Operating and financial data

FINANCIAL PERFORMANCE

On 31st December 2016 the book value of the net assets of the Foundations of banking origin amounted to €39.7 billion accounting for 86% of total assets which added up to €46.3 billion. In this financial year, the book value showed a decrease of 2.7% with a net decrease of almost €1,091 million, also due to write-downs of holdings in their spun off banks. From 2000 – the year in which Ciampi’s law became active – to 2016 there has been an annual average growth rate of 0.7%. In the same period 2000-2016 the Foundations were able to allocate resources to a value of €20.3 billion and to set aside further funds – to a value of about €1.7 billion – for future philanthropic activities, reaching a total of €22 billion.

Grouping the Foundations by geographic area reveals that those located in Northern Italy (47) hold capital to the value of more than €30 billion, 74.2% of total gross capital. In the North-Western part of the country in particular, where 5 of the 18 largest Foundations are located, the average net assets have a value about two and a half times the general average (€1,069 million versus €451 million) . However in Southern Italy and the islands where, for historic reasons there are only 11 Foundations, the average asset holding is recorded as €180 million, less than half of the general average. The 5 largest Foundations (accounting for 47.4% of total assets) are: Fondazione Cariplo, Compagnia di San Paolo, Fondazione Cassa di Risparmio di Torino, Fondazione Cassa di Risparmio di Verona Vicenza Belluno e Ancona, Fondazione Cassa di Risparmio di Padova e Rovigo. The net assets of the 18 largest Foundations1 represent 76.9% of the overall system, while the 18 smallest Foundations weigh in at little more than 1.2%.

About 95% of the total assets of the Foundations of banking origin (€46.3 billion) consists of financial activities, while tangible and intangible fixed assets represent only 4.7%.

Fixed financial assets amounted to €28.5 billion (€27 in 2015). Adding to this, fixed assets in operating companies amounted to €1 billion (951 million in 2015), the total financial assets accounted for 63.7% of assets against 57.8% in 2015.

The investment in not immobilized financial assets decreased by €3.5 billion and amounted to €12.1 billion. In this context, asset management grew by €4.4 billion to €6.6 billion, while investments in spun off bank and fund investments are shrinking. Total investment in spun off banks (either immobilized or not) amounted to €13.5 billion, with a decrease of €2.3 billion compared to 2015. This reduction is the result of the choices made by 24 Foundations that have reduced to the lower value of the amount of the investment of approximately €1.9 billion total, and the total sale of shares of €443 million made by 9 Foundations.

By 31st December 2016 of 88 Foundations, 34 no longer held shares in their original spun off banks, 46 had a shareholding of less than 50% shares in their original spun off banks that are part of banking groups, while 8 of the smaller Foundations – in line with existing legislation2 – continued to have a major shareholding in their spun off banks. Furthermore, 85 of the 86 Foundations associated with Acri, approving of the Memorandum of Understanding - signed 22nd April 2015 by the Association and the Ministry of Economy and Finance - which aims to optimise the combination of profitability and possible risks when utilising their capital, have accepted the principle of an appropriate change. It particularises that a Foundation should not utilise more than a third of its total assets, either directly or indirectly, on an individual subject, using “fair value” to evaluate the exposure and composition of the said assets. In such an operation, all the financial instruments will be included in the evaluation. The Foundations have three years from the date of the signing of the MoU in which to reduce the amount of excess risk exposure where trading of financial instruments on the financial markets is involved and five years where the financial markets are not involved. In both cases the necessity of safeguarding the capital value will be taken into account as will market conditions and any effects from the transfers that take place.

The total proceeds for the financial year 2016 were €1,357.2 million showing a decrease of 3.8% compared to the previous fiscal period (€1,410.4 million). It has certainly affected the unsatisfactory trend in financial investment (the yield fell from 2.6% in 2015 to 2%), which was affected by the drop in interest rates resulting from the ECB's expanding monetary policy. In fact, the total interest is reduced by some €47 million, and the margin resulting from the management of the financial instruments also undergoes a significant contraction, ranging from + €61.6 to - €51.7 million, due to the write-downs worked. The result of asset management, on the other hand, marks an improvement (+ €9 million) and dividends also grow, totaling €168 million, where the profits distributed by the spun off banks go from €395 million in 2015 to €630 million (+ €235 million), while those from other equity investments decreased by €67 million. Other income from non-financial resources, at €81.5 million (€37.8 million in 2015), and extraordinary incomes, €33.3 million (€147.8 million in 2015), declined by 38%, down from €185, 5 million to €114.8 million euros.

The average net return on the total assets3 of the Foundations in 2016 was 3.4%, unchanged from the previous year: a positive result in both absolute and relative terms, considering that the profit is net of the high direct and indirect tax burden, which in 2016 grew by about 16%. By contrast, for the fourth consecutive year, a decrease in operational costs has been achieved.

Operational costs for all the Foundations fell in 2016 by 5.7%, passing from €253.7 million to €239.2 million. This variation is mainly due to the considerable reduction, in order of importance, of fees paid to organs, overheads, passive interest, external consultants fees.

The fiscal charges – for direct taxes on income received and indirect taxes such as Irap and Imu paid throughout the year – came to over €354.6 million (€305.8 million in 2015) of which: €119 million for withholding taxes on investment income; €203 million for Ires; €4 million for Imu and €3 million for Irap. This significant increase in the last years is due to a number of factors: the growth in taxation on income from financial investments - from 20% to 26% as from July 2014; an addition of 20 percentage points on taxation on dividends as a result of the increase from 5% to 77.74% on taxable income, effective on all dividends distributed since the beginning of 2014;

Operating surplus on total revenues reached 61.8% (68.8% in 2015) amounting to €838.3 million against €967.4 million in 2015. The decrease is 13.3% and is higher than that recorded by total income due to the higher tax burden borne.

With regard to the reserve funds set aside from the capital, for 2016 the Supervising Authorities confirmed a rate of provision for the “Reserve Requirements” at 20% of the operating surplus and fixed a top rate of 15% for provision to the “Reserve for Asset Integrity”. The Foundations, therefore, were able to allocate resources to their capital, to a variable degree – from a minimum of 20% to a maximum of 35% of the operating surplus. This margin of flexibility made it possible to gradually increase the extent of the total provision in relation to the operational result and to the necessity to safeguard the funds destined for philanthropic activities. For all the Foundations combined, the data shows a sum of €244.5 million set aside for the capital reserve (€300.2 million in 2015).

Resources for institutional activity, including funds destined for future activities, accounted for 76.5% of total operating surplus and amounted to €641.4 million, against €800.8 million in 2015.

INSTITUTIONAL ACTIVITIES

In 2016 the institutional activities of the Foundations of banking origin recorded a 10% increase in volume compared with 2015, the year in which there was a trend reversal after six years, from 2008 to 2013, of unbroken contraction. In absolute terms, the disbursements of 2016, including provisions for special funds for voluntary ex art. 15 L. 266/91, amounted to €1,030.7 million (€936,7 million in 2015), for 20,286 interventions (21,564 in 2015; -5.9%). The average amount per project rose to €50,806 (€43,437 in 2015), while slightly decreases the average number of projects achieved per Foundation: in 2016 was about 231 against 251 in 2015.

Sectors of Activity

From the 21 “eligible sectors” (by law4), the Foundations focus on 7 sectors for the major part of their grant-bestowing activities. Based on the amount of the funds allocated, the sector for Art, cultural activities and heritage came first, receiving €260.9 million, 25.3% of the total (29.9% in 2015). Within this sector, funding was provided mainly to the sub-sector labelled Conservation and enhancement of historic buildings and archaeological sites (35.8% of the sum allocated to the sector). In second place was the sub-sector Initiatives to support artistic and literary productions (accounting for 29.3% of the funds allocated to the sector). Next came Museum activities (12.9%) followed by the sub-sectors Promotion and Enhancement of Visual arts (7.9%); Publishing and other communication media (6.5%); Library and archives (2.8%).

The second sector was that of Social assistance with €127.4 million, 12.4% of the total (14.8% in 2015). The greater part (93.5%) went to the sub-sector Social services, followed by Services providing aid in the event of natural disasters, Civil protection and Refugee assistance (5%). Recipients included firstly the disabled (70.3%), then the elderly (14.7%), next children (12.9%) and those with drug/alcohol dependencies (1.9%). Other beneficiaries (families at risk, people with no fixed abode, prisoners, etc.) received less than 1%.

The third sector was Voluntary activities, philanthropy and charity receiving a total of €124.9 million, 12.1% of total funding (13.6% in 2015). Of this amount, the largest share went to the subsector Contributions to grant-providing foundations and other philanthropic charities (47.1%) i.e. funds allocated to such entities as community foundations, and other non-profit entities that channel resources to third sector organizations; followed by Promotion and support for voluntary organisations (20.9%); next came Special reserve funds for voluntary organisations (19%, over €23.7 million); Humanitarian and philanthropic initiatives (7%); Support for the development and living standards of poor countries (4%).

In fourth place was the sector Research and Development with €124.2 million, 12.1% of total funding (12.6% in 2015). The sub-sector Research and experimental development in the medical field received 27.8%. To Dissemination and expansion of Technological knowledge went 21.3% followed by Research and development in the field of human and social science with 18.4%; then Research and development in the field of mathematical, physical and natural sciences with 12.3% followed by and Research and development in the Engineering field with 10.5%.

In fifth place was the sector Local development with €101.4 million, 9.8% of the funds allocated (6.1% in 2015). This sector includes projects for the Promotion of economic development in local communities (80.5% of the total allocated to the sector); Social housing construction projects (9.5%); Accomplishment of public works or utilities (8.7%); Public popular housing (1.3%), Microcredit projects.

The sixth sector selected was the sector Education, learning and training with €97.2 million, with 9.4% of the total allocated (12.1% in 2015). The main sub-sectors were: Primary and secondary education (31.1%); Higher education, i.e. university or equivalent education (29.6%); Professional instruction and Adult training (19.2%) and Youth development and training (17.7%).

In seventh position was the sector Public health, receiving €40.7 million, 4% of the total (6.7% in 2015). In this field we find sub-sectors including: Hospital services (53.6%), which range from the provision of medical equipment to the implementation of specific projects and the construction and restructuring of essential facilities; Other health services (29.1%), ranging from home assistance for the ill, to support for the treatment of the terminally ill and the disabled; Psychological and mental pathologies and disorders (1.9%).

Significantly, 28.5% of funding equal to €293 million was awarded to Welfare under which umbrella we find the sectors Social assistance, Public health and Volunteering, for projects not covered by public services. To these resources we have to add the €120 million specifically addressed in 2016 from 72 Foundations associated with Acri to the Fondo per il Contrasto della Povertà Educativa Minorile, this leads to €413 million the resources allocated to Welfare: more than 40% of total grants.

Concluding the classification we have Environmental protection and quality, with funding of €14.3 million (1.4% against 2% in 2015); Sport and recreation with €10.8 million (1.1% against 1.2% in 2015), Family and related values with €6.5 million (0.6% against 1.1% in 2015), and lastly, Civil rights; Religion and spiritual development; Crime prevention and public safety altogether received €2 million for a total of 48 projects.

Regarding the choice of sectors for their allocations, more than half of the Foundations operates with a medium-sized of sector specialization, while the remaining part stands at an high degree. However, this does not change the predominant characterization: the Foundations choose to concentrate on just two sector a sum between 40% and 60% of total funding. These percentages document the full alignment of erogative policies of the Foundations to the already mentioned laws which impose to allocate at least 50% of funds available to no more than five “eligible sectors”.

The average number of sectors of each Foundation is 6.4 (in 2015 the average was 6.8). 85 Foundations polled operate in the sector Art, Cultural activities and Heritage. Regarding the other sectors, those with the highest presence of the Foundations are Voluntary activities, philanthropy and charity (where 84 Foundations operate); Education, Learning and Training (79 Foundations), Public health (60 Foundations), Research and Development (58 Foundations), Local development (55 Foundations).

The percentage of grants allocated that are higher than €100,000 was 73.1% (69.5% in 2015) with the number of corresponding projects standing at 6.7% (6.8% in 2015). The percentage of those higher than €500,000 was 50.4%. The allocation of sums of €5,000 or lower decreased slightly from the preceding year both in the amount (2.2% against 2.6% in 2015) and in the number of projects (44.9% against 46.9% in 2015). The long-term grants5 decreased in the amounts (7,5%), while increased in the number of projects (2.9%).

Beneficiaries

The recipients of the grants provided by the Foundations are always private non-profit organisations – accounting for 77% of total funding (68.4% in 2015) and 72.2% of all projects (70.6% in 2015) – or public institutions. The principal private recipients include: foundations (naturally not the Foundations of banking origin) who, with 31.8% of total funding, confirmed their first position among all the beneficiaries, both public and private. The foundations are followed by Other private organisations (22.5%), which includes Committees, private IPAB, ONG, private schools and health facilities; Associations (13.3%, of which 1.3% was devoted to socially-oriented Associations); Voluntary organisations (3.6%); Religious Institutions (2.9%); Social cooperatives (2.6%); Social enterprises (0.2%). Among the public institutions, who received in total 23% of the total funding, were: Local authorities (11.7%); Public schools and Universities (7.1%); Public Health authorities and businesses (2.2%); Other public authorities (1.1%) and Local governments (0.8%).

Territorial Distribution

The Foundations continued to focus strongly on their local communities in 2016: grants provided to the Foundations’ own regions accounted for the great majority of the total (85.1% of total funding and 93.3% of total projects). As to geographic distribution Northern Italy received 71.5% of total funding of which 47% went to the North-West and 24.5% to the North-East; Central Italy received 22.6%, while Southern Italy and the Islands received 5.9%. In the Southern territories and islands the Foundations also operate through the Fondazione Con il Sud, which in 2016 carried out activities to the value of €23 million.

Partnerships

Among the projects that the Foundations share with other financial organisations a particular emphasis has been laid, during the last few years, on those realized in conjunction with other Foundations of banking origin, within a vista of a system of operations that are co-ordinated and developed with a long-term view. It is possible that this concept has come directly from the Foundations, deciding among themselves to “form a consortium” or else it has matured in the ambience of Acri. These are projects needing a deep breath, of great national impact, regarding which the “communal” approach is seen as an essential factor for success. On the one hand it allows the use of a common professional factor developed by the individual Foundations within their own local territories, while on the other it encourages an increase in project efficiency and rationalisation. When the same projects are carried out separately by a number of different organisations there could be a risk of fragmentation or duplication and the loss of useful information, while shared planning allows the synchronised direction of strengths which therefore must have a greater impact.

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(1) Foundations are grouped by net assets in five quintiles: large Foundations (net assets from €462 million and up); medium-large Foundations (net assets between €204 million and €462 million); medium Foundations (net assets from €103 million to €204 million); medium-small Foundations (net assets between €55 million and €103 million); small Foundations (net assets up to €55 million).

(2) A waiver introduced in 2003 (art.4 Law no.143/2003 converted into Law no.212/2003 which substituted para.3 of art.25 of legislative law no.153/99

(3) This report is based on a numerator of the total revenues, and a denominator of the average asset value, at the book value shown at the beginning and at the end of the financial year.

(4) Legislative Decree no. 153 of 17/5/1999, article 1, paragraph 1c: Family and related values; Education, learning and training, including the purchase of publishing products for schools; Voluntary activities, philanthropy and charity; Religion and spiritual development; Assistance to the elderly; Civil rights; Crime prevention and public safety; Food safety and quality agriculture; Local development and low income housing; Consumer protection; Civil protection, Public health; Preventive and rehabilitative medicine; Sports activities; Addiction prevention and recovery; Psychological and mental pathologies and disorders; Scientific and technological research; Environmental protection and quality; Art, cultural activities and heritage. To this we add public utility works and infrastructure growth following Legislative Decree no. 163 of 12/4/2006, article 153, paragraph 2 and article 172, paragraph 6.

(5) For multi-year projects, reference was made to the amounts attributable to the fiscal year.