Quarterly Report of the GranitiFiandre Group as at December 31, 2006

GRANITIFIANDRE S.p.A. Registered office at Castellarano (RE) - Via Radici Nord 112 Share Capital Euro 18,431,339 fully paid-in Registered at the Company’s Register Office of Reggio Emilia Fiscal Code: 03 056 540 374

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Quarterly report as at December 31, 2006

CONTENTS Directors’ Report ¾

Corporate boards…………………………………………………………………pag. 05

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Structure of the Group………………………………………………………….. pag. 07

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Report on operations…………………………………………...………………. pag. 09

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Group consolidated results…………………………………………............... pag. 09

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Group turnover……….…………………………….........................………….. pag. 11

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Consolidated brand sales…………………………..………………………….. pag. 12

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Other consolidated sales………………………………………....................... pag. 13

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Reclassified Group income statement…………..…………………………... pag. 14

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Reclassified Group balance sheet……………………….…………………… pag. 15

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Net financial position………………………………..……………….................pag. 16

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Consolidated cash flow statement ……………………………….………….. pag. 17

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Information on the main Group companies………………..……………….. pag. 18

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Sales information………………………………………....……........................ pag. 19

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Brand shops……………………………………………………………………….pag. 19

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Research and development…………………………………………............... pag. 19

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Significant events after the end of the quarter…….…..………… ………... pag. 20

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Outlook…………………………………......................................….................. pag. 20

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Consolidated balance sheet at 31/12/06…………………….………………..pag. 22

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Consolidated income statement at 31/12/06……………….……………….. pag. 23

Notes to the consolidated financial statements ¾

Content and form of the consolidated quarterly report....……………….. pag. 24

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Consolidation scope…………………………….………………..…………….. pag. 25

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Consolidation criteria ……………………..…………………………………….pag. 26

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Accounting principles and valuation criteria……………..…………………pag. 26

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Comments on the principle changes…………………………..…………….. pag. 27

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Fixed assets……………………………………………………….......................pag. 27

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Working capital……………………………………………………..……………. pag. 27

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Shareholders’ equity ………………………………………………..………......pag. 27

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Statement of changes in shareholders’ equity…………………………….. pag. 28

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Corporate boards Board of Directors Graziano Verdi Sergio Stefano Mascaretti Giacomo Mazzoni Romano Minozzi Alberto Selmi Mauro Tabellini Luigi Guatri Roberto Nasi Alfredo Scotti

Chairman and Managing Director Managing Director Managing Director Managing Director Managing Director Director Independent director Independent director Independent director

Board of Statutory Auditors Edoardo Rossini Francesca Pagliani Rosa Carla Parisi Stefania Luppi Gianluca Riccardi

Chairman Statutory Auditor Statutory Auditor Alternate Auditor Alternate Auditor

Independent Auditors Deloitte & Touche SpA

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Quarterly report as at December 31, 2006

Structure of the GranitiFiandre Group at 31/12/2006

Granitifiandre SpA Castellarano RE

StonePeak Ceramics Inc. Delaware Usa 98,36%

Geologica Milano Srl Milano 90,0%

Technoposa Srl Castellarano RE 51,0%

Porcelaingres Gmbh Vetschau D 99,9%

Savoia Canada Inc. Toronto CA 70,01%

Ceramiche Riunite Srl Bologna 50,0% 2,5%

Hydrodesign Srl Castellarano RE 51,0%

Granitifiandre Praha Sro Praga CZ 66,0%

Technopose Sarl Parigi FR 91,48%

Kaleidos Design SL Castellon de la Plana E 85,0%

Geologica Castellarano Srl Castellarano RE 100%

Bedel Paris Sa Champigny FR 56,0%

TechGeo Sl Castellon de la Plana E 50,001%

Floornature.com SpA Fiorano Modenese MO 90,0%

Geologica Parma Srl Parma 51,0%

Key:

Parent company - industry Industry Commercial activity Services and installation activity E-commerce activity

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Quarterly report as at December 31, 2006

Report on operations Group consolidated results •

GranitiFiandre Group results:

Fourth quarter 2006 In Euro thousands prepared in accordance with IAS/IFRS

Description

difference value %

31/12/2006

31/12/2005

3 months

3 months

50.682

46.067

4.615

10,0%

EBITDA-Gross operting result on sales

7.805

5.493

2.312

42,1%

EBIT-Operating result

4.088

1.751

2.337

133,5%

819

2.596

(1.777)

-68,5%

(234)

2.119

(2.353)

-111,0%

15,4% 8,1% 1,6% -0,5%

11,9% 3,8% 5,6% 4,6%

Net Sales

Result before taxes and minority interests Net result for the Group Gross operating income on sales Operating income on sales Income before taxes on sales Net result on sales

Full year 2006 In Euro thousands prepared in accordance with IAS/IFRS

Description

difference value %

31/12/2006

31/12/2005

12 months

12 mesi

199.107

176.256

22.851

13,0%

EBITDA-Gross operting result on sales

28.561

25.086

3.475

13,9%

EBIT-Operating result

14.364

12.529

1.835

14,6%

6.049

15.462

(9.413)

-60,9%

(1.455)

7.086

(8.541)

-120,5%

(6.016)

14,4%

(8.521)

-5,2%

Net Sales

Result before taxes and minority interests Net result for the Group Net financial position Shareholder's equity Gross operating income on sales Operating income on sales Income before taxes on sales Net result on sales

(47.666) 154.011

(41.650) 162.532

14,3% 7,2% 3,0% -0,7%

14,2% 7,1% 8,8% 4,0%

The above results illustrate strong growth by the GranitiFiandre Group in the fourth quarter, both in relation to turnover (+10%) and, in particular, margins. The Ebitda as a percentage on sales in the quarter was 15.4% (11.9% in the fourth quarter of 2005) while the Ebit was 8.1% (3.8% in the fourth quarter of 2005). The Ebitda in the fourth quarter was Euro 7.8 million (Euro 5.5 million in the corresponding period of 2005), a net increase of Euro 2.3 million. Contributing positively to this increase, in addition to the parent company GranitiFiandre spa for Euro 5.7 million, were the subsidiaries StonePeak and Porcelaingres - totalling Euro 1.2 million. The Ebitda for the year 2006 was Euro 28.6 million (Euro 25.1 million in 2005); this increase is considered extremely positive, taking into account that the American subsidiary was in the full start-up phase for the first six months of 2006, with an effect of approximately Euro 1.2 million on the full year Ebitda. page 9

Quarterly report as at December 31, 2006

The Ebit in the fourth quarter was Euro 4.1 million (Euro 1.8 million in the corresponding period of 2005), a net increase of Euro 2.3 million. The increase in the quarter is largely due to the increase in the average sales price of the parent company GranitiFiandre spa (+4.2% in the fourth quarter and +6.4% for the full year, deriving from an increase in the price list and an improved sales mix) and the positive contribution of the German subsidiary Porcelaingres of approximately Euro 300 thousand. The Ebit for the year 2006 was Euro 14.3 million (Euro 12.5 million in 2005); the Ebit is also to be considered positive, taking into account the American subsidiary, with an impact of approximately Euro 5.5 million on the Ebit. Therefore, excluding StonePeak, the Ebit for 2006 would have amounted to over Euro 19.8 million. There was a significant impact at both Ebitda and Ebit level of the abnormal increase in energy costs (+22.8%, methane and electricity) compared to the previous year. The higher total cost incurred by the parent company GranitiFiandre spa and by the German subsidiary Porcelaingres, due to the increase in the unit purchase price, was approximately Euro 2.4 million for the year and approximately Euro 540 thousand for the quarter. The Euro/US Dollar exchange rate had a very negative impact on the full year financial result and consequently on the pre-tax result. The exchange losses recorded for the year 2006 amount to Euro 6.8 million (Euro 3.1 million in the fourth quarter of 2006), of which Euro 6.3 million on valuation adjustments; in 2005, the GranitiFiandre Group recorded an exchange gain of Euro 4.2 million (Euro 1 million in the fourth quarter of 2005).

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Quarterly report as at December 31, 2006

Group turnover Total turnover for the fourth quarter and for the year 2006 reports significant growth of 10% and 13.0% respectively. The growth was achieved in all of the macro geographic areas in which the GranitiFiandre Group operates and in particular in the rest of the world. The breakdown of the total consolidated sales by geographic area is shown below: Data for the fourth quarter and full year 2006 In Euro thousands

Description

31/12/2006

31/12/2005

3 months

3 months

Italy Europe Rest of the world

23.505 16.276 10.901

46,4%

Total

50.682

Diff

48,7%

21,5%

22.440 13.558 10.069

100,0%

46.067

32,1%

%

31/12/2006

31/12/2005

12 months

12 months

3 months 3 months

20,0%

21,9%

1.065 2.718 832

100,0%

4.615

29,4%

43,5%

8,3%

86.689 67.065 45.353

10,0%

199.107

4,7%

Diff

46,8%

22,8%

82.477 58.047 35.731

100,0%

176.256

33,7%

%

12 months 12 months

15,5%

20,3%

4.211 9.018 9.622

100,0%

22.851

13,0%

32,9%

5,1% 26,9%

Breakdown of revenues by product line: Fourth quarter 2006 In Euro thousands

Description

31/12/2006

31/12/2005

Difference 3 months

%

3 months s

3 months s

3 months

Vitrified brand stoneware Granitech Division - material Branded products Granitech Division - structure Branded products and structure Vitrified stoneware - low range Polishing services Semi-finished products Fitting and installation services Processing Others Other revenues

36.648 360 37.008 1.292 38.300 18,05 1.550 2.147 3.730 4.204 733 12.382

32.613 517 33.130 1.069 34.200 53,30 1.803 2.170 3.181 3.668 993 11.867

4.034 (156) 3.878 222 4.100 (35) (253) (23) 550 536 (260) 515

12,4% -30,2% 11,7% 20,8% 12,0%

Total net consolidated sales

50.682

46.067

4.615

10,0%

-14,0% -1,1% 17,3% 14,6% -26,2% 4,3%

Full year 2006 In Euro thousands

Description

31/12/2006

31/12/2005

12 months

12 months

Difference

Vitrified brand stoneware Granitech Division - material Branded products Granitech Division - structure Branded products and structure Vitrified stoneware - low range Polishing services Semi-finished products Fitting and installation services Processing Others Other revenues

140.172 2.082 142.254 5.745 147.999 47 6.879 8.627 13.308 17.635 4.613 51.108

125.011 1.764 126.776 3.243 130.018 214 6.763 7.877 13.057 15.349 2.977 46.238

15.161 318 15.478 2.503 17.981 (168) 116 750 251 2.286 1.636 4.871

12,1% 18,0% 12,2% 77,2% 13,8% -78,3% 1,7% 9,5% 1,9% 14,9% 55,0% 10,5%

Total net consolidated sales

199.107

176.256

22.851

13,0%

12 months

% 12 months

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Quarterly report as at December 31, 2006

Consolidated brand sales The breakdown of the brand sales by geographic area is shown below: Data for the fourth quarter and full year 2006 In Euro thousands Description 31/12/2006

31/12/2005

3 months

3 months

Italy Europe Rest of the world

12.112 14.055 10.841

32,7%

Total

37.008

Diff

35,4%

29,3%

11.741 11.849 9.541

100,0%

33.130

38,0%

%

3 months 3 months

18,6%

28,8%

371 2.206 1.301

100,0%

3.878

35,8%

31/12/2006

31/12/2005

12 months

12 months 28,9%

13,6%

41.102 56.833 44.319

11,7%

142.254

3,2%

Diff

12 months

14,2%

12,2%

32,4%

31,2%

41.088 49.756 35.931

28,3%

14 7.077 8.387

100,0%

126.776

100,0%

15.478

40,0%

39,2%

%

12 months

0,0% 23,3%

The GranitiFiandre Group in 2006 significantly increased sales of brand materials which amounted to Euro 142.3 million, compared to Euro 126.8 million in 2005, an increase of 12.2%. Sales in the fourth quarter are in line with the annual growth and amounted to Euro 37.0 million, compared to Euro 33.1 million in 2005, an increase of 11.7%. Brands sales in Italy in the quarter increased by 3.2% and for the year confirmed the excellent results recorded in 2005 (+20.8%). The contribution of brand sales in Italy decreased by 3.5% on total brand sales, evidence of significant growth, both in absolute and percentage terms, of sales in the European market – but particularly in the rest of the world. The European market recorded an annual increase in absolute value of approximately Euro 7.1 million (+14.2%). In the fourth quarter of 2006, the increase in brand materials in Europe was even more significant, amounting to Euro 2.2 million (+18.6%). The increase in sales on the German market is of particular importance - in absolute value of Euro 2.4 million (+16%) for the year and over Euro 1 million for the final quarter (+30%). GranitiFiandre Group sales in Germany in 2006 amounted to Euro 17.1 million. When viewed against the decrease in the German ceramics and stonework sector, this is even more significant. In 2006, all of the principal countries recorded significant growth in turnover: Russia (+72%), The Netherlands (+57%), Romania (+18%), Sweden (+39%), Czech Republic (+11%), Eire (+53%), Ukraine (+27%), Poland (+17%), and Hungary (+9%); the increases in the above-mentioned countries are indicative of the positive contribution to GranitiFiandre group sales by the German subsidiary Porcelaingres, with full year sales of Euro 20.5 million. In the European market, particularly good growth was recorded in France (+15%, with sales of Euro 14.5 million) and in Spain (+33%, with sales of over Euro 3 million). Thanks to the significant increase of 23.3% for the year in sales in the Rest of the world (Euro +8.4 million compared to 2005), this latter increased as a percentage on the total brand sales by 2.9%. This result is due to the increasing appreciation of the Granitifiandre brand and the important investments made for the penetration of the StonePeak brand, undertaken through intense technical promotion activity of the principal architects and “decision makers” and the principal distribution operators in the North American market. The main increases in the Rest of the world related to the United States (+29%, equal to Euro 6.2 million with total sales of Euro 27.1 million) and Canada (+5%, with total sales of Euro 8.5 million).

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Quarterly report as at December 31, 2006

Other consolidated sales Granitech. The sales in the Granitech division, which operates in the ventilated walls and floating floors sector, recorded growth in 2006 in structure sales of 77.2% (Euro 2.5 million) and an increase in materials of 18% (over Euro 300 thousand). The total sales mix of Euro 7.8 million increased by over Euro 2.8 million. Polishing services. The polishing services in 2006 recorded an increase in sales of Euro 116 thousand (+1.7%). Semi-finished products. The sales of “semi-finished products”, carried out on behalf of other operators, were maintained at very satisfactory levels and thus permitted the optimisation of fixed cost absorption at the Italian factory. Sales for the year grew compared to the previous year (+9.5%, amounting to Euro 750 thousand). Installation. The companies operating in the installation sector recorded an increase in sales for the year of 1.9%, with a recovery in the fourth quarter of Euro 550 thousand (+17.3%). Cutting & processing. The cutting and processing services of vitrified stoneware confirmed the growth recorded in 2005; the increase in sales in 2006 amounted to 14.9%, equal to Euro 2.3 million; there was also double-digit growth in the fourth quarter of +14.6%, equal to Euro 536 thousand.

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Quarterly report as at December 31, 2006

Reclassified Group Income Statement The reclassified income statement of the GranitiFiandre Group is shown below: In Euro thousands

Description

31/12/2006

31/12/2005

4th quarter

4th quarter

3 months

Revenues for sales and services Changes in inventory Other income and revenues Value of production Purchases Services and other operating costs Personnel costs Ebitda-Gross operating result Amortisation, depreciation and provisions Ebit-Operating result Financial income (charges) Result before taxes Income taxes Net result before minority interest Minority interest Net result of the Group

3 months

50.682 2.016 1.132

31/12/2006

31/12/2005

12 months

12 months

46.067 4.007 1.004

199.107 6.407 6.753

176.256 10.678 5.156

53.830

51.078

212.267

192.090

(15.826) (18.849) (11.350)

(16.633) (17.776) (11.176)

(64.235) (75.680) (43.791)

(61.500) (63.680) (41.824)

7.805

5.493

28.561

25.086

(3.717)

(3.742)

(14.197)

(12.557)

4.088

1.751

14.364

12.529

845

(8.315)

(3.269)

**

*

2.933

819

2.596

6.049

15.462

(1.062)

(181)

(6.855)

(7.315)

(243)

2.415

(806)

8.147

9

(296)

(649)

(1.061)

(234)

2.119

(1.455)

7.086

* Including the negative Euro/Dollar exchange difference of Euro 6.8 million. * Including the negative Euro/Dollar exchange difference in the quarter of Euro 3.1 million.

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Quarterly report as at December 31, 2006

Reclassified Group Balance Sheet The reclassified consolidated balance sheet is shown below: In Euro thousands

Description

31/12/2006

30/9/2006

30/6/2006

31/3/2006

31/12/2005

Intangibles Tangibles Financial

7.246 135.368 1.738

6.998 135.883 1.757

7.097 135.713 1.696

7.179 137.785 1.663

7.227 141.013 1.815

Total

144.352

144.638

144.506

146.627

150.055

60.393 9.695 70.514 (58.409) (15.188)

61.208 8.115 68.637 (54.135) (18.341)

62.097 8.831 69.199 (56.699) (16.682)

55.755 9.432 69.209 (54.260) (20.379)

53.945 8.787 66.758 (52.366) (14.369)

67.005

65.484

66.746

59.757

62.755

Fixed assets

Net Working capital Trade receivable Tax credit and other recivables Inventory Trade payable Tax payables and other payables Total

Provisions for risks and employee leaving indemnity Provision for employee leaving indemnity Provision for risks and charges

(8.594) (1.086)

(8.310) (988)

(8.109) (666)

(8.055) (613)

(8.075) (553)

Total

(9.680)

(9.298)

(8.775)

(8.668)

(8.628)

201.677

200.824

202.477

197.716

204.182

(11.545) 56.850 2.361

(13.684) 57.060 2.468

(10.050) 56.842 2.681

(11.178) 48.737 4.348

(10.478) 47.705 4.423

47.666

45.844

49.473

41.907

41.650

Share capital Reserves Result of the group Minority interests net equity Result of minority interests

18.431 132.208 (1.455) 4.178 649

18.431 132.820 (1.221) 4.292 658

18.431 132.760 (2.873) 4.281 405

18.431 134.128 (1.252) 4.377 125

18.431 132.295 7.086 3.659 1.061

Total

154.011

154.980

153.004

155.809

162.532

Total source of financing

201.677

200.824

202.477

197.716

204.182

Capital employed Net financial position Cash and securities Short term loans payable Medium/long term loans payable Total Shareholders' equity

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Quarterly report as at December 31, 2006

Net Financial Position The net financial position is as follows: In Euro thousands Description

31/12/2006

30/9/2006

30/6/2006

31/3/2006

31/12/2005

Cash and banks Short term investments and finacial recivables Financial debt vs shareholders - short term Short term payables to bank

8.554 2.991 (11.956) (44.894)

10.843 2.841 (11.856) (45.204)

7.609 2.441 (11.916) (44.926)

9.357 1.821 (11.806) (36.931)

8.657 1.821 (11.715) (35.990)

Short term net financial position

(45.305)

(43.376)

(46.792)

(37.559)

(37.227)

Medium/long term payables to banks Medium/long term payables to other financiers Financial debt vs shareholders - long term

(276) (1.184) (901)

(310) (1.184) (974)

(310) (1.184) (1.187)

(125) (1.357) (2.866)

(125) (1.357) (2.941)

Total medium/long term

(2.361)

(2.468)

(2.681)

(4.348)

(4.423)

(47.666)

(45.844)

(49.473)

(41.907)

(41.650)

Net financial position

The net financial position at December 31, 2006 was Euro -47.7 million, compared to Euro -41.6 million at December 31, 2005. The decrease compared to December 2005 is principally due to the 2005 dividend of Euro 4.4 million, to the payment of the 2005 income taxes and to the investments in the year of Euro 15.1 million; the investments in the fourth quarter of 2006 amounted to Euro 5.7 million. The cash flow generated in the fourth quarter of 2006, net of the above-mentioned investments in the quarter was Euro 3.8 million. The cash flow generated from ordinary operations amounted to Euro 19.9 million before income taxes and Euro 13.1 million after taxes, as shown in the cash flow statement below as at December 31, 2006.

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Quarterly report as at December 31, 2006

Consolidated cash flow statement The consolidated cash flow statement is shown below: In Euro thousands

Description

31/12/06

Result for the period Result pertaining to minority interests Amortisation and depreciation Net variation in employee leaving indemnity Net variation Provisions

(1.455) 649 12.819 519 533

Cash flow generated from operating activities

13.065

Variation of assets and liabilities in the period Inventory Trade receivables Tax and other receivables Trade payables Tax and other payables Cash flow for the period (A) Increase in intangible assets Increase in tangible assets Exchange effect on tangible assets Decrease in tangible assets Other net increases/decreases in financial non current assets

(3.756) (6.448) (908) 6.043 819 8.815 (829) (14.291) 7.317 610 77

Cash flow of investment activity (B)

(7.116)

Variations in net equity accounts Exchange effect in equity accounts Dividends Variation in financial debts

(542) (2.749) (4.424) (2.062)

Cash flow of financial activity ( C)

(9.777)

Net cash flow (A+B+C)

(8.078)

Net shotr term financial position at the beginning of the period Net cash flow in the period Net short term financial position at the end of the period

(37.227) (8.078) (45.305)

page 17

Quarterly report as at December 31, 2006

Information on the main Group companies GranitiFiandre S.p.A. The parent company GranitiFiandre S.p.A. in 2006 recorded sales of approximately Euro 121.7 million, compared to Euro 113.9 million in 2005 (+6.85%). The Ebitda for the year amounted to Euro 23.3 million (+10.5%, Euro 21.1 million in 2005) with a sales margin of 19.1% compared to 18.5% in the previous year. The Ebit for the year amounted to Euro 16.9 million (+20.2%, Euro 14.1 million in 2005), with an increase in the sales margin from 12.3% in 2005 to 13.9% in 2006. The operating margins, while remaining high and in growth, were negatively impacted by the abnormal increase in energy costs (+27%, methane and electricity). The higher cost incurred, due to the increase in the unit purchase price, was approximately Euro 2 million for the year. StonePeak. Sales for the year amounted to USD 34.4 million (corresponding to Euro 27.4 million). Sales were also positively impacted in the fourth quarter by the merger by incorporation (with effect as of January 31, 2006) of the North American subsidiary Trans Ceramica Ltd contributing sales of USD 23.5 million (corresponding to Euro 18.8 million) Confirming the break even at Ebitda level reached already in the third quarter, just over one year since the start-up of commercial activities, also in the fourth quarter of 2006 StonePeak recorded a positive Ebitda of USD 417 thousand (corresponding to Euro 332 thousand with sales in the quarter of USD 8.7 million, equal to Euro 6.7 million). The data in the second half of 2006 was particularly encouraging with an Ebitda for the second half of the year of USD 1.3 million (equal to Euro 1.1 million) on sales of USD 19 million (equal to Euro 17.2 million). The immediate developments of the subsidiary StonePeak are very positive, both in relation to logistical advantages deriving from the on-site production presence which will permit the provision of adequate services to the North American distribution chain, with consequent savings on charter, transport and custom costs, and in relation to the market reception which was confirmed by important agreements signed in the quarter. In fact, at the end of January 2007 the backlog amounted to approximately USD 10 million. Porcelaingres. The subsidiary Porcelaingres in 2006 recorded sales of Euro 20.5 million, +9.4% compared to 2005. Sales growth therefore continued to be positive, confirming the choices and considerable commercial investments made to promote and develop the Porcelaingres brand. In 2006, the growth in turnover is correlated to a continual improvement in operating margins: the Ebitda increased by 17.6%, equal to Euro 1.6 million (Euro 800 thousand in the fourth quarter of 2006), the Ebit for the year was a loss of Euro 509 thousand compared to Euro 818 thousand in 2005 (a positive Ebit in the fourth quarter of approximately Euro 300 thousand). The margins, although improving compared to the previous year, are negatively impacted by the increase in the average unit energy costs (+12.9% equal to approx. Euro 400 thousand).

page 18

Quarterly report as at December 31, 2006

Sales information Brand shops The number of shops is 72 - of which 70 Geologica brand shops, the majority of which in franchising. There are now 48 overseas outlets, thanks to the new openings in 2006; the most recent openings relate to Paris, Puerto Rico, Shanghai, Strasbourg, Bari, Faenza, Doha in Qatar and Guadalajara in Mexico (the last two opened in the fourth quarter of 2007) A further 2 shops are planned to open shortly at: Miami and Guangzhou in China. Research & development In 2006, the parent company continued research and development activity in a continuous manner, which is considered indispensable for the constant stylistic and technological renewal of the collections, as well as for research for new materials to utilise in the making of the product. The process of development of new products is based on the re-production of samples of quarry materials, whether they be marble, granite or stone in which the morphology, colour, veining and the visual contact between the base and surface is carefully studied. The research and development activity was strongly absorbed by the enlargement of the product range for the American factory StonePeak and the Porcelaingres brand. Simultaneously, the development continues of innovative products dedicated to the Granitifiandre brand and in particular, within the Geologica collection, the development of the new patented brand collection “GeoDiamond”; this collection, strongly innovative from a technical viewpoint and of great prestige, was enlarged and now includes 7 different materials conceived for prestigious projects. The GeoDiamond collection, in addition to the polished finishing, also completed the “Textured” structure finishing which is also composed of 7 different materials. Projects continued in collaboration with the subsidiary Hydrodesign in relation to combinations with non-ceramic materials (wood, steel and glass). This expands the opportunities of GranitiFiandre in the luxury residential market. Important research activity was undertaken in relation to the development of products for important projects or requested by commercial or industrial groups for the personalisation of their “corporate identity” image (among the most recent and significant Fiat and Bmw). In 2006, GranitiFiandre in addition to expanding the collections “GeoDiamond”, “New-Marmi” and “New-Stone”, created two new collections: “Platinum”, at the top end of the range with high industrial margins and “New CO-DE”, a collection which is the symbol of simplicity and contemporary elegance while fully respecting the environment. In January 2007, the new collection “Platinum” received the AIT “architecture and flooring” award for innovation at Hanover. The subsidiary Porcelaingres realised the new “Woodstone” collection in vitrified stoneware inspired by the finest wood; this new collection is adapted for interior and exterior use and is composed of 4 different materials and 12 products which recreate the installation, design and subtleties of wood from all over the world. Finally, it is noted that Granitifiandre was the subject of a case study for the Annual Convention of the Marketing of Italian Companies by the Economics Faculty at the University of Parma, which highlighted the company’s capacity for innovation both in relation to products and its ability to develop advanced strategies to cover the global market thanks to the extraordinary capacity to communicate innovation and value. Granitifiandre was also invited to Japan, by Yamashita Sekkei - one of the most famous groups in the field of architecture and engineering, to present its products, philosophy and values.

page 19

Quarterly report as at December 31, 2006

Significant events after the end of the quarter • Future projects Among the most significant orders acquired in the period on the Italian market, we note the supply of Geologica materials for the Bari Metro in addition to the flooring for one of the major Italian distribution chains for a total order close to Euro 1 million. In Europe, important orders were received of over Euro 500 thousand for the supply of Geologica materials to the “Legnika Centre” at Wroclaw in Poland and the supply of paving materials for shopping centres in Russia (Cheliablinsk Centre), Hungary (Vertes Centre) and Serbia (“Block 67” Centre), for a total value of over Euro 500 thousand. Also in the European market two new “Migros” shopping centres will be supplied in Switzerland with Geologica materials totalling Euro 350 thousand in addition to the paving relating to be external works of the Belgrade airport for approximately Euro 200 thousand. Outside of Europe, an important three-year agreement was signed with a new North American distributor, which provides for the purchase of Stone Peak materials totalling USD 6 million of which USD 1.5 million to be supplied in 2007. To this is added an order for Geotecnica materials of over Euro 500 thousand for a new residential centre at Abu Dhabi, in the United Arab Emirates. • Events From January 23-27, 2007, Granitifiandre participated at the “Swissbau 2007” held in Basilea in Switzerland, the principal trade fair for the construction sector in Switzerland with the participation of over 1,300 exhibitors. The company was also present at the first edition of the “Build UP Expo” international architecture and construction trade fair, held at Milan in the new convention area, a stimulating event which provided the opportunity to meet and discuss with the best international architects and planners. In January 2007, Porcelaingres presented the new collection “Mo.De. –Modern Design-“, at the “BAU International Convention for Construction Materials” at Munich in Germany, a bright and innovative product, with a textile and metallic “texture”, to which is added the “Concept” collection characterised by a gleaming finish; both collections are adaptable to all classic and modern architecture sectors, and for commercial and residential luxury use. Finally, StonePeak Ceramics, during the “Surface Expo” at Las Vegas held between February 6 and 9, 2007, presented the two new collections “Fashion” and “Parkland” - sophisticated products, which are characterised by the brightness of the colours and the contemporary finishings, which allows the materials to be used with either a classic or stonework effect, giving a sensation of uniqueness, colour and elegance.

Outlook For the first quarter of 2007, the expectations of management in relation to the development of activities continue to be positive; GranitiFiandre S.p.a in particular is expected to increase sales volumes based on the increase of brand sales in January and a significant backlog which has increased by over 20% compared to the same period in 2006. In the first quarter of 2007, the German factory and the Porcelaingres brand are also expected to record increases in sales volumes with growth in sales in January of 35% and a high backlog, which has increased by over 38% compared to the same period in 2006. Finally, there are very high expectations relating to the American factory and to the StonePeak brand; the first quarter of 2007 will record increases in sales volumes (USD 4.6 million in January 2007, almost doubled compared to the same period in 2006), accompanied by a continual page 20

Quarterly report as at December 31, 2006

improvement in margins; these expectations are also confirmed by production and commercial activities, and in consideration of further commercial contacts and the consequent backlog order amounting to approximately USD 10 million. Castellarano, February 14, 2007

For the Board of Directors The Chairman Graziano Verdi

page 21

Quarterly report as at December 31, 2006

CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 2006 PREPARED IN ACCORDANCE WITH I.A.S./I.F.R.S. COMPARED TO THE CONSOLIDATED FINANCIAL STATEMENT AS AT DECEMBER 31, 2005 BALANCE SHEET Amounts in Euro/000

Non-current assets Property, plant and equipment Goodwill and intangible assets with non finite lives Intangible assets with finite lives Equity investments Other non-current financial assets Tax receivables Deferred tax assets Other non-current assets TOTAL NON-CURRENT ASSETS

31/12/2006 IAS/IFRS 135.368 6.447 799 1.018 550 43 6.040 1.559 151.824

%

31/12/2005 IAS/IFRS

%

51,2%

141.013 6.052 1.175 1.018 2.271 44 4.763 1.606 157.942

54,5%

58.834 8.554 1.181 70.514 3.161 2.431 144.675

48,8%

52.366 8.657 1.253 66.758 347 2.700 132.081

45,5%

296.499

100%

290.023

100%

Current assets Trade and other receivables Liquid assets Tax receivables Inventories Current financial assets Other current assets TOTAL CURRENT ASSETS NON CURRENT ASSETS HELD FOR SALE

TOTAL ASSETS

Shareholders'equity Share capital Share premium reserve Legal reserve Other reserves Net profit (loss) for the year TOTAL GROUP SHAREHOLDERS' EQUITY Minority interest net equity and reserves Minority interest share in result

18.431 106.430 3.686 22.092 (1.455) 149.184 4.178 649

TOT.GROUP AND MINORITY INTEREST SHAREHOLDERS'EQUIT

154.011

50,3%

18.431 106.430 3.686 22.179 7.086 157.812 3.659 1.061

54,4%

51,9%

162.532

56,0%

4,9%

125 4.298 8.075 1.267 1.563 553 15.881

5,5%

58.150 44.701 12.149 3.142 9.889 128.031

43,2%

52.129 35.990 11.715 2.686 9.090 111.610

38,5%

296.499

100%

290.023

100%

Non-current liabilities Bank payables Financial payables Employee liabilities Deferred tax liabilities Other non-current liabilities Provisions for risks and charges TOTAL NON-CURRENT LIABILITIES

276 2.085 8.594 1.233 1.183 1.086 14.457

Current liabilities Trade and other payables Bank payables Financial payables Short-term tax payables Other current liabilities TOTAL CURRENT LIABILITIES LIABILITIES RELATED TO NON CURRENT ASSETS HELD FOR SALE

TOTAL EQUITY AND LIABILITIES

page 22

Quarterly report as at December 31, 2006

INCOME STATEMENT Amounts in Euro/000

INCOME STATEMENT Revenues

31/12/2006 IAS/IFRS

%

199.107

31/12/2005 IAS/IFRS 176.256

Other revenues

6.753

5.156

Change in inventories

6.407

10.678

Raw materials supplies and consumables

(64.235)

(61.500)

Costs for services

(69.383)

(57.930)

Personnel costs Other operating costs

(43.791) (6.297)

(41.824) (5.750)

Gross operating result (EBITDA) Amortisation, depreciation and write-downs Losses in value of tangible fixed assets

28.561

Operating result (EBIT)

14.364 867 (9.182)

RESULT BEFORE TAXES Income taxes

6.049 (807)

Minority interest share

(649) (1.455)

25.086

14,2%

(12.557) 0 7,2%

12.529

7,1%

4.500 (1.567) 3,0%

(6.856)

NET RESULT FOR THE PERIOD GROUP NET RESULT

14,3%

(14.197) -

Income from equity investments and other financial income Financial charges

%

15.462

8,8%

(7.316) -0,4%

8.147

4,6%

(1.061) -0,7%

7.086

4,0%

page 23

Quarterly report as at December 31, 2006

Notes to the consolidated financial statements as at December 31, 2006

Content and form of the consolidated quarterly report The quarterly report relating to the period October 1 – December 31, 2006 was prepared in conformity with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and in particular with IAS 34 relating to interim reporting. They were prepared in Euro rounded to the nearest thousand and are compared with the consolidated financial statements of the previous quarter and year prepared in accordance with uniform criteria. The financial statements used are comparable with those of the annual consolidated financial statements and consist of the consolidated balance sheet, the consolidated income statement, and the statement of change in net equity and the consolidated net financial position. The income statement data relates to the period under examination; comparative data for the same period in the previous year is provided, as is the data from the previous year. The balance sheet data and the data for the net financial position are provided with reference to the closing date of the quarter and are compared to the end of the previous quarter and the end of the previous year.

page 24

Quarterly report as at December 31, 2006

Consolidation scope GranitiFiandre SpA is the holding company of a group operating in the sector of production and distribution of vitrified stoneware materials for prestigious architectural solutions, with a wideranging offer that also includes pre and post sales complementary services. GranitiFiandre SpA is directly controlled by the company Finanziaria Ceramica Castellarano spa, with its registered office at Modena, Via Canalino 16 and with a share capital of Euro 1,200,230.72 fully paid-in. The consolidation scope at September 30, 2006 includes the Parent Company GranitiFiandre SpA and the companies in which GranitiFiandre SpA holds, directly or through subsidiary companies, control, or in any case exercises a dominant influence. A list of the companies in the consolidation is shown below. Control is considered as the power to determine, directly or indirectly, the financial and operating policies of an entity so as to obtain benefits from its activities. In the evaluation of control, consideration is taken of the existence and the effect of potential voting rights that are effectively exercisable or convertible. The subsidiaries are consolidated from the date in which control commences until the date in which control ends. The companies included in the consolidation at December 31, 2006 are the following: Name of the company

Granitifiandre SpA Stonepeak Ceramics Inc Porcelaingres Gmbh Technopose Sarl Bedel Paris Sa Technoposa Srl Hydrodesign Srl Kaleidos Design SL Geologica Milano Srl Ceramiche Riunite Srl Granitifiandre Praha Sro Floornature.com SpA Geologica Castellarano Srl Geologica Parma Srl Savoia Canada Inc Techgeo S.L.

Registered office

Castellarano RE - Italy Delaware - Usa Vetschau - Germany Paris - France Champigny - France Castellarano RE - Italy Castellarano RE - Italy Castellon De la Plana - Spain Milano - Italy Bologna - Italy Prague - Czech Republic Fiorano Modenese MO - Italy Castellarano RE - Italy Parma - Italia Toronto - Canada Castellon De la Plana - Spain

Currency

Share capital

Euro

18.431.339

USD Euro Euro Euro Euro Euro Euro Euro Euro CZK Euro Euro Euro CA$ Euro

39.611.000 (6) 43.000.000 (7) 200.000 91.500 99.500 80.000 3.005 96.900 98.800 100.000 2.500.000 98.000 98.000 100.000 250.000

Percentage held direct indirect

% Group

holding company 98,36% 99,99% 91,48% 51,00% 51,00% 90,00% 50,00% 66,00% 90,00% 100,00% 51,00% 70,01% 50,001%

2,50% (2) 56,00% (4)

85,00% (3) (1)

98,36% 99,99% 92,73% 51,93% 51,00% 51,00% 43,35% 90,00% 50,00% 66,00% 90,00% 100,00% 51,00% 70,01% 50,001%

(1) Ceramiche Riunite Srl is subject to dominant influence by the holding company (2) The indirect portion is held by Ceramiche Riunite Srl (3) Participation held by Hydrodesign Srl (4) Participation held by Technopose Sarl (5) Value includes paid in capital of USD 3 milion, USD 15,2 milion and USD 11,8 milion made in 2002, 2003 and 2004 (6) Value includes a paid in capital of USD 3 milion made in 2001 in TCL, merger for incorporation as at 2006 in StonePeak Ceramics Inc. (7) Value includes a paid in capital of Euro 13 milion made in 2002

The consolidation scope in 2006 changed compared to 2005 following the merger by incorporation, on January 31, 2006, of the subsidiary Trans Ceramica Ltd into the subsidiary StonePeak Ceramics Inc. Following the merger Granitifiandre S.p.A., which held 96.7% of Trans Ceramica Ltd and 99% of StonePeak Ceramics Inc, now holds 98.36% of the share capital of StonePeak Ceramics Inc.

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Quarterly report as at December 31, 2006

The consolidation scope also changed compared to December 31, 2005, as on April 26, 2006, the parent company Granitifiandre spa acquired the remaining shareholding in Geologica Castellarano Srl, and in November exercised the option to acquire a further 10% in Savoia Canada Inc (from 60.01% to 70.01%), a distributor in the Canadian market, in accordance with the original purchase contract for a pre-fixed cost of Euro 490 thousand. Consolidation criteria For the financial statements of the companies consolidated, the method utilised was the full integration method which consists of taking into account all of the asset, liability and income statement items in their entirety, showing the quota relating to minority shareholders in separate accounts in the consolidated net equity and income statement. The principal consolidation principles adopted were as follows: • The assets and liabilities, as well as the income and charges of the financial statements consolidated under the global integration method are included in the financial statements of the Group, without consideration of the holding in the subsidiary. In addition, the book value of the investments were eliminated against the quota of net equity in the holding, attributing to the minority shareholders, in separate accounts, their share of shareholders’ equity and the net result for the period where the subsidiary was consolidated under the integral method. • The positive differences resulting from the elimination of the investments against the book net equity at the date of the first consolidation is allocated to the higher values attributed to the assets and liabilities, and the residual part to goodwill. In accordance with the transitory provisions of IFRS 3, the Group has modified the accounting criteria for goodwill from the transition date. Therefore, from January 1, 2004, the Group no longer amortises goodwill and has implemented the procedures to apply impairment tests. • The payables/receivables, costs/revenues between consolidated companies and the gains/losses resulting from inter-company operations are eliminated, as are the effects of mergers and the sale of business units between companies in the consolidation scope. • The quota of net equity and of the result for the period pertaining to minority shareholders are recorded respectively in a separate account in Shareholders’ Equity “Minority Interest capital and reserves” and in the Income Statement in the account “profit (loss) pertaining to minority interests”.

Accounting principles and valuation criteria The accounting standards and policies adopted to draw up the consolidated quarterly financial statements at December 31, 2006 have not changed compared to those utilised in the preparation of the consolidated financial statements at December 31, 2005, to which reference should be made.

page 26

Quarterly report as at December 31, 2006

Comments on the principal changes Fixed assets Tangible fixed assets at December 31, 2006 amounted to Euro 135,368 thousand compared to Euro 141,013 thousand at December 31, 2005. The increases in 2006 amounted to Euro 15.1 million, principally relating to the final investments in the American factory; the accounting effect of these increases were partly neutralised by the foreign exchange effect of Euro 7.3 million on the fixed assets. There was also consolidated depreciation of approximately Euro 12.9 million. This account, in particular, is affected by the comparison with the previous year of the start-up of the American factory, of which depreciation amounted to Euro 4.1 million. Working Capital The net working capital movements are due to increases in trade receivables of Euro 6.4 million and in trade payables of Euro 6 million. Inventories increased, compared to the same period in 2005, by Euro 3.8 million of which only Euro 1.3 million was in the final three months of 2006. The commencement of production at the American subsidiary StonePeak significantly impacting on the value of inventories. Shareholders' Equity The reconciliation of the result and shareholders’ equity of GranitiFiandre SpA with the consolidated result and shareholders’ equity of the GranitiFiandre Group at December 31, 2006 is as follows:

Description

Granitifiandre SpA IAS/IFRS Put Call Difference between net equities of the companies consolidated and their carrying values in the financial statements of the Parent Company with Translation reserve Reversal of dividend Elimination on inter group profits not yet realised net of fiscal effect Total net equity and result of the group Net equity and result of minority interest Total net equity

Share capital and reserves

Result

157.747

5.285

Total

163.032

(1.209)

-

(1.209)

(4.926)

(6.804)

(11.730)

57 (1.030)

(57)

-

121

(909)

150.639

(1.455)

149.184

4.178

649

4.827

154.817

(806)

154.011

page 27

Quarterly report as at December 31, 2006

The movement in the consolidated shareholders’ equity is shown in the table below:

Analysis of movements of the shareholders' equity as at 31/12/06 Description

Share

Share premium

Legal

Other reserves of

Translation

Profit on

Euro/000

Capital

reserve

Reserve

the parent company

Reserve

consolidation

December 31, 2005

18.431

106.430

3.686

22.465

(4.390)

Result

4.104

7.086

Total

157.812

Allocation profit 2005 - Legal reserve

-

- Other reserves

5.365

- Retained earnings

(4.424)

(941)

1.721

(1.721)

- Dividend

(4.424)

Translation difference

(2.327)

(422)

Income for the period Situation as at December 31, 2006

106.430

3.686

27.830

(6.717)

979

(4.424) (2.749)

(1.455) 18.431

-

(1.455)

(1.455) 149.184

page 28