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Report of the Board of Statutory Auditors

Shareholders,

during the year which ended 31 December 2012, 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 statutory audit 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’s Bylaws. 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.

Various meetings were also held:

a) with PwC, during which no “censurable actions” were reported to us and extensive information on the audit of the accounts was provided by them;
b) with the Internal Auditing Management, analysing – also on the basis of information received from PwC – the status of the procedures and internal audits, with reference to Rai SpA and to the Group;
c) with the Supervisory Board on the status of the Parent Company’s Organisation, Management and Control Model pursuant to Legislative Decree 231/2001.

The Board was informed, through quarterly reports by the Supervisory Board, of the adoption of new Sections of the Model 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 organisational changes recently introduced within the Company, also taking into account the merger of subsidiaries and subsequent effects on the pertinent business structures.

No reports pursuant to article 2408 of the Civil Code were made during the year and the Ethical Committee had nothing of note to report.

On 5 July 2012, the Shareholders’ Meeting appointed the new Board of Directors for 2012-2014. The Chairwoman, Anna Maria Tarantola, was appointed by the Board on 10 July 2012 and said appointment was approved on 12 July by the Supervisory Commission in Parliament. On 17 July 2012, the Board of Directors appointed the new General Manager, Luigi Gubitosi, in agreement with the Shareholders.

We ought to point out that the Board of Directors – taking into account the invitation extended by the Ministry of the Economy and Finance Shareholder during the Shareholders’ Meeting held on 5 July 2012 – with resolution passed in the sessions held on 18-19 July, decided to delegate part of its duties to the Chairman, pursuant to article 26 of the Company’s Bylaws (with a spending limit of 10 million and appointment of level 1 and 2 executives in the non-publishing sectors).

During the Board Meeting held on 5 September 2012, the Directors also confirmed the two Consulting Committees which had been set up by the previous Board of Directors, in accordance with article 13, paragraph 12 bis of Law 244/07, redefining the areas of analysis and reappointing the current Directors as the respective members and coordinators of the two Committees.

The Board of Statutory Auditors met 33 times during the year and the meetings were also attended by the Magistrate of the Court of Audit. The minutes, when deemed necessary, were brought to the attention of the Chairman of the Board of Directors and the General Manager.

The Statutory Auditors attended all the meetings of the Board of Directors (39 times) 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 and financial significance. On the basis of the information available, there were no breaches of the law or of the Bylaws, nor were there any manifestly imprudent or rash operations in potential contrast with interests, or such as to compromise the integrity of the company assets.

During the year, 7 Shareholders’ Meetings were held, all of which were attended by the Auditors.

Moving on to the Rai SpA Financial Statements as at 31 December 2012 – the draft of which was approved by the Board on 23 April 2013 and now submitted for your approval – consist of the Balance Sheet, Income Statement and Notes to the Financial Statements and are accompanied by the Directors’ Report on the operations.

As we were not assigned the statutory audit of the financial statements, we monitored their general layout, their general conformity to the law in terms of formation and structure and, to this end – also, as mentioned earlier, 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; 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 2011.

As regards the evaluation of accounts, as far as this falls within the sphere of competence of the Board of Statutory Auditors, we have no specific comments to make with regard to the valuation methods reported for the individual financial statement items, which have remained unchanged from the previous financial statements, apart from the valuation of equity investments which we will discuss below. We should add that the financial statements are in accordance with the general principles set out in article 2423 bis of the Civil Code and with the more specific provisions of the following article 2426 of the Civil Code.

As regards the valuation of equity investments in subsidiaries and associated companies, from this year the equity method has been applied instead of the valuation method based on purchase cost adjusted in the case of durable losses in value.

The reasons for this change, as stated by the Board of Directors, lie in the need to offer a better presentation of the financial situation and results of operations, also to align the equity to the results of the consolidated financial statements.

In detail, the change in method has had the following effects on the financial statements as at 31 December 2012:
• increase in the value of equity investments: 132.5 million euros;
• higher result for the year: 20.3 million euros;
• increase in Shareholders’ Equity: 132.5 million euros.

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 liabilities are largely related to accelerated depreciation of tangible assets and higher fiscal amortisation of programmes, disclosed solely in the Tax Returns;
• deferred tax assets are booked in the case of reasonable certainty of their future recovery;
• there have been no “exceptional cases” during the year which would entail making derogations as permitted under article 2423 (4) of the Civil Code.

The Report on Operations, which should be referred to for further details, contains, as envisaged by article 2428 of the Civil Code, information on the Company activities, also with regard to the single sectors presided over through its structures and through subsidiaries. Furthermore, it contains details of relations with subsidiaries and associated companies, on the outlook, on important events occurring after the end of the year and on the aims and policies of financial risk management, exposure to the interest rate, credit and liquidity risk, fulfilling the informative obligations regarding the main risks for the Company and the Group.

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

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. The examination of these documents has not revealed criticalities or reservations.

The Report shows that the financial statements of Rai SpA at 31 December 2012 close with a loss of 245.7 million euros against a net profit of 39.3 million euros in the previous year, while the Group consolidated financial statements close with a loss of 244.6 million euros against a net profit at 31 December 2011 of 4.1 million euros. The Group’s debt has risen to 366.2 million euros (272.4 million euros in 2011).

Given the above, with reference to the economic trend, in short, we can assume the following.

As regards revenues and in relation to the ordinary licence fee, the Ministry of Economic Development, with Decree of 19 December 2011, established an increase for 2012 of 1.5 euros, almost in line with the scheduled rate of inflation, taking the licence fee to 112.00 euros, with positive influences on proceeds of around 40 million euros, reaching the overall amount of 1,747.8. In relation to advertising, the decline of approximately 60 million euros that characterised 2011 was joined by another heavy reduction in 2012 of about 210 million euros, falling overall to 674.9 million euros.

Consequently, the influence of advertising on total revenues is down to 26%, lower than in previous years.

As regards costs, despite discounting expenses of about 140 million euros for big sports events and the influence of an exceptional provision of 62.2 million euros for staff leaving incentives resolved by the Board of Directors in December 2012 – a tendency to contain spending, on a like-for-like basis, continued in 2012.

This resulted in savings of almost 110 million euros, making it possible to contain the loss, before taxes, at 244 million euros.

We can also see that, at the end of 2012, reserves are reduced to 51 million euros, which, together with a share capital of 243 million, take the Shareholders’ Equity to 294 million euros. Reserves in the last 5 years have endured a net reduction of 320 million euros, as a consequence of their use to cover losses recorded in the above-mentioned period.

The Statutory Auditors invited the Company to assess all actions aimed at consolidating and increasing cost savings. On this matter, we ought to share the strategy implemented by the management of an analysis of the productive choices that lead to insource processes/productions currently outsourced, in order to saturate existing production capacities. Likewise, in terms of staff policies, it would be appropriate to continue devoting attention to the enhancement of all in-house resources, in line with the aims to be achieved with regard to staff leaving incentives.

Looking again at revenues, we should highlight the on-going adverse effect deriving from the high rate of evasion of payment of the ordinary licence-fee estimated for 2012 at around 27% (almost 19 percent higher than the European average), with a lower annual income of about 500 million euros. It is to be hoped that effective legal provisions will be taken to contrast the above evasion allowing Rai to pursue its public service mission properly, placing the Company in a position to make indispensable investments in technology and offering that the evolution of the media setting imposes more and more strictly.

Therefore, in terms of technological investments, in 2012 Rai completed the construction of the DTT network technology. This project, which has now been extended to the whole country, has absorbed resources for almost 500 million euros, requiring bank borrowings, contributing to a significant increase in the level of debt. The Group’s net financial situation at the end of 2012 was up to 366 million euros against 272 at the end of 2011.

The Board of Statutory Auditors observes that the above investment, implemented in execution of the specific provisions of the Service Contract (article 6, paragraph 3), should have been covered substantially by contributions pursuant to Legislative Decree 296 of 2006, but it has been gradually reduced over time, reaching the amount of about 60 million euros.

It is also highlighted that, on the basis of the results of the “Separate accounting” (pursuant to article 47 of the Consolidated Broadcasting Law), certified by an independent auditor and drawn up on the basis of the schedule approved by the Regulator, relating to 2011, the imbalance between public resources (licence fee) and the costs sustained by Rai for fulfilment of the public service amounts to 278.1 million euros.

On this matter, remember that the above-mentioned law envisages a mechanism such as to ensure full coverage of the costs sustained for the Public Service activities delegated to the Concession Holder using resources from licence fees. However, to date this law has not been applied. From 2005, the year in which separate accounting was introduced, until 2011, the total imbalance is over 2.0 billion euros.

It should be noted that the Board of Directors, during the session held on 20 October 2011, unanimously resolved to ask the Ministry for Economic Development for payment of the sum due for performance of the public broadcasting service in accordance with article 47 of Legislative Decree 177/2005, in the measure resulting from the annual costs until 2010, equating to 1.7 billion euros.

The Board of Statutory Auditors recommend confirmation of the above initiative, updating the imbalance with the figures for 2011, and the fulfilment of every initiative in defence of the Concession Holder’s rights. In the meantime, it is hoped that, when the service contract is renewed for 2013/2015, clauses will be included to prevent the formation of the above-mentioned imbalances.

The Directors announce that the 2013-2015 Business Plan has been defined. With regard to the Plan, the Board of Statutory Auditors hope that the actions behind the Plan will be pursued with the aim of restoring a sustainable and durable future economic balance. As regards the prospects for the year in progress, they are still negative, but recovering evidently on 2012.

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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 of the accounts set out in the auditors’ report on the financial statements, we express our favour for the approval of the Parent Company financial statements at 31 December 2012, as proposed by the Board of Directors, closing with a loss of 245,662,838.10 euros. We also agree with the Board’s further request, contained in the same proposal, to cover the loss of 245,662,838.10 euros as follows:



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Lastly, we wish to remind you that our mandate ends with the approval of these financial statements. We would like to thank you for your faith in us and invite you to renew the Board of Statutory Auditors.

THE STATUTORY AUDITORS

Mr Carlo GATTO
Ms Maria Giovanna BASILE
Mr Antonio IORIO