POSTE ITALIANE GROUP Investor Presentation June 2013
A Brief History of the Poste Italiane Group 1 2011 A year after the birth of the Kingdom of Italy the National Postal Law was passed reserving the postal service monopoly to the State 1862 Postal and related financial services, performed by an administrative department of the Italian Government were transferred into a separate and independent unit of the Government s public administration 1925 1994 The Italian postal system is structured in two distinct entities: the Postal and Telecommunication Ministry with a controlling and governance role and Poste Italiane, public economic entity with the role of operator On February 28th Poste Italiane is transformed from a public economic entity to a joint stock company (società per azioni) wholly owned by Ministry of Economy and Finance (MEF) 1998 2001 Presidential Decree 144/01 identifies and regulates the banking and financial services which can be offered by Poste Italiane through the Bancoposta Business Division Creation of Bancoposta Ring Fenced Capital (RFC) (patrimonio destinato) to be used exclusively in relation to the Bancoposta activities of Poste Italiane
A Solid Business Model Based on Diversification, Integration, Innovation 2 The Group is a high value added service company, featuring a business model based on diversification, integration and innovation Communication DIVERSIFICATION Financial Services Payments Insurance INTEGRATION & INNOVATION Integrated services that combine physical communication services with new functionalities from internet, digitalisation and payment platforms Mobile phone
Poste Italiane Group: A Major Services Group with Wide Diversification 3 Postal and Business Services Financial Services Insurance Services Other Services Mail, express courier, logistics and parcels, philately and activities carried out by the various business areas of the Parent Company for the other business segments. Includes also the following companies Provision by of current accounts and payment services, investment products and third parties financing services. Includes also the following companies Sale of both life insurance products under classes I, III, IV, V and VI, through Poste Vita, and since its launch in 2010, of non-life insurance products through Poste Assicura Activities carried out by Poste Mobile, the mobile network operator and Consorzio per i Servizi di Telefonia Mobile EGI million TOTAL Revenues 2012 4,657 5,312 13,833 267 24,069 EBIT 2012 416 565 371 30 1,382
Business Diversification and Innovation Benchmark with Peers 4 % Revenues from non Traditional Services (1) on Total Revenues 2002-2012 2002 2012 80.7 47.2 47.3 50.5 22.8 24.1 7.7 1.8 (2) Royal Mail La Poste DP-DHL Poste Italiane Group EBIT/ Revenues 2012 +4.0% +3.8% +6.7% +9.8% (3) Poste Italiane has focused its strategy more than other operators on business innovation and diversification, achieving higher profitability (1) Includes all revenues excluding the ones related to Postal Services and Express Courier (2) On 1 April 2012, Royal Mail Group reports its performance excluding Post Office Limited (3) Poste Vita and BancoPosta Fondi consolidated by equity method and Bancoposta revenues net of commissions and interests paid on current accounts Source: Operators Annual Reports
Agenda 5 1. Poste Italiane Group 2. Business Segments Analysis 3. Regulatory Framework 4. Group Financial Performance 5. Key Investment Themes
Postal and Business Services 6 MAIL Express Delivery and Parcels PHILATELY Provision of traditional postal services, as well as direct marketing and innovative services within the broader sector of paper-based and electronic communications. The business area also includes services provided by the Postel Group in the mass printing sector Express delivery products offered on the deregulated market by Poste Italiane to retail and small and medium enterprise (SMEs) customers and by SDA Express Courier to business customers Distribution and sale of stamps, which is the sale of postage and revenue stamps, and products for stamp collectors Poste Italiane provides the Universal Postal Service that includes a number of essential services to be provided, at reasonable prices, to all users on the territory of Italy The mandate for Universal Postal Service has been renewed for 15 years from April 2011 by the Ministry of Economy and Finance
Mail Leading Position in the Market with an Uncomparable Network 7 Leading Position First Postal Operator in Italy with 14 million of letters managed per day More than 3.3 billion revenues 1.5 million clients daily in postal offices 30 million of served addresses MAIL High Quality Level 92.7% of Priority Mail delivered in j+1 compared to an assigned objective of 89.0% Unique Network 60,000 post boxes 21 sorting centres 2,788 delivery offices 47,318 resources operating in the delivery activities 18,500 postal officers equipped with mobile devices 600 thousands km covered daily * All data refers to year 2012
Mail A Strategy based on Quality, Innovation and Value Added Services 8 With mature postal service market characterized by decreasing volumes, in line with the trend of other European postal markets and due to the digitalization of communications and to the current economic downturn, Poste Italiane focuses on: 1 Volume Support Communication and commercial campaigns Offering of additional services for the retention of the customer base, with focus on business and public sectors Raccomandata 1, Posta time, tailor made delivery services, Postafree, dedicated projects with public sector 2 Improvement of Efficiency and Operating Quality Improvement of the dispatch network: reduction of sorting centres, integration of tracking systems, real time monitoring Efficiency improvements of the transport network Reorganisation of delivery: introduction of five days a week delivery, strengthening of facilities and infrastructures, development of an Innovative Service Unit 3 Innovative and Integrated Value - Added Services Enrichment of Direct Marketing offering Digital services integrating physical and electronic communication Certification and security services Integrated services to create customised solutions for public sector and large companies
Express Delivery and Parcels Strategy 9 Although in recent years this sector has witnessed a reduction in demand and a general lack of confidence all over Europe, the Group continued to improve its competitiveness and offerings in order to take advantage of opportunities in emerging segments of the market (eg. e-commerce) Domestic International Extension of product range with the introduction of services designed to customise deliveries based on customer needs Al piano (to the floor service) Su appuntamento (on appointment) Di Sabato e di Sera (on Saturdays and evenings) Partnership between SDA and UPS UPS progressively outsources to SDA the pick up, dispatching, transportation and distribution of express courier in various parts of Italy UPS provides transport, customs clearance and delivery services for international destinations
A Brief History of BancoPosta 10 Presidential Decree 144/01 identifies and regulates the banking and financial services which can be offered by Poste Italiane through the Bancoposta Business Division Prohibition for Bancoposta from engaging in lending activities vis-à-vis the public The business model developed has allowed Bancoposta to offer a full range of products and services without the need of a banking license Bancoposta structures products and services and selects, if necessary, third parties to offer the same services directly and indirectly to clients 2001 2006 Law 296 Budget Law 2007 changes rules and defines guidelines for private clients current accounts liquidity policy All funds are mandatorily invested in Eurozone sovereign debt securities 2011 Law Decree 225/2010 (Law 10/2011) establishes the obligation to create a Bancoposta Ring Fenced Capital (RFC) (patrimonio destinato) Bancoposta RFC assets and liabilities are unbundled from those of Poste Italiane and to be used exclusively in relation to the Bancoposta activities of Poste Italiane
Financial Services A Comprehensive Range of Products 11 30 million total customers for BancoPosta services Total Assets under management: around 430 billion euro of which 310 billion euro of postal savings with 25 million customers Leader in the domestic market and a leading player in Europe with around 16 million payment cards 6.6 million of debit cards 9.56 million of prepaid cards (Postepay) Financial Services Collection of savings from the public (Art. 11, par.1, of the Banking Act) and all related and consequent activities Collection of savings through postal securities and deposits Payment services, including the issuance, administration and sale of prepaid cards and other payment instruments Foreign exchange brokerage services Promotion and placement to the public of loans granted by approved banks and financial brokers Investment and related services (Art. 12 of Presidential Decree 144/01) Total current accounts: 5.88 million Total average deposit: 41.4 billion Active on line current accounts: 1.5 million Number of yearly transactions: 21 million Amount of third parties financing services granted: 1.9 billion * All data refers to year 2012
Current Accounts Core Service with Growth Trends and Profitability 12 Core Growing Service Liquidity Investment Policy Represent BancoPosta's core basic service, in particular for retail customers During the years such service has been enriched by services and benefits that make it comparable to the ones offered by a bank Trend of continuous growth 5.88 million customers 41.4 million yearly total average deposit (up by 9% vs 2011) Liquidity from current accounts of private customers BancoPosta is mandatorily invested in Eurozone sovereign debt securities As at 31/12/2012 the euro 36.5 billion, are entirely invested in Italian government bonds The portfolio has been built since 2007 under different market conditions allowing a stable yield level and a very low volatility for the next years Liquidity from current accounts of the public sector entities is deposited with the MEF and remunerated at a floating rate of interest that can be revised every fifteen days on the basis of a basket of market indices As at 31/12/2012, the amount of such liquidity is approximately euro 5.4 billion * All data refers to year 2012
Postal Savings Stable and Long Term Partnership with Cassa Depositi & Prestiti The agreement with CDP, relating to the placement activities of postal securities and deposits carried out by Poste Italiane exclusively on behalf of CDP, and defining fees and operational modalities, was renewed for the years 2011-2013 with a roll-forward option up to 2016 310 billion with 25 million customers 13 Poste Italiane, continues its long term relationship with CDP working together for the launch of new products and services
Payments Services Leading Position through Continuous Innovation 14 c/c BancoPosta and Postamat debit card 2000 Virtual Prepaid card e-postepay 2011 M-payment PosteMobile.. Digital Identity Payment slips (bollettini) Prepaid card Postepay 2003 Prepaid card contactless Postepay 2011 9.56 million of prepaid cards 6.6 million of Postamat debit cards Multichannel Poste Italiane has a leading position in payment services thanks to a complete and innovative range of products, accessible through a variety of channels
Insurance Service A Successful Story 15 Leading market position being the first Life insurance company in terms of premium issued in Italy in 2012, with a 15% market share Leader in the pension market with 510,000 pension plan members in 2012 Technical reserves amounted to 56.8 billion in relation to around 2.5 million clients and 4.6 million insurance policies Prudent investment policy currently resulting in a portfolio with significant unrealized gains Began operating in April 2010 Authorised to sell non-life insurance policies with two principal product lines: personal protection and property protection Among the 10 leading operators of Bancassurance damages Web Postal Offices Call center Investment policy based on a highly prudent approach
Poste Vita Further Growth Opportunities 16 Challenging Welfare market context Low participation of insurance system to Welfare Welfare is a global issue with strong relevance on government spending both in Italy and in developed countries in a context of spending reductions and increase of customer needs due to demographic trends and economic downturn In Italy the individual out of pocket spending is elevated Poste Vita is currently strengthening its product offer and service model to fully leverage market context with strong under-penetration opportunities, building on current leadership position and expertise ~ 70% ~ 70% ~ 75% ~ 85% Households without Home insurance Households without Life insurance Workers without Complementary pension plan Households without Health insurance
Other Services Poste Mobile 17 Poste Italiane possesses those competitive elements, typical of its business, that can distinguish itself from other telephone operators and represent a success factor Client Base Distribution Network Strong Brand Awareness Presence in the financial sector To make life s relationships easier by offering innovative, easy to use and convenient mobile services Simply with your SIM card NFC mpayment Money transfers mcommerce Near field communication services mpayment mgovernment mticketing mbanking * All data refers to year 2012 2.5 million number of lines 23.4 million mobile payments operations, including 8.2 million outgoing payment transactions
Agenda 18 1. Poste Italiane Group 2. Business Segments Analysis 3. Regulatory Framework 4. Group Financial Performance 5. Key Investment Themes
Postal Services Regulatory Framework 19 Since 30 April 2011, with the implementation of the Third Postal Directive, the Italian Postal Market is fully liberalised and the reserved area has been eliminated, except for a minor share of volumes related to legal process and notification of violations of the Italian highway code Poste Italiane provides the Universal Postal Service and the relative mandate has been renewed for 15 years from April 2011 Includes a number of essential services to be provided at reasonable prices, to all users on the territory of the Republic of Italy The Planning Agreement regulates the relationship between the Ministry for Economic Development and Poste Italiane in connection with the Universal Postal Service Sets the obligations of Poste Italiane Defines the public compensations for Poste Italiane, calculated on the basis of a subsidy cap mechanism At the moment, Planning Agreement 2012-2014 is still under discussion; in the meantime provisions of previous Planning Agreement apply
Financial Services and Insurance Regulatory Framework 20 Presidential Decree 144 regulates the banking and financial services which can be offered by Poste through the BancoPosta, excluding lending activity, also applying the same provisions which apply to Italian banks and other financial intermediaries (eg. transparency, antimoney laundering, etc.) With respect to the Bank of Italy's supervision, the Bank of Italy resolution no. 229/99 (supervisory instructions for banks) has been amended in 2004, introducing a specific section relating to BancoPosta (e.g. reputational and professional requirements, organizational requirements of internal controls, regulatory and supervisory surveillance, etc) Following the creation of BancoPosta RFC, the Bank of Italy is expected to issue a specific resolution, basis for the application of regulatory and prudential supervisory rules and of internal procedures for the assessment of the capital adequacy vis-à-vis the risks With reference to investment services the legal framework and surveillance of CONSOB are the same as those applicable to other Italian intermediaries The insurance business of the Poste Group is carried out by the Poste Vita Group and is subject to the supervision and regulation of IVASS (previously ISVAP)
Agenda 21 1. Poste Italiane Group 2. Business Segments Analysis 3. Regulatory Framework 4. Group Financial Performance 5. Key Investment Themes
Summary Income Statement 22 m 2010 2011 11 VS 10 12 VS 11 2012 % % Revenues from sales and services 10,134 10,120 (0.1) 9,933 (1.8) Insurance premium revenue 9,505 9,526 0.2 10,531 10.6 Other income from financial and insurance activities 1,982 1,877 (5.3) 3,463 84.5 Other operating income 216 170 (21.3) 142 (16.5) Total Revenue 21,837 21,693 (26.5) 24,069 11 Cost of goods and services 2,559 2,583 0.9 2,766 7.1 Technical provisions for insurance business 10,190 9,887 (3.0) 12,988 31.4 Other expenses from financial and insurance activities 388 882 127.3 164 (81.4) Personnel expenses 6,005 5,896 (1.8) 5,895 0.0 Depreciation, amortisation and impairments 547 544 (0.5) 649 19.3 Other operating costs 278 260 (6.5) 225 (13.5) EBIT 1,870 1,641 (12.2) 1,382 (15.8) Finance Income/(charges) 18 13 (27.8) 41 215.4 Profit/(Loss) before tax 1,888 1,654 (12.4) 1,423 (14.0) Income tax expense 870 808 (7.1) 668 (17.3) Income tax profit due to change in legislation - - - (278) - Profit for the year 1,018 846 (16.9) 1,032 22.0 The Group s overall economic performance is consistently positive despite the economic downturn, the unfavourable postal market conditions and the legal constraints to the parent company s business Even considering the extraordinary tax profit for the year, net profit for 2012 is in line with previous years
Total Revenues Show a Growing Trend 23 REVENUES ( million) 2011 2012 +11% 24,069 21,693 11,278 13,833 5,162 4,657 5,033 5,312 220 267 Postal and Business Services Financial Services Insurance Services Other Services Total Group Poste Italiane The strong growth in financial and insurance services compensates the expected decline in the sales of postal services
Poste Italiane Group Confirms High Profitability 24 EBIT( million) 2011 2012 1,641 1,382 834 416 580 565 371 199 28 30 Postal and Business Services Financial Services Insurance Services Other Services Total Group Poste Italiane Thanks to business diversification Poste Italiane confirms high profitability, compensating the expected reduction in the postal market The 2012 economic results of the Group s Financial Services segment remain strong despite financial crisis and market volatility
Summary of Financial Position 25 m 2010 2011 11 VS 10 12 VS 11 2012 % % Non financial non-current assets 3,654 3,516 (3.8) 3,320 (5.6) Working capital 995 1,726 73.5 1,812 5.0 Staff termination benefits (1,323) (1,196) (9.6) (1,440) 20.4 Net invested capital 3,326 4,046 60.1 3,692 (8.7) Net funds 1,057 (1,198) (213.3) 1,959 (263.5) Equity (4,383) (2,848) (35.0) (5,651) 98.4 The Group s financial structure is solid, balanced, and properly protected from liquidity or refinancing risks Non-financial non-current assets are fully covered by equity Overall borrowings are primarily medium/long-term The 750 million bond issued in 2002 was repaid at maturity in July 2012
Summary of Financial Position 26 Net funds m 2010 2011 2012 Financial Liabilities 42.481 45.152 51.159 Current Liabilities 40.290 43.206 45.091 Postal current accounts 36.985 37.145 39.920 Borrowings 1.297 3.559 2.709 Derivative financial instruments 7 40 (7) Other financial liabilities 2.001 2.462 2.469 Non-current Liabilities 2.191 1.946 6.068 Borrowings 1.386 1.282 5.203 Derivative financial instruments 83 603 864 Other financial liabilities 722 61 1 Technical provisions for insurance business 41.731 44.242 56.743 Financial assets (81.825) (83.733) (104.148) Current Assets (14.701) (15.272) (15.603) Financial Services (10.230) (10.863) (11.237) Insurance Services (4.056) (4.010) (4.072) Postal and business services (415) (399) (294) Non-current Assets (67.124) (68.461) (88.545) Financial Services (26.670) (26.476) (33.987) Insurance Services (39.630) (41.341) (53.936) Postal and business services (824) (644) (622) Net financial liabilities/(assets) 2.387 5.661 3.754 Cash and deposits attributable to BancoPosta (2.351) (2.560) (3.180) Cash and cash equivalents (1.093) (1.903) (2.533) Net debt/(funds) (1.057) 1.198 (1.959)
Financial Debt of Poste Italiane SpA 27 Poste Italiane SpA is responsible for Group funding Substantially unleveraged, with limited M/L term debt outstanding, following 750 million bonds repayment at maturity in 2012 (excluding LT repo of BancoPosta) Liquidity needs covered by ST committed credit lines (over 500 million), fully undrawn M/L Term Financial Debt of Poste Italiane SpA (31.12.2012) Debt repayment schedule million 250 mln 10 yrs bank loan due in Sep 2013 200 mln EIB 7 yrs loan due in 2018 200 mln EIB 7 yrs loan due in 2019
Agenda 28 1. Poste Italiane Group 2. Business Segments Analysis 3. Regulatory Framework 4. Group Financial Performance 5. Key Investment Themes
Key Investment Themes - Basis for Success 29 ICT INFRASTRUCTURE The most extensive physical network in Italy with almost 14,000 postal offices 71 1,452 458 2,015 1,001 452 340 839 839 1,098 978 279 350 446 1,029 503 174 186 493 673 powered by advanced technology with the highest standards of quality and security, thanks to past investments 4.3 billion euro of capital expenditure since 2005 out of which a large portion on IT PHYSICAL NETWORK MULTICHANNEL ACCESS LOGISTIC NETWORK A unique infrastructure to perform a diversified, integrated and profitable business
Key Investment Themes - Distinctive Elements of Poste Italiane 30 1 Low business risk due to services diversification Multi-business (mail, parcels, payment and current account services, asset gathering, insurance and mobile communications) Multi-clients, over 30 million including retail clients, SMEs, large corporates and Public Sector entities Uncorrelated business segment performance, as shown by record results of Poste Vita and Postal Savings distribution in a downturn economy year such as 2012 which had an impact on postal volumes 2 Strong market presence with diminishing State contribution Around 92% of market revenues* and less than 8% from the State and Public Sector entities Largest network in Italy (approx. 14,000 offices) with strong brand and advanced technological infrastructure 3 Sound financials Stable revenues with a significant portion almost certain over the next years (i.e. commissions from CDP for the distribution of Postal Savings and interest income from current BTP portfolio, acquired under favourable market conditions, now providing a satisfactory return) Highly profitable compared to peers Strong operating cashflow generation Liquidity position with very low M/L term debt ( 400 mln from EIB) * Poste Vita and BancoPosta Fondi consolidated by equity method
Appendix 31
Poste Italiane Group as at 31/12/2012 32 Ministry of Economy and Finance