ANNUAL REPORT 2006

In particular it should be noted that the delays undergone compared with the work schedules in connection with the quadruplication of the Milan-Bologna railway tracks, are due to events that do not depend on the responsibility of the Cepav 1 consortium and have generated significant extra costs, with negative margins. Cepav 1 presented significant claims against such extra costs, in which your company participates, deducted from the arbitration that is under way.
For consistency in the application of the accounting principles always adopted by your company, no items were allocated in the assets relating to future sums recognized subsequent to claims lodged. The positive result before taxes amounting to 22 millions of Euro has benefitted from litigations solved relating to prior contracts, supported by arbitration awards or executive sentences.
Unfortunately it is not possible for us to not to record a continuous outbreak of the negative behaviour of the public contractors when it comes to dealing with construction companies. The lack of fairness on the part of the public contractor is shown by the fact that each contract is concluded only years after the completion of the works subsequent to lengthy judicial procedures which are necessary in order to complete the contentious procedures which characterise almost all of the contracts involving public administration.
As well as the above, payments are delayed, in spite of the existence of executive sentences, which contribute to further increasing problems in the management of construction companies and go to add additional damages subsequent to the financial charges that become due until the date payment is actually made. Recently a four year plan has been approved that shows a constantly increasing trend, both in terms of production as well as EBITDA, on the basis of the existing backlog, that does not take account of the Milan-Verona works.
Below are a series of comments relating to the expectations connected to the most important works in your company’s portfolio.
The situation that had been provisionally halted in prior year in connection with the Bre.Be.Mi. contract subsequent to the absorption modalities of the extra costs proposed by Anas and not accepted by the concessionary, was overcome during the initial months of current year.