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Edited Transcript of PST.MI earnings conference call or presentation 15-Mar-17 5:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Poste Italiane SpA Earnings Call

Mar 15, 2017 (Thomson StreetEvents) -- Edited Transcript of Poste Italiane SpA earnings conference call or presentation Wednesday, March 15, 2017 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Francesco Caio

Poste Italiane SpA - CEO

* Luciano Loiodice

Poste Italiane SpA - CFO

* Luca Torchia

Poste Italiane SpA - IR

* Luigi Ferraris

Poste Italiane SpA - Head of Administration, Finance and Control

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Conference Call Participants

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* Mike Werner

UBS - Analyst

* Gian Luca Ferrari

Mediobanca - Analyst

* Giovanni Razzoli

Equita - Analyst

* Ashik Musaddi

JP Morgan. - Analyst

* Matija Gergolet

Goldman Sachs - Analyst

* Michael Van Wegen

Bank of America Merrill Lynch - Analyst

* Alberto Ylankomote

- Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Poste Italiane Full Year 2016 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Francesco Caio, CEO. Please go ahead, sir.

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Francesco Caio, Poste Italiane SpA - CEO [2]

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Good afternoon, everybody. Thank you for joining this call. We have prepared here the usual set of numbers that we share with the market to tell you where we are in the realization and actualisation of our plan. We're very happy to report a set of numbers that indicate robust growth on all of our key variables.

Revenues for the year were up 8% to more than EUR33 billion. EBIT has grown 18% to EUR1.41 billion, and net profit has grown 13% to EUR622 million. This is obviously translating into an equivalent growth of earning per share moving from EUR0.42 to EUR0.48, and as we had stated before, the Board has submitted to the AGM the proposal of the dividend, that is equivalent to 80% of net therefore EUR0.39 dividend per share growing 15%.

As we had mentioned in the past these numbers include some one-off, the positive one-off is EUR121 million coming from the disposal of our share of VISA Europe, and there are two negative one-off totaling about EUR104 million, one is related to a write-down of Banca del Mezzogiorno equity value, and the other one was the provision on IRS, the real estate fund that was distributed more than 15 years ago by Poste Italiane, which as you have seen from our previous communication we decided to reimburse some of the losses.

As usual the fourth quarter of 2016 includes the accruals for the transformation plan, primarily the voluntary redundancy plan that we have now initiated some time ago, and Luigi will provide you with further details later in the presentation.

I think as I said at the beginning, and we will have an opportunity to go back to these numbers. The growth we've seen is consistent with the strategy we've initiated and we're confident that this trend is now rooted in the robust execution of our plan that we had the opportunity to share with you in the past.

With that as an overall framework, I would ask Luigi now to comment the specific numbers of the various businesses and I'll wrap it up before some Q&A at the end.

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [3]

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So thank you, Francesco, and good evening, ladies and gentlemen. On slide number 3, you have an overview of our key numbers. Consolidated revenues and profits were half respectively by about 8% and 18% over the period. This is mainly due to the following. Financial services, operating profit decreased by about 10% from EUR907 million to EUR813 million, mainly as a consequence of the already mentioned two [negative] non-recurring items for a total amount of EUR93 million i.e., a write-down of Banca del Mezzogiorno and higher provision on IRS, the real estate fund distributed by our network.

Net of these effects, operating profit would be in line versus last year at [EUR906] million, and this is mainly attributable to higher capital gain realized from active management of BancoPosta asset portfolio of about EUR41 million. The disposal to these incorporated allow us taking VISA Europe for EUR120 million, fully corresponding to the already indicated capital gain booked in the first half of 2016. Approximately 80% of this amount has been reflected in the higher distribution costs recognized to the postal and commercial services network.

Lower cost of goods sold by about 5%, as well as lower provision for around EUR20 million. All these has been partially compensated by higher net recharges from the Mail and Parcels business unit of about EUR208 million as a direct consequence of revenues growth, which I would come later.

Insurance and asset management, revenues increased by 11% from EUR21.5 billion to EUR23.8 billion, and operating profit maintained at about [25%] growth year-on-year. This is mainly due to the ongoing positive performance of life gross written premium, asset management products, as well as a growing contribution of non-life products.

Mail and Parcels, revenues were equal to EUR3.8 billion, down 1.5% on 2015. More specifically revenues reduction is mainly due to lower traditional postal revenues partially offset by a higher contribution from parcels. Please bear in mind that revenues for the full year benefited from a positive one-off of EUR91 million related to universal service reimbursements. EBIT has been positively impacted by both higher recharges to the Financial Division, and in particular operating cost efficiency with a remarkable impact in the second half of this year, which I will further detail in the following charts.

Before moving into each specific business units, let's have a look at our client asset breakdown on slide number 4. Volumes increased by almost 4%, bringing total asset to EUR493 billion versus EUR476 billion in 2015. The need continues to remain well-balanced with a clear resilience of postal savings collection and continuing in material increase for about EUR4.4 billion in our current account deposits.

Let's now moving into each specific business unit results, in the slide number 5, well, let's start with our financial service, revenues have grown from EUR5.1 billion to EUR5.3 billion, excluding the VISA Europe effects, the increase is mainly a consequence of the realized capital gains on the active portfolio management as well as the remarkable increase in financing products distribution. This has been partially offset by lower postal savings collection registered in first half and payment cards distribution fees.

In more detail, slide number 6, provides you with a breakdown of the financial services business unit revenues, the major key points here are the following. First, returns on current account deposits, higher revenues are mainly due to an improvement active management of BancoPosta asset portfolio. Second, fees from postal savings collection, the reduction is attributable to lower fees as a consequence of lower recognized communication marketing costs recorded in the first half of 2016 and a slide reduction in postal box volumes. Third, fees from transaction banking, the 1% decrease is attributable to lower delegated services, [state] pension payments and labor vouchers partially offset by higher revenues from payment slips and tax return forms. Fourth, distribution fees, we continue to register a very strong growth in personal loans and other personal financing products, let me underline that this represents an area of strategic growth, which is mainly based on the recently-renewed offer range supported by an important and effective communication campaign. Fifth, payment card fees, in full year 2016 revenues are substantially in line with last year with a continued increase in Postepay evolution cards, compensated by lower subscription fees applied to debt and prepaid cards, due to a cut in the interchange fees decided by the European Union as already communicated in the previous quarters.

Let's now move to slide number 7. Regarding our active portfolio management, let me point out the following major items. Average deposits of BancoPosta accounts grew to EUR50 billion from EUR45 billion in 2015, 10% up. Our realized gains -- capital gains amounts to EUR2.9 billion vis-a-vis EUR5.4 billion the previous years, as a consequence of higher interest rates and BTB-to-book spreads as well as the physiological reduction related to the capital gains realized during the period.

Let's now move to BancoPosta's regulatory framework and capital position on slide number 8. As much as BancoPosta's capital adequacy is concerned, let me stress four major key points. First, BancoPosta regulatory framework continues to be fully aligned to European standards. Second, full year 2016 Tier 1 ratio closed to 16%, substantially doubling the minimum regulatory requirements. Third, full year 2016 leverage ratio 3%, due to higher total assets, as a consequence of that we have decided to recapitalize BancoPosta, however, this has a zero impact on the Group's dividend policy. Fourth, full year 2016 profitability recorded a remarkable 29% return on equity, substantially in line with last year.

Let's now move to insurance and asset management on slide number 9. Gross written premium increased by [9%], driven primarily by the continued increase of our life business, as well as the successful launch in April of our unit linked product, which recorded inflows of about EUR232 million in the period. Moreover, we have also benefited from double-digit growth even if in a small base in our no-life premiums, whose results will become more and more material going forward.

Inasmuch as asset management operations are concerned, let me underline it. Assets under management increased by close to 27%, reaching EUR7.3 billion, confirming this area as one of our key strategic growth pillars. This also highlights the successful cooperation with [Anima], which delivers relevant material results in terms of asset management collection.

With regards to our investment portfolio breakdown, the increase of investment in multi-asset funds, which moved from 11% in 2015 to 14% in 2016, confirm our diversification strategy towards a more adequate risk-to-return profile. This continues to be fully-aligned with our capital requirements.

Let's now move to slide number 10. Please bear in mind that our Solvency II model is based on the standard formula and covers 100% of the Poste Vita business. Furthermore, the model is still to be certified by external auditors. Our Solvency II ratio at the end of 2016 is 295% versus 405% at the end of last year.

The most significant factors related to these variations are, first higher interest rates and spreads. Second, increasing gross written premium, which moved from EUR18.1 billion in full year 2015 to EUR19.8 billion in 2016. Third, diversified portfolio mix, where [Gabis] rates decreased from 73% to 67% this year. Fourth, higher dividend paid to the foreign company and reimbursement of an intercompany loan of about EUR200 million. Finally, in this chart, you can see represented some relevant estimated sensitivities of our coverage ratio.

Let's now move to slide number 11. On the mail and parcel business units, on volumes, let me highlight here, on the one hand traditional mail volumes fell 11% year-on-year, while revenues decreased about 2% as a consequence of the ongoing positive pricing effect as a result of the new regulatory framework in place since October 1, [2015]. Please bear also in mind that revenues for the full year benefitted from a positive one-off item of EUR91 million related to pass universal services reimbursements. From the beginning of 2016, Posta has decided to drop the service for unaddressed mail, which is characterized by high volumes, but very low times. As a result of this, in order to correctly represent the structure of declining traditional mail volumes, unaddressed mail has to be neutralized.

Net of these effects, 2016 volumes show an approximately 7.6% decline vis-a-vis last year. In the meantime, if we go back to the revenues, net of the unaddressed [figure] the decline would be in the region of 4%, 5% on a regular basis. This continued to be the standard trend that we see. On the other hand, parcel volumes increased by 13% year-on-year, confirming the positive momentum mainly driven by the growing e-commerce penetration in Italy. Revenues increased about 7%, mainly thanks to the improvements of our offering range, which partially counterbalance the ongoing pricing pressure within the industry.

Moving to slide number 12, focusing on our cost structure and consolidated level, overall group operating costs reduced by 0.3% over the period as a consequence of the already-indicated efficiency actions, whose results became material starting from Q3. More specifically, let me underline that cost of goods sold decreased by [0.4%] over the period, mainly as a consequence of cost reduction in real estate, IT and utilities.

Moving to slide number 13, labor costs, net of early retirement incentive accruals showed a decline of 0.4%. As you are fully aware of, we have launched a voluntary pre-retirement plan, according to which about 5,700 people have already signed to leave the group vis-a-vis the original target of 5,000. As a consequence of this early retirement incentives accrual, we have reached a total accruals for a consideration of EUR500 million versus EUR394 of last year.

Let's now run through our profit or loss evolution below the EBIT line on slide number 14. Net income for the period equaled EUR622 million, recorded an increase of about 13% from EUR552 recorded last year. On top of the already commanding positive EBIT evolution, this performance is also related to net financial income of EUR15 million and taxes for total consideration of EUR434 million corresponding to a tax rates of about 41%, stable versus 2015.

let's move on to slide number 15, commenting on CapEx, where the majority of investments are as usual, mainly related to information technology and digital platforms, and the balance is related to a selected upgrade of facilities, construction of data center buildings, and postal logistic operations.

Looking at net financial position on slide number 16, first of all the positive contribution of our funds from operation is the result of capital gain dynamics and the commented performance of the mail and parcel business units. On the other hand, the improvement in our working capital is mainly due to the cash-in of some regulatory items, as we have anticipated at the end of the nine-month presentation.

On the dividend and the equity movement front, the EUR548 million inflow is the result of about EUR1 million currently from our Bancoposta Ring-Fenced Capital and other dividends from (inaudible) partially compensated by the payment of dividend to our shareholders for a total consideration of about EUR444 million.

Thank you for your attention. Let me hand over to Francesco Caio, for some closing remarks.

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Francesco Caio, Poste Italiane SpA - CEO [4]

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Thank you very much, Luigi. Just three points that we've captured in the last three slides to conclude these remarks on results. The first one, we have put on the slide three years of performance, the journey thus far. We start in 2014. As you remember, the 2015 was the year where we had our listing, our IPO. We have delivered growth, we've delivered consistently, moving from a revenue of EUR28.5 billion in 2014 to EUR33.1 billion in 2016; EBIT from about EUR700 million to more than EUR1billion, and the client asset base from EUR462 billion to almost EUR0.5 trillion. And, obviously, has benefited the dividend per share that has moved from about EUR0.20 to EUR0.40 this year. And I think it's important to have this as a, if you wish, 25,000 mile check on how we go and then how we're traveling along the journey, and the answer is we are doing well on the path, in growing revenues, earnings and dividends.

The second point on page 18, on slide 18, is that as we have delivered against the growth objectives, at the same time, we have been reshaping the portfolio of businesses of Poste Italiane. We have streamlined the structure of our subsidiaries, with rationalization of about 10 legal entities. We focused our acquisitions on the strategic priorities. 15% of SIA in financial services, because we see that as a platform for digital payments and digital transaction, which is something that we believe is going to be driving growth in that sector. And we bought the 10% of Anima, and as you are aware, we have agreed on how to move it up to about 25%, to strengthen our position in asset management that we continue to see as a growth opportunity for the Company. Together, with Poste Welfare Services, which is the new name for SDS, is a very valuable company that we have in the sector of delivering health insurance and health-related services for non-life portfolio of businesses.

We have strengthened our joint venture and agreement in Financial Services, MasterCard. We picked one, obviously, because of the relevance in mail and parcel with Amazon. Now, we have a well-established structure to deliver the B2C side of the Amazon. We are not the only ones, but obviously, we have the benefit of using our mail distribution last-mile logistics. And some of you might have read it in the Christmas season, we're able to deliver about 4 million parcels in four weeks.

And last but not least, as some of you may remember, we highlighted in the prospectus for the IPO that we had deemed the Banca del Mezzogiorno as a more strategic asset in our portfolio. Poste Italiane is a company that is in transaction banking, not in lending. And therefore, we have had the opportunity of signing with Invitalia, a transaction to settle Banca del Mezzogiorno. And, therefore, we now have not only delivered growth, but also created, if you wish, a structure that whereby focusing acquisition and streamline the portfolio, we'll be ready for the next phase.

And finally, on page 19, I think it's useful to give you a sense of how we think about the journey ahead. And I went back and with Luigi, we picked some of the terms and some of the elements of the investment case we put forward at the IPO that you can see written at the bottom of the slide. We continue to believe that this is a cash generative service infrastructure, with the benefit of a large and loyal customer base and we continue to see significant learning growth potential. Now, the benefit of telling you this at the end of 2016 is that this was a promise when we went to the market. We have a track record now to tell you that we have the turning to continue to deliver against the priorities that for each of the business is worth highlighting. The superior return on equity for financial services, cross-selling and innovation and digital payments; growth in non-life and asset management and the transformation of mail and parcels through reshaping of the traditional mail business, while we continue to grow in parcels.

I think, we are confident about this platform. We have clear strategic priorities. We have had discipline and execution, and consistency of delivery, and I think that gave us the platform to look ahead in 2017 and onward, to continue the journey for the execution of the business plan, to deliver value to shareholders.

With that, I think, I would give it to Luca to see how can we handle your questions.

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Questions and Answers

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Luca Torchia, Poste Italiane SpA - IR [1]

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Mike Werner, UBS.

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Mike Werner, UBS - Analyst [2]

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I've got two. The first one is related to asset management. After your unsuccessful bid for Pioneer back in December, what is your strategy going forward with this, I guess, segment of operations, and particularly with regards to your partnership, or your increasing partnership with Anima? And also, can you give an update on the transfer of BancoPosta Fondi to Anima, and when you expect it to be completed? And then secondly, given the fact that you didn't win Pioneer in December, are there other areas that you are looking at from an M&A perspective going forward? Thank you.

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Francesco Caio, Poste Italiane SpA - CEO [3]

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Perhaps it's helpful to remember that our growth strategy in asset management had been defined and communicated to the market well before the Pioneer opportunity came about. And we felt that because we are keen to grow in that area, it was our duty, vis-a-vis shareholders to have a look, maybe have a very close look to Pioneer and we were happy to have the opportunity. But I've said it already and I think it's proper to repeat it, because we are very disciplined guys. We thought that the level at which the transaction seemed to be going and then went was not consistent with the return that we were seeing from our perspective. It might have been an acceleration, but the combination of value, the mix between Italian and non-Italian asset base, led us to the conclusion that we will be -- and our shareholders would have been better off by pursuing the Anima deal, which we in fact accelerated through the communication and decision to transfer the -- to join forces around the BancoPosta Fondi. And that's what we are doing. We'll come back to you with some more specific details in terms of timetable. I understand Anima has already provided some indication, which is kind of second half of this year. I would prefer to keep my powder dry. It might be a bit quicker, but I don't want to commit at this stage. I can tell you that it is clearly that we're in execution mode. And, actually, a further element in your question, which I think was broader than just asset management, but just if you stick to asset management, our strategy in asset management is to be hopefully the consolidator of the industry in Italy. We'll start from a very large base of asset under administration and management, about EUR0.5 billion, and we see the opportunity to have further acquisition opportunity, together with our partners in Anima, in ways and shapes that will become clearer as time goes on. But in the context of a banking industry that as you know is keen to beef up the capital structure and therefore, interest in disposing some of the assets they have, including asset management companies.

More, in general, on the M&A side, I think there is clearly a lot of work to be done around SIA. We said that we see SIA -- the state in SIA, the initial journey, together with our partners at Cassa Depositi e Prestiti, that will be the largest owners, and we see that as an opportunity. And we continue to be keen in ways in which we could strengthen the position in parcels, through a recombination of M&A or strategic joint ventures. I mean, we are seeing that the B2C side of the parcel business is growing very nicely and we feel we are ideally positioned through the last-mile logistic chain, but obviously, opportunities to strengthen our position would be welcomed.

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Luca Torchia, Poste Italiane SpA - IR [4]

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Gian Luca Ferrari, Mediobanca.

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Gian Luca Ferrari, Mediobanca - Analyst [5]

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I have a couple of questions. On the EUR2 billion guidance as a return on current accounts, deposits, many things happened, such as the 10% increase in deposits, in deposits this option you put in place and also a movement in interest rates. I was wondering if this EUR2 billion is still a valid guidance or if we have to estimate something less in the next two, three years? The second question is guidance for dividends. Can we keep the 80% pay-out unchanged for the next couple of years? And my third and final question is related to the previous one on SIA. Is there any willingness to take the majority, or to increase the stake you just hold?

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Luciano Loiodice, Poste Italiane SpA - CFO [6]

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So (multiple speakers) the first question and I'll leave to Franceso. Well, when it comes to 2017, I would say, I think we can say that we have already secured a lot in -- two-third of our planned capital gain in 2017. Therefore, I think that we are in a position today to confirm the EUR2 billion guidance also for 2017. For the following years, I think we have to wait a little bit for the next guidance, when we are going to submit the plan.

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Francesco Caio, Poste Italiane SpA - CEO [7]

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On the dividend policy, let me start from what we have just decided, we confirm for the year 2016, the payment of the 80% of net. When it comes from 2017 onward, it will be a function of how the business plan shapes up and this is something that we intend to share with the market in the second half of this year. At the moment, we do not have a specific guidance on that.

And finally, on SIA, I had just mentioned that the full -- we are very pleased to have started from 15%. We now would like to get more comfortable with the specific strategic thrust we're going to be building with our partners. And depending on how this strategic review will complete, we will decide how best to value our initial investments going forward.

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Luca Torchia, Poste Italiane SpA - IR [8]

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Giovanni Razzoli, Equita.

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Giovanni Razzoli, Equita - Analyst [9]

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The first question is on the hidden gains on the BancoPosta [current rate] portfolio. Can you provide us with an update of the hidden gains as of today, given the more activity we have seen in the sovereign spreads? And it could be very helpful to have also a sensitivity -- updated sensitivity of the hidden gains to 100 basis points, or 50 basis points, or [10] basis point increase in sovereign spreads?

And the second question, again on the -- related to the volatility of the sovereign spread. We've seen that the insurance services contribution was very, very strong in 2016, but at the same time, the outlook for the interest rate has been extremely volatile in this year, in 2017. Can you provide us with a guidance of the EBIT contribution of the insurance business in 2017? Do you believe that the 2016 performance is a base, where -- will grow also for 2017? Thank you.

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Luciano Loiodice, Poste Italiane SpA - CFO [10]

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Well, let me start with the first question. When it comes to the BancoPosta revenues, the EUR2 billion you commented before, and the unrealized gain. At the end of 2016, we had a position of about EUR2.8 billion, EUR2.9 billion of our realized gain. You have to consider that in the first two months of this year we have already realized starting in the region of [EUR0.5 billion], I mean, and again we have done that, because we've taken advantage of our active portfolio management of some specific windows. So I would say that today we can assume that these EUR2.8 billion can be read without considering the impact of what has been already swapped, because I think it could be misleading, because this is very much volatile in the region of EUR1.5 billion, after the monetization of this EUR500 million. I now counting the swap, in this moment, which has been applied to the valuation of the interest rate, which these days is negative, but of course this swap has to be looked on a long-term basis, because the effectiveness of this swap will start not now, but starting from the future years. So, if we want to just refer to what we have still in our hands in terms of potential gain, I mean, as of today. I think [apple with apple] we have a couple of the euro since we have already realized (inaudible) we are in the region of [1.58]. When it comes to Poste Vita Solvency II ratio, I think, I mean we are providing you with some sensitivities. We have two elements here, which are impacting the level of the Solvency II ratio. One is related to the spread of dilution, we have been commenting many times these elements and it is not -- the 67% of Poste Vita assets are invested in [Gabis] today, therefore evaluation in the spread is influencing the level of the Solvency II, and I think the chart on number 10, should answer your question, where you have the impact of 100 basis points in terms of spread. I mean -- should we see evaluation of 100 basis point versus 2016, our Solvency II would go to 180%. This is not going to drop our [values] or compromise our dividend policy neither the results of Poste Vita for the current year.

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Operator [11]

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Ashik Musaddi, JP Morgan.

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Ashik Musaddi, JP Morgan. - Analyst [12]

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Thank you for taking my question. I have a couple of questions. First of all, can you give us some color about -- sorry to come back again on this EUR2 billion current account number, I mean it looks like you currently have after realizing whatever you've done in the first two months, you have like EUR2 billion of unrealized gains left, which will kind of get exhausted in next two, 2.5 years. After that basically you will have like a shortage of around EUR1 billion in terms of revenue, I mean, how do you plan to offset it, the reason I'm asking this, if I look at your group cost base on I think slide number 13, I mean, a large part of your view is that you will be cutting cost big time, but if I look at your labor cost reduction, it just like a half percent in this year, that's like EUR20 million. So how do you think about like two, 2.5 years down the line, when you will have EUR1 billion loss in revenue from this BTBs and the cost is not going down that far, so that's number one. Secondly, on your dividend, can you just give a bit more color about how are you thinking about dividend at the moment, I appreciate that you mentioned that you'll give more color in second half, but because you don't have any formal guidance now like 80%, I mean, how should we think about dividend, is it tied to your earnings, is it tied to your -- do you have a policy of maintaining the flat dividend going forward or something like that. Any color on how do you think about dividend is, would be really helpful? Thank you.

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Francesco Caio, Poste Italiane SpA - CEO [13]

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Let me start from dividend and then I'll ask Luigi to elaborate again on the EUR2 billion. We fully appreciate the question, we don't have the answers yet, because obviously we positioned this as a stock with a dividend [co-rotation], but we will be in a position to move from one year to the other indication to policy, where we finalize the new business plan that as I mentioned before, we share with the market in the second half. Luigi?

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [14]

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Well. When it comes to the EUR2 billion, if we look at the history, we have to see that in the past, our colleagues both myself and Francesco were not here, but they've been able to maintain this to be in a Euro level of revenues, which means that there is -- as we say, we keep on saying many times an active portfolio management. We provide you that with some sensitivity, so of course, to enable you to calculate what could be the impact assuming that this, we are going to have all of a sudden 100 basis points increase or decrease of [how we expect]. So when it comes to 2017, I think we are in a good shape, we are well on track to deliver these EUR2 billion. If we look forward, we need to look at the evolution of this revenue together with the evolution of our business, and I think should we have a reduction in these respective revenues, which could take place in the long-run, I mean, we cannot pull out of course, if we are going to remain in the position we are today, it would take a while before you can replace the capital gain with something else, but of course, we have also to complement these result with some of our (inaudible) that will be reported or presented to you, during the presentation this [spring].

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Ashik Musaddi, JP Morgan. - Analyst [15]

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That's very clear. Can I just ask one more question, sorry, going into your insurance business, I mean your earnings went up around 25%, but your revenues, which is the premiums went up around 11%. So why is that dislocation, is it because of higher revenue margin growth or is it because of operational leverage due to better cost management?

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [16]

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Well. The way we report, we represent the premiums on one hand and the accruals of technical reserves. As you know, when you make the calculation of the profit, you've gone through of course the dynamics of the volumes, but also to some statistical evaluation and the actual evaluation, which is sort of mark-to-market, which can vary from period to period. Specifically, there has been an higher accrual in terms of percentage versus the volumes to our technical reserve, but there's nothing specific. I would say, we have always substantially seen a difference in between the percentage of evaluation revenues versus revenues of the previous years and related costs in terms of accrual to technical reserves depending also on the type of assets, depending also on the type of asset allocation, which has been done by the company.

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Ashik Musaddi, JP Morgan. - Analyst [17]

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That's very clear. Thanks a lot.

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [18]

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Anyway you have on page 32, I think a more detailed explanation for your question. (Inaudible)

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Operator [19]

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Matija Gergolet, Goldman Sachs.

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Matija Gergolet, Goldman Sachs - Analyst [20]

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Yes. Hi. Good evening. My first question was still about wages, just as a follow-up to also the previous question, could you give us; one, an update also about how are the wage negotiations going, when should we have some news. Secondly, just wanted to make sure, so you mentioned [some] 5,700 people basically leaving next year or so before wages, we can think about our EUR200 million plus savings into next year. The second question was just a clarification on this EUR91 million of you call it exceptional USO revenue, I mean my understanding is that there can't be a (inaudible) on additional say USO back-up payments. So is it fair to assume that this type of payments may be few time a year could actually happen every now and then and also in the future years or is it truly just a one-off. And then lastly, I think you change a little bit the tone about the decline in mail. Now, you are talking about 4% to 5% decline in mail. Perhaps could you also say, I think there will be some regulatory changes, could you give us some color also about what you're expecting to see revenues for mail for this year and maybe also going forward? Thank you.

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Francesco Caio, Poste Italiane SpA - CEO [21]

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(Multiple Speakers) Yes. On wage negotiation, we are negotiating at the moment this (technical difficulty) there is an expectation that this could come to an end sometime around mid to second-half this year. And we will revert to you with more specific information that we see time to time reading from your report and other colleagues report that there are estimates (technical difficulty) estimate is kind of where you are at the moment. And for the other questions?

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [22]

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Yes. When it comes to the 5,700 people, who have voluntary signed the exits, well, a portion of this person will leave the Company, is a regulated Company, and 2,700 will leave the Company next year. Now, I think in terms of cost in particular -- you can assume that these 2,700 will be impacting fully next year in terms of cost reduction. So you can assume [EUR110 million, EUR120 million] reduction. And then the remaining portion, which is about 3,000 people has to be a little bit offset by the increase in the temporary [work flow]. And in some hiring that we are going to have or we are going to do. Bottom line, I mean, I think that we can assume that the net impact for the coming years will be 3,000 people in that. So thanks (inaudible) we're talking about EUR120 million in terms of savings. When it comes to the universal service one-off, it is definitely one-off. Let me remind you that we have now a regulation in place, which allows us to receive EUR260 million per annum for the service rendered. Here we are talking about a portion of past due receivable related to the universal services and a portion related to some other regulatory elements, which have been acknowledged and recorded in our books this year. The decline in mail revenues was -- the Company that we have seen between the volumes and the revenues variation is definitely due to the change in the regulation therefore to the [tied] scheme. So we can assume that this 4%, it will continue this year as well, I think that's what we see now, we are not yet at zero, so it is reasonable to assume that the volumes are still short couple of double-digit decline, but of course, again it is too early to say, we need to wait to close the books at the end of the first quarter. So I think in [May], we will be probably more precise on that. But on the other hand, again you will see a dramatic increase in the [Posta] revenues and volumes, which will continue to offset. So it is reasonable to imagine that in a couple of years of pursuing the two or three years, the negative variation will be -- over the mail, it will be fully offset by the positive variation.

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Matija Gergolet, Goldman Sachs - Analyst [23]

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Okay. The 4%, 5% decline, you referred to volumes or to revenues for mail?

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Francesco Caio, Poste Italiane SpA - CEO [24]

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Revenues.

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Operator [25]

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(inaudible).

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Unidentified Participant [26]

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Yes. Good afternoon. I have three questions. First of all, can you give us the contribution of BancoPosta Fondi to the EBIT of the insurance services. Then the second one is on the breakdown of your premiums. Would you expect in terms of life, a higher contribution from the [Unit-Linked] going forward, also considering the strengthening of the partnership with Anima. And then finally, I was asking if you can give us the combined ratio and the non-life premiums? Thank you.

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Francesco Caio, Poste Italiane SpA - CEO [27]

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First of all, let me tell you [how much] is the contribution of BancoPoste Fondi in the end of 2016, it was in the region of [EUR31 million] just to be very specific. When it comes to the evolution of the Unit-Linked in terms of premium, with regards to the total, well, I think we are not yet there to say that the Unit-Linked will be higher than the additional -- by far away from that. So we have definitely a double-digit increase, but the size is still meaningful. Then the other question was --

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [28]

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Combined ratio and the non-life premium. Combined ratio is 76%.

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Francesco Caio, Poste Italiane SpA - CEO [29]

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76%.

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Unidentified Participant [30]

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Okay. And then non-life premiums for 2016?

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Francesco Caio, Poste Italiane SpA - CEO [31]

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EUR120 million.

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Unidentified Participant [32]

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Okay. Thank you.

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [33]

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Okay. Michael, are you there?

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Michael Van Wegen, Bank of America Merrill Lynch - Analyst [34]

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Yes. Hi, guys. Thanks. A couple of things, first of all on the capital gains for financial services, can you quantify what the realized gains were in 2016, and during the presentation, you mentioned a capital injection into BancoPosta, can you quantify the amount for the capital injection we should expect. And then following up on two elements; first, on your mail outlook for 2017 and onwards. You seem to make good progress, particularly in the internal revenues being [battered], I think then expected the external probably is largely in line to slightly better. Where are you, now in terms of what are your key next steps for the restructuring of the mail and parcel business, and what is the outlook of when to reach breakeven for that business. And then finally, sorry, on the insurance following up from earlier question as well, I think your revenue margin on the life insurance business has been considerably better than what we would originally have expected given the structure of your products. Can you clarify that there are no particular one-offs going through the numbers in the life insurance business at the moment. And can you give any kind of guidance in terms of how margins versus your technical provisions should develop going forward? Thank you.

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Francesco Caio, Poste Italiane SpA - CEO [35]

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However, on the mail and parcel side, just (inaudible) we don't provide specific guidance for this year or next year. What I can tell you is that we're progressing effectively through the reshaping of the business along two fundamental lines, we are executing the new delivery system, the new delivery processes, about 50% of our growth there and the next, and this year we're going to be completing the adoption of the new delivery systems in low density areas of alternate-day delivery by the end of this year. And this is obviously is perhaps a bit more than just alternate-day (inaudible) entities of reshaping of the allocation of our resources following volumes and service level agreements, so you have some alternate-day delivery in some metropolitan areas with two miles of mail delivery, that is yielding some efficiency, and Luigi has already mentioned that to you, and we're getting to good quality level across the country. We therefore will continue in 2017, the job we started in 2016 in the context of the reform that was agreed with the government in 2015. When it comes to parcels, we are seeing encouraging growth of the B2C, thus we believe will become a dominant element volume wise of our operation, and we believe we are very strongly positioned in the market there, because of our mail distribution whereby we've agreed with some of the large e-commerce players, a new packaging that will allow for small objects, small items to be sold and to be put through the logistics chain of the correspondence of mail. You may remember that we have now a new fleet -- we hope that will somehow reflecting this different mix between letters and parcels. So, we're executing the plan, you might remember that when we started the journey we always said that, the notion that operating breakeven or something that we will see in 2020, 2021, obviously if I move to the parcel side of the business, we've seen that breakeven nearer to that, but obviously you need to take care of, to take into account also the losses of the correspondence to come to a global view. Again that's something that we will have further information and color when we get back to you with the updated business plan, but in a nutshell, we're encouraged by what we've seen and we have no reasons to move away from the restructuring and reshaping plan we've started.

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [36]

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So when it comes to the capital gain that we reported at the end of 2016, we're talking about EUR467 million, EUR40 million plus versus last year. When you talk about the BancoPosta capitalization, we are talking about the capitalization to increase the leverage ratio higher than [3%], so we're talking about EUR110 million, and the last question here is do we have any one-off element in the insurance margin, the answer is, no, that's substantially incorrect.

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Michael Van Wegen, Bank of America Merrill Lynch - Analyst [37]

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Thank you. Would that mean that for the insurance profitability you think the 2016 reported number is a good base to assume growth from largely in line with your technical probation growth or is that not the way to think about it?

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [38]

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We suggest to go through chart number 32, which is in the annexures, I think you would find all the answer. Thank you.

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Michael Van Wegen, Bank of America Merrill Lynch - Analyst [39]

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Thank you.

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Operator [40]

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Alberto Ylankomote, (inaudible)

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Alberto Ylankomote, - Analyst [41]

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Yes. Good evening, everybody. So, few questions from my side. The first one is on the insurance segment, it would be great to have some details on the current investment yield compared with the average guaranteed rate on traditional policies. And then if you could provide us with, I don't know a target or guidance on the net inflows you expect in the mutual funds for 2017. And then, if you could provide us with a bit more color on CapEx expected for 2017, I mean, how shall we model this number for next year -- for this year. And then finally on the labor costs, could you give us a bit of color on, I mean, your expectations on 2017, regarding the expected provision for the early retirement plan and the number of people that would be involved? Thank you.

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [42]

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When it comes to the first question, as Francesco said we don't provide guidance with regards to 2017. We come to the outcome of the results of 2016, we are talking about gross 3%, the minimum guarantee that is --

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Francesco Caio, Poste Italiane SpA - CEO [43]

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Average [1%], as of July last year we had the minimum guarantee is zero.

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Luigi Ferraris, Poste Italiane SpA - Head of Administration, Finance and Control [44]

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CapEx expected. Well, I think, I mean you have seen we are in the range of EUR450 million, EUR470 million, so that's the range where we should refer to provision for the retirement, again I would go back to what we said before, we don't give you guidance, there will be for sure provisions about this - [the money to the story to say].

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Alberto Ylankomote, - Analyst [45]

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Okay. Thank you.

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Francesco Caio, Poste Italiane SpA - CEO [46]

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Okay. Thank you. I understand that no more question in the line, so we thank you very much for coming and of course IR department. We remain available for any further questions. Thank you and good night. Thank you.

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Operator [47]

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Thank you. Again ladies and gentlemen that will now conclude today's conference call. Thank you very much for your participation today. You may now disconnect.