Pirelli RE - 2006 Annual Report

(Euro/million)	31.12.2006	31.12.2005
Fixed assets	581,7	410,7
of which investments in funds and investment companies ()*	426,1	303,3
Net Working Capital	283,3	210,6
Net Invested Capital	865,0	621,3
Net Equity	708,7	552,1
of which Group net equity	700,3	535,4
Provisions	59,9	38,7
Net Financial Position: (cash)/debt (**)	96,4	30,5
of which Shareholder loans	(334,1)	(262,0)
Total covered Net Invested Capital	865,0	621,3
Net Financial Position excluding shareholder loans: (cash)/debt	430,5	292,5
Gearing (***)	0,61	0,53

Note: Requiring deferred tax assets and liabilities to be offset, the 2005 figures relating to deferred tax assets and deferred tax liabilities, reported in net working capital and provisions respectively, have been reclassified for the sake of consistent presentation with 2006

(*) This includes investments in associates and joint ventures (285.8 million euro), in real estate funds (46.1 million euro reported as financial assets available for sale in the consolidated balance sheet) and in junior notes (94.2 million euro reported as other receivables in the consolidated balance sheet).

(**) Net financial position: this is considered to provide an accurate indicator of a business’s ability to meet its financial obligations, represented by gross financial debt less cash and other cash equivalents and other financial receivables. The explanatory notes contain a table showing the balance sheet amounts used for this calculation.

(***) The gearing ratio indicates the Group’s ability to fund its business with its own resources as opposed to debt provided by third parties. It corresponds to the ratio between net financial position excluding shareholder loans and net equity.

Group net equity was 700.3 million euro at December 31st, 2006 compared with 535.4 million euro at the end of December 2005 having increased by 164.9 million euro. The change reflects an increase in respect of net income for the period less the dividends paid in the year (+82.2 million euro) and other movements in equity (+82.7 million euro) mostly associated with a reduction in treasury shares.

Following the investments made at year end, the net financial position reported net debt of 96.4 million euro compared with 30.5 million euro at December 31st, 2005 and 94.9 million euro at September 30th, 2006.

The adjusted financial position (excluding shareholder loans to associates and joint ventures) reported net debt of 430.5 million euro, compared with 292.5 million euro at December 31st, 2005. The gearing ratio was 0.61, as envisaged in the 2006-2008 three-year plan, compared with 0.53 at December 31st, 2005 and 0.93 at September 30th, 2006.

Fixed assets amounted to 581.7 million euro at December 31st, 2006, having increased by 171.0 million euro on the figure of 410.7 million euro reported at the end of December 2005. The change reflects 122.8 million euro in increases in the value of investments in associates, joint ventures and funds, in the value of securities mostly resulting from the securitization of non performing loans purchased from Banco di Sicilia; the rest of the increase is mainly due to the investments in 75% of Pirelli Pekao RE and in the remaining 12.7% of Pirelli RE SGR and 53.6% of Credit Servicing.

Net working capital was 283.3 million euro at December 31st, 2006 compared with 210.6 million euro at the end of 2005. The increase of 72.7 million euro is mainly due to the combined effect of an increase as a result of paying an advance on the purchase price of DGAG (+140 million euro), an increase in trade receivables for transactions carried out in the last few days of 2006 (+40.6 million euro) and reductions in net non performing loans (–90.4 million euro) and in inventories (–8.2 million euro).