2016 Annual Report Azimut Holding S.p.A.

Transcription

1 2016 Annual Report Azimut Holding S.p.A.

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3 2016 Annual report Azimut Holding S.p.A. This is an English translation of the Italian original Bilancio 2016 that has been prepared solely for the convenience of the reader. The Italian original Bilancio 2016 was approved by the Board of Directors of Azimut Holding SpA on 10 March 2016 and is available on and includes the report of the Board of Statutory Auditors and of Independent Audotirs.

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5 Annual report 2016 Company bodies 7 Azimut group's structure 8 Main indicators 10 Consolidated financial statements at 31 December Baseline scenario 15 Significant events of the year 18 Azimut Group's financial performance for Main balance sheet figures 31 Information about main Azimut Group companies 35 Key risks and uncertainties 38 Related party transactions 43 Organisational structure and corporate governance 43 Human resources 43 Research and development 44 Significant events after the reporting date 44 Business outlook 45 Financial statements consolidated balance sheet as at 31 December Consolidated balance sheet 48 Consolidated income statement 50 Statement of consolidated comprehensive income 51 Consolidated statement of change in shareholders equity 52 Consolidated cash flow statement 56 Notes to the consolidated financial statements 59 Part A Accounting policies 61 Part B Notes to the consolidated balance sheet 87 Part C Notes to the consolidated income statement 118 Part D Other information 128 Certification of the consolidated financial statements 138 5

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7 Company bodies Board of Directors Pietro Giuliani Sergio Albarelli Marco Malcontenti Paola Antonella Mungo Paolo Martini Andrea Aliberti Anna Maria Bortolotti Giampiero Gallizioli Antonio Andrea Monari Raffaella Pagani Silvia Scandurra Marzio Zocca Chairman Chief Executive Officer CoChief Executive Officer CoChief Executive Officer CoManaging Director Director Director Director Director Director Director Director Board of Statutory Auditors Vittorio Rocchetti Costanza Bonelli Daniele Carlo Trivi Maria Catalano Luca Giovanni Bonanno Chairman Standing Auditor Standing Auditor Alternate Auditor Alternate Auditor Independent Auditors PricewaterhouseCoopers S.p.A. Manager in Charge of Financial Reporting Alessandro Zambotti 7

8 Azimut group's structure The Azimut Group operates globally in 14 countries and is comprised of the parent company, Azimut Holding S.p.A., and 56 subsidiaries. Azimut Holding S.p.A. (Listed:AZM.IM) Azimut Partecipazioni (2016) (100%) Italy AZ International Holdings (2010) (100% owner by Azimut Holdings) Italy AZ Fund (1999) AZ CM (2007) AN Zhong (AZ) IM (2011) AZ Brasil Holdings (2013) AZ Athenaeum (2013) Katarsis CA (2011) (51%) Luxembourg (100%) Ireland (100%) Hong Kong (100%) Brazil (100%) Singapore (100%) Switzerland Augustum Opus Sim (3) (2013) Azimut Capital Management (2004) AZ IM HK (2011) AZ IM (2011) AZ Quest (2015) Eskatos CM (2011) (51%) Italy (100%) Italy (100%) Hong Kong (100%) China (60%) Brazil (100%) Luxembourg Azimut Financial Insurance (2015) AZ Swiss (2012) AZ Sestante (2015) Sigma Fund Mgmt (2016) (100%) Italy (51%) Switzerland (76%) Australia (51%) Australia AZ Life Dac (2003) Azimut Portföy (2011) CGM (4) (2011) CGM Sgr (2011) (100%) Ireland Azimut Enterprises (2014) (100%) Italy Futurimpresa Sgr (2014) (55%) Italy Azimut Global Counseling (2014) (100%) Italy (100%) Turkey AZ Sinopro FP (2) (2013) (51%) Taiwan AZ Sinopro SICE (2) (2013) (100%) Taiwan (51%) Monaco AZ Mèxico Holdings Sa de CV (2014) (94%) Mexico Màs Fondos Sa (2014) (100%) Mexico (100%) Italy AZ Brasil Holdings (2013) (100%) Brazil AZ US Holdings (2015) (100%) USA Source: Company data at 9/3/2017 1): Controls distribution companies M&O Consultoria, FuturaInvest and Azimut Brasil Wealth Management. 2): Controls AZ Sinopro Insurance Planning. 3): Azimut acquired the remaining 49% and is in the process of being merged into Azimut Capital Management SGR. 4): Azimut reached an agreement to acquire the remaining 49% at 31/12/2017. AZ Andes Spa (2015) AZ NGA (2014) Azimut Brasil WM Holding (1) (2015) AZ Apice LLC (2016) Asset management Distribution (90%) Chile (52%) Australia (100%) Brazil (70%) USA Life Insurance Alternatives 8 G r u p p o A z i m u t

9 billion 14 countries 581 1, milion 173 milion Year of incorporation Year of IPO assets Geographical presence Employees Financial advisors 2016 revenues 2016 net profit 9

10 Main indicators Main indicators (Figures in millions of euro) income: of which fixed management fees EBIT Net profit for the period Operating indicators Financial advisors Clients Assets in fund management (billions of euro) Net inflows (billions of euro) Clients' net weighted average performance , thousand % , thousand % , thousand % , thousand % , thousand % , thousand % 10 G r u p p o A z i m u t

11 Mutual funds Discretionary portfolio management AZ Life insurance 68% 18% 14% Breakdown of assets under management 18% 15% 68% Breakdown of assets under management at 31 December 2016 Fondi Comuni Gestioni patrimoniali Assicurazioni AZ Life 11

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13 Consolidated financial statements at 31 December

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15 Management report Baseline scenario Background scenario January represented a nasty shock for the financial markets which were caught in a vicious circle China's slowdown plummeting oil prices deflation/ recession. The technical analysis of these issues is extremely difficult and the markets remained in the grips of their fears waiting for external actions (central banks, excellent macroeconomic figures or a cathartic event generating oversold/ overbought levels) to act as a new catalyst. Consequently, the central banks of the areas which fear deflation the most (ECB and BOJ) announced or implemented new expansionary measures. However, they managed to support and further inflate bond prices without convincing the stock markets about the fact that 2016 would not have been characterised by another global recession. Eventually, the situation began to level off in midfebruary. During this period, the stock markets showed new feelings, accompanied by a series of positive macroeconomic surprises which led the US market to reconsider its expectations about the FED which pointed not only to an interruption of the upward cycle, but also to the possibility of cutting rates or of a new QE. Conversely, in Europe, the ECB's expectations looked more plausible given the renewed deflation scenario and the difficulties experienced by the banking sector. March was characterised by a significant change of attitude on the part of the main central banks. Although the ECB's expansive strategy was already assumed, its scope exceeded expectations. Indeed, the ECB tackled several aspects, increasing the liquidity for banks also through new targeted longerterm refinancing operations (TLTRO) under particularly advantageous conditions, cutting the deposit and the refinancing rates and expanding the QE from 60 billion/month to 80 billion/ month, including nonbanking corporates as of the end of June. It is believed that the G20 informally decided to abandon competitive devaluations in favour of domestic economic and monetary policies and a waitandsee attitude on the part of the FED to avoid aggravating the situation in China and the emerging markets given the existence of currency pegs and the need for divergent monetary policies. This was aimed at strengthening the still modest global growth. April partially reflected the issues that characterised March, i.e., the central banks' attention to external events, specifically those related to China and, to a lesser extent, the emerging economies, in a broader sense. In other words, April had two faces: the first was the ongoing recovery of raw materials, above all oil, and emerging economies, generating a reversal by the bond markets; the second showed the gradual return of the riskoff trade. May was bidirectional for the bond markets: the beginning of the month was characterised by a new downward revision of the US bond yields, which lasted substantially until the middle of the month, despite the gradual improvement of GDP's forecasts, as pointed by the Atlanta's FED forecast indicator. Not even the extremely robust figures about Europe's growth (+0.6% on the previous quarter), also largely supported by domestic Financial markets and the global economy 15

16 Management report growth, managed to scratch the scepticism of the markets which already look to 2Q forecasts according to which Europe will grow at a more modest pace with inflation still low (despite the statisticallyexpected rebound in the second half of the year). However, the tone of the market changed when many members of the FED gave a thumb up on a summer increase, generating market repricing. June was a surprise: the forthcoming British referendum heightened the tension on the financial markets which fluctuated significantly until the very last day based on voting surveys. On 23 June, the markets were clearly in favour of Britain staying in the EU. Consequently, the results were a huge surprise. Indeed, following the Brexit, the operators relieved the tension on bund and treasury yields, which were seen as a safe heaven, zeroing any expected rate rise and even assuming the possibility the FED introduces cuts in 2017 (despite the marginal impact of the event on the US economy and, to date, the financial and currency channels). September was very volatile for the bond markets (first a dramatic decrease, then reaching new highs). Indeed, as is often the case, the operators had too many expectations of the ECB about any new extraordinary monetary policies. Conversely, the Bank of Japan shifted from monitoring quantities to monitoring prices, in an attempt to peg the rates of 10year bonds to 0%, a level that the markets soon perceived as the top limit. On the other hand, the FED, which was well placed to implement the first of the four increases proposed in December for 2016, decided to wait a little longer, with significant disagreements with the board, pointing already to just one increase in December to heat up the employment market. The first half of October was characterised by discussions, while in the second half of the month, the ECB announced that it was considering cutting the monthly purchases of securities. This rumour alarmed the market which immediately adjusted yields upwards, showing how, overall, operators are too exposed to rates with excessively low yields. The market subsequently returned to previous levels, awaiting the official announcement by the ECB which postponed any decision to December. Against this background, tensions began to arise on the British securities market, where inflation emerged, also as a consequence of the strong depreciation of the pound. Consequently, in the second half of the month, the British market dragged along with it all other bond markets. November saw the beginning of a new, intense political season which will probably shape the markets longer than usual given the close sequence of political events until next fall. In the US, Trump's appointment was another surprise. The initial shock was very short and almost immediately replaced by the enthusiasm generated by hypothetical expansionary measures which should be focused on investments in infrastructures, repatriation of profits and a new American dream. The market interest rates immediately translated this message in greater expenditure, increased deficit and higher debt, hence requesting an additional risk premium which accounted for approximately a 60 bps yield on the 10year US securities. In December, Italy's rejected the proposed constitutional reform by a huge majority and triggered the removal of Renzi's government, promptly replaced by Gentiloni's government with the task 16 G r u p p o A z i m u t

17 of drafting a new electoral law. Having largely foreseen the result, the Italian market was unshaken and, in fact, recovered on the bund. The ECB announced that, as of April, the QE will be reduced from 80 billion to 60 billion/month as the conditions that led to the increase in March 2016 no longer existed, while expanding purchasing flexibility. In the US, the FED raised rates only once in 2016 and announced three increases in According to Assogestioni's (Italy s association of the investment management industry) figures, in 2016, the increase in Italy's assets under management continued, with 1,943 billion euro at year end (+6% on 1,835 billion at 2015 year end) and positive inflows of approximately 55.6 billion euro. In 2016, inflows of openended funds (+34.4 billion euro) exceeded considerably the number of management mandates (+20.5 billion euro). Portfolio management inflows refer exclusively to insurance product management (+20.7 billion euro), while retail portfolio management recorded zero growth. Furthermore, social security products performed negatively (0.4 billion euro). Italy's assets under management market At the end of December 2016, Assoreti's (Italy s association of the sales networks in the financial services industry) survey highlighted a record value of billion euro of financial products and investment services distributed to member intermediaries, through its authorised offpremises financial advisors. assets under management products amount to billion euro, or 72.6% of the total portfolio, while assets under custody amount to 129,2 billion euro. Specifically, directly subscribed UCITS amount to billion euro, of which 145 billion is placed with open collective portfolio management domiciled abroad. Insurance and social security products amount to billion, up 12.9% on the previous year, and account for 26.8% of the assets held by networks' clients, while discretionary portfolios amount to 52.1 billion euro, accounting for 11.1% of the total portfolio. At 31 December 2016, the total contribution of networks to assets invested in openended UCITS, through the direct and indirect distribution of units, amounts to billion euro, accounting for 30.1% of the total assets invested in funds (assets under management of billion euro estimated figure). With respect to assets under custody, the security portfolio amounts to 62.4 billion euro, while liquidity is equal to 66.9 billion euro. Italy's financial product and service distribution market 17

18 Management report Significant events of the period 1. Group's profile and product range 1.1 The Group's reorganisation process On 27 April 2016, the Bank of Italy approved the demerger of Azimut Consulenza SIM S.p.A. and its merger into Azimut Capital Management SGR S.p.A. to the extent of the financial product placement business unit, Azimut Financial Insurance S.p.A. to the extent of the insurance and banking product placement business unit, and Azimut Partecipazioni S.r.l. to the extent of the equity investment it held in Az Fund Management Sa. This transaction is part of the Group's reorganisation process which Azimut Holding S.p.A.'s Board of Directors approved on 19 March 2015 to simplify and streamline the company structure by transforming the Group's investment companies into asset management companies. On 30 May 2016, the Bank of Italy approved the transformation of the subsidiary CGM Italia SIM into an asset management company, completing the last authorisation step of the reorganisation process. The demerger deed of Azimut Consulenza SIM S.p.A. was filed accordingly and, on 1 October 2016, the demerger took place, transferring all assets and all implied and explicit legal relations to Azimut Capital Management SGR S.p.A., Azimut Financial Insurance S.p.A. and the newco Azimut Partecipazioni S.r.l.. Eventually, the transformation of CGM Italia SIM into CGM Italia SGR was completed. On 7 November 2016, the Bank of Italy notified the Group that it had been struck off the investment firms register. Consequently, as of said date, the regulatory capital has been calculated only individually for asset management companies and the insurance company, releasing a considerable portion of the Group's assets, which partly used to distribute 1 euro per share (value date: 23 November 2016). 1.2 The parent company Azimut Holding S.p.A. Capital injections to AZ International Holdings SA In 2016, following the Board of Directors' resolutions of 10 March 2016 and 24 May 2016, Azimut Holding S.p.A. made a capital injection of 53.6 million euro to increase the share capital of the subsidiary AZ International Holdings Sa and finance the Group's international development. 1.3 AZ International Holdings SA The Azimut Group carried out the following transactions during the year through its subsidiary AZ International Holdings SA. 18 G r u p p o A z i m u t

19 Brazil The Brazilian companies are headed by AZ International Holdings SA through the subholding AZ Brazil Holdings Ltda. The streamlining process of these companies began in early 2016 and was concluded in part in November and December Specifically, AZ Legan Partecipações SA was initially merged into AZ Legan Administração de Recursos Ltda and later on, the latter company (post merger) was transferred to AZ Quest Partecipações SA and subsequently merged into AZ Quest Investimentos Ltda. The Group's acquisitions for 2016 are summarised below: Acquisition of 100% of BRZ Gestão de Patrimônio On 27 July 2016, Azimut Brasil Wealth Management Holding S.A. completed the acquisition of 100% of BRZ Gestão de Patrimônio, a Brazilian wealth management company with a proven track record on developing customised investment solutions for Brazilian private investors. The transaction, which did not require the local authorities' approval, entailed a total disbursement of around 1.1 million euro. The acquisition contract provides for a price adjustment linked to the acquiree's future results. Australia The Australian subgroup which, to date, comprises 20 companies, including one, Sigma Funds Management, authorised to carry out discretionary funds activities, had AuM worth 2.7 billion euro at 31 December In 2016, the following acquisitions were carried out through the Azimut Group's Australian subsidiary AZ Next Generation Advisory Pty Ltd ( AZ NGA ). RIT Toowomba Pty Ltd On 14 December 2015, the Azimut Group signed an agreement to acquire 100% of RIT Toowomba Pty Ltd ( RIT ) through its Australian subsidiary AZ NGA. RIT provides pension and insurance consultancy services. Under the relevant agreement, 49% of the transaction provides for the exchange of RIT shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash to the founding members. The transaction amounted to approximately 4.9 million euro and included both the cash and share exchange portions. The transaction was completed in January 2016, after meeting the conditions set out in the purchase and sale agreement. Empowered Financial Partners Pty Ltd On 29 January 2016, the Azimut Group signed an agreement to acquire 100% of Empowered Financial Partners Pty Ltd ( EFP ) through its Australian subsidiary AZ NGA. EFP provides financial advisory services, including asset allocation, pension and insurance advisory services and strategic financial planning and training. Under the relevant agreement, 49% of the transaction provides for the exchange of EFP shares with AZ NGA shares and 19

20 Management report the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash by the founding members. The transaction amounted to approximately 1.8 million euro and included both the cash and share exchange portions. The transaction was completed in early March 2016, after meeting the conditions set out in the purchase and sale agreement. Wealthwise Pty Ltd On 3 March 2016, the Azimut Group signed an agreement to acquire 100% of Wealthwise Pty Ltd through its Australian subsidiary AZ NGA. Wealthwise Pty Ltd provides financial advisory services, including asset allocation, pension and insurance advisory services and strategic financial planning and training. Under the relevant agreement, 49% of the transaction provides for the exchange of Wealthwise Pty Ltd shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash by the founding members. The transaction amounted to approximately 6.4 million euro and included both the cash and share exchange portions. It was completed in April 2016, after meeting the conditions set out in the purchase and sale agreement. Priority Advisory Group Pty Ltd On 12 April 2016, the Azimut Group signed an agreement to acquire 100% of Priority Advisory Group Pty Ltd ( PAG ) through its Australian subsidiary AZ NGA. PAG provides financial advisory services, including asset allocation, pension and insurance advisory services and strategic financial planning and training. Under the relevant agreement, 47% of the transaction provides for the exchange of PAG shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 53% was paid in cash by the founding members. The transaction amounted to approximately 6.3 million euro and included both the cash and share exchange portions. Sterling Planners Pty Ltd On 29 April 2016, the Azimut Group signed an agreement to acquire 100% of Sterling Planners Pty Ltd ( SP ) through its Australian subsidiary AZ NGA. SP offers a full suite of financial advisory services and is a market leader in facilitating UK pension fund transfers into the Australian system. Under the relevant agreement, 49% of the transaction provides for the exchange of SP shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash by the founding members. The transaction amounted to approximately 2.7 million euro and included both the cash and share exchange portions. It was completed in May 2016, after the successful resolutions of some provisions included in the purchase and sale agreement. JFS Personal Investment Solutions Pty Ltd On 10 June 2016, the Azimut Group signed an agreement to acquire 100% of JFS Personal Investment Solutions Pty Ltd ( JFS ) through its Australian subsidiary AZ NGA. JFS provides financial advisory 20 G r u p p o A z i m u t

21 services, including asset allocation, pension and insurance advisory services and strategic financial planning and training. Under the relevant agreement, 49% of the transaction provides for the exchange of JFS shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was to be paid in cash to the founding members. The transaction was not completed as some of the conditions precedent set out in the purchase and sale agreement were not met. Logiro Unchartered Pty Ltd On 29 July 2016, the Azimut Group signed an agreement to acquire 100% of Logiro Unchartered Pty Ltd ( Logiro ) through its Australian subsidiary AZ NGA. Logiro offers a full suite of financial advisory products and is a market leader in facilitating UK pension fund transfers into the Australian system. Under the relevant agreement, 49% of the transaction provides for the exchange of Logiro shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash by the founding members. The transaction amounted to approximately 2.9 million euro and included both the cash and share exchange portions. It was completed in August 2016, after the successful resolutions of some provisions included in the purchase and sale agreement. Domane Financial Advisors Pty Ltd was acquired in August 2016 through Wise Planners Pty Ltd which is already part of the AZ NGA Group. Aspire Pty Ltd was acquired in October 2016 through Logiro, which is already part of the AZ NGA Group, and TKT Pty Ltd, a vertical acquisition recognised by Wealthwise, which is also part of AZ NGA. OnTrack Financial Solutions Pty Ltd On 3 November 2016, the Azimut Group signed an agreement to acquire 100% of OnTrack Financial Solutions Pty Ltd ( OnTrack ) through its Australian subsidiary AZ NGA. OnTrack provides asset allocation services to local retail and institutional clients. Under the relevant agreement, 49% of the transaction provides for the exchange of OnTrack shares with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% was paid in cash by the founding members. The transaction amounted to approximately 4.0 million euro and included both the cash and share exchange portions. It was completed in November 2016, after the successful resolutions of some provisions included in the purchase and sale agreement. In addition to the above, the following transactions were carried out on the Australian market: Sigma Funds Management Pty Ltd In April 2016, the Azimut Group, through its Luxembourgbased subsidiary AZ International Holdings SA ( AZ International ), and the shareholders of Sigma Funds Management Pty Ltd ( Sigma ), an 21

22 Management report Australian equity manager specialised in the value approach, entered into a binding purchase and sale agreement to form an asset management partnership in Australia. AZ International acquired 51% of Sigma, while the remaining 49% is held by the company's current management. The aim of the partnership is to obtain distinctive management skills in the local stock market, while increasing distribution capacity. Azimut, through AZ International, acquired 51% of Sigma by means of a deferred capital increase to cover for Sigma's working capital up to the cumulative value of approximately 1.4 million euro. This amount will be used to finance its growth plan resulting from the approved business plan. Azimut and Sigma's investment team also signed shareholders' agreements which provide for call/put options where Azimut will be able to increase its share over the next ten years. Switzerland Decrease in the equity investment in the subsidiary AZ Swiss (now AZ Swiss & Partners) In February, AZ International Holdings decreased to 51% its equity investment in the subsidiary AZ Swiss (now AZ Swiss & Partners). The decrease was necessary to enable new shareholders to join the shareholding structure in order to develop the Group's presence in the Swiss market. AZ Swiss was authorised to carry out collective portfolio management services through the set up of UCITS and nonucits funds. Acquisition of the business unit of Sogenel Capital Holding S.A. On 29 June 2016, AZ Swiss & Partners signed a binding sale and purchase agreement to acquire the business unit of the Swissbased Sogenel Capital Holding S.A., including all relevant assets under management, clients, contracts and agreements, forming a new division within AZ Swiss & Partners. The valuation of the business unit of Sogenel Capital Holding S.A. is based on the 2015 proforma net profit adjusted for any income or expense item not included in the scope of the transaction. In addition, the parties have agreed on a price adjustment linked to the attainment of certain targets over the medium term. The closing of the transaction occurred in July following the notification to the local regulatory authority (FINMA) and after meeting the conditions set out in the purchase and sale agreement. United States Decrease in the equity investment in AZ Apice Capital Management LLC In February 2016, AZ Apice Capital Management LLC (set up in 2015), an investment adviser registered with the SEC and based in Miami, became operative. The company provides financial planning and portfolio management advisory services for natural persons and/or small companies, mainly to nonresident US citizens. The Azimut Group sold an additional 20% stake to the US shareholders, reducing its equity investment to 70%. 22 G r u p p o A z i m u t

23 Singapore Acquisition of 100% of Athenaeum Ltd Athenaeum Ltd On 9 February 2016, AZ International Holdings SA ( AZ International ) completed the acquisition of the residual 45% of Athenaeum Ltd ( AZ Athenaeum ), an asset management company regulated and based in Singapore specialised in mutual funds and discretionary funds. The transaction was carried out following the request of the minority shareholders, Athenaeum Holdings (Asia) Pte Ltd. ( ATH ), to bring forward the exercise of the put option to the strike price set out in the 2013 acquisition agreement. Consequently, AZ International now wholly owns AZ Athenaeum. The acquisition of the residual 45% of AZ Athenaeum generated an outflow of approximately 0.6 million euro to the founding shareholders which was paid in the 12 months after the transaction. Azimut and AZ Athenaeum's current management contractually agreed to continue their collaboration in the longterm to develop and consolidate the business in Singapore, focusing, in particular, on the management of local products and the development of the relationship with the region's HNWI through family office services. Turkey The merger of AZ Notus Portfoy Yonetimi AS into Azimut Portfoy AS was completed in August This transaction was the last step of the reorganisation of the Azimut Group in Turkey which, to date, operates only through Azimut Portfoy AS. Azimut Capital Management SGR S.p.A. Product updating Azimut Previdenza pension fund The changes to the regulation governing the Azimut Previdenza pension fund approved by Azimut Capital Management SGR S.p.A.'s Board of Directors on 11 March 2015 and authorised by the Supervisory Commission for Pension Funds on 25 June 2015 became effective on 1 February In short, the changes related to the merger of the Comparto Protetto fund into the Comparto Obbligazionario fund and some changes to the four subfunds' investment policies. 1.4 Product updating Futurimpresa SGR S.p.A. Product updating New fund for SMEs Through its subsidiary Futurimpresa SGR S.p.A., the Azimut Group announced the new reserved closedend fund IPO CLUB aimed at raising 150 million euro to be used in prebooking transactions, i.e., investment vehicles set up to channel funds to leading Italian SMEs to be subsequently listed. On 1 February 2017, the fund was operative with an endowment fund of 120 million euro. 23

24 Management report Ipo Club is also the result of the decisive contribution of Azimut Global Counseling, a subsidiary of the Azimut Group which operates in the financial advisory sector, and Electa Ventures, a company of the Electa Group which had already been a pioneer in setting up Spac and prebooking companies in Italy. Inflows will continue up to 150 million euro (as mentioned earlier). AZ Fund Management SA Product updating Luxembourgbased umbrella fund AZ Fund 1 : Cat Bond Fund Following the request from the Luxembourg authority Commission de Surveillance du Secteur Financier (CSSF), which oversees the AZ FUND 1 fund and its subfunds, more stringent criteria were applied to the subfunds that mainly invest in Catastrophe Bonds (Cat Bonds). For these subfunds, the CSSF set a minimum initial subscription of 100,000 euro and a subsequent payment, unchanged, at 500 euro. Starting from 1 June 2016, the investment policy of the Cat Bond Fund was changed to invest also in unrated Insurance Linked Securities (ILS). At the same time, its name was changed to Cat Bond Fund Plus. Luxembourgbased umbrella fund AZ Fund 1 fund: Arbitrage subfund Subscription closing of the Arbitrage subfund of the AZ Fund 1 fund by AZ Fund Management SA was set at 22 February 2016, having reached a high subscription level. This decision was taken to protect investors' interests and pursue the investment objectives. Following this decision, placement of the new Arbitrage Plus subfund began on 18 April Despite using a merger arbitrage strategy, the subfund is characterised by the fact that the manager is free to concentrate investments. Renaming of some subfunds Starting from 18 April 2016, AZ Fund Management SA renamed the following subfunds of the AZ Fund 1 Fund to better reflect the investment policy in place: The Opportunities Subfund was renamed Small Cap Europe The Alpha Manager Credit Subfund was renamed Credit The Alpha Manager Thematic Subfund was renamed Asset Dynamic The Alpha Manager Equity Subfund was renamed Global Equity Starting from 05 September 2016, AZ Fund Management SA renamed the following subfunds of the AZ Fund 1 Fund to better reflect the investment policy in place: The Best Cedola Subfund was renamed High Income The Best Bond Subfund was renamed International Bond The Aggregate Bond Euro Subfund was renamed Aggregate Bond Euro Plus 24 G r u p p o A z i m u t

25 Merger of subfunds The merger of the following subfunds was completed with effect from 3 September 2016: Subfunds to be merged AZ Fund 1 Bond Target 2015, AZ Fund 1 Bond Target December 2016, AZ Fund 1 Bond Target June 2016 and AZ Fund 1 Bond Target September 2016 AZ Fund 1 International Bond Target June 2016 Merging subfund AZ Fund 1 Bond Target 2019 Equity Options AZ Fund 1 Global Currencies & Rates The merger of the following subfunds was completed with effect from 09 December 2016: Subfunds to be merged AZ Multi Asset Sustainable Absolute Return Merging subfund AZ Multi Asset Sustainable Equity Trend Luxembourgbased umbrella fund AZ Multi Asset Placement of two new subfunds (AZ Multi Asset Sustainable Equity Trend and AZ Multi Asset CGM Investment Grade Opportunity) began on 17 October Luxembourgbased umbrella fund AZ Multi Asset Placement of three new subfunds (AZ Multi Asset ABS, AZ Multi Asset 5 Years Global Bond and AZ Multi Asset Renaissance Opportunity Bond) began on 15 December AZ Life dac Launch of new green internal funds by AZ Life dac The new Internal Funds GREEN I, GREEN II and GREEN III in the AZ Style unitlinked policies were subscribed during the period 1526 February 2016 at the initial price of 5 euro per unit. Furthermore, on 15 February 2016, some Internal Funds were merged into other Internal Funds to streamline the product range and increase the efficiency of the management service, while renaming the RED and BLUE Internal Funds: 25

26 Management report BLUE I (formerly Blue 2) RED I (formerly Red 2) BLUE II (formerly Blue 3) RED II (formerly Red 3) BLUE III (formerly Blue 5) RED III (formerly Red 5) Launch of new Alternative internal fund by AZ Life dac The new Alternative internal fund was launched on 17 October 2016, expanding the range of investment solutions offered as part of the AZ Style unitlinked policies. Changes to AZ NAVIGATOR Unit Linked policies As of 14 November 2016, the following internal funds have been renamed as follows: Current name Low Volatility Balanced Flexible Equity Dynamic New name Atlantico 1 Atlantico 2 Atlantico 3 As of the same date, six new internal funds have been introduced: Pacifico 1 Artico 1 Pacifico 2 Artico 2 Pacifico 3 Artico 3 2. Other significant events of the year 2.1 Azimut Holding S.p.A. Annual General Shareholders Meeting of 28 April 2016 The shareholders meeting (both ordinary and extraordinary) of 28 April 2016 approved the following: Approval of 2015 financial statements The shareholders meeting approved the 2015 financial statements, which included a parent company net profit of million euro. At the same time, the shareholders resolved to pay a dividend of 1.5 euro per ordinary share, pretax, of which 0.5 euro per share paid as of 25 May 2016, 23 May 2016 exdividend payment date and 24 May 2016 as the record date, while the residual 1.0 euro per share paid within 30 days of the Azimut Group's being struck off from the investment firms register by the Bank of Italy. They also approved the payment to Fondazione Azimut Onlus of 2.8 million euro, equal to 1% of pretax consolidated profit and the payment of 24,74 euro for each profitparticipating financial instrument held by Top Key People at the time of approval of payment of the dividend. 26 G r u p p o A z i m u t

27 Appointment of the Board of Directors and the Board of Statutory Auditors The shareholders meeting appointed twelve members of the Board of Directors, of whom ten with a threeyear term of office and two for one year, confirming Mr. Pietro Giuliani as interim Chairman and Chief Executive Officer. The shareholders meeting also appointed the Board of Statutory Auditors for the next three years. Proposal for purchase and allocation of treasury shares The shareholders meeting approved the purchase of up to 567,950 Azimut Holding S.p.A. ordinary shares, or 0.4% of the current share capital, including in one or more instalments, to accrue the shares to service the exercise of the warrants awarded to investors following subscription of the nonconvertible Azimut subordinato 4% subordinated bond. Furthermore, the shareholders meeting approved the purchase of up to 28,000,000 Azimut Holding S.p.A. ordinary shares, or 19.55% of the current share capital, including in one or more instalments, considering 567,950 shares to service the exercise of the warrants and those already in portfolio upon purchase at a minimum unit price equal to at least the carrying amount of Azimut Holding S.p.A. ordinary shares and a maximum unit price of 50 euro. Remuneration Report: resolutions pursuant to article 123ter, paragraph 6, of Italian Legislative Decree No. 58/98 The shareholders meeting approved Azimut Holding S.p.A.'s policy concerning remuneration of members of the management boards, general managers and key managers, as well as the procedures used to adopt and implement said policy. Repayment of Banco Bpm S.p.A. (formerly Banco Popolare) loan On 30 June 2016, the Parent Company repaid the instalment (Line B) of the loan granted by Banco Bpm S.p.A. (formerly Banco Popolare) for a total amount of 10 million euro. 2.2 Significant events of the year Exercise of warrants issued on the Azimut Subordinato 4% Bond The right to exercise the warrants related to the Azimut Subordinato 4% Bond expired on 30 June During the first half of 2016, 102,517 warrants assigned as part of the placement of the Azimut Subordinato 4% Bond were exercised against a total of 1.9 million euro, delivering the same number of Treasury Shares. At the closing date of the transaction, 154,437 warrants were not exercised. Consequently, they lose all rights and become invalid for all effects. Agreement to repurchase the residual 49% of Augustum Opus SIM On 28 July 2016, Azimut Holding S.p.A., and the minority shareholders Augustum Opus SIM reached an agreement whereby Azimut will acquire the residual 49%. On 20 December 2016, the Board of Directors of Azimut Holding S.p.A. approved the commencement of the activities preliminary to the merger of Augustum Opus 27

28 Management report SIM into Azimut Capital Management SGR. The closing of the transaction will take place in the first half of 2017, subject to Bank of Italy's authorisation. Board of Directors of Azimut Holding S.p.A. On 27 September 2016, the Board of Directors coopted Sergio Albarelli as Chief Executive Officer of Azimut Holding S.p.A. as of 3 October Azimut Enterprises Holding S.r.l. Acquisition of 30% of Cofircont Compagnia Fiduciaria S.r.l. On 20 September 2016, through its subsidiary Azimut Enterprises Holding, Azimut acquired 30% of Cofircont Compagnia Fiduciaria, a fiduciary company held by professionals (mainly lawyers or accountants), against a consideration of 821,000 euro. Azimut group's financial performance for 2016 The Azimut Group's consolidated net profit for 2016 amounts to 172,685 thousand euro (247,421 thousand euro in 2015), while consolidated EBIT came to 185,578 thousand euro (278,664 thousand euro in 2015). The performance of the year was considerably affected by the high volatility of the financial markets which had a negative impact on the variable part of fees and commissions, as well as the ongoing expansion of the Group outside Europe. The Group is comprised of several companies which distribute, manage and promote financial and insurance products in many countries, including Luxembourg, Ireland, China (Hong Kong and Shanghai), Monaco, Switzerland, Singapore, Brazil, Mexico, Taiwan, Chile, Australia, Turkey and the United States. Through the whollyowned subsidiary AZ International Holdings SA, incorporated under Luxembourg law, the Group continued its mission to develop, research, acquire and manage international partnerships. In 2016, eight companies (ten in 2015) were acquired and the Group's presence was strengthened thanks to the purchase of additional equity investments in existing subsidiaries. The recruitment of financial advisors showed a positive balance: in 2016, the Group's network showed 141 new engagements, bringing the total number of advisors to 1, G r u p p o A z i m u t

29 assets under management at the end of 2016 reached 35.8 billion euro, up by approximately 15% compared to the end of assets, including assets under custody, amounted to 43.6 billion euro, up by 19% on Assets Figures in millions of euro 31/12/ /12/2015 Change Absolute % Mutual funds 28,756 26,495 2,261 9% Discretionary portfolio management and other 7,701 5,754 1,947 34% AZ Life insurance 6,434 5, % Advisory % Double counting (7,960) (7,256) (704) (10%) AUM, net 35,800 31,201 4,599 15% Securities, thirdparty funds and A/C 7,805 5,481 2,324 42% assets 43,605 36,682 6,923 19% Group total inflows were positive at approximately 6.5 billion euro at 31 December 2016, slightly down on 2015 (2%). Net inflows Figures in millions of euro Change Absolute % Mutual funds 1,588 3,941 (2,353) (60%) Discretionary portfolio management and other 1, % AZ Life insurance 333 1,399 (1,066) (76%) Advisory (381) (61%) Double counting (267) (1,735) 1,469 (85%) net inflows Assets under management 3,511 4,454 (943) (21%) Securities, thirdparty funds and A/C 3,019 2, % net inflows 6,530 6,667 (137) (2%) In order to provide a more effective representation of the results, the income statement has been reclassified and thus better reflects the content of the items according to operating criteria. The main reclassifications involved the following: cost recoveries on portfolio management reported under Fee and commission income have been reclassified as Other income in the reclassified income statement; net premiums and the corresponding change in the technical reserves, commissions Reclassified consolidated income statement 29

30 Management report and recovered expenses relating to insurance and investment products issued by Az Life Ltd, reported under Net premiums, Change in technical reserves and Fee and commission income, have been reclassified as Insurance income ; commission expenses paid to the distribution network, reported under Fee and commission expense are now classed as Acquisition costs ; similarly, the Enasarco/ Firr contributions related to these commission expenses and the other trade payables associated with the distribution network, recognised under Administrative costs, have been reclassified as Acquisition costs ; the amount allocated to the supplementary indemnity reserve for agents (ISC) reported under the item Provisions for liabilities and charges has been reclassified as Acquisition costs ; administrative cost recoveries, reported under Other operating income and costs were recognised as a reduction of Overheads/administrative costs ; interest expense on loans was reported under Interest expense in the reclassified income statement. Euro/000 Acquisition fees Fixed management fees Variable management fees Other income Insurance income income Acquisition costs Overheads/administrative costs Amortisation/provisions costs EBIT Net financial income Net nonrecurring costs Interest expense Pretax profit Income tax Deferred tax assets/liabilities Net profit Profit attributable to minority interest Group net profit 01/01/ /12/2016 9, , ,770 7,611 38, ,648 (325,436) (158,984) (15,920) (500,340) 205,308 (3,033) (6,323) (11,063) 184,889 (19,281) 11, ,304 4, ,685 01/01/ /12/ , , ,466 10,267 44, ,569 (290,762) (125,831) (11,110) (427,703) 279,866 14,392 (5,065) (11,015) 278,178 (23,555) (4,636) 249,987 2, , G r u p p o A z i m u t

31 Consolidated EBIT and consolidated Group net profit at 31 December 2016 came to 205 million euro (280 million euro at 31 December 2015) and 173 million euro (247 million euro at 31 December 2015), respectively. The trend of acquisition costs reflects the recruitment of financial advisors and private bankers last year. Overheads in 2016 increased on the previous year due to the consolidation of foreign operations and charges related to investments in software to keep up with the growth of the Group. The decrease in financial income is due to the negative impact of changes in liabilities measured at fair value. Main balance sheet figures The Group's main balance sheet figures are shown in the table below. Euro/000 31/12/ /12/2015 Financial assets measured at fair value Availableforsale financial assets Receivables and equity investments Tangible and intangible assets Other assets assets Payables and outstanding securities Technical reserves Financial liabilities measured at fair value Other liabilities and provisions Shareholders equity liabilities and shareholders equity 6,447, , , , ,111 7,727, , ,324 6,299, , ,066 7,727,276 5,658, , , , ,500 6,946, , ,209 5,439, , ,217 6,946,241 Financial assets and liabilities measured at fair value rose by approximately 14% on 31 December These items mainly refer to the insurance activities carried out by AZ Life dac: assets mainly relate to investments in unitlinked policies where the investment risk is borne by policyholders, while liabilities mainly relate to commitments from unitlinked policies classified as investment contracts. "Availableforsale" financial assets, which reflect the investment of the excess liquidity of operations in UCI units, decreased by 24% from 366 million euro to 277 million euro. Similarly, cash and cash equivalents with bank current accounts held by group companies decreased from 162 million euro to 82 million euro. Tangible and intangible assets increased as a consequence of the rise in goodwill due to the acquisitions of the year and the increase in intangible assets with a finite life due to the investments in software of the year. 31

32 Management report Consolidated net financial position The Group's net financial position was million euro at 31 December 2016 (336.3 million euro at 31 December 2015). A Cash B Cash equivalents: Due from banks Due from managed funds C Availableforsale financial assets D cash A+B+C E Shortterm receivables F Shortterm bank loans G Current portion of longterm debt: Bonds (Azimut '11'16 Senior) Bonds (Azimut '13'20 Convertible) Due to banks (BPN loan) H Other shortterm payables I Shortterm financial debt F+G+H J Shortterm financial debt (net) IED K Longterm bank loans: Due to banks (BPN loan) L Bonds Bonds (Azimut '13'20 Convertible) M Other longterm debt N Longterm financial debt K+L+M O Net (financial) position J+N 31/12/ /12/ , ,592 81, ,575 90,219 63, , , , ,215 (10,575) (11,398) (778) (524) (524) (10,051) (10,096) (10,575) (11,398) 428, ,817 (10,000) (20,000) (20,000) (225,998) (220,524) (225,998) (220,524) (235,998) (240,524) 192, ,293 With regard to the methods used to assess net financial position, reference was made to the recommendation issued by CESR (Committee of European Securities Regulators) dated 10 February 2005, and more specifically to the paragraph on Capitalisation and indebtedness in chapter II. 32 G r u p p o A z i m u t

33 Receivables and payables include those of a financial nature only, whereas trade receivables and payables have been excluded. Receivables in the form of fees and commissions for managed funds and discretionary portfolios are also included and are considered as cash equivalents given that they are collected by the Group during the first few working days after the reporting date. The results were impacted by the liquidity generated by operating activities, as well as by 236 million euro for the payment of dividends to shareholders and holders of profitparticipating financial instruments and the payment to Fondazione Azimut Onlus of 2.8 million euro made in execution of the Shareholders resolution of 28 April For additional information about the other significant transactions of the year, reference should be made to the section Significant events of the year. The changes in financial debt items during 2016 are shown in the following table: Loans raised and repaid during the year Euro/000 Interest rate Balance at 01/01/2016 of which: Currency Euro Nominal Effective Carrying value Carrying amount 241,108 Expiry BPN loan Line B Azimut Senior Bond Azimut Subordinated Bond Euro Euro Euro 3 month Euribor % 2.13% 3 month Euribor % 4.91% 50, ,000 30, , Redemptions of which: BPN loan Line B Euro Euro 3 month Euribor month Euribor (10,000) (10,747) (10,000) 2018 Azimut Senior Bond Euro 2.50% 3.06% 884 (747) 2016 Balance at 31/12/2016 Euro 230,361 The Azimut Senior bond was entirely repaid on 1 February 2016 (884 thousand euro). The instalment of the loan granted by Bpm S.p.A. (formerly Banco Popolare) relating to Line B totalling 10,000 thousand euro was repaid on 30 June

34 Management report Treasury shares At 31 December 2016, Azimut Holding S.p.A. subsidiaries did not hold nor did they hold during the year any treasury shares or shares of the Parent Company, either directly or via trust companies or third parties. During the first half of June 2016 (30 June 2016 being the last date allowed by the bond issue regulation to exercise the warrants), 102,517 treasury shares were assigned against the exercise of the same number of warrants issued at the placement of the Azimut Subordinato 4% Bond. At the closing date of the transaction, 154,437 warrants were not exercised. Consequently, they lose all rights and become invalid for all effects. At 31 December 2016, Azimut Holding S.p.A. s treasury share portfolio therefore stood at 10,387,189 shares, or 7.251% of share capital. In the period between 31 December 2016 and the date this report was approved, 1,492,550 treasury shares have been purchased for a total of 25 million euro. Reconciliation of azimut holding S.p.A.'S net shareholders' equity and net profit to consolidated shareholders' equity and consolidated net profit Euro/000 Holding opening balance Adjustments due to changes in calendar year Holding shareholders equity Adjustments: Results of consolidated companies Subsidiary consolidation effects Azimut Holding S.p.A. dividend cancellation Cancellation of subsidiaries' dividends AZ International Holdings SA Group dividend cancellation Equity accounted investments Liabilities measured at fair value Tax adjustments Group shareholders equity Minority interest shareholders equity Shareholders equity at 31/12/ ,012 2, , , ,333 (187,614) (111,328) (4,317) 1,632 (98,673) (917) 627,092 17, ,067 of which profit for the year 161, , , (187,614) (111,328) (4,317) 22 (4,851) 1, ,685 4, , G r u p p o A z i m u t

35 Information about main Azimut group companies The following information is given about the business activities and the financial performance of the companies directly controlled by the parent company in accordance with the Group's accounting policies. AZ Fund Management SA, wholly owned, carries out mutual fund management activities. The net profit for 2016 amounts to 223,141,828 euro (2015: 227,083,932 euro). At 31 December 2016, total assets under management stood at approximately 28.9 billion euro. AZ Life dac, wholly owned, carries out insurance activities. The net profit for 2016 amounts to 20,545,689 euro (2015: 23,960,512 euro). Azimut Capital Management SGR S.p.A., wholly owned, manages harmonised Italian funds, pension funds, alternative funds and discretionary funds. The net profit for 2016 amounts to 26,806,416 euro compared to 50,058,069 euro in the previous year. The decrease on 2015 is mainly due to the reduction in fee and commission income which fell from 102 million euro in 2015 to 90.3 million euro in 2015 and the increase in administrative costs and impairment losses on tangible and intangible assets. At 31 December 2016, total assets under management stood at approximately 4.4 billion euro, of which 1.4 billion euro related to mutual funds and 3.5 billion euro to discretionary funds. Azimut Partecipazioni S.r.l., wholly owned, is a holding company focusing on unlisted companies. On 1 October 2016, following the demerger of Azimut Consulenza Sim S.p.A., it merged 49% of AZ Fund Management SA. Its net profit for 2016 amounts to 74,275,885 euro. AZ Financial Insurance S.p.A., wholly owned, was incorporated on 28 May 2015 through the payment of the 50 thousand euro share capital by the sole shareholder Azimut Holding S.p.A.. The company's business object is insurance mediation, except for reinsurance mediation, and bank products' placement and distribution. On 1 October 2016, following the demerger of Azimut Consulenza SIM S.p.A., it merged Azimut Group's insurance product and contract placement and banking products and services business unit. In 2016, it incurred a loss of 5,908,687 thousand euro ((a loss of 390 euro in 2015). AZ International Holdings SA, wholly owned, carries out foreign operations' management activities. The loss for 2016 amounts to 1,167,165 euro (2015: net profit of 496,523 euro). Azimut Opus SIM S.p.A., 51% owned, carries out unsecured placement and order receipt activities and securities management. The net profit for 2016 amounts to 2,979,753 euro (2015: 1,915,261 euro). Futurimpresa SGR S.p.A., 55% owned, sets up and manages alternative investment funds. The net profit for 2016 amounts to 243,992 euro (2015: 56,958 euro). 35

36 Management report Azimut Enterprises Holding S.r.l., wholly owned, is a holding company focusing on unlisted companies, including Programma 101 Sicaf S.p.A. and Siamosoci S.r.l., which contribute to diversifying the Group's business. Programma 101 Sicaf S.p.A. is a venture capital company specialised in early stage investments in the digital sector, while Siamosoci S.r.l. acts as startup incubator. During the year, the company acquired 30% of Cofircont Compagnia Fiduciaria S.r.l.. In 2016, it incurred a loss of 801 thousand euro compared to a loss of 135 thousand euro in Azimut Global Counseling S.r.l., wholly owned, provides financial planning consultancy services, in addition to company restructuring, market research and marketing activities, data collection and processing and financial information. In 2016, it incurred a loss of 402 thousand euro compared to a loss of 325 thousand euro in Specifically, through the subsidiary AZ International Holdings SA, the Azimut Group is pursuing an international growth strategy which mainly translates into partnerships with local operators, the acquisition of majority investments in asset management and/or advisory and distribution companies. The list of AZ International Holdings SA's partnerships at 31 December 2016 is given below, broken down by geographical area: Europe Katarsis Capital Advisors SA, a whollyowned Swiss company, which carries out actuarial and financial advisory activities. Eskatos Capital Management SARL, wholly owned through Katarsis Capital Advisors SA, is a Luxembourgbased company subject to CSSF's regulations which carries out unharmonised investment fund management activities. AZ Swiss & Partners (formerly AZ Swiss), 51% owned, which carries out advisory and assistance activities with respect to investments and visàvis authorised intermediaries and institutional investors; Compagnie de Gestion Priveè Monegasque, 51% owned, which carries out asset management, financial advisory and order receipt and transmission activities; CGM Italia SGR S.p.A. (formerly CGM Italia SIM S.p.A.), 51% owned through Compagnie de Gestion priveè Monegasque, which carries out asset management, order receipt and transmission and advisory activities. Turkey Azimut Portfoy (formerly AZ Global Portfoy Yonetimi), wholly owned, which carries out asset management activities. During the year, the merger of AZ Notus into Azimut Portföy became effective. 36 G r u p p o A z i m u t

37 South East Asia AN Zhong (AZ) IM Limited, wholly owned, which carries out equity investment management activities; AN Zhong (AZ) IM HK Limited, a regulated company wholly owned through AN Zhong (AZ) IM Limited, which provides financial advisory activities in Hong Kong; AZ Investment Management, wholly owned through AN Zhong (AZ) IM Limited, is a financial advisory company operating in the Chinese market; AZ Sinopro Financial Planning Ltd (formerly AN Ping Investment), 51% owned, is a holding company set up to acquire the following controlling investments. AZ Sinopro Insurance Planning Ltd, 51% owned through AZ Sinopro Investment Planning (owned, in turn, through AZ Sinopro Financial Planning), is a securities investment consulting enterprises which distributes asset management products in Taiwan. Athenaeum Ltd, 100% owned, is an independent company based in Singapore which provides advisory services. Latin America AZ Brasil Holdings Ltda, wholly owned, is a Brazilian holding company which heads the partnerships forged over the past few years with local operators. AZ Quest Partecipacoe SA, 60% owned through AZ Brasil Holdings Ltda, is a Brazilian independent company which carries out asset management activities. AZ Quest Investimentos Ltda, 59.98% owned through AZ Brasil Holdings Ltda, is a Brazilian independent company which carries out asset management activities. As such, it is subject to local regulations. AZ Brasil Wealth Management Holding SA (formerly AZ FI Holdings), wholly owned by AZ Brasil Holdings Ltda, is a subholding company which holds the following investments. M&O Consultoria Ltda, wholly owned through AZ Brasil Holdings Wealth Management Holding SA, a company operating in the asset and wealth management sectors. AZ Brasil Wealth Management Ltda, 89% owned through AZ Brasil Wealth Management Holding SA, a company operating in the asset and wealth management sectors. AZ & Partners BRZ (formerly BRZ Patrimonio), wholly owned through Azimut Brasil Wealth Management Holding SA, a Brazilian wealth management company specialised in the development of tailormade investment strategies for Brazilian private investors. AZ Mèxico Holdings S.A. de CV (formerly AZ Profie SA), 94.20% owned, is a Mexican holding company set up in 2014 to develop asset management 37

38 Management report activities by forging partnership with local operators. Mas Fondos SA, 94.20% owned through AZ Mèxico Holdings S.A. de CV, is a regulated company which carries out distribution activities in the asset management sector. AZ Andes SA, 90% owned, is a Chilean holding company. Australia Next Generation Advisory Pty Ltd, 53.48% owned, is a financial advisory company which acts as the holding company for the investments carried out by the Group in the following financial advisory and asset allocation companies: Eureka Whittaker Macnaught Pty Ltd, Eureka Financial Group Pty Ltd, Pride Advise Pty Ltd, Lifestyle Financial Planning Services Pty Ltd, Financial Lifestyle Partners Pty Ltd, Wise Planners Pty Ltd,Harvest Wealth Pty Ltd, Pride Financial Pty Ltd, Domane Financial Advisers Pty Ltd, RI Toowoomba Pty Ltd, Empowered Financial Partners Pty Ltd, Wealthwise Pty Ltd, Priority Advisory Group Pty Ltd, Sterling Planners Pty Ltd, Logiro Unchartered Pty Ltd, Aspire Pty Ltd and OnTrack Financial Solutions Pty Ltd. AZ Sestante (formerly Ironbark), directly controlled by AZ International Holdings SA which owns 76% thereof, acts as a trustee and manager of mutual funds in Australia. The company was set up to launch and offer funds locally. Sigma Funds Management Pty Ltd, directly controlled by AZ International Holdings SA which owns 51% thereof, is an asset management company specialised in equity funds. United States AZ US Holdings LLC was incorporated by AZ International Holdings S.A. and is wholly owned by it. AZ US Holdings LLC set up, in turn, AZ Apice Capital Management Ltd in which it holds a 70% equity investment. This company, which is subject to SEC's regulations, carries out financial planning and portfolio management activities for nonresident US citizens. Key risks and uncertainties Key risks For the purposes of risk monitoring, the Group has identified the main risks as follows: 38 G r u p p o A z i m u t

39 Strategic risk is defined as a current or potential risk of a reduction in earnings or capital as a result of changes in operations or of incorrect, inadequate decisionmaking and failure to respond to the competitive scenario. This risk depends firstly on the profitability profile generated by the sale of services and products by financial advisors, by the management of funds and by incorrect or imprudent evaluation of market trends in terms of clients and products to be placed. Sales activity is monitored through reports on the sales performance by geographic area and by financial products sold. Financial advisors and their respective Area Delegates/Area Managers (financial advisors responsible for coordinating specific areas of the country) also meet regularly to keep track of the market situation and take the relevant steps to preserve the competitiveness of each geographic area. Finally, market research and analysis by the research and marketing department is used to compare results to those of Azimut s competitors and monitor the performance of funds. The periodic reporting of the results achieved, specifically about the financial position and results of operations, plays a fundamental role in monitoring the impact of the strategic decisions taken by governance bodies, identifying any necessary corrective measures. Strategic risk The Group s companies mainly recruit financial advisors with years of experience in the field, gained while working for rival companies or in bank retail services. The process of recruiting individual advisors is strict and involves both local branches and the marketing departments of the Group. Moreover, in addition to past experience, qualifications and references gained on the market are also considered. In the case of the subsidiary Azimut Capital Management, its horizontal structure requires that financial advisors are able to perform their jobs autonomously: by focusing on this aspect during recruitment, the company tends to avoid choosing inexperienced candidates. In order to limit the risks arising from any fraudulent action taken by financial advisors in the performance of their duties, the Group purposely entered into insurance policies against loyalty risks and professional liability insurance for the financial advisors themselves (with the maximum annual claims deemed adequate for said advisors to operate). Finally, the marketing department works closely with the Internal Audit department to share the information required to monitor the conduct of individual financial advisors. Internal control over financial advisors is based on the identification and analysis of possible irregularities in remote monitoring and inspections at financial advisors' offices. These controls are carried out also to check compliance with presentation Sales network risks 39

40 Management report criteria, correct keeping of archives and fulfilments visavis the Body in charge of the Financial Advisors' register. Should any irregularity be detected, or in case of noncompliance with the code of conduct, the financial advisors directly involved or their incharge are asked to prepare a specific report giving explanations or to enable the competent departments to carry out further indepth analyses and, where necessary take adequate measures. Operational risk Operational risk is related to potential losses due to inadequate or defective aspects of procedure, human resources, internal processes, or external events. As well as being generally evaluated in quantitative terms, monitored and mitigated in accordance with current regulations, this risk is also subject to qualitative assessment for the individual group companies. Therefore, the Group uses a process to identify and assess the operational risks based on Risk Self Assessment methods, which take account of the frequency and severity of identified risk factors. This procedure allows the companies to establish appropriate control and monitoring techniques, i.e. measures to limit the negative effects of any adverse conditions to which the Group is exposed. Given the presence of this type of risk, the Group has established the following measures to monitor and limit the effects: mapping of main company processes, by means of an analysis of existing procedures and interviews with the heads of the various departments; identifying the significant risks within the mapped procedures; evaluation of control measures (primary or secondary level) in respect of risk areas, highlighting any unmonitored situations; defining and implementing a reporting system via the Internal Control and Risk Management Committee, in order to report the final results on the unmonitored risks and any action taken. Outsourcing risk The administrative and IT activities of the Italian operating companies are outsourced. When the contracts with Objectway Financial Software S.p.A. and Deloitte Enterprise Risk Service S.r.l. were signed, establishing the method used in the performance of the outsourced services, purposely created service level agreements were also drawn up to guarantee the adequacy of the services provided and allow group companies to take action against the supplier in the event of any economic losses arising from problems in the supply of these services. Another measure to ensure that services are performed correctly was the creation of an Operating Committee, whose members come from both the Group s operating companies affected by the agreement and the supplier company, to establish the procedures, define the timescales, and monitor the correct execution of all 40 G r u p p o A z i m u t

41 services provided. Furthermore, the above committee assesses the adjustments required by the evolution of operations and applicable regulations, as well as the necessary actions to be taken. The committee meets at least once a month and the participants are provided with a copy of the minutes of the meeting afterwards which, where necessary, is also reported on to top managers. Reputational risk originates from risk factors such as compliance, strategy, outsourcing and other specific variables such as the public scenario, significance of the trademark and company image, exposure to external communication processes. In order to limit this type of risk, a series of procedures has been put in place aimed at minimising both its cause and effect, the most important aspects being: complaints received by group companies are monitored constantly, so as to analyse any problems caused by strategic decisions and operating errors and the effects that these may have on the company s reputation; a record of corporate risks of all subsidiaries is constantly updated, in order to identify which departments, procedures and activities are most subject to reputational risks; the Internal Control and Risk Management Committee, where the presence of managers allows for topdown management of action to be taken to limit reputational risks or respond to any events caused by them; the Marketing and Investor Relations departments, centralised at Group level, have sole responsibility for dealing with public relations/external communications and the company s image; an Internal Code of Conduct governs the treatment of any action that gives rise to conflicts of interest, cases of insider trading or market abuse and any penalties as a result of failure to comply with regulations. In accordance with the regulations for the treatment of privileged information pursuant to art. 115b of Italian Legislative Decree no. 58/98 (TUF Consolidated Law on Finance), Azimut Holding S.p.A. established a Register for itself and on the behalf of its subsidiaries, by creating a database with the technical/operating features required to guarantee that logical and physical security requirements are met, records cannot be changed and that information is easily accessible. Reputational risk Compliance risk is related to legal and administrative sanctions, significant financial losses or damage to reputation as a result of noncompliance with laws and regulations or internal procedures (e.g. bylaws, codes of conduct, corporate governance codes). Given that all levels of the company are exposed to this risk, limiting its effects mainly involves ensuring that personnel take adequate responsibility in the performance of their work by complying with the internal code of conduct, code of ethics and procedure manual. Compliance risk 41

42 Management report The Compliance department, centralised within Azimut Holding S.p.A., ensures that internal procedures are in line with the objective to prevent any breaches of current law or internal regulations. In more detail, the Compliance department: proposes any organisational and procedural changes to ensure adequate protection against any identified risks of noncompliance; submits a report to all relevant bodies, including the Supervisory Body (pursuant to Italian Legislative Decree no. 231/2001), the Board of Statutory Auditors, the Internal Control and Risk Management Committee; controls the efficiency of organisational changes (structures, processes, procedures); constantly monitors any changes to regulations governing the investment service sector, and circulates the relevant information to all parties concerned. Financial risk As regards financial risks, proprietary trading by Group companies is exposed to market risks. Moreover, the financial instruments in question are easily liquidated and are monitored closely, most being mutual fund units managed by the Group companies. As for credit risk, there are no specific problems given the nature of the Group s activity. Liquidity risk Liquidity risk arises when the company is unable to gain access under reasonable economic conditions to the financial resources required to ensure its efficiency. The main factors that determine liquidity levels are the resources provided from or used by administrative and investment activities, as well as loan expiry and renewal or liquidity of investments and market conditions. The Group has no liquidity issues. In order to mitigate this risk, it adopted a policy for the optimisation of financial resources management. Specifically, the Group maintains an adequate level of liquidity available thanks to constant cash flow generation and by monitoring forecast needs based on financial planning. Key uncertainties The uncertainties to which the Group is exposed derive from the specific nature of its core business, particularly as far as the strict correlation is concerned between revenues and certain types of fee items, the performance of which is determined by the results generated by the management of placed products and the performance in terms of capital generation. The generation of these revenues and the relative amount are by nature volatile and heavily influenced by the returns offered by the funds and the risk appetite of the clients during the period considered. These factors are, in turn, affected by the performance of reference markets and, more generally, of the national and international economies. There is therefore a risk that Group's revenues and operating results may be negatively affected by prolonged financial market crises. 42 G r u p p o A z i m u t

43 Related party transactions Pursuant to Consob Regulation on Related parties 1, on 22 November 2010, the Board of Directors of Azimut Holding S.p.A. approved the procedures that ensure transparency and fairness of related party transactions ( Related Party Transaction Procedure available on Azimut s website at With reference to paragraph 8 of Article 5 of the Consob regulation on periodic disclosure of related party transactions, the Group did not engage in any significant transactions during No other atypical or unusual transactions were performed. Disclosures on other related party transactions are provided in paragraph Related Party Transactions in Part D, Section 5 of the Notes to the consolidated financial statements. Organisational structure and corporate governance Azimut Holding S.p.A. complies with corporate governance regulations in force in Italy. Moreover, the corporate governance structure partially reflects the recommendations contained in the Code of Conduct for Listed Companies published by Borsa Italiana. For more information reference should be made to the attached Report on corporate governance and ownership structure prepared pursuant to Article 123bis of the Consolidated Law on Finance (TUF). Azimut has established a risk management and internal control system over financial reporting, using as a reference the COSO Report, under which the Internal Control in the broadest sense is a process effected by an entity's Board of Directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives ; specifically, the objective of reliable financial reporting. The key characteristics of the risk management and internal control over financial reporting are described in the Report on corporate governance and ownership. Human resources At 31 December 2016, Group personnel amounted to 581 employees, broken down as follows: 1 Consob resolution No of 12 March 2010 as subsequently amended. 43

44 Management report Position Managers Middle managers Office staff The increase in the number of employees at 31 December 2016 over the previous year mainly reflects the consolidation of recently acquired companies. Research and development activities The research and development activities undertaken by the Azimut Group focus exclusively on the research of investment instruments and services and on the sale of these products: The Group is constantly committed to designing and implementing investment tools that meet the increasingly sophisticated needs of current and potential clients (see also the section on "Significant events of the year"). Significant events after the reporting date The main events that occurred after 31 December 2016 the reporting date of the consolidated financial statements, until 9 March 2017, the date on which the Board of Directors approved the draft financial statements, are as follows: as of 7 February 2017, as resolved by the Shareholders in their Ordinary meeting of 28 April 2016, Azimut Holding S.p.A. launched a share buyback programme in order to subsequently resell treasury shares or use them to acquire or exchange equity investments, accumulate the capital stock for the execution of stock options programmes, service the financial instruments convertible into the Company's shares or any other useful purpose which increases the value of the Company in compliance with the legislation from time to time in force. The maximum number of shares that may be repurchased as of today is 18,263,710, representing approximately 13% of share capital. Buybacks will be executed in tranches, for a total amount of 25,000,000 euro at the maximum price of 50 euro (only for the first tranche the maximum acquisition price will be equal to 30 euro); over its 25 years of activities, in line with market practices and given its size and business, the Azimut Group was subject to ordinary inspections by the Supervisory Authorities. In March 2017, as part of an ordinary inspection carried out by the Bank of Italy, to the extent of its duties, Consob fined some profiles of Azimut Consulenza SIM (now Azimut Capital Management SGR). 44 G r u p p o A z i m u t

45 Business outlook Given the positive results of the subsidiaries in early 2016, consolidated performance is expected to be positive this year. This year s financial position and results of operations will also be affected by financial market trends. Milan, 09 March 2017 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 45

46 46 G r u p p o A z i m u t

47 Financial statements consolidated balance sheet as at 31 December

48 Consolidated balance sheet as at 31 december 2016 Assets Assets (Euro/000) 31/12/ /12/2015 Cash and cash equivalents Financial assets measured at fair value Availableforsale financial assets Receivables a) for portfolio management b) other receivables Equity investments Tangible assets Intangible assets Tax assets a) current b) deferred Other assets TOTAL ASSETS 21 6,447, , ,305 90,219 99, , ,315 78,976 32,905 46, ,114 7,727, ,658, , ,034 63, ,017 7,744 6, ,532 72,680 44,855 27, ,793 6,946,241 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 48 G r u p p o A z i m u t

49 Consolidated balance sheet as at 31 december 2016 Liabilities and Shareholders Equity Liabilities and Shareholders Equity 31/12/ /12/2015 Payables Outstanding securities Technical reserves where the investment risk is borne by policyholders Other technical reserves Financial liabilities measured at fair value Tax liabilities: a) current b) deferred Other liabilities Staff severance pay (TFR) Provisions for risks and charges: b) other provisions Share capital Treasury shares () Equity instruments Share premium reserve Reserves Valuation reserves Profit for the period/year Minority interest liabilities and shareholders' equity 28, , , ,299,036 59,401 1,443 57, ,975 3,403 31,265 31,265 32,324 (81,288) 70, , ,107 (4,674) 172,685 17,975 7,727,276 34, , , ,439,863 60,224 1,790 58, ,000 3,311 26,694 26,694 32,324 (80,727) 71, , ,181 (7,776) 247,421 10,348 6,946,241 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 49

50 Consolidated income statements at 31 december 2016 Items (Euro/000) 31/12/ /12/2015 Fee and commission income Fee and commission expense Net fee and commission income Dividends and similar income Interest income and similar income Interest expense and similar charges Net trading income (expense) Profits on disposal or repurchase of: a) financial assets b) financial liabilities Net result of financial assets and financial liabilities measured at fair value Net premiums Net profits (losses) on financial instruments at fair value through profit or loss Change in technical reserves where the investment risk is borne by policyholders Redemptions and claims income Administrative costs: a) personnel costs b) other administrative costs Net impairment/writeups of tangible assets Net impairment/writeups of intangible assets Net accruals to the provisions for risks and charges Other operating income / costs Operating profit Profit (loss) from equity investments Pretax profit (loss) from continuing operations Income tax on profit from continuing operations Net profit (loss) from continuing operations Profit (loss) for the period/year attributable to minority interest Profit (loss) for the year 675,633 (293,897) 381, ,509 (11,723) 1,733 1,739 (6) (4,851) 2, ,815 29,885 (134,445) 399,533 (192,513) (72,485) (120,028) (2,508) (13,655) (5,844) ,578 (689) 184,889 (7,586) 177,304 4, , ,086 (271,970) 401, ,781 (11,237) 14,155 14,155 9,687 5, ,147 19,283 (116,363) 452,642 (157,836) (62,094) (95,742) (1,562) (8,750) (2,479) (3,351) 278,664 (485) 278,179 (28,192) 249,987 2, ,421 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 50 G r u p p o A z i m u t

51 Statement of consolidated comprehensive income Items (Euro/000) Profit for the year Other comprehensive income, net of taxes, not transferred to profit or loss Tangible assets Intangible assets Defined benefit plans Noncurrent assets held for sale Portion of valuation reserves of investments measured at equity Other comprehensive income, net of taxes, transferred to profit or loss Foreign investment hedge Exchange rate differences Cash flow hedge Availableforsale financial assets Noncurrent assets held for sale Portion of valuation reserves of investments measured at equity other comprehensive income/(expense), net of taxes Comprehensive income (Item ) Consolidated comprehensive income attributable to minority interest Consolidated comprehensive income attributable to parent company 172, (2,347) 5,431 3, ,787 4, , ,987 (60) 1,768 (9,003) (7,295) 242,692 2, ,126 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 51

52 Consolidated statement of changes in shareholders equity at 31 december 2016 Allocation of prior year profit Items Balance at 31/12/2015 Changes in opening balance Balance at 01/01/2016 Reserves Dividends and other distributions Changes in reserves Share capital 32,324 32,324 Share premium reserve 173, ,987 Other reserves: a) incomerelated 360, , ,689 (132,867) b) other (80,173) (80,173) Valuation reserves (7,776) (7,776) Equity instruments 71,459 71,459 Treasury shares (80,727) (80,727) Profit (loss) for the year 247, ,421 (141,689) (105,732) Group shareholders equity 716, ,869 (238,599) Shareholders equity attributable to minority interest 10,348 10, G r u p p o A z i m u t

53 Changes during the year Shareholders equity transactions Issue of new shares Treasury share purchases Extraordinary dividend distribution Changes in equity instruments Other changes Consolidated comprehensive income for 2016 Group shareholders equity at 31/12/2016 Shareholders equity attributable to minority interest at 31/12/ ,324 39, , ,176 (27,337) 508 (26,404) (106,069) 3,102 (4,674) 1,484 (508) 70,951 (1,791) 1,230 (81,288) 172, ,685 4,619 (1,791) (25,174) 175, ,092 3,008 4,619 17,975 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 53

54 Consolidated statement of changes in shareholders equity at 31 december 2015 Allocation of prior year profit Items Balance at 31/12/2014 Changes in opening balance Balance at 01/01/2015 Reserves Dividends and other distributions Changes in reserves Share capital 32,324 32,324 Share premium reserve 173, ,987 Reserves: a) incomerelated 387, ,986 (26,250) b) other (38,927) (38,927) Valuation reserves (481) (481) Equity instruments 71,715 71,715 Treasury shares (81,555) (81,555) Profit for the year 92,096 92,096 (92,096) Group shareholders equity 637, ,145 (118,746) Shareholders equity attributable to minority interest 6,772 6, G r u p p o A z i m u t

55 Changes during the year Shareholders equity transactions Issue of new shares Treasury share purchases Extraordinary dividend distribution Changes in equity instruments Other changes Consolidated comprehensive income for 2015 Group shareholders equity at 31/12/2015 Shareholders equity attributable to minority interest at 31/12/ ,324 20, , (1,237) 360,354 (11,303) (41,246) (80,173) (7,295) (7,776) (916) (256) 71,459 (709) 1,537 (80,727) 247, ,421 2,566 (709) 1 (40,964) 240, ,869 1,020 2,566 10,348 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 55

56 Consolidatd cash flow statement Indirect method A. Operating activities 1. Operations profit (loss) for the period/year (+/) gains/losses on heldfortrading financial assets and financial assets/liabilities measured at fair value (/+) profits/losses on hedging activities (/+) net impairment losses (+/) net impairment losses on tangible and intangible assets (+/) net allowance to provisions for risks and charges and other expenses/income (+/) tax and duties still to be paid (+) net impairment losses on assets held for sale, net of tax (+/) other changes (+/) 2. Cash generated from or used by financial assets heldfortrading financial assets financial assets measured at fair value availableforsale financial assets due from banks due from financial institutions due from clients other assets 3. Cash generated from or used by financial liabilities due to banks due to financial institutions due to clients outstanding securities heldfortrading financial liabilities financial liabilities measured at fair value technical reserves other liabilities Net cash generated from or used by operating activities , , , ,987 (58,942) (138,835) 16,163 10,312 5,844 2,479 (1,702) 20, (787,765) (1,576,667) (730,163) (1,527,577) (3,052) (18) (1,225) 1,927 1,056 1,104 (3,716) (825) (50,665) (51,278) 839,055 1,669,812 (6,625) (8,369) (8) 432 (27) 183 4,679 5, ,173 1,696,799 (29,885) (19,283) 11,748 (5,093) 186, , G r u p p o A z i m u t

57 B. Investment activities 1. Cash generated from: disposal of equity investments dividends disposal of heldtomaturity financial assets disposal of tangible assets disposal of intangible assets disposal of subsidiaries and business units 2. Cash used by: purchase of equity investments purchase of heldtomaturity financial assets purchase of tangible assets purchase of intangible assets purchase of subsidiaries and business units Net cash generated from or used by investment activities C. FINANCING ACTIVITIES issue/purchase of treasury shares change in other reserves change in capital and reserves attributable to minority interest issue/purchase of equity instruments dividends and other distributions Net cash generated from (or used by) financing activities Net cash generated or used for the period/year (80,593) (56,411) (821) (691) (3,528) (4,065) (16,069) (12,544) (60,175) (39,111) (80,593) (56,411) (1,791) 1,537 (21,564) (49,523) 7,627 3,576 (508) (256) (238,599) (118,746) (254,835) (163,412) (149,383) 18,872 Reconciliation Opening cash and cash equivalents net cash generated/used for the period/year Closing cash and cash equivalents , ,343 (149,383) 18, , ,215 Reference should be made to the paragraph on the Consolidated net financial position of the Management Report for a breakdown of Cash and cash equivalents. On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 57

58 58 G r u p p o A z i m u t

59 Notes to the consolidated financial statements 59

60 60 G r u p p o A z i m u t

61 Notes to the consolidated financial statements Part A Accounting policies A.1 General information Section 1 Statement of compliance with IAS/IFRS The consolidated financial statements comply with the International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the related interpretations of the Interpretations Committee, endorsed by the European Commission and in force on 31 December 2016, implementing Italian Legislative Decree No. 38/2005 and Regulation (EC) No. 1606/2002. There were no departures from IAS/IFRS. For information about the standards that came into force in 2016, reference should be made to Section 2 General reporting criteria which also describes the impacts, if any, on the Group. The consolidated financial statements have been drawn up in accordance with the instructions issued by the Bank of Italy for the preparation of financial statements of IFRS financial intermediaries, other than banking intermediaries on 9 December The Instructions lay down the mandatory financial statements schedules formats and how they must be filled in and the content of the notes thereto for asset management companies that were adequately adjusted to better represent the Group's financial position and business activities, which include the Irish insurance company Az Life Dac. In particular, the balance sheet and income statement include the items which are typical of the insurance business, taking as a reference ISVAP (now IVASS) Regulation No. 7 dated 13 July 2007 concerning the provisions governing the consolidated financial statements of insurance companies drawn up on the basis of IAS/IFRS. As the Group was struck off the investment firms register by the Bank of Italy, entailing the exit from the group of investment firms as of 7 November 2016, the Azimut Group decided to prepare its consolidated financial statements using the formats and the disclosures required of asset management companies as they are deemed to fairly represent the Group's operations. For comparative purposes, the 2015 balances, presented in accordance with the schedules and the disclosure provided in the relevant notes as required of financial companies that are parent companies of asset management groups, were reclassified accordingly, where necessary. The consolidated financial statements have also been drawn up based on the interpretative documents on the application of IAS/IFRS in Italy prepared by the Italian Accounting Standard Setter (OIC) and the ESMA (European Securities and Markets Authority) and Consob (the Italian Commission for Listed Companies and the Stock Exchange) documents which refer to specific IAS/IFRS. In this respect, Consob communication No /16 of 28 January 2016 on the most significant issues of financial reports at 31 December 2015 was also considered. Section 2 General reporting criteria 61

62 Notes to the consolidated The consolidated financial statements comprise the balance sheet, the income statement, the statement of comprehensive income, the statement of changes in shareholders equity, the cash flow statement and these notes and are accompanied by the management report on the performance of the companies included in the scope of consolidation. These notes are comprised of four parts: A Accounting policies, B Notes to the balance sheet, C Notes to the income statement, D Other information. In accordance with the provisions set forth in Article 5, paragraph 2 of Italian Legislative Decree No. 38/2005, the consolidated financial statements have been drawn up by adopting the euro as the reporting currency. Unless otherwise specified, the amounts shown in the financial statements and the notes thereto, as well as those presented in the management report, are in thousands of Euros. The consolidated financial statements have been prepared clearly and give a true and fair view of the Group's financial position, results of operations, changes in shareholders' equity and cash flows. The consolidated financial statements have been prepared in accordance with IAS 1 Presentation of financial statements and in line with the general assumptions of the Framework for the preparation and presentation of financial statements (the framework) prepared by the IASB, specifically with respect to the fundamental principle of substance over form 2, the relevance and materiality of financial information, the accruals basis of accounting and the going concern assumption. Except for that provided for or permitted by IAS/IFRS or one of their interpretations or Bank of Italy's provisions on the financial statements of asset management companies, assets and liabilities and costs and revenue are not offset. These consolidated financial statements have been prepared based on the going concern assumption. Financial, operating and other indicators 3 have been considered which, as also shown in the document issued on 6 February 2009 by the supervisory authorities Bank of Italy, Consob and ISVAP (now IVASS), may highlight problems that, if not taken into proper consideration, could compromise the Group s stability and ability to operate as a going concern. Although the economic outlook remains uncertain, an overall valuation of the past and current financial position of the Group, its operating guidelines, business model and the risks to which business activity is exposed 4, leads us to believe that there is no doubt that the Group can continue to operate on a going concern basis for the foreseeable future. 2 Transactions and other events have been recognised and presented in accordance with the principle of substance over form. 3 Examples of which are shown in Audit Standard No. 570 on Going Concerns. 4 As described in the Management Report. 62 G r u p p o A z i m u t

63 The IAS/IFRS applied to prepare the Azimut Group's consolidated financial statements, governing the classification, recognition, measurement and derecognition criteria of asset and liability items and the recognition of income and expense are those in force at the drafting date of the consolidated financial statements, as endorsed by the European Union. For information on the classification, recognition, measurement and derecognition criteria of the main items, reference should be made to that set out in Part A2. of the Notes to Azimut S.p.A.'s separate financial statements at 31 December In addition to that set out in Part A.2, following the completion of the endorsement procedure, the following amendments to IAS/IFRS became effective on 1 January Accounting standards, amendments and interpretations endorsed by the European Union and in force from 1 January Amendments Amendments to IAS 19: Defined Benefit Plans: employee Contributions Annual improvements to IFRS cycle Amendments to IAS 27: Equity method in separate financial statements Amendments to IAS 1: Disclosure initiative Annual improvements to IFRS cycle Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation Amendments to IFRS 11: Acquisition of an interes in a joint operation Applying the consolidation exception (amendments to IFRS 10, IFRS 12 and IAS 28) IASB publication date 21 November December August December September May May December 2014 Endorsement date 17 December December December December December December November September 2016 Date of coming into force 01 February February January January January January January January 2016 The adoption of the above amendments has had no impact on the consolidated companies' financial position and results of operations. 63

64 Notes to the consolidated Accounting standards, amendments and interpretations which will come into force. Standard IASB publication date Endorsement date Date of coming into force IFRS 14 Regulatory deferral accounts 30 January 2014 n.a.* n.a. * IFRS 9 Financial instruments 24 July November January 2018** IFRS 16 Leases 13 January January 2019** IFRS 15 Revenue from contracts with customers and amendments 28 May 2014 and 11 September September January 2018** Amendments IASB publication date Endorsement date Date of coming into force Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses 11 January January 2017** Amendments to IAS 7: Disclosure initiative 29 January January 2017** Amendments to IFRS 2: Classification and measurement of sharebased payment transactions 20 June January 2018** Amendments to IFRS 4: Applying IFRS 9 Financial instruments 12 September January 2018** Amendments to IAS 40: Transfers of investment property 08 December January 2018** Annual improvements to IFRS cycle 06 February January 2018** IFRIC 22 Foreign currency transactions and advance consideration 17 February January 2018** Clarifications Clarifications to IFRS 15: Revenue from contracts with customers IASB publication date Endorsement date Date of coming into force 12 April January 2018** * The European Commission does not intend to start the endorsement process concerning IFRS 14 (interim standard) pending the publication of the final standard governing tariffregulated activities. ** Date identified by IASB. Confirmation of the European Union's competent bodies is pending. Section 3 Significant events after the reporting date As of 7 February 2017, as resolved by the Shareholders in their Ordinary meeting of 28 April 2016, Azimut Holding S.p.A. launched a share buyback programme in order to subsequently resell treasury shares or use them to acquire or exchange equity investments, accumulate the capital stock for the execution of stock options programmes, service the financial instruments convertible into the Company's shares or any other useful purpose which increases the value of the Company in compliance with the legislation from time to time in force. The maximum number of 64 G r u p p o A z i m u t

65 shares that may be repurchased as of today is 18,263,710, representing approximately 13% of share capital. Buybacks will be executed in tranches, for a total amount of 25,000,000 euro at the maximum price of 50 euro (only for the first tranche the maximum acquisition price will be equal to 30 euro). Over its 25 years of activities, in line with market practices and given its size and business, the Azimut Group was subject to ordinary inspections by the Supervisory Authorities. In March 2017, as part of an ordinary inspection carried out by the Bank of Italy, to the extent of its duties, Consob fined some profiles of Azimut Consulenza SIM (now Azimut Capital Management SGR). The consolidated financial statements were authorised for publication by Azimut Holding S.p.A. s Board of Directors on 09 March Risks and uncertainties related to estimates The preparation of the financial statements also entails the use of estimates and assumptions that may have a significant impact on the carrying amounts recognised in the balance sheet and the income statement, and on the disclosure about contingent assets and liabilities. The computation of such estimates is based on the use of available information and the adoption of subjective assessments, also based on historical experience, used to develop reasonable assumptions underlying the recognition of operations. Because of their nature, the estimates and assumptions used may change from year to year due to internal and external factors. Consequently, it cannot be excluded that the currently reported amounts may differ, also significantly, in the next few years following the change in the subjective assessments used. These estimates mainly relate to: the estimates and assumptions underlying the valuation models for the fair value recognition of financial instruments not listed on active markets (level 2 and 3 of the fair value hierarchy); the identification of loss events pursuant to IAS 39; the assumptions used to identify impairment losses, if any, on intangible assets and reported equity investments (IAS 36). Section 4 Other information The consolidated financial statements include the balance sheet and income statement figures of Azimut Holding S.p.A. and the companies directly or indirectly controlled by the latter. Section 5 Consolidation scope and methods Subsidiaries The Azimut Group consolidation scope has been established in accordance with IFRS 10. Specifically, subsidiaries are those companies in respect of which the Azimut Group is exposed, or has rights, to variable returns from its involvement with the investees and has the ability to affect those returns through its power over the investees. Control exists only when the following elements simultaneously exist: 65

66 Notes to the consolidated (i) the power to direct the relevant activities; (ii) exposure, or rights, to variable returns from involvement with the investee; (iii) the ability to use its power over the investee to affect the amount of its returns. Associates Associates are those companies subject to significant influence, i.e. companies in which the Azimut Group, either directly or indirectly, holds at least 20% of the voting rights (including potential voting rights) or in which despite holding a smaller percentage of voting rights has the power to participate in the financial and operating policy decisions, such as the participation in shareholders' agreements, due to specific legal relationships. These companies are consolidated using the equity method whereby on initial recognition the investment is recognised at cost, and the carrying amount is increased or decreased to recognise the investor s share of the equity of the investee after the date of acquisition, using the most recently approved financial statements of the companies. The difference between the carrying amount of the equity investment and the investee's share of equity is included in the carrying amount of the investee. Changes to the consolidation scope Compared to 31 December 2015, the consolidation scope saw the entry of the following companies: a) the consolidation of the following nine Australian companies: RI Toowoomba Pty Ltd, Empowered Financial Partners Pty Ltd, Wealthwise Pty Ltd, Priority Advisory Group Pty Ltd, Sterling Planners Pty Ltd, Logiro Unchartered Pty Ltd, OnTrack Financial Solutions Pty Ltd (acquired through the Australian subsidiary AZ NGA) and Domane Financial Advisers Pty Ltd and Aspire Pty Ltd (acquired through the Australian subsidiaries Wise Planners PTY Ltd and Logiro Unchartered Pty Ltd, respectively). The purchase agreements of the nine companies provided for the exchange of the shares of each company purchased with AZ NGA shares and the progressive repurchase of these shares over the next ten years. The residual 51% (53% for Priority Advisory Group Pty Ltd) was paid in cash to the founding members. The difference between the fair value of the assets and liabilities purchased and the consideration paid to purchase the equity investments, totalling 24.2 million euro, was allocated to goodwill. Specifically: the acquisition of RI Toowoomba led to the recognition of goodwill of 2,459 thousand euro; the acquisition of Empowered Financial Partners Pty Ltd led to the recognition of goodwill of 1,748 thousand euro; the acquisition of Wealthwise Pty Ltd led to the recognition of goodwill of 3,023 thousand euro; 66 G r u p p o A z i m u t

67 the acquisition of Priority Advisory Group Pty Ltd led to the recognition of goodwill of 4,657 thousand euro; the acquisition of Sterling Planners Pty Ltd led to the recognition of goodwill of 2,719 thousand euro; the acquisition of Logiro Unchartered Pty Ltd led to the recognition of goodwill of 2,374 thousand euro; the acquisition of OnTrack Financial Solutions Pty Ltd led to the recognition of goodwill of 3,857 thousand euro; the acquisition of Aspire Pty Ltd led to the recognition of goodwill of 1,962 thousand euro; the acquisition of Domane Financial Advisers Pty Ltd led to the recognition of goodwill of 1,416 thousand euro; b) the consolidation of the Australian company Sigma Funds Management Pty Ltd purchased in April 2016 in which the parent has a 51% equity investment through AZ International Holdings SA. The difference between the fair value of the assets and liabilities purchased and the consideration paid to purchase the equity investments, totalling 1.4 million euro, was allocated to goodwill. c) the consolidation of BRZ Gestão de Patrimônio purchased in July 2016 through Azimut Brasil Wealth Management Holding S.A.. The difference between the fair value of the assets and liabilities purchased and the consideration paid to purchase the equity investments, totalling 1.1 million euro, was allocated to goodwill. d) the consolidation of Azimut Brasil Wealth Management Ltda (formerly LFI Participacoes S.A.), previously held by 50% by Azimut Brasil Wealth Management Holding S.A.. The difference between the fair value of the assets and liabilities purchased and the consideration paid to purchase the equity investments, totalling 4.5 million euro, was allocated to goodwill. 67

68 Notes to the consolidated 1. Whollyowned subsidiaries Name Registered office Type of ownership (*) Stake Voting rights % Shareholder % Stake A. Fully consolidated, whollyowned companies 1. Azimut Capital Management SGR S.p.A. Milan 1 Azimut Holding S.p.A AZ Fund Management SA Luxembourg 1 Azimut Holding S.p.A Azimut Partecipazioni S.p.A AZ Life Ltd Dublin 1 Azimut Holding S.p.A Azimut Global Counseling S.r.l. Milan 1 Azimut Holding S.p.A Azimut Enterprises Holding S.r.l. Milan 1 Azimut Holding S.p.A Augustum Opus Sim S.p.A. Milan 1 Azimut Holding S.p.A Futurimpresa Sgr S.p.A. Italy 1 Azimut Holding S.p.A Azimut Financial Insurance S.p.A. Italy 1 Azimut Holding S.p.A Azimut Partecipazioni S.r.l. Italy 1 Azimut Holding S.p.A AZ International Holdings S.A. Luxembourg 1 Azimut Holding S.p.A AN Zhong (AZ) IM Hong Kong 1 AZ International Holdings SA AN Zhong (AZ) IM HK Hong Kong 1 AN Zhong (AZ) IM AZ Investment Management Shanghai 1 AN Zhong (AZ) IM Compagnie de Gestion priveè Monegasque Monaco 1 AZ International Holdings SA CGM Italia SGR S.p.A. (formerly CGM Italia SIM S.p.A) Italy 1 Compagnie de Gestion privée Monegasque Katarsis Capital Advisors SA Lugano 1 AZ International Holdings SA Eskatos Capital Management Sarl Luxembourg 1 Katarsis Capital Advisors SA AZ Swiss & Partners SA (formerly AZ Swiss SA) Lugano 1 AZ International Holdings SA AZ Sinopro Investment Planning Ltd Taiwan 1 AZ International Holdings SA AZ Sinopro Investment Planning Ltd Taiwan 1 AZ Sinopro Investment Planning Ltd AZ Sinopro Insurance Planning Ltd Taiwan 1 AZ Sinopro Investment Planning Ltd Atheneaum Ltd Singapore 1 AZ International Holdings SA AZ Brasil Holdings Ltda Brazil 1 AZ International Holdings SA G r u p p o A z i m u t

69 24. Quest Partecipacoes S.A. Brazil 1 AZ Brasil Holdings Ltda Quest Investimentos Ltda Brazil 1 Quest Participações Ltda Azimut Brasil Wealth Management Holding S.A. (formerly AZ FI Holdings) Brazil 1 Azimut Brasil WM Holding SA M&O Consultoria Ltda Brazil 1 Azimut Brasil WM Holding SA Futurainvest Gestão de Recursos Ltda Brazil 1 Azimut Brasil WM Holding SA AZ & Partners Gestão de Recursos Ltda (formerly BRZ Gestấo de Patrimônio) Brazil 1 Azimut Brasil WM Holding SA Azimut Brasil Wealth Management Ltda Brazil 1 Azimut Brasil WM Holding SA Azimut Portfoy AS Turkey 1 AZ International Holdings SA AZ Mexico Holdings S.A. de CV (formerly AZ Profie SA) Mexico 1 AZ International Holdings SA Mas Fondos S.A. Mexico 1 AZ Mexico Holdings S.A. de CV (formerly AZ Profie SA) Next Generation Advisory PTY Ltd Australia 1 AZ International Holdings SA Eureka Whittaker Macnaught PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Pride Advice PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Lifestyle Financial Planning Services (LFPS) PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Eureka Financial Group PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Pride Financial PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Wise Planners PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Domane Financial Advisers PTY LTD Australia 1 Wise Planners PTY Ltd Financial Lifestyle Partners PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Harvest Wealth PTY Ltd Australia 1 Next Generation Advisory PTY Ltd RI Toowoomba PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Empowered Financial Partners PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Wealthwise PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Priority Advisory Group PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Sterling Planners PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Logiro Unchartered PTY Ltd Australia 1 Next Generation Advisory PTY Ltd Aspire Pty Ltd Australia 1 Logiro Unchartered PTY Ltd OnTrack Financial Solutions Pty Ltd Australia 1 Next Generation Advisory PTY Ltd AZ Sestante Ltd (formerly Ironbark Funds Management (RE) Ltd) Australia 1 AZ International Holdings SA

70 Notes to the consolidated 53. AZ Andes S.p.A.. Chile 1 AZ International Holdings SA Sigma Funds Management PTY Ltd Australia 1 AZ International Holdings SA AZ US Holding Inc. United States 1 AZ International Holdings SA AZ Apice Capital Management LLC United States 1 AZ US Holding Inc (*) Type of ownership: (1) majority of voting rights at ordinary shareholders meetings Investments measured at equity Name Registered office Stake Voting rights % Shareholder % Stake Companies measured at equity 1. Cofircont Compagnia Fiduciaria S.p.A. Italy Azimut Enterprises Holding S.r.l SiamoSoci S.r.l. Italy Azimut Enterprises Holding S.r.l Significant valuations and assumptions used to determine the consolidation scope Unit linked Furthermore, the linebyline consolidation scope excludes the Unit Linked Funds (insurance internal funds) ("Unit linked") in which the Azimut Group does not hold any equity investment and to which the IFRS 10 definition of control does not apply. With respect to the mutual funds underlying the Unit Linked Funds, the Azimut Group checks that these conditions do not apply. Indeed, it believes that: it does not hold the outstanding majority units; it does not have full power over the investment entity (funds) since it is limited by funds' regulations governing asset allocation and operational policies; it is not significantly exposed to the variable returns from the investment entity since the profits or losses from the measurement of Unit Linked assets are entirely paid to policyholders by adjusting the mathematical reserve. The exposure to the changes in the value of the Group's funds is limited to the change in terms of fee impact. Specifically, the Group is exposed to the risk of changes in entry fees and charges on premiums, linked to the performance of inflows, the management fees related to assets under management and the incentive fees linked to the performance of the managed funds. 70 G r u p p o A z i m u t

71 In 2015, the Azimut Group, through AZ NGA, the holding company incorporated in November 2014, began a series of acquisitions in Australia. The relevant agreements provide for the following: (i) the exchange of shares with AZ NGA shares and the progressive repurchase of said shares in the next ten years, equal to 49% of each company and (ii) a cash payment to founding members over two years for the residual 51%. 3. Whollyowned subsidiaries with significant noncontrolling interests There are no significant legal, contractual or regulatory restrictions within the Azimut Group which may limit the parent's ability to transfer cash and cash equivalents or other assets to other Group companies, or guarantees which may limit the distribution of dividends, capital or loans and advances granted or repaid to other Group companies. 4. Significant restrictions Basis of consolidation Investments in subsidiaries are consolidated on a linebyline basis, while interests in jointlycontrolled entities and associates are measured using the equity method. 5. Other information Linebyline method Under this consolidation method, the companies' balance sheet and income statements figures are consolidated linebyline. The carrying amount of equity investments is offset against the residual equity of the subsidiary after allocating the relevant portions of equity and profit or loss to noncontrolling interests. Positive differences are recognised under "Intangible assets", e.g., goodwill, after allocation to the subsidiary's asset or liability items, where necessary. Conversely, negative differences are taken to profit or loss. For the purposes of consolidation, the financial statements at 31 December 2016 of consolidated companies were used. They were prepared in accordance with the IFRS and group criteria to which they make reference. The financial statements used are those prepared by the Boards of Directors of each company, duly reclassified and adjusted to comply with the above standards and criteria. The data about individual financial statements are obtained through the information included in the reporting packages at 31 December The Parent Company financial statements and those of the subsidiaries have been consolidated on a linebyline basis, including all subsidiaries and assuming all assets, liabilities, costs and income of each subsidiary, while eliminating the carrying amount of the equity investments against the relevant share/quotaholders' equity, as set out by the IFRS. The assets, liabilities, costs and income generated by transactions among consolidated companies have been eliminated in full, as have the profits and losses generated by transactions among consolidated companies which do not involve third parties. 71

72 Notes to the consolidated The positive differences between the equity investments consolidated on a linebyline basis and the related net fair value of the acquired assets and assumed liabilities, were considered as goodwill on consolidation and tested for impairment to check the adequacy of the amount recognised. For consolidated companies that prepare their financial statements in a functional currency different from that of the Parent Company, the amounts expressed in currencies other than the euro were translated as follows: for the balance sheet, using the closing rate, and for the income statement, using the average exchange rate for the year. The differences arising from the translation of opening shareholders equity using closing rates, along with those triggered by the use of closing and average exchange rates are classified under the specific item foreign exchange differences in the valuation reserve. Equity method The investees over which the Group exerts significant influence or has joint control, as defined by IAS 28, are measured using the equity method. Under this method, the investee is initially recognised at cost and the carrying amount is increased or decreased to reflect the parent's share of profit or loss earned/incurred after the acquisition date. The share of the profit (loss) for the year attributable to the parent is recognised in the latter's income statement. The dividends received from an investee decrease the carrying amount of the equity investment. Furthermore, the carrying amount may be adjusted also following the change in the percentage of investment in the investee, due to changes in the latter's equity not recognised in the income statement. These changes include those related to the differences arising from the translation of foreign currency amounts into the financial statements' functional currency. The portion related to these changes is recognised directly in equity. When the investee incurs losses and these losses exceed the carrying amount of the investment, the latter's carrying amount is zeroed and any further losses are recognised only when the parent has legal or constructive obligations or has made payments on behalf of the investee. If the investee subsequently earns a profit, the parent recognises the share of profit attributable to it only when it has reached the same amount of the previously unrecognised loss. The consolidation of associates and/or jointly controlled entities considers the financial statements prepared and approved by the board of directors of each company. Compagnie de Gestion privèe Monegasque SAM and CGM Italia SGR S.p.A. With respect to the consolidation of Compagnie de Gestion privèe Monegasque SAM and CGM Italia SGR S.p.A., in accordance with IFRS 10, they were consolidated on a linebyline basis based on the contracts which, as agreed by the 72 G r u p p o A z i m u t

73 parties, assign to Azimut the economic benefits of the above companies and enable it to fully control them, as of 30 December 2011, being the date of acquisition of 51% of Compagnie de Gestion privèe Monegasque SAM. Based on the above, in the consolidated financial statements of the Azimut Group, the residual 49% of the company's share capital is represented as a financial liability measured at fair value, to the extent of the amount to be paid for the purchase (the amount of which depends on a contractually agreed consideration). Business combinations carried out in 2016 At the reporting date, the activities related to the application of IFRS 3 and the fair value calculation of the assets and liabilities of the companies acquired in 2016 are still underway. In this respect, IFRS 3 allows the provisional allocation of acquisition costs, provided that completion takes place within twelve months of the acquisition date. A.2 Key financial statements items This section describes the accounting policies used to prepare the consolidated financial statements at 31 December 2016, specifically the classification, recognition, measurement and derecognition of assets and liabilities items, and the recognition of revenue and expense. The accounting policies have been applied consistently in the current and previous years. Classification This category includes investments relating to insurance contracts (unitlinked policies) issued by the subsidiary AZ Life Dac where the investment risk is borne by policyholders and comprise UCI units. 1 Financial assets at fair value Measurement These financial assets are measured at the market price corresponding to the price on the last day of trading during the reference period. The differences compared to the carrying amounts, corresponding to the purchase cost, are taken to profit or loss. Derecognition Financial assets are derecognised when the contractual rights to the cash flows generated by the assets in question expire or when the financial asset is sold and all the related risks and benefits are transferred. 73

74 Notes to the consolidated 2 Availableforsale financial assets Classification Financial assets held by the Group companies are classified in this category in the context of liquidity management policies. This category also includes equity investments, which do not qualify as subsidiaries, associates or jointlycontrolled entities. Recognition Upon initial recognition, Availableforsale financial assets are recognised at their fair value, which usually corresponds to the consideration paid for their purchase, plus any transaction costs in the event that they are tangible and definable. Measurement They are subsequently recognised at their fair value, recognising any fair value profits or losses in the specific shareholders equity reserve, net of the related tax effect ("Valuation reserves"), until disposal or impairment. The fair value of Availableforsale financial assets is calculated based on the quoted prices in active markets or internal valuation models as described in the section on Fair value hierarchy. Impairment losses are recognised in the income statement when the purchase cost, net of any repayment of principal, exceeds the recoverable amount. The cumulative profit or loss generated previously recognised in shareholders equity is reversed to profit or loss upon disposal or recognition of the impairment loss. When the reasons underlying the impairment loss cease to exist, the impairment loss is reversed directly against the shareholders equity reserve, in the case of equity instruments, and in profit or loss, in the case of debt instruments. Assets which do not qualify as subsidiaries, associates or jointlycontrolled entities, are not listed on active markets and for which the fair value cannot be measured reliably, are measured at cost. For the purposes of applying IAS 39.61, the Group identified the following impairment thresholds beyond which the fair value (FV) decrease of an equity instrument listed on an active market classified as AFS is deemed significant or prolonged, therefore indicating an impairment loss. With respect to impairment testing, the Company employs a specific policy that sets the limits in terms of severity and of durability, both according to the type of financial instrument. Specifically, the impairment thresholds include, in terms of severity, (i) a loss of 20% for debt instruments 5 and a loss of 30% for the other financial instruments 6. Durability is assessed based on a timescale of 18 months for debt instruments and 24 months for other financial instruments: specifically, the fair value of each financial instrument is measured to establish if it was consistently lower than the corresponding initial cost over the last 18 or 24 months. 5 Money market instruments, bonds, money market mutual funds and bond funds. 6 Securities, equity, balanced and flexible funds, private equity and hedge funds. 74 G r u p p o A z i m u t

75 Derecognition Availableforsale financial assets are derecognised when the contractual rights to receive the relevant cash flows cease to exist or upon transfer of all risks and rewards incidental to ownership. Receivables include the amounts due from banks, from financial institutions, from clients and managed funds, or all receivables involving fixed payments or in any case payments which are definable and are not listed on an active market. 3 Receivables Measurement and recognition As this mainly involves trade receivables, they are measured at their estimated realisable value, being the best possible estimate of their fair value. Conversely, receivables relating to loans to financial advisors, initially recognised at their fair value equal to the amount granted, are subsequently measured at amortised cost that coincides with the initial value, since no additional transaction costs are expected and since such loans are granted at market rates (Euribor plus spread). Derecognition They are derecognised once settled. Classification Equity investments include equity investments that are deemed to be strategic investments. Companies are classified as associates pursuant to Article 2359 of the Italian Civil Code, i.e. companies in which the Group has at least 20% of voting rights and thus exerts significant influence, but not control, over financial and operating policies. 4 Equity investments Measurement and recognition Equity investments in associates are recognised using the equity method which provides for initial recognition at cost. The equity investment is subsequently adjusted to reflect the share of the profit (or loss) of the associate after the date of acquisition. Minority interest does not include any potential voting rights. Since goodwill included in the carrying amount of a given investment in an associate is not recognised separately, this value is not subjected to a separate impairment test, in line with the provisions set forth in IAS 36 Impairment of assets. On the other hand, the investment s full carrying amount is subjected to an impairment test, pursuant to the foregoing IAS 36, by comparing its recoverable amount and its corresponding carrying amount, whenever the application of the provisions set forth in IAS 36 indicate a potential impairment. The differences between the value of the equity investment and the associate s shareholders equity are included in the associate s carrying amount, whereas the share of the profits/ 75

76 Notes to the consolidated (losses) generated during the year by the associate in question is recognised in the consolidated income statement. Any impairment losses on the equity investment pursuant to IAS 36 are recognised in the income statement. 5 Tangible assets Classification They include business properties, plant, furniture and fixtures, machines and equipment of any kind and renovation costs for any rented properties. With reference to business properties, IAS 16 establishes that land is to be recognised separately from buildings since only the latter is subject to depreciation as the useful life is not indefinite. This separation is necessary only in the case of selfcontained properties: no separation is necessary if the property consists of a portion of the building (for example an apartment), since in this case, the company does not own the surrounding land or land beneath. Azimut Group owns portions of property and therefore no separation was adopted for their measurement. Measurement and recognition They are initially recognised at cost, including the additional costs directly attributable to the acquisition and startup of the asset. They are subsequently measured at cost, less depreciation and impairment losses. Depreciation is charged annually on a straightline basis over the remaining useful life. Leasehold improvements are recognised under assets since the tenant essentially has control over the assets and may receive economic benefits therefrom. Therefore, they are depreciated over a period corresponding to the remaining duration of the lease. Derecognition Tangible assets are derecognised upon disposal or when the asset has been retired and future benefits are not expected from its disposal. 6 Intangible assets Classification Intangible assets include goodwill, goodwill on consolidation and application software for longterm use. Recognition Goodwill on consolidation is determined, on firsttime consolidation, based on the difference between the fair value of the assets acquired and the liabilities assumed and carrying amount of the investments recognised. Measurement Goodwill and goodwill on consolidation are not amortised systematically, but are tested for impairment annually to check the adequacy of the carrying amount in 76 G r u p p o A z i m u t

77 accordance with that set out in IAS 36 Impairment of assets. Software is recognised at cost, net of amortisation and impairment losses. Such assets are amortised based on their estimated residual useful life. Recognition of income components The amount of the impairment, determined on the basis of the difference between the carrying amount and its recoverable amount, if lower, is recognised in the income statement. Derecognition Intangible assets are derecognised at the date of disposal and when no future economic benefits are expected. Current taxes are calculated in accordance with ruling tax rates and legislation. When they are not paid, they are recognised under liabilities. Income taxes are recognised in the income statement, except for those related to items directly credited or debited to equity. The provision for taxes is recognised based on a prudent estimate of the current and deferred tax charge. The balance sheet liability method is applied to deferred taxes. Specifically, deferred tax assets and liabilities are calculated in respect of the temporary differences without time limits arising between the tax base of assets and liabilities and their carrying amounts. Deferred tax assets are recognised to the extent their recovery is probable, based on the company's ability to generate ongoing positive taxable income. 7 Tax assets and liabilities This item includes assets which are not ascribable to other assets items. It also comprises receivables from financial advisors. This item also includes deferred charges on the fee and commission expenses payable to the sales network for the sale of no load products. These funds do not charge an entry fee but are able to break even by charging an exit fee for a specific amount of time. Therefore, they are recognised in the income statement over the foregoing period in accordance with the matching principle. In addition, other assets include the prepayments generated by the deferral of commission expenses incurred for the purchase of unitlinked policies classified as investment contracts. 8 Other assets Measurement and recognition Shortterm trade payables (due within 12 months) are recognised at their par value. Payables in the form of mid/longterm loans, initially recognised at the amount collected, are subsequently measured at amortised cost using the effective interest 9 Payables 77

78 Notes to the consolidated rate method. The amortised cost corresponds to the initial carrying amount, since no transaction costs are applicable and since the nominal interest rate of such liabilities is in line with market rates. Derecognition Payables are derecognised once settled. 10 Outstanding securities This item includes the bond issued by Azimut Holding S.p.A.. The bond is recognised as a financial liability and an equity instrument being a financial instrument composed of a debt component and an embedded derivative (on equity instruments). The equity component, being the difference between the fair value of the instrument, as a whole, and the fair value of the debt component, was recognised in shareholders equity under Equity instruments. Recognition Outstanding securities are recognised when issued or when a new placement takes place based on the "settlement date principle". They are initially recognised at fair value which usually corresponds with the collected amount or the issue price, adjusted to reflect any additional cost and revenue directly attributable to funding or issue transactions. Internal administrative costs are not included. The fair value of outstanding securities issued at belowthemarket conditions is subject to a specific estimate and the difference with respect to market value is taken directly to income statement. The costs borne for the bond issue are allocated proportionally to the debt component and the equity component. Measurement Subsequent to initial recognition, this debt component is measured at amortised cost, using the effective interest rate method. Derecognition Outstanding securities are derecognised after expiry or settlement. They are derecognised also when previously issued securities are repurchased. The difference between the carrying amount of the security and the amount paid to repurchase it is taken to the income statement. A new placement of own securities subsequent to their repurchase is considered a new issue with the recognition of the new placement price, with no impact on the income statement. Recognition of income components Interest expense is recognised under Interest expense and similar charges in the income statement, using the effective interest rate method. 78 G r u p p o A z i m u t

79 Commitments to holders of unit linked policies issued by AZ Life Dac, classified as insurance contracts since they include a considerable insurance risk, are measured based on actuarial criteria, by taking account of the value of the financial assets to which the benefits are linked. 11 Technical reserves where the investment risk is borne by policyholders This item includes: (i) the commitments to policyholders arising from the unit linked policies issued by Az Life Dac, classified as investment contracts where the investment risk is borne by policyholders; (ii) the liabilities arising from the future exercise of the call options of the residual portion of share capital of some recently acquired companies. 12 Financial liabilities measured at fair value Measurement and recognition The measurement of call options reflects the countervalue to be paid in Azimut Holding shares, where contractually provided for to sellers, following the exercise of the call options. The measurement reflects the estimated amount, which approximates fair value, to be paid to the seller, based on the estimate of the future parameters set out in the relevant contracts, including AUM and profit for the year and which are subject to specific sensitivity analyses. The change in the amount on first recognition is taken to the income statement. Derecognition Financial liabilities are derecognised after settlement. Classification This item includes liabilities that are not ascribable to other liability items. This item includes: (i) the financial liabilities related to outstanding commitments for the purchase of residual equity investments in some subsidiaries, as per the relevant agreements. In addition, this item includes the deferred income arising from the deferral of fee and commission income on the premiums of unitlinked policies classified as investment contracts; (ii) the liabilities in the form of the contractual commitments relating to fees and commissions, including retention fees, to be paid to financial advisors in the medium/longterm (over 12 months), calculated on the basis of actuarial criteria and representing the best estimate of the expense required to settle the foregoing liabilities. 13 Other liabilities Recognition Shortterm liabilities (due within 12 months) and trade payables are recognised at their par value. 79

80 Notes to the consolidated Derecognition Other liabilities are derecognised once settled. 14 Staff severance pay (TFR) In accordance with the legislation governing TFR introduced by Legislative decree dated 5 December 2005, the staff severance pay (TFR), recognised under liability item 100 to the extent of the portion accrued until 31 December 2006, qualifies as a defined benefit plan and is therefore subject to actuarial measurement, using the Projected Unit Credit Method (PUCM) which projects future cash flows based on historical analyses, statistics and probabilistic analyses and applying adequate demographic techniques. Cash flows are discounted using the market interest rate. Actuarial calculations are performed by independent actuaries. The costs arising from the plan are reported under personnel costs item Administrative costs; a) personnel costs, net of the contributions paid, those pertaining to prior years not yet recognised, interest accrued and expected revenue arising from plan assets. In accordance with IAS 19, actuarial gains and losses are recognised in a fair value reserve. 15 Provisions for risks and charges Recognition Accruals to provisions for risks and charges are recognised if, and only if: there is a present obligation (legal or constructive) as a result of past transactions or events; it is probable that an outflow of resources will be required to generate economic benefits; a reliable estimate can be made of the amount of the obligation. Measurement The amount accrued is the best estimate of the expense required to settle the obligation at the reporting date and reflects the risks and uncertainties that inevitably characterise many facts and circumstances. The amount accrued is equal to the present value of the expense required to settle the obligation where the effect of the present value is a significant aspect. The future facts which may affect the expense required to settle the obligation are considered only when there is objective evidence that they will take place. The accruals to the provisions for risks and charges include the risk arising from tax disputes, if any. Derecognition Accruals are derecognised when the use of resources that generate economic benefits to settle the obligation becomes improbable. 80 G r u p p o A z i m u t

81 They are recognised on an accrual basis and in accordance with the matching principle. Costs are recognised when incurred. Those directly related to financial instruments measured at amortised cost and which can be determined since the beginning, regardless of the moment they are paid, are taken to the income statement using the effective interest rate. Income is recognised when received, when it is probable it will be received and when it can be reliably calculated. Fees, commissions and other income from services offered to clients are included in the income statement at the time the services are provided. Financial income and charges are recognised on an accrual basis, based on accrued interest and applying the effective interest rate method. 16 Costs and income They are recognised as a decrease in equity. The gains or losses arising from the purchase, sale, issue or elimination of treasury shares are not recognised in the income statement, but in equity. 17 Treasury shares The profitparticipating financial instruments issued by Azimut Holding S.p.A. as per the Shareholders' resolution of 29 April 2010 and subsequent resolutions of the Company's Board of Directors are recognised under Equity instruments at the subscription amount, equal to their fair value, increasing shareholders equity. Indeed, under the Bylaws, they have an indefinite life, are issued with no obligation for the Company to repay the amount paid by investors, participate in the allocation of the Company's residual assets in case of liquidation, in subordination to the Company's creditors and shareholders. These instruments are not transferable, except to the Parent Company (at their fair value and subject to specific conditions). In this case, the relevant equity rights are suspended. Furthermore, these instruments entitle their holders to receive a part of the Company's profit as per the Bylaws subject to, inter alia, the Shareholders' approval of dividend distribution. 18 Profitparticipating financial instruments Business combinations are recognised in accordance with the acquisition method (IFRS 3) whereby the identifiable acquired assets and assumed liabilities, including contingent ones, are recognised at their respective fair value at the acquisition date (i.e., the date on which the Group obtains effective control of the company). The fair value of acquired assets and assumed liabilities is calculated within one year of the acquisition. For each business combination, minority interests in the acquiree, if any, are recognised at fair value or in proportion to the minority interests' percentage in the net identifiable assets of the acquiree. Goodwill is initially measured at cost, being the excess amount of the sum of the consideration paid and the minority interests and the fair value of the net assets acquired by the Group (net of assumed 19 Business combinations and changes in equity investments 81

82 Notes to the consolidated liabilities). When the sum is below the fair value of the net assets of the acquiree, the difference is taken to the income statement. In a business combination achieved in stages, the Group recalculates the interest it already held in the company owned prior to obtaining control at the respective fair value calculated at the acquisition date, recognising any resulting gain or loss in the income statement. Changes in the investment held in a subsidiary that do not entail the loss of control are recognised as Group's equity transactions. Acquisitionrelated costs are recognised in the income statement of the year in which they are incurred. Transactions carried out among two or more group companies for reorganisation purposes are not considered business combinations. Transactions under common control are recognised in the Group's financial statements using the acquiree's consistent amounts when they do not have a significant impact on the future cash flows. A.3 Disclosure about transfers between portfolios The Group did not transfer any financial assets between portfolios during the year. A.4. Fair value disclosure Quantitative information A.4.5 Fair value hierarchy Fair value hierarchy In accordance with the provisions of IFRS 7 and IFRS 13, the group companies classify fair value measurement of financial assets and financial liabilities based on a hierarchy that conveys the nature of inputs used. The levels are as follows: Level 1: (unadjusted) quoted prices in active markets for assets and liabilities identical to those subject to valuation; Level 2: inputs other than unadjusted quoted prices that are directly (as in the case of prices) or indirectly (deriving from prices) observable market data; Level 3: inputs based on unobservable market data. Specifically, the fair value of a financial instrument measured at Level 1 corresponds to the unadjusted price, at which the instrument or an identical instrument is sold on an active market on the measurement date. For classification at Level 1, prices are measured together with all other characteristics of the financial asset or financial liability: if the quoted price is adjusted in order to take account of specific conditions that require adjustment, the financial instrument is classified under a level other than Level 1. Analyses for classification at other levels within the fair value hierarchy are performed 82 G r u p p o A z i m u t

83 analytically for each individual financial asset or liability held/issued; these analyses and measurement criteria are applied consistently over time. With respect to the financial instruments held as part of liquidity management policies and financial liabilities issued, according to the Group's main policies: government bonds and openended investment funds, whose fair value is designated as Level 1 if represented by the Net Asset Value (NAV) provided by the fund manager at the measurement date, are classified as Level 1; conversely, with respect to listed funds and Exchange Trade Funds (ETF), Level 1 fair value is equal to the closing price of the relevant stock market, and the liquidity to be invested relating to unitlinked policies issued; Level 2 reflects the investments related to the unitlinked policies issued (where the investment risk is borne by policyholders), the associated financial liabilities and the bonds issued; the securities reported as availableforsale financial assets measured at cost and financial liabilities related to the commitments to purchase the residual equity investments in some subsidiaries in accordance with ruling contractual agreements fall under Level 3. With respect to liabilities, the measurement reflects the estimated amount to be paid to the seller, which approximates fair value, based on the estimate of the future parameters set out in the relevant contracts, including AUM and profit for the year and which are subject to specific sensitivity analyses. The change in the amount on first recognition is taken to the income statement. Financial liabilities are derecognised after settlement. A Accounting portfolios: breakdown by fair value level Financial assets/liabilities measured at fair value Level 1 Level 2 Level 3 1. Heldfortrading financial assets 2. Financial assets measured at fair value 102,110 6,345,317 6,447, Availableforsale financial assets 267,460 9, , Hedging derivatives 369,570 6,345,317 9,503 6,724, Heldfortrading financial liabilities 2. Financial liabilities measured at fair value 6,195, ,035 6,299, Hedging derivatives 6,195, ,035 6,299,036 83

84 Notes to the consolidated A Annual change in financial assets measured at Level 3 fair value on a recurring basis Financial assets Held for trading Measured at fair value Available for sale Hedging assets Tangible assets Intangible assets 1. Opening balance 2, Increases 8, Purchases 2, Profits allocated to: Profit or loss of which: gains Shareholders equity 2.3. Transfers from other levels 2.4. Other increases 5, Decreases Sales Redemptions 3.3. Losses charged to: Profit or loss of which: losses Shareholders equity 3.4. Transfers from other levels 3.5. Other decreases 4. Closing balance 9, G r u p p o A z i m u t

85 A Annual changes in liabilities measured at Level 3 fair value on a recurring basis 1. Opening balance 2. Increases 2.1. Purchases 2.2. Losses charged to: Profit or loss of which: losses Shareholders equity Heldfortrading financial liabilities Financial liabilities measured at fair value 62,488 44,047 17,164 7,809 6,497 6,497 1,312 Hedging derivatives 2.3. Transfers from other levels 2.4. Other increases 19, Decreases 2, Sales 3.2. Redemptions Profits allocated to: 2, Profit or loss 1,646 of which: gains 1, Shareholders equity Transfers from other levels 3.5. Other decreases 4. Closing balance 104,035 A.5 Disclosure about the socalled Day one profit/loss The Group did not carry out transactions which entailed recognition of the socalled day one profit/loss. Given the small size of the foreign companies under AZ International Holdings SA, the Azimut Group s business is mainly attributable to the companies directly controlled by Azimut Holding S.p.A. and, though this business is conducted through numerous companies, each specialising in the distribution, promotion and management of financial and insurance products (essentially unitlinked products), it is attributable to a single operating segment. As a matter of fact, the nature of the various products and services offered, the structure of the management and operating processes, the type of clients, as well as Operating segment disclosure (IFRS 8) 85

86 Notes to the consolidated the methods adopted for the distribution of products and services are sufficiently similar as to ensure that the risks and benefits do not differ to any great extent but, on the contrary, have many comparable features. Furthermore, the business model of the operating companies directly controlled by Azimut Holding S.p.A. is distinguished by the strong interaction between management and distribution activities. The distribution network is able to steer clients towards products that enable the management team to best exploit the market time and, on the other hand, the excellent track record of portfolio management enables the distribution network to further penetrate the market. Therefore, these companies operate as a single structure, dedicated in its entirety to asset management and the sale of investment instruments, in which the contributions made by the individual companies appear to be indistinguishable and whose operating results are revised periodically by management for the purpose of decisions regarding the allocation of resources and measurement of results and company performance. Consequently, the accounting information was not reported separately by operating segments, in line with the internal reporting system used by management and based on the individual accounting data used to prepare the consolidated financial statements under IFRS. Similarly, no information is provided on revenue per client and noncurrent assets in the form of breakdown by geographical area, or information on each individual client s relationship with the company as management believes this is of little relevance in terms of disclosure. Therefore, given that there is only one operating segment subject to disclosure, as regards information on income from clients by product/service, please see details on fee income and net premiums reported with data from the profit and loss account included in these notes. AZ International Holding SA acts as the incubator in order to develop research, acquisition and management of the new foreign partnerships. Earnings per share Basic earnings per share are calculated by dividing the net profit for the period by the average number of outstanding ordinary shares. There were no earningsdilutive transactions to be disclosed at 31 December Basic earnings per share Average number of outstanding shares (*) Diluted earnings per share Average number of outstanding shares (*) ,860, ,860, ,868, ,868,491 * outstanding shares are calculated net of treasury shares held by Azimut Holding S.p.A. at the reporting date. 86 G r u p p o A z i m u t

87 Part B Notes to the balance sheet Assets Cash and cash equivalents amount to 21 thousand euro and refer to cash on hand. Section 1 Cash and cash equivalents Interest income and similar expense amounts to 6,447,427 thousand euro (5,658,322 thousand euro at 31 December 2015). Section 3 Financial assets measured at fair value 3.1 Breakdown of Financial assets measured at fair value Items/Value 1. Debt securities of which: government securities 2. Equity securities and UCITS units 3. Other assets 31/12/ /12/2015 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 102, ,110 6,345,317 6,345, , ,576 5,289,746 5,289,746 UCI units Level 2 refers solely to investments measured at fair value, relating to unitlinked policies issued by AZ Life Dac, where the investment risk is borne by policyholders. 3.2 Financial assets measured at fair value: breakdown by issuer Items/Value 1. Financial assets a) Governments and central banks b) Other public bodies c) Banks d) Financial institutions e) Other issuers 31/12/2016 6,447, ,110 6,345,317 6,447,427 31/12/2015 5,658, ,576 5,289,747 5,658,322 87

88 Notes to the consolidated Section 4 Availableforsale financial assets This item amounts to 276,963 thousand euro (365,910 thousand euro at 31 December 2015). The breakdown is as follows: 4.1 Breakdown of Availableforsale financial assets Items/Value 1. Debt securities of which: government securities 2. Equity securities and UCITS units 3. Other assets 31/12/ /12/2015 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1, , ,460 9,503 9,503 2, , ,596 2,314 2,314 UCI units Level 1 refers to the units in investment funds managed by the Azimut Group as part of the Group s liquidity management policies. 4.2 Availableforsale financial assets: breakdown by issuer Items/Value 31/12/ /12/ Financial assets a) Governments and central banks b) Other public bodies c) Banks d) Financial institutions e) Other issuers 276,963 1,014 1, , , ,910 2,149 2, , ,910 Section 6 Receivables 6.1 Receivables Interest income and similar expense amounts to 189,305 thousand euro (238,034 thousand euro at 31 December 2015). The breakdown is as follows: 88 G r u p p o A z i m u t

89 Breakdown 1. Receivables for portfolio management services 1.1. UCI units 1.2 individual portfolio management 1.3 pension fund management 2. Receivables for other services: 2.1 advisory 2.2 outsourced corporate functions 2.3 other 3. Other receivables 3.1 repurchase agreements of which: government securities of which: other debt securities of which: other equity securities and units 3.2 deposits and current accounts 3.3 other 4. Debt securities Carrying amount 90,219 85,614 3,037 1,569 17,286 17,286 81,800 81, ,305 31/12/ /12/2015 Fair value Carrying amount Fair value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 90,219 85,614 3,037 1,569 17,286 17,286 81,800 81, ,305 63,017 60,200 1,511 1,306 13,817 13, , , ,034 63,017 60,200 1,511 1,306 13,817 13, , , ,034 Deposits and current accounts are composed of cash deposited in the current accounts of the Group companies, with interest in line with that applied to term deposits. Receivables for services sale of products mainly include receivables in the form of fees and commissions from the sale of products of thirdparty banks and receivables in the form of fee income to be collected for the sale of insurance products of thirdparty companies. Receivables for services portfolio management includes receivables in the form of fee and commission income on mutual funds and managed funds accrued during December 2016 and collected the following month. 89

90 Notes to the consolidated 6.2 Receivables: breakdown by counterparty Breakdown/Counterparty Banks Financial institutions Clients of which: Group of which: Group of which: Group 1. Receivables for portfolio management services 90, UCI units 85, individual portfolio management 3, pension fund management 1, Receivables for other services: 2,072 6,258 8, advisory 2.2 outsourced corporate functions 2.3 other 2,072 6,258 8, Other receivables 81, repurchase agreements of which: government securities of which for other debt securities of which for other equity securities and units 3.2 deposits and current accounts 81, other ,872 6,258 99, ,458 7,320 68,257 Section 9 Equity investments This item amounts to 935 thousand euro (7,744 thousand euro at 31 December 2015). It comprises interests in associates and subsidiaries of parents pursuant to article 2359 of the Italian Civil Code. 9.1 Equity investments: information Name Registered office Stake Shareholder Stake % Voting rights % Associates measured at equity 1. Cofircont Compagnia Fiduciaria S.r.l. Italy Azimut Enterprises Holding S.r.l SiamoSoci S.r.l. Italy Azimut Enterprises Holding S.r.l G r u p p o A z i m u t

91 9.2 Annual change in equity investments A. Opening balance B. Increases B.1 Purchases B.2 Writeups B.3 Revaluations B.4 Other changes C. Decreases C.1 Sales C.2 Writedowns C.3 Other changes D. Closing balance value 7, , , Other changes, which show a decrease, refer to Programma 101 Sicaf S.p.A. (5,375 thousand euro) reclassified to availableforsale financial assets and Azimut Brasil Wealth Management Ltd (2,221 thousand euro), 100% of which was transferred to AZ Quest Partecipacoe SA. 9.3 Significant equity investments: accounting figures Name Carrying amount Fair value (*) Dividends received 1. Cofircont Compagnia Fiduciaria S.r.l SiamoSoci S.r.l * As these companies are not listed, fair value coincides with the carrying amount. 91

92 Notes to the consolidated Section 10 Tangible assets Interest income and similar expense amounts to 7,219 thousand euro (6,199 thousand euro at 31 December 2015) Breakdown of Tangible assets business purposes: breakdown of assets at cost Items/Value 1. Companyowned a) land b) buildings c) furniture & fixtures d) capital goods e) other 2. Under finance lease a) land b) buildings c) furniture & fixtures d) capital goods e) other 31/12/2016 7, ,903 5,159 7,219 31/12/2015 6, ,516 4,517 6, G r u p p o A z i m u t

93 10.2 Tangible assets business purposes: annual change Land Buildings Furniture & fixtures Plant Other A. Opening gross balance 311 7,770 15,806 23,887 A.1 net impairment losses (145) (6,254) (13,331) (19,730) A.2 Opening net balances 166 1,516 4,516 6,198 B. Increases 927 4,642 5,569 B.1 Purchases 927 4,642 5,569 B.2 Leasehold improvements B.3 Writeups B.4 Increases in fair value taken to: a) shareholders equity b) profit or loss B.5 Exchange rate gains B.6 Transfers from investment property B.7 Other changes C. Decreases (9) (540) (1,958) (2,507) C.1 Sales C.2 Amortisation (9) (540) (1,958) (2,507) C.3 Impairment losses charged to: a) shareholders equity b) profit or loss C.4 Decreases in fair value charged to: a) shareholders equity b) profit or loss C.5 Exchange rate losses C.6 Transfers to: a) assets held for investment purposes b) assets held for sale C.7 Other changes D. Gross closing balance 311 8,697 20,448 29,456 D.1 net impairment losses (154) (6,794) (15,289) (22,237) D.2 Net closing balance 157 1,903 5,159 7,219 E. Measurement at cost 157 1,903 5,159 7,219 93

94 Notes to the consolidated Depreciation rates are as follows: Company Buildings Furniture & fixtures Other: Systems Motor vehicles Electronic office equipment Leasehold improvements % rate 3% 12% 15%2025% 25% 20% based on remaining duration of contract Sector 11 Intangible assets This item amounts to 517,315 thousand euro (449,532 thousand euro at 31 December 2015). Items/Measurement 1. Goodwill 2. Other intangible assets 2.1 generated internally 2.2 other 11.1 Breakdown of Intangible assets 31/12/2016 Assets Assets at at cost fair value 461,418 55,897 55, ,315 31/12/2015 Assets Assets at at cost fair value 396,049 53,483 53, ,532 Goodwill refers to: the acquisition by Azimut Holding S.p.A. (formerly Tumiza S.p.A.) of the merged company Azimut Holding S.p.A., completed on 12 February This company wholly owned (directly or indirectly) all the companies of the Azimut Group. This item was calculated as the difference between the initial cost of the equity investment, at acquisition date, and the shareholders equity of the subsidiaries at 31 December Following the merger by incorporation of Azimut Holding S.p.A. into Tumiza S.p.A., with accounting effects on 1 July 2002, a portion of goodwill on consolidation, equal to million euro amortised by 26.4 million euro prior to the adoption of IFRS (calculated based on a valuation by the independent company PricewaterhouseCoopers Corporate Finance S.r.l.) was included in Goodwill" in the separate financial statements of Azimut Holding S.p.A.; the acquisitions carried out through the subsidiary AZ international Holding SA to expand the Group abroad. 94 G r u p p o A z i m u t

95 Recognised goodwill is shown below: Company Azimut Holding S.p.A. (formerly Tumiza S.p.A.) Augustum Opus SIM Futurimpresa SGR Azimut CGU AZ NGA and subsidiaries Compagnie de Gestion Monegasque Azimut Brasil Holdings and subsidiaries AZ Swiss & Partners Sogenel acquisition Azimut Portfoy Katarsis Mas Fondos Sigma Funds Management AZ Sinopro Financial Planning Athenaeum AZ Sestante AZ Notus (merged into Azimut Portfoy) AZ International CGU 31/12/ ,252 8, ,318 66,153 31,425 30,438 15,644 9,232 6,756 6,122 1,442 1, , ,418 31/12/ ,252 8, ,318 23,424 31,425 24,884 7,840 6,756 6,122 1, , , ,049 The increase at the reporting date is mainly due: to consolidation differences of 24,216 thousand euro, included in goodwill arising from the difference between the fair value of assets acquired and liabilities assumed and the carrying amount, at the relevant acquisition dates, of the equity investments acquired in 2016 in RIToowomba, Empowered Financial Partners, Wealthwise, Priority Advisory Group, Sterling Planners, JFS Personal Investment Solutions, Logiro, Domane Financial Advisors and Aspire through the subholding NGA, in addition to the 18,513 thousand euro increase related to goodwill recognised in the separate financial statements of NGA's subsidiaries; to goodwill of 15,644 thousand euro recognised in the financial statements of AZ Swiss & Partners following the acquisition of Sogenel's business unit; to consolidation differences of 5,554 thousand euro included in goodwill arising from the difference between the fair value of assets acquired and liabilities assumed and the carrying amount, at the relevant acquisition dates, of the equity investments acquired in 2016 in Azimut Brasil Wealth Management Ltda and BRZ Gestão de Patrimônio through the subholding Azimut Brasil 95

96 Notes to the consolidated WM Holding SA; goodwill of 1,442 thousand euro recognised following the acquisition of Sigma Funds Management by AZ International Holdings Sa. Other intangible assets Other refer to: the Azimut trademark purchased on expiry on 2 November 2015 by exercising the relevant option of 100 thousand euro (plus VAT) included in the finance lease entered into in October 2006 with Banca Italease S.p.A. for its original amount (35,338 thousand euro). Software totalling 18,193 thousand euro Intangible assets: annual change A. Opening balance B. Increases B.1 Purchases B.2 Writeups B.3 Increases in fair value taken to: shareholders equity income statement B.4 Other changes C. Decreases C.1 Sales C.2 Amortisation C.3 Impairment writedowns charged to: shareholders equity income statement C.4 Decreases in fair value charged to: shareholders equity income statement C.5 Other changes D. Closing balance 449,532 81,438 16,069 65,369 13,655 11,064 2,591 2, ,315 The amortisation rates for intangible assets with a finite useful life are as follows: Company Application software % rate 33% 96 G r u p p o A z i m u t

97 With respect to "goodwill and goodwill on consolidation" and "trademarks" (when recognised as an intangible asset with an indefinite useful life), the IFRS, specifically IAS 36 Impairment of assets, stipulate that the company must perform annual impairment tests to check the adequacy of the amounts recognised. The aim of the impairment test is to identify any impairment loss. Where the test shows that the value of an asset has been overestimated, the company shall recognise an impairment loss. For the purpose of impairment testing, two cash generating units (CGU) have been identified that basically reflect the Azimut Group s business and to which the above intangible assets have been allocated. The first CGU reflects the activity carried out by the companies directly controlled by Azimut Holding S.p.A., each specialising in the distribution, promotion and management of financial and insurance products (basically unitlinked products) and operating as a single structure, dedicated in its entirety to asset management and the sale of investment instruments, in which the contributions made by the individual companies appear to be indistinguishable and operating results are revised periodically by management for the purpose of decisions regarding allocation of resources and measurement of results and company performance. The second CGU refers to the activity carried out by the foreign companies belonging to the Luxembourg company AZ International Holdings SA, wholly owned by Azimut Holding S.p.A., aimed at identifying, acquiring and managing new foreign partnerships with an integrated approach. Therefore, management has set out a consolidated reporting system for Az International Holdings SA which, in turn, must send the Parent Company Azimut Holding a consolidated reporting package for all foreign companies. Impairment test CGU AZ International The CGU of AZ International Holdings SA is part of the Azimut Group to promote the development of the distribution of financial products, including in the relevant markets in which the companies of the above CGU operate. The impairment test for this CGU checks for impairment indicators on intangible assets allocated to the same CGU of 169 million euro. The following companies belong to the CGU AZ International : Katarsis Capital Advisors SA; Eskatos Capital Management Sarl; Compagnie de Gestion Priveè Monegasque; CGM Italia SGR S.p.A. AN Zhong (AZ) IM Limited; AN Zhong (AZ) IM HK Limited; AZ Investment Management; AZ Global Portfoy Yonetimi A.S.; AZ Notus Portfoy Yonetimi A.S.; 97

98 Notes to the consolidated AZ Sinopro Financial Planning Limited; AZ Sinopro Investment Planning Limited; AZ Sinopro Insurance Planning Limited; Athenaeum LTD; AZ Swiss & Partners SA (formerly AZ Swiss SA); AZ Brasil Holdings LTDA; AZ Legan Partecipações S.A.; AZ Legan administração de Rescursos; AZ Quest Partecipacoe SA; AZ Quest Investimentos Ltda; Azimut Brasil Wealth Management Holding S.A. (formerly AZ FI Holdings); M&O Consultoria; AZ Futurainvest; Azimut Brasil Wealth Management Ltds (formerly LFI Investimentos Ltda); BRZ Gestao de Patrimonio; AZ Mexico Holdings S.A. de CV (formerly AZ Profie SA); Mas Fondos S.A.; AZ Andes S.p.A.; NGA Next Generation Advisory Pty Ltd; Eureka Whittaker Macnaught Pty Ltd; Eureka Financial Group Pty Ltd; Pride Advice Pty Ltd; Pride Financial Pty Ltd; Lifestyle Financial Planning Services Pty Ltd; AZ Sestante Ltd (formerly Ironbark Funds Management (RE) Ltd); Wise Planners Pty Ltd; Financial Lifestyle Partners Pty Ltd; Harvest Wealth Pty Ltd; RI Toowoomba Pty Ltd; Empowered Financial Partners Pty Ltd; Wealthwise Pty Ltd; Priority Advisory Group Pty Ltd; Sterling Planners Pty Ltd; Sigma Funds Management Pty Ltd; Logiro Unchartered Pty Ltd; Domane Financial Advisers Pty Ltd; Aspire Pty Ltd; OnTrack Financial Solutions Pty Ltd AZ US Holding Inc.; AZ Apice Capital Management LLC. 98 G r u p p o A z i m u t

99 Azimut CGU The CGU of Azimut Holding S.p.A. is comprised of the following companies, that are focussed on management and distribution: Azimut Capital Management SGR S.p.A.; AZ Fund Management SA; AZ Life Ltd; Azimut Global Counseling S.r.l.; Azimut Enterprises Holding S.r.l. Augustum Opus SIM S.p.A.; Futurimpresa SGR S.p.A.; Azimut Financial Insurance S.p.A.. Again, the impairment test conducted on this CGU was aimed at checking the existence of impairment of goodwill of 292 million euro related to the CGU (including goodwill of million and the trademark of 35.3 million related to the Parent Company). For the purposes of the impairment test of intangible assets, the value in use of each CGU was calculated using the Discounted Cash Flow method and comparing value in use with the carrying amount of the CGUs, inclusive of the above intangible assets. Value in use calculated using the Discounted Cash Flow method is as follows: calculation of unlevered cash flows: for the purposes of this calculation, the expected cash flow was approximated to the net profit for the year. Profits for the first five years were based on the to 2021 Extended Business Plan. The underlying assumptions are as follows: average net inflows of 2.5 billion euro per year; weighted average performance of 2.5%; increase in overheads in line with forecast growth of personnel and structure; increase in costs and revenue after 2021 unchanged at 2%. Calculation of the weighted average cost of capital ( WACC ), equal to 7.29%, based on the following parameters: Risk Free: 10year Italian government bonds, December 2016; Azimut Beta: calculated on a fiveyear timescale with daily readings (source: Bloomberg); market risk premium: extra yield required for investments in shares rather than riskfree securities. 99

100 Notes to the consolidated Cost of capital calculation: WACC Riskfree rate Market risk premium Beta Unlevered Risk premium Cost of equity (Ke) D / (D+E) E / (D+E) WACC 31/12/ % 5.60% 1,075% 5.60% 7.29% 0% 100% 7.29% Discounting cash flows over the fiveyear timescale and cash flows calculated for terminal value purposes at the WACC to estimate the Enterprise Value of the CGU and calculating the value in use of the CGU, adjusted to reflect the net financial position at 31 December Based on the above, management calculated Azimut CGU's and AZ International CGU's value in use at 5,120 million euro and 665 million euro, respectively. These amounts are greater than the CGUs' carrying amounts of 727 million and 175 million euro, respectively, as no impairment losses were recognised. Furthermore, the CGU's value in use was subjected to a sensitivity analysis which considered WACC changes and the longterm growth rate (grate). The tables below show the results of the sensitivity analyses which did not identify any impairment losses. Impairment test on the Azimut CGU Sensitivity Analysis Difference between value in use and the CGU carryng amount 5.29% 5.79% 6.29% 6.79% 7.29% 7.79% 8.29% 8.79% 0.00% 4,379 4,050 3,774 3,538 3,335 3,158 3,002 2, % 4,797 4,398 4,067 3,790 3,553 3,349 3,170 3, % 5,312 4,818 4,417 4,085 3,806 3,568 3,362 3, % 5,963 5,335 4,839 4,436 4,102 3,822 3,583 3, % 6,812 5,990 5,359 4,860 4,455 4,120 3,838 3, % 7,965 6,843 6,016 5,382 4,881 4,474 4,137 3, % 9,620 8,001 6,873 6,043 5,406 4,902 4,493 4, % 12,198 9,664 8,037 6,904 6,069 5,429 4,923 4, G r u p p o A z i m u t

101 Difference between value in use and CGU carryng amount cash flows decrease 2.5% 4, % 4, % 4, % 4, % 3, % 3, % 3,564 Impairment test on the AZ International Holdings CGU Sensitivity Analysis Difference between value in use and the CGU carryng amount 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 5.29% 537,2 599,0 675,2 771,4 896, , , ,9 5.79% 488,7 540,1 602,1 678,7 775,4 901, , ,4 6.29% 447,9 491,3 542,9 605,2 682,1 779,3 905, ,9 6.79% 413,0 450,2 493,8 545,7 608,3 685,6 783,2 910,5 7.29% 383,0 415,2 452,6 496,4 548,5 611,4 689,1 787,1 7.79% 356,8 385,0 417,4 455,0 499,0 551,3 614,5 692,5 8.29% 333,8 358,7 387,1 419,6 457,3 501,5 554,1 617,7 8.79% 313,3 335,5 360,6 389,1 421,8 459,7 504,1 556,9 9.29% 295,1 315,0 337,3 362,5 391,1 424,0 462,1 506,7 Difference between value in use and CGU carryng amount cash flows decrease 2.5% % % % % % % % 439 Conclusions Finally, the analysis of the Azimut Holding share shows that market cap is considerably greater than the Group's shareholders equity: considering shareholders equity of 645 million euro, the Company's market cap at 31 December 2016 was equal to 2.3 billion euro. Tax assets This item amounts to 78,976 thousand euro (72,680 thousand euro at 31 December 2015). The breakdown is as follows: Section 12 Tax assets and tax liabilities 101

102 Notes to the consolidated 12.1 Breakdown of Tax assets: current and deferred Breakdown Current Deferred 31/12/ ,905 46,071 78,976 31/12/ ,855 27,825 72,680 Deferred tax assets mainly include: 6,736 thousand euro of deferred tax assets arising from the value of the lease instalments deductible in future years by virtue of the sale and leaseback agreement for the Azimut trademark; 18,779 thousand euro to deferred tax assets relating to tax losses; 1,693 thousand euro of deferred tax assets relating to the adjustment of the book and tax value (IRAP) of the trademark and goodwill pursuant to Article 1, paragraph 51 of Italian Law 244/2007 (2008 Budget Law) and offset against future tax liabilities arising from amortisation and other negative items deducted off the balance sheet (as indicated in EC section of the Modello Unico tax return) up until the tax year underway at 31 December 2007; to remaining portion, the temporary differences resulting from the different timing criteria of IRES and IRAP tax deductibility for some cost items compared to that recognised in the income statement. As regards deferred tax assets recognised on tax losses, in accordance with IAS 12, the probability of these losses being recovered in subsequent tax years was assessed. Based on the assumptions pursuant to current tax regulations and related changes of the year, the ability of future taxable income, at Group level, comprising the companies which have adopted the tax consolidation regime, was assessed, generating the recognition of deferred tax assets on losses. Tax liabilities This item amounts to 59,401 thousand euro (60,224 thousand euro at 31 December 2015). The breakdown is as follows: 12.2 Breakdown of Tax liabilities: current and deferred : Breakdown Current Deferred 31/12/2016 1,443 57,958 59,401 31/12/2015 1,790 58,434 60, G r u p p o A z i m u t

103 Deferred tax liabilities mainly include deferred tax liabilities relating to the difference between the carrying amount and tax value of the trademark amounting to 11,686 thousand euro and the deferred tax liabilities recognised on the temporary difference between the carrying amount and tax value of goodwill of 40,847 thousand euro. These tax liabilities, recognised in accordance with IAS 12, are not reasonably expected to become actual costs given that the aforementioned temporary differences will only be reduced following a negative impairment test that leads to the recognition of an impairment loss on goodwill and the trademark and in the case of disposal of these assets. Moreover, this item includes deferred IRES and IRAP taxes on unallocated earnings of the subsidiaries at 31 December Changes in deferred tax assets (contra entry in income statement) 1. Opening balance 2. Increases 2.1 Deferred tax assets recognised in the year: a) from previous years b) due to changes in accounting policies d) other 2.2 New taxes or increased tax rates 2.3 Other increases 3. Decreases 3.1 Deferred tax assets eliminated during the year a) reversals b) writeoff of irrecoverable tax c) due to changes in accounting policies d) other 3.2 Decreases in tax rates 3.3 Other decreases a) conversion into tax credits pursuant to Italian Law 214/2011. b) other 4. Closing balance 31/12/ ,206 30,796 21,320 21,320 9,475 11,924 3,792 3,792 8,133 8,133 45,077 31/12/ ,705 6,014 6,014 (6,513) (6,513) (5,268) (1,245) 26,

104 Notes to the consolidated 12.4 Changes in deferred tax liabilities (contra entry in income statement) 1. Opening balance 2. Increases 2.1 Deferred tax liabilities recognised in the year: a) from previous years b) due to changes in accounting policies c) other 2.2 New taxes or increased tax rates 2.3 Other increases 3. Decreases 3.1 Deferred tax liabilities eliminated during the year a) reversals b) due to changes in accounting policies c) other 3.2 Decreases in tax rates 3.3 Other decreases 4. Closing balance 31/12/ ,577 5,182 5,182 5,182 6,581 6,502 6, ,178 31/12/ ,006 6,598 5,901 5, (27) (27) (27) 53, G r u p p o A z i m u t

105 12.5 Changes in deferred tax assets (contra entry in shareholders equity) 1. Opening balance 2. Increases 2.1 Deferred tax liabilities recognised in the year: a) from previous years b) due to changes in accounting policies d) other 2.2 New taxes or increased tax rates 2.3 Other increases 3. Decreases 3.1 Deferred tax liabilities eliminated during the year a) reversals b) writeoff of irrecoverable tax c) due to changes in accounting policies d) other 3.2 Decreases in tax rates 3.3 Other decreases 4. Closing balance 31/12/2016 1, /12/ ,246 1,246 1,246 (15) (15) (15) 1,

106 Notes to the consolidated 12.6 Changes in deferred tax liabilities (contra entry in shareholders equity) 1. Opening balance 2. Increases 2.1 Deferred tax liabilities recognised in the year: a) from previous years b) due to changes in accounting policies d) other 2.2 New taxes or increased tax rates 2.3 Other increases 3. Decreases 3.1 Deferred tax liabilities eliminated during the year a) from previous years b) due to changes in accounting policies d) other 3.2 Decreases in tax rates 3.3 Other decreases 4. Closing balance 31/12/2016 4, ,780 31/12/2015 5, (542) (542) (542) 4,857 Section 14 Other assets This caption amounts to 209,114 thousand euro (147,793 thousand euro at 31 December 2015) Breakdown of Other assets Due from Inland Revenue Due from financial advisors Other receivables Prepayments 31/12/ ,384 13, ,042 8, ,114 31/12/ ,271 15,027 31,912 8, , G r u p p o A z i m u t

107 Amounts due from Inland Revenue include receivables for VAT and amounts due from Inland Revenue for mathematical reserves. Prepayments include commission expense, which does not pertain to the current year, for the sale of No Load products. These products do not charge an entry fee but break even within 36 months in the case of mutual funds and the Star, Pleiadi and AZ Style insurance products and 18 months in the case of hedge funds. Deferred charges also include the assets generated via the deferral of acquisition costs for unitlinked policies issued by the Group s Irish insurance company, classified as investment contracts. Due from financial advisors mainly includes loans granted to financial advisors amounting to 10,385 thousand euro, which generate interest income in line with the Euribor plus spread, in addition to advance commissions paid to the same financial advisors to the amount of 1,197 thousand euro. The terms for repayment of these loans vary on average from 12 to 36 months. "Other receivables" mainly comprise tax assets for virtual stamp duties of 43,424 thousand euro and receivables related to the payment of capital gain tax advances of 45,134 thousand euro. 107

108 Notes to the consolidated Liabilities Section 1 Payables Payables amount to 28,283 thousand euro (34,897 thousand euro at 31 December 2015). 1.1 Breakdown of Payables Breakdown/Value 1. Due to sales network: 1.1 for UCITS sales 1.2 for individual portfolio sales 1.3 for pension fund sales 2. Payables for asset management services: 2.1 for proprietary portfolio management 2.2 for discretionary portfolio management 2.3 for other 3. Payables for other services: 3.1 advisory 3.2 outsourced corporate functions 3.3 other 4. Other payables 4.1 repurchase agreements of which: government securities of which for other debt securities of which for other equity securities and units 4.2 other Fair value Level 1 Fair value Level 2 Fair value Level 3 fair value 31/12/ /12/2015 6,963 3,942 6,963 3, ,051 30,096 20,051 30,096 28,283 34,897 28,283 34,897 28,283 34,897 Other includes: a loan of 20,000 thousand euro granted by Banco Popolare (now Banco Bpm S.p.A.) on 22 April 2008 and divided into two lines, A and B, each originally amounting to 100 million euro. The credit lines are repayable in instalments and expire on 30 June 2013 and 30 June 2018 respectively, with the interest rate calculated based on the Euribor plus 115 basis points for Line A and 125 basis points for Line B. The loan is not subject to covenants nor express termination clause. 108 G r u p p o A z i m u t

109 Other payables mainly include commissions accrued and to be settled for the sale of fund units. 1.2 "Payables": breakdown by counterparty Breakdown/Counterparty Banks Financial institutions Clients of which: Group of which: Group of which: Group 1. Payable to sales network: 6, for UCITS sales 6, for individual portfolio management sales 1.3 for pension fund sales 2. Payables for asset management services: for proprietary portfolio management for discretionary portfolio management 2.3 for other 3. Payables for other services: advisory services received 3.2 outsourced corporate functions 3.3 other Other payables 20, repurchase agreements of which: government securities of which for other debt securities of which for other equity securities and units 4.2 other 20, ,679 1, ,259 1,

110 Notes to the consolidated Section 2 Outstanding securities 2.1 Breakdown of "Outstanding securities" Breakdown 1. Securities Bonds Other securities Carrying amount 226, ,522 31/12/ /12/2015 Fair value Carrying amount Fair value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 244, , , , , ,291 The item is entirely comprised of a: 1. convertible bond Azimut Convertibile 2,125% amounting to 226,522 thousand euro originally composed of 2,500 bonds worth 100,000 euro with a duration of seven years. The amount refers to total bonds sold and includes the charges incurred by the Parent Company for the issue and placement, in addition to interest expense accrued at 30 December 2016 which will be paid on the preestablished date. Convertible bonds bear gross annual interest of 2.125% and can be converted into Azimut Holding S.p.A. ordinary shares (newly issued and/or existing) from the fourth year and fortyfifth day after the issue to 20 days prior to the maturity date. The conversion price is set at euro. In accordance with IAS 32 and based on that set out in the section on Accounting standards, the total debt component of this financial instrument was 214,312 thousand euro calculated on 25 November 2013 (issue date), whereas the equity component amounted to 35,688 thousand euro. Subordinated securities This category comprises the bond described earlier. Technical reserves where the investment risk is borne by policyholders Technical reserves where the investment risk is borne by policyholders amount to 250,974 thousand euro (280,859 thousand euro at 31 December 2015) and refer to the commitments arising from the unitlinked policies issued by the subsidiary AZ Life Ltd, classified as insurance contracts. Section 4 Financial liabilities measured at fair value This item amounts to 6,299,036 thousand euro (5,439,863 thousand euro at 31 December 2015) and mainly includes the commitments arising from the unitlinked policies issued by the subsidiary AZ Life Ltd (6,195,001 thousand euro), classified as investment contracts (level 2). 110 G r u p p o A z i m u t

111 4.1 Breakdown of Financial liabilities measured at fair value Breakdown 1. Payables 2. Debt securities bonds other securities Carrying amount 6,299,036 6,299,036 31/12/ /12/2015 Fair value Carrying Fair value amount Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 6,195, ,035 5,439,863 5,377,375 62,488 6,195, ,035 5,439,863 5,377,375 62,488 This item also includes financial liabilities measured at fair value, liabilities related to the future exercise of the call options for the residual portion of the share capital of some companies that were acquired, but are not wholly owned. They are listed below: Company Eureka Whittaker Macnaught Pride Advice Lifestyle Financial Planning Services AZ Sestante Wise Planners Financial Lifestyle Partners Harvest Wealth RI Toowoomba Empowered Financial Partners Wealthwise Priority Advisory Group Sterling Planners Logiro Unchartered Pty Ltd OnTrack Financial Solutions Pty Ltd Aspire Pty Ltd AZ Quest Partecipacoe SA Augustum Opus SIM S.p.A. Compagnie de Géstion Privée Monegasque Mas Fondos S.A. Measurement 1, , ,112 1,573 1,539 2, ,602 3,537 1,166 1,657 2,476 1,250 28,658 17,636 30,441 1, ,

112 Notes to the consolidated With respect to measurement, the amount reflects the discounted amount to be paid in Azimut Holding shares, where contractually provided for to noncontrolling interests, following the exercise of the call options. The measurement reflects an estimate of the discounted amount to be paid to the seller. This amount is based on the estimate of key parameters (future income statement, balance sheet and financial position parameters set out in the relevant contracts), that are subject to specific sensitivity analyses. With respect to the Sigma transaction and the related call options of the residual 49% thereof, the obligation to exchange the issuer's shares against the acquisition of a financial asset indicates the existence of a derivative. Fair value changes in the latter are to be allocated to the income statement. This position is currently being analysed by the IFRIC. Financial liabilities measured at fair value and the related measurement at 31 December 2016 led to the recognition of losses of 4,851 thousand euro under Net result of financial assets and financial liabilities measured at fair value. Section 7 Tax liabilities Tax liabilities are described in detail in section 12 of these notes to which reference should be made. Section 9 Other liabilities This item amounts to 182,975 thousand euro (151,000 thousand euro at 31 December 2015). Due to suppliers Due to Inland Revenue Due to employees Due to social security bodies Other payables Deferred income Due to Financial Advisors 31/12/ ,162 9,048 6,273 4,230 44,378 2,716 70, ,975 31/12/ ,012 10,475 4,804 4,153 39,620 3,145 61, ,000 Deferred income includes liabilities arising from the deferral of commission income on the premiums of unitlinked policies issued by the Irish insurance company AZ Life Dac, classified as investment contracts. "Due to financial advisors" mainly includes amounts due to financial advisors for commissions of December 2016 paid in January 2017, in addition to other accruals relating to 2016, which will be paid during the subsequent year, and other contractual commitments for commissions, including loyalty commissions, to be paid to financial advisors over the mediumlong term. 112 G r u p p o A z i m u t

113 10.1 Staff severance pay (TFR): "annual change" The item amounts to 3,403 thousand euro (3,310 thousand euro at 31 December 2015) and refers to TFR accrued by personnel employed by the group companies at 31 December Section 10 Staff severance pay (TFR) A. Opening balance B. Increases B1. Provisions for the year B2. Other increases C. Decreases C1. Payments made C2. Other decreases D. Closing balance 31/12/2016 3, (283) (53) (229) 3,403 31/12/2015 3, (179) (114) (65) 3,310 The increase is mainly due to the actuarial losses of the year with a specific direct contra entry in shareholders equity reserves, net of the related tax effect and the substitute tax Other information As set out in the section on Accounting policies, staff severance pay was calculated in accordance with IAS 19, based on specific following technical, demographic and financial assumptions: Demographic assumptions In order to eliminate the probabilities of removal of personnel in service due to death, the SIM/F 2000 table was used (ISTAT Italian National Institute of Statistics mortality table by gender), prudentially reduced by 20%. Decreases due to disability were calculated using the relevant INPS (the Italian social security institution) tables, reduced by 20%. Pension, which is considered the main reason for outgoing employees, was subject to a timescale equal to meeting the minimum requirement (contribution period or seniority), calculated in accordance with ruling legislation. The following parameters were used for other technical, nonfinancial factors: Turnover: 1.5% unchanged; Advance: 2% unchanged; Amount paid in advance: 70%. Finally, assessment of the allocation of TFR to private pension funds was carried 113

114 Notes to the consolidated out based on the behaviour observed on assessment (lack or partial adherence to private pension funds), without making any assumption on the future decisions of the personnel different from the current ones. Financial assumptions IAS 19 requires utilisation of financial technical factors. These assumptions reflect their influence on the prospective trend of flows (following remuneration increases and forecast inflation scenarios) and discounting of the Company's estimated liability at the measurement date. Indeed, the discount rate is the main financial assumption on which the analysis results depend. Inflation: a constant rate of 2.00% was used with respect to the future inflation scenario to be used for remuneration and TFR revaluation. Interest rates: the future liability to employees was discounted using the yield curve of debt securities in accordance with IAS 19. Section 11 Provisions for risks and charges This intem amounts to 31,265 thousand euro (26,694 thousand euro at 31 December 2015) Breakdown of Provisions for risks and charges Supplementary indemnity provision for agents established based on actuarial criteria, in accordance with IFRS, totalling 26,783 thousand euro. Other provisions (4,466 thousand euro) for potential legal disputes with clients, for the present value of the estimated expense to settle the obligations Provisions for risks and charges : annual change Opening balance Increases during the year Decreases during the year Closing balance 31/12/ ,694 5,059 (488) 31,265 31/12/ ,580 2,479 (1,365) 26, G r u p p o A z i m u t

115 12.1 Breakdown of Share Capital Types of shares 1. Share capital 1.1 Ordinary shares 1.2 Other shares 32,324 32,324 Section 12 Shareholders Equity At 31 December 2016, the fully paidup and subscribed share capital was composed of 143,254,497 ordinary shares, with a total value of 32,324 thousand euro Breakdown of Treasury Shares Types of shares 1. Treasury shares 1.1 Ordinary shares 1.2 Other shares (81,288) (81,288) At 31 December 2016, Azimut Holding S.p.A. held 10,387,189 treasury shares at an average carrying amount of euro per share Breakdown of Equity instruments This item amounts to 70,951 thousand euro and, as described in Part A Section A.2 of these notes, can be analysed as follows: at the issue amount, as per the Shareholders' resolution of 29 April 2010, of 1,500,000 profitparticipating financial instruments recognised in the previous year for a total of 36,000,000 euro (equal to their fair value calculated by an independent leading company); the equity component of the convertible bond, recognised on 25 November 2013 upon issue of the convertible bond at 34,949 thousand euro, calculated on a residual basis as the difference between the fair value of the bond, as a whole, and the fair value of the debt component. The costs borne by the Company for the bond issue are allocated proportionally to the debt component and the equity component Breakdown of Share premium reserve The share premium reserve amounts to 173,987 thousand euro at 31 December 2016 (unchanged on 31 December 2015). 115

116 Notes to the consolidated 12.5 Other information Breakdown and changes in Reserves Legal reserve Other reserves A. Opening balance 6, , ,181 B. Increases 9,330 9,330 B.1 Profit appropriations 8,822 8,822 B.2 Other changes C. Decreases 26,404 26,404 C.1 Allocations loss account reserve dividends transfers to share capital C.2 Other changes 26,404 26,404 D. Closing balance 6, , ,107 Breakdown and changes in Valuation reserves Availableforsale financial assets Tangible assets Intangible assets Cash flow hedge Special revaluation laws Other A. Opening balance (7,341) (435) (7,776 ) B. Increases 5, ,926 B.1 Increases in fair value 5,908 5,908 B.2 Other changes C. Decreases (478) 0 (478 ) C.1 Decreases in fair value (478 ) (478 ) C.2 Other changes 0 0 D. Closing balance (1,911) (417 ) (2,329 ) 116 G r u p p o A z i m u t

117 13.1 Breakdown of Minority interest Section 13 Minority interest Items/Value 1. Share capital 2. Treasury shares 3. Equity instruments 4. Share premium reserve 5. Reserves 6. Valuation reserves 7. Profit (loss) for the period/year 31/12/ ,209 (27,336) 1,484 4,617 17,975 Minority interest relate to stakes held by third parties. 117

118 Notes to the consolidated Part C Notes to the income statement Section 1 Fee and commission income and expenses 1.1 "Fee and commission income and expense" 1.2 Fee and commission expense: breakdown by type and counterparty Fee and commission income and expenses. Services 31/12/ /12/2015 Fee and comm. income Fee and comm. expense Fee and comm. and comm. Fee and comm. income Fee and comm. expense Fee and comm. and comm. A. Asset management 1. Proprietary portfolio management 1.1 Mutual funds Management fees 438, , , ,595 Incentive fees 120, , , ,105 Entry / redemption fees 8,036 8,036 7,289 7,289 Switch fees Other fees 2,022 2,022 4,193 4,193 mutual fund fees 569, , , , Individual portfolio management Management fees 29,680 29,680 13,677 13,677 Incentive fees 3,592 3,592 2,214 2,214 Entry / redemption fees Other fees individual portfolio management fees 33,687 33,687 16,165 16, Openended pension funds Management fees Incentive fees Entry / redemption fees Other fees open pension fund fees 7,211 3, ,559 7,211 3, ,559 6, ,037 6, , Discretionary portfolio management Management fees 7,545 7,545 5,639 5,639 Incentive fees Other fees discretionary portfolio management fees 7,545 7,545 5,639 5,639 asset management fees (A) 118 G r u p p o A z i m u t

119 Services 31/12/ /12/2015 Fee and comm. income Fee and comm. expense Fee and comm. and comm. Fee and comm. income Fee and comm. expense Fee and comm. and comm. B. Other services Consulting Sales commissions Order intake Insurance products Other services: Fee expenses for sales, distribution and order intake TOTAL FEES (A+B) 53,374 5,599 34, ,766 1, ,633 (293,897) (293,897) 53,374 5,599 34, ,766 1,374 (293,897) 381,736 41,040 3,274 24, ,051 3, ,086 (271,970) (271,970) 41,040 3,274 24, ,051 3,803 (271,970) 401,

120 Notes to the consolidated 1.2 Fee and commission expense: breakdown by type and counterparty Services Banks Financial institutions Other of which: Group of which: Group of which: Group of which: Group A. ASSET MANAGEMENT 1. Proprietary portfolio management 1.1 Sales commissions UCITS Individual portfolio management Pension funds 1.2 Maintenance fees UCITS Individual portfolio management Pension funds 1.3 Incentive fees UCITS Individual portfolio management Pension funds 1.4 Other fees and commissions UCITS Individual portfolio management Pension funds 2. Discretionary portfolio management UCITS Individual portfolio management Pension funds asset management fees (a) B. Other services Consulting Other services: fees for other services (b) Fee expenses for sales, distribution and order intake 17,388 1, , ,897 fees (a+b) 17,388 1, , , G r u p p o A z i m u t

121 2.1 Breakdown of Dividends and similar income This item amounts to 257 thousand euro (2015: 3 thousand euro). Section 2 Dividends and similar income 31/12/ /12/2015 Dividends Income from UCI units Dividends Income from UCI units 1. Financial assets held for trading 2. Availableforsale financial assets Financial assets measured at fair value 4. Equity investments Breakdown of Interest income and similar income Interest income and similar expense amounts to 1,509 thousand euro (1,781 thousand euro at 31 December 2015). Section 3 Interest Items/Technical forms Debt securities Repurchase agreements Deposits and current Other 31/12/2016 accounts 1. Heldfortrading financial assets 2. Financial assets measured at fair value 3. Availableforsale financial assets 4. Heldtomaturity financial assets 5. Receivables 6. Other assets 7. Hedging derivatives ,509 31/12/ , ,781 "Other assets" is almost entirely related to interest income on bank current accounts and interest income accrued on the loans disbursed to financial advisors. 121

122 Notes to the consolidated 3.2 Breakdown of Interest expense and similar charges Interest income and similar expense amounts to 11,723 thousand euro (11,237 thousand euro at 31 December 2015). Items/Technical forms Loans Repurchase agreements Securities Other 31/12/ /12/ Payables 2. Outstanding securities 3. Heldfortrading financial liabilities 4. Financial liabilities measured at fair value 5. Other liabilities 6. Hedging derivatives ,789 10, , , , ,237 Due to banks other loans is mainly composed of interest charges arising from the loans raised by the Parent Company. Section 6 Net result of financial assets and financial liabilities measured at fair value 6.1 Breakdown of "Net result of financial assets and financial liabilities measured at fair value" Items/Income items Gains Profits on disposal Losses Losses on disposal Net result 1. Financial assets 1.1 Debt securities 1.2 Equity securities and UCI units 1.3 Loans 2. Financial assets and financial liabilities: exchange differences 3. Financial liabilities 1,646 (6,497) (4,851) 3.1 Payables 3.2 Debt securities 3.3 Other liabilities 4. Credit and financial derivatives 1,646 (6,497) (4,851) 122 G r u p p o A z i m u t

123 This item amounts to 1,733 thousand euro (14,155 thousand euro in 2015). 7.1 Breakdown of Profits (losses) on disposal and repurchase Section 7 Profits (losses) on disposa and repurchase Items/Income items 31/12/ /12/2015 Profit Loss Net result Profit Loss Net result 1. Financial assets 1.1 Availableforsale financial assets 1,739 1,739 14,155 14, Heldtomaturity financial assets 1.3 Other financial assets (1) 1,739 1,739 14,155 14, Financial liabilities 2.1 Payables 2.2 Outstanding securities (2) (1+2) 1,739 (6) (6) (6) (6) (6) 1, , ,155 Net premiums amount to 2,618 thousand euro (5,070 thousand euro in 2015) for premiums relating to unitlinked policies issued by the Irish insurance company AZ Life Ltd, classified as insurance contracts. Net premiums The item stood at 132,815 thousand euro (129,148 thousand euro at 31 December 2015) and is composed of realised gains and losses and changes in the value of financial assets and liabilities, relating to unitlinked policies, and designated at fair value. Net profits (losses) on financial instruments at fair value through profit or loss 9.1 Breakdown of Personnel costs This item amounts to 72,485 thousand euro (62,094 thousand euro at 31 December 2015). The breakdown is as follows: Section 9 Administrative costs 123

124 Notes to the consolidated Items 1. Employees a) wages and salaries b) social security c) staff severance pay (TFR) d) pension contributions e) TFR provisions f) accrual to the pension provision and similar obligations: defined contribution defined benefit g) private pension plans: defined contribution defined benefit h) other expenses 2. Other personnel 3. Directors and Statutory Auditors 4. Early retirement costs 5. Cost recoveries for employees seconded to other companies 6. Reimbursed costs for employees seconded to the company 31/12/ ,389 40,146 6, (2,657) 1,278 20,818 72,485 31/12/ ,098 29,043 5, (2,242 ) 1,223 22,773 62, Average number of employees by category Managers Middle managers Other employees G r u p p o A z i m u t

125 9.3 Breakdown of Other administrative costs This item amounts to 120,028 thousand euro (95,742 thousand euro at 31 December 2015). The breakdown is as follows: Items Professional services rendered Advertising, promotion and marketing expenses Telephone and fax Lease and rent Insurance premium Tax liabilities Enasarco/Firr contributions Rentals and leases Outsourced functions Services other than IT services Maintenance costs Other administrative costs 31/12/ ,153 9,928 2,281 7,762 1,293 1,253 8,507 7,784 38,862 10,295 1,636 17, ,028 31/12/ ,364 10,022 2,282 6,128 1, ,934 4,768 27,285 7,703 1,098 14,006 95,742 Net impairment and writeups of tangible assets based on depreciation at 31 December 2015 are broken down as follows: 10.1 Breakdown of Other administrative costs Section 10 Net impairment and writeups of tangible assets Items/impairment and writeups Amortisation Impairment losses Writeups Net result 1. Groupowned 2,508 2,508 business purposes 2,508 2,508 investment purposes 2. Under finance lease business purposes investment purposes 2,508 2,

126 Notes to the consolidated Section 11 Net impairment and writeups of intangible assets Net impairment and writeups of intangible assets based on amortisation at 31 December 2016 are broken down as follows: 11.1 Breakdown of Net impairment and writeups of intangible assets Items/impairment and writeups Amortisation Impairment losses Writeups Net result 1. Goodwill 2. Other intangible assets 2.1 groupowned 11,064 11,064 2,591 2,591 13,655 13,655 generated internally other 11,064 2,591 13, Under finance lease 11,064 2,951 13,655 Section 13 Net accruals to provisions for risks and charges 13.1 Breakdown of Net accruals to provisions for risks and charges This item amounts to 5,844 thousand euro (2,479 thousand euro in 2015) and includes the accrual to the supplementary indemnity provision for agents (6,079 thousand euro) and the net accrual to the provision for sundry risks and charges (235 thousand euro), related to risks for disputes with clients, as described in the note to Provisions for risks and charges Section 11 of Liabilities. Section 14 Other operating income and costs 14.1 Breakdown of Other operating income and costs This item is positive by 565 thousand euro (3,351 thousand euro in 2015) and is mainly composed of trade expenses and current account bank charges, in addition to chargebacks made to financial advisors. Section 15 Profit (loss) on equity investments 15.1 Breakdown of Profit (loss) on equity investments This item is a loss of 689 thousand euro (485 thousand euro in 2015). 126 G r u p p o A z i m u t

127 Items Income 1.1 Revaluations 1.2 Profit on disposal 1.3 Writeups 1.4 Other increases 2. Costs 2.1 Writedowns 2.2 Losses on disposal 2.3 Impairment writedowns 2.4 Other costs Net result Breakdown of Income tax on profit from continuing operations Section 17 Income tax on profit 31/12/ Current taxes 19, Changes in current taxes of previous periods/years 3. Decrease in current taxes for the period/year Italian Law no Change in deferred tax assets (10,638) 5. Change in deferred tax liabilities (1,058) Taxes for the period/year 7,586 31/12/ ,463 (1,895) 6,624 28,192 Current income taxes for the period mainly refer to IRAP and IRES paid by the Group s Italian companies, taxes payable by the foreign companies as well as the income from tax consolidation amounting to the taxes receivable and due on taxable income transferred to the parent company by the Group s Italian subsidiaries that have adopted the tax consolidation regime pursuant to Article 117 of Italian Presidential Decree 917/86. Taxes for the Group s foreign companies are calculated in accordance with the tax regulations in force in the individual countries of residence. Change in deferred tax assets includes the release of deferred tax assets on the amount of the lease instalment deductible during the period, the posting of deferred tax assets on temporary differences resulting from the different timing criteria of IRES tax deductibility. Change in deferred tax liabilities mainly includes deferred tax liabilities, in line with IAS 12, related to the temporary differences between the carrying amount and the tax value of goodwill. These tax liabilities are not expected to become actual costs given that the aforementioned from continuing operations 127

128 Notes to the consolidated temporary differences will be reduced following a negative impairment test result that leads to a writedown of goodwill and the trademark and in the case of disposal. The same item also includes the deferred tax liabilities on dividends to be paid by the subsidiaries within the scope of consolidation Reconciliation of theoretical tax burden and effective tax burden Reconciliation of theoretical tax burden and effective tax burden Items 31/12/2016 Pretax profit 184,889 Applicable theoretical rate 27.5 Theoretical tax burden 50,844 Effect of increases 3,697 Effect of decreases (73,285) Change in deferred tax assets (9,812) Change in deferred tax liabilities 12,163 Other decreases (623) Current Irap taxes 6,178 Decreases due to companies excluded from CNM 3,252 Taxes as per the financial statements (7,586) Section 21 Profit (loss) for the year attributable to minority interest This item is positive by 4,619 thousand euro (2,566 thousand euro at 31 December 2015) and reflects the net balance of profits and losses attributable to minority interests in consolidated companies. Part D Other information Section 1 Specific references to business activities 1.1 Information on commitments, guarantees and third party assets Commitments and guarantees issued to third parties At 31 December 2016, Azimut Holding S.p.A. had commitments to Banca Popolare di Vicenza and Banco Popolare for a total amount of 3.1 million euro relating to sureties issued in favour of the subsidiary Azimut Capital Management sgr S.p.A.. No collateral was issued at 31 December As regards the business activities of AZ Life Ltd, for as long as there is no change in the shareholder structure, Azimut Holding S.p.A. has made a commitment to the IFSRA (Irish Financial Services Regulatory Authority) to provide the insurance company with the necessary capital in the event that it is unable to meet an adequate solvency margin, in accordance with the relevant regulations. 128 G r u p p o A z i m u t

129 1.1.2 Commitments relating to guaranteed pension funds Azimut Capital Management Sgr S.p.A. has a unit of the Azimut Previdenza pension fund, known as Guaranteed, the management of which is assigned to a leading insurance company. This Azimut Previdenza pension fund guarantees the policyholder at least the amount of capital invested (net of all charges to be paid by the policyholder, as well as any advances and redemptions) in addition to a guaranteed minimum return of 2% per annum once certain requirements have been met. The guaranteed minimum return is paid by the aforementioned insurance company Own securities deposited with third parties Own securities deposited with third parties 31/12/ /12/2015 UCI units deposited with BNP Paribas 158,555,800 UCI units deposited with Banco BPN S.p.A. 626,696 UCI units deposited with Banque De Rothschild Luxembourg 15,606,070 Azimut Holding S.p.A. treasury shares deposited with Banco BPM S.p.A. 163,437,887 Azimut Holding S.p.A. treasury shares deposited with BPVI 1,302, ,529, ,487,168 15,185, ,634,153 1,894, ,200, Third party assets under custody Thirdparty assets and securities entrusted by clients using individual and collective portfolio management services are deposited at the custodian bank Banco Bpm S.p.A.. Thirdparty assets and securities entrusted by clients and invested in hedge funds are deposited with the custodian bank Banco Bpm S.p.A.. Thirdparty assets and securities entrusted by clients and invested in Luxembourg funds are deposited with the custodian bank Bnp Paribas. Thirdparty assets and securities entrusted by clients invested in the discretionary portfolios of CGM Italia SGR S.p.A. and Compagnie Monegasque Privèe, are mainly deposited with: Banca Popolare Commercio e Industria, UBS Milano, Banca Generali and Banca BSI Monaco. Thirdparty assets and securities entrusted by clients and invested in Luxembourg Eskatos funds are deposited with the custodian bank Banque Privée Edmond de Rothschild. Thirdparty assets and securities entrusted by clients and invested in Turkish funds are deposited with the custodian banks Takasbank and Euroclear. Thirdparty assets and securities entrusted by clients to AZ Investment Management are deposited with the custodian bank ICB, Shanghai Branch. Thirdparty assets and securities entrusted by clients and invested in Brazilian funds are deposited with the custodian bank BTG Pactual SA. 129

130 Notes to the consolidated 1.2 Information on Assets under Management value of UCITS UCITS 31/12/ /12/ Proprietary portfolio management Italy Luxembourg Monaco Switzerland Turkey Brazil Chile China Singapore Taiwan Australia proprietary portfolio management value of portfolio management activity 1,979,850 24,580, ,265 36, ,840 1,247,770 3,067 68,247 13, ,503 28,755,904 1,854,541 23,304, , , ,134 4,611 65,860 18,942 26,494,693 31/12/ /12/2015 of which invested in AM company funds of which invested in AM company funds 1. Proprietary portfolio management 6,632,285 4,928,495 3, Discretionary portfolio management 1,069, , Portfolio management delegated to third parties 130 G r u p p o A z i m u t

131 1.2.3 value of pension funds Net value of pension funds managed by Azimut Capital Management Sgr S.p.A. at 31 December 2016: 1. Proprietary portfolio management 1.1 Openended pension funds: Azimut Previdenza Comparto Protetto Azimut Previdenza Comparto Equilibrato Azimut Previdenza Comparto Crescita Azimut Previdenza Obbligazionario proprietary portfolio management 2. Discretionary portfolio management 2.1 Pension funds openended closedended other forms of pension funds discretionary portfolio management 3. Portfolio management delegated to third parties 3.1 Pension funds openended Azimut Previdenza Comparto Garantito closedended other forms of pension funds portfolio management delegated to third parties 31/12/ , ,558 36, , , ,972 31/12/ , , ,945 4, ,687 64,674 64, Financial risks As regards financial risks, the Company's proprietary trading is exposed to market risks. Moreover, the financial instruments in question are easily liquidated and are monitored closely, most being mutual fund units managed by the group companies. As for credit risk, there are no specific problems given the nature of the company s activity. At 31 December 2016, the Group held only funds managed by group companies in its proprietary portfolio as part of liquidity management policies. The financial risks associated with the use of liquidity refer to flexible mutual funds, such as AZ Fund Multiasset whose goal is the appreciation of capital by investing in the Eurozone in the equity, bond and liquidity markets to the extent of UCITS managed by AZ Fund Management SA. Section 3 Information on risk management and hedging policies 131

132 Notes to the consolidated As regards financial risks linked to the investment held in Eskatos Multistrategy ILS Fund, this UCITS is an asset that is completely uncorrelated with the normal risks that instruments usually present on the market are subject to. The yield of the Eskatos Multistrategy ILS Fund was already positive in As regards the Assessment Procedure for the management of financial assets on behalf of third parties, the Risk Management Function plays a significant role. This service involves both performing ex ante and ex post evaluations of the risk profiles of the various managed portfolios and providing the Investment Department with an ex ante market risk evaluation procedure. Specifically, the assessment is performed by analysing the portfolios of the individual Funds and ongoing monitoring of the significant risk factors identified, such as the average financial duration, equity exposure and its distribution in geographical areas and economic segments, currency exposure and the credit rating of the issuers. The assessment of the Fund s risk profile is performed expost both in absolute terms (volatility understood as the standard annual deviation) and in relative terms compared to the benchmark (tracking error volatility). These latter factors represent the basis for the establishment of the limits within which the manager may accept the risk. The Risk Management function uses external providers to calculate the Value at Risk (VaR) of all the portfolios managed with regard to the exante evaluation of the market risk. In addition, the Risk Management Function monitors the development of the risk models adopted and the return of the funds in relation to peers and the benchmark. 3.2 Operational risks This form of risk includes those that are typical of the various business operating procedures. The Risk Management function maps out and monitors the risks in the broader framework of its own activities, through specific analyses based on an internallydeveloped model approved by the internal control and risk management committee. The operating model applied associates an index which summarises the risk level, to each type of risk identified, based on the combination of empirical findings, theoretical assessments and interviews with operators. The results of the analyses are subsequently presented, analysed and discussed with the internal control and risk management committee. Where necessary, the latter takes the necessary measures in respect of the irregularities identified. Since the Company's incorporation, the losses arising from the abovementioned operational risks have never been significant. With respect to operational risks arising from outsourced functions, when the relevant contract was signed, the Company agreed the terms and conditions governing the provision of the outsourced services and prepared specific service level agreements whereby the outsourcer undertakes to provide its supplies at an appropriate qualitative service level, allowing the Company to take action against the supplier in the event of any economic losses arising from problems in the supply of services. Another measure to ensure that services are performed correctly was the creation of an Operating Committee, whose members come from both Azimut Capital Management SGR S.p.A. and the supplier company, to establish the procedures, define the timescales, 132 G r u p p o A z i m u t

133 and monitor the correct execution of all services provided. This committee meets at least once a month. Minutes are drawn after the meeting which are subsequently discussed with the participants. 4.1 Company shareholders equity Qualitative information For information on the individual shareholders equity items, please refer to Part B of these notes. Section 4 Information on Shareholders Equity Quantitative information Company shareholders equity: breakdown Items/Value 31/12/ /12/ Share capital 2. Share premium reserve 3. Reserves incomerelated a) legal b) statutory c) treasury shares d) other other 4. (Treasury shares) 5. Valuation reserves Availableforsale financial assets Tangible assets Intangible assets Foreign investment hedge Cash flow hedge Exchange rate differences Noncurrent assets held for sale and discontinued operations Special revaluation laws Actuarial gains/losses on defined benefit plans Share of valuation reserves for investments measured at equity 6. Equity instruments 7. Profit (loss) for the period/year 32, , ,107 6, ,711 (106,069) (81,288 ) (4,674) (1,911) (2,346 ) (417 ) 70, , ,092 32, , ,181 6, ,889 (80,173) (80,727 ) (7,776 ) (7,341) 1 (435 ) 71, , ,

134 Notes to the consolidated Valuation reserves of availableforsale assets: breakdown 31/12/ /12/2015 Positive reserve Negative reserve Positive reserve Negative reserve 1. Debt securities Equity securities 3. UCI units 2,380 (4,356) 743 8, Loans 2,445 (4,356) 743 8,269 Section 5 Statement of comprehensive income Items Pretax profit Income tax Net profit 10. Profit for the period/year 184,889 (7,586) 177,303 Other comprehensive items not transferred through profit or loss 25 (7) Tangible assets 30. Intangible assets 40. Defined benefit plans 25 (7) Noncurrent assets held for sale 60. Share of valuation reserves of investments measured at equity Other comprehensive items transferred through profit or loss 70. Foreign investment hedge: a) changes in fair value b) transfer through profit or loss c) other changes 80. Exchange rate differences: (2,347) (2,347) a) changes in fair value b) transfer through profit or loss c) other changes (2,347) (2,347) 90. Cash flow hedge: a) changes in fair value b) transfer through profit or loss c) other changes 134 G r u p p o A z i m u t

135 100. Availableforsale financial assets: 7,491 (2,060) 5,431 a) changes in carrying amount 7,491 (2,060) 5,431 b) transfer through profit or loss impairment losses profits/losses on disposal c) other changes 110. Noncurrent assets held for sale: a) changes in fair value b) transfer through profit or loss c) other changes 120. Share of valuation reserves of investments measured at equity: a) changes in fair value b) transfer through profit or loss impairment losses profits/losses on disposal c) other changes 130. other comprehensive income 5,169 (2,067) 3, Comprehensive income (Items ) 190,058 (9,653) 180, Consolidated comprehensive income attributable to minority interest 5,685 (1,066) 4, Consolidated comprehensive income attributable to parent company 184,373 (8,587) 175, Information on key management fees Directors' fees amounted to 20,889 thousand euro in Fees for the Board of Statutory Auditors, calculated based on the parameters in force, amounted to 829 thousand euro. Section 6 Related party transactions 6.2 Related party disclosures Related party transactions refer exclusively to commercial transactions carried out by Azimut Holding S.p.A. with its subsidiaries and associates, and among its subsidiaries and/or associates in They are part of the Group's ordinary business and were conducted on an arm s length basis. Moreover: for use of the trademark, the subsidiary Azimut Capital Management Sgr S.p.A. pays Azimut Holding S.p.A. annual royalties totalling 2,000 thousand euro, established by contract; Azimut Holding S.p.A., as the parent company, Azimut Capital Management Sgr S.p.A. Azimut Financial Insurance S.p.A., Azimut Enterprises Holding S.r.l. and Azimut Partecipazioni S.r.l., as subsidiaries, have adopted the tax consolidation regime; 135

136 Notes to the consolidated a contractually established annual fee (totalling 1,000,000 euro) is payable for the coordination activities carried out by the Parent Company on behalf of the subsidiary Azimut Capital Management Sgr S.p.A.; an annual fee calculated based on contractually established percentages is payable for the Risk Management, Internal Audit, Compliance and Antimoney Laundering control activities carried out by the Company in favour of the subsidiaries Azimut Capital Management S.p.A., Futurimpresa Sgr S.p.A. and Augustum Opus Sim S.p.A.. The 2016 balance is 722 thousand euro. Azimut Holding S.p.A. has issued sureties to the subsidiary Azimut Capital Management sgr S.p.A.. Azimut Capital Management sgr S.p.A. has disbursed loans to several financial advisors, identified as related parties, to develop their business. The terms and conditions of these loans are at arm s length. At 31 December 2016, they amounted to 10,385 thousand euro. Moreover, the directors of the Group who also act as managers of mutual funds are exempt from paying fees and commissions on any personal investments made in the funds they manage. With respect to profitparticipating financial instruments, in accordance with Shareholders' resolutions, 13 key directors subscribed 231,101 instruments (paying the corresponding amount), including the Chairman Pietro Giuliani (78,650), the Co Chief Executive Officers Marco Malcontenti (33,000) e Antonella Mungo (33,000), the directors Andrea Aliberti (15,000), Paolo Martini (25,000), Marzio Zocca (15,000), Gianpiero Gallizioli (3,903) and Silvia Scandurra (1,548). As per the Shareholders' agreement related to Azimut Holding S.p.A., 944 related parties subscribed a total of 1,476,096 profitparticipating instruments. Following the call option exercised by Azimut Holding S.p.A. in May 2016, at the reporting date, the company held 23,904 profitparticipating financial instruments. The following table shows the impact that the transactions or positions with related parties have on the Group s financial position and results of operations: Related parties Absolute value % Assets Other assets Liabilities Other liabilities Income statement Administrative costs 209,114 13, ,975 14, ,513 21, These items are described in detail in the corresponding sections of Parts B and C of these notes. 136 G r u p p o A z i m u t

137 7.1 Average number of financial advisors In 2016, the average number of financial advisors amounted to Section 7 Other information 7.2 Dividends paid The ordinary dividend for 2016 amounted to 1.5 euro per share. 7.3 Significant nonrecurring events and transactions The nonrecurring significant events and transactions which marked 2016 refer to the acquisitions carried out through the subsidiary AZ International Holding SA. 7.5 Auditing and nonauditing service fees Pursuant to article 149 duodecies of Consob regulation no /99 and subsequent amendments and supplements, the breakdown of fees (net of VAT and expenses) due to the audit company and companies within its network for auditing and nonauditing services during 2016 are as follows: Service Service provider Recipient Fees Audit Other services Certification services PricewaterhouseCoopers S.p.A. PricewaterhouseCoopers S.p.A. network PricewaterhouseCoopers Advisory S.p.A. PricewaterhouseCoopers S.p.A. network PricewaterhouseCoopers S.p.A. PricewaterhouseCoopers S.p.A. Parent Company Azimut Holding S.p.A. Subsidiaries(*) Subsidiaries (**) Parent Company Azimut Holding S.p.A. Subsidiaries (***) Parent Company Azimut Holding S.p.A. Subsidiaries GROUP TOTAL (in thousands of euro) 1,387 (*) This amount includes: 103,580 euro for the audit of the financial statements of the funds managed by Azimut Capital Management Sgr S.p.A. and Futurimpresa Sgr S.p.A. not included in the income statement as the related cost is borne by the funds. (**) This amount includes 461,690 euro for the audit of the AZ Fund 1, AZ Multi Asset, AZ Pure China and AZ Fund K funds managed by AZ Fund Management Sa not included in the income statement as the related cost is borne by the Fund. (***) This amount includes the fees related to the review of the interim financial statements prepared by AZ Fund Management Sa for the purposes of distributing an interim dividend, assisting the subsidiaries Az Brasil Holdings Sa, Azimut Brasil Wealth Management Holding Sa and the Athenaeum Investment fund managed by the subsidiary Athenaeum Ltd. 137

138 Certification of the consolidated financial statements pursuant to article 81ter of consob regulation no Of 14 may 1999 and subsequent amendments and supplements 1. The undersigned, Sergio Albarelli, Chief Executive Officer, and Alessandro Zambotti, manager in charge of financial reporting of Azimut Holding S.p.A., hereby represent, having also taken into account the provisions of Article 154 bis, paragraphs 3 and 4 of Italian Legislative Decree No. 58 of 24 February 1998: the adequacy in view of the nature of the business and the application of the administrative and accounting procedures used for the preparation of the 2016 consolidated financial statements. 2. The evaluation of the adequacy of the administrative and accounting procedures for the preparation of the consolidated financial statements at 31 December 2016 is based on a process designed by Azimut Holding in line with the Internal Control Integrated Framework model issued by the Committee of Sponsoring Organisations of the Treadway Commission, an internationally accepted reference framework. 3. The undersigned also represent that: 3.1. the consolidated financial statements at 31 December 2016: were prepared in accordance with the International Financial Reporting Standards endorsed by the European Commission pursuant to Regulation (EC) 1606/02 of the European Parliament and Council, of 19 July 2002; are consistent with the accounting books and records; and provide a true and fair view of the financial position and results of operations of the issuer and the companies included in its scope of consolidation; 3.2. the Management Report contains a reliable analysis of the consolidated operating performance and results, in addition to the position of the issuer and the consolidated companies and a description of the main risks and uncertainties to which they are exposed. Milan, 09 March 2017 Chief Executive Officer (Sergio Albarelli) Manager in charge of financial reporting (Alessandro Zambotti) 138 G r u p p o A z i m u t

139 Azimut holding S.p.A. Annual report

140 140 G r u p p o A z i m u t

141 Annual report 2016 Company bodies 142 Management Report Macroeconomic scenario General information about the Company Azimut shares Performance 147 Financial performance 147 Balance sheet figures 148 Net financial position 1449 Shareholders' equity, own funds and minimum capital requirements 151 Performance of direct subsidiaries Company transactions and other significant events of the year Organisational structure and corporate governance Other information 159 Risk management and control 159 Related party disclosures 160 Intragroup relations 160 Research and development 160 Secondary and branch offices 160 Marketing, communication and training activities 160 Treasury shares Significant events after the reporting date Business outlook 161 Profit allocation plan 162 Financial statements 163 Balance sheet 164 Income statement 166 Statement of comprehensive income 167 Statement of changes in shareholders' equity 168 Cash flow statement 172 Notes to the financial statements 175 Part A Accounting policies 177 Part B Notes to the balance sheet 190 Part C Notes to the income statement 212 Part D Other information 221 Annex 229 Annex A: List of equity investments held 230 Annex B: list of significant equity investments, pursuant to Article of Consob (Italian Securities and Exchange Commission) Regulation No /99 as amended. Certification of the separate financial statements

142 Board of Directors Pietro Giuliani Sergio Albarelli Marco Malcontenti Paola Antonella Mungo Paolo Martini Andrea Aliberti Marzio Zocca Giampiero Gallizioli Silvia Scandurra Raffaella Pagani Antonio Andrea Monari Anna Maria Bortolotti Chairman Chief Executive Officer CoChief Executive Officers CoChief Executive Officers CoManaging director Directors Directors Directors Directors Directors Directors Directors Board of Statutory Auditors Vittorio Rocchetti Costanza Bonelli Daniele Carlo Trivi Maria Catalano Luca Giovanni Bonanno Chairman Permanent Auditor Permanent Auditor Alternate Auditor Alternate Auditor Independent Auditors PricewaterhouseCoopers S.p.A. 142 G r u p p o A z i m u t

143 Management report Dear Shareholders, The financial statements of Azimut Holding S.p.A. at 31 December 2016 are submitted to your examination and approval. They show a net profit for the year of 161,942,807 euro (156,753,585 euro in 2015). Background scenario January represented a nasty shock for the financial markets which were caught in a vicious circle China's slowdown plummeting oil prices deflation/ recession. The technical analysis of these issues is extremely difficult and the markets remained in the grips of their fears waiting for external actions (central banks, excellent macroeconomic figures or a cathartic event generating oversold/ overbought levels) to act as a new catalyst. Consequently, the central banks of the areas which fear deflation the most (ECB and BOJ) announced or implemented new expansionary measures. However, they managed to support and further inflate bond prices without convincing the stock markets about the fact that 2016 would not have been characterised by another global recession. Eventually, the situation began to level off in midfebruary. During this period, the stock markets showed new feelings, accompanied by a series of positive macroeconomic surprises which led the US market to reconsider its expectations about the FED which pointed not only to an interruption of the upward cycle, but also to the possibility of cutting rates or of a new QE. Conversely, in Europe, the ECB's expectations looked more plausible given the renewed deflation scenario and the difficulties experienced by the banking sector. March was characterised by a significant change of attitude on the part of the main central banks. Although the ECB's expansive strategy was already assumed, its scope exceeded expectations. Indeed, the ECB tackled several aspects, increasing the liquidity for banks also through new targeted longerterm refinancing operations (TLTRO) under particularly advantageous conditions, cutting the deposit and the refinancing rates and expanding the QE from 60 billion/month to 80 billion/ month, including nonbanking corporates as of the end of June. It is believed that the G20 informally decided to abandon competitive devaluations in favour of domestic economic and monetary policies and a waitandsee attitude on the part of the FED to avoid aggravating the situation in China and the emerging markets given the existence of currency pegs and the need for divergent monetary policies. This was aimed at strengthening the still modest global growth. April partially reflected the issues that characterised March, i.e., the central banks' attention to external events, specifically those related to China and, to a lesser extent, the emerging economies, in a broader sense. In other words, April had two faces: the first was the ongoing recovery of raw materials, above all oil, and emerging economies, generating a reversal by the bond markets; the second showed the gradual return of the riskoff trade. May was bidirectional for the bond markets: the beginning of the month was characterised by a new downward revision of the 1. Macroeconomic scenario 143

144 Management report US bond yields, which lasted substantially until the middle of the month, despite the gradual improvement of GDP's forecasts, as pointed by the Atlanta's FED forecast indicator. Not even the extremely robust figures about Europe's growth (+0.6% on the previous quarter), also largely supported by domestic growth, managed to scratch the scepticism of the markets which already look to 2Q forecasts according to which Europe will grow at a more modest pace with inflation still low (despite the statisticallyexpected rebound in the second half of the year). However, the tone of the market changed when many members of the FED gave a thumb up on a summer increase, generating market repricing. June was a surprise: the forthcoming British referendum heightened the tension on the financial markets which fluctuated significantly until the very last day based on voting surveys. On 23 June, the markets were clearly in favour of Britain staying in the EU. Consequently, the results were a huge surprise. Indeed, following the Brexit, the operators relieved the tension on bund and treasury yields, which were seen as a safe heaven, zeroing any expected rate rise and even assuming the possibility the FED introduces cuts in 2017 (despite the marginal impact of the event on the US economy and, to date, the financial and currency channels). September was very volatile for the bond markets (first a dramatic decrease, then reaching new highs). Indeed, as is often the case, the operators had too many expectations of the ECB about any new extraordinary monetary policies. Conversely, the Bank of Japan shifted from monitoring quantities to monitoring prices, in an attempt to peg the rates of 10year bonds to 0%, a level that the markets soon perceived as the top limit. On the other hand, the FED, which was well placed to implement the first of the four increases proposed in December for 2016, decided to wait a little longer, with significant disagreements with the board, pointing already to just one increase in December to heat up the employment market. The first half of October was characterised by discussions, while in the second half of the month, the ECB announced that it was considering cutting the monthly purchases of securities. This rumour alarmed the market which immediately adjusted yields upwards, showing how, overall, operators are too exposed to rates with excessively low yields. The market subsequently returned to previous levels, awaiting the official announcement by the ECB which postponed any decision to December. Against this background, tensions began to arise on the British securities market, where inflation emerged, also as a consequence of the strong depreciation of the pound. Consequently, in the second half of the month, the British market dragged along with it all other bond markets. November saw the beginning a new, intense political season which will probably shape the markets longer than usual given the close sequence of political events until next fall. In the US, Trump's appointment was another surprise. The initial shock was very short and almost immediately replaced by the enthusiasm generated by hypothetical expansionary measures which should be focused on investments in infrastructures, repatriation of profits and a new American dream. The market interest rates immediately translated this message in greater expenditure, increased deficit and 144 G r u p p o A z i m u t

145 higher debt, hence requesting an additional risk premium which accounted for approximately a 60 bps yield on the 10year US securities. In December, Italy's rejected the proposed constitutional reform by a huge majority and triggered the removal of Renzi's government, promptly replaced by Gentiloni's government with the task of drafting a new electoral law. Having largely foreseen the result, the Italian market was unshaken and, in fact, recovered on the bund. The ECB announced that, as of April, the QE will be reduced from 80 billion to 60 billion/ month as the conditions that led to the increase in March 2016 no longer existed, while expanding purchasing flexibility. In the US, the FED raised rates only once in 2016 and announced three increases in Italy's assets under management market According to Assogestioni's (Italy s association of the investment management industry) figures, in 2016, the increase in Italy's assets under management continued, with 1,943 billion euro at year end (+6% on 1,835 billion at 2015 year end) and positive inflows of approximately 55.6 billion euro. In 2016, inflows of openended funds (+34.4 billion euro) exceeded considerably the number of management mandates (+20.5 billion euro). Portfolio management inflows refer exclusively to insurance product management (+20.7 billion euro), while retail portfolio management recorded zero growth. Furthermore, social security products performed negatively (0.4 billion euro). Italy's financial product and service distribution market At the end of December 2016, Assoreti's (Italy s association of the sales networks in the financial services industry) survey highlighted a record value of billion euro of financial products and investment services distributed to member intermediaries, through its authorised offpremises financial advisors. assets under management products amount to billion euro, or 72.6% of the total portfolio, while assets under custody amount to 129,2 billion euro. Specifically, directly subscribed UCITS amount to billion euro, of which 145 billion is placed with open collective portfolio management domiciled abroad. Insurance and social security products amount to billion, up 12.9% on the previous year, and account for 26.8% of the assets held by networks' clients, while discretionary portfolios amount to 52.1 billion euro, accounting for 11.1% of the total portfolio. At 31 December 2016, the total contribution of networks to assets invested in openended UCITS, through the direct and indirect distribution of units, amounts to billion euro, accounting for 30.1% of the total assets invested in funds (assets under management of billion euro estimated figure). With respect to assets under custody, the security portfolio amounts to 62.4 billion euro, while liquidity is equal to 66.9 billion euro. 145

146 Management report 2. General information about the company Azimut Holding S.p.A. (the Company ) is the parent company of the Azimut Group which is Italy's main independent holding company, with assets under management of approximately 44 billion euro at 31 December The Group is specialised in asset management and provides financial advisory services, mainly through its network of financial advisors. The Company has been listed on the Milan stock exchange since July 2004 and is included, inter alia, in the FTSE MIB and the Euro Stoxx 600 indices. Its shareholding structure is comprised of over 1,200 managers, financial advisors and employees who signed a shareholders' agreement which ensures the stability and quality of performance and represents a unique example of commitment and independence. The Company manages and coordinates the Azimut Group. At 31 December 2016, it had 19 managers and 12 other resources, including junior managers and white collars. For additional information about workforce figures, reference should be made to Part C, section 9 of the Notes to the financial statements. The Company has not set up any regional offices in Italy, nor is it engaged in any activity through branch offices. In its role of consolidating entity, the Company participates in the national tax consolidation scheme pursuant to Article 117 and subsequent articles of the Income Tax Consolidation Act, together with the subsidiaries Azimut Capital Management SGR S.p.A., Azimut Financial Insurance S.p.A., Azimut Enterprises Holding S.r.l. and Azimut Partecipazioni S.r.l.. The relationships arising from this taxation regime are regulated by a specific contract. 3. Azimut shares The stock price (reference price) of Azimut shares rose from euro at 30 December 2015 to euro at 30 December At 31 December 2016, outstanding shares numbered 143,254,497. On the same date, the capitalisation was approximately 2.3 billion euro. In 2016, the Company continued to develop its relations with institutional investors, which account for the majority of the shareholder structure. Following approval of annual financial statements and interim reports, the Company organised conference calls and roadshows on the main European markets and in the U.S.. In March 2017, the Azimut Holding S.p.A. share was covered by the analysts of twelve Italian and foreign investment firms. 146 G r u p p o A z i m u t

147 Financial performance In euros Performance Fee and commission income 2,000,000 2,000,000 Net fee and commission income 2,000,000 2,000,000 Dividends and similar income 187,869, ,981,168 Interest income and similar income 190, ,980 Interest expense and similar charges (11,162,874) (11,018,342) Profits/losses on disposal or repurchase of financial assets and liabilities 101,830 11,734,495 income 178,998, ,241,301 Administrative costs (19,880,685) (16,735,507) a) personnel costs (9,022,259) (6,928,476) b) other administrative costs (10,858,426) (9,807,031) Impairment losses on tangible and intangible assets (983,721) (855,597) Net allowance for risks and charges (30,000) 30,000 Other operating income / costs 1,756, ,890 Operating profit 159,861, ,650,087 Income tax 2,081, ,498 Profit for the year 161,942, ,753,585 Operating profit came to 160 million euro (157 million euro in 2015) mainly due to 2016 dividends amounting to 188 million euro (170 million euro in 2015). Dividends from Azimut Holding group companies include an interim dividend on the profit for 2016, disbursed in November 2016, from the subsidiary AZ Fund Management SA of 78 million euro (the interim dividend on the profit for 2014 collected in December 2015 from the same subsidiary amounted to 104 million euro). Interest expense amounts to 11 million euro in 2016, in line with

148 Management report Balance sheet figures The Company's main balance sheet figures are shown in the reclassified table below. Assets 31/12/ /12/2015 Change Absolute % Availableforsale financial assets 174,788, ,672,177 6,116,389 4% Receivables 15,901,903 36,680,000 (20,778,097) 57% Equity investments 552,673, ,504,066 57,169,379 12% Tangible and intangible assets 186,896, ,222,129 (325,857) 0% Tax assets 29,336,885 22,854,794 6,482,091 28% Other asset items 16,426,010 80,677,128 (64,251,118) 80% assets 976,023, ,610,294 (15,587,213) 2% An analysis of Assets shows, above all, that the portfolio of Availableforsale financial assets, comprised of mutual funds units managed by the Azimut Group, remains significant, despite the figure on 2015 yearend balance. Receivables, mainly comprised of cash and cash equivalents with bank current accounts, decreased considerably, mainly because of (i) the deferred collection, compared to the previous year, of the interim dividend from AZ Fund Management SA and the (ii) capital injection to AZ International Holdings SA to finance the purchase of foreign equity investments. Equity investments rose by approximately 57 million euro on the 2015 yearend balance mainly as a consequence of (i) capital injections to increase the share capital of the subsidiary AZ International Holdings SA by about 53.6 million euro and (ii) the capital injection to increase the share capital of Azimut Enterprises Holding S.r.l. by 3.7 million euro. Tangible and intangible assets, which include goodwill (approximately 150 million euro), software and trademarks (roughly 36 million euro) and office machinery, are substantially unchanged compared to the previous year. Other asset items decreased in respect of intercompany balances and, specifically, the balance due from AZ Fund Management SA following the collection of last year's dividend portion. 148 G r u p p o A z i m u t

149 Liabilities and shareholders' equity 31/12/ /12/2015 Change Absolute % Payables 88,656,657 30,095,834 58,560, % Outstanding securities 226,522, ,826,947 4,695,447 2% Tax liabilities 53,921,113 52,162,638 1,758,475 3% Other liability items 7,910,727 16,961,715 (9,050,988) 53% Share capital 32,324,092 32,324, % Treasury shares (81,288,161) (80,726,765) (561,396) 1% Equity instruments 70,949,500 71,452,010 (502,510) 1% Reserves and share premium reserves 415,083, ,760,238 (75,676,286) 15% Profit for the year 161,942, ,753,585 5,189,222 3% liabilities and shareholders' equity 976,023, ,610,294 (15,587,213) 2% With respect to Liabilities, Payables are up following the 68.5 million euro loan granted to the subsidiary Azimut Partecipazioni S.r.l., in addition to the payment of the 10 million euro instalment of the loan granted by Banco Popolare. Conversely, Outstanding securities, comprised of the convertible bond Azimut subordinato 2.125% remained stable. The decrease in Reserves and share premium reserves is due to the distribution of an additional dividend in November Net financial position Net financial position was negative for 125 million euro at 31 December The balance was impacted by (i) the payment of dividends (236 million euro) to shareholders and holders of profitparticipating financial instruments and (ii) the payment of 2.8 million euro to Fondazione Azimut Onlus made in execution of the Shareholders resolution of 28 April 2016, in addition to the following main operations performed during the year: a capital injection of 53.6 million euro to increase the share capital of the subsidiary AZ International Holdings SA; a capital injection of 3.7 million euro to increase the share capital of Azimut Enterprises Holding S.r.l.; the repayment, on 30 June 2016, of the instalment (Line B) of the 10 million euro loan granted by Banco Popolare; the 68.5 million euro loan disbursed on 18 November 2016 by Azimut Partecipazioni S.r.l.. During the year, the Company recognised dividends income from its investees for 188 million euro, of which 78 million euro as interim dividends from AZ Management Fund SA. At 31 December 2016, 7 million euro was still to be collected. 149

150 Management report The Company's net financial position may be analysed as follows: Items A Cash B Cash equivalents: Due from banks C Availableforsale financial assets D cash A+B+C E Shortterm financial receivables F Shortterm bank loans G Current portion of longterm debt: Bonds (Azimut '11'16 Senior) Bonds (Azimut '13'20 Convertible) Due to banks (leaseback) Due to banks (Banco Bpm S.p.A. loan) H Other shortterm financial payables I Shortterm financial debt F+G+H J Short term financial debt (net) I+E+D K Longterm bank loans: Due to banks (Banco Bpm S.p.A. loan) L Bonds Azimut Senior Bond "Azimut '13'20 Convertible" Bond M Other longterm debt Loan from Azimut Partecipazioni S.r.l. N Longterm financial debt K+L+M O Net (financial) debt J+N 31/12/2016 6,488 15,901,903 15,901, ,161, ,070,261 (10,575,183) (524,073) (10,051,110) (10,575,183) 179,495,078 (10,000,000) (10,000,000) (225,998,321) (225,998,321) (68,605,547.00) (304,603,868) (125,108,790) 31/12/2015 3,095 36,680,000 36,680, ,672, ,355,272 (11,398,707) (778,801) (524,072) (10,095,834) (11,398,707) 193,956,565 (20,000,000) (20,000,000) (220,524,073) (220,524,073) (240,524,073) (46,567,508) With regard to the methods used to assess net financial position, reference was made to the recommendation issued by CESR (Committee of European Securities Regulators) dated 10 February 2005, and more specifically to the paragraph on Capitalisation and indebtedness in chapter II. Receivables and payables include those of a financial nature only, whereas trade receivables and payables have been excluded. 150 G r u p p o A z i m u t

151 Shareholders' equity, own funds and minimum capital requirements The development of shareholders' equity at 31 December 2015 primarily reflects the decisions regarding the allocation of the profit for the year made when approving the 2016 financial statements which entailed payment of dividends of 236 million euro and payment of profitparticipating financial instruments held by top key people. For additional information, reference should be made to the relevant section of these notes. Performance of direct subsidiaries Registered office 2016 profit (loss) 2015 profit (loss) AZ Fund Management SA Luxembourg 223,141, ,083,930 AZ Life Ltd Ireland 20,545,689 23,960,512 Azimut Capital Management SGR S.p.A. Italy 26,806,416 50,058,067 Azimut Global Counseling S.r.l. Italy (437,522) (358,008 ) Azimut Enterprises Holding S.r.l. Italy (800,640) (136,038 ) Augustum Opus SIM S.p.A. Italy 2,979,753) 1,915,261 AZ International Holdings SA Luxembourg (1,167,165) (496,523) Azimut Financial Insurance S.p.A. Italy (5,908,687) (390 ) Futurimpresa SGR S.p.A. Italy 243,992 56,958 Azimut Partecipazioni S.r.l. Italy 74,275,885 AZ Fund Management SA manages the Luxembourgbased umbrella funds Az Fund 1 and Az Multiasset. During the year, it achieved a profit of 223 million euro compared to a profit of approximately 227 million in AZ life Dac is Azimut Group's Irishbased company authorised to provide life insurance services in Ireland as per the Central Bank of Ireland's measure of 13 January AZ Life Dac, which also operates through the Milan branch, provides clients with personalised assistance designed specifically for them. In fact, AZ Life Dac offers solutions differentiated based on client type through differentiated Unit Linked policies, including based on the client's investment strategies. During the year, it achieved a profit of 21 million euro compared to a profit of approximately 24 million in Azimut Capital Management SGR S.p.A, is an independent asset management company that manages 13 Italian funds harmonised with directive 2009/65/EC, an Italian hedge fund and a pension fund. Furthermore, it provides investment portfolio individual management services on behalf of third parties, including under delegation arrangements. On 1 October 2016, following the demerger of 151

152 Management report Azimut Consulenza SIM S.p.A., it merged Azimut Group's historical network comprised of 1637 financial advisors at 31 December The net profit for 2016 amounts to 26,806,416 euro compared to 50,058,069 euro in the previous year. The decrease on 2015 is mainly due to the reduction in fee and commission income which fell from 102 million euro in 2015 to 90.3 million euro in 2015 and the increase in administrative costs and impairment losses on tangible and intangible assets. Azimut Global Counseling S.r.l. provides financial planning consultancy services, in addition to company restructuring, market research and marketing activities, data collection and processing and financial information. In 2015, it incurred a loss of 438 thousand euro compared to a loss of 325 thousand euro in Azimut Enterprises Holding S.r.l. is a holding company focusing on unlisted companies, including Programma 101 Sicaf S.p.A. and Siamosoci S.r.l., which contribute to diversifying the Group's business. Programma 101 Sicaf S.p.A. is a venture capital company specialised in early stage investments in the digital sector, while Siamosoci S.r.l. acts as startup incubator. During the year, the company acquired 30% of Cofircont Compagnia Fiduciaria S.p.A.. In 2016, it incurred a loss of 801 thousand euro compared to a loss of 135 thousand euro in Augustum Opus SIM S.p.A. was incorporated in April 2009 and, today, is one of Italy's main private asset management companies. This is an independent dynamic company which provides global consultancies in financial investments and portfolio management. Specifically, it focuses on managing, upon proxy, some UCITS funds and provides portfolio management services. In 2016, it achieved a profit of 3 million euro, up on AZ International Holdings SA is a Luxembourgbased holding company that acts as incubator through which the Group continued its research, development, acquisition and management of foreign partnerships. Through this company, the Group is present in 14 countries, including Luxembourg, Ireland, China (Hong Kong and Shanghai), Monaco, Switzerland, Singapore, Brazil, Mexico, Taiwan, Chile, Australia, Turkey and the United States. In 2016, it incurred a loss of 1,167 thousand euro compared to a profit of 497 thousand in AZ Financial Insurance S.p.A. was incorporated on 28 May 2015 through the payment of the 50 thousand share capital by the sole shareholder Azimut Holding S.p.A.. The company's business object is insurance mediation, except for reinsurance mediation, and bank products' placement and distribution. On 1 October 2016, following the demerger of Azimut Consulenza SIM S.p.A., it merged Azimut Group's insurance activities and banking products placement business unit. In 2016, it incurred a loss of 6 million euro compared to a loss of 390 in G r u p p o A z i m u t

153 Futurimpresa SGR S.p.A. was purchased in This company manages private equity funds. In 2016, it achieved a profit of 244 thousand euro compared to a loss of 57 thousand in Azimut Partecipazioni S.r.l. is a holding company focusing on unlisted companies. On 1 October 2016, following the demerger of Azimut Consulenza Sim S.p.A., it merged 49% of AZ Fund Management SA. Its net profit for 2016 amounts to 74 million euro. Azimut Holding S.p.A. Capital injections to AZ International Holdings SA In 2016, following the Board of Directors' resolutions of 10 March 2016 and 24 May 2016, Azimut Holding S.p.A. made a capital injection of 53.6 million euro to increase the share capital of the subsidiary AZ International Holdings Sa and finance the Group's international development. 5. Company transactions and other significant events of the year Azimut Group reorganisation On 27 April 2016, the Bank of Italy approved the demerger of Azimut Consulenza SIM S.p.A. and its merger into Azimut Capital Management SGR S.p.A. to the extent of the financial product placement business unit, Azimut Financial Insurance S.p.A. to the extent of the insurance and banking product placement business unit, and Azimut Partecipazioni S.r.l. to the extent of the equity investment it held in Az Fund Management Sa. This transaction is part of the Group's reorganisation process which Azimut Holding S.p.A.'s Board of Directors approved on 19 March 2015 to simplify and streamline the company structure by transforming the Group's investment companies into asset management companies. On 30 May 2016, the Bank of Italy approved the transformation of the subsidiary CGM Italia SIM into an asset management company, completing the last authorisation step of the reorganisation process. The demerger deed of Azimut Consulenza SIM S.p.A. was filed accordingly and, on 1 October 2016, the demerger took place, transferring all assets and all implied and explicit legal relations to Azimut Capital Management SGR S.p.A., Azimut Financial Insurance S.p.A. and the newco Azimut Partecipazioni S.r.l.. Eventually, the transformation of CGM Italia SIM into CGM Italia SGR was completed. On 7 November 2016, the Bank of Italy notified the Group that it had been struck off the investment firms register. Consequently, as of said date, the regulatory capital has been calculated only individually for asset management companies and the insurance company, releasing a considerable portion of the Group's assets, which partly used to distribute1 euro per share (value date: 23 November 2016). Azimut Holding S.p.A. Annual General Shareholders Meeting of 28 April 2016 The shareholders meeting (both ordinary and extraordinary) of 28 April 2016 approved the following: 153

154 Management report Approval of 2015 financial statements The shareholders meeting approved the 2015 financial statements, which included a parent company net profit of million euro. At the same time, the shareholders resolved to pay a dividend of 1.5 euro per ordinary share, pretax, of which 0.5 euro per share paid as of 25 May 2016, 23 May 2016 exdividend payment date and 24 May 2016 as the record date, while the residual 1.0 euro per share paid within 30 days of the Azimut Group's being struck off from the investment firms register by the Bank of Italy. They also approved the payment to Fondazione Azimut Onlus of 2.8 million euro, equal to 1% of pretax consolidated profit and the payment of 24,74 euro for each profitparticipating financial instrument held by Top Key People at the time of approval of payment of the dividend. Appointment of the Board of Directors and the Board of Statutory Auditors The shareholders meeting appointed twelve members of the Board of Directors, of whom ten with a threeyear term of office and two for one year, confirming Mr. Pietro Giuliani as interim Chairman and Chief Executive Officer. The shareholders meeting also appointed the Board of Statutory Auditors for the next three years. Proposal for purchase and allocation of treasury shares The shareholders meeting approved the purchase of up to 567,950 Azimut Holding S.p.A. ordinary shares, or 0.4% of the current share capital, including in one or more instalments, to accrue the shares to service the exercise of the warrants awarded to investors following subscription of the nonconvertible Azimut subordinato 4% subordinated bond. Furthermore, the shareholders meeting approved the purchase of up to 28,000,000 Azimut Holding S.p.A. ordinary shares, or 19.55% of the current share capital, including in one or more instalments, considering 567,950 shares to service the exercise of the warrants and those already in portfolio upon purchase at a minimum unit price equal to at least the carrying amount of Azimut Holding S.p.A. ordinary shares and a maximum unit price of 50 euro. Remuneration Report: resolutions pursuant to article 123ter, paragraph 6, of Italian Legislative Decree No. 58/98 The shareholders meeting approved Azimut Holding S.p.A.'s policy concerning remuneration of members of the management boards, general managers and key managers, as well as the procedures used to adopt and implement said policy. Repayment of Banco Bpm S.p.A. (formerly Banco Popolare) loan On 30 June 2016, the Parent Company repaid the instalment (Line B) of the loan granted by Banco Bpm S.p.A. (formerly Banco Popolare) for a total amount of 10 million euro. 154 G r u p p o A z i m u t

155 Exercise of warrants issued on the Azimut Subordinato 4% Bond The right to exercise the warrants related to the Azimut Subordinato 4% Bond expired on 30 June During the first half of 2016, 102,517 warrants assigned as part of the placement of the Azimut Subordinato 4% Bond were exercised against a total of 1.9 million euro, delivering the same number of Treasury Shares. At the closing date of the transaction, 154,437 warrants were not exercised. Consequently, they lose all rights and become invalid for all effects. Agreement to repurchase the residual 49% of Augustum Opus SIM On 28 July 2016, Azimut Holding S.p.A, and the minority shareholders Augustum Opus SIM reached an agreement whereby Azimut will acquire the residual 49%. The purchase conditions are in line with the original ones dating 2013 to purchase 51% of capital, except for the reference period for assessment purposes which considered a fouryear period rather than a sixyear period, as originally agreed. On 20 December 2016, the Board of Directors of Azimut Holding S.p.A. approved the commencement of the activities preliminary to the merger of Augustum Opus SIM into Azimut Capital Management SGR. The closing of the transaction will take place in the first half of 2017, subject to Bank of Italy's authorisation. Board of Directors of Azimut Holding S.p.A. On 27 September 2016, the Board of Directors coopted Sergio Albarelli as Chief Executive Officer of Azimut Holding S.p.A. as of 3 October Azimut Enterprises Holding S.r.l. Acquisition of 30% of Cofircont Compagnia Fiduciaria S.r.l. On 20 September 2016, through its subsidiary Azimut Enterprises Holding, Azimut acquired 30% of Cofircont Compagnia Fiduciaria, a fiduciary company held by professionals (mainly lawyers or accountants), against a cash consideration of 821,100 euro. Azimut Capital Management SGR S.p.A. Demerger of Azimut Consulenza SIM S.p.A. The demerger of Azimut Consulenza SIM S.p.A. was completed on 1 October 2016, transferring all assets and all implied and explicit legal relations to Azimut Capital Management SGR, Azimut Financial Insurance S.p.A. and the newco Azimut Partecipazioni S.r.l.. Product updating Azimut Previdenza pension fund The changes to the regulation governing the Azimut Previdenza pension fund approved by Azimut Capital Management SGR S.p.A.'s Board of Directors on

156 Management report March 2015 and authorised by the Supervisory Commission for Pension Funds on 25 June 2015 became effective on 1 February In short, the changes related to the merger of the Comparto Protetto fund into the Comparto Obbligazionario fund and some changes to the four subfunds' investment policies. Futurimpresa SGR S.p.A. Product updating New fund for SMEs Through its subsidiary Futurimpresa SGR S.p.A., the Azimut Group announced the new reserved closedend fund IPO CLUB aimed at raising 150 million euro to be used in prebooking transactions, i.e., investment vehicles set up to channel funds to leading Italian SMEs to be subsequently listed. On 1 February 2017, the fund was operative with an endowment fund of 120 million euro. Ipo Club is also the result of the decisive contribution of Azimut Global Counseling, a subsidiary of the Azimut Group which operates in the financial advisory sector, and Electa Ventures, a company of the Electa Group which had already been a pioneer in setting up Spac and prebooking companies in Italy. Inflows will continue up to 150 million euro (as mentioned earlier). AZ Fund Management SA Product updating Luxembourgbased umbrella fund AZ Fund 1 : Cat Bond Fund Following the request from the Luxembourg authority Commission de Survellance du Secteur Financier (CSSF), which oversees the AZ FUND 1 fund and its subfunds, more stringent criteria were applied to the subfunds that mainly invest in Catastrophe Bonds (Cat Bonds). For these subfunds, the CSSF set a minimum initial subscription of 100,000 euro and a subsequent payment, unchanged, at 500 euro. Starting from 1 June 2016, the investment policy of the Cat Bond Fund was changed to invest also in unrated Insurance Linked Securities (ILS). At the same time, its name was changed to Cat Bond Fund Plus. Luxembourgbased umbrella fund AZ Fund 1 fund: Arbitrage subfund Subscription closing of the Arbitrage subfund of the AZ Fund 1 fund by AZ Fund Management SA was set at 22 February 2016, having reached a high subscription level. This decision was taken to protect investors' interests and pursue the investment objectives. Following this decision, placement of the new Arbitrage Plus subfund began on 18 April Despite using a merger arbitrage strategy, the subfund is characterised by the fact that the manager is free to concentrate investments. 156 G r u p p o A z i m u t

157 Renaming of some subfunds Starting from 18 April 2016, AZ Fund Management SA renamed the following subfunds of the AZ Fund 1 Fund to better reflect the investment policy in place: The Opportunities Subfund was renamed Small Cap Europe The Alpha Manager Credit Subfund was renamed Credit The Alpha Manager Thematic Subfund was renamed Asset Dynamic The Alpha Manager Equity Subfund was renamed Global Equity Starting from 05 September 2016, AZ Fund Management SA renamed the following subfunds of the AZ Fund 1 Fund to better reflect the investment policy in place: The Best Cedola Subfund was renamed High Income The Best Bond Subfund was renamed International Bond The Aggregate Bond Euro Subfund was renamed Aggregate Bond Euro Plus Merger of subfunds The merger of the following subfunds was completed with effect from 3 September 2016: Subfunds to be merged AZ Fund 1 Bond Target 2015, AZ Fund 1 Bond Target December 2016, AZ Fund 1 Bond Target June 2016 and AZ Fund 1 Bond Target September 2016 AZ Fund 1 International Bond Target June 2016 Merging subfund AZ Fund 1 Bond Target 2019 Equity Options AZ Fund 1 Global Currencies & Rates The merger of the following subfunds was completed with effect from 09 December 2016: Subfunds to be merged AZ Multi Asset Sustainable Absolute Return Merging subfund AZ Multi Asset Sustainable Equity Trend Luxembourgbased umbrella fund AZ Multi Asset Placement of two new subfunds (AZ Multi Asset Sustainable Equity Trend and AZ Multi Asset CGM Investment Grade Opportunity) began on 17 October Luxembourgbased umbrella fund AZ Multi Asset Placement of three new subfunds (AZ Multi Asset ABS, AZ Multi Asset 5 Years Global Bond and AZ Multi Asset Renaissance Opportunity Bond) began on 15 December

158 Management report AZ Life Dac Launch of new green internal funds by AZ Life Dac The new Internal Funds GREEN I, GREEN II and GREEN III in the AZ Style unitlinked policies were subscribed during the period 1526 February 2016 at the initial price of 5 euro per unit. Furthermore, on 15 February 2016, some Internal Funds were merged into other Internal Funds to streamline the product range and increase the efficiency of the management service, while renaming the RED and BLUE Internal Funds: BLUE I (formerly Blue 2) RED I (formerly Red 2) BLUE II (formerly Blue 3) RED II (formerly Red 3) BLUE III (formerly Blue 5) RED III (formerly Red 5) Launch of new Alternative internal fund by AZ Life Dac The new Alternative internal fund was launched on 17 October 2016, expanding the range of investment solutions offered as part of the AZ Style unitlinked policies. Changes to AZ NAVIGATOR Unit Linked policies As of 14 November 2016, the following internal funds have been renamed as follows: Current name Low Volatility Balanced Flexible Equity Dynamic New name Atlantico 1 Atlantico 2 Atlantico 3 As of the same date, six new internal funds have been introduced: Pacifico 1 Artico 1 Pacifico 2 Artico 2 Pacifico 3 Artico 3 AZ Capital Management Ltd The company was put into liquidation in December G r u p p o A z i m u t

159 Azimut Holding S.p.A. complies with corporate governance regulations in force in Italy. Moreover, the corporate governance structure partially reflects the recommendations contained in the Corporate Governance Code for Listed Companies published by Borsa Italiana. Azimut has established a risk management and internal control system over financial reporting, using as a reference the COSO Report, under which the Internal Control in the broadest sense is a process effected by an entity's Board of Directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives ; specifically, the objective of reliable financial reporting. For more information about the corporate governance structure, reference should be made to the Report on corporate governance and ownership structure prepared pursuant to Article 123bis of the Consolidated Law on Finance (TUF) available on the Company's website ( Azimut Governance section, and attached to the financial statements. 6. Organisational structure and corporate governance Risk management and control With respect to the main risks to which Azimut Holding S.p.A. and its Group are exposed, the following risks were identified: Strategic risk Sales network risks Operational risk Outsourcing risk Reputational risk Compliance risk Financial risk Liquidity risk The Company mainly manages and coordinates direct and indirect equity investments. Consequently, the exposure to operational risks is not significant. The Group's operating companies monitor the operational risks inherent to the specific business of asset management companies. Monitoring of operational risks is comprised of the following activities: risk mapping, risk event analysis, risk assessment, risk management and reporting. For additional information about the risks and uncertainties to which the Company and the Group are exposed, reference should made to that set out in the Consolidated financial statements of Azimut Holding S.p.A. at 31 December 2016 Management Report and Part D Other information, Section 2 Information on risk management and hedging policies of the Notes to the separate financial statements of Azimut Holding S.p.A. at 31 December 2016, and the Report on corporate governance and ownership structure pursuant to Article 123bis of the Consolidated Law on Finance available on the Company's website ( Azimut Governance section. 7. Other information 159

160 Management report Related party disclosures Pursuant to Consob Regulation on Related Parties (Resolution No of 10 March 2010, as amended), on 22 November 2010, the Board of Directors of Azimut Holding S.p.A. approved the procedures that ensure transparency and fairness of relatedparty transactions ( RelatedParty Transaction Procedure available on Azimut s website at With reference to paragraph 8 of Article 5 of the Consob regulation on periodic disclosure of related party transactions, the Group did not engage in any significant transactions during No other atypical or unusual transactions were performed. Intragroup relations For information on relations with group companies, please see Part D, Section 5 of the Notes to the financial statements on related party transactions. Research and development The Company is not engaged in any research and development activities. Secondary and branch offices The Company has not set up any regional offices in Italy, nor is it engaged in any activity through branch offices. Marketing, communication and training activities In 2016, marketing, communication and training activities were focused on providing sales support to financial partners, specifically to improve digital and technological aspects and to develop skills. The implementation of web collaboration services continued with the introduction of the new tokenbased remote signature system with a view to simplifying and increasing the efficiency of customer relations. Again in 2016, the network participated in many local events (over 400 in Italy), including more than 50 road shows dedicated to investors aimed at exploring the valueinvesting philosophy as well as asset classes and alternative strategies. As part of the demerger and current merger of Azimut Consulenza SIM into Azimut Capital Management SGR, the Group's new institutional website was launched and the various distribution brands were grouped into one single brand (Azimut Capital Management). The advertising and communication campaign for the launch of the new Azimut Capital Management integrated the regular initiatives in the general and specialist press. In 2016, in addition to the legallyrequired training, Azimut provided its employees with more than 2,000 hours of training. The financial advisors chose among six different specialist paths, developed in collaboration with external partners and internal specialists, integrating 160 G r u p p o A z i m u t

161 technical and commercial training. Furthermore, ondemand courses were held to explore specific issues and train managers. Treasury shares At 31 December 2016, Azimut Holding S.p.A. subsidiaries did not hold nor did they hold during the year any treasury shares or shares of the Parent Company, either directly or via trust companies or third parties. During the first half of 2016 (30 June 2016 being the last date allowed by the bond issue regulation to exercise the warrants), 102,517 treasury shares were assigned against the exercise of the same number of warrants issued at the placement of the Azimut Subordinato 4% Bond. At the closing date of the transaction, 154,437 warrants were not exercised. Consequently, they lose all rights and become invalid for all effects. At 31 December 2016, Azimut Holding S.p.A. s treasury share portfolio therefore stood at 10,387,189 shares, or 7.251% of share capital. With respect to operations between 31 December 2016 and the date this report was approved, 1,492,500 treasury shares have been purchased for a total of 25 million euro. In January and February 2017, the Company made a capital injection of 3 million euro to increase the share capital of the subsidiary AZ International Holdings SA in order to enable it to complete the acquisitions described in the section on subsequent events after the reporting date. As of 7 February 2017, as resolved by the Shareholders in their Ordinary meeting of 28 April 2016, Azimut Holding S.p.A. launched a share buyback programme in order to subsequently resell treasury shares or use them to acquire or exchange equity investments, accumulate the capital stock for the execution of stock options programmes, service the financial instruments convertible into the Company's shares or any other useful purpose which increases the value of the Company in compliance with the legislation from time to time in force. The maximum number of shares that may be repurchased as of today is 18,263,710, representing approximately 13% of share capital. Buybacks will be executed in tranches, with the first tranche amounting to 25,000,000 euro at the maximum price of 50 euro (only for the first tranche the maximum acquisition price will be equal to 30 euro). 8. Significant events after the reporting date These separate financial statements were authorised for publication by the Company's Board of Directors on 09 March Given the positive results of the subsidiaries for 2016 and considering the dividends proposed by the Boards of Directors of said companies at the respective Shareholders Meetings, the Company is expected to generate a profit for Business outlook 161

162 Profit allocation plan Dear Shareholders, The Board of Directors of Azimut Holding S.p.A. submits to your approval the separate financial statements at 31 December The financial statements show a profit for the year of 161,942,807 euro, which we propose to allocate as follows: 1,848, euro, or 1% of pretax consolidated profit, to be paid to the charitable organisation Fondazione Azimut pursuant to Article 32 of the Bylaws. a gross dividend of 1.00 euro to the Shareholders for each of the shares comprising the Company s share capital, excluding any treasury shares held on the day preceding the exdividend date, payable according to the ordinary terms; euro for each participating financial instrument held by Top Key People at the time of approval of payment of the dividend, equal to % of consolidated profit, under Art. 32 of the Bylaws; the remainder to be allocated to Other Reserves. We propose that the dividend be paid as follows: 1.00 euro per share as of 24 May 2017, 22 May 2017 as the exdividend payment date and 23 May 2017 as the record date. Milan, 09 March 2017 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 162 G r u p p o A z i m u t

163 Azimut holding S.p.A. Balance sheet as at 31 december

164 Balance sheet as at 31 December 2016 Assets Assets 10. Cash and cash equivalents 40. Availableforsale financial assets 60. Receivables a) for portfolio management b) other receivables 90. Equity investments 100. Tangible assets 110. Intangible assets 120. Tax assets a) current b) deferred 140. Other assets assets 31/12/2016 6, ,788,566 15,901,903 15,901, ,673, , ,082,360 29,336, ,980 28,555,905 16,419, ,023,081 31/12/2015 3, ,672,177 36,680,000 36,680, ,504, , ,303,755 22,854,794 7,782,934 15,071,860 80,674, ,610,294 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 164 G r u p p o A z i m u t

165 Balance sheet as at 31 December 2016 Liabilities and Shareholders Equity Liabilities and Shareholders Equity 10. Payables 20. Outstanding securities 70. Tax liabilities: a) current b) deferred 90. Other liabilities 100. Staff severance pay (TFR) 110. Provisions for risks and charges: b) other provisions 120. Share capital 130. Treasury shares () 140. Equity instruments 150. Share premium reserve 160. Reserves 170. Valuation reserves 180. Profit for the period/year liabilities and shareholders' equity 31/12/ ,656, ,522,394 53,921,113 53,921,113 6,758,760 1,121,967 30,000 30,000 32,324,092 (81,288,161) 70,949, ,986, ,103,546 (6,509) 161,942, ,023,081 31/12/ ,095, ,826,947 52,162, ,442 51,802,196 16,053, ,579 32,324,092 (80,726,765 ) 71,452, ,986, ,086,477 (2,313,154) 156,753, ,610,294 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 165

166 Income statement as at 31 december 2016 Items 10. Fee and commission income Net fee and commission income 30. Dividends and similar income 40. Interest income and similar income 50. Interest expense and similar charges 90. Profits on disposal or repurchase of: a) financial assets b) financial liabilities income 110. Administrative costs: a) personnel costs b) other administrative costs 120. Net impairment/writeups of tangible assets 130. Net impairment/writeups of intangible assets 150. Net accruals to provisions for risks and charges 160. Other operating income / costs Operating profit Pretax profit (loss) from continuing operations 190. Income tax on profit from continuing operations Profit (loss) from continuing operations Profit (loss) for the year 31/12/2016 2,000,000 2,000, ,869, ,430 (11,162,874) 101, ,032 (6,202) 178,998,829 (19,880,685) (9,022,259) (10,858,426) (345,795) (637,926) (30,000) 1,756, ,861, ,861,040 2,081, ,942, ,942,807 31/12/2015 2,000,000 2,000, ,981, ,980 (11,018,342) 11,734,495 11,813,137 (78,642) 173,241,301 (16,735,507) (6,928,476) (9,807,031) (276,868) (578,729) 30, , ,650, ,650, , ,753, ,753,585 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 166 G r u p p o A z i m u t

167 Statement of comprehensive income Items 10. Profit for the period/year Other comprehensive income, net of taxes, not transferred to profit or loss 20. Tangible assets 30. Intangible assets 40. Defined benefit plans 50. Noncurrent assets held for sale 60. Share of valuation reserves of investments measured at equity Other comprehensive income, net of taxes, transferred to profit or loss 70. Foreign investment hedges 80. Exchange rate differences 90. Cash flow hedge 100. Availableforsale financial assets 110. Noncurrent assets held for sale 120. Share of valuation reserves of investments measured at equity 130. other comprehensive income/(expense), net of taxes 140. Comprehensive income (Items ) 31/12/ ,942,807 (14,160) (14,160) 2,320,805 2,320,805 2,306, ,249,452 31/12/ ,753,585 (30,335) (30,335) (4,512,182) (4,512,182) (4,542,517) 152,211,068 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 167

168 Statement of changes in shareholders equity at 31 december 2016 Allocation of prior year profit Items Balance at 31/12/2015 Changes in opening balance Balance at 01/01/2016 Reserves Dividends and other distributions Changes in reserves Share capital 32,324,092 32,324,092 Share premium reserve 173,986, ,986,915 Other reserves: a) incomerelated 303,442, ,220,357 51,021,231 (132,867,308) b) other (1,133,880) (1,133,880) Equity instruments 71,452,010 71,452,010 Valuation reserves (2,313,154) (2,313,154) Treasury shares (80,726,765) (80,726,765) Profit (loss) for the year 156,753, ,753,585 (51,021,231) (105,732,354) Group shareholders equity 670,563, ,563,160 (238,599,662) 168 G r u p p o A z i m u t

169 Changes during the year Shareholders equity transactions Issue of new shares Treasury share purchases Extraordinary dividend distribution Changes in equity instruments Other changes Consolidated comprehensive income for 2016 Shareholders equity at 31 December ,324, ,986, ,510 3,360, ,237,427 (1,133,880) (502,510) 70,949,500 2,306,645 (6,509) (1,791,601) 1,230,204 (81,288,162) 161,942, ,942,807 (1,791,601) 4,590, ,249, ,012,190 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 169

170 Statement of changes in shareholders equity at 31 december 2015 Allocation of prior year profit Items Balance at 31/12/2014 Changes in opening balance Balance at 01/01/2014 Reserve5 Dividends and other distributions Changes in reserves Share capital 32,324,092 32,324,092 Share premium reserve 173,986, ,986,915 Other reserves: a) incomerelated 303,442, ,442,940 17,762,556 b) other (1,133,880) (1,133,880) Equity instruments 71,703,041 71,703,041 Valuation reserves 2,229,363 2,229,363 Treasury shares (81,554,957) (81,554,957) Profit (loss) for the year 136,509, ,509,410 (17,762,556) (118,746,854) Shareholders equity 637,506, ,506,924 (118,746,854) 170 G r u p p o A z i m u t

171 Changes during the year Shareholders equity transactions Issue of new shares Treasury share purchases Extraordinary dividend distribution Changes in equity instruments Other changes Consolidated comprehensive income for 2015 Shareholders equity at 31 December ,324, ,986, ,031 (1,236,170) 320,220,357 (1,133,880) (251,031) 71,452,010 (4,542,517) (2,313,154) (708,732) 1,536,924 (80,726,765) 156,753, ,753,585 (708,732) 300, ,211, ,563,160 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 171

172 Cash flow statement Indirect method Amount A. OPERATING ACTIVITIES 1. Operations profit (loss) for the period/year (+/) gains/losses on heldfortrading financial assets and financial assets/liabilities measured at fair value (/+) profits/losses on hedging activities (/+) net impairment losses (+/) net impairment losses on tangible and intangible assets (+/) net allowance to provisions for risks and charges and other expenses/income (+/) taxes and tax credits still to be paid (+) net impairment losses on assets held for sale, net of tax (+/) other changes (+/) 2. Cash generated from or used by financial assets heldfortrading financial assets financial assets measured at fair value availableforsale financial assets due from banks due from financial institutions due from clients other assets 3. Cash generated from or used by financial liabilities due to banks due to financial institutions due to clients outstanding securities heldfortrading financial liabilities financial liabilities measured at fair value other liabilities Net cash generated from or used by operating activities ,568, ,942, ,721 30,000 (1,431,717) 43,246 57,357,631 (626,696) 57,984,328 57,110,320 58,500,000 4,713,024 (6,102,704) 276,036, ,247, ,753, ,597 (30,000) (3,253,982) (77,917) (49,187,758) (49,187,758) (18,531,352) (10,100,000) 5,148,105 (13,579,457) 86,528, G r u p p o A z i m u t

173 Amount B. INVESTMENT ACTIVITIES 1. Cash generated from: disposal of equity investments dividends disposal of heldtomaturity investments disposal of tangible assets disposal of intangible assets disposal of subsidiaries and business units 2. Cash used by: purchase of equity investments purchase of heldtomaturity investments purchase of tangible assets purchase of intangible assets purchase of subsidiaries and business units Net cash generated from or used by investment activities C. FINANCING ACTIVITIES issue/purchase of treasury shares change in other reserves issue/purchase of equity instruments dividends and other distributions Net cash generated from (or used by) financing activities Net cash generated (or used) for the year , ,000 (57,952,243) (77,380,771) (57,294,379) (75,977,633) (241,333) (543,706) (416,531) (859,432) (57,827,243) (77,380,771) (561,397) 828,192 6,169,791 (5,527,656) (502,510) (251,031) (238,599,662) (118,746,854) (233,493,778) (123,697,349) (15,285,012) (114,549,948) Reconciliation Opening cash and cash equivalents net cash generated/used for the period/year Closing cash and cash equivalents 205,355,273 (15,285,012) 190,070, ,905,221 (114,549,948) 205,355,273 Reference should be made to the paragraph on the net financial debt of the Management Report for a breakdown of Cash and cash equivalents. On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 173

174 174 G r u p p o A z i m u t

175 Azimut holding S.p.A. Notes to the separate financial statements 175

176 176 G r u p p o A z i m u t

177 Notes to the separate financial statements Part A Accounting policies A.1 General information The separate financial statements comply with the International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the related interpretations of the Interpretations Committee, endorsed by the European Commission and in force on 31 December 2016, implementing Italian Legislative Decree No. 38/2005 and Regulation (EC) No. 1606/2002. There were no departures from IAS/IFRS. Section 1 Statement of compliance with IAS/IFRS For information about the standards that came into force in 2016, reference should be made to Section 2 General reporting criteria which also describes the impacts, if any, on the company. The separate financial statements have been drawn up in accordance with the instructions issued by the Bank of Italy for the preparation of financial statements of IFRS financial intermediaries, other than banking intermediaries on 9 December The Instructions lay down the mandatory financial statements schedules formats and how they must be filled in and the content of the notes thereto for asset management companies. For comparative purposes, the 2015 balances, presented in accordance with the schedules and the disclosure provided in the relevant notes as required of financial companies that are parent companies of asset management groups, were reclassified accordingly. The financial statements comprise the balance sheet, the income statement, the statement of comprehensive income, the statement of changes in shareholders equity, the cash flow statement (prepared using the indirect method) and these notes. They are accompanied by the management report on the performance of the company. These notes are comprised of four parts: Part A Accounting policies Part B Notes to the balance sheet Part C Notes to the income statement Part D Other information Section 2 General reporting criteria The following annexes are included in and represent an integral part of these notes: list of equity investments held (Annex A); list of significant equity investments, pursuant to Article 125 of Consob (Italian Securities and Exchange Commission) Regulation No /99 as amended, Annex B. 177

178 Notes to the separate financial statements These financial statements are denominated in Euro. They have been prepared based on the going concern assumption. Financial, operating and other indicators 7 have been considered which, as also shown in the document issued on 6 February 2009 by the supervisory authorities Bank of Italy, Consob and ISVAP (now IVASS), may highlight problems that, if not taken into proper consideration, could compromise the Group s stability and ability to operate as a going concern. Although the economic outlook remains uncertain, a joint valuation of the past and current financial position and results of operations of the Company, its operating guidelines, the business model of investees and the risks to which the business activity is exposed 8, lead us to believe that it will continue as a going concern in the foreseeable future. The financial statements have been prepared clearly and give a true and fair view of the Company's financial position, results of operations, changes in shareholders' equity and cash flows. The financial statements have been prepared in accordance with IAS 1 Presentation of financial statements and in line with the general assumptions of the Framework for the preparation and presentation of financial statements (the framework) prepared by the IASB, specifically with respect to the fundamental principle of substance over form 9, the relevance and materiality of financial information, the accruals basis of accounting and the going concern assumption. Except for that provided for or permitted by IAS/IFRS or one of their interpretations or Bank of Italy's provisions on the financial statements of asset management companies, assets and liabilities and costs and revenue are not offset. Accounting standards, amendments and interpretations endorsed by the European Union and in force from 1 January The IAS/IFRS applied to prepare Azimut Holding S.p.A.'s separate financial statements, governing the classification, recognition, measurement and derecognition criteria of asset and liability items and the recognition of income and expense are those in force at the drafting date of these financial statements, as endorsed by the European Union. For information on the classification, recognition, measurement and derecognition criteria of the main items, reference should be made to that set out in Part A2. of the Notes to Azimut S.p.A.'s separate financial statements at 31 December In addition to that set out in Part A.2, following the completion of the endorsement procedure, the following amendments to IAS/IFRS became effective on 1 January Examples of which are shown in Audit Standard No. 570 on Going Concerns. 8 As described in the Management Report. 9 Transactions and other events have been recognised and presented in accordance with the principle of substance over form. 178 G r u p p o A z i m u t

179 Amendment Amendments to IAS 19: Defined Benefit Plans: employee Contributions Annual improvements to IFRS cycle Amendments to IAS 27: Equity method in separate financial statements Amendments to IAS 1: Disclosure initiative Annual improvements to IFRS cycle Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation Amendments to IFRS 11: Acquisition of an interest in a joint operation Applying the consolidation exception (amendments to IFRS 10, IFRS 12 and IAS 28) IASB publication date 21 November December August December September May May December 2014 Endorsement date 17 December December December December December December November September 2016 Date of coming into force 1 February February January January January January January January 2016 The adoption of the above amendments has had no impact on the consolidated companies' financial position and results of operations. Accounting standards, amendments and interpretations which will come into force. Standards IFRS 14 Regulatory deferral accounts IFRS 9 Financial instruments IFRS 16 Leases IFRS 15 Revenue from contracts with customers and amendments IASB publication date 30 January July January May 2014 and 11 September 2015 Endorsement date n.a.* 22 November September 2016 Date of coming into force n.a. * 1 January 2018** 1 January 2019** 1 January 2018** 179

180 Notes to the separate financial statements Amendment Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses IASB publication date 11 January 2016 Endorsement date Date of coming into force 1 January 2017** Amendments to IAS 7: Disclosure initiative 29 January January 2017** Amendments to IFRS 2: Classification and measurement of sharebased payment transactions 20 June January 2018** Amendments to IFRS 4: Applying IFRS 9 Financial instruments 12 September January 2018** Amendments to IAS 40: Transfers of investment property 08 December January 2018** Annual improvements to IFRS cycle 06 February January 2018** IFRIC 22 Foreign currency transactions and advance consideration 17 February January 2018** Clarifications Clarifications to IFRS 15: Revenue from contracts with customers IASB publication date 12 April 2016 Endorsement date Date of coming into force 1 January 2018** * The European Commission does not intend to start the endorsement process concerning IFRS 14 (interim standard) pending the publication of the final standard governing tariffregulated activities. ** Date identified by IASB. Confirmation of the European Union's competent bodies is pending. Section 3 Significant events after the reporting date As of 7 February 2017, as resolved by the Shareholders in their Ordinary meeting of 28 April 2016, Azimut Holding S.p.A. launched a share buyback programme in order to subsequently resell treasury shares or use them to acquire or exchange equity investments, accumulate the capital stock for the execution of stock options programmes, service the financial instruments convertible into the Company's shares or any other useful purpose which increases the value of the Company in compliance with the legislation from time to time in force. The maximum number of shares that may be repurchased as of today is 18,263,710, representing approximately 13% of share capital. Buybacks will be executed in tranches, with the first tranche amounting to 25,000,000 euro at the maximum price of 50 euro (only for the first tranche the maximum acquisition price will be equal to 30 euro). In January and February 2017, the Company made a capital injection of 3 million euro to increase the share capital of the subsidiary AZ International Holdings SA. These separate financial statements were authorised for publication by the Company's Board of Directors on 09 March G r u p p o A z i m u t

181 Risks and uncertainties related to estimates The preparation of the separate financial statements also entails the use of estimates and assumptions that may have a significant impact on the carrying amounts recognised in the balance sheet and the income statement, and on the disclosure about contingent assets and liabilities. The computation of such estimates is based on the use of available information and the adoption of subjective assessments, also based on historical experience, used to develop reasonable assumptions underlying the recognition of operations. Because of their nature, the estimates and assumptions used may change from year to year. Consequently, it cannot be excluded that the currently reported amounts may differ, also significantly, in the next few years following the change in the subjective assessments used. These estimates mainly relate to: the estimates and assumptions underlying the valuation models for the fair value recognition of financial instruments not listed on active markets (level 2 and 3 of the fair value hierarchy); the identification of loss events pursuant to IAS 39; the assumptions used to identify impairment losses, if any, on intangible assets and reported equity investments (IAS 36). Section 4 Other information A.2 Key financial statements items This section describes the accounting policies used to prepare the financial statements at 31 December 2016, specifically the classification, recognition, measurement and derecognition of assets and liabilities items, and the recognition of revenue and expense. The accounting policies have been applied consistently in the current and previous years. Classification Financial assets held by the Company are classified in this category in the context of liquidity management policies. This category also includes equity investments, which do not qualify as subsidiaries, associates or jointlycontrolled entities. 1 Availableforsale financial assets Recognition Upon initial recognition, Availableforsale financial assets are recognised at their fair value, which usually corresponds to the consideration paid for their purchase, plus any transaction costs in the event that they are tangible and definable. Measurement They are subsequently recognised at their fair value, recognising any amount arising from application of the amortised cost in the income statement, while fair value profits or losses are taken to a specific shareholders equity reserve ("Valuation reserves") until disposal or impairment. 181

182 Notes to the separate financial statements The fair value of Availableforsale financial assets is calculated based on the quoted prices in active markets or internal valuation models as described in the section on Fair value hierarchy. Impairment losses are recognised in the income statement when the purchase cost, net of any repayment of principal and amortisation, exceeds the recoverable amount. The cumulative profit or loss generated previously recognised in shareholders equity is reversed to profit or loss upon disposal or recognition of the impairment loss. When the reasons underlying the impairment loss cease to exist, the impairment loss is reversed directly against the shareholders equity reserve, in the case of equity instruments, and in profit or loss, in the case of debt instruments. Assets which do not qualify as subsidiaries, associates or jointlycontrolled entities, are not listed on active markets and for which the fair value cannot be measured reliably, are measured at cost. For the purposes of applying IAS 39.61, the Company identified the following impairment thresholds beyond which the fair value decrease of an equity instrument listed on an active market classified as AFS is deemed significant or prolonged, therefore indicating an impairment loss. With respect to impairment testing, the Company employs a specific policy that sets the limits in terms of severity and of durability, both according to the type of financial instrument. Specifically, the impairment thresholds include, in terms of severity, (i) a loss of 20% for debt instruments 10 and a loss of 30% for the other financial instruments 11. Durability is assessed based on a timescale of 18 months for debt instruments and 24 months for other financial instruments: specifically, the fair value of each financial instrument is measured to establish if it was consistently lower than the corresponding initial cost over the last 18 or 24 months. Derecognition Availableforsale financial assets are derecognised when the contractual rights to receive the relevant cash flows cease to exist or upon transfer of all risks and rewards incidental to ownership. 2 Receivables Receivables include the amounts due from banks, from financial institutions and all receivables involving fixed or determinable payments and which are not listed on an active market. Measurement and recognition They are recognised at fair value and are measured at amortised cost. The amortised cost method is not applied to shortterm receivables whose term would make the effect of the concept of discounting negligible. 10 Money market instruments, bonds, money market mutual funds and bond funds. 11 Securities, equity, balanced and flexible funds, private equity and hedge funds. 182 G r u p p o A z i m u t

183 Derecognition They are derecognised once settled. Classification This item includes investments in jointlycontrolled subsidiaries, associates or companies subject to significant influence. A subsidiary is an entity in which the investor holds, directly or indirectly through its subsidiaries, more than half the voting rights (51%). Control exists when the investor holds half, or a smaller percentage, of votes at shareholders' meetings provided that it has: a) control over more than one half of the voting rights by virtue of an agreement with other investors; b) the power to govern the financial and operating policies of the inveterate under a statute or an agreement; c) the power to appoint or remove the majority of the members of the Board of Directors or similar company body and control over the investee is held by such body; d) the power to cast the majority of votes at a meeting of the Board of Directors or similar company body and control over the investee is held by such Board or Body. A jointly controlled entity is a company subject to contractual, shareholders or other arrangements for the joint management of the business and the appointment of directors. An associate is a company in which an entity holds 20% or more of the voting power or the investor has significant influence, including due to specific legal relationships, such as the participation in shareholders' agreements. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. 3 Equity investments Measurement and recognition Equity investments are recognised at purchase cost, net of impairment losses, if any. If there is evidence that an equity investment may be impaired, its recoverable amount is estimated, considering the present value of the future cash flows that the equity investment may generate, including the final disposal amount. Should the recoverable amount be lower than the carrying amount, the related difference is taken to the income statement. Recognition of income components Dividends received from investees are recognised as revenue when the right to receive them arises, i.e., when their distribution is approved. Derecognition Equity investments are derecognised when the contractual rights to the cash flows arising therefrom expire or when they are sold substantially transferring all risks and rewards incidental to ownership. 183

184 Notes to the separate financial statements 4 Tangible assets Classification They include technical plant, furniture and fixtures, vehicles and office machinery and equipment of any kind and renovation costs for any leased properties. Measurement and recognition They are initially recognised at cost, including the additional costs directly attributable to the acquisition and startup of the asset. They are subsequently measured at cost, less depreciation and impairment losses. Depreciation is charged annually on a straightline basis over the remaining useful life. Leasehold improvements are recognised under assets since the tenant essentially has control over the assets and may receive economic benefits therefrom. Therefore, they are depreciated over a period corresponding to the remaining duration of the lease. Derecognition They are derecognised upon disposal or when the asset has been retired and future benefits are not expected from its disposal. 5 Intangible assets Classification Intangible assets include goodwill, the Azimut trademark (purchased at the end of the finance lease) and the application software for longterm use. Measurement and recognition Software is recognised at cost, net of amortisation and impairment losses. Such assets are amortised based on their estimated residual useful life. Goodwill is not amortised, but is periodically tested for impairment. Impairment tests are carried out every year (or whenever there is evidence of impairment). To this end, the cash generating unit to which goodwill is to be allocated is identified. The amount of the impairment is determined on the basis of the difference between the carrying amount of goodwill and its recoverable amount, if lower. Recoverable amount is the higher of a cash generating unit's fair value less costs of disposal and its value in use. The related adjustments are taken to the income statement. Derecognition Intangible assets are derecognised at the date of disposal and when no future economic benefits are expected. 6 Tax assets and liabilities Current taxes are calculated in accordance with ruling tax rates and legislation. When they are not paid, they are recognised under liabilities. Income taxes are recognised in the income statement, except for those related to items directly credited or debited to equity. The provision for taxes is recognised based on a prudent estimate of the current and deferred tax charge. 184 G r u p p o A z i m u t

185 The balance sheet liability method is applied to deferred taxes. Specifically, deferred tax assets and liabilities are calculated in respect of the temporary differences without time limits arising between the tax base of assets and liabilities and their carrying amounts. Deferred tax assets are recognised to the extent their recovery is probable, based on the Company's ability to generate ongoing positive taxable income. This item includes assets which are not ascribable to other assets items. Measurement and recognition Shortterm trade payables (due within 12 months) are recognised at their par value. Payables in the form of mid/longterm loans, initially recognised at the amount collected, are subsequently measured at amortised cost using the effective interest rate method. The amortised cost corresponds to the initial carrying amount, since no transaction costs are applicable and since the nominal interest rate of such liabilities is in line with market rates. Liabilities in the form of the contractual commitments relating to fees and commissions, including retention fees, to be paid to financial advisors in the medium/longterm (over 12 months), are calculated on the basis of actuarial criteria and represent the best estimate of the expense required to settle the foregoing liabilities. 7 Other assets 8 Payables Derecognition Payables are derecognised once settled. Derecognition This item includes the convertible bond issued by Azimut Holding S.p.A.. The bond is recognised as a financial liability and an equity instrument being a financial instrument composed of a debt component and an embedded derivative (on equity instruments). The equity component, being the difference between the fair value of the instrument, as a whole, and the fair value of the debt component, was recognised in shareholders equity under Equity instruments. 9 Outstanding securities Recognition Outstanding securities are recognised when issued or when a new placement takes place based on the "settlement date principle". They are initially recognised at fair value which usually corresponds with the collected amount or the issue price, adjusted to reflect any additional cost and revenue directly attributable to funding or issue transactions. Internal administrative costs are not included. The fair value of outstanding securities issued at belowthemarket conditions is subject to a specific estimate and the difference with respect to market value is taken directly to income statement. The costs borne for the bond issue are allocated proportionally to the debt component and the equity component. 185

186 Notes to the separate financial statements Measurement Subsequent to initial recognition, this debt component is measured at amortised cost, using the effective interest rate method. Derecognition Outstanding securities are derecognised after expiry or settlement. They are derecognised also when previously issued securities are repurchased. The difference between the carrying amount of the security and the amount paid to repurchase it is taken to the income statement. A new placement of own securities subsequent to their repurchase is considered a new issue with the recognition of the new placement price, with no impact on the income statement. Recognition of income components Interest expense is recognised under Interest expense and similar charges in the income statement, using the effective interest rate method. 10 Other liabilities Classification This item includes liabilities that are not ascribable to other liability items. Recognition Shortterm liabilities (due within 12 months) and trade payables are recognised at their par value. Derecognition Other liabilities are derecognised once settled. 11 Staff severance pay (TFR) In accordance with the legislation governing TFR introduced by Legislative decree dated 5 December 2005, the staff severance pay (TFR), recognised under liability item 100 to the extent of the portion accrued until 31 December 2006, qualifies as a defined benefit plan and is therefore subject to actuarial measurement, using the Projected Unit Credit Method (PUCM) which projects future cash flows based on historical analyses, statistics and probabilistic analyses and applying adequate demographic techniques. Cash flows are discounted using the market interest rate. Actuarial calculations are performed by independent actuaries. The costs arising from the plan are reported under personnel costs, item 110 Administrative costs; a) personnel costs, net of the contributions paid, those pertaining to prior years not yet recognised, interest accrued and expected revenue arising from plan assets. In accordance with IAS 19, actuarial gains and losses are recognised in a fair value reserve. 186 G r u p p o A z i m u t

187 Recognition Accruals to provisions for risks and charges are recognised if, and only if: there is a present obligation (legal or constructive) as a result of past transactions or events; it is probable that an outflow of resources will be required to generate economic benefits; a reliable estimate can be made of the amount of the obligation. 12 Provisions for risks and charges Measurement The amount accrued is the best estimate of the expense required to settle the obligation at the reporting date and reflects the risks and uncertainties that inevitably characterise many facts and circumstances. The amount accrued is equal to the present value of the expense required to settle the obligation where the effect of the present value is a significant aspect. The future facts which may affect the expense required to settle the obligation are considered only when there is objective evidence that they will take place. Derecognition Accruals are derecognised when the use of resources that generate economic benefits to settle the obligation becomes improbable. They are recognised on an accrual basis and in accordance with the matching principle. Costs are recognised when incurred. Those directly related to financial instruments measured at amortised cost and which can be determined since the beginning, regardless of the moment they are paid, are taken to the income statement using the effective interest rate. Income is recognised when received, when it is probable it will be received and when it can be reliably calculated. Fees, commissions and other income from services offered to clients are included in the income statement at the time the services are provided. Financial income and charges are recognised on an accruals basis. 13 Costs and income They are recognised as a decrease in equity. The gains or losses arising from the purchase, sale, issue or elimination of treasury shares are not recognised in the income statement, but in equity. 14 Treasury shares The profitparticipating financial instruments issued by Azimut Holding S.p.A. as per the Shareholders' resolution of 29 April 2010 and subsequent resolutions of the Company's Board of Directors are recognised under Equity instruments at the subscription amount, equal to their fair value, increasing shareholders equity. Indeed, under the Bylaws, they have an indefinite life, are issued with no obligation 15 Profitparticipating financial instruments 187

188 Notes to the separate financial statements for the Company to repay the amount paid by investors, participate in the allocation of the Company's residual assets in case of liquidation, in subordination to the Company's creditors and shareholders. These instruments are not transferable, except to the Company (at their fair value and subject to specific conditions). In this case, the relevant equity rights are suspended. Furthermore, these instruments entitle their holders to receive a part of the Company's profit as per the Bylaws subject to, inter alia, the Shareholders' approval of dividend distribution. A.3 Disclosure about transfers between portfolios The Company did not transfer any financial assets between portfolios during the year. A.4 Fair value disclosure Hierarchy of fair value Qualitative information In accordance with the provisions of IFRS 7 and IFRS 13, the Company classifies fair value measurement of financial assets and financial liabilities based on a hierarchy that conveys the nature of inputs used. The levels are as follows: Level 1: unadjusted quoted prices in active markets for assets and liabilities identical to those subject to valuation; Level 2: inputs other than unadjusted quoted prices that are directly (as in the case of prices) or indirectly (deriving from prices) observable market data; Level 3: inputs based on unobservable market data. Specifically, the fair value of a financial instrument measured at Level 1 corresponds to the unadjusted price, at which the instrument or an identical instrument is sold on an active market on the measurement date. For classification at Level 1, prices are measured together with all other characteristics of the financial asset or financial liability: if the quoted price is adjusted in order to take account of specific conditions that require adjustment, the financial instrument is classified under a level other than Level 1. Analyses for classification at other levels within the fair value hierarchy are performed analytically for each individual financial asset or liability held/issued; these analyses and measurement criteria are applied consistently over time. With respect to the financial instruments held as part of liquidity management policies and financial liabilities issued, according to the Company, the openended investment funds, whose fair value is designated as Level 1 if represented by the Net Asset Value (NAV) provided by the fund manager at the measurement date, are classified as Level 1. Conversely, with respect to listed funds and Exchange Trade Funds (ETF), Level 1 fair value is equal to the closing price of the relevant stock market. 188 G r u p p o A z i m u t

189 Quantitative information A.4.5 Fair value hierarchy A Assets and liabilities measured at fair value on a recurring basis: breakdown by fair value levels Financial assets/liabilities measured at fair value 1. Heldfortrading financial assets Level 1 Level 2 Level 3 2. Financial assets measured at fair value 3. Availableforsale financial assets 174,788, ,788, Hedging derivatives 5. Tangible assets 6. Intangible assets 174,788, ,788, Heldfortrading financial liabilities 2. Financial liabilities measured at fair value 3. Hedging derivatives A Annual change in financial assets measured at Level 3 fair value on a recurring basis At the reporting date, the Company does not hold financial assets measured at level 3fair value on a recurring basis. A.5 Disclosure about the Day one profit/loss The Company did not carry out transactions which entailed recognition of the socalled day one profit/loss. 189

190 Notes to the separate financial statements Part B notes to the balance sheet Assets Section 1 Cash and cash equivalents Item 10 Section 4 Availableforsale financial assets Item 40 Cash and cash equivalents amount to 6,488 euro (3,095 euro at 31 December 2015) and refer to cash on hand in euro and foreign currency. This item amounts to 174,788,566 euro, up by 6,116,389 euro on the previous year end (168,672,177 euro at 31 December 2015). 4.1 Breakdown of item 40 Availableforsale financial assets Items/Value 1. Debt securities of which: government securities 2. Equity securities and UCITS units 3. Other assets Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 174,788, ,788,566 31/12/ /12/ ,672, ,672,177 UCI units Level 1 refers to the units in investment funds managed by the Azimut Group as part of the Company s liquidity management policies. 4.2 Availableforsale financial assets: breakdown by debtor/issuer Items/Value 1. Financial assets a) Governments and central banks b) Other public bodies c) Banks d) Financial institutions e) Other issuers 31/12/ ,788, ,788,566 31/12/ ,672, ,672,177 As regards the nature and form of risks arising from the above financial assets, reference should be made to section 2 Part D Other information Information on risk management and hedging policies. 190 G r u p p o A z i m u t

191 6.1 Breakdown of item 60 Receivables This item amounts to 15,901,903 euro, down by 20,778,097 euro on the previous year end (36,680,000 euro at 31 December 2015). The residual interim dividends to be collected at 31 December 2016 amount to 6,860,748 euro and are included under Other assets. Due from banks may be analysed as follows: Section 6 Receivables Item 60 Breakdown/Value Carrying amount 1. Receivables for portfolio management services: 1.1. UCI management 1.2 individual portfolio management 1.3 pension fund management 2. Receivables for other services: 2.1 advisory 2.2 outsourced corporate functions 2.3 other 3. Other receivables: 15,901, repurchase agreements of which: government securities of which: other debt securities of which: other equity securities and units 3.2 deposits and current accounts 15,901, other 4. Debt securities 15,901,903 31/12/ /12/2015 Fair value Fair value L1 15,901,903 15,901,903 15,901,903 L2 L3 Carrying amount 36,680,000 36,680,000 36,680,000 L1 36,680,000 36,680,000 36,680,000 L2 L3 L1 = Level 1 L2 = Level 2 L3 = Level 3 This item is composed of cash deposited in bank current accounts which bear interest at market rates. 191

192 Notes to the separate financial statements 6.2 Receivables: breakdown by counterparty Breakdown/Counterparty Banks Financial institutions Clients of which: Group of which: Group of which: Group 1. Receivables for portfolio management services: 1.1. UCI management 1.2 individual portfolio management 1.3 pension fund management 2. Receivables for other services: 2.1 advisory 2.2 outsourced corporate functions 2.3 other 3. Other receivables 15,552, repurchase agreements of which: government securities of which: other debt securities of which: other equity securities and units 3.2 deposits and current accounts 15,552, other 31/12/ ,552,575 31/12/ ,627, , , ,328 52, , , ,328 52,343 Section 9 Equity investments Item 90 This item amounts to 552,673,445 euro (495,504,066 euro at 31 December 2015), up by 57,169,379 euro on the previous year end. 9.1 Equity investments: information The details of the Company s equity investments are provided in annex A of these notes, and refer to the financial statements of the wholly owned subsidiaries at 31 December In accordance with IAS 36 governing impairment tests, the carrying amount of the company's equity investments was tested for impairment in order to identify any impairment indicators, if any. Reference should be made to section 11.1, paragraph "Impairment test" for information on the methodology applied. 192 G r u p p o A z i m u t

193 9.2 Annual change in equity investments A. Opening balance B. Increases B.1 Purchases B.2 Writeups B.3 Revaluations B.4 Other changes C. Decreases C.1 Sales C.2 Writedowns C.3 Other changes D. Closing balance Group equity investments 495,504,066 57,294,379 57,294, , , ,673,445 Nongroup equity investments 495,504,066 57,294,379 57,294, , , ,673,445 Increases is comprised of: other changes refer to capital injections to increase the share capital of AZ International Holdings SA, with registered office in Luxembourg (53,600,000 euro) and Azimut Enterprise Holding S.r.l. (3,694,379 euro) made during the year. Decreases is comprised of: other changes refer to the liquidation of Az Capital Management Ltd, based in Ireland. 193

194 Notes to the separate financial statements Section 10 Tangible assets Item Breakdown of item 100 Tangible assets business purposes: breakdown of assets at cost This item amounts to 813,912 euro, down by 104,462 euro on 918,374 euro at 31 December The breakdown is as follows: Assets/Value 1. Companyowned a) land b) buildings c) furniture & fixtures d) electronic systems e) other 2. Under finance lease a) land b) buildings c) furniture & fixtures d) electronic systems e) other 31/12/ ,912 25, , ,912 31/12/ ,374 39, , ,374 Other includes electronic office equipment (personal computers, printers and monitors) and the telephone system. 194 G r u p p o A z i m u t

195 10.5 Tangible assets business purposes: "annual change" Land Buildings Furniture & fixtures Electronic systems Other A. Opening balance A.1 net impairment losses A.2 Opening net balances B. Increases B.1 Purchases B.2 Leasehold improvements B.3 Writeups B.4 Increases in fair value taken to: a) shareholders equity b) profit or loss B.5 Exchange rate gains B.6 Transfers from investment property B.7 Other changes C. Decreases C.1 Sales C.2 Amortisation C.3 Impairment losses charged to: a) shareholders equity b) profit or loss C.4 Decreases in fair value charged to: a) shareholders equity b) profit or loss C.5 Exchange rate losses C.6 Transfers to: a) assets held for investment purposes b) assets held for sale C.7 Other changes D. Net closing balance D. 1 net impairment losses D. 2 Gross closing balance E. Measurement at cost 172,542 (132,550 ) 39,992 1,702 1,702 16,049 16,049 25,645 (148,599) 174,244 25,645 1,715,574 1,888,116 (837,191) (969,741) 878, , , , , , , , , , , ,912 (1,166,937) (1,315,536) 1,955,204 2,129, , ,

196 Notes to the separate financial statements Depreciation is calculated based on the following rates: Company Electronic office equipment Furniture & fixtures Telephone system Other assets % Rate 20% 12% 25% 25% Section 11 Intangible assets Item 110 This item amounts to 186,082,360 euro, down by 221,395 euro on the previous year end (186,303,755 euro at 31 December 2015). Outstanding securities are broken down as follows: 11.1 Breakdown of item 110 Intangible assets: 1. Goodwill 2. Other intangible assets 2.1 generated internally 2.2 other Assets at cost 149,829,431 36,252,929 36,252, ,082,360 31/12/2016 Assets at fair value or revalued Assets at cost 149,829,431 36,474,323 36,474, ,303,755 31/12/2015 Assets at fair value or revalued Goodwill of an original amount of million euro, of which 26.4 million amortised prior to the adoption of the IFRS, and corresponding to the portion of goodwill arising from merger that had not been allocated as an increase in the carrying amount of equity investments relates to the goodwill paid by Azimut Holding S.p.A. (formerly Tumiza S.p.A.) to purchase the Group in 2002 by acquiring the entire share capital of Azimut Holding S.p.A., incorporated in December of the same year. Other intangible assets other refers to the cost of software (914,705 euro) and the Azimut trademark. Impairment test With respect to "goodwill" and "trademarks" (recognised as an intangible asset with an indefinite useful life), IAS 36 Impairment of assets, stipulates that the Company must perform annual impairment tests to check the adequacy of the amounts recognised. The aim of the impairment test is to identify any impairment loss: should the test identify the nonrecoverability of accounting balances, the Company shall recognise an impairment loss on the asset. 196 G r u p p o A z i m u t

197 For the purposes of impairment testing at grouplevel, two cash generating units (CGUs) have been identified that basically reflect the Azimut Group s business and to which the above intangible assets (goodwill and trademarks) have been allocated. The first CGU, to which the Company's goodwill and trademarks were allocated, reflects the activity carried out by the companies directly controlled by Azimut Holding S.p.A., each specialising in the distribution, promotion and management of financial and insurance products (basically unitlinked products) and operating as a single structure, dedicated in its entirety to asset management and the sale of investment instruments, in which the contributions made by the individual companies appear to be indistinguishable and operating results are revised periodically by management for the purpose of decisions regarding allocation of resources and measurement of results and company performance. The second CGU refers to the activity carried out by the foreign companies belonging to the Luxembourg company AZ International Holdings SA, wholly owned by Azimut Holding S.p.A., aimed at identifying, acquiring and managing new foreign partnerships. The impairment test of the Azimut CGU, to which goodwill and the trademark were allocated, had a positive outcome. For the purposes of the impairment test, management calculated the value in use of the Azimut CGU using the Discounted Cash Flow method and comparing value in use with the carrying amount of the CGU, inclusive of the above intangible assets (trademark and goodwill). Value in use calculated using the Discounted Cash Flow method is as follows: 1 Calculation of unlevered cash flows. For the purposes of this calculation, the expected cash flow was approximated to the net profit for the year. To calculate Cash Flow an approximate estimate is made based on net profit for the year, gross of amortisation/depreciation and financial income/charges. Profits for the first five years were based on the to 2021 Extended Business Plan. It was calculated using the following assumptions: Average inflows Weighted average performance Increase in overheads Flow increases after billion euro per year of 2% p.a. It is in line with forecast growth of personnel and structure. Steady at 2%. 197

198 Notes to the separate financial statements 2 Calculation of the weighted average cost of capital ( WACC ), equal to 7.29%, based on the following parameters: Risk Free: Azimut Beta Market risk premium Azimut's financial structure. 10year Italian government bonds, December 2016; calculated on a 5year timescale with daily readings (source: Bloomberg) extra yield required for investments in shares rather than riskfree securities (Source: Credit Suisse Global Equity Strategy 31 December 2016); N/A Cost of capital calculation: WACC Riskfree rate Market risk premium Beta Unlevered Risk premium Cost of equity (Ke) D / (D+E) E / (D+E) WACC 31/12/ % 5.60% 1.075% 5.60% 7.29% 0% 100% 7.29% Discounting cash flows over the fiveyear timescale and cash flows calculated for terminal value purposes at the WACC to estimate the Enterprise Value of the CGU and calculating the value in use of the CGU, adjusted to reflect the net financial position at 31 December Based on the above, management calculated Azimut CGU's value in use at 5,120 million euro. This amount is considerably greater than the CGU carrying amount of 665 million, as no impairment losses were recognised. Furthermore, the CGU's value in use was subjected to a sensitivity analysis, which considered WACC changes and the longterm growth rate (grate). The table below shows the results of the sensitivity analysis (with the X axis including WACC and the terminal growth rate on the y axis) which did not identify any impairment loss. 198 G r u p p o A z i m u t

199 Sensitivity Analysis Difference between value in use and the CGU carryng amount 5.29% 5.79% 6.29% 6.79% 7.29% 7.79% 8.29% 8.79% 0.00% 4,379 4,050 3,774 3,538 3,335 3,158 3,002 2, % 4,797 4,398 4,067 3,790 3,553 3,349 3,170 3, % 5,312 4,818 4,417 4,085 3,806 3,568 3,362 3, % 5,963 5,335 4,839 4,436 4,102 3,822 3,583 3, % 6,812 5,990 5,359 4,860 4,455 4,120 3,838 3, % 7,965 6,843 6,016 5,382 4,881 4,474 4,137 3, % 9,620 8,001 6,873 6,043 5,406 4,902 4,493 4, % 12,198 9,664 8,037 6,904 6,069 5,429 4,923 4,512 Difference between value in use and CGU carryng amount cash flows decrease 2.5% 4, % 4, % 4, % 4, % 3, % 3, % 3, Intangible assets: "annual change" A. Opening balance B. Increases B.1 Purchases B.2 Writeups B.3 Increases in fair value taken to: shareholders equity income statement B.4 Other changes C. Decreases C.1 Sales C.2 Amortisation C.3 Writedowns charged to: shareholders equity income statement C.4 Decreases in fair value charged to: shareholders equity income statement C.5 Other changes D. Closing balance 186,303, , , , , ,082,

200 Notes to the separate financial statements The above purchases refer exclusively to software packages, which are amortised using the following rates: Company Software packages % rate 33% Section 12 Tax assets and tax liabilities Item 120 Item 70 Tax assets This item amounts to 29,336,885 euro, up by 6,482,091 euro on the previous year end (22,854,794 euro at 31 December 2015) Breakdown of item 120 Tax assets: current and deferred Current Deferred of which pursuant to Italian Law 214/ /12/ ,980 28,555,905 29,336,885 31/12/2015 7,782,934 15,071,860 22,854,794 Current tax assets mainly refers to nonoffset IRES and IRAP tax credits for the year Deferred tax assets mainly include: 6,736,474 euro of deferred tax assets arising from the value of the lease instalments deductible in future years by virtue of the sale and leaseback agreement for the Azimut trademark; 18,778,248 euro of deferred taxes related to tax losses; 1,693,463 thousand euro of deferred tax assets relating to the adjustment of the carrying amount and tax value (IRAP) of the trademark and goodwill pursuant to Article 1, paragraph 51 of Italian Law 244/2007 (2008 Finance act) and offset against future tax liabilities arising from amortisation and other negative items deducted off the balance sheet (as indicated in EC section of the Modello Unico tax return) up until the tax year underway at 31 December 2007; to a lesser extent, the temporary differences resulting from the different timing criteria of IRES tax deductibility for some cost items compared to that recognised in the income statement. Tax liabilities This item amounts to 53,921,113 euro, up by 1,758,475 euro on the previous year end (52,162,638 euro at 31 December 2015). 200 G r u p p o A z i m u t

201 12.2 Breakdown of item 70 Tax liabilities: current and deferred Breakdown Current Deferred 31/12/ ,921,113 53,921,113 31/12/ ,442 51,802,196 52,162,638 Deferred tax liabilities mainly include deferred tax liabilities relating to the difference between the carrying amount and tax value of the trademark amounting to 11,686,351 euro and the deferred tax liabilities recognised on the temporary difference between the carrying amount and tax value of goodwill of 40,847,109 euro. These tax liabilities, recognised in accordance with IAS 12, are not reasonably expected to become actual costs given that the aforementioned temporary differences will be reduced following a negative impairment test result that leads to the recognition of an impairment loss on goodwill and the trademark and in the case of disposal Changes in deferred tax assets (contra entry in income statement) 1. Opening balance 2. Increases 2.1 Deferred tax assets recognised in the year from previous years due to changes in accounting policies writeups other 2.2 New taxes or increased tax rates 2.3 Other increases 3. Decreases 3.1 Deferred tax assets eliminated during the year a) reversals b) writeoff of irrecoverable tax c) due to changes in accounting policies d) other 3.2 Decreases in tax rates 3.3 Other decreases 4. Closing balance 31/12/ ,801,827 14,469,968 7,655,268 6,814,700 (1,014,118) (1,014,118) (1,014,118) 27,257,677 31/12/ ,952,346 1,803,621 1,803,621 (3,954,140) (3,954,140) (3,954,140) 13,801,

202 Notes to the separate financial statements 12.4 Changes in deferred tax liabilities (contra entry in income statement) 1. Opening balance 2. Increases 2.1 Deferred tax liabilities recognised in the year a) from previous years b) due to changes in accounting policies c) other 2.2 New taxes or increased tax rates 2.3 Other increases 3. Decreases 3.1 Deferred tax liabilities eliminated during the year a) reversals b) due to changes in accounting policies c) other 3.2 Decreases in tax rates 3.3 Other decreases 4. Closing balance 31/12/ ,432,348 1,945,569 1,945,569 1,945,569 (725,759) (725,759) (725,759) 52,652,158 31/12/ ,617,731 3,841, ,841,617 (27,000) (27,000) (27,000) 51,432, G r u p p o A z i m u t

203 12.5 Changes in deferred tax assets (contra entry in shareholders equity) 1. Opening balance 2. Increases 2.1 Deferred tax assets recognised in the year a) from previous years b) due to changes in accounting policies c) other 2.2 New taxes or increased tax rates 2.3 Other increases 3. Decreases 3.1 Deferred tax assets eliminated during the year a) reversals b) writeoff of irrecoverable tax c) due to changes in accounting policies d) other 3.2 Decreases in tax rates 3.3 Other decreases 4. Closing balance 31/12/2016 1,270,031 28,197 28,197 28,197 1,298,228 31/12/ ,206 1,231,825 1,231,825 1,231,825 1,270,

204 Notes to the separate financial statements 12.6 Changes in deferred tax liabilities (contra entry in shareholders equity) 1. Opening balance 2. Increases 2.1 Deferred tax assets recognised in the year from previous years due to changes in accounting policies 2.2 New taxes or increased tax rates 2.3 Other increases Other 3. Decreases 3.1 Deferred tax assets eliminated during the year a) reversals b) due to changes in accounting policies c) other 3.2 Decreases in tax rates 3.3 Other decreases 4. Closing balance 31/12/ , , , ,107 1,268,955 31/12/ ,306 53,650 53,650 53,650 (542,108) (542,108) (542,108) 369,848 Section 14 Other assets Item 140 This item amounts to 16,419,522 euro, down by 64,254,511 euro on the previous year end (80,674,033 euro at 31 December 2015) Breakdown of item 140 Other assets Breakdown Due from Inland Revenue Other receivables Prepayments 31/12/2016 5,146,668 10,931, ,506 16,419,522 31/12/2015 4,731,789 75,919,141 23,103 80,674,033 Due from Inland Revenue refers exclusively to VAT credits. Due from group companies mainly includes: the 2 million euro receivable from the subsidiary Azimut Capital Management SGR S.p.A. in the form of royalties on the Azimut trademark due for 2016; the receivables from the subsidiaries Azimut Capital Management SGR S.p.A. and Azimut Partecipazioni S.r.l. for direct taxes (IRES) arising from the 2016 positive taxable income, transferred to the parent company following adoption of the tax consolidation regime; the 6,860,748 receivable related to the dividend approved and not yet collected by AZ Management Fund SA. 204 G r u p p o A z i m u t

205 Liabilities This item amounts to 88,656,657 euro, up by 58,560,823 euro on the previous year end (30,095,834 euro at 31 December 2015). The item is as follows: 1.1 The breakdown is as follows: Section 1 Payables Item 10 Breakdown/Value 31/12/ /12/ Due to sales network: 1.1 for UCITS sales 1.2 for individual portfolio sales 1.3 for pension fund sales 2. Payables for asset management services: 2.1 for proprietary portfolio management 2.2 for discretionary portfolio management 2.3 for other 3. Payables for other services: 3.1 advisory 3.2 outsourced corporate functions 3.3 other 4. Other payables 4.1 repurchase agreements of which: government securities of which for other debt securities of which for other equity securities and units 4.2 other Fair valuelevel 1 Fair valuelevel 2 Fair valuelevel 3 fair value 88,656,657 88,656,657 88,656,657 88,656,657 30,095,834 30,095,834 30,095,834 30,095,834 At the reporting date, this item includes the residual portion of the loan granted by Banco Popolare (now Banco Bpm S.p.A.) on 22 April 2008 for an initial amount of 200 million euro, divided into two lines, A and B, each originally amounting to 100 million euro. The credit lines are repayable in instalments and expire on 30 June 2013 and 30 June 2018 respectively, with the interest rate calculated based on the Euribor plus 115 basis points for Line A and 125 basis points for Line B. The loan is not subject to covenants, condition precedent or subsequent. The yearend 205

206 Notes to the separate financial statements balance includes the residual principal (20,000,000 euro) and the interest accrued on this loan at the reporting date. The change in loans on 31 December 2015 is due to the combined effect of the following transactions (i) the repayment of the instalment of the loan granted by Banco Popolare (now Banco Bpm S.p.A.) (Line B) (10,000,000 euro), (ii) the loan granted by Azimut Partecipazioni S.r.l. (68,500,000) on 18 November The 24month loan expires on 16 November 2018 and the interest rate is calculated based on the Euribor plus 150 basis points. 1.2 "Payables": breakdown by counterparty Breakdown/Counterparty Banks Financial institutions Clients of which Group of which Group of which Group 1. Payable to sales network: 1.1 for UCITS sales 1.2 for individual portfolio management sales 1.3 for pension fund sales 2. Payables for asset management services: 2.1 for proprietary portfolio management 2.2 for discretionary portfolio management 2.3 for other 3. Payables for other services: 3.1 advisory services received 3.2 outsourced corporate functions 3.3 other 4. Other payables 4.1 repurchase agreements of which: government securities of which for other debt securities of which for other equity securities and units 4.2 other 20,051,110 68,605, ,051,110 68,605, ,095, G r u p p o A z i m u t

207 2.1 Breakdown of item 20 Outstanding securities Section 2 Outstanding securities Item 20 Items/Value 31/12/ /12/2015 Carrying amount Fair value Carrying amount Fair value 1. Securities Level 1 Level L2 Level L3 Level 1 Level L2 Level L3 bonds 226,522, ,237, ,826, ,431,875 other securities 226,522, ,237, ,826, ,431,875 This item is solely comprised of the bond Azimut Convertibile 2.125% amounting to 226,522,394 euro originally composed of 2,500 bonds worth 100,000 euro with a duration of seven years. The amount refers to total bonds sold and includes the charges incurred by the Company for the issue and placement, in addition to interest expense accrued at 31 December 2016 which will be paid on the preestablished date. Convertible bonds bear gross annual interest of 2.125% and can be converted into Azimut Holding S.p.A. ordinary shares (newly issued and/or existing) from the fourth year and fortyfifth day after the issue to 20 days prior to the maturity date. The conversion price is set at euro. In accordance with IAS 32 and based on that set out in the Part A Section A.2 on the accounting policies applied to individual financial statements items, the total debt component of this financial instrument is 215,050,500 thousand euro, as calculated on 25 November 2013 (issue date), whereas the equity component, amounts to a residual 34,949,500 thousand euro. 2.2 Subordinated securities This category comprises the bond described earlier. Tax liabilities are described in detail in section 12 of these notes to which reference should be made. Section 7 Tax liabilities Item 70 This item amounts to 6,758,760 euro, down by 9,294,376 euro on 16,053,136 euro at 31 December Section 9 Other liabilities Item

208 Notes to the separate financial statements 9.1 Breakdown of item 90 Other liabilities Due to suppliers Due to company bodies Due to Inland Revenue Due to social security bodies Due to employees Other payables 31/12/2016 2,067, , , ,851 1,629,290 2,150,758 6,758,760 31/12/2015 1,828, , , , ,668 12,595,179 16,053,136 Other payables include the amounts due to the subsidiary Azimut Financial Insurance S.p.A. against the direct taxes (IRES) transferred to the Company in accordance with the Tax Consolidation Regime. Section 10 Staff severance pay (TFR) Item 100 This item amounts to 1,121,967 euro, up by 213,388 euro on the previous year end (908,579 euro at 31 December 2015) Staff severance pay (TFR): "annual change" A. Opening balance B. Increases B1. Provisions for the year B2. Other increases: C. Decreases C1. Payments made C2. Other decreases D. Closing balance 31/12/ , , ,632 87,836 6,080 6,080 1,121,967 31/12/ , , ,968 40, ,579 "Other increases" include the actuarial loss of the year with a direct balancing entry in the specific shareholders equity reserve, net of the related tax effect and the substitute tax "Other information In accordance with that set out in the Part A Section A.2 on the accounting policies applied to individual financial statements items, staff severance pay was calculated pursuant to IAS 19, based on the following specific technical, demographic and financial assumptions: 208 G r u p p o A z i m u t

209 Demographic assumptions In order to eliminate the probabilities of removal of personnel in service due to death, the SIM/F 2000 table was used (ISTAT Italian National Institute of Statistics mortality table by gender), prudentially reduced by 20%. Decreases due to disability were calculated using the relevant INPS (the Italian social security institution) tables, reduced by 20%. Pension, which is considered the main reason for outgoing employees, was subject to a timescale equal to meeting the minimum requirement (contribution period or seniority), calculated in accordance with ruling legislation. The following parameters were used for other technical, nonfinancial factors: Turnover: 1.5% unchanged; Advance: 2% unchanged; Amount paid in advance: 70%. Finally, assessment of the allocation of TFR to private pension funds was carried out based on the behaviour observed on assessment (lack or partial adherence to private pension funds), without making any assumption on the future decisions of the personnel different from the current ones. Financial assumptions IAS 19 requires utilisation of financial technical factors. These assumptions reflect their influence on the prospective trend of flows (following remuneration increases and forecast inflation scenarios) and discounting of the Company's estimated liability at the measurement date. Indeed, the discount rate is the main financial assumption on which the analysis results depend. Inflation: a constant rate of 2.00% was used with respect to the future inflation scenario to be used for remuneration and TFR revaluation. Interest rates: the future liability to employees was discounted using the yield curve of debt securities in accordance with IAS Breakdown of item 110 Provisions for liabilities and charges This item amounts to 30,000 thousand euro at 31 December 2016 (nil balance at 31 December 2015). Section 11 Provisions for risks and charges Item Item 110 Provisions for risks and charges : annual change The increase on 31 December 2015 is due to the provision for legal disputes accrued during the year equal to the present value of the charge that is expected to be necessary to settle the obligations. 209

210 Notes to the separate financial statements Other provisions Opening balance Accruals Utilisation Other 31/12/ ,000 30,000 Section 12 Shareholders Equity Items 120, 130, 140, 150, 160 and 170 The breakdown of shareholders equity is as follows: 12.1 Breakdown of item 120 Share capital Types of shares 1. Share capital 1.1 Ordinary shares 1.2 Other shares 32,324,092 32,324,092 At 31 December 2016, the fully paid up and subscribed share capital was composed of 143,254,497 ordinary shares, with a total value of 32,324,092 euro Breakdown of item 130 Treasury Shares Types of shares 1. Treasury shares 1.1 Ordinary shares 1.2 Other shares 81,288,161 81,288,161 At 31 December 2016, Azimut Holding S.p.A. held 10,387,189 treasury shares at an average carrying amount of euro per share Breakdown of item 140 Equity instruments This item amounts to 70,949,500 euro. In accordance with IAS 32 and based on that set out in the Part A Section A.2 on the accounting policies applied to individual financial statements items, this item includes: at the issue amount, as per the Shareholders' resolution of 29 April 2010, of 1,500,000 profitparticipating financial instruments recognised in the previous year for a total of 36,000,000 euro (equal to their fair value calculated by an independent leading company); the equity component of the convertible bond issued on 25 November 2013 of 34,949,500 euro, calculated on a residual basis as the difference between the fair value of the bond, as a whole, and the fair value of the debt component. The costs borne by the Company for the bond issue are allocated proportionally to the debt component and the equity component. 210 G r u p p o A z i m u t

211 12.4 Breakdown of item 150 Share premium reserve The share premium reserve amounts to 173,986,915 thousand euro at 31 December 2016 (173,986,915 euro at 31 December 2016) Other information Breakdown of Item 160 Reserves A. Opening balance Legal reserve 6,464,818 Other reserves 312,621, ,086,476 B. Increases 54,884,378 54,884,378 B.1 Profit appropriations 51,021,231 51,021,231 B.2 Other changes 3,863,147 3,863,147 C. Decreases (132,867,308) (132,867,308) C.1 Allocations (132,867,308) (132,867,308) loss account reserve dividends (132,867,308) (132,867,308) transfers to share capital C.2 Other changes D. Closing balance 234,638, ,103,546 The following gives a breakdown of shareholders equity, showing the origin and level of availability and distributability of the items, in accordance with Article 2427 paragraph 7 bis of the Italian Civil Code. 211

212 Notes to the separate financial statements Breakdown of shareholders' equity (art No. 7 Bis) Type/Description Summary of uses over past three years Possible use Available amount Loss account reserve Other Share capital 32,324,092 Share capital reserve Treasury share reserve (81,288,162) Shares or quotas of parent company Share premium reserve 173,986,915 A,B,C 173,986,915 Other reserves (1,133,880) Equity instruments 70,949,500 Incomerelated reserve: Legal reserve 6,464,818 B 6,464,818 Unallocated earnings 235,772,608 A,B,C 235,772, ,075, ,224,341 A: share capital increase B: to cover losses C: dividends Breakdown of item 170 Valuation reserves Availableforsale financial assets Severance pay (TFR) A. Opening balance (2,250,375) (62,779) (2,313,154) B. Increases 3,285,715 4,365 3,290,080 B.1 Increases in fair value 3,269,481 3,269,481 B.2 Other changes 16,234 4,365 20,600 C. Decreases 964,910 18, ,435 C.1 Decreases in fair value 62,828 62,828 C.2 Other changes 902,082 18, ,607 D. Closing balance 70,430 (76,939) (6,509) Part C Notes to the income statement Fees and commissions amount to 2,000,000 euro (unchanged from last year) and include royalties on the "Azimut" trademark for the year, charged to the subsidiary Azimut Capital Management SGR S.p.A G r u p p o A z i m u t

213 Section 1 Fee and commission income and expenses Items10 and 20 Services 31/12/ /12/2015 Fee and comm. income Fee and comm. expense Fee and comm. net Fee and comm. income Fee and comm. expense Fee and comm. net A. ASSET MANAGEMENT 1. Proprietary portfolio management 1.1 Mutual funds Management fees Incentive fees Entry / redemption fees Switch fees Other fees mutual fund fees 1.2 Individual portfolio management Management fees Incentive fees Entry / redemption fees Other fees individual portfolio management fees 1.3 Openended pension funds Management fees Incentive fees Entry / redemption fees Other fees open pension fund fees 2. Discretionary portfolio management Management fees Incentive fees Other fees discretionary portfolio management fees asset management fees (a) B. Other services Consulting Royalties 2,000,000 2,000,000 2,000,000 2,000,000 fees for other services (b) 2,000,000 2,000,000 2,000,000 2,000,000 fees (a+b) 2,000,000 2,000,000 2,000,000 2,000,

214 Notes to the separate financial statements Section 2 Dividends and similar income Item 30 This item amounts to 187,869,443 euro, up by 17,888,275 euro on the previous year end (169,981,168 euro at 31 December 2015). 2.1 Breakdown of item 30 Dividends and similar income Items/Income 1. Financial assets held for trading 2. Availableforsale financial assets 3. Financial assets measured at fair value 4. Equity investments Dividends 187,614, ,614,211 31/12/2016 Income from UCI units 255, ,232 Dividends 169,978, ,978,612 31/12/2015 Income from UCI units 2,555 2,555 Dividends from equity investments" may be analysed as follows: Company Azimut Consulenza SIM S.p.A. Azimut Capital Management SGR S.p.A. AZ Fund Management SA AZ Life Dac Augustum Opus SIM S.p.A ,780,000 25,500, ,452,461 3,900, , ,614, ,959, ,022, , ,978,611 The amount related to the subsidiary AZ Fund Management SA also includes the interim dividend whose distribution was approved during the year. Section 3 Interest Items 40 and 50 Interest income This item amounts to 190,430 euro (543,980 euro in 2015), down on the previous year. It includes gross interest income on current accounts. 214 G r u p p o A z i m u t

215 3.1 Breakdown of item 40 Interest income and similar income Items/Technical forms Debt securities Repurchase agreements Deposits and current accounts Other 31/12/ /12/ Heldfortrading financial assets 2. Financial assets measured at fair value 3. Availableforsale financial assets 4. Financial assets held to maturity 5. Receivables 190, , , Other assets 7. Hedging derivatives 190, , ,980 Interest expense This item amounts to 11,162,874 euro (11,018,342 euro in 2015), up by 144,532 euro on the previous year. 3.2 Breakdown of item 50 Interest expense and similar charges Items/Technical forms Loans Repurchase agreements Securities Other 31/12/ /12/ Payables 2. Outstanding securities 3. Heldfortrading financial liabilities 4. Financial liabilities measured at fair value 5. Other liabilities 6. Hedging derivatives 373, ,667 10,788,945 10,788, ,929 10,788,945 11,162, ,500 10,542, ,018,342 The item is a profit of 101,830 euro (2015: 11,734,495) and relates to the net profits arising from the disinvestment of the mutual funds held by the Company as part of liquidity management policies. Section 7 Profits (losses) on disposal or repurchase Item

216 Notes to the separate financial statements 7.1 Breakdown of item 90 Profits (losses) on disposal and repurchase Items/Income items 1. Financial assets 1.1 Availableforsale financial assets 1.2 Heldtomaturity assets 1.3 Other financial assets (1) 2. Financial liabilities 2.1 Payables 2.2 Outstanding securities (2) (1+2) 31/12/2016 Profit Loss 163, , ,300 (55,268) (55,268) (6,202) (6,202) (61,470) Net result 108, ,032 (6,202) (6,202) 101,830 31/12/2015 Profit Loss 11,813,137 11,813, ,813,627 (79,132) (79,132) (79,132) Net result 11,813,137 11,813,137 78,642 78,642 11,734,495 Section 9 Administrative costs Item 110 This item amounts to 19,880,685 euro, up by 3,145,178 euro on the previous year (16,735,507 euro in 2015). 216 G r u p p o A z i m u t

217 9.1 Breakdown of item 110.a. Personnel costs Items/Sectors 31/12/ Employees 6,607,988 a) wages and salaries 4,952,611 b) social security 1,284,638 c) staff severance pay (TFR) d) pension contributions e) TFR provisions 301,248 f) accrual to the pension provision and similar obligations: defined contribution defined benefit g) private pension plans: defined contribution defined benefit h) other expenses 69, Other personnel 599, Directors and Statutory Auditors 1,814, Early retirement costs 5. Cost recoveries for employees seconded to other companies 6. Reimbursed costs for employees seconded to the company 9,022,259 31/12/ ,712, , ,667 86, ,383 1,620,442 6,928, Average number of employees by category Position Managers Middle managers Office staff 31/12/ /12/

218 Notes to the separate financial statements 9.3 Breakdown of item 110.b. Other administrative costs Professional services rendered Insurance premiums Indirect taxes Advertising, promotion and marketing expenses Outsourcing and EDP services Expenses for acquisition of nonprofessional goods and services 31/12/2016 3,404, ,768 39, ,456 3,370,594 3,213,870 10,858,426 31/12/2015 4,265, ,467 80,876 1,088,866 1,877,374 2,380,286 9,807,031 Section 10 Net impairment and writeups of tangible assets Items Breakdown of Net impairment and writeups of tangible assets Items/Impairment and writeups 1. Groupowned business purposes investment purposes Amortisation 345, ,795 Impairment losses Writeups Net result 345, , Under finance lease business purposes investment purposes 345, , G r u p p o A z i m u t

219 11.1 Breakdown of item 130 Net impairment and writeups of intangible assets Section 11 Net impairment and writeups of intangible assets Items 130 Items/Impairment and writeups Amortisation (a) Impairment writedowns (b) Writeups (c) Net result 1. Goodwill 2. Other intangible assets 637, , Groupowned 637, ,926 generated internally other (software packages) 637, , Under finance lease 637, ,926 This item of 30,000 euro (2015: nil balance) comprises the net accrual to the provision for sundry risks and charges related to litigation risks. This item amounts to 1,756,617 euro (2015: 969,890 euro) and mainly includes recharged amounts for coordination activities by the parent company and other amounts recharged to subsidiaries. Section 13 Net accruals to provisions for risks and charges Items 150 Section 14 Other operating income and costs Items 160 Taxes for the year amount to a positive 2,081,767 euro (positive by 103,498 in 2015). Section 17 Income tax on profit from continuing operations Items Breakdown of item 190 Income tax on profit from continuing operations 1. Current taxes 2. Changes in current taxes of previous periods/years 3. Decrease in current taxes for the period/year 3 bis. Reduction in current taxes for the year due to tax credits pursuant to Law no. 214/ Change in deferred tax assets 5. Change in deferred tax liabilities Taxes for the period/year 31/12/2016 2,789,763 (6,091,339) 1,219,809 (2,081,767) 31/12/2015 (3,133,216) (784,899) 3,814,617 (103,498) 219

220 Notes to the separate financial statements Income tax for the year mainly refers to IRAP of the year, calculated in accordance with ruling legislation and income from tax consolidation amounting to the taxes receivable and due on taxable income transferred to the parent company by the Italian subsidiaries that have adopted the tax consolidation regime pursuant to Article 117 of Italian Presidential Decree 917/86. Change in deferred tax liabilities mainly includes deferred tax liabilities, in line with IAS 12, related to the temporary differences between the carrying amount and the tax value of goodwill Reconciliation of theoretical tax burden and effective tax burden IRES Taxable income 31/12/2016 Tax % rate Pretax profit 159,861,040 Theoretical IRES tax burden 43,961, % Effect of increases 4,122,035 1,133, % Effect of decreases 191,455,580 (52,650,285) of which: Dividends 178,576,538 (49,108,548) 2.51% Goodwill amortisation 9,334,808 (2,567,072) 4.12% Trademark amortisation 3,055,556 (840,278) 4.64% Other 488,678 (134,387) 4.73% Change in deferred tax assets 2,978, , % Change in deferred tax liabilities 12,427, , % Other changes 141, % IRES tax for the year (5,686,773) 3.56% IRES effective tax rate 3.56% IRAP taxable income 56,068,375 3,123, % Change in deferred tax assets 3,055, , % Change in deferred tax liabilities 9,334, , % IRAP tax for the year 3,605, % income tax for the year (2,081,767) 220 G r u p p o A z i m u t

221 Part D Other information 1.1 Commitments, guarantees and third party assets Commitments and guarantees issued to third parties At 31 December 2016, the Company had commitments to Banca Popolare di Vicenza and Banco Bpm S.p.A. for a total amount of 3.1 million euro relating to sureties issued in favour of the subsidiary Azimut Capital Management SGR S.p.A.. No collateral was issued at 31 December As regards the business activities of AZ Life Dac, for as long as there is no change in its shareholding structure, Azimut Holding S.p.A. has made a commitment to the IFSRA (Irish Financial Services Regulatory Authority) to provide the insurance company with the necessary capital in the event that it is unable to meet an adequate solvency margin, in accordance with the relevant regulations. Section 1 Specific references to business activities Own securities deposited with third parties Own securities deposited with third parties UCI units deposited with BNP Paribas UCI units deposited with Banco Bpm S.p.A. UCI units deposited with Banque De Rothschild Luxembourg Azimut Holding S.p.A. treasury shares deposited with Banco Bpm S.p.A. Azimut Holding S.p.A. treasury shares deposited with BPVI 31/12/ ,555, ,696 15,606, ,437,887 1,302, ,529,384 31/12/ ,487,168 15,185, ,634,153 1,894, ,200, Financial risks As regards financial risks, the Company's proprietary trading is exposed to market risks. Moreover, the financial instruments in question are easily liquidated and are monitored closely, most being mutual fund units managed by the group companies. As for credit risk, there are no specific problems given the nature of the company s activity. At 31 December 2016, Azimut Holding S.p.A. held only funds managed by group companies in its proprietary portfolio as part of liquidity management policies. Details at the reporting date: Section 3 Information on risk management and hedging policies Name Issuer Company 31/12/2016 Type AZ Fund 1 Az Fund Mgt SA Az Fund Mgt SA 158,555,800 Luxembourg openended fund Eskatos Multistrategy Eskatos Capital Mgt SA Eskatos Capital Mgt SA 15,606,070 Luxembourg openended fund Antares fund Futurimpresa SGR S.p.A. Futurimpresa SGR S.p.A. 626,696 Italian openended fund 174,788,566 * comprising the item Availableforsale financial assets in the financial statements at 31 December

222 Notes to the separate financial statements As regards the risks linked to the investment held in Eskatos AZ Multistrategy ILS Fund (a fund of Eskatos S.C.A., SICAVFIS), this UCITS is an asset that is completely uncorrelated with the normal risks that instruments usually present on the market are subject to. The yield of the Eskatos AZ Multistrategy ILS Fund was positive during the period, as well as in the first few months of Specifically, the assessment is performed by periodically checking that the management of the Eskatos AZ Multistrategy ILS Fund (a fund of Eskatos S.C.A. SICAVFIS) applies adequate measurement techniques in line with the specific characteristics of the portfolio and implements the processes necessary to ensure that the risks associated to the instruments invested by the fund and the relevant contributions to the portfolio total risk are identified based on sound and reliable qualitative and quantitative information, while considering the actuarial peculiarities of the insurancelinked securities; moreover, it should carry out stress tests and scenario analyses to identify any potential risks associated to significant events related to the value of the fund portfolio or part of it. As regards the assessment procedure for the management of financial assets on behalf of third parties, the risk management function plays a significant role. This service involves both performing ex post evaluations of the risk profiles of the various managed portfolios and providing the Investment Department with an ex ante market risk evaluation procedure. Specifically, the assessment is performed by analysing the portfolios of the individual funds and ongoing monitoring of the significant risk factors identified, such as the average financial duration, exposure to various asset classes and financial instruments, currency exposure and the credit rating of the issuers. The assessment of the fund s risk profile is performed expost both in absolute terms (volatility understood as the standard annual deviation) and in relative terms compared to the benchmark (tracking error volatility). The risk management function uses external providers to calculate the Value at Risk (VaR) of all the portfolios managed with regard to the exante evaluation of the market risk. Where necessary, the VaR represents the basis for the establishment of the limits within which the manager may accept the risk. In addition, the risk management function monitors the development of the risk models adopted and the return of the funds in relation to peers and the benchmark, where disclosed. 3.2 Operational risks Qualitative information This form of risk includes those that are typical of the various business operating procedures. The Risk Management function maps out the risks in the broader framework of its own activities, preparing and constantly maintaining an uptodate database of the risks identified. This is then discussed by the Internal Control and Risk Management Committee, which analyses the risks at group level. Activities which show significant risk values are analysed and assessed by this Committee and, if required, the necessary action is subsequently taken. 222 G r u p p o A z i m u t

223 4.1 Company shareholders equity Qualitative information For information on the individual shareholders equity items, please refer to Part B of these notes. Section 4 Information on shareholders' equity Quantitative information Company shareholders equity: breakdown Items/Value 1. Share capital 2. Share premium reserve 3. Reserves incomerelated a) legal b) statutory c) treasury shares d) other other 4. (Treasury shares) 5. Valuation reserves Availableforsale financial assets Tangible assets Intangible assets Foreign investment hedge Cash flow hedge Exchange rate differences Noncurrent assets held for sale and discontinued operations Special revaluation laws Actuarial gains/losses on defined benefit plans Share of valuation reserves for investments measured at equity 6. Equity instruments 7. Profit (loss) for the period/year 31/12/ ,324, ,986, ,103,546 6,464, ,772,608 (1,133,880) (81,288,162) (6,509) 70,430 (76,939) 70,949, ,942, ,012,189 31/12/ ,324, ,986, ,309,060 6,464, ,755,529 (1,133,880) (80,726,764) (2,313,154) (2,250,375) (32,444) 71,703, ,509, ,506,

224 Notes to the separate financial statements Valuation reserves of availableforsale assets: breakdown Assets/Value 31/12/ /12/2015 Positive reserve Negative reserve Positive reserve Negative reserve Debt securities Equity securities UCI units 70,430 (2,250,375) Loans 70,430 (2,250,375) Valuation reserves of availableforsale financial assets: "annual change" Debt securities Equity securities UCI units Loans 1. Opening balance (2,250,375) (2,250,375) 2. Increases 3,285,715 3,285, Increases in fair value 3,269,481 3,269, Transfer through income statement of negative reserves: 16,234 16,234 following impairment following disposal 2.3 Other changes 3. Decreases 964, , Decreases in fair value 62,828 62, Impairment writedowns 3.3 Transfer through income statement of positive reserves: following disposal 2,975 2, Other changes 899, , Closing balance 70,430 70, G r u p p o A z i m u t

225 Section 5 Statement of comprehensive income Items Pretax profit Income tax Net profit 10. Profit for the year Other comprehensive items not transferred through profit or loss 159,861,040 (19,531) 2,081,767 5, ,942,807 (14,160) 20. Tangible assets 30. Intangible assets 40. Defined benefit plans (19,531) 5,371 (14,160) 50. Noncurrent assets held for sale 60. Share of valuation reserves of investments measured at equity Other comprehensive items transferred through profit or loss 3,201,111 (880,305) 2,320, Foreign investment hedge: a) changes in fair value b) transfer through profit or loss c) other changes 80. Exchange rate differences: a) changes in fair value b) transfer through profit or loss c) other changes 90. Cash flow hedge: a) changes in fair value b) transfer through profit or loss c) other changes 100. Availableforsale financial assets: a) changes in carrying amount 3,037,810 (835,398) 2,202,412 b) transfer through profit or loss impairment losses profits/losses on disposal 163,300 (44,908) 118,393 c) other changes 110. Noncurrent assets held for sale: a) changes in fair value b) transfer through profit or loss c) other changes 225

226 Notes to the separate financial statements Pretax profit Income tax Net profit 120. Share of valuation reserves of investments measured at equity: a) changes in fair value b) transfer through profit or loss impairment losses profits/losses on disposal c) other changes 130. other comprehensive income 140. Comprehensive income (Items ) 3,181,580 (874,934) 2,306, ,042,620 1,206, ,249,452 Section 6 Related party transactions 6.1 Information on key management fees At 31 December 2016, directors' fees amounted to 1,606,764 euro and the fees for the Board of Statutory Auditors members stood at 208,000 euro. The Board of Directors is composed of 12 members. The Board of Auditors has three standing members. 6.2 Related party disclosures Related party transactions refer exclusively to commercial transactions carried out by Azimut Holding S.p.A. with its subsidiaries in These transactions are part of the Group s ordinary operations and are conducted on an arm s length basis. The most important commercial transactions are described below: for use of the trademark, the subsidiary Azimut Capital Management Sgr S.p.A. pays Azimut Holding S.p.A. annual royalties totalling 2,000,000 thousand euro, established by contract; Azimut Holding S.p.A., as the parent company, Azimut Capital Management Sgr S.p.A., Azimut Financial Insurance S.p.A., Azimut Enterprises Holding S.r.l. and Azimut Partecipazioni S.r.l., as subsidiaries, have adopted the tax consolidation regime. a contractually established annual fee (totalling 1,000,000 euro) is payable for the coordination activities carried out by the Parent Company on behalf of the subsidiary Azimut Capital Management Sgr S.p.A.: an annual fee calculated based on contractually established percentages is payable for the Risk Management, Internal Audit, Compliance and Antimoney Laundering control activities carried out by the Company in favour of the subsidiaries Azimut Capital Management S.p.A., Futurimpresa Sgr S.p.A., Augustum Opus Sim S.p.A. and Cgm Italia Sgr S.p.A.. The 2016 balance is 721,517 euro. 226 G r u p p o A z i m u t

227 Assets Receivables: Receivables for cash held in deposit accounts Other assets: Receivables for tax consolidation Receivables for dividends to be collected Invoices issued for administrative cost recoveries Invoices to be issued for Royalties Liabilities Payables Shortterm loan Other liabilities: IRES payables Due to the Board of statutory auditors Income statement Interest expense Administrative costs Statutory auditors' fees Directors' fees Commission income (royalties) Other operating income and costs 15,901,903 16,419,522 88,656,657 6,758,760 11,162,874 19,880,685 2,000,000 1,756,617 Related parties Absolute % value 349, ,328 10,793,265 1,657,936 6,860, ,581 2,000,000 68,605,547 68,605,547 2,352,463 2,123, , ,547 1,814, ,000 1,606,764 2,000,000 1,753, % 2.20% 65.73% 10.10% 41.78% 1.67% 12.18% 77.38% 77.38% 34.81% 31.41% 3.39% 0.95% 9.13% 1.05% 8.08% 100% 100% 7.1 Dividends paid The ordinary dividend for 2016 amounts to 1.50 euro per share. Section 7 Other information 7.2 Significant nonrecurring events and transactions During the year, Azimut Holding S.p.A. did not carry out nonrecurring equity transactions that were not disclosed in these notes. There were no atypical and/or unusual transactions. 7.1 Auditing and nonauditing service fees Pursuant to article 149 duodecies of Consob regulation no /99 and subsequent amendments and supplements, the details of fees (net of VAT and expenses) due to the audit company and companies within its network for auditing and nonauditing services during 2016 are as follows: 227

228 Notes to the separate financial statements Service Audit Certification services Other services Tax services for compliance stamp on CNM Service provider PricewaterhouseCoopers S.p.A. PricewaterhouseCoopers S.p.A. PricewaterhouseCoopers Advisory S.p.A. PricewaterhouseCoopers S.p.A. Fees (Euro) 70,000 14,000 5,000 3,500 92,500 On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 228 G r u p p o A z i m u t

229 Annex 229

230 Annex A Equity investments Name Assets Carrying amount at 31/12/2016 Stake Voting rights Registered office A. Whollyowned subsidiaries AZ Fund Management SA 3,239,925 51% 51% Luxembourg Mutual funds AZ Life Dac 10,012, % 100% Ireland Life insurance Azimut Capital Management SGR S.p.A. 306,099,173 51% 51% Milan Mutual and speculative funds management AZ International Holdings SA 203,485, % 100% Luxembourg Equity investment management Azimut Global Counseling S.r.l. 1,510, % 100% Milan Advisory services Azimut Enterprises Holding S.r.l. 11,788, % 100% Milan Equity investment management Augustum Opus SIM S.p.A. 10,000,000 51% 51% Milan Unsecured placement and order receipt Futurimpresa SGR S.p.A. 2,469,900 55% 55% Milan Mutual funds Azimut Financial Insurance S.p.A. 1,000, % 100% Milan Insurance agent Azimut Partecipazioni S.r.l. 3,068, % 100% Milan Equity investment management Note: The difference between the carrying amount and the value under the equity method for the investees Azimut Capital Management SGR S.p.A. and AZ Fund Management SA refers to the revaluation performed after reallocation of goodwill arising from merger generated in G r u p p o A z i m u t

231 assets income Shareholders equity Profit/(loss) for the most recent year Listed 166,583, ,320,459 73,523, ,141,829 NO 6,579,069,990 63,660,299 87,968,645 20,545,689 NO 226,392, ,630,324 91,512,080 26,806,416 NO 203,410,058 1,751, ,053,962 (1,167,165) NO 479, , ,737 (437,522) NO 10,851,855 10,850,703 (800,640) NO 8,825,484 8,104,659 4,652,070 2,979,753 NO 4,876,164 1,477,271 4,473, ,992 NO 30,125,807 18,601,034 (4,985,568) (5,908,687) NO 79,350,828 75,361,804 77,129,980 74,275,885 NO On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 231

232 Annex B Statement of significant equity investments pursuant to art. 125 of Consob regulation no /1999 Reporting date: 31 December 2016 Name Country Stake Type of ownership (direct/indirect) Shares/quotaholder % stake 1. Azimut Capital Management SGR S.p.A. Italy Azimut Holding S.p.A. 100 Direct ownership 2. AZ Fund Management SA Luxembourg Azimut Holding S.p.A. Azimut Partecipazioni S.p.A Direct ownership Indirect ownership 3. AZ Life Ltd Ireland Azimut Holding S.p.A. 100 Direct ownership 4. Azimut Global Counseling S.r.l. Italy Azimut Holding S.p.A. 100 Direct ownership 5. Azimut Enterprises Holding S.r.l. Italy Azimut Holding S.p.A. 100 Direct ownership 6. Augustum Opus Sim S.p.A. Italy Azimut Holding S.p.A. 51 Direct ownership 7. Futurimpresa Sgr S.p.A. Italy Azimut Holding S.p.A. 55 Direct ownership 8. Azimut Financial Insurance S.p.A. Italy Azimut Holding S.p.A. 100 Direct ownership 9. Azimut Partecipazioni S.r.l. Italy Azimut Holding S.p.A. 100 Direct ownership 10. AZ International Holdings S.A. Luxembourg Azimut Holding S.p.A. 100 Direct ownership 11. AN Zhong (AZ) IM Hong Kong AZ International Holdings SA 100 Indirect ownership 12. AN Zhong (AZ) IM HK Hong Kong AN Zhong (AZ) IM 100 Indirect ownership 13. AZ Investment Management Shanghai AN Zhong (AZ) IM 100 Indirect ownership 14. Compagnie de Gestion priveè Monegasque Monaco AZ International Holdings SA 51 Indirect ownership 15. CGM Italia SGR S.p.A. (formerly CGM Italia SIM S.p.A) Italy Compagnie de Gestion privée Monegasque 51 Indirect ownership 16. Katarsis Capital Advisors SA Lugano AZ International Holdings SA 100 Indirect ownership 17. Eskatos Capital Management Sarl Luxembourg Katarsis Capital Advisors SA 100 Indirect ownership 18. AZ Swiss & Partners SA (formerly AZ Swiss SA) Switzerland AZ International Holdings SA 51 Indirect ownership 19. AZ Sinopro Investment Planning Ltd Taiwan AZ International Holdings SA 51 Indirect ownership 20. AZ Sinopro Investment Planning Ltd Taiwan AZ Sinopro Investment Planning Ltd 51 Indirect ownership 21. AZ Sinopro Insurance Planning Ltd Taiwan AZ Sinopro Investment Planning Ltd 51 Indirect ownership 22. Atheneaum Ltd Singapore AZ International Holdings SA 100 Indirect ownership 23. AZ Brasil Holdings Ltda Brazil AZ International Holdings SA 100 Indirect ownership 24. Quest Partecipacoes S.A. Brazil AZ Brasil Holdings Ltda 60 Indirect ownership 25. Quest Investimentos Ltda Brazil Quest Participações Ltda 60 Indirect ownership 26. Azimut Brasil Wealth Management Holding S.A. (formerly AZ FI Holdings) Brazil AZ Brasil Holdings Ltda 100 Indirect ownership 27. M&O Consultoria Ltda Brazil Azimut Brasil WM Holding SA 100 Indirect ownership 28. Futurainvest Gestão de Recursos Ltda Brazil Azimut Brasil WM Holding SA 100 Indirect ownership 29. AZ & Partners Gestão de Recursos Ltda (formerly BRZ Gestấo de Patrimônio) Brazil Azimut Brasil WM Holding SA 100 Indirect ownership 30. Azimut Brasil Wealth Management Ltda Brazil Azimut Brasil WM Holding SA 89 Indirect ownership 232 G r u p p o A z i m u t

233 Name Country Stake Type of ownership (direct/indirect) Shares/quotaholder % stake 31. Azimut Portfoy AS Turkey AZ International Holdings SA 100 Indirect ownership 32. AZ Mexico Holdings S.A. de CV (formerly AZ Profie SA) Mexico AZ International Holdings SA 94.2 Indirect ownership 33. Mas Fondos S.A. Mexico AZ Mexico Holdings S.A. de CV (formerly AZ Profie SA) 94.2 Indirect ownership 34. Next Generation Advisory PTY Ltd Australia AZ International Holdings SA Indirect ownership 35. Eureka Whittaker Macnaught PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 36. Pride Advice PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 37. Lifestyle Financial Planning Services (LFPS) PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 38. Eureka Financial Group PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 39. Pride Financial PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 40. Wise Planners PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 41. Domane Financial Advisers PTY LTD Australia Wise Planners PTY Ltd Indirect ownership 42. Financial Lifestyle Partners PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 43. Harvest Wealth PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 44. RI Toowoomba PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 45. Empowered Financial Partners PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 46. Wealthwise PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 47. Priority Advisory Group PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 48. Sterling Planners PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 49. Logiro Unchartered PTY Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 50. Aspire Pty Ltd Australia Logiro Unchartered PTY Ltd Indirect ownership 51. OnTrack Financial Solutions Pty Ltd Australia Next Generation Advisory PTY Ltd Indirect ownership 52. AZ Sestante Ltd (formerly Ironbark Funds Management (RE) Ltd) Australia AZ International Holdings SA 76 Indirect ownership 53. AZ Andes S.p.A. Chile AZ International Holdings SA 90 Indirect ownership 54. Sigma Funds Management PTY Ltd Australia AZ International Holdings SA 51 Indirect ownership 55. AZ US Holding Inc. United States AZ International Holdings SA 100 Indirect ownership 56. AZ Apice Capital Management LLC United States AZ US Holding Inc. 70 Indirect ownership 57. AZ Industry & Innovation S.r.l. in liquidation Italy Azimut Holding S.p.A. 40 Direct ownership 58. Programma 101 Sicaf S.p.A. Italy Azimut Enterprises Holding S.r.l Indirect ownership 59. Siamosoci S.r.l. Italy Azimut Enterprises Holding S.r.l Indirect ownership 60. Cofircont Compagnia Fiduciaria S.p.A. Italy Azimut Enterprises Holding S.r.l. 30 Indirect ownership 61. Club 2 Investimenti S.p.A. Italy Azimut Enterprises Holding S.r.l Indirect ownership On behalf of the Board of Directors Chief Executive Officer (Sergio Albarelli) 233

234 Certification of the separate financial statements pursuant to Article 81ter of Consob regulation no of 14 May 1999 and subsequent amendments and supplements 1. The undersigned, Sergio Albarelli, Chief Executive Officer, and Alessandro Zambotti, manager in charge of financial reporting of Azimut Holding S.p.A., hereby represent, having also taken into account the provisions of Article 154 bis, paragraphs 3 and 4 of Italian Legislative Decree No. 58 of 24 February 1998: the adequacy in view of the nature of the business and the effective application of the administrative and accounting procedures used for the preparation of the 2016 separate financial statements. 2. The evaluation of the adequacy of the administrative and accounting procedures for the preparation of the separate financial statements at 31 December 2016 is based on a process designed by Azimut Holding in line with the Internal Control Integrated Framework model issued by the Committee of Sponsoring Organisations of the Treadway Commission, an internationally accepted reference framework. 3. The undersigned also represent that: 3.1 the separate financial statements at 31 December 2016: were prepared in accordance with the International Financial Reporting Standards endorsed by the European Commission pursuant to Regulation (EC) 1606/02 of the European Parliament and Council, of 19 July 2002; are consistent with the accounting books and records; give a true and fair view of the financial position and results of operations of the issuer; 3.2 the Management Report contains a reliable analysis of the operating performance and results, in addition to the situation of the issuer, and a description of the main risks and uncertainties to which it is exposed. Milan, 09 March 2017 Chief Executive Officer (Sergio Albarelli) Manager in charge of financial reporting (Alessandro Zambotti) 234 G r u p p o A z i m u t

235 235

236 INDEPENDENT AUDITORS REPORT IN ACCORDANCE WITH ARTICLES 14 AND 16 OF LEGISLATIVE DECREE No. 39 OF 27 JANUARY 2010 To the Shareholders of Azimut Holding SpA Report on the financial statements We have audited the accompanying financial statements of Azimut Holding SpA, which comprise the balance sheet as of 31 December 2016, the income statement, the statement of comprehensive income, the statement of changes in shareholders equity and the statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory notes. Directors responsibility for the financial statements The directors of Azimut Holding SpA are responsible for the preparation of the financial statements that give a true and fair view in compliance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/2005 and article 43 of Legislative Decree No. 136/15. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISA Italia) drawn up pursuant to article 11 of the Legislative Decree No. 39 of 27 January Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The audit procedures selected depend on the auditor s professional judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of financial statements that give a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 236 G r u p p o A z i m u t

237 Opinion In our opinion, the financial statements give a true and fair view of the financial position of Azimut Holding SpA as of 31 December 2016 and of the result of its operations and cash flows for the year then ended in compliance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/2005 and article 43 of Legislative Decree No. 136/15. Report on compliance with other laws and regulations Opinion on the consistency with the financial statements of the report on operations and certain information set out in the report on corporate governance and ownership structure We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to express an opinion, as required by law, on the consistency of the report on operations and the information set out in the report on corporate governance and ownership structure referred to in article 123bis, paragraph 4, of the Legislative Decree No. 58/98, which are the responsibility of the directors of Azimut Holding SpA, with the financial statements of Azimut Holding SpA as of 31 December In our opinion, the report on operations and the information in the report on corporate governance and ownership structure mentioned above are consistent with the financial statements of Azimut Holding SpA as of 31 December Milan, 5 April 2017 PricewaterhouseCoopers SpA Signed by Elisabetta Caldirola (Partner) This report has been translated into English from the Italian original solely for the convenience of international readers of 2

238 INDEPENDENT AUDITORS REPORT IN ACCORDANCE WITH ARTICLES 14 AND 16 OF LEGISLATIVE DECREE No. 39 OF 27 JANUARY 2010 To the Shareholders of Azimut Holding SpA Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of the Azimut Holding Group, which comprise the balance sheet as of 31 December 2016, the income statement, the statement of comprehensive income, the statement of changes in shareholders equity and the statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory notes. Directors responsibility for the consolidated financial statements The directors of Azimut Holding SpA are responsible for the preparation of the consolidated financial statements that give a true and fair view in compliance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/2005 and article 43 of Legislative Decree No. 136/15. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISA Italia) drawn up pursuant to article 11 of the Legislative Decree No. 39 of 27 January Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The audit procedures selected depend on the auditor s professional judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of consolidated financial statements that give a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 238 G r u p p o A z i m u t

239 Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of Azimut Holding Group as of 31 December 2016 and of the result of its operations and cash flows for the year then ended in compliance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/2005 and article 43 of Legislative Decree No. 136/15. Report on compliance with other laws and regulations Opinion on the consistency with the consolidated financial statements of the report on operations and certain information set out in the report on corporate governance and ownership structure We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to express an opinion, as required by law, on the consistency of the report on operations and the information set out in the report on corporate governance and ownership structure referred to in article 123bis, paragraph 4, of the Legislative Decree No. 58/98, which are the responsibility of the directors of Azimut Holding SpA, with the consolidated financial statements of Azimut Holding Group as of 31 December In our opinion, the report on operations and the information in the report on corporate governance and ownership structure mentioned above are consistent with the consolidated financial statements of Azimut Holding Group as of 31 December Milan, 5 April 2017 PricewaterhouseCoopers SpA Signed by Elisabetta Caldirola (Partner) This report has been translated into English from the Italian original solely for the convenience of international readers of 2