Group operating results

The performance in 2017 has enabled the Group to achieve consolidated operating profit of €1,123 million, registering growth of 7.9% compared with the previous year (€1,041 million). This was primarily due to the positive contribution to the result from the Insurance Services segment.

Profit for the year of €689 million is up 10.8% on the previous year (profit of €622 million), despite the impairment loss of €82 million on the Contingent Convertible Notes subscribed for by Poste Italiane in December 2014 at an original cost of €75 million and issued by Midco SpA, in addition to the impairment loss of €12 million on the investment of Poste Vita’s free capital in the Atlante fund.

Results of operations for the year ended 31 December (€m)	2017	2016	Increase/(decrease)
Total revenue	10,629	10,643	(14)	-0.1%
of which:
Mail, Parcels and Distribution	3,631	3,822	(191)	-5.0%
Payments, Mobile and Digital	586	570	16	2.8%
Financial Services	4,956	5,009	(53)	-1.1%
Insurance Services	1,456	1,242	214	17.2%
Total costs	9,506	9,602	(96)	-1.0%
of which:
Total personnel expenses	6,093	6,241	(148)	-2.4%
of which personnel expenses	5,594	5,732	(138)	-2.4%
of which early retirement incentives	499	509	(10)	-2.0%
Other operating costs	2,868	2,780	88	3.2%
Depreciation, amortisation and impairments	545	581	(36)	-6.2%
EBITDA	1,668	1,622	46	2.8%
EBIT	1,123	1,041	82	7.9%
EBIT Margin	10.6%	9.8%	0.8%
Finance income/(costs) and profit/(loss) on investments accounted for using the equity method	(56)	15	(71)	n/s
Profit before tax	1,067	1,056	11	1.0%
Income tax expense	378	434	(56)	-12.9%
Profit for the year	689	622	67	10.8%
Earnings per share	0.53	0.48	0.05	10.9%
Dividend per share (€)	0.42	0.39	0.03	7.7%
ROE	9.6%	8.9%	0.7%

Operating results by operating segment

2017 (€m)	Mail, Parcels and Distribution	Payments, Mobile and Digital	Financial Services	Insurance Services	Adjustments and eliminations	Total
Total revenue	8,128	914	5,970	1,457	(5,840)	10,629
External revenue	3,631	586	4,956	1,456	-	10,629
Intersegment revenue	4,497	328	1,014	1	(5,840)	-
Total costs	8,645	719	5,324	658	(5,840)	9,506
Costs	8,580	225	562	139	-	9,506
Total personnel expenses	5,922	31	103	37	-	6,093
of which personnel expenses	5,430	31	97	36	-	5,594
of which early retirement incentives	492	-	6	1	-	499
Other operating costs	2,153	172	458	85	-	2,868
Depreciation, amortisation and impairments	505	22	1	17	-	545
Intersegment costs	65	494	4,762	519	(5,840)	-
EBIT	(517)	195	646	799	-	1,123
EBIT MARGIN	-6.4%	21.3%	10.8%	54.8%	10.6%	1,123
Finance income/(costs)	(119)	(1)	(2)	49	-	(73)
Profit/(loss) on investments accounted for using the equity method	(2)	7	12	-	-	17
Intersegment finance income/(costs)	9	-	(4)	(5)	-	-
Profit/(Loss) before tax	(629)	201	652	843	-	1,067
Income tax expense	(127)	55	153	297	-	378
Profit for the year	(502)	146	499	546	-	689

2017 (€m)	Mail, Parcels and Distribution	Payments, Mobile and Digital	Financial Services	Insurance Services	Adjustments and eliminations	Total
Total revenue	8,128	914	5,970	1,457	(5,840)	10,629
External revenue	3,631	586	4,956	1,456	-	10,629
Intersegment revenue	4,497	328	1,014	1	(5,840)	-
Total costs	8,645	719	5,324	658	(5,840)	9,506
Costs	8,580	225	562	139	-	9,506
Total personnel expenses	5,922	31	103	37	-	6,093
of which personnel expenses	5,430	31	97	36	-	5,594
of which early retirement incentives	492	-	6	1	-	499
Other operating costs	2,153	172	458	85	-	2,868
Depreciation, amortisation and impairments	505	22	1	17	-	545
Intersegment costs	65	494	4,762	519	(5,840)	-
EBIT	(517)	195	646	799	-	1,123
EBIT MARGIN	-6.4%	21.3%	10.8%	54.8%		10.6%
Finance income/(costs)	(119)	(1)	(2)	49	-	(73)
Profit/(loss) on investments accounted for using the equity method	(2)	7	12	-	-	17
Intersegment finance income/(costs)	9	-	(4)	(5)	-	-
Profit/(Loss) before tax	(629)	201	652	843	-	1,067
Income tax expense	(127)	55	153	297	-	378
Profit for the year	(502)	146	499	546	-	689

Mail, parcels and distribution segment profit or loss

for the year ended 31 December (€m)	2017	2016	Increase/(decrease)
Mail	2,650	2,907	(257)	-8.8%
Parcels	693	649	44	6.8%
Other revenue	288	266	22	8.3%
Intersegment revenue	4,497	4,540	(43)	-0.9%
Total revenue	8,128	8,362	(234)	-2.8%
Personnel expenses	5,922	6,055	(133)	-2.2%
of which personnel expenses	5,430	5,554	(124)	-2.2%
of which early retirement incentives	492	501	(9)	-1.8%
Other operating costs	2,153	2,119	34	1.6%
Intersegment costs	65	88	(23)	-26.1%
Total costs	8,140	8,262	(122)	-1.5%
EBITDA	(12)	100	(112)	n/s
Depreciation, amortisation and impairments	505	536	(31)	-5.8%
EBIT	(517)	(436)	(81)	-18.6%
EBIT MARGIN	-6.4%	-5.2%	-1.1%
Finance income/(costs)	(112)	(26)	(86)	n/s
Profit/(Loss) before tax	(629)	(462)	(167)	-36.1%
Income tax expense	(127)	(83)	(44)	-53.0%
Profit for the year	(502)	(379)	(123)	-32.5%

n/s: not significant

The Mail, Parcels and Distribution segment reported an operating loss of €517 million, up €81 million on the operating loss of €436 million of the previous year. This performance reflects the decrease in revenue from letter post, due to the contraction in volumes in its traditional market (down €257 million compared to 2016), and in intersegment revenue (down €43 million compared to 2016), which is governed by operating guidelines for the remuneration of distribution services provided to other segments. Moreover, 2016 benefitted from approximately €108 million in deferred revenue from previous years.

Parcels revenue, on the other hand, rose 6.8% (up €44 million compared to 2016) mainly due to the positive performance of the Domestic segment (volumes up €16 million compared to 2016). The segment’s results also reflect the fact that, from 10 September 2017, the subsidiary, SDA, was affected by industrial action that lasted a number of weeks until mid-October, causing delays in the collection and delivery of packages, above all heavy items.

Costs of €8,140 million have decreased compared with 2016 (down €122 million) due to a reduction in personnel expenses (down €133 million), only partially offset by an increase in other operating costs (up €34 million), of which the 2016 balance benefitted from the release of provisions for disputes with third parties (around €7 million), as the related liabilities for which provision had been made in previous years failed to materialise.

Payments, mobile and digital segment profit or loss

for the year ended 31 December (€m)	2017	2016	Increase/(decrease)
E-money	212	166	46	27.7%
Other payments	163	180	(17)	-9.4%
Mobile	211	224	(13)	-5.8%
Intersegment revenue	328	359	(31)	n/s
Total revenue	914	929	(15)	-1.6%
Personnel expenses	31	31	-	n/s
of which personnel expenses	31	31	-	n/s
of which early retirement incentives	-	-	-	n/s
Other operating costs	172	182	(10)	-5.5%
Intersegment costs	494	473	21	4.4%
Total costs	697	686	11	1.6%
EBITDA	217	243	(26)	-10.7%
Depreciation, amortisation and impairments	22	30	(8)	-26.7%
EBIT	195	213	(18)	-8.5%
EBIT MARGIN	21.3%	22.9%	-1.6%
Finance income/(costs)	6	(1)	7	n/s
Profit/(Loss) before tax	201	212	(11)	-5.2%
Income tax expense	55	68	(13)	-19.1%
Profit for the year	146	144	2	1.4%

n/s: not significant

As already noted, the new Payments, Mobile and Digital (PMD) segment aims to centralise the management of payment services – partly in view of the new activities envisaged by PSD2 – and operate as a competence centre to support the implementation of the Group’s digital strategy. The segment includes the collection and payment services provided by BancoPosta RFC (managed in outsourcing), the e-money products and services offered by PosteMobile SpA, which has acquired significant experience over the years in digital services and in mobile banking and mobile payments. The investment in SIA SpA has also been allocated to the PMD segment.

In line with the digital transformation process, the BPIOL Remote Banking offering has evolved towards personalised solutions for specific customer targets, such as BPIOL EASY, the new Remote Banking solution for freelance professionals and sole traders with simpler online banking needs.

Development of the Bollettino service (for paying bills) continued, with the inclusion in the new BancoPosta and Ufficio Postale apps of the functions offered in the payments section of the website at www.poste.it. The aim is to standardise the user experience across the various channels, creating a single digital ecosystem.

As regards electronic money, the new PostePay Evolution Business card for freelance professionals and sole traders has been launched, enabling the holder to access collection services through a range of channels, thanks to synergies with BancoPosta’s acquiring services. At 31 December 2017, the number of Postepay cards issued exceeds 17 million, including approximately 4.7 million Postepay Evolution cards, whilst the number of Postamat cards in circulation is stable at 7 million.

Financial services segment profit or loss

for the year ended 31 December (€m)	2017	2016	Increase/(decrease)
Capital gains	547	473	74	15.6%
Interest income	1,478	1,510	(32)	-2.1%
Collection of postal savings	1,566	1,577	(11)	-0.7%
Transaction banking	1,008	1,061	(53)	-5.0%
Distribution of third-party products	272	327	(55)	-16.8%
Asset management	85	61	24	39.3%
Intersegment revenue	1,014	982	32	3.3%
Total revenue	5,970	5,991	(21)	-0.4%
Personnel expenses	103	120	(17)	-14.2%
of which personnel expenses	97	113	(16)	-14.2%
of which early retirement incentives	6	7	(1)	-14.3%
Other operating costs	458	390	68	17.4%
Depreciation, amortisation and impairments	1	1	n/s	n/s
Intersegment costs	4,762	4,820	(58)	-1.2%
Total costs	5,324	5,331	(7)	-0.1%
EBIT	646	660	(14)	-2.1%
EBIT MARGIN	10.8%	11.0%	-0.2%
Finance income/(costs)	6	3	3	n/s
Profit/(Loss) before tax	652	663	(11)	-1.7%
Income tax expense	153	198	(45)	-22.7%
Profit for the year	499	465	34	7.3%

n/s: not significant

Operating profit generated by the Financial Services segment in 2017 amounts to €646 million, down 2.1% compared with the previous year (€660 million). The change essentially reflects the impact of non-recurring transactions (the sale of the investment in Visa Europe Ltd. in 2016 for €121 million and of shares in Mastercard in 2017 for €91 million), with a €30 million reduction in gains with respect to 2016, and an increase in provisions for risks and charges, linked to financial instruments and investment products sold in previous years, whose performance has not been in line with customers’ expectations.

Total revenue generated by the segment is down compared with the previous year (a decline of 0.4%), primarily reflecting a reduction in income from the distribution of third-party financial products (down 16.8%) which, whilst the distribution of loan products performed well (up 3.2%), suffered the effects of the absence of BDM-MCC’s contribution, after this company was sold on 7 August 2017. The reduction in revenue also reflects a 5% decline in revenue from transaction banking, due to a reduction in the volume of payment of bills using payment slips, and the above decrease in income from the sales of shares in Visa and Mastercard. These results are only partially offset by an increase in gains (up 15.6%), increased fees from asset management at BancoPosta Fondi SGR (up 39.3%) and a rise in intersegment revenue (up 3.3%), resulting from an increase in income from insurance brokerage (up 3.2%).

The segment’s total costs are broadly in line with the previous year (down 0.1%), as the above increase in BancoPosta RFC’s provisions for risks and charges were offset by a reduction in intersegment costs..

Income tax expense for the year, after benefitting from the reduction in the IRES rate, is €153 million (down 22.7% compared with 2016). This results in profit for the year of €499 million (up 7.3% compared with 2016).

Insurance services segment profit or loss

for the year ended 31 December (€m)	2017	2016	Increase/(decrease)
Life premium revenue	20,244	19,804	440	2.2%
Life net income ^(*)	3,425	3,290	135	4.1%
Movements in premium reserve, technical provisions, reinsurance and other Life claims expenses	(22,313)	(21,928)	(385)	1.8%
Net Life revenue	1,356	1,166	190	16.3%
Non-life premium revenue	99	80	19	23.8%
Non-life net income ^(*)	12	16	(4)	-25.0%
Movements in premium reserve, technical provisions, reinsurance and other Non-life claims expenses	(22)	(30)	8	-26.7%
Net Non-life revenue	89	66	23	34.8%
Other operating income	12	10	2	20.0%
Total revenue	1,457	1,242	215	17.3%
Personnel expenses	37	35	2	5.7%
of which personnel expenses	36	34	2	5.9%
of which early retirement incentives	1	1	-	n/s
Other operating costs	85	89	(4)	-4.5%
Depreciation, amortisation and impairments	17	14	3	21.4%
Intersegment costs	519	500	19	3.8%
Total costs	658	638	20	3.1%
EBIT	799	604	195	32.3%
EBIT MARGIN	54.8%	48.6%	6.2%
Finance income/(costs)	44	39	5	12.8%
Profit/(Loss) before tax	843	643	200	31.1%
Income tax expense	297	251	46	18.3%
Profit for the year	546	392	154	39.3%

(*) After expenses deriving from insurance activities.
n/s: not significant

Operating profit generated by the Insurance Services segment totals €799 million, marking an increase of 32.3% compared with the previous year (€604 million). In addition to the positive operating performance, this also reflects a greater contribution from net life insurance income, relating to management of the technical provisions.

Net finance income amounts to €44 million (income from the investment of free capital, totalling €71 million, after deducting interest payable on subordinated loans, amounting to €27 million) and profit for the year totals €546 million (up 39.3%).

The Poste Vita group’s total premium revenue, after the portion ceded to reinsurers, of €20.3 billion, marking an increase of 2.3% compared with the €19.9 billion of 2016. This was generated essentially by the sale of life products, amounting to €20.2 billion (€19.8 billion in 2016), whilst there was strong growth in sales of non-life products, which premium revenue of €99 million (€80 million in 2016).

Net income amounts to €3,437 million (€3,306 million in 2016), including €3,425 million (€3,290 million in 2016) generated by the life business and primarily regarding:

€3,335 million net finance income from securities related to traditional products, an increase of €64 million compared with the €3,271 million of 2016. This primarily reflects an increase in ordinary income of approximately €391 million compared with 2016 – reflecting growth in assets under management -, which offset the impact of less favourable financial market trends, which led to a reduction in unrealised gains of approximately €252 million on investments included in separately managed accounts - attributed in full to policyholders under the shadow accounting method – and net realised gains of approximately €75 million;
€123 million in net finance income and commission income from management of the internal funds connected with indexand unit-linked products, up on the €35 million of 2016. This amount, which reflects market volatility, is almost entirely matched by a corresponding change in technical provisions.

As a result of the above operating performance and the corresponding revaluation of insurance liabilities due to the positive financial performance, the movement in technical provisions, after the portion ceded to reinsurers, amounts to €22.3 billion, compared with €22.0 billion in the previous year. claims paid to customers total €10.9 billion (€7.5 billion in 2016) and include policy expirations of €6.6 billion (€3.8 billion in 2016), with €4.1 billion of this sum attributable to Class III policies. Total surrenders amount to €3.0 billion (€2.6 billion in 2016), accounting for 2.9% of initial provisions (2.9% at 31 December 2016), a figure that continues to be far lower than the industry average (the latest figure published on ANIA’s website at 30 September 2017 is 6.78%).

Other operating income of €12 million (€10 million in 2016) almost exclusively regards revenue generated by Poste Welfare Servizi.

Net revenue thus amounts to €1,457 million, marking growth of 17.2% compared with 2016 (€1,242 million).

Total costs of €658 million are up €20 million compared with 2016 and regard:

commissions paid for distribution, collection and maintenance of €482 million (€464 million in 2016). The increase has benefitted the Group’s Financial Services segment, which is responsible for marketing the products, and the Postal and Business Services segment in return for the distribution services provided;
other costs of €176 million (€174 million in 2016), primarily regarding personnel expenses and other operating costs.

Key performance indicators for principal Poste Italiane Group companies

The figures shown in the tables below reflect the financial and operational indicators (as deduced from the related reporting packages) of the principal Group companies, prepared in accordance with International Financial Reporting Standards (IFRS) and approved by the boards of directors of the respective companies.

POSTEL S.p.A. ^(*)

for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Revenue from sales and services	213,230	215,593	(2,363)	-1.1%
Operating profit/(loss)	1,672	(7,721)	9,393	n/s
Profit/(loss) for the period	118	(7,968)	8,086	n/s
Investment	7,607	12,120	(4,513)	-37.2%
Equity	101,459	96,081	5,378	5.6%
Permanent workforce - average	1,069	1,162	(93)	-8.0%
Flexible workforce - average	20	29	(9)	-31.0%

(*) From 1 April 2017, the spin-off of the consortium unit from Postecom SpA to Postel SpA is effective for legal, tax and accounting purposes.
n/s: not significant

SDA EXPRESS COURIER S.p.A.

for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Revenue from sales and services	549,173	568,165	(18,992)	-3.3%
Operating profit/(loss)	(42,114)	(35,612)	(6,502)	-18.3%
Profit/(loss) for the period	(31,990)	(28,904)	(3,086)	-10.7%
Investment	8,288	4,858	3,430	70.6%
Equity	(22,876)	9,125	(32,001)	n/s
Permanent workforce - average	1,347	1,376	(29)	-2.1%
Flexible workforce - average	85	66	19	28.8%

n/s: not significant

POSTE TUTELA S.p.A.

for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Revenue from sales and services	85,805	87,138	(1,333)	-1.5%
Operating profit/(loss)	390	694	(304)	-43.8%
Profit/(loss) for the period	298	503	(205)	-40.8%
Investment	90	59	31	52.5%
Equity	13,441	13,153	288	2.2%
Permanent workforce - average	17	15	2	13.3%
Flexible workforce - average	1	0	1	n/s

n/s: not significant

EUROPA GESTIONI IMMOBILIARI S.p.A.

for the year ended 31 December (.000)	2017	2016	Increase/(decrease)
Revenue from sales and services	94,240	94,948	(708)	-0.7%
Operating profit/(loss)	4,639	4,671	(32)	-0.7%
Profit/(loss) for the period	1,843	1,585	258	16.3%
Investment	681	380	301	79.2%
Equity	237,263	235,402	1,861	0.8%
Permanent workforce - average	28	26	2	7.7%

MISTRAL AIR SRL

for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Revenue from sales and services	100,472	84,919	15,553	18.3%
Operating profit/(loss)	(8,950)	(3,979)	(4,971)	n/s
Profit/(loss) for the period	(7,611)	(2,942)	(4,669)	n/s
Investment	172	611	(439)	-71.8%
Equity(*)	(1,895)	1,687	(3,582)	n/s
Permanent workforce - average	129	143	(14)	-9.8%
Flexible workforce - average	56	43	13	30.2%

(*) The company’s equity includes the recapitalisation of €4 million carried out in 2017.
n/s: not significant

POSTEMOBILE S.p.A.

for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Revenue from sales and services	234,543	267,685	(33,142)	-12.4%
Operating profit/(loss)	26,837	28,345	(1,508)	-5.3%
Profit/(loss) for the period	18,659	17,903	756	4.2%
Investment	26,583	20,549	6,034	29.4%
Equity(*)	57,905	56,043	1,862	3.3%
Permanent workforce - average	213	211	2	0.9%
Flexible workforce - average	4	7	(3)	-42.9%

(*) During the year, the company paid dividends totalling €17 million.

BANCOPOSTA FONDI S.p.A. SGR

(for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Fee income	101,954	75,493	26,461	35.1%
Net fee income	54,501	42,571	11,930	28.0%
Profit/(loss) for the period	29,134	21,751	7,383	33.9%
Financial assets (liquidity and securities)	71,372	62,242	9,130	14.7%
Equity ^(*)	53,886	46,013	7,873	17.1%
Permanent workforce - average	58	55	3	5.5%
Flexible workforce - average	0	1	(1)	n/s

(*) During the year, the company paid dividends totalling €21 million.
n/s: not significant

POSTE VITA S.p.A. ^(*)

for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Insurance premium revenue ^(**)	20,263,356	19,820,265	443,091	2.2%
Profit/(loss) for the period	510,172	377,511	132,661	35.1%
Financial assets	125,626,314	115,417,452	10,208,862	8.8%
Technical provisions for insurance business	123,489,910	113,534,750	9,955,160	8.8%
Equity ^(***)	3,323,728	3,292,074	31,654	1.0%
Permanent workforce - average	388	361	27	7.5%
Flexible workforce - average	5	4	1	25.0%

(*) The figures shown have been prepared in accordance with IFRS and therefore may not coincide with those in the financial statements prepared in accordance with the Italian Civil Code and under Italian GAAP.
(**) Insurance premium revenue is reported gross of outward reinsurance premiums.
(***) During the year, the company paid dividends totalling €470 million.

POSTE ASSICURA S.p.A. ^(*)

for the year ended 31 December (€000)	2017	2016	Increase/(decrease)
Insurance premium revenue ^(**)	131,099	108,415	22,684	20.9%
Profit/(loss) for the period	28,609	12,607	16,002	n/s
Financial assets	233,498	178,146	55,352	31.1%
Technical provisions for insurance business	160,005	143,164	16,841	11.8%
Equity	104,359	76,057	28,302	37.2%
Permanent workforce - average	57	48	9	18.8%