The deterioration of the international setting and tensions in the Euro area led to an acceleration in 2012 of the recessive trend of the Italian economy, which was already evident as of the second half of 2011.

Within a macroeconomic framework characterized by the reduction in consumption, the advertising market, following the decline of over 13% recorded in 2009 and the almost 4% recovery in 2010, totalled a decline close to 4% in 2011 and a reduction of over 14% in 2012.

These economic aspects were accompanied by a structural change in the competitive context, invested by intensified, more articulate and multilevel competition, in short, multidimensional: a competition between platforms, offering and business models.

The main activators of the evolution in the competitive context were the switchover to digital terrestrial television, a process which is now complete, and the gradual consolidation of the Internet.

The switchover to digital television initially determined the extensive development of pay-TV and subsequently the creation of interesting market spaces for the affirmation of new specialised free offerings, leading to an audience breakdown process to the detriment of the general general-interest offerings.

The consolidation of the Internet in terms of volumes and frequency of use, and the relative capacity to attract advertising investments, have made the Internet indispensable for individuals and advertisers.

The television market structure has changed considerably: in fact, the competition between the generalinterest offering and pay-TV has been joined – within the scope of the free offering – by the competition between the general-interest and new specialized channels, led by the semigeneral- interest entertainment, channels dedicated to TV series and films, those for children and sports channels.

The rapid ascent of the new free channels, of which there are now over 70, determines the need for the big operators to have a broad spectrum offering to adequately respond to the breakdown of audiences and of preferences and requirements.

In such a complex and increasingly open market, the Rai confirmed its role as undisputed leader of the television market once again in 2012: with a 39.8% share over the 24 hours and with 41.3% in primetime, Rai prevails over the Mediaset Group, with an advantage of about 6 percentage points, up on the previous year.

Rai is also leader in the specialized offering. With an offering of 11 semigeneral interest and specialized channels, Rai totals a 6.2% average share on the full day, bypassing Mediaset (5.3%) and Sky (4.6%).

Not only does Rai lead the viewing figures, it also enjoys an excellent Corporate Reputation.

The summarized Corporate Reputation index has settled at a value of 6.7 points on a scale of 1 to 10, a positive value slightly higher than the average of previous assessments.

Rai’s economic results and Group’s consolidated results in 2012, albeit in the presence of the positive effects induced by actions taken to reduce the Company’s main cost items, have been inevitably influenced by the economic and structural phenomena described above.

The costs of sports events and exceptional expenses linked mainly to provisions for staff resignation incentives also significantly influenced said results.

Rai’s net revenues amount to 2,625.5 million euros (2,761.4 million euros at Group level), reflecting a reduction of 199.3 million euros (-212.5 million euros at Group level), attributable entirely to a drop in advertising revenues.

Continuing the trend begun in 2008, advertising revenues fell almost 210 million euros in 2012, corresponding to a 23.6% decline compared to 2011.

Other revenues also fell by 30 million euros, partly due to the general economic weakness, largely concentrated in agreements with the Public Administration, in relation to government budget and sovereign debt tensions.

The adaptation of the per-unit licence fee created almost 40 million euros of higher income, in relation to the increase of the per-unit licence fee by 1.4% (from 110.5 to 112.0 euros), a percentage largely in line with the scheduled rate of inflation, and therefore insufficient to recover the real erosion of purchasing power.

The policy for the annual adaptation of the per-unit licence fee was confirmed, on the same basis, also for 2013, with an increase of 1.5 euros, corresponding to a daily cost for the user of just over 30 cents, against a television, radio and Internet offering of considerable relevance.

The fee is among the lowest in Europe for public broadcasting companies and also holds the record for particularly high tax evasion, estimated at around 27%, almost 19 percent higher than the European average.

A gradual alignment with the European standard, with a consequent recovery of significant resources, estimated at around 500 million euros a year, would require a revision of the payment collection methods, joined by a strengthening of the regulatory instruments designed to combat evasion, which are currently blatantly inadequate.

Attacking the anomalous phenomenon of fee evasion represents a decisive enabling factor which, besides contributing to restoring Rai’s financial equilibrium, would accelerate the product technological renewal process which is indispensable to Rai and of investments in quality products.

You are also reminded that the deficit of public resources accumulated with respect to the costs sustained by the Concession holder for the fulfilment of Public-Service responsibilities amounts, since 2005, to over 2 billion euros. The annual imbalance, as you know, is the result of separate accounting, in compliance with the form approved by the Italian Communications Authority and certified by the independent auditor.

In terms of operating costs, the tendency towards a reduction in expenditure was strengthened, within a constant setting – i.e.: a substantial invariance of production layouts and extent of the offering, – thanks to a combination of coordinated projects. In fact, on an equal basis, without considering the cost sustained for big sports events, which take place in even years, amounting to about 140 million euros, a reduction in costs of almost 110 million euros was obtained.

Actions to improve rationalisation and efficiency, and reductions in spending across all areas of the Company, including product and related investment, had an immediate positive impact and created the conditions to consolidate the benefits permanently.

These results were achieved through a reasoned and definitely not linear combination of targeted and selective operations which made it possible to attain real and significant increases in operating efficiency and to optimize the level of utilisation of internal resources, also thanks to the implementation of more streamlined and effective production models.

The income statement also benefited from the reduction of employee-related costs, which also include costs deriving from the renewal of the collective labour contract of middle management, office staff and blue collars, which expired on 31 December 2009 and was signed in February 2013.

Lastly, the result is influenced by exceptional items totalling 48.8 million euros for Rai (50.9 million euros at Group level), connected mainly to provision for staff resignation incentives aimed to reduce structural costs with pre-pensioning of employees belonging to all professional categories.

Rai records a loss of 245.7 million euros in 2012 (244.6 million euros at Group level). Due to the aforementioned phenomena, 2012 was clearly down on the total of the previous year, which closed with a net profit of 39.3 million euros (a net profit of 4.1 million euros at Group level).

The net financial position at 31 December 2012 was negative for both Rai (122.7 million euros) and for the Group (366.2 million euros), down 123.5 million euros for Rai and 93.8 million euros at Group level.

At Group level, the positive difference of 150.8 million between the change in the net financial position and the net result of 2012 is largely attributable to accruals to provisions which did not undergo any monetary movement during the year and to other changes in operating capital.

Shareholders’ equity at 31 December 2012 amounts to 294.1 million euros.

Despite the aforementioned structural crisis of resources, in recent years Rai has launched an intense programme of investments, mainly dedicated to the development of the digital terrestrial platform.

This is a project which has required a considerable financial commitment, starting with that for the construction of the network infrastructure which, by the time it has been completed, has absorbed resources of about 500 million euros, as well as significant commitments and investments in the area of contents to expand the offering.

These investments have been almost entirely sustained by Rai, through bank loans, without any public contribution, as happens in other European countries.

The outlook of the Italian economy for 2013 continues to be characterised by a high level of uncertainty, which translates into lower consumption and spending on advertising by companies. In this complex setting, Rai has elaborated and is about to enter into further, increasingly extensive and effective interventions to rationalize spending.

The review of processes and activities, together with the forthcoming review of the organizational model, will enable improvement of the level of operating efficiency and allow Company resources to focus on the editorial activity.

An extensive review of the organizational model can never be accomplished without meticulous mapping of the potential of in-house staff in preparation for a more careful assessment of the roles, functions and responsibilities to be assigned.

At the end of the staff resignation incentives, what we expect is a ‘younger’ Rai, better equipped to take on the challenges it will have to face.

Company management will be guided by the choices of the 2013-2015 Business Plan. This is a Plan which, over the three years, together with the corresponding operating instruments, is intended to achieve a sustainable level of profitability.