home > 2011 financial > statutory > relazione del Collegio Sindacale

Report of the Board of Statutory Auditors

Shareholders,

during the year which ended 31 December 2011, as regards the activity of the Board of Statutory Auditors, we performed our duties in compliance with the laws in force, observing the principles of conduct recommended by the Italian Accounting Profession (Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili).

The auditing activities were assigned to the Independent Auditors, PricewaterhouseCoopers SpA (hereinafter “PwC”), whose three-year mandate (2011-2013) was resolved by the Shareholders’ Meeting held on 3 August 2011.

Our activities consisted of the following.

We carried out the monitoring activities and the principles of correct administration envisaged by the Law and the Company Bylaws. In accordance with the duties set down in the Corporate Law, the Board met with the company executives in charge of certain Corporate Divisions to obtain the information required to assess the adequacy and the operation of the organisational structure, the internal auditing system and the administrative-accounting system, as well as the reliability of the latter to correctly portray the company’s operations.

49 audit visits were carried out during the year; the results of these visits, when it was deemed necessary to do so, were reported to the Chief Executive Officer and General Manager.

Specific meetings were also held with PwC, during which, besides the fact that no “censurable actions” were reported to us, information was requested also on the audit of the accounts. With the Internal Auditing Management – also on the basis of information received from PwC – the status of the procedures and internal audits was analysed, with reference to Rai SpA and to the Group. On this matter, the updating of the whole set of procedures still requires constant commitment for its completion, considering the evolution of the relative context.

The Board was informed, through quarterly reports by the Supervisory Board and during two meetings with the members of said Board, of the status of the completion and update of the Parent Company’s Organisation, Management and Control Model pursuant to Legislative Decree 231/2001. It acknowledged that new Sections of the Model have been adopted following amendments and additions of the provisions of the aforementioned Legislative Decree 231/01 and that a complete and organic review of the Model has been launched, in order to take into consideration the numerous organisation changes introduced by the Company recently, also taking into account the merger of subsidiaries.

No “censurable actions” were reported to us pursuant to article 2408 of the Civil Code. We have no knowledge of other facts or aspects of such nature as to require mention to the Shareholders’ Meeting. The Ethical Committee had nothing of note to report. In 2011, the Statutory Auditors attended all the meetings of the Board of Directors (42 over 51 days) during which they obtained information from the Directors on the general performance of the business and its outlook, as well as on Company operations of greater economic, financial and capital significance. On the basis of the information available, there were no breaches of the law or of the articles of association, nor were there any manifestly imprudent or rash operations in potential contrast with interests, or such as to compromise the integrity of the assets.

During the year, 4 Shareholders’ Meetings were held, all of which were attended by the Board of Statutory Auditors.

We report, in addition, that the Board of Directors, in accordance with Law 244/07, as of July 2010 had suspended the two Committees previously set up. Then, in accordance with the aforementioned Law, art. 13, paragraph 12 bis, in the meeting held on 3 March 2011 the Board resolved the formation of two advisory committees, one for Administration and the other for Organisation, having already approved their formation previously.

In 2011, the Board of Directors resolved the merger of the subsidiary Rai Trade, beginning 1 January 2011 (merger surplus of 13.4 million euros).

Moving on to the Rai Financial Statements as at 31 December 2011 – delivered to us by the Board on 22 March 2012 and now submitted for your approval – we wish to inform you that they have been drawn up using the accounting principles and main valuation criteria with a view to considering the Company as a going concern. These financial statements consist of the Balance Sheet, Income Statement and Notes to the Financial Statements and are accompanied by the Directors’ Report on the operations.

We have examined the draft of the financial statements closed as at 31 December 2011, placed at our disposal within the terms of article 2429 of the Civil Code, and are able to report as follows.

As we were not assigned the statutory audit of the financial statements, we monitored their general layout, and – their general compliance with the law in terms of formation and structure and to this end – also on the basis of our meetings with “PwC” – have nothing of significance to report.

The Notes to the Parent Company Financial Statements provide, with the supplementary schedules presented, the other disclosures required under article 2427 of the Civil Code; specifically, in accordance with the various regulations, information is given on revaluations made to tangible fixed assets still carried in the balance sheet.

All the Balance Sheet and Income Statement items are presented in comparison, pursuant to article 2423 ter (5) of the Civil Code, to those of the Financial Statements as at 31 December 2010, also providing information on the reasons for the differences.

As regards the evaluation of accounts, as far as this falls within the sphere of competence of the Board of Statutory Auditors, we wish to point out that we concur on the valuation methods reported for the individual financial statement components, which have remained unchanged from 2010, and are in accordance with the general principles indicated in article 2423 bis of the Civil Code and with the more specific provisions of the following article 2426 of the Civil Code.

In addition, we wish to report that:
• there are no formation, start-up and expansion costs, nor deferred costs for research, development or advertising, carried under intangible assets in the balance sheet;
• deferred tax assets – disclosed within the limits of fiscal benefits obtainable in future years– are largely related to the year’s negative taxable income and that of previous years which is fully offset by the taxable income of the subsidiaries within the scope of the consolidated taxation arrangement for 2011; temporary differences which will reverse in the next year are also considered, within the limits of the Group’s fiscal benefits envisaged for said year;
• there have been no “exceptional cases” during the year which would entail making derogations as permitted under article 2423 (4) of the Civil Code.

We have verified the observance of the laws on preparing the report on operations and have no particular comments to make on this matter.

In the Report on Operations, which should be referred to for further details, the Directors describe, first and foremost, that both the Rai’s statutory financial statements and Group’s consolidated financial statements as at 31 December 2011 present a profit of 39.3 million and 4.1 million euros respectively, against a loss of 126.1 and 98.2 million euros in 2010.
The Group’s debt rose to 272.4 million euros (150.4 million in 2010).

The Report closely analyses the economic performance.

In terms of revenues, as regards the per-unit ordinary licence fee, the Ministry of Economic Development established an increase of 1.5 euros for 2011, almost in line with the programmed rate of inflation, taking the fee to 110.5 euros; for advertising, on the other hand, after the heavy drop of about 230 million in 2008-2009 and the recovery of just over 30 million euros in 2010, a further decline of almost 60 million euros was recorded in 2011, corresponding to just over 6 percentage points for Rai.

In terms of costs, while taking into account the absence – as in every other odd year – of costs linked to big sports events, the tendency towards a reduction in expenditure was more marked, within a constant setting – i.e.: a substantial invariance of production layouts, – thanks to a combination of coordinated projects in all company areas, including product and investments.

As regards elements characterising Rai’s operation in terms of revenues, the Directors highlight – in addition to the aforementioned decline in advertising revenues – also the ongoing penalisation deriving from extensive evasion of the payment of the ordinary licence fee, estimated at about 27% (almost 19 percent higher than the European average), with about 500 million euros less in annual income. Also particularly high is the evasion of payment of the special licence fee, against which a special regulation was introduced into Law no. 214 of 22 December 2011, which imposes indication of the television licence number in the tax returns – in order to check payment of the special licence fee.

The Board has already intervened several times to point out the need to rebalance Rai’s primary revenue; especially considering the remarkable decline in advertising, it believes that, in order to structurally and permanently restore the concession holder’s accounts, there have to be further legislative provisions to effectively contrast evasion of payment of the licence fee, the effects of which could generate benefits which would eliminate the need for annual increases in the per-unit amount in the near future.

An improvement in the effectiveness of these initiatives would allow Rai, in the opinion of the Directors, as shared several times by the Board, to pursue its public service mission, enabling it to make indispensable investments in technology and an offering imposed increasingly by the development of the media setting.

Lastly, the Directors outline the positive results in terms of share achieved by Rai’s 14 free channels in 2011, both with regard to the general-interest and specialised offering, highlighting the tendency to move relevant portions of share from the former to the latter segment.

In this framework, it is also highlighted that, on the basis of the results of “Separate accounting” for 2010, certified by an Independent Auditor, the imbalance between public resources (fee) and the costs sustained by Rai for the public services rendered amounts to 364 million after allocation of the specific portion of advertising revenues collected on the relative programming.
Remember that the law envisages a mechanism to ensure full coverage, by resources from the licence fee, of the costs sustained for the public service activities assigned to the concession holder. To date this law has not been applied and since 2005, the year in which Separate accounting was introduced, the overall imbalance has been of over 1.7 billion euros, not subject to coverage.

On this aspect, the Board of Statutory Auditors wishes to emphasise that the Board of Directors, in the session held on 20 October 2011, unanimously resolved to ask the Ministry of Economic Development to pay the price for performance of the Public radio and television broadcasting service in compliance with article 47 of Legislative Decree 177/2005, in the measure resulting from the separate accounting.

The Directors report that the 2012-2014 Business Plan is being drawn up and is close to be finalised. The document will contain the initiatives required to continue moving in a virtuous direction towards a sustainable and durable economic balance in the future, which is vital to the Company’s cultural and technical relaunch and development.

On this matter, we would like to remind you of the considerable programme of deferred return investments made in a particularly difficult market situation, which has already been dedicated for several years to the construction of the DTT network infrastructure. This project – which, upon completion, envisaged for 2012, will have used company financial resources of about 500 million euros – was undertaken without adequate public funding which took into account the specific nature of the Concession holder and the particular configuration of the network connected to the obligations of the Public Service. The Board notes that the investment in question was made to implement the specific instructions of the Service Agreement (art. 6 par. 3); in exchange for this considerable commitment, Rai benefited exclusively from extra-contractual contributions (pursuant to Legislative Decree 296 of 2006) progressively reduced over time to the sum of 2.5 million in 2011, for a total of 59.5 million, addressed to the switch-off activity, including communication to users, etc.

The huge imbalance accumulated between contractual obligations deriving from the Agreement and the relative price of 1.7 million euros, as mentioned earlier, forced Rai to use third-party funding for this strategic project, generating the significant increase in year-end debt already mentioned, of an entity that can still be sustained in terms of financial costs.

The Directors focused their attention considerably on the new Service Agreement for 2010-2012, approved with the Ministerial Decree of 27 April 2011, disclosing the main elements that qualify it in relation to past editions. They focused particularly on defensive clauses, which allow Rai to propose amendments to the Agreement in the event of significant changes to the proportionality ratio between Public Service costs and revenues.

The Board reports that activities to re-establish the above-mentioned proportionality ratio have not yet been formalised. The outlook for this year, subject to the normalisation of the financial and lending markets, look positive, considering the possible tensions linked to the performance of advertising, confirmed by the market trend in the first quarter and also the continuation of interventions to rationalise spending.

The Directors also supply, as envisaged by article 2428 of the Civil Code, information on Company activity, also with reference to the single sectors monitored by its structures and with subsidiaries. Moreover, news is supplied on research and development activities, on relations with subsidiaries and associated companies, on the foreseeable outlook of the operations, on important events occurring after the end of the year and on the objectives and policies regarding the management of financial risk, exposure to the interest rate, lending and liquidity risk, thus fulfilling the reporting obligations relating to the main risks for the company and the Group.

Specific chapters of the Report analyse the television market setting, resources, the framework of reference and, particularly, the analysis of Rai’s offering and the performances of the TV product.

In this way, the financial statements become, among other things, an effective communication tool with which Rai reports the pursuit of its Public service mission and the other activities that it performs.

The Report is completed by the commented exposure of a review of the balance sheet, income statement and financial position, stating the reasons for the differences compared to the previous year.

Pursuant to article 2429 (paragraph 3) of the Civil Code, complete copies of the latest financial statements of subsidiaries have been deposited at the Company’s registered office together with the reports of the relative Boards of Statutory Auditors and Independent Auditors, as well as a summary statement of the key data from the latest financial statements of the associated companies.

.....................

In the light of all the matters described and considered above, within the scope of our competence and also considering the results of the activity carried out by the independent auditors in charge of the statutory audit of the accounts as set out their report on the financial statements, we express our favour for the approval of the Parent Company financial statements at 31 December 2011, as proposed by the Board of Directors, closing with a profit of 39,338,513.88 euros. We also agree with the further proposal, contained in the same resolution, regarding the profit allocation, as follows:

• 1,966,925.69 euros, 5% of the net result, to the Legal Reserve;
• 927,923.16 euros, as reserve for foreign exchange gains pursuant to art. 2426 paragraph 8 bis of the Civil Code;
• the remaining 36,443,665.03 euros to Other reserves.

Rome, 19 April 2012
THE STATUTORY AUDITORS
Mr Carlo GATTO
Ms Maria Giovanna BASILE
Mr Antonio IORIO