares as stock option plan beneficiaries exercised their options (see note 13).

Other reserves Translation reserve This reserve reflects exchange rate differences on the translation of the financial statements of consolidated foreign entities. At December 31, 2006, it stood at 986 thousand euro, and related to the following currencies:

(in millions of euro)

Egypt (Lira)

December 31, 2006

December 31, 2005

Change

(14.1)

30.5

(44.6)

USA and Canada (Dollar)

(8.0)

40.1

(48.1)

Thailand (Baht)

12.5

5.9

6.6

Morocco (Dirham)

(1.4)

4.6

(6.0)

India (Rupee)

2.7

3.0

(0.3)

Turkey (Lira)

9.9

34.5

(24.6)

Other countries

(0.6)

1.7

(2.3)

Total

1.0

120.3

(119.3)

www.italcementigroup.com

Available-for-sale reserve, derivative financial instrument reserve, other reserves Fair value reserve for availablefor-sale financial assets

(in millions of euro)

At December 31, 2005

Fair value reserve for derivative financial instruments

Other reserves

175.1

(2.5)

49.8

19.4

15.1

18.3

0.9

(4.8)

Gains (losses) taken directly to income and expense

(1.5)

Taxes taken directly to income and expense

0.5

195.4

6.8

68.1

Gains (losses) recognized directly in reserve Taxes taken directly to reserve

At December 31, 2006

The first two reserves reflect fair value adjustments to available-for-sale financial assets and hedging derivatives. “Other reserves” reflect accounting entries for stock option plans amounting to 8.0 million euro at December 31, 2006, and revaluations of 60.1 million euro on the Group equity investments in Suez and Zuari before acquisition of control.

13) Treasury shares Italcementi S.p.A. treasury shares at December 31, 2006, amounted to 42,914 thousand euro, as reflected in the treasury share reserve, illustrated below: No. ordinary shares par value 1€

Aggregate carrying amount

No. savings shares par value 1€

(thousands of euro)

December 31, 2005

3,945,102

37,985

Additions

1,022,538

18,903

Disposals

(1,606,057)

(14,323)

December 31, 2006

3,361,583

42,566

Aggregate carrying amount

Total carrying amount

(thousands of euro)

105,500

(thousands of euro)

348

38,333 18,903 (14,323)

105,500

348

42,914

The year’s additions reflect purchases of 1,022,538 ordinary shares for 18,903 thousand euro. Disposals reflect the sale of ordinary shares after exercise of 1,606,057 options by stock option plan beneficiaries, for an overall value of 14,459 thousand euro, as follows: 14,323 thousand euro representing the carrying amount of the sold shares, deducted against the treasury shares reserve, and a net capital gain of 136 thousand euro on the sale, taken to the share premium reserve (see note 12). Ordinary treasury shares held at December 31, 2006, will service stock option plans for directors and managers.

Dividends paid Dividends declared and paid by the parent company Italcementi S.p.A. in 2006 and 2005 are detailed below: 2006 (euro per share)

2005 (euro per share)

Ordinary shares

0.330

0.300

Savings shares

0.360

0.330

Total dividends

December 31, 2006 (thousands of euro)

57,295

December 31, 2005 (thousands of euro)

51,957

37,917

34,758

95,212

86,715

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

14) Minority interests Minority interests at December 31, 2006, stood at 1,361.7 million euro, up by 42.7 million euro from December 31, 2005. Final valuation during 2006 of the Suez group assets and liabilities acquired in 2005 generated an increase of 44.7 million euro in minority interests. Net profit for 2006 attributable to minorities increased by 52.5 million euro, from 149.4 million euro in 2005 to 201.9 million euro in 2006; the translation reserve decreased by 87.7 million euro, reflecting changes in the main currencies against the euro.

15) Employee benefit liabilities Employee benefit liabilities at December 31, 2006 amounted to 202,878 thousand euro (207,002 thousand euro at December 31, 2005). The Groupâ&#x20AC;&#x2122;s main employee benefit plans are described below.

Defined benefit plans The Group operates pension plans, post-employment medical benefit plans and leaving entitlement provisions. The most important pension plans are in the USA and France, and are financed by contributions paid by the company and by employees to external entities responsible for the administration and management of the pension funds. Early retirement schemes also operate, pursuant to local laws, in France and Belgium. Defined benefit plans also include the leaving entitlement provision for staff of the Groupâ&#x20AC;&#x2122;s Italian companies, determined on an actuarial basis. In some companies in France and Italy, the Group also recognizes liabilities in respect of future commitments, in the form of bonuses payable to employees on the basis of length of service; these liabilities are measured with actuarial assumptions. Net liabilities for pension plans, post-employment benefit plans and leaving entitlement provisions are determined with actuarial calculations performed by independent external actuaries. Liabilities determined on the basis of actuarial calculations at December 31, 2006, are as follows: Pension plans and other long-term benefits

(in millions of euro)

Post-employment medical benefits

Dec. 31, 06

Dec. 31, 05

Discounted value of funded plans

130.6

145.6

Fair value of plan assets

(102.9)

(105.8)

27.7

39.8

27.7

39.8

Discounted value of non-funded plans

105.3

107.4

62.0

66.3

167.3

173.7

Net value of obligation

133.0

147.2

62.0

66.3

195.0

213.5

Unrecognized experience adjustments

(0.5)

(14.3)

(1.6)

(4.2)

(2.1)

(18.5)

Unrecognized costs on prior-period services

(0.3)

2.0

2.9

1.7

2.6

132.2

132.6

62.4

65.0

194.6

197.6

132.2

133.2

62.4

65.0

194.6

198.2

0.1

0.6

62.4

65.0

194.6

197.6

Discounted net value of funded plans

Net liabilities

Dec. 31, 06

Dec. 31, 05

Total Dec. 31, 06

Dec. 31, 05

130.6

145.6

(102.9)

(105.8)

of which: Liabilities Assets Net (assets)/liabilities

www.italcementigroup.com

0.1

0.6

132.2

132.6

The movements in the net liability during the year are analyzed below:

(in millions of euro)

Pension plans and other long-term benefits

Post-employment medical benefits

Total

Dec. 31, 06

Dec. 31, 05

Dec. 31, 06

Dec. 31, 05

Dec. 31, 06

Dec. 31, 05

132.6

131.8

65.0

58.2

197.6

189.9

Net costs charged to income

17.9

13.1

4.2

5.4

22.1

18.5

Contributions or services paid

(16.8)

(15.5)

(3.0)

(3.3)

(19.8)

(18.8)

(3.8)

4.9

(5.8)

7.9

0.4

0.1

194.5

197.6

Opening net liability

Exchange rate differences

(2.0)

3.0

Plans acquired on change to consolidation area

0.4

0.1

132.2

132.6

Closing net liability

62.4

65.0

Costs for the year were as follows:

(in millions of euro)

Pension plans and other long-term benefits

Post-employment medical benefits

Total

2006

2005

2006

2005

2006

2005

Current cost of services

(11.6)

(11.4)

(1.7)

(1.4)

(13.3)

(12.8)

Finance costs on obligations

(3.1)

(3.0)

(14.1)

(14.9)

(11.0)

(11.8)

Revenues expected from plan assets

7.1

7.3

7.1

7.3

Net actuarial losses recognized in year

(0.2)

(0.1)

(0.2)

(0.1)

Cost of prior-period services

(2.2)

(1.8)

(1.6)

(2.8)

4.7

Plan settlement or curtailment losses/(gains) Total

0.6

(0.9)

(17.8)

(13.1)

(4.2)

(5.4)

(22.0)

(18.5)

of which: Employee expenses

(17.9)

(16.9)

(4.2)

(5.4)

(22.0)

(22.3)

Other income/(expense)

3.8

Real return on assets

8.2

5.3

8.2

5.3

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

The movements in plan asset fair values were as follows:

(in millions of euro)

Pension plans and other long-term benefits

Post-employment medical benefits

Dec. 31, 06

Dec. 31, 05

Dec. 31, 06

Dec. 31, 05

105.8

95.1

105.8

95.1

Expected yield

7.1

7.3

7.1

7.3

Experience adjustments

1.1

(2.0)

1.1

(2.0)

Employer contributions

16.8

15.5

3.0

19.7

18.8

Employee contributions

0.2

(19.2)

(20.8)

(3.2)

Opening fair value of plan assets

Benefits paid

Dec. 31, 06

Dec. 31, 05

Total

3.3 (3.3)

0.2

(22.3)

(24.1)

Change in consolidation area

0.2

Exchange rate differences

(8.8)

10.7

(8.8)

10.7

102.9

105.8

102.9

105.8

2006

2005

Equities

33.8%

33.9%

Debentures

60.7%

Investment properties

0.3%

Other

5.2%

5.1%

Dec. 31, 06

Dec. 31, 05

Closing fair value of plan assets

Group contributions to defined benefit plans in 2007 will amount to an estimated 16.0 million euro. The table below sets out the main plan asset categories as percentages of total fair value:

The table below sets out key data for the last two financial years: (in millions of euro)

Discounted value of funded plans

130.6

145.6

Fair value of plan assets

(102.9)

(105.8)

27.7

39.8

3.6

5.6

as % of discounted value

Experience adjustments

(1.1)

2.0

as % of asset value

-1%

Net value of funded plans Change in value of funded plans other than experience adjustments

The early retirement provision of 7.2 million euro formed in 2005 in connection with the re-organization of administrative and commercial operations in France and Belgium stood at 6.9 million euro at December 31, 2006.

www.italcementigroup.com

Actuarial assumptions The actuarial assumptions used to determine liabilities arising from the Group’s pension plans and other long-term benefits are illustrated below: Europe (in %)

Discount factor Expected yield on assets Future wage and salary increases

North America

Other countries

2006

2005

2006

2005

2006

2005

4.0 - 4.75

3.8 - 4.0

5.2 - 5.75

5,5

5.25 - 7.75

5.75 - 6.5

4.0

4.25

7.8 - 8.6

2.2 - 4.0

2.5 - 3.5

n.a.

3.5 - 5.5

3.5 - 6.0

n.a.: not applicable

The assumptions used at December 31, 2006, to determine commitments for post-employment medical benefits are as follows: - in France, an increase in contributions to provisions covering medical expenses of 5% for 10 years and 2% for subsequent years. The discount factor for 2006 is 4.75% (4.25% in 2005). - in the USA, the estimated increase in future medical expenses is determined by applying a growth rate of 10% for the following year (10% in 2005), gradually decreasing to 5% over the long term. The discount factor for 2006 is 5.75% (5.5% in 2005).

Defined contribution plans The Group’s defined contribution plans are pension plans and medical plans; expense relating to these plans in 2006 was 39.6 million euro (38.7 million euro in 2005).

Stock options The Group has arranged stock option plans for directors, managers and employees who hold special posts, in Italcementi S.p.A., some Italian subsidiaries and Ciments Français S.A. The stock options granted by the parent company Italcementi S.p.A. refer to ordinary shares, and may be exercised between the beginning of the fourth year and the end of the tenth year after the grant date; directors whose term of office is not renewed may exercise their options immediately, and in any case within 10 years of the grant date; as a general rule, unexercised stock options assigned to managers are not recognized in the event of termination of employment, except in the case of retirement. Stock options are exercised at a rate of 1 share per option. The terms and conditions of Italcementi S.p.A. stock option plans at December 31, 2006, are set out below: Grant date

No. options granted

Exercised period

Exercise options

April 24, 2001

407,400

1.1.2004 - 12.31.2010

407,400

€

9.134

March 13, 2002

834,800

1.1.2005 - 12.31.2011

650,875

183,925

€

9.136

March 27, 2003

965,945

1.1.2006 - 12.31.2012

537,120

428,825

€

8.627

March 17, 2005

1,053,600

1.1.2008 - 12.31.2014

6,475

1,047,125

€ 13.387

631,403

1.1.2009 - 12.31.2015

4,187

627,216

€ 16.890

March 7, 2006 Total

3,893,148

1,606,05

Cancelled options

Unexercised options

2,287,091

Unit subscription price

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

The grant date is the date of the Board of Directors meeting that approved the stock option plan. The average residual life of unexercised options is approximately 5 years. The number and average exercise price of Italcementi S.p.A. in the periods in question are set out below: 2006 number of options Unexercised options at beginning of year Granted during year

2005

average subscription price

number of options

average subscription price

3,261,745

10.358

2,208,145

8.913

631,403

16.890

1,053,600

13.387

(1,606,057)

9.003

2,287,091

13.113

3,261,745

10.358

Cancelled during year Exercised during year Expired during year Unexercised options at end of year Vested options at end of year

612,750

1,242,200

The average ordinary share price for financial year 2006 was 19.297 euro (13.312 euro in 2005). The option exercise price at December 31, 2006, was between 8.627 euro and 16.890 euro. Only options granted after November 7, 2002, that had not vested at December 31, 2003, were measured and recognized at the date of transition to the IFRS. The following table sets out the characteristics of all Group stock option plans and their cost, carried under “employee expenses”: (in thousands of euro)

Company

Grant date

Number of options

Vesting period granted

Employee expenses 2006 2005

February 12, 2003

Ciments Francais S.A.

171,400

3 years

433

March 7, 2003

Italcementi S.p.A.

965,945

3 years

675

March 17, 2005

Italcementi S.p.A.

1,053,600

3 years

986

783

April 14, 2005

Ciments Francais S.A.

169,400

3 years

1,048

763

March 7, 2006

Italcementi S.p.A.

631,403

3 years

783

March 23, 2006

Ciments Francais S.A.

155,000

3 years

1,439

4,316

2,654

Total

3,146,748

Stock option plan fair value at the grant date is estimated using a binomial model that takes dividends into account. The total option term is ten years. Volatility projections assume that past volatility, determined as the annual average for the past period net of extraordinary events, is indicative of future trends. No other stock option plan characteristic is taken into consideration when measuring fair value.

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The following table sets out the assumptions used and results obtained in measuring the Italcementi S.p.A. 2006 stock option plan: 2006 plan Option value at grant date

4.295

Share value

16.930

Exercise price

16.890

Volatility as %

23%

Option term (years)

Dividend as %

1.95%

Risk-free rate

3.625

Net financial position An itemized correlation of the net financial position with the balance sheet is set out below: (in thousands of euro)

Financial asset and liability category

Balance sheet line item

Cash, cash equivalents and current financial assets Cash and cash equivalents Current financial receivables Derivative instruments

Cash and cash equivalents Investments and financial receivables Other current assets

Short-term financing Bank overdrafts and short-term borrowings Interest-bearing loans and short-term borrowings Derivative instruments Medium/long-term financial assets Bank deposits relating to FRSS Securities and debentures Derivative instruments Medium/long-term financing FRSS Interest-bearing loans and long-term borrowings Derivative instruments Net financial position

December 31, 2006

December 31, 2005

387,623

471,767 319,693 65,155 2,775

(479,445)

416,152 52,750 2,865 (956,969)

Bank overdrafts and short-term borrowings

(295,471)

(799,938)

Interest-bearing loans and short-term borrowings Other current liabilities

(182,078) (1,896)

(155,848) (1,183)

20,845 Other non-current assets Other non-current assets Other non-current assets

339,587 327,752 981 19,864

(2,139,335) Interest-bearing loans and long-term borrowings Interest-bearing loans and long-term borrowings Other non-current liabilities

11,835 (2,069,433) (327,752)

(2,119,270) (20,065) (2,210,312)

(1,725,538) (16,143) (2,215,048)

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16) Loans and borrowings Loans and borrowings are shown below by category, subdivided by non-current and current liabilities:

(in thousands of euro)

Floating rate subordinated securities Bank overdrafts and drawings on lines of credit

December 31, 2006

December 31, 2005

327,752

1,087,797

958,034

Debentures

791,785

591,772

Financing entities

228,733

170,565

Finance lease payables Non-current loans and borrowings Fair value of hedging derivatives Total interest-bearing loans and long-term borrowings

10,956

5,167

2,119,270

2,053,290

20,065

16,143

2,139,335

2,069,433

Amounts due to banks

283,558

290,171

Bank overdrafts and drawings on lines of credit

156,947

621,054

17,159

22,656

17,248

1,001

1,225

Debentures Financing entities Finance lease payables Accrued interest expense Current loans and borrowings Fair value of hedging derivatives Total interest-bearing loans and short-term borrowings Total loans and borrowings

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13,378

8,929

477,549

955,786

1,896

1,183

479,445

956,969

2,618,780

3,026,402

Effective interest rate

Maturity

(in thousands of euro)

FRSS

December 31, 2006

December 31, 2005

327,752

FRSS Euribor 6 months + 0.75

228,652

FRSS Euribor 6 months + 0.5

99,100

Bank overdrafts and drawings on lines of credit Debentures

1,087,797

958,034

791,785

591,772

EMTN 350 mln euro 5.88%

6,01%

2009

351,621

358,072

For private investors EMTN 15 mln e 4.47%

4,50%

2013

15,000

For private investors 180 mln USD 5.63%

5,79%

2012

136,012

151,700

For private investors 20 mln USD 5.73%

5,81%

2014

15,112

17,000

For private investors 150 mln USD 5.80%

5,92%

2018

112,020

For private investors 150 mln USD 5.90%

6,02%

2018

112,020

For private investors 3.50%

3,52%

2010

Financing entities Billets de trĂŠsorerie Other (0% - 3.67%) Finance lease payables Non-current loans and borrowings Fair value of hedging derivatives

3,61%

50,000

228,733

170,565

205,000

140,000

23,733

30,565

10,956

5,167

2,119,270

2,053,290

20,065

16,143

2,139,335

2,069,433

Amounts due to banks

283,558

290,171

Bank overdrafts and drawings on lines of credit

156,947

621,054

For private investors amortizable Euribor 3 months

17,159

Financing entities (nominal rate 0% - 3.7%)

22,656

17,248

Finance lease payables

1,001

1,225

Accrued interest expense

13,378

8,929

477,549

955,786

Interest-bearing loans and long-term borrowings

Debentures

Bank overdrafts and short-term borrowings Fair value of hedging derivatives Interest-bearing loans and short-term borrowings Total loans and borrowings

1,896

1,183

479,445

956,969

2,618,780

3,026,402

At December 31, 2006, bank overdrafts and drawings on lines of credit secured by mortgages and liens on property, plant and equipment amounted to 115.1 million euro, of which 31.6 million euro short term and 83.5 million euro medium/long term.

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Non-current loans and borrowings by currency:

(in millions of euro)

Euro

December 31, 2006

December 31, 2005

1,551.0

1,731.3

US and Canadian Dollar

411.4

221.4

Egyptian Lira

135.2

84.7

Thai Baht

6.8

21.7

9.0

Other

0.1

Total

2,119.3

2,053.3

Indian Rupee

(1)

(1) of which 327.8 million euro FRSS

Non-current loans and borrowings by maturity:

(in millions of euro)

December 31, 2006

December 31, 2005

2007

149.6

2008

177.2

145.8

2009

611.3

640.5

2010

155.6

272.0

2011

457.5

162.2

2012

193.3

5.7

Beyond

524.4

677.5

2,119.3

2,053.3

Total

(2)

(2) of which 327.8 million euro FRSS

Main bank loans and lines of credit a) in 2006, Italcementi S.p.A. arranged a series of medium/long-term financing agreements with leading Italian banks to ensure adequate funding for its industrial and financial investment programs. Specifically, it arranged three confirmed standby lines of credit expiring between March 23, 2011, and November 10, 2012, for an aggregate amount of 400 million euro. One of the facilities, originally arranged in 2005, was increased from 150 to 275 million euro, with extended expiry and improved conditions. A second line, originally arranged in 2004 for 50 million euro, was re-negotiated with extended expiry and improved conditions. The third line of credit, for 75 million euro, is a new facility. Drawings on these lines of credit at December 31, 2006, amounted to 130 million euro; b) in 2006, Italcementi S.p.A. obtained a loan for 60 million euro, due in February 2026, with full hedging against interest-rate risks; c) in 2005, Italcementi S.p.A. arranged four confirmed standby lines of credit with final expiry date on February 28, 2013, for an aggregate amount of 550 million euro; one of the facilities, for 150 million euro, was renegotiated in 2006, as indicated in point a) above. Drawings on these lines at December 31, 2006 amounted to 190 million euro; d) in 2004, Italcementi S.p.A. obtained two loans for 200 and 50 million euro respectively, due in December 2009. The 50 million euro loan was discharged early in 2006, to take advantage of better credit conditions;

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e) also in 2004, Italcementi S.p.A. arranged three confirmed standby lines with final expiry date on November 30, 2011, for an aggregate amount of 305 million euro. One of these facilities, for 50 million euro, was renegotiated in 2006, as indicated in point a) above; f) in 2006, Ciments Français S.A. renewed a 400 million euro credit line for 364 days and an 80 million euro mediumterm line of credit for five years, with two one-year extension options, to replace two medium-term facilities for 20 and 60 million euro expiring in July 2007 and November 2006 respectively. Ciments Français also negotiated new medium/long-term lines of credit for 320 million euro, of which 50 million euro for 10 years, 100 million euro for 5 years with a one-year extension option, and 170 million euro for 5 years with two one-year extension options. Drawings on medium-term facilities at December 31, 2006 totaled 50 million euro; g) on September 13, 2006 Suez Cement Company refinanced its 13-month 1,500 million Egyptian lira syndicated line of credit arranged to finance the acquisition of ASEC Cement Company (Helwan Cement Ltd.), obtaining a 4-year 300 million Egyptian lira syndicated line of credit and a 900 million Egyptian lira syndicated loan, amortizable in 4 years. The operation was arranged with a pool of local and international banks. No drawings had been made on the 300 million Egyptian lira syndicated facility at December 31, 2006; h) in 2005 Ciments Français S.A. arranged a medium-term 5-year 150 million euro line of credit; the facility was undrawn at December 31, 2006; i) on May 27, 2005, Ciments Français S.A. was granted a 700 million euro floating rate syndicated line of credit for 5 years, undrawn, with two one-year extensions. It has exercised the first one-year extension. The bank pool was managed by Calyon, HSBC-CCF, Natexis Banques Populaires and The Royal Bank of Scotland. The facility replaces the 550 million euro facility arranged on December 5, 2003, which was due to expire in 2008; l) on December 27, 2005 Ciments Français obtained a 6-year 158 million euro syndicated loan, consisting of a 114 million euro floating-rate tranche and a 44 million euro fixed-rate tranche, repayable on maturity; m) on April 29, 2002 Ciments Français obtained a 6-year 109.5 million euro floating-rate syndicated loan, repayable on maturity; n) in 2001 Ciments Français obtained a 5.5 year 125 million euro amortizable loan. The loan may be repaid in full on October 22, 2007; o) in 2002, the loans obtained by Jalaprathan Public Cement Company Ltd. at the end of 1998 were refinanced, at the time of acquisition of control by Ciments Français, with a bank pool and through Group internal borrowings. The 7year 30 million euro bank loan is at a fixed rate for the first two years. The repayment plan envisages 16 quarterly installments, from February 2004 to November 2007. Main debentures a) Ciments Français covers its long-term financial requirements largely through debenture issues; specifically, a Euro Medium Term Notes program (EMTN). The offering circular is renewed annually; the latest circular is dated July 19, 2006. The maximum authorized amount is 1,000 million euro. At December 31, 2006, debentures issued under the program amounted to approximately 365 million euro, including a 7-year 350 million euro debenture at a fixed rate of 5.875% issued on July 10, 2002, assisted by BNP Paribas and Lehman Brothers. b) on December 19, 2006, Ciments Français issued a 300 million US dollar private placement in the USA, repayable on maturity. The loan comprises two tranches: a 12-year 150 million US dollar tranche at a fixed rate of 5.80% and a 15year 150 million US dollar tranche at a fixed rate of 5.90%; exchange-rate and interest-rate hedges have been set up on the entire loan, for the duration of the two tranches; c) on March 3, 2005, a 5-year 50 million euro debenture was issued at a fixed rate of 3.496%;

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d) on November 15, 2002, Ciments Français issued a 200 million US dollar private placement in the USA. The loan comprises two tranches: a 10-year 180 million US dollar tranche at a fixed rate of 5.63% and a 12-year 20 million US dollar tranche at a fixed rate of 5.73%. Of the 200 million dollars, 150 have been lent to the US subsidiary Essroc; cross-currency swaps have been set up on the residual 50 million dollars to hedge exchange-rate and interest-rate risks. Floating rate subordinated securities The 15-year term of the FRSS issue matured in June 2005 for Unibeton and in December 2005 for Ciments Français. The companies exercised their repurchase option on June 23 and June 29, 2006, respectively, for a symbolic amount (see note 7).

Financial instruments Risk management policy The Group uses derivative financial instruments to hedge the risk of fluctuations in interest rates and exchange rates in relation to the nature of the debt and international operations. Market risks a) Interest-rate risk The Group interest-rate risk management policy is designed to minimize the cost of net financial liabilities and reduce exposure to fluctuation risks. It hedges two types of risk: 1. the risk of variations in the market value of fixed-rate borrowing and lending transactions. Group fixed-rate debt is exposed to an “opportunity cost” risk in the event of a fall in interest rates. A change in interest rates will affect the market value of fixed-rate assets and liabilities; 2. the risk of changes in future flows on floating-rate borrowing and lending transactions. A change in interest rates will have a negligible impact on the market value of floating-rate financial assets and liabilities, but could affect future profits. The Group manages this dual risk by setting targets for apportionment of its net financial position between floating rates and fixed rates. It hedges interest-rate risks mainly by arranging interest-rate swaps, forward-rate agreements and interest-rate options with leading banks. Hedges with options are often asymmetric collars. Since these transactions are generally at zero cost, the net result of option sales never exceeds the value of the underlying (book exposure, future transaction or fixed commitment). Floating-rate net financial liabilities are largely indexed to Euribor for the period. b) Exchange-rate risks The Group companies are structurally exposed to exchange-rate risks on cash flows from business operations and financing operations denominated in currencies other than their respective reporting currencies. Exposure mainly affects US dollar solid fuel purchases, US dollar exports of cement and clinker by some subsidiaries (Bulgaria, Thailand, Egypt), and borrowings in US dollars transacted by Ciments Français S.A. The Group hedges these risks with forward currency purchase and sale contracts, as well as currency put and call options. Hedges are arranged with leading banks. The majority of hedges with options use asymmetric corridor structures. Since these transactions are generally at zero cost, the net result of option sales never exceeds the value of the underlying (book exposure, future transaction or fixed commitment). The Group does not transact forward and option contracts for speculative purposes.

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

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Value of financial assets and liabilities The table below sets out the fair value and the carrying amount of financial assets and liabilities at December 31, 2006: December 31, 2006 (in millions of euro)

December 31, 2005

Fair Value

Carrying amount

Fair Value

Carrying amount

319.7

416.2

Financial assets Cash and cash equivalents Derivative instruments Trade receivables Bank deposits related to FRSS Other equity investments Other financial assets Total

22.7

14.7

1,472.5

1,277.9

327.8

452.2

334.1

117.9

116.0

2,385.0

2,486.7

770.5

715.7

21.9

17.3

17.3 327.8

Financial liabilities Trade payables Derivative instruments FRSS

327.8

12.0

6.4

1,385.0

1,662.7

Fixed-rate loans and borrowings

886.4

894.2

705.3

705.1

Amounts due to banks

283.5

290.2

22.2

16.8

3,381.5

3,389.3

3,742.2

3,742.0

Finance lease payables Floating-rate loans and borrowings

Other short-term financing Total

Trade receivables and payables are current assets and liabilities and are carried at amounts that are reasonable approximations of their fair value. Derivative instruments are measured and recognized at fair value. The fair value of interest-rate contracts is based on the present value of cash flows using the zero coupon curve. The fair value of forward currency purchase contracts is based on the current exchange rates of contracts with similar maturity profiles. The fair value of foreign currency payables and receivables is determined using year-end exchange rates. The fair value of fixed-rate payables and receivables is based on a fixed rate with no credit margin, net of transaction costs directly related to the financial asset or liability. A 1% rise in the interest-rate curve would produce an estimated decrease of 53 million euro in the fair value of fixed-rate net debt after hedging.

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Fair value of derivative financial instruments The table shows the fair value of financial instruments in the balance sheet, subdivided by type of hedge: December 31, 2006 (in thousands of euro)

Derivatives - Interest rates Future cash flow hedges Trading

December 31, 2005

Assets

Liabilities

Assets

Liabilities

2,158

354

1,491

459

396

167

1,762

354

1,324

427

Derivatives - Exchange rates

617

1,542

1,374

724

Future cash flow hedges

278

1,065

1,105

284

163

107

337

404

106

333

Fair value hedges Trading Total current instruments

2,775

1,896

2,865

1,183

Derivatives - Interest rates

19,864

4,868

11,835

8,527

Future cash flow hedges

17,153

4,868

2,133

8,527

Fair value hedges

2,711

9,702

Derivatives - Exchange rates

15,197

Fair value hedges

15,197

7,616 7,616

Total medium/long-term instruments

19,864

20,065

11,835

16,143

Total

22,639

21,961

14,700

17,326

The Group does not set up hedges on sales and purchases of equities. Derivatives on trading interest rates and exchange rates refer to assets that do not qualify for recognition with hedge accounting criteria.

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Interest rate risk Notional value of derivative financial instruments by maturity

(*)

The notional value of interest-rate derivatives by maturity is summarized in the table below: Maturity less than 1 year

Maturity 1 to 2 years

Maturity 2 to 5 years

Maturity beyond 5 years

Total

175 Me 5.875% Euribor 3M

175.0

4 Me 4.86% Euribor 3M

4.0

150 MUSD 5.80% Euribor 3M+0.8125%

113.9

Total

4.0

175.0

113.9

292.9

(in millions of euro)

Fair value hedging SWAPS Fixed --> Floating

Cash flow hedging SWAPS Floating --> Fixed 114 Me Euribor 3M+0.325% 3.536%

114.0

490 Me Euribor 3M% 2.997%

150.0

125.0

215.0

490.0

92.3Me Euribor 6M 3.697%

30.0

0.6

61.7

92.3

8 Me Euribor 6M+0.50% 3.275%

1.8

4.4

8.0

30 Me 5.63% 5.665%

30.0

20 Me 5.73% 5.635%

20.0

20.0 113.9

SWAPS Fixed --> Fixed

150 MUSD 5.90% 4.7725%

113.9

30.0

130.0

115.0

275.0

Total

181.8

286.8

449.0

225.6

1,143.2

69.5

Cash flow hedging OPTIONS Trading hedges SWAPS pay floating --> receive floating 69.5 Me Eurib 3M+0.7% - Eurib 3M+1%

69.5

40 Me Eurib 3M+0.7% - Eurib 3M+0.75%

40.0

114 Me Eurib 3M+0.325 % - Eurib 3M +0.5%

114.0

SWAPS Floating --> Fixed 3.7 Me 4.40% Euribor 3M Options Total Total

0.4

1.2

1.7

3.7

10.0

30.0

40.0

10.4

109.9

145.2

1.7

267.2

196.2

396.7

769.2

341.2

1,703.3

* assuming a 1% rise in interest rates: 3 month Euribor at December 29, 2006 = 3.725% + 1% = 4.725%

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Exposure to interest-rate risks At December 31, 2006, 72% of Group net financial liabilities (not including the fair value of derivatives) was at a fixed rate or hedged against the risk of rate increases. 62% (of fixed-rate commitments) arose from the conversion of contracts initially arranged at floating rates. Amounts due to banks are stated at nominal value for the period in question (consistently with maturity of the instrument) and do not include fixed-rate to fixed-rate contracts. They take account of exercisable options assuming a 1% increase in interest rates.

Net debt at inception and after interest-rate hedging The evolution of net debt at December 31, 2006 is illustrated in the table below:

12.31.06

< 1 year

1-2 years

Maturity 2-3 years

3-4 years

4-5 years

beyond

898.0

20.3

11.2

359.8

62.6

47.0

397.2

Fixed-rate NFP at inception

898.0

20.3

11.2

359.8

62.6

47.0

397.2

FR/FltgR* hedges

(292.9)

(4.0)

(175.0)

(113.9)

(in millions of euro)

Fixed-rate financial liabilities Fixed-rate financial assets

FltgR/FR* hedges

983.0

182.2

287.2

187.8

57.2

205.2

63.4

Fixed-rate NFP after hedging

1,588.1

198.5

298.4

372.6

119.8

252.2

346.7

Floating-rate financial liabilities

1,698.9

454.2

165.5

253.8

93.3

418.7

313.3

(385.8)

(384.8)

(1.0)

1,313.1

69.4

165.5

253.8

93.3

418.7

312.3 113.9

Floating-rate financial assets Floating-rate NFP at inception FR/FltgR* hedges

292.9

4.0

175.0

FltgR/FR* hedges

(983.0)

(182.2)

(287.2)

(187.8)

(57.2)

(205.2)

(63.4)

Floating-rate NFP after hedging

623.0

(108.8)

(121.7)

241.0

36.1

213.5

362.8

Fair value derivatives, net Total NFP

(0.7)

0.1

(4.6)

(6.1)

(1.1)

(6.3)

17.2

2,210.3

89.8

172.1

607.5

154.8

459.4

726.7

* assuming a 1% increase in interest rates: 3 month Euribor at December 29, 2006 = 3.725% + 1% = 4.725%

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Exposure to interest-rate risk:

(in millions of euro)

12.31.06

< 1 year

1,588.1

198.5

Situation at: 1-2 years 2-3 years

3-4 years

4-5 years

beyond

119.8

252.2

346.7

Fixed rate Fixed-rate NFP after hedging Loans and borrowings

(31.2)

Fixed rate/fixed rate swaps

163.9

Options (Trading)

298.4

372.6

(26.3)

(4.9) 163.9

40.0

10.0

623.0

(108.8)

30.0

Floating rate Floating-rate NFP after hedging Loans and borrowings Floating rate/floating rate swaps

(121.7)

241.0

36.1

213.5

(4.6) 223.5

362.8 (4.6)

109.5

114.0

Accrued interest on floating-rate financial instruments is recomputed at intervals of less than one year. The Group’s other financial instruments not included in the tables above do not generate interest and consequently are not exposed to interest-rate risks.

Exposure to exchange-rate risks Consolidated net exposure by currency of financial assets and liabilities denominated in currencies other than the local currency is illustrated in the table below: Euro

(in millions of euro)

Financial assets

(°)

Financial liabilities

(°)

Derivatives Net exposure

(*)

USD

(*)

Other

51.7

9.2

(4.3)

(402.1)

(12.9)

338.3

12.6

(12.1)

8.9

(4.3)

(*) assets and liabilities are expressed in euro when the local currency is not euro (°) excluding trade payables and receivables

Exposure to exchange-rate risks on shareholders’ equity mainly refers to the US dollar, the Thai baht, the Moroccan dirham, the Egyptian lira and the Indian rupee. No hedges of any kind are transacted on net investments in these Group companies.

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Exchange-risk hedges Exchange-risk hedges, stated at the closing exchange rates, are illustrated below: December 31, December 31, 2006 2005

(in millions of euro)

Forward purchases Cash flow hedging US dollars

29.5

21.0

US dollars

1.9

3.1

US dollars Others

60.4 12.6 104.4

37.9 6.6 68.6

US dollars

34.0

6.0

US dollars

6.7 40.7

5.8 11.8

US dollars

24.6

21.4

US dollars

0.2

0.8

US dollars

18.3 43.1

22.6 44.8

US dollars Others

278.0 278.0

50.0 5.4 55.4

Fair value hedging Trading

Total Forward sales Fair value hedging Trading Total Options Cash flow hedging Fair value hedging Trading Total Cross currency swap Fair value hedging

Total

Liquidity risk The tables below compare net debt (excluding net FRSS, derivative instruments and current financial receivables) by maturity with available lines of credit at the end of each period: At December 31, 2006(*)

(in millions of euro)

Maturity less than 1 year

Interest-bearing loans and long-term borrowings

Maturity 1-2 years

Maturity 2-5 years

Maturity beyond 5 years

Total

177.2

1,224.4

717.7

2,119.3

Other short-term borrowings

194.0

Amounts due to banks

283.5

Cash and cash equivalents

(320.1)

Total

157.4

177.2

1,224.4

end 2007

end 2008

end 2011

1,926.4

1,842.8

937.7

Confirmed lines of credit, available at each period end (*) excluding fair value of financial instruments and current financial receivables

108

(320.1) 717.7

2,276.7

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At December 31, 2005(*) Maturity less than 1 year

(in millions of euro)

Interest-bearing loans and long-term borrowings

Maturity 1-2 years

Maturity 2-5 years

Maturity beyond 5 years

Total

149.7

1,059.4

516.5

1,725.6

Other short-term borrowings

665.5

Amounts due to banks

290.2

Cash and cash equivalents

(416.2)

Total

539.5

149.7

1.059.4

end 2006

end 2007

end 2010

1,502.0

1,482.4

220.0

Confirmed lines of credit, available at each period end

(416.2) 516.5

2,265.1

(*) excluding FRSS, fair value of financial instruments and current financial receivables

Covenants In addition to the customary clauses, some of the Groupâ&#x20AC;&#x2122;s financing contracts include covenants requiring compliance with financial ratios. At December 31, 2006, lines of credit and loans subject to covenants accounted for 63.7% of drawings represented by gross debt (2,613.6 million euro at December 31, 2006, excluding the fair value effects of derivatives). At December 31, 2006 the ratios in question were well within the limits set by the covenants. Lines of credit and financing contracts do not contain clauses that would require early requirement or rating triggers that would cause interest rates to rise in the event of a rating downgrade. Equally, they do not contain negative pledges or similar commitments that might affect the Groupâ&#x20AC;&#x2122;s ability to finance or refinance its operations.

17) Provisions Non-current and current provisions amounted to 312,548 thousand euro at December 31, 2006, an increase of 21,792 thousand euro from December 31, 2005. Opening amount

Additions

Decreases

Currency translation differences

Other changes

Total changes

Closing amount 70,722

(in thousands of euro)

Tax risks

69,521

5,180

(5,089)

(4,601)

5,711

1,201

Environmental restoration quarries

80,929

14,834

(12,740)

(1,162)

3,443

4,375

85,304

Legal disputes

34,141

16,626

(5,582)

(1,313)

8,286

18,017

52,158

Other provisions

106,165

42,644

(32,862)

(3,651)

(7,932)

(1,801)

104,364

Total

290,756

79,284

(56,273)

(10,727)

9,508

21,792

312,548

Non-current portion

289,414

311,268

1,342

1,280

Current portion

Provisions for tax risks These provisions of 70,722 thousand euro cover tax-related liabilities that are considered probable as a result of tax audits and adjustments to tax returns; adequate provision for tax has been made with respect to tax audits notified to Group companies during the year that are considered probable and well founded. www.italcementigroup.com

109

Other provisions “Other provisions” includes provisions for restoration of urban and industrial areas, provisions for disputes with employees, and the provision for the CO2 emissions deficit (see note below “Emission rights”). “Other provisions” also includes provisions for the industrial, administrative and commercial reorganization plans in France, USA and Egypt, amounting to 42.0 million euro at December 31, 2006 (27.3 million euro at December 31, 2005); the provision for the year includes non-recurring employee expenses of 25.4 million euro for the Egyptian companies Suez Cement and Tourah (see note 26).

Emission rights In June 2005, the IASB withdrew IFRIC 3 on the accounting treatment of emission rights. Pending publication of a new text, the Group has adopted the net method of accounting, whereby a provision is recognized when emissions produced are higher than the allocated allowances. Within the Group, the European Directive on greenhouse gas emission rights trading affects cement production in Italy, France, Belgium, Spain, Greece, electricity generation (Italy-Italgen S.p.A.) and lime production (France-Socli S.A.); to date all the national allocation plans have been approved, over a three-year period. The table below illustrates the net surplus/deficit by country for the year. The aggregate deficit at December 31, 2006 was 3.2 million euro (14.0 million euro at December 31, 2005) and is provided under non-current provisions. 2005 Final surplus/ (deficit)

Estimated emissions

Allowance

Surplus/ (deficit) 2006

2006

(in kt)

Italy - cement plants

Quotas purchased/ (sold) Intragroup

Net surplus/ (deficit) 2006

Cumulative surplus/ (deficit) 2006

Book deficit in Me (2.6)

(572)

8,185

7,682

(503)

101

(403)

Italy - Italgen

207

117

(101)

France - cement plants

(80)

4,124

4,060

(64)

(12)

(92)

France - Socli lime

(52)

(28)

Belgium

(21)

1,461

1,490

Spain

192

1,395

1,688

293

485

Greece Total

1 (351)

544

545

15,851

15,747

1 (104)

(0.6)

2 21

(3.2)

The net cumulative surplus of 21,000 quotas at December 31, 2006, does not include the Italcementi S.p.A. 2005 deficit, since this was returned to the Italian Ministry of the Environment in the first half of 2006; the 2005 deficit was covered in full with 476,000 quotas purchased on the market and 96,000 quotas purchased from Italgen S.p.A. The market value at December 29, 2006, was 6.48 euro per quota (21.19 euro per quota at December 30, 2005). The spot price on the international rights market at February 28, 2007, was 0.9 euro per quota.

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Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

18) Deferred tax Total net deferred tax liabilities amounted to 278,718 thousand euro at December 31, 2006, as follows: December 31, 2005

Result

Other changes

December 31, 2006

27,5

(10,4)

8,6

25,7

(405,2)

31,6

(16,8)

(390,3)

(4,6)

(0,5)

(5,1)

Inventories

(19,7)

(2,9)

(22,6)

Non-current provisions and Employee benefit liabilities

104,5

13,3

(0,7)

117,1

5,4

(3,8)

(5,1)

(3,5)

27,8

(14,4)

(278,7)

(in millions of euro)

Tax loss carryforward Property, plant and equipment Other equity investments

Other Total Net Deferred Tax

(292,1)

Of which Deferred tax assets Deferred tax liabilities

29,9 (322,0)

40,1 (318,8)

Net deferred tax assets of 1.0 million euro were reflected in equity reserves at December 31, 2006. Off-balance-sheet deferred tax assets relating to losses for the year and previous years amounted to approximately 54.6 million euro (69.3 million euro at December 31, 2005). They relate to Group company losses reversal of which is not, to date, considered reasonably certain.

19) Income tax liabilities Income tax liabilities amounted to 65,165 thousand euro (61,183 thousand euro at December 31, 2005) and reflected amounts due to tax authorities accrued in the year.

20) Other current liabilities Other current liabilities included advances from customers, suppliers for fixed assets and amounts due for purchases of equity investments and securities.

(in thousands of euro)

December 31, 2006

Due to employees

December 31, 2005

101,643

96,062

Due to social security authorities

57,043

56,433

Due to tax authorities

74,785

63,587

Accruals and deferred income

14,539

11,411

Derivative instruments

1,896

1,183

Other amounts due

217,309

180,445

Total

467,215

409,121

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111

Companies operating in hyperinflationary economies Since January 1, 2006, the international authorities no longer consider Turkey a hyperinflationary economy. Consequently, IAS 29 (Financial reporting in hyperinflationary economies) is no longer applied to the Groupâ&#x20AC;&#x2122;s Turkish companies.

Commitments December 31, 2006

(in millions of euro)

December 31, 2005

Guarantees on company assets for loans and borrowings: - Pledges - Mortgages and liens

1.1

0.2

116.6

153.6

Total guarantees on company assets for loans and borrowings

117.7

153.8

Deposits, guarantees and other

100.0

113.3

Total

217.7

267.1

Guarantees on company assets at December 31, 2006, consisted mainly of mortgages securing loans and borrowings at the Thai, Indian and Egyptian subsidiaries; at the same date, mortgages and liens on property, plant and equipment for 13.6 million euro were being cancelled as the relevant loan repayment plans were completed. In 2005 as a result of the transaction for acquisition of control of Suez Cement Company, the Group undertook to make investments for not less than 1 billion Egyptian lira (approximately 130 million euro) over the following 10 years, for modernization work, extensions and environmental protection measures at the Suez and Tourah facilities. Contracts and orders issued for investments at December 31, 2006, amounted to 176.2 million euro.

21) Revenues Revenues from sales and services totaled 5,854,101 thousand euro, as follows: (in thousands of euro)

Product sales Services Total

2006

2005

Change

5,666,022

4,840,450

825,572

% change 17.1

188,079

159,181

28,898

18.2

5,854,101

4,999,631

854,470

17.1

22) Goods and utilities expenses Goods and utilities expenses amounted to 2,126,774 thousand euro, as follows: (in thousands of euro)

Raw materials and semi-finished goods

2006

2005

Change

% change

707,313

549,073

158,240

28.8

Fuel

422,841

342,962

79,879

23.3

Packaging, materials and machinery

333,269

303,053

30,216

10.0

Finished goods

249,639

187,480

62,159

33.2

Electricity, water, gas

458,910

368,123

90,787

24.7

Change in inventories of raw materials, consumables, other Total

112

(45,198)

(15,175)

(30,023)

197.8

2,126,774

1,735,516

391,258

22.5

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 58 62 119 128

Financial statements Notes Annexes Report of the Independent Auditors

23) Services expenses Services expenses amounted to 1,333,566 thousand euro, as follows: 2006

2005

Change

% change

External services and maintenance

480,535

416,423

64,112

15.4

Transport

526,110

515,235

10,875

2.1

Legal fees and consultancy

56,365

47,267

9,098

19.2

Rents

94,789

82,168

12,621

15.4

Insurance

41,574

39,642

1,932

4.9

Subscriptions

10,409

9,715

694

7.1

Other

123,784

108,930

14,854

13.6

Total

1,333,566

1,219,379

114,187

9.4

(in thousands of euro)

24) Employee expenses Employee expenses totaled 911,652 thousand euro, as follows: 2006

2005

Change

% change

Wages and salaries

574,495

540,056

34,439

6.4

Social security contributions

196,734

190,045

6,689

3.5

Provisions and pension funds

30,768

26,319

4,449

16.9

(in thousands of euro)

Cost of stock option plans

4,316

2,654

1,662

62.6

Other expenses

105,339

89,920

15,419

17.1

Total

911,652

848,995

62,657

7.4

“Other expenses” related mainly to costs of temporary personnel, canteen costs, employee insurance costs and personnel training and recruitment. The number of employees is shown below: 2006

(heads)

2005

Number of employees at period end

(**)

22,869

(*)

21,854

Average number of employees

(**)

22,268

(*)

20,313

(*) includes personnel of Suez Group companies as from April 1, 2005, and of ASEC as from August 1, 2005 (**) includes 100% of employees of the Indian companies of the Zuari Cement group as from June 1, 2006, and of the Egyptian companies RMB and RMBE as from October 1, 2006

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113

25) Other operating income/(expense) Other operating expense net of other operating income amounted to 143,056 thousand, as follows: 2006

2005

Change

% change

Other taxes

68,715

63,510

5,205

8.2

Provision for bad debts

12,097

11,443

654

5.7

Provision for environmental restoration - quarries

28,380

24,761

3,619

14.6

Miscellaneous expense

35,409

48,132

(12,723)

-26.4

1,600

-50.9

(1,645)

-1.1

(in thousands of euro)

Miscellaneous income Total

(1,545)

(3,145)

143,056

144,701

26) Non-recurring income/(expense) 2006

(in thousands of euro)

Net capital gains on sale of fixed assets

2005

18,014

24,620

Non-recurring employee expenses for reorganizations in France/Belgium

(20,345)

Non-recurring employee expenses for reorganizations in Tourah - Egypt

(7,600)

Non-recurring employee expenses for reorganizations in Suez - Egypt Total employee expenses for reorganizations

(17,243)

(17,849) (25,449)

(37,588)

Fine at Calcestruzzo Italia

1,000

Other expenses Other non-recurring income/(expense) Total non-recurring income/(expense)

(4,969)

(4,177)

(4,969)

(3,177)

(12,404)

(16,145)

27) Amortization and depreciation The total amount of 420,252 thousand euro (368,461 thousand euro at December 31, 2005) refers in the main to depreciation of property, plant and equipment for 408,046 thousand euro (355,655 thousand euro at December 31, 2005).

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Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

28) Finance income/(costs), net exchange rate differences and net derivatives Finance costs, net of finance income, net exchange rate differences and net derivatives, amounted to 105,365 thousand euro, as follows: 2006 (in thousands of euro)

Interest income

Income 24,414

Interest expense Sub total Net interest in respect of net financial position

2005 Costs (130,099) (130,099)

36,455

(116,976)

(105,685)

(80,521)

7,992 13,001

14,207 7,133

8,174

Other finance costs Total finance income/(costs) Gains/(losses) from interest rate derivative contracts Gains/(losses) from exchange rate derivative contracts Net exchange rate differences

6,297 (15,941)

45,589

(146,040)

138

Total finance income (costs), net of gains (losses) on exchange rates and derivatives

(16,736) 72,084

(133,712)

898 (67)

516

(4,985)

10,272

(4,914)

12,714

Gain (loss) on net monetary position in Turkey Gains (losses) on exchange rates and derivatives

(116,976)

24,414

Capital gains from sale of equity investments Other finance income

Costs

36,455

Dilution of capital Suez Cement Company Net dividends

Income

1,028 (105,366)

(48,914)

Net finance costs rose sharply, from 48.9 million euro in 2005 to 105.4 million euro in 2006. Net interest expense in respect of net debt amounted to 105.7 million euro in 2006, compared with 80.5 million euro in 2005; the 25.2 million euro increase was largely due to consolidation effect arising from the acquisition of the Egyptian companies in 2005 for 10.7 million euro and the impact of the FRSS for 2.7 million euro (net interest income in 2005).

29) Share of results of associates The share of results of associates was as follows: 2006

2005

11,748

Vassiliko (Cyprus)

4,958

3,918

Ciment Quebec (Canada)

9,125

5,130

Others

(2,759)

(2,182)

Total

11,324

18,614

(in thousands of euro)

Suez Group (Egypt)

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115

30) Income tax expense Income tax expense for the year was 266,867 thousand euro, as follows: 2006

2005

Change

278,262

249,066

29,196

2,782

(7,841)

10,623

Non-recurring tax

(14,177)

(46,254)

32,077

Total

266,867

194,971

71,896

(in thousands of euro)

Current and deferred tax Prior-year tax and other non-recurring fiscally driven (income)/expense, net

Non-recurring tax includes tax effects on non-recurring transactions reported in the specific income statement items (see note “Non-recurring transactions”). Non-recurring tax income in 2005 amounted to 46.3 million euro, of which 42.8 million euro from tax treatment on FRSS; non-recurring tax income in 2006 amounted to 14.2 million euro, including 14.0 million euro of prior-year tax refunds. In Italy the IRES income tax rate applied by the parent company on estimated taxable income for the year is 33% (as in 2005); taxes for the other Group companies are calculated using local tax rates. The reconciliation between the theoretical tax charge and the tax charge recognized in the income statement is set out below: 2006

(in thousands of euro)

Consolidated profit before tax

918,264

IRES tax rate applicable in Italy %

33.0%

Theoretical tax charge

303,027

Effect of difference between Italian and foreign tax rate

(1)

(22,775)

Effect of tax rate reduction for tax relief/allowances

(3,019)

Tax effect on permanent differences

(1,378)

Net effect for the year of unrecognized deferred tax on temporary differences Effect of change in tax rates

416

(2)

(16,136)

Withholding tax on foreign dividends Adjustment of estimate for previously recognized/unrecognized deferred tax

3,635 (3)

(4,468)

Other tax from prior years Actual income tax charge Actual regional production tax charge - IRAP (for Italian companies) Actual income tax charge in the income statement

(11,149) 27.0%

248,153 18,714 266,867

1) The difference between the Italian tax rate and the rates in the foreign countries where the Group operates refers principally to Egypt, Bulgaria and Turkey. 2) The positive effect of 16.1 million euro generated by tax rate reductions arose on the recalculation of net deferred tax liabilities to account for the reduction of tax rates in Turkey (from 30% to 20%), in Spain (from 35% to 30%) and in Bulgaria (from 15% to 10%). 3) The adjustment gain on previously unrecognized estimated deferred tax arose mainly from recognition of prior-year tax losses in a number of the Group’s Turkish and Indian companies.

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Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

31) Earnings per share Earnings per share is determined on the net profit for the year attributable to equity holders of the parent company and is stated separately for ordinary shares and savings shares.

Basic earnings per share Basic earnings per share is computed by dividing net profit for the year attributable to ordinary and savings shareholders by the weighted average number of outstanding ordinary and savings shares for the year. Earnings per savings share is increased with respect to ordinary shares by an amount equivalent to 3% of share nominal value. The weighted average number of shares and attributable net profit are shown below: 2006 (no. shares in thousands)

Shares at beginning of period Treasury shares at beginning of period Weighted average number of treasury shares purchased during year Weighted average number of treasury shares sold during year Weighted average number of shares at end of year

2005

ordinary shares

savings shares

ordinary shares

savings shares

177,118

105,431

177,118

105,431

(3,945)

(106)

(3,117)

(106)

(644)

(509)

1,002 173,531

105,326

173,493

105,326

277,731

171,731

241,431

149,731

1.600

1.630

1.392

1.422

(in thousands of euro)

Attributable net profit (euro)

Basic earnings per share

Diluted earnings per share Diluted earnings per share is computed in the same way as basic earnings per share, taking account of the dilution effect of stock options. The weighted average number of shares and attributable net profit are shown below: 2006 (no. shares in thousands)

Weighted average number of shares at end of year Dilution effect of stock options Weighted average number of shares at end of year

2005

ordinary shares

savings shares

ordinary shares

savings shares

173,531

105,326

173,493

105,326

174,134

105,326

174,222

105,326

278,095

171,367

241,813

149,349

1.597

1.627

1.388

1.418

604

730

(in thousands of euro)

Attributable net profit for diluted earnings per share (euro)

Diluted earnings per share

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117

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

Financial statements Notes Annexes Report of the Independent Auditors

2006 Annual Report 5 16 58 62 119 128

Cash flow statement B) Cash flow from investing activities Equity investments net of acquired cash and cash equivalents The main equity investments made by the Group in 2006 are set out below: (in millions of euro)

Company

2006

Suez Cement Company

47.5

Asec Cement Company Zuari Cement Ltd. RMB S.A.E.

2005 485.2

107.8 9.1

Goltas Cimento

89.4

Ciments Français S.A.(*)

40.7

70.8

Cementificio di Montalto S.p.A.

38.8

Cemill S.p.A.

20.5

Calcestruzzi Lamon Beton S.p.A.

10.5

Other

14.6

7.1

Total

261.6

680.4

(*) including treasury shares

The net investments in Zuari Cement and RMB are stated net of acquired cash, totaling 5.0 million euro for Zuari and 1.8 million euro for RMB.

Post balance sheet events No significant events have taken place since closure of the financial year that require amendments to or additional comments on the Group’s business, financial and equity situation at December 31, 2006.

Bergamo, March 7, 2007 The Board of Directors Chairman Giampiero Pesenti

118

Annexes

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119

The following table has been prepared in accordance with CONSOB Resolution no. 11971, art. 126, of May 14, 1999, which requires listed companies to disclose their investments in unlisted companies when such investments exceed 10% of the companies’ voting capital. The table also shows the consolidation method and indicates investments valued with the equity method.

List of companies Company Parent company Italcementi S.p.A. Aliserio S.r.l. Axim Italia S.r.l.

Registered office

Share capital

% direct

Interest held by Group companies % indirect %

Bergamo Bergamo Sorisole (BG)

I I I

e e e

282,548,942 2,270,000 2,000,000

90.00 99.90

0.10

Bergamo Iraklion Genoa

I GR I

e e e

10,400 117,200 10,400

75.00 -

30.00 36.12

Bergamo Madrid Boulogne Billancourt Bergamo London Bergamo

I E F I GB I

e e e e GBP e

600,000 120,400 2,000,000 21,802,379 50,000 500,000

80.57 50.00

51.00 99.99 100.00 100.00 50.00

Nazareth

USA

100.00

Siderno (RC)

9,000,000

99.90

0.10

Calcestruzzi S.p.A.

Bergamo

138,000,000

99.90

0.10

Cava delle Capannelle S.r.l. Cemencal S.p.A. Cementi della Lucania S.p.A. Cementi e Calci di S. Marinella S.r.l. Cementificio di Montalto S.p.A. DO CLAS S.r.l. Domiki Beton S.A.

Bergamo Bergamo Potenza Bergamo Bergamo Milan Iraklion

I I I I I I GR

e e e e e e e

31,200 12,660,000 619,746 10,000 10,000,000 30,000 2,309,423

30.00 66.67 100.00 -

49.00 85.00 100.00 100.00

Ravenna Norcia (PG) Bergamo

I I I

e e e

104,208 49,500 1,340,000

50.00 66.67 100.00

Recanati (MC) Bergamo Fiumicino (RM) Sorisole (BG) Savignano s/P. (MO)

I I I I I

e e e e e

91,800 48,960 31,200 91,800 156,000

99.50

50.00 12.50 50.00 35.00 0.50

Vibo Valentia

25,500

18.00

Azienda Agricola Lodoletta S.r.l. Betodomi S.A. BetonGenoa S.r.l. - winding up BravoBus S.r.l. BravoSolution Espana S.A. BravoSolution France S.a.s. BravoSolution S.p.A. BravoSolution UK Ltd C.T.G. S.p.A. CTG USA LLC Calcementi Jonici S.r.l.

E.C.I.T. S.r.l. E.I.C.A. S.r.l. E.S.A. Monviso S.p.A. Ecoinerti S.r.l. Ecoserio S.r.l. Generalcave S.r.l. Gres Dalmine Resine Wavin S.c.a r.l. Gruppo Italsfusi S.r.l. I.GE.PO. - Impresa Gestione Porti S.r.l. winding up 120

90.00 99.90 0.10 75.00 30.00 22.68 13.44 51.00 99.99 100.00 80.57 100.00 50.00 50.00 90.00 10.00 99.90 0.10 99.90 0.10 49.00 85.00 30.00 66.67 100.00 100.00 98.59 1.41 50.00 66.67 59.00 41.00 50.00 12.50 50.00 35.00 99.50 0.50 18.00

Italcementi S.p.A. Italcementi S.p.A. SICIL.FIN. S.r.l. Italcementi S.p.A. Domiki Béton S.A. Calcestruzzi S.p.A. Cemencal S.p.A. BravoSolution S.p.A. BravoSolution S.p.A. BravoSolution S.p.A. Italcementi S.p.A. BravoSolution S.p.A. Italcementi S.p.A. Ciments Français S.A. C.T.G. S.p.A. Essroc Cement Corp. Italcementi S.p.A. SICIL.FIN. S.r.l. Italcementi S.p.A. SICIL.FIN. S.r.l. Calcestruzzi S.p.A. Calcestruzzi S.p.A. Italcementi S.p.A. Italcementi S.p.A. Italcementi S.p.A. Calcestruzzi S.p.A. Calcestruzzi S.p.A. Halyps Building Materials S.A. Calcestruzzi S.p.A. Calcestruzzi S.p.A. Calcestruzzi S.p.A. Cemencal S.p.A. Calcestruzzi S.p.A. Calcestruzzi S.p.A. Speedybeton S.p.A. Società del Gres ing. Sala S.p.A. Italcementi S.p.A. SICIL.FIN. S.r.l. Italcementi S.p.A.

Method

Line-by-line Line-by-line Line-by-line

Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line

Line-by-line Equity Line-by-line Line-by-line Line-by-line Equity Line-by-line Line-by-line Proportionate Equity Line-by-line

Presentation Annual Report Corporate governance

Company

Directors’ report Consolidated financial statements Parent company financial statements

Registered office S. Cipriano Pic. (SA)

Immobiliare Salesiane S.r.l.

Bergamo

Intercom S.r.l. Intertrading S.r.l.

IMES S.r.l.

Italcementi Ingegneria S.r.l. Italgen Maroc S.A. Italgen S.p.A.

Financial statements Notes Annexes Report of the Independent Auditors

Share capital 206,000

% direct 99.00

350,000

99.00

Bergamo

2,750,000

99.50

Bergamo

4,160,000

99.50

I e MAR MAD I e

266,220 300,000 20,000,000

100.00 99.90

Bergamo Casablanca Bergamo

Italsigma S.r.l. Italsintex S.p.A.

Bergamo Bergamo

I I

e e

1,500,000 7,686,734

ITC-Factor S.p.A.

Bergamo

1,500,000

99.50

Trezzo sull’Adda (MI) Cavriana (MN) Napoli Sorisole (BG) Milan Bologna Bergamo

I I I I I I I

e e e e e e e

130,000 702,000 5,500,000 7,500,000 51,000 51,480 1,000,000

99.00 99.00

Tirana Bergamo Bergamo Bergamo

ALB I I I

LEK e e e

74,250,000 650,000 4,000,000 5,980,000

100.00 99.50 100.00 -

Sorisole (BG)

5,858,722

Société Internationale Italcementi Luxembourg (Luxembourg) S.A. Société Internationale Italcementi France S.a.s. Paris SO.RI.TE. S.r.l. Turin Speedybeton S.p.A. Pomezia (RM) Terminal Riuniti S.r.l. Bergamo

17,715,000

99.87

F I I I

e e e e

1,621,075,000 100,000 300,000 1,000,000

99.99 99.90

Ciments Français S.A.

Puteaux

153,421,224

Markham Mississauga Picton Picton Picton Concord St. Basile

CAN CAN CAN CAN CAN CAN CAN

CAD CAD CAD CAD CAD CAD

100 1 1 1 18,300,000.20 6,250

M.P.M. Ambiente S.r.l. Mantovana Inerti S.r.l. Medcem S.r.l. Nuova Sacelit S.r.l. Procalmi S.r.l. - winding up S.A.F.R.A. S.r.l. SAMA S.r.l. Shqiperia Cement Company Shpk SICIL.FIN. S.r.l. Silicalcite S.r.l. Silos Granari della Sicilia S.r.l. Società del Gres ing. Sala S.p.A.

1475544 Ontario Inc. 155290 Canada Inc. 168232 Canada Inc. 168233 Canada Inc. 168257 Canada Inc. 2003897 Ontario Inc. 3092-0631 Quebec Inc. www.italcementigroup.com

2006 Annual Report 5 16 58 62 119 128

Interest held by Group companies Method % indirect % 1.00 99.00 Italcementi S.p.A. Equity 1.00 SICIL.FIN S.r.l. 1.00 99.00 Italcementi S.p.A. 1.00 SICIL.FIN S.r.l. 0.50 99.50 Italcementi S.p.A. Line-by-line 0.50 SICIL.FIN S.r.l. 0.50 99.50 Italcementi S.p.A. Line-by-line 0.50 SICIL.FIN. S.r.l. 100.00 Italcementi S.p.A. 99.87 99.87 Italgen S.p.A. Line-by-line 0.10 99.90 Italcementi S.p.A. Line-by-line 0.10 SICIL.FIN S.r.l. 50.00 50.00 Axim Italia S.r.l. Proportionate 100.00 99.99 Società del Gres ing. Sala S.p.A. Line-by-line 0.01 SICIL.FIN. S.r.l. 0.50 99.50 Italcementi S.p.A. Line-by-line 0.50 SICIL.FIN. S.r.l. 19.00 19.00 Società del Gres ing. Sala S.p.A. 50.00 50.00 Calcestruzzi S.p.A. Proportionate 50.00 50.00 Intercom S.r.l. Proportionate 99.00 Italcementi S.p.A. Line-by-line 11.52 11.52 Cemencal S.p.A. 33.33 33.33 Calcestruzzi S.p.A. Equity 1.00 99.00 Italcementi S.p.A. Line-by-line 1.00 SICIL.FIN S.r.l. 100.00 Italcementi S.p.A. Line-by-line 99.50 Italcementi S.p.A. Line-by-line 100.00 Italcementi S.p.A. Equity 100.00 99.90 Intertrading S.r.l. Line-by-line 0.10 SICIL.FIN S.r.l. 100.00 99.90 Nuova Sacelit S.r.l. Line-by-line 0.10 SICIL.FIN S.r.l. 0.13 99.87 Italcementi S.p.A. Line-by-line 0.13 SICIL.FIN S.r.l. 99.99 Italcementi S.p.A. Line-by-line 25.00 25.00 Calcestruzzi S.p.A. 70.00 70.00 Calcestruzzi S.p.A. Line-by-line 0.10 99.90 Italcementi S.p.A. Line-by-line 0.10 SICIL.FIN S.r.l. 77.21 76.04 Société Int. Italcementi France S.a.s. Line-by-line 1.17 Ciments Français S.A. (voting rights: 86.76 Société Int. Italcementi France S.a.s.) 100.00 100.00 IM Scott Holdings Limited Equity 100.00 100.00 Essroc Canada Inc. Line-by-line 100.00 100.00 Essroc Canada Inc. Line-by-line 100.00 100.00 Essroc Canada Inc. Line-by-line 100.00 100.00 Essroc Canada Inc. Line-by-line 50.00 50.00 Essroc Canada Inc. Equity 100.00 100.00 Ciment Quebec Inc. Equity 121

Company

YTL

% direct -

YTL e e USD LEV LEV BT BT

500,000 18,000 126,000,000 1,000 70,000 67,852 10,000,000 4,680,000,000

MAR MAD

171,875,000

e e e

23,138.41 5,000,000 60,500

92.86 50.00 100.00

Cambridge Middlebranch Casablanca Guerville Guerville Tourcoing Guerville

CAN CAD USA USD MAR MAD F e F e F e F e

1,275,600 1,000 1,000,000 495,625 112,000 38,250 16,000

100.00 100.00 99.96 99.93 100.00 99.80 100.00

Berkeley Resource Recovery Ltd Winchester Betomar S.A. Casablanca Beton.Ata LLP Almaty Béton Contrôle de Gascogne S.A. Soorts Hossegor Béton Contrôle de l'Adour S.A. Bayonne Béton Contrôle des Abers S.A. Lannilis Béton Contrôle du Pays Basque S.A. Bayonne Béton du Cap Inc. Cap de la Madeleine Béton Saône S.A. Macon Bonafini S.A. Argences

USA USD MAR MAD KAZ TEN F e F e F e F e CAN CAD F e F e

1,000 84,397,800 224,000,000 40,000 150,000 104,000 120,000 7,348 40,000 45,392

100.00 99.99 35.00 37.00 59.96 34.00 59.95 75.00 35.00 100.00

Altas Ambarlj Liman Tesisleri Tas Ammos Development Quarries Ltd Arena S.A. Arrowhead Investment Company Arteskos 98 JSC Arteskos AD Asia Cement Products Co., Ltd Asia Cement Public Co., Ltd

Istanbul Mandra Guerville Carson City Dimitrovgrad Dimitrovgrad Bangkok Bangkok

TR GR F USA BUL BUL TH TH

Interest held by Group companies % indirect % 78.49 76.51 Ciments Français S.A. 1.02 Set Group Holding 0.96 Set Cimento 12.25 12.25 Set Cimento 100.00 100.00 Halyps Building Materials S.A. 99.99 99.99 Ciments Français S.A. 100.00 100.00 Essroc Corporation 53.08 53.08 Devnya Cement A.D. 75.00 75.00 Arteskos 98 JSC 39.03 39.03 Asia Cement Public Co., Ltd 1 39.03 24.96 Ciments Français S.A. 14.07 Vaniyuth Co. Ltd 1 37.01 19.99 Ciments Français S.A. 17.02 Procimar S.A.

Share capital 120,000

Afyon Cimento Sanayi Tas

Registered office Istanbul

Asment (Ciments de Temara) Asociacion de Empresas de Transporte a Granel Atlantica de Graneles y Moliendas S.A. Axim Building Technologies S.A. Axim Concrete Technologies (Canada) Inc. Axim Concrete Technologies Inc. Axim Maroc Axim S.A. Bayarne S.a.s. BCE S.A. BCEAP S.n.c.

Bureau Engineering Travaux Publics (SA BETP)

Canteras Aldoyar S.L. Capitol Cement Corporation Carrières Bresse Bourgogne Cementos Capa S.L. Centro Administrativo y de Servicios de Malaga S.A. Chatelet S.A. Cie pour l’Investissement Financier en Inde

Temara

S. Sebastian Vizcaya Malaga

92.86 50.00 99.00 1.00 100.00 100.00 99.96 99.93 100.00 99.80 65.00 35.00 100.00 99.99 35.00 37.00 59.96 34.00 59.95 75.00 35.00 96.79 3.21

Guerande

523,205.03

99.94

79.94

Olazagutia Winchester Saint Marcel Archidona

E USA F E

e USD e e

1,508,510 1,000,000 387,189 1,260,000

20.00 100.00 66.48 63.00

Malaga Cayeux s/M. Paris

E F F

e e e

60,200 118,680 7,350,000

99.99 99.95 100.00

1 percentage interest held by the Ciments Français Group 122

E E E

Sociedad Financiera y Minera S.A. Sociedad Financiera y Minera S.A. Sociedad Financiera y Minera S.A. Compania General de Canteras S.A. Axim Concrete Technologies Inc. Essroc Corporation Ciments du Maroc Ciments Calcia S.A. Ciments Calcia S.A. Unibéton S.A. V.B.H. S.n.c. Unibéton S.A. Riverton Investment Corporation Ciments du Maroc S.A. Shymkent Cement Béton Contrôle du Pays Basque S.A. Béton Contrôle du Pays Basque S.A. Unibéton S.A. Unibéton S.A. Ciment Quebec Inc. Unibéton S.A. Tratel S.A. Larricq S.A.

Method

Line-by-line

Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line

Proportionate Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Equity Line-by-line Equity Line-by-line Equity Equity Line-by-line

20.00 20.00 100.00 66.48 63.00

Comp. Financière et de Participations S.A. Arena S.A. Hormigones y Minas S.A. Riverton Investment Corporation Dragages et Carrières S.A. Sociedad Financiera y Minera S.A.

Line-by-line Proportionate Line-by-line

99.99 99.95 100.00

Sociedad Financiera y Minera S.A. GSM S.A. Ciments Français S.A.

Line-by-line Line-by-line Line-by-line

Presentation Annual Report Corporate governance

Company Cifrinter Ciment du Littoral S.A.

Directors’ report Consolidated financial statements Parent company financial statements

Registered office Luxembourg

Bassens

Financial statements Notes Annexes Report of the Independent Auditors

Share capital 8,928,500

% direct -

37,000

Ciment Quebec Inc. Cimento de Bissau Limitada Ciments Calcia S.A. Ciments du Maroc

St. Basile Bissau Guerville Casablanca

CAN CAD GNB XOF F e MAR MAD

19,461,000 2,000,000 593,836,525 721,800,200

Ciments du Nord Ciments Français Europe N.V.

Nouadhibou Amsterdam

MAU OUG NL e

1,340,000,000 395,811,894

Ciments Français Participations S.n.c.

Puteaux

1,500

Cisnel Descargas S.L. Compagnie des Ciments Belges S.A.

Madrid Tournai

E B

e e

3,010 271,923,435

Compagnie Financière des Ciments S.A. Compagnie Financière et de Participations S.A. Compania General de Canteras S.A.

Tournai Puteaux Malaga

B F E

e e e

5,580,000 180,000 479,283.69

Conglomerantes Hidraulicos Especiales S.A. Consumer Materials Inc. De Paepe Béton N.V. Decoux S.A. Devnya Bulk Services Devnya Cement AD Devnya Cement St Devnya Finance Dobrotitsa BSK A.D. Dragages et Carrières S.A. Dragages Transports & Travaux Maritimes S.A. Ecocem Valorizacion de Residuos S.A. Entreprise Lorraine d’Agriculture ELDA S.A.R.L. ES Cement Co. Essroc Canada Inc. Essroc Cement Corp. Essroc Corporation Essroc International Essroc Puerto Rico Holdings Inc. Essroc San Juan Inc. ET Béton Eurarco France S.A.

Madrid Winchester Ghent Beaucaire Devnya Devnya Devnya Devnya Dobritch Saint Marcel La Rochelle Barcellona

E USA B F BUL BUL BUL BUL BUL F F E

e USD e e LEV LEV LEV LEV e e e

2,511,960 1,000 500,000 120,000 50,000 1,028,557,000 1,500,000 50,000,000 1,000,000 1,702,272 109,290

Heillecourt F Nazareth USA Mississauga CAN Nazareth USA Nazareth USA Puteaux F Nazareth USA Espinosa P.RICO Aspropyrgos GR Les Crotoy F

e CAD USD USD e USD USD e e

10,000 307,936,000 8,330,000 1,000 244,398,096 1,000 10,000 2,616,757.95 1,520,000

www.italcementigroup.com

2006 Annual Report 5 16 58 62 119 128

Interest held by Group companies % indirect % 99.99 50.99 Ciments Français S.A. 49.00 Ciments Français Europe N.V. 99.99 99.99 Ste d’Investissement & de Partecipations du Littoral 100.00 100.00 Groupe Ciment Quebec Inc. 99.00 99.00 Tercim S.A. 99.99 99.99 Ciments Français S.A. 61.82 58.30 Ciments Français S.A. 3.52 Procimar S.A. 15.00 15.00 Ciments du Maroc 100.00 67.99 Sodecim S.a.s. 32.01 Ciments Français S.A. 100.00 50.00 Ciments Français S.A. 50.00 Comp. Financière et de Participations S.A. 100.00 100.00 Sodecim S.a.s. 99.99 42.08 Ciments Français Europe N.V. 26.74 Ciments Français S.A. 23.22 Ciments Calcia S.A. 7.87 Compagnie Financière des Ciments S.A. 0.08 Compagnie Financière et de Participations S.A. 99.99 99.99 Ciments Français S.A. 99.99 99.99 Ciments Français S.A. 99.41 96.12 Sociedad Financiera y Minera S.A. 3.29 Sax S.a.s. 85.00 85.00 Sociedad Financiera y Minera S.A. 100.00 100.00 Riverton Investment Corporation 99.98 99.98 Compagnie des Ciments Belges S.A. 100.00 100.00 Tratel S.A. 100.00 100.00 Devnya Cement AD 99.97 99.97 Marvex 74.00 74.00 Devnya Cement AD 50.00 50.00 Devnya Cement AD 26.40 26.40 Devnya Cement AD 49.99 49.99 GSM S.A. 39.99 39.99 GSM S.A. 16.33 16.33 Sociedad Financiera y Minera S.A. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99 64.99

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.99 64.99

GSM S.A. Essroc Cement Corp. Essroc Corporation Essroc Corporation Essroc International Ciments Français S.A. Essroc San Juan Inc. Essroc Cement Corp. Halyps Building Materials S.A. GSM S.A.

Method

Line-by-line Line-by-line Equity Line-by-line Line-by-line

Line-by-line Line-by-line

Line-by-line

Line-by-line Line-by-line Line-by-line

Line-by-line Line-by-line Line-by-line Line-by-line Equity Proportionate Proportionate

Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line

123

Company Eurocalizas S.L. Eurotech Cement S.h.p.k. Exportaciones de Cemento del Norte de Espana S.A. Fraimbois Granulats S.A.R.L. Gacem Company Limited Goltas Goller Bolgesi Cimento Sanayi ve Ticaret

Granulats de la Drôme S.a.s. Granulats Ouest - GO Graves de l’Estuaire de la Gironde L.G.E.G. Greyrock Inc. Greyrock WV Inc Groupe Ciment Quebec Inc. GSM S.A. Halyps Building Materials S.A.

Registered office Cantabria Durres Bilbao Moncel les Luneville Serrekunda

Interest held by Group companies % indirect % 26.00 26.00 Hormigones y Minas S.A. 84.99 84.99 Halyps Building Materials S.A.

e LEK

% direct -

E e F e GAM GMD

60,099.77 75,000 4,500,000

45.00 50.00 80.00

Sociedad Financiera y Minera S.A. GSM S.A. Tercim S.A.

Line-by-line

Sadecib S.A. (voting rights: Sadecib S.A.) GSM S.A. GSM S.A.

Line-by-line Line-by-line

E ALB

Isparta

YTL

20,000,000

29.06

Saint Jean de Vedas Saint Herblain

F F

e e

1,011,600 784,657.44

51.01 100.00

26.08 51.01 100.00

St. Jean de Blaignac Nazareth Nazareth St. Basile Guerville Aspropyrgos

F USA USA CAN F GR

USD USD CAD e e

1,000 10,000 57,000,000 18,675,840 34,951,441.14

50.00 100.00 100.00 50.00 99.99 99.84

Helleniki Lithotomi S.A.

Atene

60,000

100.00

Helwan Cement Co. Hormigones Olatzi S.A. Hormigones Txingudi S.A. Hormigones y Minas S.A. IM Scott Holdings Limited Immobilière des Technodes S.A.

Cairo Olazagutia San Sebastian S. Sebastian Markham Guerville

EGY E E E CAN F

LE e e e CAD e

1,176,967,750 283,803.11 60,099.77 8,689,378.20 100 8,024,400

98.69 25.00 50.00 99.99 100.00 99.99

Industrie Sakia el Hamra “Indusaha” S.A. Innocon Inc. Innocon Partnership Agreement Inc. Interbulk Trading S.A.

Laayoune Richmond Hill Richmond Hill Lugano

MAR MAD CAN CAD CAN CAD CH CHF

55,550,000 18,300,000.20 2,003 7,470,600

91.00 100.00 48.50 99.99

50.00 100.00 100.00 50.00 99.99 59.82 40.02 59.85 39.99 100.00

Colombo Madrid Puteaux Las Vegas

SRI L. E F USA

LKR e e USD

401,416,620 3,010 124,874,000 1,000

80.00 100.00 99.99 100.00

Italmed Cement Company Ltd Jalaprathan Cement Public Co, Ltd

Limassol Bangkok

CYP TH

CYP BT

12,318,000 1,200,000,000

99.99 58.80

Jalaprathan Concrete Products Co, Ltd

Bangkok

280,000,000

57.39

98.69 25.00 50.00 99.99 100.00 59.97 40.02 91.00 100.00 48.50 66.75 15.00 18.24 80.00 100.00 99.99 80.00 20.00 99.99 12.26 37.00 9.54 57.39

Luxemont et Villotte Bangkok

F TH

e BT

1,221,632 13,000,000

100.00 57.39

International Cement Traders Ltd Inversiones e Iniciativas en Aridos S.L. Investcim S.A. IPTP Corporation

Johar S.A. JTC

2 percentage interest held by the Ciments Français Group 124

Method

Share capital 783,000 270,000,000

GSM S.A. Essroc Cement Corp. Riverton Investment Corporation Essroc Canada Inc. Arena S.A. Ciments Français S.A. Sociedad Financiera y Minera S.A. (voting rights: Ciments Français S.A. Sociedad Financiera y Minera S.A.) Compagnie Financière et de Participations S.A. Suez Cement Company Hormigones y Minas S.A. Hormigones y Minas S.A. Sociedad Financiera y Minera S.A. 2003897 Ontario Inc. Ciments Français S.A. Ciments Calcia S.A. Ciments du Maroc 2003897 Ontario Inc. Essroc Canada Inc. Cifrinter Intertrading S.r.l. Ciments Français Europe N.V. Ciments Français S.A. Ciments Français S.A. Ciments Français S.A. Riverton Corporation Capitol Cement Corporation Halyps Building Materials S.A. Asia Cement Public Co., Ltd 2 Ciments Français S.A. Vesprapat Holding Co, Ltd 2 Jalaprathan Cement Public Co, Ltd 2 Tratel S.A. Jalaprathan Concrete Products Co, Ltd 2

Line-by-line

Proportionate Line-by-line Line-by-line Equity Line-by-line Line-by-line

Line-by-line

Line-by-line Equity Line-by-line Line-by-line Equity Equity Line-by-line

Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line

Line-by-line Line-by-line

Presentation Annual Report Corporate governance

Company

Directors’ report Consolidated financial statements Parent company financial statements

Interest held by Group companies % indirect % 99.98 99.98 Tratel S.A. 50.00 50.00 GSM S.A. 34.00 34.00 GSM S.A. 33.33 33.33 GSM S.A. 96.93 94.92 Dragages Transports & Travaux Maritimes S.A. 2.01 GSM S.A. 100.00 100.00 Devnya Cement AD 100.00 100.00 Sociedad Financiera y Minera S.A. 33.30 33.30 GSM S.A. 51.11 51.11 Ciments Français S.A. 100.00 95.74 Ciments Français S.A. 4.26 Ciments Français Participations S.n.c. 99.99 99.99 Set Group Holding 33.33 33.33 Interbulk Trading S.A. 100.00 100.00 Essroc Cement Corp. 57.43 57.43 Jalaprathan Cement Public Co. Ltd 32.69 32.69 Sociedad Financiera y Minera S.A. 25.00 25.00 Hormigones y Minas S.A. 100.00 100.00 Sociedad Financiera y Minera S.A. 51.00 51.00 GSM S.A. 51.00 51.00 GSM S.A. 99.99 99.99 Ciments Français S.A. 35.00 35.00 Arena S.A. 100.00 100.00 Compagnie des Ciments Belges S.A.

e e e e e

Share capital 508,000 100,000 1,524.49 297,600 134,400

% direct -

Devnya Devnya Rebenacq Nouakchott Puteaux

BUL LEV BUL LEV F e MAU OUG F e

759,372 89,424,100 15,000 1,111,310,000 352,500,000

Met Teknik Servis ve Maden Sanayi Ticaret A.S. Istanbul MTB - Maritime Trading & Brokerage S.r.l. Genoa Nadco Inc. Nazareth Naga Property Co Bangkok Neuciclaje S.A. Bilbao Novhorvi S.A. Vitoria Nugra S.A. Madrid Port St. Louis Aménagement S.n.c. Guerville Port St. Louis Remblaiement S.A.R.L. Guerville Procimar S.A. Casablanca Provence Aménagement S.A. Port Frejus R.G. Aggregates B.V. Vlaardingen Raingeard Carrières Bétons et Compagnie S.n.c. Saint Herblain

TR YTL I e USA USD TH BT E e E e E e F e F e MAR MAD F e NL e

50,000 70,000 1,000 100,000,000 364,000 180,300 60,100 8,000 7,622.45 27,000,000 480,000 18,151.21

705,000

100.00

Ready Mix Beton (Egypt) SAE Ready Mix Beton SAE Riverton Corporation Riverton Investment Corporation Riverton Lime&Stone Co. Inc. Rular Trading B.V. S.A. Dijon Béton Saarlandische Zementgesellschaft MBH Sables et Graviers de la Garonne (GIE) Sablimaris

EGY EGY USA USA USA NL F D F F

LE LE USD USD USD e e e e e

10,000,000 5,000,000 859,310 8,340 3,000 18,151.21 184,000 52,000 1,769,904

. -

52.00 52.00 100.00 100.00 100.00 100.00 15.00 80.00 100.00 100.00

Larricq S.A. Les Calcaires Girondins S.a.s. Les Calcaires Sud Charentes Les Graves de l’Estuaire S.a.s. Les Sabliers de l’Odet

Lyulyaka E.A.D. Marvex Matériaux Routiers du Bearn S.A.R.L. Mauritano-Française des Ciments Menaf

Sadecib S.A. Santes Béton Sarl Sas des Gresillons Sax S.a.s. SCI Batlongue SCI Coralie SCI de Balloy

www.italcementigroup.com

Registered office Airvault Cenon Cherves Richemont Le Havre Quimper

Financial statements Notes Annexes Report of the Independent Auditors

Cairo Cairo Winchester Winchester Winchester Vlaardingen Dijon Saarbrucken Pessac Lanester

F F F F F

2006 Annual Report 5 16 58 62 119 128

Puteaux Santes Guerville Guerville Arudy Allonnes

F F F F F F

e e e e e e

67,136,000 10,000 40,000 482,800 53,504 3,048.98

99.99 50.00 35.00 99.99 100.00 100.00

Avon

20,310

100.00

99.98 0.02 52.00 52.00 100.00 100.00 100.00 100.00 15.00 80.00 100.00 55.42 44.58 99.99 50.00 35.00 99.99 100.00 80.00 20.00 99.95 0.05

GSM S.A. Arena S.A. Suez Cement Company Suez Cement Company Riverton Investment Corporation Essroc Cement Corp. Riverton Corporation R.G. Aggregates B.V. GSM S.A. Cifrinter GSM S.A. Dragages Transports & Travaux Maritimes S.A. Les Sabliers de l’Odet Ciments Français S.A. V.B.H. S.n.c. GSM S.A. Ciments Français S.A. GSM S.A. Bonafini S.A. Larricq S.A. GSM S.A. Arena S.A.

Method

Line-by-line Proportionate Proportionate Proportionate

Line-by-line Line-by-line Line-by-line Line-by-line

Equity Line-by-line Line-by-line

Line-by-line

Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Equity Line-by-line Proportionate Line-by-line Proportionate Line-by-line

125

Company

Registered office Fumel

Cayeux sur M. Rungis Guerville S. Doulchard Cherves Richemont Guerville Plaisir Istanbul Istanbul

Interest held by Group companies % indirect % 100.00 99.91 Socli S.A. 0.09 Ciments Calcia S.A. 47.33 47.33 GSM S.A. 63.00 63.00 GSM S.A. 99.76 99.76 GSM S.A. 99.76 99.76 GSM S.A. 50.00 50.00 GSM S.A. 99.89 99.89 GSM S.A. 13.95 13.95 Ciments Calcia S.A. 99.99 99.99 Ciments Français S.A. 99.81 96.81 Set Group Holding 3.00 Devnya Cement AD 99.99 99.99 Ciments Français S.A. 99.75 99.75 Ciments Français S.A. 51.00 30.60 Zuari Cement Ltd 20.40 Sri Vishnu Cement Ltd 60.00 60.00 Ciments Calcia S.A. 99.73 56.58 Sodecim S.a.s. 39.87 Ciments Français Europe N.V. 3.02 Hormigones y Minas S.A. 0.26 Sociedad Financiera y Minera S.A. (voting rights: 56.73 Sodecim S.a.s. 39.98 Ciments Français Europe N.V. 3.03 Hormigones y Minas S.A.) 49.92 49.92 GSM S.A. 80.00 80.00 GSM S.A. 100.00 100.00 GSM S.A. 90.00 50.00 Société Civile Bachant le Grand Bonval 40.00 GSM S.A. 99.95 99.95 GSM S.A. 99.60 99.60 Ciments Calcia S.A. 65.00 23.90 Ciments Français Europe N.V. 18.79 Ciments Français S.A. 16.31 Ciments Calcia S.A. 5.54 Compagnie Financière des Ciments S.A. 0.46 Compagnie des Ciments Belges S.A.

Method

Share capital 17,379.19

% direct -

F F F F F F F TR TR

e e e e e e e YTL YTL

4,695 2,000 6,720 6,150 1,500 13,500 1,092,800 21,494,800 31,693,324

Istanbul Shymkent Hyderabad

TR KAZ IN

YTL TEN INR

18,508,410 350,000,000 140,000,000

Grand Couronne Madrid

F E

e e

7,500 39,160,000

Société Calcaires Lorrains Heillecourt Société Civile Bachant le Grand Bonval Guerville Société Civile Carrière de Maraval Frejus Société Civile d'Exploitation Agricôle de l'Aves-nois Reims

F F F F

e e e e

40,000 1,500 1,524.49 3,000

Société Civile Immobilière Berault Société de la Grange d'Etaule Société des Carrières du Tournaisis S.C.T. S.A.

F F B

e e e

3,840 3,750 12,297,053.42

F e MAR MAD MAR MAD F e F e F e IN INR

50,000 100,000 100,000 320,000 144,960 458,219,678 248,549,020

40.00 98.00 98.00 50.00 99.94 99.99 97.62

GSM S.A. Ciments du Maroc Ciments du Maroc GSM S.A. Ciments Calcia S.A. Ciments Français S.A. Zuari Cement Ltd

Proportionate Line-by-line Line-by-line Line-by-line

SCI Delrieu Frères SCI des Granets SCI du Colombier SCI du Domaine de Saint Louis SCI Lepeltier SCI Taponnat SCI Triel Carrières Scori S.A. Set Beton Madencilik Sanayi ve Tas Set Cimento Set Group Holding Shymkent Cement Sitapuram Power Limited Snc Rouennaise de Transformation Sociedad Financiera y Minera S.A.

Guerville Gray Tournai

Société Foncière de la petite Seine S.a.s. Saint Sauveur les Bray Société Immobilière Marguerite VIII Casablanca Société Immobilière Marguerite X Casablanca Société Parisienne des Sablières S.A. Pont de L’Arche Socli S.A. Izaourt Sodecim S.a.s. Puteaux Sri Vishnu Cement Ltd Bangalore Ste d’Investissement & de Partecipations du Littoral Guerville STE des Calcaires de Souppes sur Loing Souppes sur Loing

126

Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line

Line-by-line

Proportionate

Line-by-line Proportionate

37,000

99.90

Ciments Calcia S.A.

Line-by-line

2,145,000

50.00

GSM S.A.

Proportionate

Presentation Annual Report Corporate governance

Denominazione Ste Extraction & Amenagement de la Plaine de Marolles Stinkal S.a.s. St. Basile Transport Inc. Suez Bag Company Suez Bosphorus Cimento Sanayi Ticaret Suez Cement Company

Technodes S.a.s. Tercim S.A. To Ready Mix Ltd Tomahawk Inc. Tourah Portland Cement Company Trabel Affretement Trabel Transports S.A. Tragor S.A. Tratel S.A. Unibéton Est S.a.s. Unibéton Holding S.A. Unibéton Ile de France S.a.s. Unibéton Luxembourg S.A. Unibéton Med S.a.s. Unibéton Normandie S.a.s. Unibéton S.A. Unibéton S.O. S.a.s. Unibéton Var S.a.s. Uniwerbéton S.a.s. Valoise S.a.s. Vaniyuth Co. Ltd Vassiliko Cement Works Ltd

Ventore S.L. Vesprapat Holding Co, Ltd Vulkan A.D. V.B.H. S.n.c. Zuari Cement Ltd

Directors’ report Consolidated financial statements Parent company financial statements

Sede

Capitale

Financial statements Notes Annexes Report of the Independent Auditors

Quota posseduta dalle società del Gruppo % % diretta indiretta %

Avon Ferques St. Basile Cairo

F F CAN EGY

e e CAD LE

40,000 1,120,000 9,910 9,000,000

56.40 35.00 100.00 57.84

Istanbul Cairo

TR EGY

YTL LE

50,000 909,282,535

99.99 53,15

Guerville Puteaux

F F

e e

3,200,000 50,814,000

99.99 100.00

Markham Wilmington Cairo Gaurain Ramecroix

CAN USA EGY B

CAD USD LE e

100 1,000 238,414,000 61,500

100.00 100.00 66.12 100.00

Gaurain

750,000

100.00

Pessac L’Ile S. Denis Heillcourt Guerville L’Ile Saint Denis Luxembourg Lambesc Rouen Guerville Pessac Lambesc Heillecourt Pierrelaye Bangkok Nicosia

F F F F F L F F F F F F F TH CYP

e e e e e e e e e e e e e BT CYP

892,048 6,025,580 40,000 45,000 40,000 35,000 40,000 40,000 27,159,732 40,000 40,000 160,000 39,000 100,000 13,434,018.75

100.00 100.00 100.00 99.88 100.00 99.71 100.00 100.00 99.99 100.00 99.96 70.00 60.00 48.80 33.00

Malaga

14,400

100.00

Bangkok Dimitrovgrad

TH BUL

BT LEV

20,000,000 452,967,000

49.00 97.38

Tourcoing Hyderabad

F IN

e INR

5,000 4,279,614,000

99.80 99.99

56.40 35.00 100.00 53.32 4.52 99.99 24,10 14.59 9.46 5.00 99.99 99.99 0.01 100.00 100.00 66.12 99.84 0.16 89.97 10.03 100.00 100.00 100.00 99.88 100.00 99.71 100.00 100.00 99.99 100.00 99.96 70.00 60.00 48.80 20.00 13.00 99.56 0.44 49.00 70.00 27.38 99.80 80.13 19.86 99.99

www.italcementigroup.com

2006 Annual Report 5 16 58 62 119 128

GSM S.A. GSM S.A. Ciment Quebec Inc. Suez Cement Company Tourah Portland Cement Company Suez Cement Company Menaf Ciments Français S.A. Ciments du Maroc Tercim S.A. Ciments Français S.A. Ciments Français S.A. Sax S.a.s. IM Scott Holdings Limited Essroc Cement Corp. Suez Cement Company Tratel S.A. Ciments Calcia S.A. Tratel S.A. Compagnie des Ciments Belges S.A. Tratel S.A. Ciments Calcia S.A. Unibéton Holding S.A. Arena S.A. Unibéton Holding S.A. Unibéton S.A. Unibéton Holding S.A. Unibéton Holding S.A. Arena S.A. Unibéton Holding S.A. Unibéton S.A. Unibéton S.A. GSM S.A. Investcim S.A. Italmed Cement Company Ltd Comp. Financière et de Participations S.A. Sociedad Financiera y Minera S.A. Hormigones y Minas S.A. Sax S.a.s. Ciments Français S.A. Devnya Cement A.D. Unibéton S.A. Ciments Français S.A. Cie pour l’Investissement Financier en Inde (voting rights: Ciments Français S.A.)

Metodo

Equity Equity Line-by-line

Line-by-line

Line-by-line Line-by-line Equity Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line

Line-by-line Line-by-line Line-by-line Proportionate Line-by-line Equity

Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line

127

Parent company financial statements

www.italcementigroup.com

129

Financial statements Balance Sheet (euro)

12.31.2006

12.31.2005

Change

Non-current assets Property, plant and equipment

570,312,467

502,209,487

68,102,980

Investment properties

14,969,393

16,194,640

(1,225,247)

Intangible assets

11,959,408

9,504,401

2,455,007

1,740,299,654

1,729,155,144

11,144,510

276,156,464

260,488,829

15,667,635

9,250,874

8,078,083

1,172,791

2,622,948,260

2,525,630,584

97,317,676

Inventories

147,143,215

138,029,421

9,113,794

Trade receivables

364,073,011

320,931,658

43,141,353

26,180,835

45,456,623

(19,275,788)

201,948

4,649,163

(4,447,215)

185,790,249

201,899,075

(16,108,826)

263,042

223,513

39,529

723,652,300

711,189,453

12,462,847

3,346,600,560

3,236,820,037

109,780,523

Share capital

282,548,942

Reserves

517,871,330

497,354,875

20,516,455

Treasury shares

(42,913,581)

(38,333,077)

(4,580,504)

1,438,205,318

1,421,105,693

17,099,625

2,195,712,009

2,162,676,433

33,035,576

587,217,662

460,641,231

126,576,431

Employee benefit liabilities

48,785,248

47,806,438

978,810

Provisions -- non-current

22,069,467

22,494,666

(425,199)

Deferred tax liabilities

31,084,634

22,064,049

9,020,585

33,771

117,766

(83,995)

689,190,782

553,124,150

136,066,632

177,426,568

271,536,068

(94,109,500)

52,454,999

28,417,608

24,037,391

168,802,928

156,723,247

12,079,681

148,585

62,864,689

64,342,531

(1,477,842)

461,697,769

521,019,454

(59,321,685)

Total liabilities

1,150,888,551

1,074,143,604

76,744,947

Total shareholders' equity and liabilities

3,346,600,560

3,236,820,037

109,780,523

Investments in subsidiaries and associates Other investments Other non-current assets Total non-current assets Current assets

Other current assets Income tax assets Equity investments and financial receivables Cash and cash equivalents Total current assets Total assets

Shareholders' equity

Retained earnings Total shareholders' equity Non-current liabilities Interest-bearing loans and long-term borrowings

Other non-current liabilities Total non-current liabilities Current liabilities Bank overdrafts and short-term borrowings Interest-bearing loans and short-term borrowings Trade payables Income tax liabilities Other current liabilities Total current liabilities

130

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 130 134 136

Financial statements Report of the Independent Auditors Summary of resolutions

Income Statement (euro)

Revenues Other revenues Change in inventories Internal work capitalized Goods and utilities expense

2006

2005

Change

1,046,649,858

100.0

923,111,510

100.0

123,538,348

13.4

15.0

37,273,894

26.8

15.8

40,578,263

27.7

8.6

34,694,907

43.6

14.0

33,337,553

25.8

10.4

16,427,985

17.1

34,250,366

28,962,730

2,945,126

7,030,715

124,263

(486,653,136)

(414,187,608)

Services expense

(223,903,543)

(211,963,269)

Employees expense

(177,221,384)

(166,907,274)

Other operating income (expense)

(19,920,887)

Gross operating profit - recurring

176,146,400

Net capital gains on sale of fixed assets Non-recurring income (expense)

10,400,156 186,872,929

Amortization and depreciation

(72,487,902)

Operating profit

17.9

146,294,666 (66,800,673)

(196,127) 114,188,900

138,872,506 7,422,160

326,373

Gross operating profit Impairment

(27,298,561) 16.8

10.9

79,493,993

Finance income

76,083,762

67,291,806

Finance expense

(27,046,260)

(18,895,466)

Gains (losses) on exchange rates and derivatives

(593,491)

Profit before tax

162,632,911

Income tax expense

(50,321,294)

Net profit for the period

112,311,617

www.italcementigroup.com

1,405,025 15.5

129,295,358 (33,411,726)

10.7

95,883,632

131

Statement of movements in shareholders' equity Reserves Share capital

Share premium reserve

282,548,942

344,316,309

(euro)

Balance at December 31, 2004 Application of IAS 32-39 Balance at January 1, 2005

282,548,942

344,316,309

Fair value reserve for availablefor-sale financial assets

Fair value reserve for derivative financial instruments

108,506,901

(796,308)

108,506,901

(796,308)

Other reserves

Treasury shares

1,226,209 1,226,209

Retained earnings

1,412,233,643

Total shareholder's equity

2,040,325,103

(28,105,882)

(296,525)

79,308,186

(28,105,882)

1,411,937,118

2,119,633,289

Change in fair value on: Available-for-sale financial assets

40,870,783

Derivative financial instruments

40,870,783 1,772,790

Stock options

1,772,790 1,458,191

Net gains (losses) recognized directly in equity

40,870,783

1,772,790

1,458,191

Net profit for the period

44,101,764 95,883,632

Total recognized income (expense) for the period

40,870,783

1,772,790

1,458,191

95,883,632 95,883,632

139,985,396

1,645,873

Dividends

(86,715,057)

Other

(1,645,873)

Replenishment prior-year earnings for distribution of profits Distribution of profits:

Treasury share buyback

(10,227,195)

Balance at December 31, 2005

282,548,942

344,316,309

149,377,684

976,482

2,684,400

(38,333,077)

(1,645,873) (10,227,195)

1,421,105,693

2,162,676,433

Change in fair value on: Available-for-sale financial assets

15,202,306

Derivative financial instruments

15,202,306 3,419,753

Stock options

3,419,753 1,768,969

Net gains (losses) recognized directly in equity

15,202,306

3,419,753

1,768,969

20,391,028

Net profit for the period Total recognized income (expense) for the period

15,202,306

3,419,753

1,768,969

112,311,617

132,702,645

Distribution of profits: Dividends

(95,211,992)

Treasury share buyback Treasury share sale Change from sale of treasury shares Balance at December 31, 2006

132

(18,903,239)

14,322,735

125,427 282,548,942

344,441,736

(95,211,992)

(18,903,239)

125,427 164,579,990

4,396,235

4,453,369

(42,913,581)

1,438,205,318

2,195,712.009

Presentation Annual Report Corporate governance

Directorsâ&#x20AC;&#x2122; report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 130 134 136

Financial statements Report of the Independent Auditors Summary of resolutions

Cash flow statement (euro)

A) Cash flow from operating activities: Profit before tax Amortization, depreciation and impairment Impairment non-current financial assets Capital (gains)/losses on sale of fixed assets Change in employee benefit liabilities and other provisions Stock options Reversal net finance costs (income) Cash flow from operating activities before tax, finance costs/income and change in working capital: operating working capital other assets / liabilities Total change in working capital Net finance costs paid Dividends received Taxes (paid) or recovered Total A) B) Cash flow from investing activities: Investments in fixed assets: Intangible assets Property, plant and equipment and investment properties (Financial equity investments) Other assets Total investments Proceeds from divestments of fixed assets Total divestments Change in other long-term financial assets/liabilities Total B) C) Cash flow from financing activities: New interest-bearing loans and long-term borrowings Repayments of long-term financing Change in short-term financing Change in other financial assets Other changes in shareholders' equity Change in Share premium reserve Change in treasury shares Dividends paid Total C) D) Cash flows for the year (A+B+C )

2006

2005

162,632,911 72,973,316 203,939 (12,488,162) 553,610 1,768,969 (49,048,973)

129,295,358 66,800,673 (14,696,732) 1,291,277 1,458,191 (41,237,037)

176,595,610 (44,705,589) (21,684,470) (66,390,059) (15,047,011) 85,123,438 (21,238,063) 159,043,915

142,911,730 (6,091,097) 25,409,836 19,318,739 (14,451,674) 33,746,776 (48,695,898) 132,829,673

(15,205,444) (133,827,590) (11,246,692) (30,228) (160,309,954) 23,745,263 23,745,263 4,489,788 (132,074,903)

(6,204,878) (103,825,291) (296,415,481) (406,445,650) 261,199,785 261,199,785 (4,566,535) (149,812,400)

196,764,462 (57,978,024) (82,172,789) 16,108,827 135,985 (4,580,504) (95,207,440) (26,929,483) 39,529

230,092,448 (403,841) (80,239,825) (37,887,080) 4,098,615 (10,227,195) (88,553,341) 16,879,781 (102,946)

E) Opening cash and cash equivalents

223,512

326,458

Closing cash and cash equivalents (D+E )

263,041

223,512

www.italcementigroup.com

133

Summary of resolutions The Shareholders' Meeting held on April 18, 2007, in via Madonna della Neve 8, Bergamo, chaired by Giampiero Pesenti, attended in person or by proxy by 339 shareholders representing a total of 116,458,720 ordinary shares out of a total of 177,117,564 ordinary shares outstanding, carried the following resolutions 1) - to approve the financial statements for the year to and as at December 31, 2006, and also the accompanying Directors’ report on operations; - to assign the net profit for the year, including the full amount of “Retained earnings”, for the sum of 70,965,366.05 euro as follows: 0.36 euro to the 174,327,606 ordinary shares (net of the 2,789,958 ordinary treasury shares held at April 18, 2007), for a total of 62,757,938.16 euro, 0.39 euro to the 105,325,878 savings shares (net of the 105,500 savings treasury shares held at April 18, 2007), for a total of 41,077,092.42 euro, to be paid as from May 24, 2007, with coupon detachment on May 21, 2007, to the “Translation reserve”, 38,785.00 euro and to carry forward an amount of 79,406,347.47 euro; 2) to set at 18 (eighteen) the number of members of the Board of Directors for the three-year period 2007 - 2009 and to appoint as members: Pierfranco Barabani Alberto Bombassei Alberto Clô Federico Falck Pietro Ferrero Danilo Gambirasi Karl Janjöri Italo Lucchini Emma Marcegaglia Sebastiano Mazzoleni Yves René Nanot Carlo Pesenti Giampiero Pesenti Marco Piccinini Ettore Rossi Attilio Rota Carlo Secchi Emilio Zanetti 3) subject to revocation of the unexecuted part of the resolution authorizing the acquisition and disposal of treasury shares carried by the ordinary Shareholders' Meeting of April 13, 2006: - to authorize, pursuant to art. 2357 of the Italian Civil Code, within 18 months of the date of resolution, the purchase, on one or more occasions, of ordinary and/or savings treasury shares, establishing that: the purchase price for each share shall not be more than 15% lower or higher than the average share price on the Italian Stock Exchange in the three sessions preceding each transaction; the total counter-value shall in no case be more than 150,000,000 euro; the maximum number of ordinary and/or savings shares purchased shall not have an aggregate nominal value, including the shares already owned by the Company and any shares already owned by subsidiaries, in excess of one tenth of the share capital; 136

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

2006 Annual Report 5 16 130 134 136

Financial statements Report of the Independent Auditors Summary of resolutions

- to establish that considerations paid or received for purchases or sales of treasury shares be recognized directly in shareholders' equity in compliance with International Accounting Standard 32 and that such considerations always be reflected in the accounts in the form envisaged by the regulations in effect from time to time; - to grant, pursuant to par 1, art. 2357 ter of the Italian Civil Code, separate powers to the Chairman, each of the Deputy Chairmen and the interim Chief Executive Officer to dispose at any time of purchased treasury shares, even before all purchases have been made; 4) to extend the engagement for the audit of the separate financial statements and the consolidated financial statements for financial years 2008 - 2009 - 2010 and for the limited review of the half-year reports at June 30, 2008 - 2009 2010 to the independent auditors Reconta Ernst & Young S.p.A. establishing an overall fee of 590,000 euro, subdivided as follows: Audit of the Italcementi S.p.A. separate and consolidated financial statements and limited review of the minor investee companies:

euro

418,000.00

Regular inspections, pursuant to art. 155, par 1, letter a) of Legislative Decree 58/98:

euro

42,000.00

Limited review of the Italcementi separate and consolidated half-year report:

euro

122,000.00

Inspection of the “Unico” and “Modello 770” forms

euro

8.000,00

* . * .* At a meeting held after the Shareholders' Meeting, the Board of Directors appointed the following officers for the threeyear period 2007-2009: Giampiero Pesenti Pierfranco Barabani Carlo Pesenti

Chairman Executive Deputy Chairman Chief Executive Officer

and confirmed Rodolfo Danielli as Chief Operating Officer. The Board of Directors named the Executive Committee for the three-year period 2007-2009, as follows: Giampiero Pesenti Carlo Pesenti Pierfranco Barabani Yves René Nanot Attilio Rota

Chairman

Paolo Santinoli was confirmed as Secretary to the Board of Directors and the Executive Committee. Chief Executive Officer Carlo Pesenti was named executive Director responsible for supervising the workings of the internal control system. Independent Director Alberto Clô was named Lead Independent Director. The Board of Directors also formed the committees contemplated by the Voluntary Code of Conduct, as follows: Remuneration Committee Karl Janjöri Italo Lucchini Emilio Zanetti Internal Control Committee Alberto Clô Federico Falck Carlo Secchi Attilio Rota www.italcementigroup.com

137

Presentation Annual Report Corporate governance

Directors’ report Consolidated financial statements Parent company financial statements

Financial statements Report of the Independent Auditors Summary of resolutions

Corporate bodies after the appointments of April 18, 2007 Antonio Catani

Honorary Chairman

Board of Directors (Term ends on approval of financial statements at 12.31.2009)

Giampiero Pesenti Pierfranco Barabani Carlo Pesenti Alberto Bombassei Alberto Clô Federico Falck Pietro Ferrero Danilo Gambirasi Karl Janjöri Italo Lucchini Emma Marcegaglia Sebastiano Mazzoleni Yves René Nanot Marco Piccinini Ettore Rossi Attilio Rota Carlo Secchi Emilio Zanetti Paolo Santinoli

1 1 1-2

Chairman Executive Deputy Chairman Chief Executive Officer - CEO

5 4- 5 4- 5 5

3- 5 3 5

5- 6 1- 4- 5 4- 5 3- 5 7

Secretary

Board of Statutory Auditors (Term ends on approval of financial statements at 12.31.2008)

Acting Auditors Maria Martellini Claudio De Re Claudio Cavalli Substitute Auditors Eugenio Mercorio Dino Fumagalli Pietro Curcio

Chairman

Rodolfo Danielli Reconta Ernst & Young S.p.A. 1 2 3 4 5 6 7

Member of the Executive Committee Executive Director responsible for supervising the workings of the internal control system Member of the Remuneration Committee Member of the Internal Control Committee Independent Director (in accordance with the Voluntary Code of Conduct) Member of the Compliance Committee Secretary to the Executive Committee

138

Chief Operating Officer - COO Independent Auditors

2006 Annual Report 5 16 130 134 136

Presentation Annual Report Corporate governance

Italcementi S.p.A. Corporate governance Annexes

2006 Annual Report 5 15 139 160

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

Code of Conduct, Code of Ethics, Treatment of Confidential Information, Internal Dealing Code of Conduct (internal dealing), Procedural Code for Transactions with Related Parties, Insider Register Procedure, Organization, Management & Control Model.

An analysis of the corporate governance structure envisaged in the binding rules set out in the company By-laws and in the company’s codes and/or regulations, shows that Italcementi S.p.A. complies with generally accepted best practice, whose application is reflected in the resolutions carried by the Board of Directors and the organization notices issued by the company.

The Code of Conduct and corporate governance rules The Code of Conduct (the «Code») is a self-governance system incorporating legal, regulatory and Civil Code requirements, to which the company and its bodies voluntarily adhere. Its purpose is to communicate the organizational www.italcementigroup.com

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model implemented by Italcementi S.p.A. in order to maximize value for shareholders. The company Board of Directors has updated the «Code» to take account of the new text approved by the Corporate Governance Committee in March 2006. At the same time, since, as explained below, this is a period of transition, the amendments to the system of corporate governance will actually take place gradually over the coming months. In view of the fact that one of the items on the agenda at the next Shareholders’ Meeting will be the appointment of the Board of Directors for the three-year period 2007-2009, we believe it appropriate to refer verification of directors’ honorability and independence requirements to the new Board of Directors, which will consequently appoint from among its members the Lead independent director, should this be necessary, the executive director responsible for supervising the internal control system, and create the internal committees of the Board of Directors, in compliance with the new dispositions regarding composition and independence and professional requirements. The new Board of Directors will also be responsible for verifying the number of posts deemed compatible with the post of director, as defined in the «Code». Resolutions regarding the statutory amendments required by the reform will be carried by a subsequent extraordinary Shareholders’ Meeting and, consequently, it will not be possible to apply some dispositions of the new «Code» until that time; specifically, the appointment of the Board of Directors from lists of candidates, the indication of the eligibility of such candidates to qualify as independent and the appointment of directors indicated by minority shareholders. As prescribed by the «Code», the outcome of the assessment regarding independence requirements, to be entrusted to the Board of Directors elected by the forthcoming Shareholders’ Meeting, will be announced in a statement issued to the market. The «Code» also provides for the formation of bodies and offices and for adoption of specific procedures and conduct, with the sole exceptions mentioned below and with the modifications necessary to take account of the specific nature of Italcementi S.p.A. The Board of Directors is always willing to consider other changes to the “Code of Conduct” and assess their application to Italcementi’s Corporate Governance system, provided that, compatibly with its current situation, such recommendations enhance the reliability of the company in the eyes of investors. * * * The report below illustrates and comments on the new amended version of the «Code» adopted by the company rather than the version in force in the previous financial year.

a) Shareholding and organizational structure Share capital and majority shareholder The share capital amounts to 282,548,942 euro, consisting of 282,548,942 shares with a nominal value of 1 euro each, of which 177,117,564 ordinary shares and 105,431,378 savings shares. With reference to the authorizations granted by the Shareholders’ Meetings of April 22, 2005 and April 13, 2006, during the year the company bought back 1,022,538 ordinary shares for an overall amount of 18,903,239.00 euro. During the year the company did not buy back any savings shares. During 2006, in response to requests for the exercise of options granted to directors and managers, the company sold to the parties concerned a total of 1,606,057 ordinary treasury shares at the per-share price established at the time the options were granted, pursuant to the relevant Regulation. Therefore at December 31, 2006, the company held: - 3,361,583 ordinary treasury shares, equal to 1.90% of the share capital represented by ordinary shares, to be used to service the “Stock option plan for Directors” and the “Stock option plan for Managers”; - 105,500 savings treasury shares, equal to 0.1% of the share capital represented by savings shares. During the current year, a number of directors and managers exercised stock options. As required by the shareholders’ resolution of April 13, 2006 and the respective stock option plans, the company sold to the parties concerned 313,625 ordinary treasury shares at the per-share price established at the time the options were granted. As a result of these transactions, at March 7, 2007, the company held 3,047,958 ordinary treasury shares. 140

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Italmobiliare S.p.A., which directs and co-ordinates Italcementi S.p.A. pursuant to art. 2497 and following articles of the Italian Civil Code, is the majority shareholder: at December 31, 2005, it directly and indirectly held 58.73% of Italcementi S.p.A. ordinary shares, net of own shares held by the company. The company is not aware of the existence of any voting trusts. Board of Directors The amended version of the «Code» provides for directors to be appointed under a transparent procedure that guarantees, among other things, timely and adequate information regarding the personal and professional characteristics of candidates and requires the lists of candidates to be deposited at the company head office within the terms set out in the By-laws and the timely publication of the lists on the company web site. As already noted, the lists will also be required to indicate whether candidates qualify as independent pursuant to the «Code». The company By-laws will regulate “list voting” pursuant to the requirements of the new laws to be issued. Currently they do not contain specific indications regarding the composition of the Board of Directors. Moreover, under the new laws, at least one member of the Board of Directors, or two members if the board has more than seven members, must meet the independence requirements established by law for the members of the Board of Statutory Auditors, while the law requires that all directors meet the honorability requirements established by a regulation of the Italian Ministry of Justice for statutory auditors. The text of the «Code» approved by the Corporate Governance Committee requires that a suitable number of nonexecutive directors be independent, in other words that they do not have, nor have recently had, directly or indirectly, dealings with the company or with parties associated with the company such as to currently influence their independence of judgment. No limits are set on the re-election of directors, even if holding the same post for more than nine years of the last twelve years could constitute a motive for failure to meet the independence requirement of the «Code». As established by the By-laws, the Board of Directors has full powers of ordinary and extraordinary management. It may thus perform all acts (including sales) that it deems necessary to achieve the company’s business object, with the exception of those acts that by law may only be performed by the Shareholders’ Meeting. In addition to the powers conferred on the Board of Directors by law and under the By-laws with regard to issue of shares and debentures, in compliance with art. 2436 of the Italian Civil Code, resolutions in respect of the matters listed below are attributed not only to the extraordinary Shareholders’ Meeting but also to the Board of Directors: mergers of companies that are wholly owned or ninety per cent owned; transfer of the registered office, provided that it remains in Italy; formation or suppression of secondary offices, in Italy and abroad; reduction of share capital in the event of withdrawal by the partner; amendment of the By-laws to comply with legal requirements. The Board of Directors meets at least once every calendar quarter as set out in the By-laws. During the meetings, the directors and the Board of Statutory Auditors receive reports on significant transactions performed by the authorized persons in line with their powers. Like the former version, the amended «Code» emphasizes the key role of the Board of Directors and establishes and integrates its specific duties, which, under the new text, include but are not limited to: assignment and revocation of proxies to senior managers; examination of strategic, industrial and financial plans and assessment of business forecasts and the organizational, administrative and general accounting structure of the company and the subsidiaries; examination and approval of interim accounts; prior examination and approval of transactions of strategic importance and transactions with related parties; assessment of the company operating structure; determination of remuneration of directors with special duties; reports at Shareholders’ Meetings; examination and approval of the Corporate Governance system. The text approved by the Corporate Governance Committee attributes an important new duty to the Board of Directors, namely, prior examination and approval of any subsidiary transactions with a material impact on the strategy, business, assets or finance of Italcementi S.p.A.; prior examination and approval of other dealings with related parties that the www.italcementigroup.com

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

Italmobiliare S.p.A. Franco Tosi S.r.l. Ciments Français S.A.

Chairman - Chief Executive Officer Chairman Deputy Chairman

(representing Italcementi S.p.A.)

Giovanni Giavazzi Pierfranco Barabani

Fincomind AG Fondazione Italcementi Cav. Lav. Carlo Pesenti Ciments du Maroc Compagnie Monegasque de Banque Credit Mobilier de Monaco Finter Bank Zürich Mittel S.p.A. Pirelli S.p.A. RAS S.p.A. Soparfinter S.A.

Deputy Chairman Director Director Director Director Director Director Director Director

Fondazione Italcementi Cav. Lav. Carlo Pesenti

Chairman

Ciments Français S.A.

Director

(representing Société Internationale Italcementi (Luxembourg) S.A.) 142

Deputy Chairman

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Italcementi S.p.A. Corporate governance Annexes

Carlo Pesenti

Italmobiliare S.p.A. Banche Popolari Unite S.c.p.a. Ciments Français S.A. Mediobanca S.p.A. RCS MediaGroup S.p.A. Unicredito S.p.A.

Director - Chief Operating Officer Director Director Director Director Director

Alberto Bombassei

Brembo S.p.A. Autostrade S.p.A. Pirelli S.p.A.

Chairman Director Director

Alberto Clô

ASM Brescia S.p.A. Autostrade S.p.A. ENI S.p.A. De Longhi S.p.A.

Director Director Director Director

Federico Falck

Actelios S.p.A. Falck S.p.A. Riesfactoring S.p.A. Banca Popolare di Sondrio S.c.r.l. Camfin S.p.A.

Chairman Chairman Chairman Director Director

Bruno Isabella

Sirap Gema S.p.A. S.A.B. S.p.A. Actelios S.p.A. Falck S.p.A. Italmobiliare S.p.A. Banche Popolari Unite S.c.p.a. Fondazione Italcementi Cav. Lav. Carlo Pesenti BMW Italia S.p.A. BMW Financial Services Italia S.p.A. SABAF S.p.A.

Chairman Chairman Director Director Deputy Chairman Director

Ciments Français S.A.

Director

Italo Lucchini

Sebastiano Mazzoleni

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Director Chairman Board of Statutory Auditors Chairman Board of Statutory Auditors Chairman Board of Statutory Auditors

(representing Sicil.Fin. S.r.l.)

Yves René Nanot

www.italcementigroup.com

Ciments Français S.A. Rhodia S.A. Asia Cement Public Co. Ltd. Ciments du Maroc Imerys S.A. Provimi S.A. Suez Cement Company Zuari Cement Ltd.

Chairman - Chief Operating Officer Chairman Director Director Director Director Director Director

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Marco Piccinini

Ettore Rossi

Finter Bank & Trust Bahamas Ltd. Compagnie Monegasque de Banque Credit Mobilier de Monaco Ferrari S.p.A. Finter Bank Zürich Groupe Société des Bains de Mer à Monaco (SBM) Poltrona Frau S.p.A.

Deputy Chairman Director Director Director Director Director

Ciments Français S.A.

Director

(representing Société Internationale Italcementi France S.a.s.)

Attilio Rota

Fondazione Italcementi Cav. Lav. Carlo Pesenti

Chairman Board of Auditors

Banca d’Italia - Bergamo branch

Director

Emilio Zanetti

Banche Popolari Unite S.c.p.a. Chairman Banca Popolare di Bergamo S.p.A. Chairman Sesaab S.p.A. Chairman BPU Assicurazioni S.p.A. Deputy Chairman BPU Assicurazioni Vita S.p.A. Deputy Chairman BPU Partecipazioni Assicurative S.p.A. Deputy Chairman SACBO S.p.A. Director A list of the director or statutory auditor positions held by each member of the Board of Statutory Auditors in other companies listed on Italian regulated markets is set out below: Maria Martellini Banca Popolare di Milano S.c.r.l. Director Class Editori S.p.A. Director Claudio Cavalli

Fondazione Italcementi Cav. Lav. Carlo Pesenti

Acting Auditor

Claudio De Re

Italmobiliare S.p.A. Milano Assicurazioni S.p.A.

Acting Auditor Substitute Auditor

Pietro Curcio

Italmobiliare S.p.A.

Substitute Auditor

Eugenio Mercorio

Credito Bergamasco S.p.A. Italmobiliare S.p.A. Fondazione Italcementi Cav. Lav. Carlo Pesenti

Acting Auditor Acting Auditor Substitute Auditor

Italmobiliare S.p.A.

Substitute Auditor

Dino Fumagalli

Legal representation - Appointed bodies The By-laws establish that the Chairman and, if appointed, the Deputy Chairman (or Deputy Chairmen) and the Chief Executive Officer (or joint Chief Executive Officers) are the company’s legal representatives in respect of third parties or in lawsuits. The Board of Directors has vested an Executive Committee with all of its powers except those that the Italian Civil Code and the By-laws do not allow to be delegated. 144

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The Board is informed of the resolutions taken by the Executive Committee during the first meeting it holds after such resolutions are passed. The Board of Directors has appointed two Deputy Chairmen (including one Executive Deputy Chairman), a Chief Executive Officer and a Chief Operating Officer. The «Code» establishes that the Board of Directors is to be informed in its subsequent meeting, or at least on a quarterly basis, of the activities of the Chief Executive Officer and other executive directors, and especially of any significant transactions, the main transactions performed with related parties and those giving rise to potential conflicts of interest that were not presented for its prior approval. The Board of Directors decides the remuneration and possible allocation of stock options to directors with special offices (in their absence) in line with the company’s deed of incorporation, having heard the opinion of the Board of Statutory Auditors and on the basis of the proposals drawn up by the Remuneration Committee. A significant portion of the pay of the Chairman, the Executive Deputy Chairman and the Chief Executive Officer is linked to business results and the achievement of specific objectives. A consistent approach and coordination of activities are ensured by the presence of Italcementi S.p.A.’s Chairman, Executive Deputy Chairman, Chief Executive and Chief Operating Officers, directors and heads of division in the Boards of Directors of the main subsidiaries. Transactions with related parties The «Code» states that transactions with related parties are to be performed in a transparent manner and in line with criteria of substantial and procedural correctness. Therefore, those directors who have an interest, even if only potential or indirect, in a transaction, are required to: a) inform the Board of the existence of their interest and its circumstances on a timely basis and in detail; b) leave the Board meetings when the related resolutions are to be taken. Nevertheless, depending on the specific circumstances, the Board of Directors may allow the participation of the director concerned in the discussion and/or the vote. Under the specific corporate procedure, material transactions with related parties (that is, transactions whose object, consideration, manner or timing may have effects on the safekeeping of the company assets or on the completeness and correctness of information), including those conducted through subsidiaries, must have the prior approval of the Board of Directors. Furthermore, depending on the nature, amount or other characteristics of transactions, the Board of Directors ensures that transactions are organized with the assistance of independent asset assessors and financial, legal or technical consultants, so that they are not agreed at conditions different from those that would have been established by nonrelated parties. The Internal Control Committee is responsible for conducting regular reviews of the procedural code for transactions with related parties adopted by the Board of Directors and recommending any updates deemed necessary.

Creation of committees The «Code» provides that the Board of Directors set up a Remuneration Committee and an Internal Control Committee from among its members. These committees’ resolutions are not binding and are made only to assist the Board. The Committees must have not fewer than three members and may have access to the corporate information and functions necessary for the performance of their duties. They may also use the services of external consultants. Each Committee elects a chairman and a secretary (who is not required to be a committee member) and meets when convened by its chairman or his substitute. Meetings may be called in an informal manner (also verbally). The meetings are deemed to be correctly called when the majority of committee members are present, including those present via audio- or video-conferencing links. Each Committee carries decisions by majority vote of the members present.

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

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

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Under the Code of Conduct approved by the Corporate Governance Committee, these last two duties could be assigned to the Internal Control Committee rather than to the Board of Statutory Auditors. The company believes it is more consistent to assign these duties to the Board of Statutory Auditors, which already assesses the proposals of the independent auditors and their work plan.

b) Enactment of corporate governance rules The company By-laws provide for the company to be governed by a Board of Directors composed of a minimum of 11 and a maximum of 21 directors, whose term of office is established upon their appointment, and may not exceed three financial years. Directors may be re-elected. The Shareholders' Meeting of May 4, 2004, appointed a Board of Directors for the three-year period 2004 - 2006, and set the number of members at 18. Assignment of duties and conferral of proxies The company By-laws assign a role of key importance to the Board of Directors, as described above. Legal representation of the company is attributed by the By-laws to the Chairman and, also, to the Deputy Chairman (or Deputy Chairmen) and to the Chief Executive Officer (or Chief Executive Officers) if appointed. The distribution of powers within the Board of Directors is as follows: to the Executive Committee, composed of five members, all the powers of the Board of Directors, with the exception of those that may not be delegated pursuant to the Italian Civil Code and the By-laws. As specified in the act of appointment, the resolutions of the Executive Committee shall be reported to the Board of Directors at the following meeting of the Board of Directors; to the Chairman, Giampiero Pesenti, among other duties and in addition to the powers assigned by the company Bylaws and the Code of Conduct, those of ensuring application of the principles of Corporate Governance approved by the Board of Directors and proposing possible amendments; indicating Group general strategic guidelines to be followed in management; indicating general policies for the annual and interim financial statements and the Group general financial policies; approving, for subsequent presentation to the Board of Directors or the Executive Committee, key transactions regarding acquisitions, sales, technical capital expenditure, developments in new initiatives and, in general, extraordinary transactions; approving significant amendments to the Group corporate structure; indicating general policies for the recruitment, training and management of personnel and determining, also on the basis of the recommendations of the Chief Executive Officer, the financial treatment (after consultation with the Remuneration Committee and approval of the Board of Directors where required by the Code of Conduct), promotions, transfers, suspensions, severance or contract review of Group senior managers in Italy and in the other countries in which the Group operates; supervise public relations. In addition to the powers necessary to perform the designated duties, the Chairman is also vested with powers to perform transactions regarding real estate and movable assets, up to a limit of 50 million euro for each transaction with separate signature and up to 75 million euro with joint signature with the Chief Executive Officer or the Chief Operating Officer; to the Executive Deputy Chairman, Pierfranco Barabani, powers to perform real estate activities for up to 15 million euro per transaction; to the Chief Executive Officer, Carlo Pesenti, among other duties, responsibility for supervising management policies, growth strategies and coordination of the operations of the company and the main subsidiaries it controls directly or indirectly, issuing the necessary directives to the Chief Operating Officer and the other corporate bodies that report directly to him; drafting the company and consolidated annual, half-year and quarterly financial statements required by law; jointly with the Chief Operating Officer, drawing up the budgets of Italcementi S.p.A. and the Group and longterm plans; supervising the financial management of the company and the Group; signing technical-administrative management contracts with the subsidiaries and associates; in accordance with the general instructions of the Chairman, defining personnel management policies in Italcementi S.p.A. and the main subsidiaries controlled directly or

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

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

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Composition and activities of the Committees The Remuneration Committee has three non-executive members, the majority of whom are independent directors. It met three times in 2006 (attended by all members) to draft proposals for the remuneration of and allocation of stock options to directors and managers and to provide information about the objectives assigned by Italmobiliare S.p.A. to Carlo Pesenti, its Chief Operating Officer, as Chief Executive Officer of Italcementi S.p.A. The Internal Control Committee has four members who are all non-executive and independent. The Internal Control Committee met four times during 2006; it reviewed many corporate and subsidiary functions to ensure that their operations comply with laws and regulations, it examined the reports prepared by the Controller and the independent auditors to check the adequacy of the internal control system, and it reported on its activities and the adequacy of the internal control system to the Board of Directors, during the meetings held to approve the annual and half-year reports. Internal control system The internal control system is a set of rules, procedures and organizational structures designed to ensure, through processes to identify, measure, manage and monitor key risks, correct management of the company consistently with objectives, ensuring the safekeeping of the companyâ&#x20AC;&#x2122;s assets, the efficiency and effectiveness of its operations, the reliability of financial information, compliance with the law and regulations. The Board of Directors exercises its functions with respect to the internal control system based on national and international reference models and best practice and pays particular attention to the Organization & Management Model adopted pursuant to Legislative Decree no. 231 of June 8, 2001. With the assistance of the Internal Control Committee, the Board of Directors sets guidelines for the internal control system so that the main risks relating to the company and the subsidiaries are correctly identified and appropriately measured, managed and monitored, and also sets criteria for the compatibility of such risks with correct and proper management of the company. At least once a year, it assesses the adequacy, effectiveness and operation of the internal control system with respect to the characteristics of the company. The Board of Directors, to which the Internal Control Committee reports on a six-monthly basis, deems the internal control system to be adequate for the Group structure and its core businesses. Board of Statutory Auditors On the occasion of the renewal of the Board of Statutory Auditors by the Shareholders' Meeting of April 13, 2006, the majority shareholder presented a list of candidates. The minority shareholders did not present any lists. Consequently, none of the current Statutory Auditors represent the minority shareholders.

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Structure of the Board of Directors and the committees Board of directors Position

Executive Committee Member

Chairman

Giampiero Pesenti

Deputy Chairman

Giovanni Giavazzi

Executive Deputy Chairman

Pierfranco Barabani

Chief Executive Officer

Carlo Pesenti

Director

Alberto Bombassei

Director

Executive

Non executive

Independ. Attendance

No. of other positions

Internal Control Committee

Member Attendance Member Attendance

5/5

4/5

Alberto Clô

5/5

4/4

Director

Federico Falck

5/5

4/4

Director

Danilo Gambirasi

5/5

Director

Bruno Isabella

5/5

Director

Karl Janjöri

Director

Italo Lucchini

Director

Sebastiano Mazzoleni

Director

Yves René Nanot

Director

Massimo Pellegrini

Director

Marco Piccinini

Director

Ettore Rossi

Director

Attilio Rota

Director

Emilio Zanetti

Remuneration Committee Member Attendance

5/5

3/3

5/5

3/3

5/5

3/3

4/5

5/5

3/5

5/5

4/4

Board of statutory auditors Position

Member

Chairman Chairman Acting Auditor Acting Auditor Substitute Auditor Substitute Auditor Substitute Auditor

Luigi Guatri (until April 13, 2006) Maria Martellini (from April 13, 2006) Claudio De Re Claudio Cavalli Eugenio Mercorio Dino Fumagalli Pietro Curcio

Attendance 5/5 6/6 11/11 11/11 -

No. of other (*) positions 2 2 (1) 1 2 (2) 1 1

(*) The number in brackets shows other acting auditor positions held in companies listed on regulated markets.

The Italcementi S.p.A. By-laws establish that persons who are already acting statutory auditors for more than five companies listed on Italian regulated markets, excluding subsidiaries of Italcementi S.p.A., its parent companies and subsidiaries of parent companies, may not be appointed as statutory auditors of Italcementi or that if they are appointed they must decline the office. Statutory auditors are appointed using lists aimed at ensuring that the minority shareholders appoint one acting statutory auditor and one substitute statutory auditor. Only shareholders who, alone or together with other shareholders, can prove title to shares with voting rights at ordinary shareholders’ meetings equal to at least 3% of the share capital with voting rights, may present lists. 152

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Other requirements of the code of conduct The table illustrates the extent to which the «Code» complies with other provisions of the Code of Conduct in the text approved by the Corporate Governance Committee. YES

Summary of reasons for any non-compliance with “Code” recommendations

This was consistent with the decision not to create an appointments committee. Also, the majority shareholder notified to the company several days before the Shareholders’ Meeting the list of director candidates it intended to propose and the company immediately disclosed the list to the market through institutional channels.

Has the company approved a Procedure for the running of the Shareholders’ Meeting?

The extensive powers of the Chairman assigned by law and general practice as well as the By-law that specifically authorizes him to direct the discussion and establish the order and method of voting (which may not be by secret ballot) are considered sufficient for the orderly running of the Shareholders’ Meeting.

Is the Procedure attached to the report (or is information provided indicating where the Procedure may be obtained/downloaded)?

Proxy system and transactions with related parties Has the Board of Directors conferred powers defining their: a) limits b) manner of execution c) reporting frequency? Has the Board of Directors reserved the right to review and approve transactions that have a significant impact on the balance sheet and income statement (including those with related parties)?

Has the Board of Directors defined guidelines and criteria for the identification of “significant” transactions?

Are these guidelines and criteria described in the report?

Has the Board of Directors established special procedures for the review and approval of transactions with related parties?

Are these procedures for the approval of relations with related parties described in the report?

Procedures for the latest appointment of directors and statutory auditors Were the names of the director candidates presented at least ten days in advance?

Was adequate information given in the presentation of the candidates?

Did the presentations include representation about the candidates’ eligibility to qualify as independent?

Were the names of the statutory auditor candidates presented at least ten days in advance?

Was adequate information given in the presentation of the statutory auditor candidates?

Shareholders' Meetings

Internal control Has the company appointed internal control staff?

Are the internal control staff hierarchically not subordinate to the heads of operating divisions?

Internal Control unit (ex art. 9.3 of the «Code»)

Internal Control Division

Investor relations Has the company appointed an Investor Relations manager? Investor Relations unit

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ITALCEMENTI S.p.A. Direzione Finanza di Gruppo Investor Relations Department Via G. Camozzi n. 124, 24124 Bergamo - Italy tel. +39 035-396.750 - fax +39 035-396.619 investor.relations@italcementi.it

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

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

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Equity investments of Directors, Statutory Auditors and Chief operating Officers Full name

Company in which shares held

Number of shares held at the end of the previous financial year

Giampiero Pesenti

Italcementi S.p.A.

ordinary shares: savings shares:

Giovanni Giavazzi

Italcementi S.p.A.

Pierfranco Barabani Carlo Pesenti

Number of shares sold

Number of shares held at the end of the current year

10,972 1 ordinary shares: 100,000 10,608 1 savings shares: -

ordinary shares: 100,000 savings shares: -

ordinary shares: savings shares:

10,972 1 10,608 1

ordinary shares: savings shares:

10,000 5,000

ordinary shares: savings shares:

10,000 5,000

Italcementi S.p.A.

ordinary shares: savings shares:

78,780 2 ordinary shares: 884 savings shares:

ordinary shares: savings shares:

78,780 2 884

Italcementi S.p.A.

ordinary shares: savings shares: ordinary shares:

1,500 1 ordinary shares: 3,000 1 savings shares: 50 ordinary shares:

43,100 -

ordinary shares: savings shares: ordinary shares:

43,100 -

ordinary shares: savings shares: ordinary shares:

1,500 1 3,000 1 50

ordinary shares: savings shares:

41,600 6,760

Ciments FranĂ§ais S.A. Federico Falck

Italcementi S.p.A.

ordinary shares: savings shares:

41,600 6,760

Number of shares purchased

ordinary shares: savings shares:

Danilo Gambirasi

Italcementi S.p.A.

ordinary shares:

1,248

ordinary shares:

1,248

Sebastiano Mazzoleni

Italcementi S.p.A.

ordinary shares: savings shares:

1,352 1,040

ordinary shares: savings shares:

2,000 6,000

ordinary shares: savings shares:

6,000

ordinary shares: savings shares:

3,352 1,040

Yves RenĂŠ Nanot

Ciments FranĂ§ais S.A.

ordinary shares:

23,550

ordinary shares:

30,000

ordinary shares:

53,550

Massimo Pellegrini

Italcementi S.p.A.

ordinary shares: 136,286 3 ordinary shares: savings shares: 139,776 4 savings shares:

ordinary shares: savings shares:

136,286 3 139,776 4 108,186 5

Attilio Rota

Italcementi S.p.A.

ordinary shares: 108,186 5 ordinary shares:

ordinary shares:

Emilio Zanetti

Italcementi S.p.A.

ordinary shares:

Rodolfo Danielli

Italcementi S.p.A. Bravosolution S.p.A.

ordinary shares: 0 ordinary shares: 533,333

ordinary shares: 299,000 ordinary shares: -

ordinary shares: ordinary shares:

84,000 -

ordinary shares: ordinary shares:

30,602 6 ordinary shares:

30,602 6 215,000 533,333

Claudio Cavalli

Italcementi S.p.A.

ordinary shares:

420

ordinary shares:

420

Claudio De Re

Italcementi S.p.A.

ordinary shares: savings shares:

2,600 6,000

ordinary shares: savings shares:

2,600 6,000

1 2 3 4 5 6

shares held by spouse shares held in part directly, in part by spouse of which 97,806 ordinary shares as bare property of which 122,356 savings shares as bare property shares held in part directly (in part only with usufruct and voting rights), in part by spouse of which 26,442 ordinary shares only with usufruct and voting rights

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Stock option plans Stock option plan for directors Executing the Shareholders’ resolution of April 24, 2001, at a meeting of May 9, 2001, the Italcementi S.p.A. Board of Directors approved a stock option plan for directors who hold special positions in compliance with the articles of association or perform specific operating functions. Based on the results of financial year 2005 in 2006 a total of 267,400 options were assigned under the stock option plan. 148,925 options were exercised during the year. The number of options assigned under the plan at December 31, 2006, was 961,700 equivalent to 0.34% of share capital. Consequently options assigned and unexercised at December 31, 2006, totaled 812,775. The main characteristics of the plan are set out below: a) Reasons for the introduction of the plan The plan reflects the desire to tie overall remuneration of the plan recipients to the medium/long-term success of the company and to creation of shareholder value, and also to reward achievement, by creating conditions that maximize the involvement of all senior management in reaching the company’s goals. b) Plan recipients The recipients are a number of members of the Board of Directors of Italcementi S.p.A. and its subsidiaries who hold special positions in compliance with the articles of association or perform specific operating functions. c) Quantity of options to be assigned The quantity of options to be assigned to each recipient will be determined by the Board of Directors of Italcementi S.p.A. on a proposal of the Remuneration Committee, in compliance with regulations governing conflicts of interest. If exercised, the options entitle the holder to subscribe or purchase shares at a rate of 1:1. d) Term and objectives The plan envisages annual assignment cycles; the options may be exercised in the period between the fourth and tenth year after assignment. If a director’s position lapses because his term of office has not been renewed, options may be exercised immediately, provided that this is within the maximum term of 10 years from assignment. Assignment of options shall be tied to the results achieved in respect of the targets set by the Board of Directors. These targets shall be notified to the recipients. e) Procedures and conditions of the plan Option rights may be exercised provided that the director has duly completed the term of office during which the options were assigned without resigning early and without his position being revoked by the Shareholders’ Meeting. Options are nominative, personal and non-transferable, except as provided in the case of death. The total number of Italcementi shares servicing the plan has been set at 3000,000. f) Share capital increase; sale of shares In the case of options for the subscription of shares, by virtue of the powers conferred by the Shareholders’ Meeting, the Board of Directors shall increase paid-in share capital by issuing shares to be reserved, pursuant to art. 2441, par 5, of the Italian Civil Code, for members of the Board of Directors of Italcementi S.p.A. and/or its subsidiary companies and to be issued at a price equivalent to the mean share price in the period between the date of the rights offer and the same day in the previous calendar month. For this purpose the Independent Auditors has expressed a favorable opinion on the congruity of the new-share issue price, as required by art. 158 of Legislative Decree no. 58/98. www.italcementigroup.com

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Similarly, in the case of options for the purchase of shares, by virtue of its authorization by the Shareholdersâ&#x20AC;&#x2122; Meeting to purchase and dispose of treasury shares, the Board of Directors shall sell Italcementi shares at a price equivalent to the mean share price in the period between the date of the rights offer and the same day in the previous calendar month. g) Characteristics of shares The shares held by plan participants following exercise of options shall have regular dividend entitlement rights and may be sold on the market through the management company as from the beginning of the fifth year after assignment of the options. Italcementi S.p.A. shall have right of first refusal on shares put up for sale. In the event of a merger/demerger, assigned options shall give the holder the right to subscribe or purchase Italcementi shares proportionately to the swap rate; in the event that Italcementi S.p.A. is cancelled from the stock exchange list, the term for option exercise shall be brought forward as appropriate and shares may be put up for sale immediately. h) Other powers attributed to the Board of Directors The Board of Directors may temporarily suspend exercise of option rights in specific cases envisaged by the Regulation and in the event of specific requirements; it may also modify certain conditions of the plan to ensure that treatment of recipients is equivalent to the treatment offered in the first instance.

Stock option plan for managers By a resolution of the Board of Directors of March 20, 2000, the company approved a stock option plan for managers, in respect of which, based on the results reported in 2005 a total of 364,003 options were assigned in 2006. The total number of options assigned to Group managers as at December 31, 2006, was 2,428,598. These figures do not include options assigned to the Chief Operating Officer and the Chief Executive Officer in the period in which they were company employees. Including these options, the total number of options assigned as at December 31, 2006, was 2,931,448 equivalent to 1.04% of share capital. A total of 1,457,132 options were exercised during the year. Therefore, options assigned at 31 December, 2006, and not yet exercised numbered 1,474,316. The main characteristics of the plan are set out below. a) Reasons for the introduction of the plan The plan reflects the desire to tie overall remuneration of the plan recipients to the medium/long-term success of the company and to creation of shareholder value, and also to enhance managersâ&#x20AC;&#x2122; sense of belonging and give them an incentive to remain with the company. b) Plan recipients The plan recipients are some members of the management of Italcementi S.p.A. and some of its subsidiaries, on the payroll at the dates scheduled for the assignment of options, who are designated by the Italcementi S.p.A. Chief Executive Officer, in accordance with the criteria established by the Remuneration Committee, in connection with the essential nature of their positions and their organizational level. c) Quantity of options to be assigned The quantity of options to be assigned to each recipient will be determined by virtue of the organizational level of the individual and the performance of the company and of the individual. If exercised, the options give the recipient the right to subscribe or purchase shares at a rate of 1:1. As a general rule, options that have not been exercised if the contract of employment with the Group is terminated shall not be recognized, except in the case of retirement.

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In the event of the death of the option holder, the options may be exercised by entitled parties within six months of the date of the death, provided that the term falls within the period in which the options may be exercised. d) Term and objectives The plan envisages annual assignment cycles; the options may be exercised in the period between the fourth and tenth year after assignment. Assignment of the options is subject to the results achieved in respect of individually notified objectives. e) Procedures and conditions of the plan Options are nominative, personal and non-transferable, except as provided in the case of death. The total number of Italcementi shares servicing the plan has been set at 6,000,000 shares. f) Loans or contributions for subscription or purchase of shares The management company may indicate to interested parties the names of banks that may be willing to grant loans guaranteed by the shares, to facilitate their subscription or purchase. g) Share capital increase; sale of shares In the case of options for the subscription of shares, by virtue of the powers conferred by the Shareholdersâ&#x20AC;&#x2122; Meeting, the Board of Directors shall increase paid-in share capital for an amount equivalent to the options to be assigned, by issuing shares to be reserved, pursuant to art. 2441, par 8, of the Italian Civil Code, for members of the managerial staff of Italcementi S.p.A. and its subsidiaries and to be issued at a price equivalent to the mean share price in the period between the date of the rights offer and the same day in the previous calendar month. Similarly, in the case of options for the purchase of shares, by virtue of its authorization by the Shareholdersâ&#x20AC;&#x2122; Meeting to purchase and dispose of treasury shares, the Board of Directors shall sell Italcementi shares at a price established by the Board of Directors at the time of the offer, on a proposal by the Chief Executive Officer and based on the opinion of the Remuneration Committee. h) Characteristics of shares The shares held by plan participants following exercise of options shall have regular dividend entitlement rights and shall be sellable on the market as from the beginning of the fifth year after assignment of the options. Italcementi S.p.A. shall have right of first refusal on shares put up for sale. In the event of a merger/demerger, assigned options shall give the holder the right to subscribe or purchase Italcementi shares proportionately to the swap rate; in the event that Italcementi S.p.A. is cancelled from the stock exchange list, the term for option exercise shall be brought forward as appropriate and shares may be put up for sale immediately. i) Other powers attributed to the Board of Directors The Board of Directors may temporarily suspend exercise of option rights in specific cases envisaged by the Regulation and in respect of specific requirements; it may also modify certain conditions of the plan to ensure that treatment of recipients is equivalent to the treatment offered in the first instance.

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Annexes Annex 1 Compensation paid to directors, statutory auditors and chief operating offices for the year 2006 The compensation shown in the table is recognized on an accrual basis. Therefore, in compliance with the Consob Regulation for Issuers, the column: Remuneration for post, if shown, refers to one or more of the following items: (i) for directors, the share of the profit

for financial year 2006 (on an annualized basis: 98,000 euro to each member of the Executive Committee and 49,000 euro to each of the other directors) and for statutory auditors their fee for the year; (ii) payment for the specific post held; (iii) remuneration for membership of the Remuneration Committee, the Internal Control Committee and the Compliance Committee; (iv) lump-sum reimbursement of expenses; Non-monetary benefits includes fringe benefits (based on a taxable income criterion) including insurance policies; Bonuses and other incentives includes remuneration amounts accruing on a non-recurring basis; Other compensation includes (i) remuneration for posts held in listed and non-listed subsidiaries; (ii) any considerations

for professional services in favor of the company and/or its subsidiaries; (iii) remuneration for work as an employee (gross of social security and tax charges paid by the employee, excluding collective compulsory social security charges paid by the company and leaving entitlements) and (iv) end-of-term payments. It should also be noted that: a portion of the compensation attributed to the Chairman, the Executive Deputy Chairman and the Chief Operating

Officer is variable, and depends on the companyâ&#x20AC;&#x2122;s business results or attainment of specific targets; the remuneration approved by the Board of Directors for the Chief Executive Officer Carlo Pesenti (who is also Chief

Operating Officer of the parent company Italmobiliare S.p.A., where he is also employed as a senior manager) and the share of the profits which Mr Pesenti is entitled are paid over to the company by which he is employed and absorbed in the remuneration paid to him by that company.

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2006 Annual Report 5 15 139 160

(in thousands of euro)

Name and surname

Post held

Period for which the post was held

End of term of office

Remuneration for post

Giampiero Pesenti

Chairman Member of Executive Committee

Giovanni Giavazzi

Deputy Chairman

1.1 - 12.31

2006

1,697.7

1.1 - 12.31

2006

123.8

Pierfranco Barabani

Executive Deputy Chairman Member of Executive Committee

1.1 - 12.31

Carlo Pesenti

Chief Executive Officer Member of Executive Committee

2006

282.7

1.1 - 31.12

Alberto Bombassei

Director

1.1 - 12.31

2006 2006

Alberto Clô

Director

1.1 - 12.31

2006

74.2

Nonmonetary benefits

Bonuses and other incentives

Other compensation

7.5

192.7

0.8

40.8

2.4

100.2

48.8

Federico Falck

Director

1.1 - 12.31

2006

74.2

Danilo Gambirasi

Director

1.1 - 12.31

2006

48.8

73.5

Bruno Isabella

Director

1.1 - 12.31

2006

49.1

Karl Janjöri

Director

1.1 - 12.31

2006

55.8

Italo Lucchini

Director

1.1 - 12.31

2006

55.5

6.2

Sebastiano Mazzoleni

Director

1.1 - 12.31

2006

48.8

0.5

161.3

Yves René Nanot

Director Member of Executive Committee

1.1 - 12.31

2006

97.7

1,010.4

Massimo Pellegrini

Director

1.1 - 12.31

2006

49.1

Marco Piccinini

Director

1.1 - 12.31

2006

49.0

Ettore Rossi

Director

1.1 - 12.31

2006

98.8

83.1

Attilio Rota

Director Member of Executive Committee

1.1 - 12.31

2006

122.7

Emilio Zanetti

Director

1.1 - 12.31

2006

55.5

Rodolfo Danielli

Chief Operating Officer

1.1 - 12.31

26.2

1,039.8

Luigi Guatri

Chairman Board of Statutory Auditors

1.1 - 4.13

18.3

Maria Martellini

Chairman Board of Statutory Auditors

4.13 - 12.31

2008

50.4

Claudio Cavalli

Acting Auditor

1.1 - 12.31

2008

45.3

39.1

Claudio De Re

Acting Auditor

1.1 - 12.31

2008

46.1

4.5

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Presentation Annual Report Corporate governance

Annex 1

2006 Annual Report 5 15 139 160

Italcementi S.p.A. Corporate governance Annexes

(continued)

Stock options granted to directors and chief operating officers Italcementi S.p.A. Options held at beginning of the year

Options granted during the year

Options exercised during the year

Options expired during the year

Options held at end of the year

11= 1+4-7-10

Post held

Number options

Average stock option price

Average maturity

Number options

Average stock option price

Average maturity

Number options

Average stock option price

Average market price on exercise

Number options

Average stock option price

Average maturity

Giampiero Pesenti Chairman

390,000

10.588

2010

150,000

16.890

2012

440,000

13.067

2011

Carlo Pesenti

Chief Executive Officer

313,100

10.822

2009

85,000

16.890

2012

43,100

9.134

15.760

355,000

12.480

2011

Rodolfo Danielli

Chief Operating Officer

414,750

10.181

2009

299,000

8.939

20.160

115,750

13.387

2011

Name and surname

100,000

9.136

18.562

Notes on principles and purpose of stock option plans See the sections in the Corporate Governance Report on “Stock option plan for directors” and “Stock option plan for managers”. Ciments Français S.A. Options held at beginning of the year

A Name and surname

Yves René Nanot

Options granted during the year

Options exercised during the year

Options expired during the year

Options held at end of the year

11= 1+4-7-10

Post held

Number options

Average stock option price

Average maturity

Number options

Average stock option price

Average maturity

Number options

Average stock option price

Average market price on exercise

Number options

Average stock option price

Average maturity

161,000

53.15

2012

45,000

117.29

176,000

69.79

2013

Director

2016

30,000

51.75

106.60

Notes on principles and purpose of stock option plans The stock option plan serves the dual purpose of correlating senior management incentives with company performance and of strengthening senior management’s loyalty to and interest in the company. It envisages subscription by senior managers of a specified number of Ciments Français shares, at special conditions. Under the regulation: granted options may not be exercised earlier than 3 years after the date of the Board of Directors’ resolution that approved the benefit; shares issued on exercise of options are unavailable for one year; the subscription price is set at 95% of the average price in the twenty trading sessions preceding the Board of Directors’ resolution that approved the benefit; options that are not exercised within 10 years of the Board of Directors’ resolution lapse. 162

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

The Italcementi Group in North America

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

Italcementi S.p.A. Via G. Camozzi, 124 - 24121 Bergamo - Italy Tel: +39 035 396 111 - Fax: +39 035 244 905 www.italcementigroup.com