annual report 20 - international post...

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ANNUAL REPORT 2009

ANNUAL REPORT 2009

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Key data 2009

Correos Group

Net turnover 2,187.0 Consolidated result before tax -0.4Consolidated result of the financial year 3.0

Employees 65,781

In millions of euros

Key data 2009

ANNUAL REPORT 2009

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Sociedad Estatal Correos y Telégrafos, S.A.

Net turnover 2,043.7Result before tax -5.2Result of the financial year -2.0Real (non-financial) investments 116.5 In millions of euros

Employees 64,037

Postal items 4,630.6 In millions

Vehicle fleet 13,966Service points 9,846 Post offices 2,349

Rural services 7,497

Published by:Sociedad Estatal Correos y Telégrafos, S.A.Secretaría GeneralVía de Dublín, 7, 5ª planta28070 Madrid+ (34) 915 963 825

L. D.:

Designed and printed by:COMUNICART PUBLICIDAD

Correos Group Annual Report 2009

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Contents

M-30553-2010

7

Contents

ANNUAL REPORT 2009

Letter from the Chairman

Governing Board

Organisational chart

Milestones

Correos Group


Assessment of 2009

Quality

Technological innovation

Products portfolio

Operations and processes

Accessibility and multi-service offices

Online services

International activity

Philately

Employees

Corporate Social Responsibility

Subsidiary companies

Chonoexprés

Correo Híbrido

Correos Telecom

Consolidated annual accounts of the Correos Group

1

2

3

4

5

6

10

12

14

16

18

22

24

28

32

34

36

39

42

44

46

48

54

66

68

70

74

72

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Madrid, May 2010

Following my recent appointment as the Chairman of this company, and in order to present last year’s balance sheet in this report, I would first like to express my gratitude and acknowledge the work of my predecessor during such a challenging year as 2009. It is common knowledge that this past year was difficult for Spanish companies, and the Correos Group is no exception. The intensification of the economic recession was reflected in the decreased results of Correos and its subsidiary companies.

Contributing to the decline in the Correos accounts was a drop in mail volumes that was larger than in previous years and which also occurred in other European countries. The decrease was due to the effects of the recession on customers and on their consumption of postal services, and to increased substitution of mail with digital communications, a phenomenon that has intensified given the economic situation.

The results obtained, however, were more favourable than those initially expected thanks to cost control. In addition, the marked decrease of mail items was not entirely unexpected. For years, the company has been preparing for this scenario, which is the result of the evolution of the postal sector and the gradual liberalisation of the European market. This process, to be completed at the beginning of 2011, will contribute to an increase in competitor presence.

The combination of these factors requires that Correos use more efficient management in order to ensure the correct provision of the universal postal service in Spain and to continue being the company of reference in the sector. Therefore, in recent years it has made a great effort to incorporate advanced technologies and optimise its processes; to broaden and modernise its infrastructures and material resources; to adapt the product and service range to new demands;


ANNUAL REPORT 2009

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and to increase innovation and the development of new business opportunities.

Although subsidiary companies’ economic figures were also affected by the recession, improvements in the product portfolio and in operations continued to promote their diversification and positioning in new market segments.

The decrease in Spanish production activity led to lower parcel volumes being sent by Chronoexprés; however, that company implemented additional measures for operational efficiency. Correo Híbrido partially restrained its loss of sales through commercial solutions intended to satisfy the growing outsourcing requirements of businesses seeking cost reduction. Correos Telecom, despite its lower revenues, reinforced the promotion and selling of surplus telecommunications capacity and consulting services for clients.

Despite the current economic situation, I must highlight that the company has not changed its

commitment to the social and environmental goals that guide its corporate social responsibility programmes. Last year, Correos continued developing its own projects and those carried out in cooperation with national and international organisations, foundations and companies.

I would like to conclude by expressing, first of all, my gratitude to our clients for maintaining their trust in Correos throughout these uncertain and difficult times, and offering them my guarantee that we shall keep providing our very best service.

I would also like to acknowledge the unflagging effort and professionalism of our employees. I would like to convey my commitment to them as I invite them to redouble their efforts. Their good work is essential to providing excellent service, which is fundamental, now more than ever, to ensure the company’s competitiveness in a future full of challenges.

Alberto Lafuente Félez

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Governing Board

ChairmanSixto Heredia Herrera*

SecretaryJesús Moreno Vivas

MembersJosé Antonio Benedicto Iruiñ

Francisco Cadarso González

José Luis Díez García

Mercedes Díez Sánchez

M.ª Isabel Durántez Gil

M.ª Jesús Figa López-Palop

Fernando Flores Giménez

Oscar Graefenhain de Codes

31 December 2009

* Alberto Lafuente Félez was appointed

as Chairman on 5 May 2010

Fernando Irurzun Montoro

Cristina Latorre Sancho

Purificación Morandeira Carreira

José Alberto Pérez Pérez

Juan Miguel Sánchez García

Alberto Sereno Álvarez

Felipe Sivit Gañán

Justo Zambrana Pineda

Governing Board

ANNUAL REPORT 2009

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14


The Correos Group is made up of the Sociedad Estatal Correos y Telégrafos, S.A., and its subsidiaries Chronoexprés, S.A., Correo Híbrido, S.A. and Correos Telecom, S.A.

The Parent Company is managed by the Governing Board, the Chairman and the Executive Committee. Its organisation is structured into corporate departments, support units and business units.

The Management Committee has overall responsibility for policymaking, development

and coordination in all matters of particular importance for business activities that involve different corporate or business units. It consists of the Chairman and the Managers of Operations; Planning and Finance; Human Resources; Technology and Systems; Sales and Marketing; Innovation, Development and Network Services; the Legal Department; Control and Inspection; the International Unit and the General Secretariat.


ANNUAL REPORT 2009

Governing Board

Chairman

Planning and Finance

Human Resources

Technology and Systems

Sales and Marketing

Innovation, Development and Network Services

Governing Board SecretariatLegal Department

General Secretariat

Control and Inspection

Communications

Operations International

Chronoexprés, S.A. Correo Híbrido, S.A. Correos Telecom, S.A.

Corporate departments

and support units

Business units

Subsidiaries

Management committe

Philately

Internal Audit

Corporate SocialResponsibility

31 December 2009

* The Control and Inspection department became the Audit and Inspection department on 11 February 2010. From that moment, the Internal Audit unit was incorporated into that department.

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16

Milestones

Corporate

Correos unified the postal and post office networks under the Operations unit.

The company created the Subdirectorate for Health Promotion.

Operations

A new processing centre, specifically intended for managing parcels to and from the Canary Islands, was opened in Madrid. Automated sorting of basic line mail reached 88% of the total.

The Emuse plan was implemented in the special service units and the new mail delivery model in the distribution units was completed.

Radio frequency technology is now used to control all mobile elements in the 56 monitored centres.

8,000 new personal digital assistants (PDAs) were provided to delivery units’ staff.

The Correos Corporate Geographical Information System (GISC) was implemented.

Quality

The quality of service improved for all universal postal service products. The ISO 9001 certification was extended to all processes in the entire post office network.

The number of complaints and claims decreased by 5.2%.

Correos obtained the EMS Cooperative’s silver award for the quality of its international services.

Products and services

Mail volumes decreased by 9.6%.

Bill payments in post offices increased by 59.3%. Sales grew for services such as the “Online bureaufax” (+26.8%) and the “Online telegram” (+4.0%).

Employees

The proportion of permanent employment reached 80% of the total staff.

A total of 2,542 employees joined the staff with permanent seasonal contracts.


Correos is committed to the IPC agreement to reduce CO2 emissions by 20% within 10 years.

The company supports United Nations programmes such as “Planting for the Planet: the Billion Tree Campaign”, “Millennium Development Goals” or the “Global Compact”.

Correos has undertaken actions in favour of children with organisations such as UNICEF, Intermón Oxfam, Clowns Without Borders, Crecer Jugando Foundation or SOS Children’s Villages.

Milestones

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The company sponsors the ADO program, which contributes to preparing Spanish athletes for the London Olympic Games.

Subsidiaries

Chronoexprés improved the delivery times for its main products, “Chrono 10”, “Chrono 14” and “Chrono 24”, by more than two points.

Correo Híbrido increased its digitisation volumes by 27.2%. Correos Telecom promoted the telecommunications costs management service.

Recognitions

Correos was the most positively viewed public service according to a survey undertaken by the Centro de Investigaciones Sociológicas (Sociological Research Centre) titled “Opinión pública y política fiscal XXVI” (Public Opinion and Fiscal Policy 26).

UNICEF Spain granted the company the Social Responsibility Award for its collaboration in the campaign “Correos y UNICEF, unidos por la infancia” (Correos and UNICEF, united for childhood).

The international organisation CRF recognised Correos as “Empresa TOP para trabajar 2009” (Top Company to work for in 2009).

Correos Group

The Correos Group is made up of the Sociedad Estatal Correos y Telégrafos, S.A. and its subsidiaries Chronoexprés, S.A., Correo Híbrido, S.A. and Correos Telecom, S.A. The Group is 100% owned by the State through the Directorate General for State Assets.

The four companies operate in the global communications sector, and their strategy is therefore aimed at achieving common goals, obtaining synergies and adapting to the needs of each client.

The Sociedad Estatal Correos y Telégrafos, S.A. is the Parent Company of the Correos Group, and its range of services is completed by express transport service for documents and parcels offered by Chronoexprés, solutions for corporate communications offered by Correo Híbrido and the management of telecommunications networks offered by Correos Telecom.

Environment

The effects of the economic recession on all sectors of the economy in general, and on the postal sector in particular, were more marked in 2009 than in the previous year. The intensification of the international financial crisis and the reduction in consumption seriously damaged the Gross Domestic Product (GDP), which decreased by 4.2% in the European Union and by 4.1% in the Eurozone after having grown by 0.7% and 0.6% respectively the previous year.

In Spain, the Gross Domestic Product decreased by 3.6%, in contrast with the 0.9% increase seen in 2008. The national demand fell sharply due to the general decrease in consumption.

The impact of the economic recession on the European postal sector has led to a reduction in the services contracted by the large mail volumes generators and in the search for cheaper communications alternatives. This caused important losses in the volumes managed by postal operators, which affected all product categories, especially mail. Faced with reduced revenue, European postal operators applied cost-cutting policies and adapted their operational capacities to lower levels of activity.

The Spanish postal market was also affected by this tendency toward a decrease in activity and sales for all operators, both public and private, which have been working for decades in one of the most liberalised markets in Western Europe.

Performance

The net turnover of the Correos Group in 2009 reached 2,187.0 million euros, showing a 4.8% reduction. The operating result was −9.1 million euros, compared to the 83.5 million euros during the previous year. The consolidated result before tax was −0.4 million euros, in contrast to the 108.6 million euros reached in 2008.

Profits after tax for the Correos Group amounted 3.0 million euros, a decrease of 96.3%.

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Correos Group

ANNUAL REPORT 2009

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NET TURNOVERIn millions of euros

1,000

2,000

3,000

4,000

0

-4.8 %

2008 2009

2,296.2 2,187.0

CONSOLIDATED RESULT BEFORE TAX

200

150

100

50

0

-100.4 %

2008 2009

108.6

-0.4

CONSOLIDATED RESULT AFTER TAXIn millions of euros

200

150

100

50

0

-96.3 %

2008 2009

79.3

3.0


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Assessment of 2009

Sociedad Estatal Correos y Telégrafos, S.A. is the operator responsible for providing the universal postal service in Spain, in accordance with certain quality, regularity, accessibility and affordability requirements which ensure all citizens’ rights to postal communication. It is also the postal company of reference in the national market due to the excellence and reliability of its services and its broad product and service range, comprising solutions for both physical and digital communications, as well as parcel services, direct marketing, financial and telecommunications products.

Its strategy is based on innovation and business efficiency, the quality and competitiveness of its products, the human and professional development of its employees and on responsible commitment in social and environmental issues.

It has 64,037 employees, 9,846 service points and 13,966 vehicles. These resources make it one of the leading companies in terms of nationwide presence and staff, which allows it to manage around 5,000 million postal items every year.

In order to increase the efficiency of management, the synergies and value generation, the company combined its postal and post office networks in 2009 under the Operations unit. Performance

Last year Correos recorded a net turnover of 2,043.7 million euros, 4.5% less than in 2008. The operating result was −4.3 million euros, in contrast to the 81.3 million euros of the previous year. The result before tax was −5.2 million euros and the result for the financial year was −2.0 million euros.


1,000

2,000

3,000

4,000

0

-4.5 %

2008 2009

2,141.0 2,043.7


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RESULT BEFORE TAX

200

150

100

50

0

-104.9 %

2008 2009

107.1

-5.2

-102.6 %

RESULT OF THE FINANCIAL YEARIn millions of euros

200

150

100

50

02008 2009

77.9

-2.0


Investments

Correos invested 116.5 million euros in capital spending last year, 51.1% less than in 2008, a reduction resulting both from the completion of business projects started in previous years and from the complex economic situation, which made it advisable to remain cautious.

Therefore, since many infrastructure, new technologies and transport programmes were completed, the amounts assigned to said items decreased to 69.1 million, 14.5 million and 4.6 million euros, respectively. However, the investment in automation was doubled, increasing to 19.1 million euros, in order to continue optimising processes and increasing quality.

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INVESTMENTS

New technologies 12.4%

Automation 16.4%

Transport 4.0%

Other 7.9%

Infrastructure 59.3%

Activity

The company handled 4,630.6 million mail items, not including international inbound mail and mail generated by election processes held in Spain. Interannual changes showed a 9.6% decrease caused by an economic recession that reduced the flow of traditional mail items and accelerated use of electronic substitutes.

With regards to product categories, the basic line represented 81.1% of all mail items handled, with the economy line accounting for 18.6% and the urgent line the remaining 0.3%. Despite the general reduction in volume, some added-value services recorded important growth, including national registered mail (+2.7%), notifications (+32.8%), the “Prisma” international parcel

(+63.4%), the “Paquete Azul” parcel (+3.9%) or national “Postal Exprés” (+19.6%).

Collaboration in electoral processes

Correos collaborates in the undertaking of electoral processes held in Spain. During said processes, the company distributes census cards and campaign fliers, facilitates voters’ applications for postal votes and enables their delivery to polling stations, and lastly collects the copies of the results of each count and delivers them to the respective electoral committees.

During the 2009 elections to the Parliaments of Galicia and the País Vasco (1 March) and to the

Postal volumes by product line 2009 Percentage of total

Basic line 3,754.2 81.1%

Economy line 860.9 18.6%

Urgent line 15.5 0.3%

Total 4,630.6 100%

In millions


ANNUAL REPORT 2009

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European Parliament (7 June), Correos delivered 38.3 million basic line mail items (census cards), 114.6 million economy line items (campaign fliers) and 3.4 million urgent registered items (electoral documentation and postal votes).

Money orders

In 2009, the company handled 9.0 million money orders, 20.1% less than in 2008. This development was affected by the decline in national economic activity. The total amount processed reached 843.4 million euros.

Money orders 2009

Domestic 8,774.6

Ordinary 8,559.7

Urgent 214.9

International 198.2

Total 8,972.8

In thousands

Telegraphic products 2009

Telegrams 2,864.2

Bureaufax 4,296.8

Fax 631.2

Total 7,792.2

In thousands

Telegraphic products

Correos admitted 7.8 million telegraphic products, a figure 2.2% higher than that of the previous year. The services with the largest growth were bureaufax (+5.5%), especially in its online version, and fax (+3.7%).

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Quality

One of Correos’ main purposes is to offer the highest quality postal services, from customer service to delivery times.

Quality of service

The Ley Postal (Postal Law) and its Regulations establish the requirements regarding the provision of universal postal service and the delivery times for the different products. These delivery times are calculated according to the formula D+n, in which “D” is the deposit or posting date and “n” the number of working days until delivery to the addressee or another endpoint in the postal process.

Domestic quality of service

In addition to the controls performed by the postal regulatory body, the company also assesses how it meets delivery targets and its possible areas

Universal postal Delivery Results Results

service products time 2008 2009

Internal Audit

Ordinary letter D+1 80.9% 83.7%


Registered letter D+3 96.3% 97.5%

Ordinary money order D+3 98.9% 99.3%

“Paquete azul” parcel D+3 83.5% 89.0%

SPEX



Internal Audit system

SPEX system Deposit

Deposit Postmarking Exit for delivery Delivery

Delivery

Assessed process

for improvement using several measurement models. It uses the following models on a nation-wide scale:

The Internal Audit system, which enables the monitoring of mail items from postmarking until exit for delivery. This is the oldest method, which allows it to be used to make broader historical comparisons.

The SPEX system, which enables monitoring along the entire postal process, from deposit to actual delivery. Therefore, the results derived from this method are a better match for the public’s perception of the punctuality of the service.

In 2009 there were marked improvements in the quality of service for all universal postal service products according to both measurements.


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Delivery Results Results Targets

time 2008 2009 2009

UNEX

Inbound mail D+3 89.4% 89.6% 85.0%

Outbound mail D+3 93.2% 90.2% 85.0%

International quality of service

The UNEX (Extended Country System) method, managed by International Post Corporation (IPC), is used to measure cross-border mail quality. It leaves a record of the delivery times for inbound mail (coming into Spain) and outbound mail (leaving Spain).

According to this system, the D+3 quality of service exceeded the 85% target established by the European Postal Directive. The interannual evolution of inbound mail experienced a 0.8 point decrease, and that of outbound mail a 3.4 point decrease.

In 2009 Correos obtained, for the second time, the EMS Cooperative’s silver award for the quality of its international services. This recognition is granted every year to postal operators among the 156 members of the Cooperative that exceed four of the five performance goals established.

Customer service

Company’s clients have several channels for making requests, sending suggestions or informing about any kind of problem. The www.correos.es webpage registered 30.6% more queries, for a total of 40,635. The customer service helpline 902 197 197, in turn, received 1.6 million calls.

Complaints and claims

The total amount of complaints and claims experienced a positive change last year, decreasing by 5.2% to 224,252.

Claims (which are subject to compensation) decreased by 1.3%. In 2009, for the first time, claims made by large clients were accounted for. If these are excluded, the total decrease in claims reaches 25.6%. Complaints also decreased by 9.8%.

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-9.8 %

-1.3 %

COMPLAINTS

50,000

100,000

150,000

200,000

02008 2009

106,76896,320

CLAIMS

2008 2009

129,667127,932

Assessment of customer satisfaction

For the ninth consecutive year Correos was the most positively viewed public service in Spain, according to the survey “Opinión pública y política fiscal XXVI” (Public Opinion and Fiscal Policy 26) undertaken by the Centro de Investigaciones Sociológicas (Sociological Research Centre, CIS). 69.0% of the general public considered it “quite” or “very” satisfactory, which is a similar percentage to that of 2008.

Similarly, according to the results of the Customer Satisfaction Index, users gave a notable valuation to almost every one of the services. Among the aspects most appreciated by both businesses and the public were the opening hours at post offices, their vicinity, the kindness

of the employees and the financial services of BanCorreos. Large businesses also highlighted the workplace collection service and the advice received for admission.

Improved processes and management

Correos uses the European EFQM model as a reference to identify its strengths and the key areas where it has to improve. Within this framework, the company’s quality management allows it to apply the cycle of continuous improvement to all activities at its operations centres.

In accordance with this model, the post office network has had the “European Excellence 400+” award since 2008. This distinction is equivalent to the “Recognition for Excellence 4 Stars” within

50,000

100,000

150,000

200,000

0


ANNUAL REPORT 2009

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the EFQM Levels of Excellence. In 2009 Correos broadened the extent of its ISO 9001 certification by incorporating all operating processes.

For their part, the 17 automated processing centres and 17 main post offices renewed their ISO 9001 and ISO 14001 certifications for their quality management and environmental systems.

At the end of the year, the number of certified facilities reached 2,273, that is, 44% of the total.

Recognition of excellence

Correos created the Liga de la Excelencia (Excellence League), a computer tool that allows delivery units, special service units and

Certifications Scope Standard

Post offices 17 main post offices All the processes ISO 9001

ISO 14001

Remaining post offices All the processes ISO 9001

Centres 17 automated

processing centres All the processes ISO 9001

ISO 14001

automated processing centres to check the indicators used to assess their management, as well as how they are meeting their goals. The software also shows the scores obtained each month and the position reached in the general classification according to the results achieved.

This information was incorporated into the appraisal system for delivery units for the granting of the Premio Hermes (Hermes Award), which is granted every year to the delivery units with the most outstanding performance. Similarly, the Premio a la Oficina Excelente (Excellent Post Office Award) recognises the offices that obtain the highest scores in their respective internal audits.

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Technological innovation

Sociedad Estatal

Correos has made important investments by incorporating the latest technology in its operations in order to guarantee greater quality and efficiency, generate new business opportunities and ensure future growth.

Last year, its main activities focused on developing the business support and management computer systems as well as providing new technological infrastructures.

Information and business systems

New functions were added in 2009 to two important operative applications, the Integrated Mail Management System (SGIE), used to monitor registered products, and the Single Admission and Sales System (IRIS), which centralises this kind of processes at the post offices and mass admission units.

One of the possibilities the SGIE program offers is to send messages to mobile telephones to instantly notify both the addressee and the sender at each stage of the delivery process. Two more options were added last year, allowing for sending messages notifying the receipt of registered items by P.O. Box users or the availability of “Postal Exprés” packages for collection at the office chosen by the client.

The IRIS system, in turn, was modified to meet the needs for more information when admitting international parcels and in the cross-sale of national products.

2009 also witnessed the start of the Sistema Integrado de Gestión del Capital Humano (SIGHNO - Integrated System for the Management of Human Capital) on an SAP platform as part of the program for the technological unification

ANNUAL REPORT 2009

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of all corporate information models. The SAP CRM and SAP BW Sales applications were also adapted in order to increase the autonomy of the sales agents. The automated digital invoice management service was also implemented, through which clients can receive completely legal invoices in digital format.

The increased traceability of mail items allows for internal analysis of possible deviations in the different stages of the postal chain. With this in mind Correos has undertaken actions in order to improve the tracing of products such as bureaufax and “Postal Exprés” parcel, incorporate the recording of intermediate events in rural delivery and optimise statistical controls for the quality of service and the return of mail items.

RFID technology

The radio frequency technology monitoring model is based on the use of tags inserted into test letters which, once detected by the antennas and readers installed at the centres, send out location and time in transit information to a central application. This provides knowledge of delivery times in intermediate stages of the postal process and improves the traceability of mail items.

Last year two servers, nine readers and 22 antennas were installed at the Ibiza and Menorca facilities, and therefore the number of logistics infrastructures with this technology increased to 56. In addition, 27,000 new labels were purchased for test-letters, and a pilot test was performed that consisted of incorporating passive transponders in the “mailbag” product along the Madrid-Burgos route, with very satisfactory results.

Finally, the identification of all mobile assets that circulate daily by the centres was completed. To

do this, radiofrequency tags were provided for more than 40,500 transport trolleys and cages, resulting in about 60,000 units already being monitored and managed by this system.

Mobility solutions

In recent years, Correos has developed a project designed so that all distribution employees can carry out their tasks with the aid of personal digital assistants (PDAs).

These terminals automate data recording and enable capturing the recipient’s signature on the screen, reading barcodes and capturing the image of the digital delivery notice, thereby improving operations, traceability of mail items and client information.

Last year 8,000 new devices were provided to 800 delivery units, in addition to the 2,000 PDAs already in operation. Therefore, close to 15,500 employees were able to manage 19% of the total number of registered mail items via mobile devices.

Technological infrastructure

In 2009 the new main data processing centre, which houses all corporate information systems, began operations. With this equipment the company was able to increase its processing and management capacity five-fold, and multiply its storage and support capacity by 15. The new facilities ensure total reliability, availability, scalability and performance of these technological infrastructures that are essential for the company’s daily activities.

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Products portfolio

Correos’ sales policy is aimed at designing and offering communication solutions that are flexible, efficient and competitive for clients, providing personal and specialised support for all their sales channels.

Products and services

Last year’s sales actions were aimed at gaining a broader knowledge of the needs of large companies, government bodies, small and medium-sized enterprises (SMEs) and individuals. The availability of the CRM computer system throughout the entire sales network contributed to the full accessibility of this information and greater monitoring of the entire support and sales process.

The company adapted its products and services portfolio to such requirements of commercial activities such as direct advertising and e-commerce. Both of them have developed less in Spain than in other European countries, due to which one can expect potential for growth.

Correos drafted the first “Overall Study of Direct and Interactive Marketing”, intended for professionals in the sector. This study analysed existing techniques, their effectiveness, the agents participating in the market and the evolution of this activity. It was distributed in 10,000 copies and made available on the Correos website.

The demand in the telecommunications and e-commerce segments were analysed in close collaboration with clients, and specific solutions were designed to meet these needs, such as “Postal Exprés” parcel for “exclusive delivery to the addressee”, which complements the general range of postal and parcel products for businesses.

Sales events and trade fairs

In order to promote its services portfolio, Correos attended several fairs, such as the “Salón Internacional de la Logística y de la Manutención” (International Logistics and Material Handling Exhibition) or the “Feria de Productos y Servicios para Inmigrantes, Integra” (Fair of Products and Services for Immigrants, Integra). Internationally, Correos was present at the “Deutscher Versandhandels-Kongress” (Germany) and the “VAD e-commerce” show (France).

The company also had the chance to see the latest innovations in the different business sectors through events such as the “Forum Mundial de Marketing y Ventas” (World Marketing and Sales Forum), the “European Ecommerce Conference” or the “Encuentro Hoy es Marketing” (Today is Marketing Meeting).


ANNUAL REPORT 2009

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Rates

The rates of the postal services were updated in January 2009. The price of standard domestic letters and postcards weighing up to 20 grams was increased by 1 cent, to 0.32 euros.

With this change, Correos still has one of the cheapest basic postal rates in the European Union, thus guaranteeing an affordable universal postal service for the general public.

POSTAL RATES OF STANDARD LETTER UP TO 20 GRAMS

0.10

0.20

0.30

0.40

0.50

0.60

0European Union

average

15-member

European

Union average

Spain

0.43 €0.50 €

As at 1 February 2009

0.32 €

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Operations and processes

Correos provides postal services nationwide and ensures daily collection, processing, transport and distribution of mail items, in accordance with quality, regularity and accessibility criteria.

Collection and admission

The company’s postal services can be accessed through post offices, mass admission centres and units, rural services and letterboxes.

A new centre was opened last year in Madrid, specifically intended for managing parcel products to and from the Canary Islands, bringing the company total to six large specific centres and mass admission centres, plus the more than 50 mass admission units.

Processing and sorting

The company has a network of different types of centres to classify mail items, for which it periodically performs renovation or expansion works. Therefore, in 2009 Correos made updates to the postal processing infrastructures of Soria and Barcelona (CTP2) and in the local processing centre of Mahón. In addition, 103,600 items of logistics equipment were purchased.

Nine classification lines were installed at the automated processing centres (four for standard mail and five for mail from letterboxes), bringing the total to 74. Consequently, the percentage of automation for basic line mail increased to 88%. The number of postmen who received mail classified by section increased to 14,655.

Centres 2009

Mass admission centres 6

Automated processing centres 17

Postal processing centres 36

Local processing centres 5

3636


ANNUAL REPORT 2009

37

Automated

processing lines 2009

Standard mail 43

Non-standard mail (flat) 14

Letterbox mail 17

Vehicles 2009

Correos-owned 12,829

Third party 1,137

Total 13,966

Punctuality on

transport routes 2008 2009

Arrivals 96.3% 97.4%

Departures 98.7% 99.4%

Transport

The company transport network consists of 12,829 vehicles owned by the company, 0.9% more than in 2008.

The Correos fleet covered close to 800,000 kilometres and transported 8 million kilograms daily. With a view to optimising such a large

volume of trips, land routes were reorganised and air transport costs were reduced by replacing some air transport with road transport. New agreements were also signed with airlines, both to ensure coverage of the present and future needs of the company and to maximise the profitability of transporting postal items in this way.

Punctuality on transport routes in 2009, which is key to achieving delivery targets for the different postal services, was achieved for 97.4% of incoming schedules at the centres and 99.4% of outgoing schedules.

38

Distribution The distribution of mail items is provided by 1,813 delivery units (ordinary delivery), 99 special service units (express delivery) and 7,497 rural services, in turn consisting of 842 auxiliary post offices and 6,655 rural linkages. These material and human resources guarantee complete coverage throughout national territory.

In 2009, the implementation of the new mail delivery model and the Emuse plan was completed in all delivery units and special service units, respectively, after purchasing 18,350 new items of equipment for delivery.

Both programmes have entailed the complete restructuring of management systems and the resources used at these centres.

With the aim of assessing the appropriateness of services with regard to distribution needs, dimensioning studies were carried out in 935 urban delivery sections and 930 rural services, resulting in the creation of an additional 80 urban sections and 20 rural services.

Rural service points 2009

Auxiliary post offices 842

Rural linkages 6,655

Total rural service points 7,497

The company also started to implement Correos Corporate Geographical Information System (GISC), a repository of all its digital cartography which is connected to several databases, such as the post code database. This software is an important tool for both daily postal operations and for the planning and location of services.

In this first phase, the GISC began to be used by employees in rural delivery, in the transport network and in post offices, who were then able to check geo-referenced information and calculate and simulate optimised routes.

Additionally, the company continued collaborating with the CartoCiudad project, a Government initiative to create a database of the Spanish cities, topography and road networks which will be used as geographical information of reference by all government bodies and individuals. Last year Correos supplied digital post codes for 50 cities in order to contribute to creating a common information exchange format with its partners.


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Accessibility and multi-service offices

The post office network contributes to ensuring the required levels of accessibility to the universal postal service, acting as local logistics points for admission and delivery. At the same time, it is a multi-service distribution channel that sells both postal products and other types of products.

Extension of the post office network

The number of branches increased in 2009 to 2,349, 4.4% more than in 2008. Twenty-eight multi-service post offices were opened in urban population centres and in places with larger

allows the users to pay without requiring a receipt and also means that the providers have immediate knowledge of the transaction.

Post offices can also top up the balance of prepaid cards belonging to several companies, such as the travel agency Viajes Crisol.

user concentrations (shopping centres and business complexes). Another 71 branches were also opened through the creation of new establishments or the transformation of existing auxiliary post offices.

Range of services at multi-service post offices

Multi-service post offices are integral centres where clients have convenient access to

EVOLUTION OF THE NUMBER OF POST OFFICES

1,000

2,000

3,000

4,000

0

4.4 %

2008 2009

2,250 2,349

many different products and services. As well as offering postal, post-related, financial and telecommunications services, clients can also carry out other tasks such as paying bills issued by basic service providers, telecommunications companies and others. In 2009 the number of associated enterprises increased to 22 and 11.3 million bills were processed, 59.3% more than in 2008. The revenue from this service was 8.5 million euros.

Since last year, the service has also had online connection with some of the businesses. This

40

BILL PAYMENTS AT POST OFFICESIn thousands

5,000

10,000

15,000

20,000

0

59.3 %

2008 2009

7,078.1

11,276.8

COMPANIES ACCEPTING BILL PAYMENTS AT POST OFFICES, BY BUSINESS SECTOR

Banks 14%

Government bodies 5%

Mail order companies 9%

Telecommunications 14%Utilities 58%

BanCorreos

BanCorreos is the financial brand jointly operated by the company and Deutsche Bank. Its products are sold at post offices, on the webpage www.bancorreos.es and over the customer service helpline 902 337 338.

In 2009 its total business volume increased by 1.1%. In this year of general financial restrictions, the growth in credit activity was significant, without there being a significant increase in the associated risk. BanCorreos maintained a zero

delinquency rate in the mortgage segment, since the quality of loans granted was still very high. The contracting of new mortgages increased by 14.4% and the total balance increased by 18.8%.

In personal loans, delinquency increased during the first half of the financial year to figures close to the average in the Spanish banking sector. Nevertheless, it fell in the second term due to the application of thorough controls on risk rates.


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41

BanCorreos 2008 2009

Customers 181,986 160,141

Liabilities* 822,447,460 763,277,569

Assets* 500,416,127 574,112,956

* In euros

Other financial services

Post offices have many alternatives for sending money, such as the different types of Correos money orders or Western Union’s “Money in Minutes” service.

Similarly, under the agreement signed last year with the Traffic Agency, the general public can pay fines by money order, an option that was already available for the payment of driving licence renewal fees. Since its implementation in June, 355,922 fines were paid using this service.

Telecommunications services

The company offers different telecommunications solutions in collaboration with several businesses. It shares the Correos Telecor network with El

Corte Inglés, which consists of 63 shops located in post offices. Its products include mobile and landline telephone, television, Internet and home security products and services. Some facilities also have telephone access services.

Evolution of post office revenue

Last year’s economic situation caused a reduction in the volume of sales in post offices. Banking activities and Western Union money transfers experienced drops of 21.8% and 8.3%, respectively. The turnover for philately products also decreased by 34.4%. However, non-postal services increased by 22.5%, which was especially due to the expansion of the bill payment service.

Change

Revenues by category 2008/2009

Post-related products -1.1%

Non-postal services 22.5%

Financial services -21.8%

Philately products -34.4%

Western Union services -8.3%

42

Online services

The online post office is the online channel for accessing Correos products, which includes both traditional postal products and others created specifically for the digital environment. The general public can contract all kinds of services and perform many tasks 24 hours a day and with total security.

Last year the website received 2.7 million monthly visits on average, 12.5% more than in 2008. The number of registered users was situated at 96,635. Sales reached 7.8 million euros, with an 11.8% increase. The growth of the “Online bureaufax” (+26.8%) and the “Online telegram” (+4.0%) services contributed to this result.

ONLINE REVENUEIn thousands of euros

5,000

10,000

15,000

20,000

0

11.8 %

2008 2009

6,960.6

7,783.6

EVOLUTION OF PRODUCTS REVENUE

4.0% -8.0% 26.8%

2008 2008 20082009 2009 2009Online telegram Digital mail Online bureaufax


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Developing the electronic services offer

The use of new technologies has made alternation between physical and electronic communication possible. Continuing with this process, Correos is developing the “Apartado postal electrónico” (electronic P.O. Box), which transfers the conventional P.O. Box concept to the online world, providing every individual and organisation with a single access point for their documents in digital format. As part of this service, the “Correo electrónico seguro“ (secure electronic mail) was made available to clients. This free and confidential e-mail account fulfils the role of a permanent electronic postal address.

The website also incorporated a direct marketing campaign simulator, which companies can use to discover the different postal options available, to plan their advertising projects and budget for them.

In addition to designing a range of adapted commercial services for the online environment, the company continued participating actively in the development of the information society and e-government.

In this way, it contributed to publicising Internet Day, an initiative backed by the Asociación de Usuarios de Internet (Internet Users’ Association, AUI) with the aim of boosting Internet use among the public and increasing accessibility for people with disabilities.

On the occasion of this event, Correos and the AUI held a competition to select the best customised stamp design. Of the 5,712 images with that theme which were sent into the competition, the winners and finalists were published on www.correos.es. Their creators were presented with a sheet of 25 stamps with the winning designs.

44

International activity

One of Correos’ main objectives is to position itself as a specialised operator in the international mail and parcels market. That is why it presents itself as the most secure and efficient option for the delivery of cross-border postal items to all addresses and companies in Spain. Furthermore, the company has a specific range of products and services to meet the needs of individuals and Spanish companies with business interests abroad.

With these purposes, the company has focused its activities on three areas: cross-border mail, the inbound flows generated by foreign companies and parcels sent from abroad. This last segment has grown in terms of its share of Correos’ business, and the demand for it is being met with commercial, technical and operational improvements.

International postal networks

Correos is a member of a series of international postal networks that allow it to increase the competitiveness of its services, improve its operating efficiency and ensure global coverage.

As a member of the Kahala Posts Group (KPG), Correos was present at the Chairmen’s Meetings held last year in Kyoto. This meeting specified the strategic guidelines that the Group is to adopt to tackle new demands and business alternatives.

Correos is also an active member of the E-Parcel Group (EPG). In 2009, this network continued to extend its coverage by incorporating the Hungarian and Czech national postal operators as new members, bringing the total number of European postal members to 23.

Improved processes

The Barajas centre was subject to improvements aimed at increasing the efficiency of processing

international inbound postal traffic and raising the capacity of the automated parcel and urgent EMS product classification systems. The company began a project which modifies the procedures for admitting international parcels and allows more information on each item to be incorporated. This solution will provide greater control up to the final delivery, facilitate Correos’ commercial operations and enable electronic exchange of data with foreign operators. In this way, compliance with customs procedures will be ensured and the possibilities of satisfying potential information requirements will be increased.

Activity

The evolution of the volume of cross-border postal items managed by the majority of global postal operators depended on a wide range of factors in 2009, including the economic crisis, the effects of electronic substitution, the repercussions of increasing competition and the growth of e-commerce.

The economic recession leads to a drop in direct spending on advertising and letters by large senders, particularly in western countries. Thus, the postal volumes handled by the company decreased significantly in term of inbound and outbound flows from Europe, despite the growth in those originating from or destined to other parts of the world.

The fall in advertising and mail volumes, however, was partially offset by the evolution of parcels and urgent EMS items, whose inbound traffic increased significantly, both from direct injection and from the Kahala network, both of which are favoured for the progressive development of e-commerce.


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The increased sales of products and services with added value, however, resulted in turnover not being as affected as volumes were. This trend is a response to Correos’ continuous adaptation of its international business to new market demands.

Change

2008/2009

International mail volumes Inbound items -23.7%

Outbound items -16.8%

International parcel volumes Inbound items 17.3%


EMS volumes Inbound items 31.8%


Institutional relations

The company actively participates in all multilateral postal bodies and institutions, promoting cooperation, contributing to joint development and boosting its representation abroad.

Last year, within the Universal Postal Union (UPU), Correos performed its functions as chair of the

UPU Strategy Implementation Project Team, and as vice-chair of the Mixed Cooperation and Development Committee of the Governing Board. It also took part in other projects, such as the Multilateral Framework Group on Money Orders.

Furthermore, the company participated in the 21st UPAEP Conference, a body in which it chairs the Terminal Dues Group. From this position, it promotes regional expansions of the UPU’s IFS (International Financial Service) money order and the development of the distance-learning training by means of Correos’ e-learning model.

46

Philately

Correos’ philatelic activities include issue proposals and distribution of stamps, promoting collecting and marketing of products relating to stamp collecting.

Issues

Last year 92 stamps (21 self-adhesive) split into 41 series, four pre-franked cards and four pre-stamped envelopes were issued. More than 300 postmarks and commemorative stamps were produced, leading to 54 first day of circulation envelopes. Several philatelic albums, such as the Libro de los Sellos de España y Andorra 2009 (2009 Spanish and Andorran Stamps Book) and the Bailes y danzas populares (Folkdances Album) were published.

The motifs in this issues covered topics such as nature, civic values, science, commemorations, historical and artistic heritage, sport, renewable energy, road safety, Spain’s Autonomous Communities and the Millennium Development Goals.

Equally, stamps were launched in the Braille alphabet in homage to its creator. Within the range of philatelic collection products, a limited-edition numismatic piece was marketed to commemorate the 10th anniversary of the euro.

Through the electronic service “Tu sello” (your stamp), which makes it possible for customers to personalise stamps to include their own motifs, 3,300 client design proposals were approved, with an average run of 100 stamps per design.

In total, Correos distributed more than 50 million philatelic collection items, including stamps issued in sheets and in block sheets of different formats, stamp proofs, first day of circulation envelopes, pre-stamped envelopes and specialised publications.

Exhibitions and philatelic forums

The company cooperated with and participated in the sector’s main events, such as the “Exfilna 2009” National Philatelic Exhibition, the “Juvenia 09” National Youth Philatelic Exhibition, the 2nd Barcelona Philately Fair 2009, and Madrid’s National Stamp Fair.

The company also took part in the Paris, Essen (Germany) and Rome Stamp Fairs. In the latter, its collection Testimonios con valor (Testimonies with value) received the Gold Medal in the stamp issuers’ category, awarded by the International Philatelic Federation and the Universal Postal Union.

Within the framework of its membership in the Global Association for the Development of Philately’s Management Committee, the company shared its experiences with representatives from more than 30 countries in forums and workshops held in Switzerland and Uruguay.

Correos continued to promote the research and promotion work carried out by the Real Academia Hispánica de Filatelia (Royal Hispanic Academy for Philately) into Spanish postal history via its magazine Academus. It also sponsored FESOFI’s (Spanish Federation of Philatelic Societies) annual school exhibitions plan, which involved 22 schools in 2009.


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Postal and Telegraphic Museum

The Postal and Telegraphic Museum conserves representative pieces from postal, philatelic and telecommunications history ranging from the 19th century to the present. Its collections are exhibited across seven rooms and can be visited virtually at www.correos.es.

With a view to different cultural initiatives, the Museum temporarily loaned out some of

its pieces, such as the postal train and the watercolours painted by Antonio Mingote to design stamps celebrating Don Quixote.

The Museum’s Library and Documentation Centre made their bibliographic resources, containing more than 23,700 documents and specialised publications, available to researchers and the general public.

4747Photograph: Carlos de la Torre

Employees

50

BREAKDOWN OF STAFF

Civil servants 43%

Employees under ordinary contracts 57%

PROPORTION OF PERMANENT EMPLOYMENT

Temporary employment contracts 20%

Permanent employment contracts 80%

Empleados

Correos is one of the largest companies in Spain by number of employees. Its human resources management promotes stable, quality employment, professional development and employee protection.

In 2009, the company’s average workforce was 64,037 people (plus temporary staff hired for electoral processes, amounting to 168 employees/year).

The proportion of employees with permanent contracts grew by 1.9%, reaching 80%. The proportion of employees under ordinary contracts was 57% of the total, and the remaining 43% were civil servants. The proportion of women increased to 46%, the result of a progressive equalising trend between the sexes over recent years.

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51

GENDER PROPORTION

Men 54%

Women 46%

Consolidation, promotion and mobility

Correos continued to promote employment stability, covering seasonal employment needs in high production periods with non-year round permanent employees, whose link to the company and experience contribute to the quality of service. Last year, the company carried out selection processes in 20 provinces and hired 2,542 people under this employment model.

Last year 95% of general employment needs were covered through internal promotion, via 988 selection processes. The newly hired staff were given access to welcome and monitoring programmes which are designed to facilitate their integration into the company and assess their level of suitability for their new position.

The permanent transfer system, which guarantees the right to professional mobility, made 1,997 horizontal promotions possible.

Training

The company’s annual training plans favour the acquisition of new skills and knowledge that contribute to the professional development of its employees and improve their performance.

Last year 376 courses were given, with a duration of over two million hours, equivalent to more than 32 training hours per employee. In total 115,273 employees took part in these activities, which they evaluated with a score of more than 8 out of 10.

Training Online Other methods* Total

Courses 77 299 376

Attendees 75,146 40,127 115,273

Training hours 1,504,724 572,243 2,076,967

* Includes classroom-based, remote access and combined method courses

52

The e-learning method, which facilitates training for a geographically scattered workforce, was used by 65% of participants, accounting for 72% of the total hours given. These participants were assisted by 1,135 employees who volunteered to act as internal monitors.

The Correos Virtual Campus – the space on the company’s intranet for completing online courses - incorporated collaborative tools (e-learning 2.0) that make its use more intuitive. Employees were also able to access this content via the red.es and Generalitat de Catalunya (Autonomous Community of Catalonia Government) telecentres networks. Correos has agreements with both of these bodies.

The Correos Centre associated with the UNED (Spanish National University of Distance Education) taught degrees in Law, Economics, Business Management and Administration, Diplomas in Business Sciences, IT, Industrial Engineering, the Access Course for over 25s and, since 2009, the Degree in Economics and the Access Course for over 45s. Last year, 780 students were enrolled.

Occupational safety and health promotion

In 2009 the Subdirectorate for Health Promotion was created with the aim of supporting the prevention of occupational hazards and converting

the protection and promotion of health into transversal company activities.

The company’s Health Care and Occupational Safety Service was renewed and extended through the creation of a network of specialised technicians, both centrally and in the different regions, who lead this type of initiative in each area. In this way, Correos has defined a prevention policy fundamentally based on internal management, by creating this well-staffed, highly qualified service.

As was the case in recent years, the company performed 5,000 preventative medicals examinations for its staff and provided around 1,000 hours of training on this issue, among other activities.

Pension plan and social action

Correos adds to its employees’ retirement benefits with a pension plan into which the company paid 13.4 million euros last year. At 31 December, there were 40,549 employees in the plan and its total assets were 150.0 million; of this sum, 97.4 million were direct company contributions.

As a part of the social action programmes, employees and their families were awarded a range of different benefits, advance payroll payments and personal loans without interest to cover one-off needs.

Pension plan 2008 2009

Participants 39,948 40,549

Correos’ annual contribution* 13,427,130 13,411,560

Fund assets* 123,277,405 149,997,925

*In euros

Employees

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53

The company encourages employee creativity and the development of cultural activities via the Photography and Epistolary Literature Competitions. In its 12th season, it was opened

up for the first time to employees of the Group’s subsidiaries. 922 photographs and 221 letters were entered. The winning works were included in a commemorative book

Social action Grants Amount in euros

Medical treatments 5,844 827,229

Aid for studies and for children with disabilities 5,405 853,718

Leisure, cultural and sporting activities 1,795 356,168

Homages to the retired workers - 143,238

Interest-free loans and advance payroll payments 3,638 14,520,000

5353

Corporate Social

Responsibility

56

Responsabilidad Social Corporativa

Correos has a firm commitment to performing its activity ethically, transparently and sustainably in economic, social and environmental terms. The company assumes this responsibility as a general interest service provider and as one of Spain’s largest companies by size, coverage and in terms of human capital.

In order to achieve these goals, the company considers it essential to maintain permanent communication channels with stakeholders (shareholder, employees, customers and society in general) so as to be aware of their expectations, prioritise actions and inform them of progress made towards the objectives set.

Shareholder

Correos is a company that is entirely owned by the State, through the Directorate General for State Assets. The company creates value for the shareholder by achieving its mission as a public service and maintaining its competitiveness and business efficiency.

Furthermore, the company promotes good corporate governance in order to ensure solid, ethical and rigorous growth under current legislation. In this sense, the Code of Conduct acts as a reference for the values that should be paramount in all of the company’s actions.

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Stakeholder Shareholder

Communication - General Meeting

channels - Reporting to Directorate General for State Assets

- Value generation by business efficiency

Objectives - Ethical conduct

- Good corporate governance

Stakeholder Employees

Communication - Intranet

channels - Abrecartas magazine

- Internal notes

- Training programmes

- Contests and awards

Objectives - Stable, quality employment

- Occupational safety and health

- Training and professional development

- Social protection

Employees

Correos supports stability, employee training and skills acquisition as the ideal resources to ensure service quality and its employees’ personal and professional development.

Moreover, the company has protection programmes in place which include an annual contribution to a pension plan and a range of social benefits for its employees. The company pays special attention on improving the work-life balance, the equality of the sexes and assists in the fight against domestic violence. The company also has permanent occupational safety policies,

which included 865 actions on self-protection in post offices, 1,176 risk assessments and 729 preventative action plans, among others.

In recognition of the company’s impressive human resources management, it was picked, for a third year in a row, as “Empresa TOP para trabajar 2009” (Top Company to Work For in 2009) by the international organisation CRF. It was also granted the Randstad Award as one of the companies most valued by the Spanish, particularly in the categories of long-term occupational stability and improving the work-life balance.

58

Stakeholder Customers

Communication - Service points and channels

channels - Customer satisfaction surveys

- www.correos.es

- Más Cerca magazine

- Trade fairs and forums

- Publicity campaigns

Objectives - Quality and accessibility

- Customer satisfaction

- Specialised offer and added-value services

5858

Customers

The company’s objective is to meet all of its clients’ communication and business needs by means of an efficient service, nationwide coverage, personalised care and a complete range of products.

The actions it undertakes as regards infrastructure, technology, process automation, training and modernisation contribute, furthermore, to the continuous increase in quality levels.


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As part of its commitment to society, the way Correos carries out its responsibilities is based on responsibility, integrity and respect for the environment. Furthermore, the company’s social relevance favours the development of its objectives to promote solidarity, integration, education, care for underprivileged groups in society and the spreading of Spain’s cultural wealth.

Environmental sustainability

Environmental sustainability is one of the company’s corporate values. Its Environmental Committee monitors compliance with company’s lines of action in this area, as set out in the Environmental Excellence Plan 2008-2010.

Currently, the 17 automated processing centres and 17 main post offices have environmental management systems certified in accordance with regulation ISO 14001. In order to make progress in this area, the classification scheme for waste generated in these processing centres

was completed last year, and the labels on containers were replaced with new models to facilitate recycling.

The company has voluntarily signed into the Central Government’s Green Public Procurement Plan. For that reason, its tendering processes use assessment criteria that identify environmentally friendly suppliers and technological partners.

Last year, Correos continued cooperating with the International Post Corporation (IPC) EMMS programme, targeted at reducing the environmental impact of postal operators.

In this way, the company participated in the sector’s first sustainability study along with another 18 members of that body which, in total, handle around 80% of the world’s mail. They all evaluated their CO2 emissions levels using the Environmental Measurement and Monitory System and set a sector goal of a 20% reduction in emissions by 2020.

Stakeholder Society

Communication - National and international partnerships and projects

channels - Discussion groups and forums

- Annual report

- www.correos.es

- Press releases

Objectives - Protection of human rights

- Child support

- Integration of underprivileged groups in society

- Environmental sustainability

Society

60

Post offices

ACTIONS FOR ENVIRONMENTAL SUSTAINABILITY

Delivery units

Automated processing centres

Ever since the company voluntarily purchased Euro-4 model trucks in 2006 to meet European Union requirements, Correos has been incorporating means of transport that contribute towards generating less CO2 and decreasing noise pollution.

In 2009 it signed an agreement with the Autonomous Community of Cantabria Government to use electric motorcycles for delivery tasks in various towns. This initiative was in addition to the pilot project carried out the previous year in other cities, which was aimed at assessing the effectiveness of electric vehicles for postal distribution in protected historical areas and urban centres.

Correos also offsets its environmental footprint by contributing to the reforestation of Spain. To do so, it has established and maintains an agreement with the Bosques de la Tierra (Forests of the World) Foundation, through which it markets “Línea Verde” (Green Line) sustainable products; part of the revenues from these products are used for this purpose.

In collaboration with this programme, the company has contributed to the reforestation of around 45 hectares in recent years. As part of the commitment it took on for Expo Zaragoza 2008, a further 46

hectares were replanted last year in the Montes Vales de María, close to the city of Zaragoza. For this reason, the school writing contest “Escribe una carta a tus amigos los árboles” (Write a letter to your friends the trees) was held. It was designed for pupils aged between 10 and 14 attending 170 schools across Zaragoza and received 3,500 entries.

The company worked with the initiative “Plantemos para el Planeta: campaña de los mil millones de árboles” (Planting for the Planet: the Billion Tree Campaign) launched by the United Nations Environment Programme, with the aim of fighting climate change and the loss of biodiversity. In 2009, the company issued two stamps dedicated to these goals and sponsored the “Semana Forestal” (Forest week) held in Madrid, in which 40,000 trees were distributed to members of the public who visited the United Nations’ garden tent.

Likewise, the company sponsored the “Paseo ciclista por el clima” (Cycle tour for the climate), organised in Madrid and Barcelona by the Danish Embassy, on the occasion of the United Nations Climate Summit in Copenhagen.

As in previous years, Correos participated in the campaign “Dona tu móvil” (Donate your mobile

ISO 14001 certification“Línea Verde” packagingMobile phones collection campaign

ISO 14001 certification

Waste management

Eco-friendly vehiclesEfficient driving


ANNUAL REPORT 2009

61

phone) organised by the Spanish Red Cross and the Entreculturas Foundation, by placing letterboxes and post offices at the disposal of those wishing to hand in their used telephones. The handsets are then recycled and destroyed in a controlled manner, or repaired for reuse or sale, contributing to financing social and environmental projects run by both bodies. Last year Correos collected 51,482 handsets, 14% more than the previous year, the sale of which raised nearly 67,000 euros. This number of telephones represents 39.5% of the total collected by all participating bodies. Since it began participating, Correos has collected more handsets than any

Correos social programmes objectives

Protection Child Integration of Inmigrant of human support people with communities rights disabilities assistance

Promotion of culture and sport

Finishers) and the Cluster da Madeira de Galicia (a wood industry association).

Participation in the club “Encuentros con la Agenda 21 Local” created by the Zaragoza City Council to debate the city’s environmental sustainability and corporate involvement.

Social actions

The company aims its social development programmes at three priority groups in society: children, people with disabilities and immigrant communities.

other company, more than 120,000.

The company took part in the programme “Con tu ahorro ganamos todos. Cada pequeño gesto cuenta” (We all win when you save. Every little bit helps), sponsored by the Ministerio de Industria, Turismo y Comercio (Ministry of Industry, Tourism and Trade) to encourage energy saving. Around 22 million energy-efficient light bulbs were made available to the public via Correos’ post office network in exchange for the coupons received with their electricity bills.

Other company actions undertaken in 2009 included:

Spreading the campaign “O monte é a nosa vida, axúdanos a coidalo” (Our forests are our lives, help us care for them) in more than 150 post offices in Galicia. Intended to raise awareness of forest fires, the campaign was organised by the Asociación Galega Monte Industria (Galicia Rural Industry Association), FEARMAGA (Galicia Business Federation of Sawmills and Wood

Within the framework of its membership of the Fundación Empresa y Sociedad (Business and Society Foundation), whose aims include support for social and employment integration, the company participates in programmes such as “Empresa y Discapacidad” (Business and Disability) and “Empresa e Inmigración” (Business and Immigration).

As a signatory of the United Nations Global Compact, it shows its commitment to its ten principles in its annual progress report. In 2009, the Correos report earned the recognition of the Spanish Network for the Global Compact, which highlighted, among other aspects, good corporate governance and the internal audit system. Furthermore, it selected the company as “Good practice of the month” in its bulletin number 11 for the month of November.

Correos promoted the United Nations’ Millennium Development Goals through the Development Cooperation Action Group, part of the UPU, and issued a stamp dedicated to this initiative.

62

Responsabilidad Social Corporativa

Other actions carried out in 2009 included:

The sale of 323,252 Spanish Red Cross “Golden Draw” tickets in post offices to finance humanitarian projects.

The donation of 327 computer units to non-profit organisations for use in computer classrooms and workshops.

Recognition of World Diabetes Day, established by the World Health Organisation (WHO) and the International Diabetes Federation (IDF), by illuminating Granada’s main post office.

Participation in the CowParade held in Madrid as the sponsor of the cow sculpture known as No Hunger contributed by the NGO Acción contra el Hambre (Action against Hunger); the sculpture was auctioned to finance solidarity projects.

The donation of office furniture and technological equipment to OSDAD, a social support and development organisation, in Las Palmas de Gran Canaria, aimed at supporting people at risk of being marginalised.

Co-sponsorship of the “Second Conference of the Third Social Sector in Catalonia”, organised by the Taula d’Entitas del Tercer Sector Social de Catalunya organisation, consisting of more than 3,000 non-profit social groups.

Children’s aid initiatives

For eleven years now, the “Correos reparte sonrisas” (Correos delivers smiles) programme has been helping to improve the quality of life of hospitalised children, disabled people and children requiring psychological and emotional help, such as the children of immigrants or incarcerated mothers. In this way, a cooperation agreement was signed with the General Secretariat for Penitentiary Institutions in 2009.

The programme, based on applying the “laughter therapy” method, is undertaken in collaboration with the non-profit association “Payasos sin Fronteras” (Clowns Without Borders) and a further 19 entities specialising in healthcare, fostering and special education.

In 2009, around 2,800 children enjoyed 40 kids’ parties which featured comedy shows and were attended by more than 80 athletes and popular

Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa Responsabilidad Social Corporativa

ANNUAL REPORT 2009

63

figures. Within the framework of this project, 316 volunteers and workers in hospitals and special education centres took part in 21 training workshops on recreation/education.

Correos has been participating in a number of UNICEF programmes for many years, including the sale of greeting cards, lottery tickets and gifts in post offices. Last year the company was also present in the 5th children’s Gymkhana, held in Toledo, the goal of which was to raise awareness about the importance of water in childhood via the “Gotas para Níger” (Drops for Niger) campaign.

In 2009, the Spanish Committee of this organisation awarded the company the “Social Responsibility Prize” for its collaboration in the campaign “Correos y UNICEF, unidos por la infancia” (Correos and UNICEF, united

“Correos delivers smiles” programme (1999-2009)

Children participating 27,800

Children’s parties 315

Educational workshops 146

Workshops attendees 2,300

for childhood), on the occasion of the 20th

Anniversary of the Convention on the Rights of the Child.

The post office network also supported other initiatives, such as:

The “Un juguete, una ilusión” (One toy, one dream) campaign organised by Radio Nacional de España (Spanish National Radio) and the Crecer Jugando Foundation, for which more than 170,000 solidarity pens were put on sale. With the 3 million euros collected, 510,000 toys were purchased and sent to children and playrooms in 20 countries in Africa, Latin America, the Middle East and Asia.

The information campaign for the NGO SOS Children’s Villages, undertaken in the Sevilla and Zaragoza post offices, which provided information on the NGO’s work with children and young people in social risk situations.

The Rastro de juguetes (Toy flea market) held by Intermón Oxfam, in which branches in Zaragoza collected toys and children’s books for sale, helping to finance the programme that this organisation carries out with rural people in Ecuador.

64

Social and employment integration

The company promotes the social and professional development of people with physical, mental and sensorial disabilities via donations and agreements with special employment centres and foundations.

These organisations with which Correos has signed agreements undertake cleaning, repairing and sorting tasks for postal equipment, prepare mail items for subscribers to the philatelic service, produce corporate gifts, direct mail services and handle and/or transport mail. Some of their

Main foundations and special employment centres with which Correos works

Carmen Pardo-Valcarce Foundation Juan XXIII Foundation

Ocón Business Centre Realiza Foundation

APAI Foundation Fucoda

Ginesta Foundation

employment centres are also companies that work with Correos, such as Ibermail (part of the Juan XXIII Foundation), and Ginesta Foundation.

Some of last year’s milestones were:

The inauguration of the “Centro artesano de papel y madera APAI-ARTE” (the APAI-ARTE paper and wood art centre) from the APAI Foundation, which Correos financed in part.

The reception, in the Badajoz, Mérida and Albacete postal facilities, of pupils with intellectual disabilities from the Aexpainba and Down Extremadura associations and the special education school Eloy Camino, with the aim of participating in their professional training.

The sponsorship, for the second year, of the Spanish race in the “2009 European Cup for Disabled Cycling”.

The company guarantees access to its online services to all members of the public. With this aim, the online post office and the BanCorreos website have been designed to conform to Level A of the W3C Web Content Accessibility Guidelines 1.0, which make them easier to use for people with limited sight, mobility or text comprehension.

Integrating immigrants

The company sponsored the activities of Migrar (Migrate) Foundation, part of the Red Cross, and its website www.migrar.org, which provides advice to foreigners working in Spain or who wish to work in Spain in the future. The website includes information of job offers, training courses, accommodation, legal issues and on the Correos services that they may find useful.

To meet the needs of Spain’s immigrant population, the company has a range of commercial services specially adapted to their needs, including the international mail and parcel services, telecommunication services, money orders and other financial products. Last


ANNUAL REPORT 2009

65

year, the company presented these options in the “Feria de Productos y Servicios para Inmigrantes, Integra” (Fair of Products and Services for Immigrants, Integra).

For the third year, the company supported the “Festival VivAmérica”, a forum for cultural exchange between Spain and Latin America, which culminated in a parade in Madrid in which Correos participated with a float. Furthermore, the company sponsored the “I Festival de Música de las Américas” (1st Festival of Music from the Americas), mainly aimed at the most numerous Latin American groups, with concerts in Madrid and Barcelona.

Promoting culture and sport

Over the course of 2009, the company agreed to sponsor some important initiatives: Xacobeo 2010 (promoting the Way of St. James), which will be held throughout the year, and the ADO programme (Olympic Sports Association). In the last case, it will contribute financial support up until 2012 for Spanish Olympic athletes and their preparation for the London Olympic Games. Furthermore, the company supports the spread of the ADO programme by publicising their logo in postal establishments, vehicles and its website.

As part of the agreement signed with the Spanish National Heritage Body for the promotion of the items in its collection, stamps and pre-franked cards with this theme were issued, information was made available on exhibitions, concerts and visits to Royal Sites, and postal products were provided to National Heritage sites.

As a part of the “Correos por el Arte” (Correos supporting Art) initiative, a number of branches in the Comunidad Valenciana, País Vasco and Galicia held 36 painting, sculpture and photography exhibits created by local artists.

On the occasion of the Festival International de Poesía de Granada (Granada International Poetry Festival), the company distributed more than 100,000 postcards with a poem by the Argentinean author Juan Gelman.

Moreover, the A Coruña main post office joined the platform supporting the naming of the Tower of Hercules as a UNESCO World Heritage Site.

6565

68

Chronoexprés

Chronoexprés is the Correos Group company specialising in providing express domestic and international parcel delivery services. Its range of services includes solutions for urgent shipments with set delivery times for documents and parcels, such as “Chrono 10”, “Chrono 14” and “Chrono 24”.

It also has a made-to-measure range of services including the “Multichrono” product, mailbag services and specific services designed for certain business sectors, to name a few. The company also offers international services via alliances with European and global operators.

Resources

Chronoexprés covers the entire country through a complete network of infrastructure and resources, formed by 54 operating centres, more than 109,000 square meters of warehouse space, almost 1,600 vehicles and 1,893 distribution routes.

In 2009, its total workforce amounted to 1,324 employees, with an increase of 1.8%. Permanent employment represented 97% of the total. The staff was composed of 72% men and 28% women.

Resources 2009

Employees 1,324

Operating centres 54

Distribution routes 1,893


Temporary employment contracts 3%Permanent

employment contracts 97%

GENDER PROPORTION

Men 72%Women 28%


ANNUAL REPORT 2009

69

Activities

The company strengthened its commercial structure and began the introduction of a new management system optimising the sale process. Likewise, it continued with the transport network organisation plan, aimed to provide the flexibility necessary to adapt to variations in volume of activity and in clients’ needs.

With the aim of integrating its parcel operating processes with the Correos Group in order to obtain greater synergies, Chronoexprés added the barcode scanning option to its sorting systems and adapted its IT programmes to the encoding model used by Correos.

The company improved quality of service for its main products, “Chrono 10”, “Chrono 14” and “Chrono 24”. It also incorporated the billing and collection management procedures in its quality management systems.

Quality of service Results Results

2008 2009

“Chrono 10” 91.8% 94.1%

“Chrono 14” 92.3% 94.2%

“Chrono 24” 94.1% 96.5%

Performance

In 2009 Chronoexprés managed 28.7 million shipments, 2.4% less than in the previous year.

Net turnover reached 132.5 million euros, an 8.5% decrease. Result before tax was −4.7 million euros.


200

150

100

50

02008 2009

144.8132.5

-8.5 %

PARCEL VOLUMES

2008 2009

29,426.0 28,706.0

10,000

20,000

30,000

40,000

0

-2.4 %

In thousands

RESULT BEFORE TAXIn millions of euros

200

150

100

50

0

2008 2009

1.0-4.7

-565.9 %

70

Correo Híbrido

Correo Híbrido is the Correos Group subsidiary specialising in integral management of corporate mass communications. Its services cover all phases of the document production cycle: processing, design, printing, placing in envelopes, sorting and delivery to Correos facilities for delivery.

It also offers consulting and planning services, database management, digitisation and recording, automatic replies and returns, digital storage, fulfilment options and made-to-measure solutions for each sector.

Resources

The company carries out its services in three operating centres (two in Madrid and one in Barcelona), covering a total area of 6,400 square meters for production and storage. The investments made in recent years in new facilities were completed in 2009 with the incorporation of technical equipment valued above 400,000 euros in all of its infrastructure.

Its average workforce last year was made up of 195 members of staff. Permanent employment constituted 87% of the total, 6.3% more than in 2008. The percentages of men and women were 59% to 41% respectively.

7070


Temporary employment contracts 13%Permanent

employment contracts 87%

GENDER PROPORTION

Men 59%

Women 41%


ANNUAL REPORT 2009

71

Activities

Technological innovation, the search for lower corporate costs and the advance of e-government have favoured electronic communications becoming widespread. Correo Híbrido, with more than 140 clients across multiple sectors, continued developing solutions for the overall management of communication flows using both physical and electronic media.

The company added the Document Designer Advanced tool to speed up and improve design, composition and production tasks. This application allows a wide range of services to be provided, from the printing of transaction documents to undertaking direct marketing and on-demand environment actions.

Furthermore, progress was made toward implementing a quality management system. The subsidiary adopted the EFQM model, used by the rest of the Group, and applied the continuous improvement cycle to all areas of its activity.

Performance

The total number of digitisations carried out last year increased by 27.2%, while printed items and mail items handled decreased by 35.4% and 12.4% respectively.

Activity 2008 2009

Mail items handled 407.3 356.7

Printed items 799.0 516.3

Digitisations 18.7 23.8

In millions

Net turnover reached 12.8 million euros, 2.5% less than in 2008. The result before tax was −934.7 thousand euros, compared to a profit of 317.6 thousand euros the previous year.

NET TURNOVERIn thousands of euros

20,000

15,000

10,000

5,000

02008 2009

13,124.5 12,796.6

-2.5 %

RESULT BEFORE TAXIn thousands of euros

800

600

400

200

0

2008 2009

317.6

-934.7

-394.3 %

72

Correos Telecom

Correos Telecom is the Correos Group company responsible for managing the telecommunications network of the Parent Company, to which it provides services on a preferential basis.

Its corporate purpose also includes the promotion of surplus network capacity so that it can be marketed to third parties and provision of other telecommunication services. Its portfolio of assets includes leasing of dark fibre optics, rights to use pipelining, the provision of high capacity data circuits and leasing for the collocation of communications stations.

Resources

In 2009 the company had a staff of 57 employees, dedicated to commercial activities, management and the development of new services.

Activities

As regards Correos’ telecommunications network, the subsidiary contributed to increasing data transmission capacity. It also ensured the maintenance of optimum levels of average availability in the centres network, as well as proactive incident management.

2009

Centres 2,839

Data circuits 3,535

Voice circuits 4,919

Telephone lines 8,478

Data hardware 4,634

Switchboards 120

Empresas filiales

7272

Empresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filialeEmpresas filiales

1. Management of Correos’ telecommunications network

ANNUAL REPORT 2009

73

Correos Telecom also cooperated in technological projects with the Parent Company, including:

The introduction of the new main data processing centre for the Parent Company.

The development of data communications over Wi-Fi technology for the personal digital assistants (PDAs) used by delivery staff.

The use of the 3.5G mobile network as an alternative backup to the cable data communication network in Correos centres.

Last year the company promoted its consulting services. The telecommunications costs management service was the most widely-used service. It offers clients an analysis of contracts, rates and services with their telecommunications operators with the aim of adjusting their expenditure in these areas to their real needs.

Performance In 2009 Correos Telecom obtained net turnover of 7.3 million euros, a decrease of 27.1%. However, profit before tax stood at 500.3 million euros, 227.2% more than the previous year.

RESULT BEFORE TAXIn thousands of euros

800

600

400

200

02008 2009

152.9

500.3

227.3 %

NET TURNOVERIn thousands of euros

2008 2009

10,016.07,297.8

-27.1 %

20,000

15,000

10,000

5,000

0

The revenue generated by management and the marketing of telecommunications assets grew by 28.2%. Of that revenue, 22.7% was obtained through achieving new contracts.

REVENUE FROM MARKETING TELECOMMUNICATIONS ASSETS

Income from new contracts22.7%

Regular income77.3%


76

AUDITORS’ REPORT OF THE CONSOLIDATED ANNUAL ACCOUNTSTo the single shareholder of Sociedad Estatal Correos y Telégrafos, S.A.

We have audited the consolidated annual accounts of Sociedad Estatal Correos y Telégrafos, S.A. (the Parent Company) and its subsidiaries (the Group). The said accounts comprise the consolidated balance sheet as at 31 December 2009, the consolidated profit and loss account, the statement of changes in the consolidated net assets, the consolidated cash flow statement and the consolidated annual accounts report for the financial year 2009, the preparation of which is the responsibility of the Parent Company’s Directors. Our responsibility is to give an opinion on the aforementioned consolidated annual accounts as a whole based on the work carried out in accordance with generally accepted accounting standards, which require the examination, by means of selective tests, of evidence relevant to the consolidated annual accounts and the evaluation of their presentation, the accounting principles that have been applied and the estimates made.

In accordance with mercantile legislation, and for the purposes of comparison, the Parent Company’s Directors provide the figures corresponding to the previous financial year in addition to the 2009 figures for each section of the consolidated balance sheet, the consolidated profit and loss account, the statement of changes in the consolidated net assets, the consolidated cash flow statement and the consolidated annual accounts report. Our opinion refers exclusively to the consolidated annual accounts for the 2009 financial year. On 26 March 2009, other auditors released an audit report on the consolidated annual accounts for 2008 in which they expressed a favourable opinion.

As described in notes 3 and 4.e) of the consolidated annual accounts report, the Parent Company’s Directors have applied, for the first time, Order EHA/733/2010, of 25 March, which allows criteria to be applied which are different from those previously used to approve said report, with regard to the calculation and accounting of the decrease in value of assets that do not generate cash flow, as at 1 January 2009, the date said Order came into force. In accordance with what is allowed under said Order, the Parent Company’s Directors have not revised the comparative figures from the previous financial year. Consequently, comparisons between the two financial years should be made taking these circumstances into account. In this sense, in accordance with the stipulations of paragraph 2.a) of the Sole Temporary Provision on the transitory regime of said Order, these consolidated annual accounts are considered to be initial consolidated annual accounts.

1.

2.

3.

ANNUAL REPORT 2009

SOCIEDAD ESTATAL CORREOS Y TELÉGRAFOS, S.A. AND SUBSIDIARY COMPANIES

77

In our opinion, the consolidated annual accounts for the 2009 financial year attached herein express, in all important aspects, a true and faithful image of the consolidated assets and consolidated financial situation of the Sociedad Estatal Correos y Telégrafos, S.A. and its subsidiaries as at 31 December 2009, and of the consolidated results of its operations, the changes to its consolidated net assets and the consolidated cash flows corresponding to the financial year ending on said date. They are believed to contain the necessary and sufficient information for their appropriate interpretation and understanding, in accordance with the accounting principles and regulations generally accepted by applicable Spanish regulations, and they are coherent with the rules applied in the previous financial year, with the exception of the changes in accounting criteria agreed to and described in paragraph 3 above.

The attached 2009 consolidated management report contains the explanations the Parent Company’s Directors consider relevant regarding the Group’s position, the development of their businesses and other issues and does not form an integral part of the 2009 consolidated annual accounts. We have verified that the accounting information contained in the management report corresponds to that given in the 2009 consolidated annual accounts. Our work as auditors is limited to the verification of the management report with the scope mentioned in this paragraph and does not include the review of information not found in the accounting records of Sociedad Estatal Correos y Telégrafos, S.A. and its subsidiaries.

PricewaterhouseCoopers Auditores, S.L.

Miguel Martín-RabadánBoard Member – Accounts Auditor

30 March 2010

4.

5.


78

Consolidated balance sheet at 31 December 2009 and 2008 (Expressed in thousands of euros)

ASSETS NotesBalance at31/12/2008

Balance at31/12/2009

A) NON-CURRENT ASSETS

Intangible fixed assetsPatents, licences, trademarks and similarIT applicationsOther intangible fixed assets

6 16,528 27,321109

16,165 26,861143

254 317

Tangible fixed assetsLand and built assetsPlants and other tangible fixed assetsFixed assets in progress and advance payments

7

8

1,752,906 1,796,9401,298,929

292,429 312,9611,259,409

161,548 224,570

Property investmentsLandBuilt assets

7,321 7,457

5,4891,968 1,9685,353

1,066 1,057Long-term financial investments

Deferred tax assets

B) CURRENT ASSETS

18 18,09225,634

805,368

906 906

6,911 6,920

843,568

Non-current assets held for sale

Stocks

9

10

11Trade debtors and other accounts receivableClients by sales and provision of servicesOther debtorsStaffCurrent tax assetsOther credits with government bodies 8,050

502,767 407,819

371,568 373,83315,451 13,1899,142 10,5418,207 2,206

98,399

Short-term financial investments

Short-term accruals

Cash and other equivalent liquid resourcesCash and bank accountsOther equivalent liquid assets

11

12

645

1,803,455 1,850,867

8,578 102,386

884 872

285,322

2,608,823

324,665285,228 324,020

94

TOTAL ASSETS (A+B) 2,694,435

ANNUAL REPORT 2009


79

NET ASSETS AND LIABILITIES NotesBalance at31/12/2008

Balance at31/12/2009

A) NET ASSETSEquity 13 1,493,963 1,530,037

Other reserves Reserves at consolidated companiesResult for the financial year

Government contributions, donations and legacies received

B) NON-CURRENT LIABILITIES

14

Long-term provisions

Long-term debtsCreditors for financial leasingOther financial liabilities

1,880,712 1,949,082

2,608,823TOTAL NET ASSETS AND LIABILITIES (A+B+C) 2,694,435

Capital

ReservesLegal reserveReserves required by Articles of AssociationVoluntary reserves 344,492

611,521 611,521

281,003 281,003

598,530 559,56474,825 67,031

163,627 148,041360,078

160,341 160,341

(161,659)

79,267

(160,394)

2,962

80,725

386,749 419,045

275,743 267,280

104,99615

94

3,652 4,723

3,519 4,629133

Deferred tax liabilities

Long-term accruals

C) CURRENT LIABILITIES

18 181,832166,975

120

250 320

-

478,073452,368

Short-term provisions

Short-term debts

Trade creditors and other accounts payable

16

16SuppliersOther creditorsStaffCurrent tax liabilitiesOther debts with government bodiesCustomer advances 30,271

387,110

64,826

182 -

103,528

374,2254,147 2,238

268,930 259,07241,774 28,840

- 1,69148,923 52,11323,336

Short-term accruals

Share premium account


80

Consolidated profit and loss account for the financial years ending31 December 2009 and 2008 (Expressed in thousands of euros)

CONTINUED OPERATIONS NotesFinancial year

2008 Financial year

2009 Net turnoverProcurementConsumption of merchandiseDepreciation of merchandise, raw materials and other procurementOther operating revenueAccessory and ordinary activities incomeOperating c ontributions included in result of financial year 37,631

17-a) 2,186,990 2,296,162

(18,278) (16,609)17-b)

10

(16,884) (15,586)

(1,394) (1,023)92,358 41,5237,027 3,892

17-c) 85,331Staff costsWages, salaries and similar remunerationSocial security contributionsOther expenses (12,237)

(1,646,055) (1,620,230)(1,393,811) (1,374,011)

17-d) (241,356) (233,982)(10,888)

Other operating expensesExternal servicesTaxes

Losses, depreciation and variation of provisions

(514,248) (537,454)17-e) (500,494) (524,711)17-f) 839 (1,584)

(3,659) (2,793)(10,934) (8,366)

Allocation of government contributions in the form of non-financial and other fixed assetsExcess provisions Depreciation of and result for disposal of fixed assetsDepreciation and lossesResults for disposals and others (1,269)

6,7,8 (123,838) (117,363)

14 60,757 48,46615 2,476 987

17-g) (49,229) (12,030)(41,159) (10,761)(8,070)

OPERATING RESULT 83,452(9,067)

Other expenses from ordinary activitiesfor trade operations

Amortisation of fixed assets

Financial income

For negotiable securities and other financial instruments:For third parties

Financial expensesFor debts with third partiesFor updating provisionsExchange differences 4,416

17-h)

17-h)

18

4,968 21,981

4,968 21,981(1,392) (1,287)(578) (214)(814) (1,073)5,107

FINANCIAL RESULTRESULT BEFORE TAX

CONSOLIDATED RESULT OF THE FINANCIAL YEAR

Tax on earnings

79,267

8,683 25,110

(384) 108,562

3,346 (29,295)

2,962

ANNUAL REPORT 2009


81

Consolidated cash flow statement for the financial years ending 31 December 2009 and 2008 (Expressed in thousands of euros)

A) OPERATING ACTIVITIES Notes

Consolidated result for the financial year before taxAdjustments to the consolidated resultAmortisation of fixed assetsValuation adjustments for depreciation

Provisions variationAllocation of capital contributionsResults for removals and disposals of fixed assetsFinancial incomeFinancial expensesExchange differencesOther income and expensesChanges in the current capitalIncrease in stocks Increase in debtors and other accounts receivableDecrease in other current assetsIncrease in creditors and other accounts payableIncrease in other current liabilitiesOther non-current assets and liabilities (+/-)

819

(384) 108,562

6,7,8 123,838 117,3637,10,11 42,039 12,997

25,264 77614 (60,757) (48,466)

13,296 2,85517-h)17-h)

(4,968) (21,981)814 1,287

(497) (154)(12)

(269)

(1,385) (2,920)

(97,244) (17,152)15,059 4,06914,576 17,0915,043 3,043

(8,166)Other operating activities’ cash flow Interest paymentsInterest chargesPayments for tax on earnings (41,436)

(366) (213)7,910 21,271

(12,110)

TOTAL CASH FLOWS FOR OPERATING ACTIVITIES 157,54261,950

B) INVESTMENT ACTIVITIES

Payments for investmentsIntangible fixed assetsTangible fixed assetsProperty investments

Other financial assets 11

(9,242)

(90,000)-

-

- (45)(227,389)(149,298)(15,941)

Charges for withdrawal of investmentTangible fixed assetsOther financial assets

TOTAL CASH FLOWS FOR INVESTMENT ACTIVITIES (333,338)

243 3790,000

(68,297)

Financial year2008

Financial year2009


82

C) FINANCING ACTIVITIES Notes

Charges and payments for equity instrumentsGovernment contributions, donations and legacies received

Payments for dividends and accruals from other equity instruments Dividends (51,958)

14 5,970 52,934

13 (38,966)

TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 976(32,996)

NET DECREASE IN CASH OR EQUIVALENTS (A+B+C) (174,820)(39,343)

Cash and other equivalent liquid resources at the start of the financial year

Cash and other equivalent liquid resources at the end of the financial year 324,665

324,665 499,485

285,322

Financial year2008

Financial year2009

ANNUAL REPORT 2009


83

Statement of changes in the consolidated net assets for the financial years ending 31 December 2009 and 2008(Expressed in thousands of euros)

NotesA) Result of the consolidated profit and loss account

B) Income and expenses directly allocated to the consolidated net assets:

Government contributions, donations and legacies received Tax effect

C) Transfers to consolidated profit and loss account:

Government contributions, donations and legacies received:- due to amortisation- due to adjustments for depreciation Tax effect

79,267

40,422

(33,933)

2,962

10,234

(42,530)

14

14

(17,324)14,620 57,746(4,386)

14,533

(45,275) (48,466)(15,483) -

18,228

TOTAL RECOGNISED INCOME AND EXPENSES (A+B+C) 85,756(29,334)

A) Statement of recognised consolidated income and expenses for the financial years ending 31 December 2009 and 2008:

Financial year2008

Financial year2009


84

B) Total statement of changes in the consolidated net assets for the financial year ending 31 December of 2009 and 2008:

Final balance 2007 financial yearAdjustments due to conversion of general accounting plan

Registered capital

Voluntary reserves

Legal reserve

Share premium account

Reserves of the Parent Company

611,521 281,003 56,639 463,377

-

-

-

-

-

--

-

-

-

-

-

--

-

-

--

-

--

-

-

-

-

- - (12,410)

Adjusted balance at start of 2008 financial year 611,521 281,003 56,639 450,967

Total recognised consolidated income and expenses Operations with the Sole Shareholder:

Other variations in the consolidated net assetsFinal balance 2008 financial year/

Payment of dividends

BALANCE START OF 2009 FINANCIAL YEAR

BALANCE END OF 2009 FINANCIAL YEAR

10.392 41.566

611,521 281,003 67,031 492,533

Total recognised consolidated income and expenses Operations with the Sole Shareholder:

Other variations in the consolidated net assets

Operations with sharesPayment of dividends

7,794 31,172

611,521 281,003 74,825 523,705

ANNUAL REPORT 2009


85

Reserves at consolidated companies

Other reserves

Results in previous

financial years

Consolidated result of the

financial year

Government contributions,

donations and legacies

received TOTAL

156,676 (154,985) -

-

-104,481 1,518,712

399,599

-

--

-

-

- -

--

--

--

-

-

-

-

-

-

-

-

- -

-

- -(547) 412,556

1,918,311156,676 (155,532) 104,481 412,556

85,75679,267 6,489

(51,958)(51,958)

(3,027)3,665 (6,127) 51,958 (104,481)

1,949,082160,341 (161,659) - 79,267 419,045

(29,334)2,962 (32,296)

(70) (70)(38,966) (38,966)

1,335 38,966 (79,267)

1,880,712160,341 (160,394) 2,962 386,749


86

Consolidated annual accounts report for the financial year ending 31 December 2009

(1) Company activity

Sociedad Estatal Correos y Telégrafos S.A. (hereinafter, Correos, the Parent Company, or the Company) was incorporated as a public limited company [sociedad anónima estatal] pursuant to article 6.1.a) of the Consolidated Text of the Ley General Presupuestaria (the Budget Act) enacted by Royal Decree 1091/1988, of 23 September, and additional item twelve of the Ley 6/1997, de 14 de abril, de Organización y Funcionamiento de la Administración General del Estado (the Central Government Organisation Act, of 14 April 1997), by a resolution of the Council of Ministers dated 22 June 2001, under article 58.1 of the Ley 14/2000, de 29 de diciembre, de Medidas Fiscales, Administrativas y del Orden Social (the Tax, Administrative and Social Measures Act, of 29 December 2000). Since it was founded, the Company has been governed by the Ley de Sociedades Anónimas (the Companies Act), by all other applicable laws and regulations, and by its Articles of Association.

Under articles 58.2 and 58.3 of the aforementioned Tax, Administrative and Social Measures Act, the Company began its operations, and was automatically subrogated to the activities, assets, rights and obligations of the former Entidad Pública Empresarial Correos y Telégrafos (hereinafter, the Entity), on 3 July 2001, the day of registration with the Registro Mercantil (the Spanish business register) of the public deed of incorporation of the Company, dated 29 June 2001. From that day, the Company took on all of the functions carried out by the Entity and was subrogated to the status of authorised operator for the provision of the universal postal service entrusted to the former Entity by additional item one of the Ley 24/1998, de 13 de julio, del Servicio Postal Universal y de Liberalización de los Servicios Postales (the Postal Act, of 13 July 1998).

Pursuant to article 58.4 of the Tax, Administrative and Social Measures Act, the Company owns, as of its incorporation, all the assets, rights and obligations of the former Entity. The state-owned assets transferred from the former Entity to the Company at the time of its incorporation were removed pursuant to article 58.4 of the aforementioned Tax, Administrative and Social Measures Act. Nonetheless, the Central Government, through the Dirección General del Patrimonio del Estado (Directorate General for State Assets), has a pre-emptive right over certain buildings belonging to the Company, in accordance with the Council of Ministers’ decision authorising the incorporation of the Company. The exercise price of that right of first refusal will be set by surveyed value appraised by the technical units of the Directorate General for State Assets, which will use a property valuation prepared by a public corporation specialising in property surveying. The lease rights are likewise reserved in the case that the Company decides to operate those buildings.

In accordance with article 21 of Royal Decree 176/1998, of 16 February, which approved the setting up of the former Entity (to whose rights and obligations the current Company was subrogated by the Tax, Administrative and Social Measures Act) and without prejudice to that expressed above, the Company may purchase, own, lease, exchange and dispose of any type of assets, without it being necessary for it to return its own assets deemed to be unnecessary for its purposes to the State Assets. However, the

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Company shall previously notify the Directorate General for State Assets before disposing of assets worth over 6 million euros, which in any event shall be approved by the Company’s Governing Board.

Furthermore, under article 58.7 of the Tax, Administrative and Social Measures Act, public employees who were actively employed by the former Entity at the time of registration of the public deed of incorporation of the Company became employees of the Company without interruption, under the same employment terms and retaining their status as Central Government civil servants in their respective divisions and grades, with length of service, established pay and acquired rights being wholly preserved. Labour relations between this type of employee and the Company are regulated by Royal Decree 370/2004, of 5 March, which approved the Sociedad Estatal Correos y Telégrafos, S.A. Workers’ Statute.

In addition, and pursuant to article 58.17 of the aforementioned Tax, Administrative and Social Measures Act, any worker contracted by the Company to provide his/her services from the time when it started to trade shall be engaged under an ordinary employment contract.

Some of the services provided by the Company come under the heading of universal postal service as established by the Postal Act. Pursuant to that legislation, a significant part of those services is exclusively reserved for the Company. Under article 30 of that Act, the financial considerations for providing these services shall be set and must be authorised by the competent authorities. The prices of the non-reserved postal services provided by the Company may be freely set according to market conditions and within the legally envisaged restrictions.

The Postal Act grants the Company, as operator in charge of providing universal postal service, a series of remuneration sources to finance the costs arising from the obligations to provide that service, which result in certain exclusive rights being established, such as the services reserve system and the financing of the costs arising from providing this service, by means of the universal postal service compensation fund (not set up as at the date of this report). The Act likewise envisages a complementary allocation system by the State should the providing of the universal postal service be a burden for the operator in question, not offset by reserved services and the compensation fund. This complementary allocation takes the form of operating and capital contributions covered by the Spanish National Budget.

Therefore, article 29 of the Postal Act establishes the obligation for the aforementioned operator to keep a duly audited analytical accounting system, with separate accounts being kept for each reserved service and for the non-reserved services, at the very least. This obligation is regulated by the Orden FOM/2447/2004, of 12 July, concerning analytical accounting and the separation of accounts of postal operators.

The Postal Act assures that general access to the postal network, through the operator appointed by the Central Government to provide the universal postal service, be available to all users and, where applicable, to postal operators on whom the law imposes universal postal service duties, in terms of transparency, non-discrimination and impartiality. Furthermore, article 23.5 of said Act prescribes that


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postal operators other than those appointed by the Central Government to provide the universal postal service must negotiate the terms for access to the public postal network with the relevant universal postal service provider managing that network (currently Correos) so as to preclude any collective agreement, decision or recommendation, or agreed or knowingly parallel practice aimed at restricting or distorting competition in the Spanish postal market.

Royal Decree 1298/2006, of 10 November, laid down the regulations for access to the public postal network and establishes the procedure to resolve disputes between postal operators by setting benchmark terms and conditions for access to the network by all postal operators with individual licences that so request. The benchmark terms and conditions of network access shall be made public, shall serve as guidelines and shall set out the technical and economic provisions for access to the public postal network which in turn serve as the basis for bilateral agreements between the operator in charge of the universal postal service and all other postal operators. The benchmark terms and conditions shall be fixed following principles of transparency, impartiality and non-discrimination in the terms and prices of access for all operators.

On 23 April 2007, the Public Works Ministry approved the provisional benchmark terms and conditions for access to the public postal network, managed by the Company. These terms and conditions are guidelines and contain the technical and economic provisions for access to the public postal network which serves as the basis for bilateral agreements between the Company, as operator in charge of the universal postal service, and other postal operators.

The Ley 23/2007, de 8 de octubre, de creación de la Comisión Nacional del Sector Postal (Act 23/2007, of 8 October, creating the Spanish National Commission for the Postal Sector (hereinafter, CNSP)), set up this regulatory body, whose main objective is to ensure transparency and the appropriate functioning of the postal sector, as well as to meet the demands of open competition. At 31 December 2009, the CNSP had yet to constitute its Governing Council, as set out in the first additional provision of the aforementioned law and, at that date, its functions had been attributed to the Under-Secretary for Development under Royal Decree 1037/2009, of 29 June, modifying and developing the basic organisation structure of the Public Works Ministry. One particularly important function among those assigned to the CNSP’s Governing Council is that of determining, on an annual basis, the net cost or burden of providing the USO which rests upon the operator to which it was designated.

On 11 December 2009, Royal Decree 1920/2009 was approved, in accordance with that set out by the fourth last provision of Act 23/2007. This Decree passed the general regulation for the abovementioned Act 23/2007.

Pursuant to article 2 of the Articles of Association, the corporate purpose of the Company, whose registered address is at Vía Dublín nº7 in Madrid, is as follows:

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To manage and operate postal services of any kind.

To provide money order and money transfer services.

To receive applications, written submissions and notices from the public to government bodies, subject to applicable laws and regulations.

To serve government and court notices in accordance with applicable laws and regulations.

To provide telegram, telex and bureaufax services and undertake other activities and services relating to telecommunications.

To propose stamps to be issued, issue all other forms of payment for postal services, and sell and distribute its products and issues.

To provide, on a mandatory basis, such services relating to its purpose as government bodies may order.

To carry on any other activities or services complementing the above or which may be needed for the proper undertaking of the Company’s purpose. To this end the Company may create and control holdings in other companies.

The Company holds signed contracts with the various Central Government Ministries to provide postal and telegraphic services.

The sole shareholder of the Company is the Central Government of Spain, through its Directorate General for State Assets. Therefore, under additional item two of the Ley 2/1995, de 23 de marzo, de Sociedades de Responsabilidad Limitada (the Limited Liability Companies Act, of 23 March 1995), which amends the Consolidated Text of the Companies Act, enacted by Royal Decree 1564/1989, of 22 December, the Company is a company wholly owned by a sole shareholder.

The Company is the head of a group of companies known as Correos Group. The annual accounts of the Company corresponding to the financial year ending 31 December 2008, both individual and consolidated, were drawn up by the Governing Board of Correos on 26 March 2009 approved by its Sole Shareholder on 29 April 2009, and subsequently filed at Madrid’s Registro Mercantil (the Spanish business register).


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(2) Structure of the Correos y Telégrafos Group

The Parent Company’s subsidiaries that comprise the Correos y Telégrafos Group (hereinafter, the Group or the Correos Group) falling within the scope of consolidation as at 31 December 2009 were the following:

Chronoexprés, S.A., has its registered address at Avenida de Europa, 8 in Coslada (Madrid) and provides goods delivery services, auxiliary and complementary courier activities and collection, sorting and distribution of goods and parcels. The main activity of Chronoexprés, S.A. is the transport of documents and small parcels, both nationally and internationally.

Correos Telecom, S.A., has its registered address at Calle Conde de Peñalver, 19 in Madrid and its corporate objective, coinciding with its principal activity, consists of managing the telecommunications network owned by the Company, providing telecommunication services, mediating, promoting and selling surplus capacity belonging to the Company’s telecommunications network and providing postal service-related telecommunication services.

Correo Híbrido, S.A., in turn, has its registered address at Calle Hiedra, 7 in Madrid and its corporate objective, coinciding with its principal activity, consists of providing hybrid mail services. Hybrid mail refers to postal services which allow the client to send documentation to Correo Híbrido, S.A. telematically or electronically. The latter becomes responsible for printing the contents on sheets which are subsequently sealed in envelopes and deposited in the Company’s admission centres for delivery to addressees.

Pursuant to the Royal Decree 1564/1989, of 22 December, which approved the consolidated text of the Companies Act, the Parent Company has informed subsidiary companies as regards its percentage of shareholding in the same.

The statements corresponding to 31 December 2009 and 2008 for the equity instruments of the Parent Company held by Correos Group, before the standardisation and/or consolidation adjustments, is as follows:

Company name Main activity

Correos Telecom, S.A.

Correo Híbrido, S.A.Chronoexprés, S.A.

Registered address

Management of the Company’s telecommunications network

c/ Conde de Peñalver, 19(Madrid)

Hybrid mail services c/ Hiedra, 7 (Madrid)Avenida de Europa, 8Coslada (Madrid)

Courier services for documents and small parcels

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Chronoexprés ChronoexprésCorreos

TelecomCorreoHíbrido

Net book value

Total net assets

7,409 1,503 1,5031,022 1,02210,349

Direct shareholding (%)

Operating result

Share capitalShare premium accountLegal reserveOther reservesNegative results from previous yearsProfits / (losses) of the financial year

100% 100% 100% 100% 100% 100%

Financial year 2009 Financial year 2008

CorreosTelecom

CorreoHíbrido

63 621,503 1,503974 97459,487 -

-

- -

-

-

-

48 4852,488105258 127 247(56)(560) 1,873 126 (490) 1,771

(51,290) (18)(52,290)

222(4,659) 355 (654) 1,000 113

1,2753,041 3,989 621 770 3,634

593(4,714) 497 (503) 1,533 9

On 22 December 2009, the Parent Company, as the sole shareholder in Chronoexprés, S.A., agreed to increase the latter’s capital with the objective of redressing the balance between its share capital and net assets. That operation was completed by issuing an ordinary share with a nominal value of 1,000 euros and a share premium of 6,999 thousand euros. This increase, made public on 28 December 2009, was fully subscribed and paid out by the Parent Company by means of a loan, due, in cash and demandable, that the Parent Company held for its subsidiary on the aforementioned date.

(3) Basis for presenting the consolidated annual financial statements

When preparing these consolidated annual accounts, the Parent Company Directors applied the Royal Decree 1815/1991, of 20 December, which approves the regulations for the preparation of consolidated annual financial statements, in all points that do not contradict the accounting regulations included in the new Spanish Generally Accepted Accounting Principles approved by Royal Decree 1514/2007, of 16 November, (hereinafter GAAP). Furthermore, they applied the “Note from the Accountancy and Accounts Auditors Institute regarding the criteria applicable in the preparation of consolidated annual financial statements as per the criteria set out in the Commerce Code for the financial years beginning from 1 January 2008”, in addition to all other company law in force on 31 December 2009. In particular:


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The annual financial statements of the Parent Company are consolidated with those belonging to subsidiaries (see note (2)) using the full consolidation method. The Company holds all voting rights in all consolidated companies.

Inter-Group balances, transactions and significant results have been eliminated in the consolidation process.

Where subsidiaries have followed significantly different accounting or valuation principles from those of the Parent Company, adjustments have been made as needed to present the consolidated annual financial statements of the Group in a standardised manner.

The variations in reserves belonging to different subsidiaries between their respective dates of coming under the control of the Parent Company or of first consolidation to 31 December 2009 are covered by the item ‘Reserves at consolidated companies’ on the consolidated balance sheet.

As regards the accountancy changes registered since the application of the GAAP, and under the requirements of said regulation, the Parent Company Directors prepared a consolidated opening balance sheet for 1 January 2009, which is considered the transition date. This document:

Recorded all of the assets and liabilities whose recognition is required by the GAAP.

It cancelled all of the assets and liabilities whose recognition is not permitted by the GAAP.

It re-classified all of the equity elements in line with the definitions and the criteria included in the GAAP.

The effects deriving from the first two preceding points were directly consolidated during the previous financial year in the net assets of Correos Group.

As regards the depreciation of the assets registered under the “Tangible fixed assets” caption, the Parent Company applied the stipulations of Orden EHA/733/2010, of 25 March, approving accounting aspects for public companies operating in certain circumstances. The scope of application of said Ministerial Order includes member bodies of the public business sector at national, regional and local level, independently of its legal nature, which should apply the accounting principles and regulations in the Commerce Code and in the GAAP and which, given the strategic or public utility nature of its activity, regularly deliver goods or provide services to other bodies or users without consideration, or in exchange for a fee, or a political price set directly or indirectly by the Administration.

Furthermore, and given that the Ministerial Order mentioned in the above paragraph is to be applied to annual accounts prepared after effective date, 1 January 2009, as per the Single Transitory Provision on the transitory Regime, the Parent Company has opted to set 1 January 2009 as the first application date, without adapting the comparative information to the new criteria. Accordingly, these annual

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accounts are considered initial accounts for the effects derived from the application of the uniformity principle and the comparability requirement.

These consolidated annual accounts have been drawn up by the Parent Company Directors, so they can be submitted for approval by its Sole Shareholder. The Parent Company Directors believe that they will be approved with no modifications.

A) True and fair view

These consolidated annual financial statements have been prepared on the basis of the accounting records of the companies that make up Correos Group, and in accordance with the legal regulations on accounting in force at 31 December 2009, to provide a true and fair view of the assets, financial situation and results of the Group. The consolidated cash flow statement has been prepared with the aim of truthfully reporting the origin and the use of the monetary assets representing cash and other equivalent liquid assets of the Group.

The figures contained in these consolidated annual financial statements are expressed in thousands of euros, unless stated to the contrary, with the euro being the functional currency of the Parent Company.

B) Critical aspects of the valuation and estimation of the uncertainty

In preparing the consolidated annual financial statements, the Parent Company Directors have had to use judgments, estimates and assumptions that have a bearing on the application of the accounting policies and the balances of assets, liabilities, income and expenses and the breakdown of contingent assets and liabilities at the date of issue of the same.

The related estimates and assumptions are based on historical data and on other diverse factors which are understood as being reasonable in accordance with the circumstances; they are used as a base in order to establish the book value of the assets and liabilities that are not easily available by means of other sources. The respective estimates and assumptions are reviewed continuously; the effects of the reviews of the book estimates are recognised in the period in which they were made, if they affect only that period, or in the period of review and future periods, if the review affects both of these. However, the inherent uncertainty of the estimates and assumptions may lead to results that require a future adjustment of the book values of the affected assets and liabilities.

Apart from the general process of generating systematic estimates and reviewing them periodically, the Parent Company Directors have completed certain value judgments regarding topics of particular importance concerning the consolidated annual financial statements.


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The main judgments relating to future events and other sources of uncertain estimates at the date on which the consolidated annual financial statements were drawn up are as follows:

Leasing obligations –Correos Group as lessee

Correos Group has signed leasing contracts for the undertaking of its activities. The classification of said leasing contracts as operating or financial requires that, based on the terms and conditions of these agreements, Correos Group determine who retains all of the risks and benefits of the ownership of the assets, and according to that classification, the contracts will be classified as operating or financial leasing contracts.

Leasing obligations –Correos Group as lessor

Correos Group maintains different agreements with third parties to lease certain assets under its ownership. The Group has determined that, based on the evaluation of the terms and conditions of these contracts, it retains all ownership risks and benefits of the same, thereby recognising these contracts as operating leases. Tax situation

As set out in current legislation, taxes may not be deemed definitively settled until the filed tax statements have been inspected by the tax authorities or the statute of limitations has passed. In the opinion of the Parent Company Directors, at 31 December 2009 there are no contingencies other than those recorded in these consolidated annual financial statements which could represent significant liabilities for the Parent Company and/or its subsidiary companies in the event of an audit.

The principal assumptions and estimates relating to future events and other sources of uncertain estimates at the date of the drawing up of the consolidated annual financial statements are as follows:

Deferred tax assets

The recognition of the deferred tax assets is made on the basis of the future estimates made by Correos Group relating to the probability of future taxable gains being available, or the existence of deferred liability amounts to fund them during the same periods of time.

Provisions

Correos Group recognises provisions for risks, in accordance with the accounting policy stated in the note (5-k) of this report on “Provisions and contingencies”. Correos Group makes judgments and estimates regarding the probability with which said risks may occur, as well as their amount, and it records a provision when the risk has been considered likely, estimating the costs that said obligation would incur.

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Depreciation of non-financial assets

In general terms, Correos Group analyses on a yearly basis whether there are indicators for depreciation of non-financial assets. In the specific case of non-financial assets other than the intangibles with an indefinite service life, the Group subjects them to value depreciation tests when there is evidence of said depreciation.

Calculation of reasonable values, values in use, current values and values that can be recovered

The calculation of reasonable values, values in use, current values and values that can be recovered implies calculating future cash flows and assuming hypotheses related to the future values of the flows, as well as the discount rates applicable to the same. The related estimates and assumptions are based on historical data and on other diverse factors which are understood to be reasonable in accordance with the circumstances.

C) Comparison of the information

As indicated in the third part of the GAAP regarding “Regulations for the preparation of annual accounts”, and in keeping with the criteria included by the latter in the international regulations adopted, the Parent Company Directors have included in this report quantitative information corresponding to the previous financial year.

In addition to the comparative numerical information corresponding to the previously filed financial year, and where relevant for the understanding of this consolidated annual report, the Parent Company Directors have included descriptive information regarding the previous period.

As mentioned previously regarding the entry into force of the Orden EHA/733/2010, of 25 March, approving accounting aspects for public companies operating in certain circumstances, this consolidated annual accounts are the first to be prepared applying said criteria and they are therefore considered initial accounts for the purposes derived from the application of the uniformity principle and the comparability requirement.

(4) Application of the results of the Parent Company

The proposal for distribution of results drawn up by the Parent Company Directors and pending approval by its Sole Shareholder is as follows:


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Distribution base: Losses of the financial year (2,020)Reserves required by Articles of AssociationVoluntary reserves

Total

Thousands of euros

528,748

163,627367,141

Application proposal: To reserves required by Articles of Association To voluntary reserves To negative results from previous financial years

Total 528,748

163,627367,141

(2,020)

Limitations on the distribution of results and dividends

Pursuant to section 214 of Royal Decree 1564/1989, of 22 December, whereby the consolidated text of the Companies Act was passed into law, companies are obliged to use 10% of the profits from each financial year to establish the Legal Reserve until this reaches at least 20% of the Share Capital. This reserve cannot be distributed to the shareholders, and it can only be used to cover the negative balance of the profit and loss account in the event that other reserves are not available.

In addition, the Parent Company Articles of Association require that 20% of the profits from the financial year be used to establish the Articles of Association reserves. These reserves can be freely disposed of.

(5) Recording and valuation rules

The principal recording and valuation criteria used by the Parent Company in preparing these consolidated annual financial statements, pursuant to the terms set out in the Spanish Generally Accepted Accounting Principles approved by Royal Decree 1514/2007, are as follows:

(A) Intangible fixed assets

Intangible fixed assets are valued at their purchase price or at their production cost, reduced by the accumulated amortisation and by the possible losses due to depreciation of their value. An intangible asset is recognised as such if and only if it is likely to generate future profits and its cost can be valued in a reliable manner.

An intangible fixed asset with a defined service life is systematically amortised throughout its estimated service life and its recoverability is analysed when events or changes take place that indicate that the

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net book value may not be recoverable. The methods and periods of amortisation applied are reviewed at the close of the financial year, and they are adjusted prospectively as appropriate.

IT applications

These are recorded at their acquisition cost and are amortised by the straight-line method throughout their estimated service life which, in general terms, ranges between three and five years. The IT application maintenance costs are taken to expenses when they are incurred.

Patents, licences, trademarks and similar

These are recorded at the actual cost paid for certain purchased patents and amortised over a ten year period.

(B) Tangible fixed assets

Tangible fixed assets are valued at their acquisition cost or contribution value to the Parent Company by the former Entity, reduced by the accumulated amortisation and, as appropriate, by the accumulated amount of the recognized valuation adjustments for depreciation. The contribution value mentioned above does not differ from the book recording criterion laid down by the Spanish GAAP.

Tangible assets are amortised from the time at which they are made available for commissioning and are amortised systematically and rationally (on the basis of their service life and of their residual value), using a straight-line method during the following years of estimated service life:

Buildings and other built assets

Information processing systems

Plants and machinery

Transport elements

Other fixtures, tools and furnishings

Other fixed assets 3 – 11

30 – 753 – 335 – 203 – 86 – 10

Likewise, should there be indices of depreciation, Correos Group evaluates the need to make valuation adjustments to the elements that form part of its tangible fixed assets, with the aim of consistently allocating them to the lesser of either their book value or the amount that can be recovered. Maintenance and repair costs for tangible fixed assets that do not improve utility or lengthen lifetime are taken to the profit and loss account at the time of accrual.


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The investments made by Correos Group in property owned by third parties that meet the requirements to be considered as operating leases are valued, provided that these are not separated from the leased or transferred asset in use, at the cost of said investments and amortised during an estimated service life of 20 years, provided that the contractual conditions on the basis of which the properties are used so permit.

Expenditures on adapting provisionally rented premises during renovation of other premises are capitalised and amortised in the year in which they are incurred. The effect of not systematically amortising such expenditures over the estimated duration of the renovation process is not significant for these annual financial statements taken as a whole.

(C) Property investments

The property investments comprise land and built assets that are leased to third parties. The built assets are amortised using a straight-line method on an estimated service life of 35-75 years.

The regulations for evaluating tangible fixed assets are wholly applicable to property investments.

(D) Operating and financial leases

Correos Group assesses leasing contracts as financial when it can be deduced from their economic conditions that all of the risks and benefits inherent in the ownership of the asset object of the agreement are substantially transferred. The agreements that do not substantially transfer all of the risks and benefits and in which the lessor is only entitled to use the asset for a certain period of time are classified as operating leases.

Correos Group as lessee

The assets acquired by means of financial leases are recorded according to their nature at the lesser value between the reasonable value of the asset and the current value at the start of the minimum agreed payments at the start of the lease, with a financial liability being recorded for the same sum. The payments for the lease are distributed between the financial costs and the reduction of the liability. For these purposes, the same amortisation, depreciation and cancellation criteria are applied as to all other assets of this nature.

Payments for operating leases are recorded as costs in the consolidated profit and loss account on the basis of their accrual.

Correos Group as lessor

The earnings from operating leases are recorded as costs in the consolidated profit and loss account on the basis of their accrual. The direct costs that can be allocated to the agreement are included as a

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higher value of the leased asset and are recognised by applying the same criterion used for recognising the earnings from the lease.

(E) Depreciation of the value of the non-current, non-financial assets

Assets not generating cash flows

The Parent Company’s main activity is the provision of a general interest public service, the universal postal service, in exchange for which it receives a price set directly or indirectly by the Government. In this way, the vast majority of the property comprising the Parent Company’s tangible and intangible fixed assets is held mainly with a view to producing socio-economic flows benefiting society. It does not correspond to investments in assets with the sole objective of economic profitability and whose recovery would be based on the economic flows produced.

In accordance with the point above, and in application of the stipulations of Orden EHA/773/2010, of 25 March, approving accounting aspects for public companies operating under certain circumstances, the Parent Company determines the depreciation in the value of its tangible and intangible assets with reference to the depreciated replacement cost of each asset.

Remaining assets

Should there be indices of depreciation, the book value of the non-current, non-financial assets of Correos Group is reviewed, by the date of the close of the financial year at the latest, in order to determine whether such indices are predominant. The value of these assets which can be recovered is estimated where such indices exist, and also in all cases where there is an intangible asset with an unlimited service life.

The value that can be recovered is either the reasonable value less the costs of sale or its value in use, whichever is higher. In order to determine the value in use, future cash flows are discounted at their current value, using before-tax discount rates that reflect the current market estimates of the temporary valuation of the funds and of the specific risks associated with the asset. For those assets that do not generate highly independent cash flows, the recoverable amount is determined for the cash-generating units to which the valued assets pertain.

Losses for depreciation are recognised for those assets or, as appropriate, for the cash-generating units comprising them, when their book value exceeds the corresponding recoverable amount. Losses for depreciation are recorded within the profit and loss account and are reverted, except if originating from goodwill, if there have been changes in the estimates used in order to determine the recoverable amount. The reversal of a loss due to depreciation is recorded in the profit and loss account, with the restriction that the book value of the asset after the reversal cannot exceed the amount, net of amortisations, that would appear in the books had the aforementioned loss due to depreciation not been previously recognised.


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(F) Financial assets

The financial assets of Correos Group correspond to accounts receivable from clients, debtors, staff and government bodies, established deposits and guarantees, acquired capital instruments and cash and other equivalent liquid assets.

Correos Group classifies its financial assets into the following categories for the purposes of evaluation:

Loans and entries receivable: these include the financial assets which, not being negotiated in any organised asset market, have expected cash flows in a determined or determinable sum and for which it is estimated that the whole of the disbursement made by the Company can be recovered, except for reasons attributed to the solvency of the debtor. This category records the loans for trade and non-trade operations, loans to staff, the debtor accounts with government bodies and the established deposits and guarantees.

Financial assets available for sale: including the acquired capital instruments.

Cash and other equivalent liquid assets: see note (i).

The financial assets that are going to be realised in less than 12 months from the date of preparation of the consolidated balance sheet are classified as current, and those to be realised in a longer period are classified as non-current.

In their initial recognition, the financial assets are recorded at their reasonable value which, unless there is evidence to the contrary, is the price of the transaction plus the transaction costs that are directly attributable thereto.

Following the initial recognition, Correos Group values its financial assets as set out below:

The financial assets included in the category of “Loans and entries receivable” are valued at the amortised cost.

The financial assets included in the category of “Financial assets available for sale” are valued at their cost, less, as appropriate, the accumulated amount of the valuation adjustments, since their reasonable value cannot be reliably estimated.

Cash and other equivalent liquid assets: see note (i).

Notwithstanding the above, the loans for trade operations maturing in one year or less and which do not have a contractual interest rate are valued at their nominal value, both in the initial valuation and in the subsequent valuation, when the effect of not updating the cash flows is not significant.

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In the case of the loans for trade operations having a contractual interest rate, the interest accrued is recorded in the consolidated profit and loss account, applying the effective interest rate method.

Correos Group cancels a financial asset, or a part of the same, when the contractual rights over the effective movements of the financial asset expire or are transferred. It is necessary for the risks and benefits inherent in their ownership to be substantially transferred. These circumstances are evaluated by comparing the exposure of Correos Group, before and after the transfer, to the variation in the amounts and in the scheduling of the net cash flows of the asset transferred.

(G) Depreciation of value of the financial assets

The book value of the financial assets is corrected by debiting the consolidated profit and loss account when there is objective evidence that a loss due to depreciation has taken place. In order to determine the losses due to depreciation Correos Group evaluates the possible losses of both the individual assets and the groups of assets with similar risk characteristics by the end of the financial year at the latest.

There is objective evidence of depreciation when non-payments, breaches, re-financings or possibilities of not recovering the cash flows have taken place, or there is delay in collecting payment.

For loans and other entries receivable, the amount of the losses due to depreciation is equal to the difference between their book value and the current value of the future cash flows estimated to be generated, discounting the effective interest rate at the time of their initial recognition.

The reversal of the depreciation of the loans and entries receivable is recognised as revenue in the consolidated profit and loss account and is limited to the book value of the financial asset that would have be recorded on the date of reversal, if the depreciation in value had not been recorded.

In the event of due debts from public clients, the depreciation of the debt is calculated using the amount obtained from applying the market interest rate to the due debt for the period of time passed since the debt became due, at the end of each financial year, where there is a contractual agreement not to apply interest for delays.

(H) Non-current assets held for sale

This item includes those assets whose book value will fundamentally be recovered through their sale, rather than through their continuous use, when the following requirements are met:

where they are available for immediate sale in their current conditions, subject to the usual and habitual terms for their sale, and

where they are highly likely to be sold.


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The non-current assets maintained for sale are recorded as the lesser of the following two amounts: their book value or their reasonable value less the costs of sale. These assets are not amortised, and if necessary, the opportune valuation adjustments will be made in such a manner that the book value does not exceed the reasonable value less the costs of sale.

(J) Cash and other equivalent liquid assets

Cash and other equivalent liquid resources make up the cash and bank funds, and deposits and other financial assets that can be converted into cash and whose maturity, at time of their acquisition, is no longer than three months, are not subject to a significant risk of change in value and that form part of the normal cash flow management policy of Correos Group.

(I) Stocks

The stocks are valued at the acquisition price determined by the weighted average cost method.

When the net realisable value of the stocks is lower than their acquisition price or at their production cost, the opportune valuation adjustments are made, with these being recognised as a cost in the consolidated profit and loss account.

(J) Provisions and contingent liabilities

Correos Group records provisions in its consolidated balance sheet when, due to past events, an obligation exists (whether due to legal or contractual provisions or to an implied or tacit obligation), can be quantified, and is considered likely to represent a future outlay of resources for its liquidation.

For those provisions made to meet the obligations without a set date of maturity, or with a maturity below or equal to one year and without a significant financial effect, no type of discount is applied. For all other obligations, the provisions are registered for the current value of the best possible estimate of the amount necessary to cancel the obligation or transfer it to a third party, registering the adjustments that arise due to updating the provision as a financial expense as it accrues, with the objective of reflecting the best current estimate of the corresponding liability at all times.

The Parent Company Directors consider contingent liabilities to be those obligations that may arise due to past events, and whose appearance is subject to whether or not future events occur, outside the control of the Parent Company. Said contingent liabilities are not subject to book recording, with details and an explanation of said liabilities included in the note (22) on contingent liabilities.

(K) Financial liabilities

The financial liabilities of Correos Group correspond to the accounts payable, trade creditors and creditors for fixed assets, deposits and guarantees and the accounts payable under other headings.

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Correos Group classifies all of its financial liabilities into “Debits and entries payable”.

The financial assets maturing less than 12 months from the date of the preparation of the consolidated balance sheet are classified as current, while those maturing afterwards are classified as non-current.

The financial liabilities are initially valued at their reasonable value which, unless there is evidence to the contrary, is the price of the transaction.

After the initial recognition, the financial liabilities are valued at their amortised cost. The accrued interest is recorded in the profit and loss account, applying the effective interest rate method.

Nevertheless, the debits for trade operations which mature in less than one year, do not have a contractual interest rate and whose amount is expected to be paid in the short-term, both in the initial valuation and in the subsequent valuation, are valued at their nominal value, since the effect of updating the cash flows is not significant.

Correos Group cancels a financial liability when the obligation has expired.

(L) Foreign currency transactions

Monetary entries

Transactions in foreign currency are initially recorded at the exchange rate at the date of the transaction.

The monetary assets and liabilities denominated in foreign currency are converted at the exchange rate at the date of preparation of the consolidated balance sheet. Both positive and negative exchange rate differences that arise in this process, together with those that take place when said capital elements are liquidated, are recognised in the consolidated profit and loss account of the financial year in which they appear.

Non-monetary entries

The non-monetary entries valued at their historical cost are valued by applying the exchange rate at the date of the transaction.

(M) Income and expenses

Income and expenses are allocated on the basis of the actual movement of goods and services that they represent and regardless of the time at which the monetary or financial movement deriving from these takes place.


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Revenue from sales and provision of services

The earnings from the sale of goods and the provision of services are valued at the reasonable value of its counterpart, received or to be received, deriving from the same, deducing the amount of the discount, the reduction in the price and other similar entries that the Company may concede, together with the indirect taxes that are levied on the operations and which can be passed on to third parties. The interest incorporated into trade loans maturing no later than one year and not having a contractual interest rate is included as the higher value of the earnings, since the effect of not updating the cash flows is insignificant.

Income is recorded based on the economic fund of the operation and is recognised when each and every one of the following conditions is met:

The amount of the revenue can be reliably valued.

Correos Group is likely to receive the profits or economic returns derived from the transaction; and

The costs incurred or to be incurred in the transaction can be valued reliably.

Income deriving from the postal services whose consideration is received by means of the sale of franking elements (stamps or similar) is recorded at the time at which it is sold regardless of the time of the actual provision of the service. For all other postal services, as well as money orders and telegrams, revenues are recognised upon actual provision of the service, i.e., when the actual transaction occurs.

Income from interest

Income from interest is recognised using the effective interest rate method. When a receivable account suffers a loss due to depreciation in value, the Correos Group reduce the book value to the recoverable amount, deducting the future estimated cash flows from the instrument’s effective original interest, and continue applying the discount less income from interest. Income from interest on loans that have suffered losses due to depreciation in value is recognised using the effective interest rate method.

Compensation for dismissal

In accordance with the labour regulations, Group companies are obliged to pay compensation to any employees under ordinary employment contracts who are dismissed, when the dismissal is grounded in certain legally defined reasons. Therefore, any redundancy compensation payouts that arise are charged to expenses at the time the dismissal decision is made.

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(N) Liabilities for remunerations to staff

Pension supplements

During the financial year 2000, the Parent Company created a pension plan to supplement the employee benefits under public-sector social security and government pension schemes. This fixed-contribution pension plan is currently defined by Royal Legislative Decree 1/2002, of 29 November, which approves the consolidated text of the Ley de Regulación de los Planes y Fondos de Pensiones (‘the Pensions Act’) and by Royal Decree 304/2004, of 20 February, enacting the Pension Regulations and its subsequent amendments. The plan is open on a voluntary basis to active permanent employees under ordinary employment contracts, public employees in active service or special service, and temporary staff whose contract at the time of their application to join the scheme has been in force for at least two uninterrupted years.

The Parent Company, pursuant to the “Rules of the Correos y Telégrafos Pension Plan”, is obliged to make annual contributions or provisions for the benefit of the participants of the aforesaid scheme for a sum equivalent to 0.5% of the total employee pay in the financial year. In this respect, at 31 December 2008, the Parent Company had no commitment to the participants in the above scheme further to the sums effectively contributed from the date of the creation of the plan.

The global amount of contributions made by the Parent Company to a financial institution since 2000, when the pension fund was created, is 97,439 thousand euros. The amount designated and accrued in 2009 was 13,411 thousand euros (13,427 thousand euros in 2008), which exceeds 0.5% of total employee pay. The Parent Company has no other commitments than the sums already contributed at 31 December 2009.

Retirement bonuses

The various collective bargaining agreements applicable by geographical area in Chronoexprés, S.A. provide that employees taking voluntary early retirement from age 60 to 65 must be paid a length-of-service bonus, which varies from various fixed sums to a set number of monthly payments if they have provided services to the company between 10 and 30 years (depending on the applicable collective bargaining agreement). At 31 December 2009, Chronoexprés, S.A. had a policy contracted with an insurance company to meet the hypothetical liability that it could incur in meeting these long-service awards in the future, since this does not exist at present. The Parent Company Directors believe that any additional liabilities not covered by the aforesaid policy that could arise from the guarantees given to the workers of its affiliate, should there be any, will not be in any way significant.


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(O) Current and deferred tax

The tax on earnings from the financial year is calculated as the sum of the current tax, which results from the application of the relevant tax rate to the taxable base for the financial year, after applying the existing allowances and deductions, and from the variation of the assets and liabilities for deferred taxes recorded. This is recognised in the profit and loss account, except in those cases in which this tax is directly related to entries reflected explicitly in the net assets of Correos Group, in which case the tax is recognised, likewise, in the same item.

The assets and liabilities for current taxes are the estimated amounts payable or receivable from the government bodies, in accordance with the taxable rates in force at the date of the balance sheet, and including any other adjustment corresponding to previous financial years.

The tax on deferred earnings is recorded following the method of liabilities for all of the temporary differences between the tax base of the assets and liabilities and their book values in the consolidated annual accounts.

Correos Group recognises a liability for deferred tax for all temporary taxable differences, except:

When the liability for deferred tax derives from the initial recognition of goodwill or from an asset or a liability in a transaction which is not a combination of businesses and which did not affect either the book result or the tax result at the time of the transaction

With respect to the temporary taxable differences associated with investments in subsidiary and associated companies, if the time of the reversal of the temporary differences may be controlled by the Parent Company and it is likely that the temporary differences will not revert in the foreseeable future.

Correos Group recognises the assets for deferred tax for all of the deductible temporary differences, unused tax credits and negative taxable bases that are not applied, insofar as it is likely that the Group company generating them will have future tax gains that make the application of these assets possible, except:

When the asset due to deferred taxes relating to the deductible temporary difference derives from the initial recognition of an asset or liability in a transaction which is not a combination of businesses and which did not affect either the book result or the tax result at the time of the transaction.

With respect to the temporary deductible differences associated with investments in subsidiary and associated companies, the asset for deferred taxes is only recognised if it is likely that the temporary

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differences will revert in the foreseeable future and there is sufficient tax gain available against which the temporary differences apply.

At the date of closing of each financial year, Correos Group evaluates the assets from recognised deferred taxes and those that have not been previously recognised. On the basis of this evaluation, Correos Group cancels the previously recognised assets if it is unlikely they will be recovered, and/or records any asset for deferred tax not previously recognised provided that it is likely that the Correos Group company that has generated them has tax gains that make its application possible.

The assets and liabilities for deferred taxes are valued at the anticipated tax rates at the time they are reversed, in accordance with the approved effective regulations, and according to the manner in which it can rationally be expected to recover or pay for the asset or liability for deferred tax. The adjustments of the values of the assets and liabilities for deferred taxes are allocated to the profit and loss account, except where the assets and liabilities for affected deferred taxes have been charged or paid directly to the net assets of Correos Group.

The assets and liabilities for deferred taxes are valued without taking into account the effect of the financial discount.

(P) Government contributions, donations and legacies

The capital contributions received by the Parent Company for the provision of the USO are recorded in a specific entry for consolidated net assets once the relevant tax effect has been deducted, on the understanding that this complies and will comply with the requirements necessary for them to be considered non-refundable.

Non-refundable capital contributions are allocated to the consolidated profit and loss account during the period of time equivalent to the service life of the components of the fixed assets financed with said contributions, unless these assets are transferred, depreciate or are eliminated, in which case they are allocated to the consolidated profit and loss account, either completely or as the theoretical percentage of depreciation suffered by subsidised goods, at such time as this occurs. The allocation to the consolidated profit and loss account of the contributions used for the financing of land is deferred until the financial year in which their transfer and/or depreciation takes place.

The operating contributions received by the Parent Company for the provision of the USO are recorded as income in the consolidated profit and loss account in the period in which they have been granted and/or recognised, independently of their payment.

As regards the capital contributions and the deterioration of the subsidised assets, the valuation adjustments due to depreciation of the elements are considered irreversible insofar as they have been financed free of charge.


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(Q) Value added tax

The non-deductible value added tax (hereinafter, VAT) forms part of the acquisition price of the investment assets, as well as the cost of the goods and services under transactions subject to value-added tax. Adjustments for non-deductible value-added tax borne as a result of the regularisation associated with the Parent Company’s final pro rata determinations, including the regularisation of investment assets, do not alter the initial valuations of those assets. Therefore, any such effect is recorded in the consolidated profit and loss account.

Article 2 of the Ley 23/2005, de 18 de noviembre, de Reformas en Materia Tributaria para el Impulso a la Productividad (the Tax Incentives for Productivity Act, of 18 November 2005) changed the value-added tax rules applicable to the postal services provided by the Parent Company with effect from 1 January 2006. In particular, from 1 January 2006 the value-added tax exemption for postal services was limited to universal postal services reserved to the operator appointed to provide them, i.e., the Parent Company. This new scenario meant significantly increasing the deductible VAT of the Parent Company until that date. Therefore, the Company is filing restatements regarding investment assets within the legally prescribed deadlines. For each of the financial years, the total revenue from such restatements has been stated under the item “Taxes” in the heading “Other operating expenses” of the consolidated profit and loss account.

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(6) Intangible fixed assets

The list of transactions in the 2008 and 2009 financial years is as follows:

Balance at Recordings and Balance at

01/01/2009 Provisions Disposals 31/12/2009

Cost-

Patents, licences, trademarks and similar 344 - - 344

Technical studies and papers 8,696 - - 8,696

IT applications 180,250 6,995 (5,917) 181,328

Other intangible fixed assets 423 - - 423

Total cost 189,713 6,995 (5,917) 190,791

Accumulated amortisation-

Patents, licences, trademarks and similar (201) (34) - (235)

Technical studies and papers (8,696) - - (8,696)

IT applications (153,389) (14,292) 2,518 (165,163)

Other intangible fixed assets (104) (14) - (118)

Total accumulated amortisation (162,390) (14,340) 2.518 (174,212)

Adjustments for depreciation-

Other intangible fixed assets (2) (51) 2 (51)

Net value 27,321 16,528

Financial year 2009


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01/01/2008 Provisions Disposals 31/12/2008

Cost-

Patents, licences, trademarks and similar 344 - - 344

Technical studies and papers 8,696 - - 8,696

IT applications 168,131 16,051 (3,932) 180,250

Other intangible fixed assets 423 - - 423

Total cost 177,594 16,051 (3,932) 189,713


Patents, licences, trademarks and similar (165) (36) - (201)

Technical studies and papers (8,696) - - (8,696)

IT applications (140,417) (16,531) 3,559 (153,389)

Other intangible fixed assets (90) (14) - (104)

Total accumulated amortisation (149,368) (16,581) 3,559 (162,390)


Other intangible fixed assets (7) - 5 (2)

Net value 28,219 27,321

Financial year 2008

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The item “IT applications” records the amounts paid by Correos Group in order to acquire the ownership or the right of use of IT programmes as well as the activation of evolutionary improvements for different software programmes owned by the Group.

The most important registrations seen during the financial year correspond to the investment made by the Parent Company to acquire user licences and new IT programmes, in addition to the evolutionary improvement to others, for sums of 2,553 thousand and 3,447 thousand euros respectively (the investment registered by the Parent Company during the 2008 financial year had been 3,922 and 11,581 thousand euros).

During the financial year the Parent Company cancelled intangible elements in the sum of 141 thousand euros as these were wholly amortised (3,495 thousand euros in 2008).

During the financial year, the Parent Company spent 753 thousand euros of the capital contribution granted by the State to provide the USO on the acquisition of IT applications.

At 31 December 2009, the Parent Company has binding agreements for the acquisition of IT applications for the sum of 17,598 thousand euros. On that date, there were no binding agreements of sale involving any intangible assets owned by Correos Group. Part of the acquisitions to be made by the Group in the financial year 2010 will be financed by the non-refundable capital contributions granted for the benefit of the Parent Company in the Spanish National Budget corresponding to the financial year 2010 (see note (14)).

The cost of the wholly amortised items that formed part of the intangible fixed assets of Correos Group at 31 December 2009 amounts to 158,547 thousand euros (146,272 thousand euros in 2008).

(7) Tangible fixed assets

The detail of movements in the 2008 and 2009 financial years is as follows:


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01/01/2009 Provisions Disposals Transfers 31/12/2009

Cost-

Land 339,848 355 (1,230) 21,341 360,314

Built assets 1,227,205 27,961 (9,741) 78,024 1,323,449

Plants and other

tangible fixed assets 731,845 43,555 (48,253) 4,239 731,386

Fixed assets in progress and

advance payments 224,570 40,582 - (103,604) 161,548

Total cost 2,523,468 112,453 (59,224) - 2,576,697


Built assets (258,767) (34,467) 1,619 - (291,615)

Plants and other

tangible fixed assets (402,962) (74,895) 47,466 - (430,391)

Total accumulated amortisation (661,729) (109,362) 49,085 - (722,006)


Land and built assets (48,877) (48,323) 3,981 - (93,219)

Plants and other

tangible fixed assets (15,922) (128) 7,484 - (8,566)

Total adjustments for depreciation (64,799) (48,451) 11,465 - (101.785)

Net value 1,796,940 1,752,906

Financial year 2009

Of the amount for built asset disposals, a sum of 2,287 thousand euros has been applied directly against provision. The remaining disposals of provisions were reversed directly against profits for a sum of 1,694 thousand euros, see note 17.g).

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In addition to the amount for plant disposals, a sum of 1,839 thousand euros has been applied directly against provision. The remaining disposals of provisions of this kind were reversed directly against profits for a sum of 5,483 thousand euros, see note 17.g).

Financial year 2008


01/01/2008 Provisions Disposals Transfers 31/12/2008

Cost-

Land 317,276 1,344 (5) 21,233 339,848

Built assets 1,109,169 37,002 (2,852) 83,860 1,227,205

Plants and other

tangible fixed assets 731,160 76,298 (80,231) 4,644 731,845

Fixed assets in progress and

advance payments 220,043 114,264 - (109,737) 224,570

Total cost 2,377,648 228,908 (83,088) - 2,523,468


Built assets (228,576) (30,813) 620 2 (258,767)

Plants and other

tangible fixed assets (411,982) (69,833) 78,855 (2) (402,962)

Total accumulated amortisation (640,558) (100,646) 79,475 - (661,729)


Land and built assets (39,754) (11,428) 2,305 - (48,877)

Plants and other

tangible fixed assets (15,869) (58) 5 - (15,922)

Total adjustments for depreciation (55,623) (11,486) 2,310 - (64,799)

Net value 1,681,467 1,796,940


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The most significant recordings made under the headings “Land”, “Built assets”, and “Fixed assets in progress and advance payments” during the 2009 financial year correspond to the purchase of new premises for the normal undertaking of the activity of the Parent Company, reform and adaptation of existing premises already owned by the same and investments made at different logistics centres of the latter for the processing and postal distribution associated with its main activity for sums of 3,442; 55,219; and 9,469 thousand euros respectively (The Parent company had invested 68,569, 76,729 and 4,911 thousand euros for the above concepts, respectively, during the 2008 financial year).

The heading “Plants and other tangible fixed assets” includes the investments made in plants carried out at the properties used by the Group (whether or not it owns them), together with the investments made in machinery, IT equipment, transport elements and furnishings. The most important recordings made in this heading during the financial year correspond to the purchase by the Parent Company of machinery, furniture and equipment for information processing for sums of 18,197; 7,863 and 7,606 thousand euros respectively (the largest investments made by the Parent Company during the 2008 financial year were those registered for the acquisition of furniture and equipment for information processing for sums of 13,052 and 27,584 thousand euros respectively).

During the financial year, the Parent Company spent 13,867 thousand euros of the capital contribution granted by the State for the provision of the USO on the acquisition of different tangible fixed asset elements.

Of the total sum for disposals, 44,287 thousand euros correspond to material elements that were disposed of by the Parent Company as these were wholly amortised (the Parent Company disposed of wholly amortised material elements for a sum of 76,996 thousand euros during the 2008 financial year). Particularly noteworthy among the remaining disposals are the following recorded by the Parent Company: those disposals of assets associated to rented premises no longer being rented, disposals of premises whose purchase could not be formalised and the disposal of rates, licences and projects that had been activated in the past and that are linked to works that have been cancelled, whose book value at the time of their disposal was 3,517; 2,401 and 2,284 thousand euros respectively and whose total joint net accumulated amortisation value was 7,644 thousand euros. As mentioned in note 5.e) of this Parent Company report, in the light of the stipulations of Orden EHA/733/2010, of 25 March, which approved accounting aspects for public companies operating in certain circumstances, the depreciation of the assets included under the heading tangible fixed assets was recorded as per the value in use, as stipulated in the abovementioned Order. In this regard, the Parent Company compared the book value of the assets with their recoverable amount by using the value in use method, determined with reference to their depreciated replacement cost.

The depreciated replacement cost was calculated using the sum of the following components, and then compared with the book values so as to identify the recorded depreciation:

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A. Market studies and valuations of the components of the assets as regards land and overall construction, undertaken by independent experts using different methods including the comparison method, the cost method and the residual value method, in addition to statistical studies on real estate market behaviour.

B. Capitalised cost of the reforms applied to buildings, reduced by the accumulated amortisation, in order to reflect the use already made of the asset.

C. Cost of the indirect expenses for the acquisitions and renovations.

Based on the depreciated replacement cost, calculated using the method explained above, with the net book value of the assessed assets, a depreciation of 43,540 thousand euros has been confirmed, which in turn has been recorded in the profit and loss account as of 31 December 2009.

Additionally, during the financial year, the provision made for adaptations and renovations to provisional premises increased to 4,783 thousand euros.

Noteworthy among those disposals recorded during the financial year under the heading “Adjustments for depreciation of plants” are those made by the Parent Company for a value of 1,422 thousand euros and reversed as a result of an improved estimate of the dismantling costs for infrastructure not being used.

As at 31 December 2009, the Parent Company has signed contracts to purchase tangible fixed assets worth 60,358 thousand euros. Part of the acquisitions to be made by the Group will be financed by the non-refundable capital contributions granted for the benefit of the Parent Company in the Spanish National Budget corresponding to the financial year 2010 (see note (14)). The Company has no final commitments involving sale of assets of significant net book value.

The cost of the wholly amortised items that formed part of the tangible fixed assets of Correos Group as at 31 December 2009 amounts to 207,636 thousand euros (which stood at 185,409 thousand euros as at 31 December 2008).

The net book value of the dwellings, premises and plots of land making up the tangible fixed assets not involved in the operation amounts to 32,558 thousand euros (21,942 thousand euros as of 31 December 2008), and its cost was 40,140 thousand euros.

Correos Group has insurance policies in place to cover those risks that could affect most of its tangible fixed assets.


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(8) Property investments

The detail of movements in the 2008 and 2009 financial years is as follows:

Balance at Recordings and Balance at Recordings and Balance at

01/01/2008 Provisions 31/12/2008 Provisions 31/12/2009

Cost-

Land 1,968 - 1,968 - 1,968Built assets 6,439 45 6,484 - 6,484 Total cost 8,407 45 8,452 - 8,452 Accumulated amortisation- Built assets (859) (136) (995) (136) (1,131)

Net book value 7,548 7,457 7,321

The property investments correspond to premises that the Parent Company has leased to third parties. The income from these contracts recorded in the consolidated profit and loss account has amounted to 495 thousand euros in the financial year, (482 thousand euros in the 2008 financial year).

The costs associated with property investments fundamentally correspond to those relating to their annual amortization and maintenance costs; the latter reached 195 thousand euros during the financial year (231 thousand euros during the previous financial year). All of these expenses where recorded in the consolidated profit and loss account based on the accrual principle.

There are no restrictions on property investments or on the collection of the income deriving from these or from the resources obtained from their transfer or disposal by other means, apart from those mentioned in note (1) of this report under “Company activity”.

There are no contractual obligations for the acquisition, construction or development of property investments or for repairs, maintenance or improvements.

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The Company has insurance policies in place to cover those risks that could affect most of its property investments.

The future minimum charges that cannot be cancelled for the operating leasing agreements associated with the property investments of the Group are broken down in the following table:

Financial year Financial year 2009 2008

Up to one year 270 265Between one and five years 148 398More than five years - -

418 663

(9) Non-current assets held for sale

Correos Group has classified the land and built assets it owns which were for sale at 31 December 2009 as non-current assets held for sale. These assets, mostly dwellings and an industrial warehouse, were included in de-investment plans approved by the competent bodies and, at that date, effective actions were being carried out to sell them in the short-term.

(10) Stocks

The composition of this item at 31 December 2009 and 2008 is as follows:

Financial year Financial year 2009 2008Stocks valued at cost- Stamps in the possession of third parties 3,166 6,197Stamps at company offices and warehouses 4,285 2,417Collectors’ stamps 627 986Other stocks 1,050 1,203 9.128 10.803Valuation adjustments for depreciation (2,217) (3,883) 6,911 6,920


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The movement of the valuation adjustments for depreciation of stocks during the 2009 and 2008 financial years is as follows:

Correos Group maintains the criterion of recording valuation adjustments for depreciation of stamps in the case of these still remaining in the Parent Company warehouses, either company or external, if two years have elapsed since their issue. Periodically, the Parent Company destroys those stocks of stamps whose age and/or the reason for their issue makes their use impossible. For that reason, stamps worth 3,060 thousand euros were destroyed over the financial year. These stamps had completely deteriorated at the time of their destruction.

(11) Current financial assets

The composition of Correos Group short-term financial assets as of 31 December 2009 and 2008, excluding cash and other equivalent liquid assets described in note (12) below is as follows:

Valuation adjustments Stamps Other Total

Balance at 1 January 2008 2,812 48 2,860 Valuation adjustments for depreciation 1,010 13 1,023 Balance at 31 December 2008 3,822 61 3,883 Valuation adjustments for depreciation 1,428 - 1,428Reversal of valuation adjustments - (34) (34)Application against cost of stocks (3,060) - (3,060)

Balance at 31 December 2009 2,190 27 2,217

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Trade debtors and other accounts receivable-

Clients by sales and provision of services 371,568 373,833 Other debtors 15,451 13,189Staff 9,142 10,541 Government bodies (Note 18) 106,606 10,256

502,767 407,819 Short-term financial investments-

Short-term deposits - 92,653Deposits and guarantees 8,578 9,733

8,578 102,386

Most of the financial assets classified as short-term by Correos Group mature in less than one year, with there being no significant differences between the recorded book values and their reasonable values.

11.1.) Trade debtors and other accounts receivable

The headings “Clients by sales and provision of services” and “Other debtors” include 58,642 thousand euros in fees to be collected by the Parent Company from third-country postal operators for the provision of postal and telegraphic services (which stood at 51,440 thousand euros as of 31 December 2008).

The heading “Staff” recorded amounts paid by the Parent Company to different employees as advance payroll payments for a total of 9,100 thousand euros, in accordance with a specific plan designed by the Parent Company and which, at the close of the financial year, were still to be recovered.

Likewise, the headings “Clients by sales and provision of services” and “Other debtors” are shown net of valuation adjustments for depreciation, with the movement taking place during the 2009 and 2008 financial years being as follows:


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Valuation adjustments

Clients Debtors Total

Balance at 1 January 2008 12,773 1,315 14,088 Valuation adjustments for depreciation 3,633 1,636 5,269Reversals of valuation adjustments (3,454) - (3,454) Balance at 31 December 2008 12,952 2,951 15,903 Valuation adjustments for depreciation 7,354 - 7,354Reversals of valuation adjustments (2,853) (1,622) (4,475) Balance at 31 December 2009 17,453 1,329 18,782

In addition, under the item “Losses, depreciation and variation in provisions for trade operations” of the consolidated profit and loss account, Correos Group recorded an expense of 780 thousand euros due to a direct cancellation of defaulting debts (having registered an expense of 978 thousand euros for this same item during the 2008 financial year).

11.2.) Short-term financial investments

The short-term “Deposits and guarantees” item mostly records court bonds with various labour courts for actions brought by the employees and former employees of the Parent Company.

11.3.) Information about the nature and the level of risk from financial instruments

The risk management policies of the Parent Company are laid down by the Management Committee, after having been approved by its Directors. On the basis of these policies, a set of procedures and controls was established to make it possible to identify, measure and manage the risks deriving from the financial instruments, which expose the Company to credit, market and liquidity risks:

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11.3.1) Credit risks

A credit risk occurs due to the possible loss caused by a breach of the contractual obligations of the Parent Company’s counterparts, that is, due to the possibility of not recovering the financial assets for the sum recorded and in the set period.

The maximum exposure to credit risk of Correos Group at 31 December 2009 and 2008 is as follows:

Rest of Group Total

Correos Group

Balance at Balance at Balance at Balance at Balance at Balance at 31/12/09 31/12/08 31/12/09 31/12/08 31/12/09 31/12/08

Long-term financial investments 277 287 789 770 1,066 1,057Clients by sales and provision of services 338,608 339,117 32,962 34,716 371,568 373,833Other debtors 15,393 13,131 58 58 15,451 13,189Short-term financial investments 8,553 102,292 25 94 8,578 102,386

Banks and lending institutions 243,137 285,606 2,125 1,703 245,262 287,309

605,968 740,433 35,959 37,341 641,927 777,774

Parent Company companies

The different companies of Correos Group perform a solvency analysis for each of its clients. These analyses are used for the concession or otherwise of contracts with postponed payment to clients. The authorisations for the signing these contracts are segregated according to the amount of the credit.

The detail of the concentration of credit risks per counterpart under the “Clients by sales and provision of services” and “Other debtors” of Correos Group at 31 December 2009 and 2008 is as follows:


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Parent Company Rest of companies

Number Thousands Number Thousands of clients of euros of clients of euros Clients: With balance greater than 1,000,000 euros 39 126,163 1,493 29,262With balance between 500,000 and 1,000,000 euros 43 29,431 630 1,067With balance below 500,000 euros 17,430 131,999 3,001 2,631 17,512 287,593 5,124 32,960

Debtors - 4,304 27 58Foreign postal operators 180 58,642 - -Other financial assets - 3,462 - - > 17,650 354,001 5,151 33,018

Financial year 2009

Parent Company Rest of companies

Number Thousands Number Thousands of clients of euros of clients of euros Clients: With balance greater than 1,000,000 euro 39 118,553 1,648 33,845With balance between 500,000 and 1,000,000 euros 47 32,531 651 469With balance below 500,000 euros 19,234 139,752 3,201 402 19,320 290,836 5,500 34,716

Debtors - 5,255 47 58Foreign postal operators 180 51,440 - -Other financial assets - 4,717 - - > 19,500 352,248 5,547 34,774

Financial year 2008

ANNUAL REPORT 2009


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At 31 December 2008, the breakdown of the “Clients” and “Foreign postal operators” belonging to the companies of Correos Group by seniority was as follows:

Not due 141,739 20,284 28,693 148,925 35,588 29,754Due, non-doubtful: Less than 30 days 66,130 1,214 2,456 75,644 - 2,384 Between 30 and 60 days 33,036 1,372 478 29,506 1,755 800 Between 60 and 90 day 9,704 180 350 10,086 - 558 Between 90 and 120 days 7,687 344 340 3,744 - 442 Over 120 days 29,297 21,850 645 22,931 2,223 778Provisional payments - 13,398 - - 11,874 - 287,593 58,642 32,962 290,836 51,440 34,716 Doubtful 11,740 2,611 2,595 7,739 2,494 2,421Adjustments for depreciation (11,740) (2,611) (2,595) (7,739) (2,494) (2,421) - - - - - 287,593 58,642 32,962 290,836 51,440 34,716

Clients Clients Clients Clients

Foreign

postal

operators

Parent Company Parent Company


Rest of

Group

companies

Rest of

Group

companies

Foreign

postal

operators

Parent Company “Clients” with debts exceeding 120 days but considered non-doubtful in the sum of 29,297 thousand euros corresponds in its entirety to accounts receivable from public institutions.

The provisional payments correspond to sums paid by the Parent Company to other foreign operators for the provision of their postal services prior to definitive settlement.

Additionally, the Parent Company has streamlined the cash flow surpluses during the financial year, either by purchasing auctioned State Debt for periods of up to 3 months, or by purchasing one day


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repurchase agreements, all in accordance with “Regulations on the relationship with state companies held by the Directorate General for State Assets”. The second section of this document establishes that all fund investment operations in assets made by this type of company must be public debt, unless express authorisation is granted by that Directorate.

11.3.2) Market risk

The market risk occurs due to the possible loss caused by variations in the reasonable value or future cash flows of a financial instrument due to changes in market prices. The market risk includes the interest rate risk, exchange rate risk and other price risks.

Interest rate risks

The interest risk takes place due to the possible loss caused by variations in the reasonable value or in future cash flows of a financial instrument due to changes in market interest rates.

Given that practically all financial assets of Correos Group mature in less than twelve months, the exposure of these to interest rate risk is not significant.

Exchange rate risks

An exchange rate risk occurs due to the possible loss caused by variations in the reasonable value. The exposure of Correos Group to the risk of exchange rate fluctuations is due primarily to sales made in currencies other than the functional currency. These balances are derived from services rendered to and by foreign postal operators and from the provision of the international money order service.

In this regard, the Parent Company’s exposure to this risk largely corresponds to the accounts receivable and payable deriving from international mail. Given that the net value of these balances as of 31 December 2009 stood at 15,862 thousand euros payable (21,074 thousand as of 31 December 2008), the Parent Company Directors do not consider this risk significant.

11.3.3) Liquidity risks

A liquidity risk occurs due to the possibility of Correos Group not having liquid funds or access to liquid funds available, in a sufficient amount and at the right cost, to meet its payment obligations at all times. The objective of the Group is to maintain the necessary liquid availability.

The list of the short-term financial assets and liabilities of the Group at 31 December 2009 and 2008, and as the difference, its ability to meet its payment obligations in the short-term, are as follows:

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Financial year Financial year 2009 2008 Short-term financial assets: Clients by sales and provision of services 371,568 373,833 Other debtors 15,451 13,189 Financial investments 8,578 102,386 Cash and other liquid resources 285,322 324,665 Short-term financial liabilities: Short-term debts (64,826) (103,528) Trade creditors and other accounts payable (387,110) (374,225) Difference 228,983 336,320

(12) Cash and other equivalent liquid assets

The composition of this item at 31 December 2009 and 2008 is as follows:

Balance at Balance at 31/12/2009 31/12/2008

Cash 40,060 37,356Banks and lending institutions 245,168 286,664Accrued interest not due 94 645 285,322 324,665

(13) Equity

The list of movements of Correos Group equity is shown in the statement of changes in the consolidated net assets, which is an integral part of the consolidated annual accounts.


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According to the proposal for distribution of the consolidated profit for financial year 2008 presented by the Directors of the Parent Company, dated 6 July 2009, the Parent Company paid its Sole Shareholder a dividend for the sum of 38,966 thousand euros (having paid 51,958 thousand euros for this same item during the 2008 financial year debiting the profits of the 2007 financial year).

A) Registered capital

The share capital of the Parent Company is represented by 611,521 shares with a nominal value of 1,000 euros each. The same policy and economic rights apply to all shares, and they are wholly subscribed and paid in by the Central Government, through the Directorate General for State Assets.

B) Share premium account

The share premium account, created at the time of incorporation of the Parent Company, is subject to the same restrictions and may be used for the same purposes as the Company’s voluntary reserves, including conversion to share capital.

C) Legal reserve

Pursuant to Article 214 of the Consolidated Text of the Companies Act, enacted by Legislative Royal Decree 1564/1989, of 22 December, a figure equal to 10% of the profit for the financial year must be allocated to the Legal Reserve until a minimum of 20% of the share capital is attained.

The Legal Reserve can only be used to increase the share capital in the part of its balance that exceeds the previously increased capital by 10%. Except for the purpose mentioned above, and as long as 20% of the share capital is not exceeded, this reserve will only be used to offset losses, provided that there are no other sufficient reserves available for this purpose.

D) Voluntary reserves and those required by the Articles of Association

As at 31 December 2009, voluntary reserves may be freely disposed of.

Under the Parent Company’s Articles of Association, the Company must allocate 20% of profits for the year to reserves required by Articles of Association. As at 31 December 2008, these reserves may be freely disposed of as decided by the Governing Board of the Parent Company pursuant to article 36 of its Articles of Association. At 31 December 2009, the reserves held because of requirements in the Articles of Association totalled 163,627 thousand euros; the value of the voluntary reserves stood at 360,078 thousand euros.

ANNUAL REPORT 2009


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E) Other reserves of the Parent Company

This item reflects the reserves generated by certain consolidation adjustments in the past for 160,341 thousand euros, and particularly the elimination of the provision for depreciation of financial investments and accumulated amortisations of consolidation goodwill, resulting from the acquisition of 100% of Chronoexprés, S.A.

F) Reserves at consolidated companies

The itemised list as at 31 December 2009 and 2008 is as follows:

Balance at Result Balance at Result Balance at 01/01/2008 2007 31/12/2008 2008 Other 31/12/2009 Correos Telecom, S.A. 1,693 479 2,172 113 - 2,285Correo Híbrido, S.A. 347 511 858 222 - 1,080Chronoexprés, S.A. (157,572) (7,117) (164,689) 1,000 (70) (163,759) (155,532) (6,127) (161,659) 1,335 (70) (160,394)

G) Consolidated results of Correos Group

The Correos Group’s consolidated profits for the 2009 and 2008 financial years are as follows:

Individual Consolidation Consolidated results adjustments resultsFinancial year 2009- Correos y Telégrafos, S.A. (2,020) 9,940 7,920 Correos Telecom, S.A. 355 - 355 Correo Híbrido, S.A. (654) - (654) Chronoexprés, S.A. (4,659) - (4,659) (6,978) 9,940 2,962Financial year 2008- Correos y Telégrafos, S.A. 77,932 - 77,932 Correos Telecom, S.A. 113 - 113 Correo Híbrido, S.A. 222 - 222 Chronoexprés, S.A. 1,000 - 1,000 79,267 79,267

Thousands of euros


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(14) Government contributions, donations and legacies received

The Parent Company annually receives a capital contribution, included in the Spanish National Budget, used to finance part of the acquisitions of assets and which are necessary for the USO to be provided. The itemised list of transactions for the contributions granted to the Parent Company for this purpose over the 2009 and 2008 financial years is as follows:

Initial balance at 1 January 2008 412,556 Contributions granted in 2008 financial year 57,746Tax effect (17,324)

Allocation for profits and losses in 2008 financial year (48,466)Tax effect 14,533

Final balance at 31 December 2008 419,045

2009 contribution collected 1,1582009 contribution pending collection (Note 18) 13,462

Total contributions granted/awarded 14,620Tax effect (4,386)

Allocation to the profit and loss account: - due to amortisation (45,275) - due to adjustments for depreciation (15,483)Tax effect 18,228

Final balance at 31 December 2009 386,749

Fina

ncia

l yea

r 200

8Fi

nanc

ial y

ear 2

009

Thousands of euros

At 31 December 2009, the Parent Company had 13,462 thousand euros outstanding for collection from the total capital contributions granted in the 2009 Spanish National Budget (the amount outstanding for collection at 31 December 2008 for this same item, but referring to the 2008 financial year, was 4,812 thousand euros).

ANNUAL REPORT 2009


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The Parent Company meets the requirements associated with the grant of capital contributions, and expects to meet the requirements for entitlement to such subsidies.

Likewise, the 2010 Spanish National Budget is considering granting the Parent Company 7,000 thousand euros as a capital contribution for acquiring the assets necessary to provide the USO during the coming financial year.

(15) Long-term provisions

The itemised list of transactions under this heading for the 2009 and 2008 financial years was as follows:

The provisions for the financial year, amounting to 28,607 thousand euros, have been charged against the consolidated profit and loss account according to their nature.

The origin of the applications lies in court decisions that have been unfavourable for Correos Group during the financial year 2009 and which have involved the effective payment of certain amounts and charging the relevant provisions against the consolidated profit and loss account, depending on the nature of the action.

Balance at 1 January 2008 2,343 25,121 50,004 1,407 78,875Provisions 256 20,832 2,819 625 24,532Applications / payments (1,537) (1,764) (13,076) (20) (16,397)Reversals / excesses (140) (5,298) (750) (97) (6,285) Balance at 31 December 2008 922 38,891 38,997 1,915 80,725 Provisions 567 20,950 6,730 360 28,607Applications / payments (187) (1,489) - (131) (1,807)Reversals / excesses - (1,205) (1,164) (160) (2,529)Reclassifications (369) - 369 - - Balance at 31 December 2009 933 57,147 44,932 1,984 104,996

Provision

for

taxes

Provision

for court

actions

Other

provisions Total

Provision for

claims

by staff


130

The reversals have been charged against different accounts depending on their nature, except for 2,476 thousand euros which have been made with the payment of the “Excess provisions” line of the consolidated profit and loss account.

Provision for claims from the staff

The balance of this provision at 31 December 2009 records 57,147 thousand euros as the estimated sum to be paid for claims and court actions, in labour-law proceedings against the Correos Group.

Provision for court actions

The balance of this provision at 31 December 2009 chiefly reflects the estimated payable amounts as regards the penalty proceedings in the Tribunal de Defensa de la Competencia (Competition Court) against the Parent Company, and against which the latter has appealed, and the estimated amounts to handle possible claims for damages that may be caused by unfavourable sentences in the area of competition.

(16) Financial liabilities

The composition of the Correos Group short-term financial liabilities at 31 December 2009 and 2008 is as follows:

Financial year Financial year 2009 2008Short-term debts: Creditors for fixed assets 44,250 82,408 Money order deposits 12,966 14,267 Deposits and guarantees 5,507 5,339 Creditors for financial leasing 1,628 1,354 Other short-term debts 475 160 Total short-term debts 64,826 103,528 Trade creditors and other accounts payable: Suppliers 4,147 2,238 Other creditors 268,930 259,072 Staff (accrued wages and salaries) 41,774 28,840 Current tax liabilities (Note 18) - 1,691 Other debts with government bodies (Note 18) 48,923 52,113 Customer advances 23,336 30,271 Total trade creditors and other accounts payable 387,110 374,225

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Most of the financial liabilities classified as short-term by Correos Group mature in less than one year, with there being no significant differences between the recorded book values and their reasonable values.

“Money order deposits” include money orders accepted prior to 31 December 2009 and pending payment by the Parent Company to their recipients at that date.

The heading “Other creditors” includes the amounts charged by the Parent Company for third parties and the sum of the provision for volume discounts for the sums of 44,987 and 23,652 thousand euros respectively (the amounts recorded for these items at 31 December 2008 stood at 36,959 and 17,672 thousand euros).

Likewise, the headings “Other creditors” and “Customer advances” include 74,504 thousand euros whose origin lies in the obligations pending the Parent Company’s payment to different third-country postal operators for postal and telegraphic services received (72,514 thousand euros at 31 December 2008).

(17) Income and expenses

A) Net turnover

The distribution of Correos Group turnover corresponding to its ordinary activities by activity category, as well as by geographical markets, for the 2009 and 2008 financial years is as follows:


Segmentation by category of activities- Provision of postal, telegraphic and parcel services 2,100,904 2,205,624 Income from provision of services to third parties and provision of banking services 16,194 14,908 Income from money transfer 28,479 29,730 Sale of philatelic products 29,042 33,840 Other services 12,371 12,060 Total 2,186,990 2,296,162 Segmentation by geographical markets-National 2,186,990 2,296,162 Total 2,186,990 2,296,162


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The heading “Provision of postal, telegraphic and parcel services” is shown net of the figure for volume discounts granted by Correos Group to its clients during the financial year in the sum of 23,221 thousand euros (this figure was equivalent to 19,307 thousand euros in the 2008 financial year).

B) Consumption of merchandise

The breakdown of the heading “Consumption of merchandise” in the attached consolidated profit and loss account during the 2009 and 2008 financial years is as follows:


National purchases of merchandise: Stamps and other franking signs 10,519 11,762 Other products 7,767 7,419Increase in stocks (1,402) (3,595) Consumption of merchandise 16,884 15,586

C) Operating contributions

The Parent Company accrued operating contributions during the financial year to pay for the deficit associated with provision of the USO and for the training of its employees in the sums of 60,601 thousand and 533 thousand euros, respectively (having accrued sums of 37,004 thousand and 627 thousand euros, respectively, for the same items during the previous financial year). Additionally, during the financial year, the Parent Company recorded operating contributions to pay for the deficit and/or compensate for the surplus associated with providing the USO corresponding to the 2007 and 2006 financial years, respectively, in the net sum of 24,100 thousand euros, in accordance with a resolution issued by the Public Works Ministry on 2 December 2009 (see note (18) on Tax Situation).

Likewise, the 2010 Spanish National Budget considers granting the Parent Company 68,201 thousand euros as an operating contribution associated with providing the USO during the upcoming financial year.

D) Social security contributions

The breakdown of the heading “Social security contributions” for the financial year ending at 31 December 2009 and 2008 is as follows:

ANNUAL REPORT 2009


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Financial year Financial year 2009 2008 Contributions to pension plans 13,433 13,429Other social security contributions 227,923 220,553 241,356 233,982

“Contributions to pension plans” recorded a sum of 13,411 thousand euros corresponding to contributions made by the Parent Company during the financial year under the “Correos y Telégrafos Pension Plan” of 26 September 2000 (see note (5-n)). The sum recorded for that same item under the same heading on 31 December 2008 was 13,427 thousand euros.

E) External services

The breakdown of the heading “External services” for the financial years ending at 31 December 2009 and 2008 is as follows:

Financial year Financial year 2009 2008 Leases 42,274 41,224Repairs, preservation and maintenance 72,511 65,484Independent professional services 54,410 66,401Transport expenses 168,915 178,554Advertising, marketing and public relations 3,351 14,007Supplies 42,721 37,454International mail expenses 50,584 51,616Other expenses 65,728 69,971 500,494 524,711

The future minimum payments that cannot be cancelled originating in operating lease contracts signed by different companies in Correos Group are broken down in the following table:


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Financial year Financial year 2009 2008 Up to one year 24,184 19,823Between one and five years 29,332 11,824More than five years 31,969 15,448 85,485 47,095

“Independent professional services” includes 11,320 thousand euros corresponding to the cost accrued for partner entities’ fees (14,169 thousand euros in 2008). These entities are retained by the Parent Company under contract to promote, transmit, market and reinforce postal services on behalf of the Company, and to conduct collection, processing, franking, sorting and transport of postal items for deposit at Company facilities. Likewise, this heading includes 22,949 thousand euros in security expenses (23,619 thousand euros in 2008).

“International mail expenses” includes the costs that the postal operators from different countries invoice to the Parent Company for the provision of postal and telegraphic services whose recipients reside in those countries.

F) Taxes

The heading “Taxes” records the effect of the restatement of the pro rata figure determined for investment assets at the Parent Company (see note (5-o)). This restatement involved recording a lower expense – higher income – during the financial year, a sum of 6,693 thousand euros (lower expenses in the amount of 3,540 thousand euros in the previous year).

G) Depreciation of and result for disposal of fixed assets

The breakdown of the heading for the financial years ending at 31 December 2009 and 2008 is as follows:

ANNUAL REPORT 2009


135

Adjustments for depreciation: Provisions - 11,084 164 - 11,248 Reversals (4) (373) (110) - (487) (4) 10,711 54 - 10,761Results for disposals and others: Profits (112) (68) (180) Losses 779 670 1,449 667 602 1,269

Intangible fixed assets

Land and built assets

Other fixed assets Plants Total

Financial year 2008

Tangible fixed assets

Adjustments for depreciation: Provisions 50 48,323 128 - 48,501 Reversals (2) (1,694) (163) (5,483) (7,342) 48 46,629 (35) (5,483) 41,159Results for disposals and others: Profits - (174) (243) (29) (446) Losses 3,399 4,578 - 539 8,516 3,399 4,404 (243) 510 8,070

Intangible fixed assets

Land and built assets

Other fixed assets Plants Total

Financial year 2009

Tangible fixed assets


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H) Financial income and expenses

The breakdown of this heading for the 2009 and 2008 financial years is as follows:

The amount of the revenue accrued by the Parent Company originating in fixed term deposits carried out during the financial year is recorded in “Short-term deposits”.

(18) Tax situation

The detail of the balances maintained by the Group with government bodies at 31 December 2009 and 2008 is as follows:

Financial year Financial year 2009 2008Financial income- Third-party interest: Short-term deposits 2,856 14,388 Other financial income 2,112 7,593 4,968 21,981Financial expenses- Other financial expenses 578 214Updating provisions 814 1,073 1,392 1,287

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Balance at Balance at 31/12/2009 31/12/2008

Non-current assets- Deferred tax assets 25,634 18,092 Current assets- Current tax assets 8,207 2,206 Other credits with government bodies: Capital contributions pending collection 13,462 4,812 Operating contributions pending collection - corresponding to the financial year (note 17-c) 60,601 3,084 - corresponding to previous financial years 24,100 -Other 236 154 Total current assets with government bodies 106,606 10,256 (nota 11) (nota 11)Non-current liabilities- Deferred tax liabilities 166,975 181,832 Current liabilities- Corporation Tax (note 16) - 1,691 Other debts with government bodies (note 16): IRPF (personal income tax) 19,003 18,353 VAT 1,745 5,226 Social Security 21,558 20,955 MUFACE (public employee mutual society) and liability fees 4,106 4,391 Customs 1,508 1,993 Other 1,003 1,195 48,923 52,113

Total current liabilities with government bodies 48,923 53,804

At 31 December 2009, the Parent Company continued to record a right to charge for the sum of 24,100 thousand euros originating from a Public Works Ministry resolution, dated 2 December 2009. Said resolution, issued by the body currently responsible for the functions of the CNSP (Spanish National Commission for the Postal Sector) (see note (1) on Company activity), validated the results of the Parent Company’s analytical accounting corresponding to the 2007 financial year, determined the net cost or burden of the USO for said financial year, established the amount of complementary state funding to compensate for the financial burden incurred by the Parent Company through providing the USO over


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the 2007 financial year, and for the difference between said amount and the transfers made by the State for the provision of the USO during said financial year, resolved that the State owed the Parent Company 25,535 thousand euros. This amount was reduced by 1,435 thousand euros as a result of a positive balance in the State’s favour for the same item over the 2006 financial year.

The Corporation Tax is calculated using the book result, obtained by applying generally accepted accounting principles, which do not necessarily have to coincide with the fiscally determined taxable base.

As permitted by the twenty-eighth temporary provision of the Legislative Royal Decree 4/2004, of 5 March, whereby the consolidated text of the Corporation Tax Act, added by Ley 4/2008, of 23 December, was ratified, the Parent Company of Correos Group has opted to integrate the tax effect of the charges and payments made against reserves deriving from the application of the Spanish GAAP in parts that are equal to the taxable base corresponding to each one of the first three tax periods initiated at 1 January 2008, the date of the conversion to the Spanish GAAP.

The breakdown of the assets and liabilities for deferred tax is as follows:

Financial year Financial year 2009 2008 Temporary differences: Provision for risks and charges 12,199 9,659 Provisions related to staff 4,489 - Provisions related to fixed assets 4,047 4,973 Excess of amortisation of fixed assets 4,369 3,231 Other 530 229 Deferred tax assets 25,634 18,092 Temporary differences: Tax effect of the capital contributions 165,749 179,591 Deferred tax effect from conversion to the GAAP 1,009 2,018 Other 217 223 Deferred tax liabilities 166,975 181,832

The movement of assets due to temporary differences in the Corporation Tax during the 2009 and 2008 financial years is as follows:

ANNUAL REPORT 2009


139

Financial year 2009

Balance at Restate- Other Balance at 01/01/2009 Additions ments adjustments Reversal 31/12/2009

Temporary differences 60,305 31,105 1,896 - (7,863) 85,443

Tax effect: Temporary differences 18,050 9,010 569 - (2,317) 25,312 Credits for losses to be compensated 42 323 - - (42) 323 Total tax effect 18,092 9,333 569 - (2,359) 25,634 Financial year 2008

Balance at Restate- Application Balance at 01/01/2008 Additions ments GAAP Reversal 31/12/2008

Temporary differences 29,181 16,708 2,912 14,907 (3,403) 60,305

Tax effect: Temporary differences 8,614 5,013 874 4,472 (923) 18,050 Credits for losses to be compensated 140 - - - (98) 42 Total tax effect 8,754 5,013 874 4,472 (1,021) 18,092

The effective aggregate tax expense and the aggregated Corporation Tax expense are calculated as follows:


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Income and expenses Consolidated Consolidated directly profit profit allocated to and loss and loss consolidated account account net assets Consolidated result before tax (384) 108,562 -Income and expenses directly allocated to consolidated net assets - - (20,430) Consolidation adjustments (9,940) - 10,090 Aggregate results before tax (10,324) 108,562 10,340 Breakdown of aggregate results before tax: - Accounting basis (4,730) 108,562 10,340- Capitalised accounting basis (losses) (935) - -- Non-taxable accounting basis (4,659) - - (10,324) 108,562 10,340 Applicable tax rate 30% 30% 30%Theoretical tax charge (1,419) 32,569 (3,102)Tax credit (281) - - Non-calculable income (278) (1,492)Non-deductible expenses 89 199 -Deductions (1,386) (3,118) -Other - (330) 147 Effective aggregated taxable (income)/expense (3,275) 29,320 (4,447) Breakdown effective aggregate taxable expense: Current taxes 3,713 33,397 8 Tax credit (281) - - Deferred taxes (6,707) (4,077) (4,431) Total effective aggregate taxable expense: (3,275) 29,185 (4,423) Adjusted estimated Corporation Tax (71) (25) - Aggregate Corporation Tax expense (3,346) 29,295 -

ANNUAL REPORT 2009


141

The calculated Corporation Tax pending payment and collection at 31 December 2009 and 2008 is as follows:

Financial year 2009 Financial year 2008 Current Current Current Current tax tax tax tax debtor creditor debtor creditor

Aggregate current tax 3,713 - 137 33,268 Tax withholdings and prepayments (10,916) - (239) (31,577) Balance with government bodies (7,203) - (200) 1,691

Current laws and regulations establish that taxes may not be deemed finally settled until filed tax statements have been inspected by the tax authorities or a statute of limitations period of four years elapses. At 31 December 2009, the companies that make up Correos Group have all applicable taxes since December 2005 pending inspection by the tax authorities, except Corporation Tax, which has been pending inspection since 1 January 2005. The Parent Company Directors does not expect significant additional liabilities to emerge as a result of any inspection procedures.

Under the Ley del Impuesto sobre Sociedades (‘the Corporation Tax Act’), if a taxable base is found to be negative, its amount may be offset within the fifteen financial years following the year of the loss; the amount of the offset may be distributed as the taxpayer sees fit. The offset must be effected upon filing a Corporation Tax statement, and is subject to the tax authorities’ power of verification. As at 31 December 2009 and 2008, the Group companies had the following losses from previous years to offset against future taxable profits:


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Maximum offset Correo Correofinancial year Chronoexprés, S.A. Híbrido, S.A. Chronoexprés, S.A. Híbrido, S.A. 2010 91 - 91 -2011 813 - 813 -2012 1,820 - 1,820 -2013 1,367 - 1,367 -2014 2,426 - 2,426 -2015 1,301 - 1,301 -2016 11,138 - 11,138 -2017 19,350 - 19,350 -2018 52,569 83 52,569 832019 38,871 135 38,871 1352020 22,011 - 22,011 -2021 11,179 - 11,179 -2022 9,769 - 9,769 -2023 1,474 - 1,423 -2024 6,134 947 - - 180,313 1,165 174,128 218

Data at 31/12/2009 Data at 31/12/2008

The tax credits corresponding to the negative taxable bases of Correo Híbrido, S.A., which are recorded in the attached consolidated balance sheet, amount to approximately 349 thousand euros (130 thousand euros at 31 December 2008).

(19) Other information

A) Number of employees

The breakdown of the Group’s average staff, by number of employees, during the 2009 and 2008 financial year was as follows:

Financial year 2009 Financial year 2008 Senior management 24 25Rest of workforce: Civil servants 27,379 29,684 Employees under ordinary contracts 38,378 37,952 65,781 67,661

ANNUAL REPORT 2009


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At 31 December 2009 and 2008, the number of employees of Correos Group broken down by job categories and gender was as follows:

Men Women Total Men Women Total staff staff Senior management 21 3 24 23 3 26Rest of workforce: Civil servants 19,189 7,209 26,398 20,810 7,882 28,692 Employees under ordinary contracts 14,936 21,553 36,489 14,863 21,481 36,344 34,146 28,765 62,911 35,696 29,366 65,062

Data at 31/12/2009 Data at 31/12/2008

B) Commitments and contingencies

At 31 December 2009, the guarantees provided on behalf of the Parent Company of the Correos Group by various banks amounted to 38,106 thousand euros (28,730 thousand euros at 31 December 2008). The rest of the companies pertaining to the Group do not have guarantees or warranties granted by third parties for any significant amounts. The Directors of the Parent Company believe that any additional liabilities that may arise from the guarantees provided to third parties will not be in any way significant.

C) Fees for accounts auditors and group and associated companies

The amounts billed to companies in the Correos Group, or pending billing, by PricewaterhouseCoopers Auditores, S.L., and its associated companies are itemised below. These amounts are for professional services over the financial year:

Thousands of euros For auditing services 187For other services 376 Total 563

(20) Directors and senior management of the Parent Company

The members of the Governing Board and the Management Committee of the Parent Company did not participate, either directly or indirectly, in unusual and/or relevant transactions with Correos Group companies during the 2009 financial year.


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20.1.) Remunerations and other benefits to Directors and to members of the Management Committee of the Parent Company during the financial year

Pay accrued for all items during 2009 financial year by members of the Parent Company’s Governing Board and Management Committee totalled 1,856 thousand euros (1,431 thousand in 2008), 232 thousand of which correspond to allowances for support to the Governing Board (234 thousand in 2008); the rest was paid as salaries and/or other pay items.

At 31 December 2009, no member of the Parent Company’s Governing Board or Management Committee maintained balances receivable or payable with the same. Nor did the Company have obligations contracted with them concerning pensions and/or life insurance.

Other information relating to the Governing Board

Article 127 b, paragraph 4 of the Companies Act, drafted under Act 26/2003, of 18 July, amending the Ley del Mercado de Valores (Securities Market Act) and the Companies Act to strengthen transparency in listed companies, requires Governing Board Members to inform the Parent Company of any shares they hold in other companies with the same, similar or complementary types of activity as the Company’s corporate objective, in addition to the role and functions that they play in said companies and whether they are employed or not in the same, a similar or complementary activity as the corporate objective.

The members of the Parent Company’s Governing Board do not own shares, hold offices or perform functions in companies whose objects are identical, similar or complementary to the object of the Parent Company, according to their written disclosures.

As at 31 December 2009, the Governing Board of the Parent Company was made up of 12 men and 5 women.

(21) Environmental information

As at 31 December 2009, there were no significant assets given over to environmental protection and improvement, nor have any significant expenses of that nature incurred during the year. Likewise, during the financial year ending at 31 December 2009, no environmental contributions were received.

Parent Company Directors take the view that no contingencies exist in connection with environmental protection and improvement, and therefore do not think it necessary to allocate any environmental items to the provision for risks and charges as at 31 December 2009.

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(22) Contingent liabilities

As part of the periodic supervisory actions undertaken by the Comisión Nacional de Competencia [National Competition Commission] (the former Servicio de Defensa de la Competencia [Competition Defence Service]), its General Directorate for Investigation requested information from the Parent Company to verify compliance with the Acuerdo de Terminación Convencional (Termination Agreement) signed between Asempre (Professional Association of Mail Delivery and Handling Companies) and the Parent Company on 15 September 2005. In that regard, the Parent Company’s Directors consider that it is not possible to assess the final result of the case at this time.

(23) Subsequent events

No significant events have occurred which could have an impact on the economic/financial and asset situation of Correos Group after the end of the financial year.


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Management report -Financial year 2009 -

1. Business evolution and future risks

At the close of the 2009 financial year, the Parent Company, Sociedad Estatal Correos y Telégrafos, S.A., holds 100% of all its subsidiaries.

The European postal sector, and the Spanish sector in particular, is in the midst of a process of change and transformation. This sector has reached a high level of maturity, both within Spain and Europe and across the globe, displaying, over the course of the financial year, a structural decrease in postal volumes driven by electronic substitution. Moreover, the economic crisis is having a cyclical impact on the volumes which, in addition to drop in 2009 and foreseeable further reduction in 2010, is accelerating the trend of electronic replacement. The effects of this situation on Correos’ business are described below.

The European competition context will see a change with the liberalisation of the market on 1 January 2011. This situation will be difficult to handle in a mature market such as the postal market.

This trend in the postal market is mainly due to:

Technological progress of operators and customers

This is primarily fuelled by the emergence and penetration of electronic products and systems posited as replacements of or alternatives to traditional mail. Postal business will depend on the proper management of technological uncertainty, perhaps through adapting to the new technological environment. However, it appears more likely, and is proving to be the case, that electronic substitution will be felt more intensely in the future, with increased penetration of the Internet through better technological support, better access quality, lower prices and generational replacement, as it will lead to a net decrease in the volume of mail items, exacerbated by the overall economic situation.

Secondly, this is due to cost-saving initiatives by clients, caused by their processes becoming more sophisticated and the austerity plans implemented as a response to the economic crisis. This increasing sophistication involves not only new communication technologies, but also better management of postal expenditure using a range of technological tools – better databases, messages bundled in fewer postal items, electronic invoicing, etc. All this makes for fewer postal items to meet customers’ communication needs.

In the face of this, to become less dependent on its traditional postal business Correos continues to intensify its diversification initiatives and improve operating efficiency.

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Regulation Liberalisation of the European postal market, and its effect on the Spanish postal sector

The EU postal reform initiated over fifteen years ago has sought the harmonised undertaking of the internal market for postal services by means of a progressive reduction in monopolies and the guarantee of a universal postal service that addresses the needs of citizens and businesses.

For this reason, the European Union only had to set a final deadline for the full opening of the postal sector.

The most significant development of the Directive 2008/6/EC was setting a definitive date for the disappearance of the special or exclusive rights no later than 31 December 2010 (except in eleven countries that could postpone these by two years), while in turn maintaining the most significant provisions of the previous regulations, above all those referring to the obligations of a universal service.

Two of the most debated issues throughout the entire process of the preparation of the Third Postal Directive are guaranteeing the provision of a universal postal service and its funding.

Its implementation could have an effect on the level of quality and on the national price uniformity. The reason is that costs are different depending on what the delivery and distribution densities of the diverse regions are, or according to the specific activity of the universal service that is carried out. Serving a large urban centre, for example, is not the same as serving a rural area, nor is transporting mail items the same as distributing them. This latter activity represents over 50% of the total cost of the postal process. With regard to the second question of interest, funding the universal postal service, it should be pointed out that one of the most immediate effects of the application of the Third Postal Directive for operators which until now have been universal postal service suppliers (hereinafter known as national operators) is the disappearance of the reserve. This is a mechanism which, in general terms, has been used in order to guarantee a quality service that is affordable and accessible. On the other hand, it is foreseeable that new operators will only focus their business on the most profitable segments, leaving the less productive ones to those responsible for providing universal service. At the outset, both factors will have a potentially negative effect on the income base of national operators.

In this respect, during the process of the preparation of the Third Postal Directive a group of countries requested that properly defined, long-term and proven measures be established to compensate for the costs of the obligation, as well as to guarantee present and future investments, and to ensure business viability and employment. This is a fundamentally important issue given the trend of decreasing mail items seen throughout 2009, requiring significant attention to be paid to this issue.


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In short, in order to ensure and fund the universal postal service, the Third Postal Directive proposes diverse options which are subject to very different applications in the national field. The approval of the Directive in 2008 constituted a decisive step in European postal reform, but the last phase will only conclude when the Member States transpose it to their internal regulations, ensuring the effective configuration of a homogenous market that prevents a European postal service with two or more speeds. At the date this report was issued, some European countries had already completed transposition, and have paid significant attention to this problem, which is the most important one facing the sector’s evolution in the liberalised environment. The Directive has yet to be applied in Spain, but this is expected to happen over 2010.

The Directive’s transposition in Spain will be the most important regulatory development over the 2010 financial year and will have a great impact on the future of the postal market and the role that Correos can play in coming years.

The liberalisation process has encouraged the emergence of new competitors in the market. In Spain, competition has developed increasingly, taking the form of widespread consolidation among competing firms and, in particular, the entry of the main international operators into the Spanish postal market. In recent years the major European postal operators have wholly or partly acquired companies operating in Spain in the express, transport and postal services sectors.

In addition, in the last two years, a number of regulatory changes have exacerbated uncertainty in Spain. The regulations on access to the postal network are a key issue. The relevant Royal Decree prescribes, as a first step, the creation of provisional benchmark terms and conditions for postal operators to have access to the public operator’s network. At the date this report was closed, no regulatory amendments had been made and Correos continues to sign network access contracts with operators as per effective regulations.

Forecast effect on Correos’ future volumes

Until the 1990s, the growth of mail volumes (Correos’ traditional market) was closely tied to economic growth. This assertion is confirmed by a wide range of studies, including those conducted by the Universal Postal Union. In periods of stability with no emergence of new technologies, there was a strong correlation between economic growth and mail volumes behaviour. Over recent years, growth in mail volumes has been slowing continuously, becoming significantly negative in the 2009 financial year. This was accelerated by the economic crisis and the effect of electronic substitution. It means a change in behaviour as regards postal volumes, the area representing the highest proportion of Correos’ income, and new references are required in order to determine future mail volumes, especially for the traditional and extremely mature postal market.

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To this estimate, which mainly reflects the new behaviour brought about by technological substitution, one should also add the effects of liberalisation and the concomitant increase in competitors, as described below.

Operator responsible for the provision of the universal postal service

The universal postal service is the set of postal services of a specified quality provided permanently –regularity– at all points of national territory –universality– at affordable prices. The obligation to regularly reach the entire national territory requires the existence of facilities, points of access and products that are often unprofitable in business terms, but necessary from a public-service perspective.

The feature which distinguishes Correos from its present and future competitors is precisely its duty as the operator providing universal postal service with increasing obligations, as opposed to its competitors’ freedom of action. These obligations, in a situation of decline in the traditional market, as discussed above, represents a short-term threat as it requires Correos to maintain a fixed-cost structure, unlike other operators who can vary their structure, adapting to changes in the market. Furthermore, the greater flexibility enjoyed by other operators allows them to focus on advancing in profitable markets, leaving the least profitable areas to Correos and creating a situation that will be difficult to solve over the short-term.

The market therefore faces an evolving, changing form of provision of universal postal service which will crucially influence the public operator. Beginning in 2011, Correos will operate on terms of open competition with other operators in a transforming industry which must accommodate new technologies and bring in new processes to encourage accessibility, adapt to changes in market demand and tailor its offering to users’ emerging needs and to new social habits and demographic environments. This will entail not only an intense innovation and diversification effort, but will also make it necessary to undertake an overall restructuring of costs in the search for greater operating efficiency.


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2. Quality

Quality in providing postal services, the most significant of Correos Group’s services, is measured from postmarking to the time the mail items are dispatched for delivery. According to its internal monitoring of delivery deadlines, Correos Group presents the following results:

83.7% of the basic line items are delivered on the first day.In the economy line, 92.5% of the items are delivered within four days.

3. Other topics

Correos Group does not hold treasury shares, has had no research and development expenditure and has not concluded transactions with financial derivatives in 2008.

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SOCIEDAD ESTATAL CORREOS Y TELÉGRAFOS, S.A. AND SUBSIDIARY COMPANIES ANNUAL REPORT 2009

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Declaration of the Governing Board

Consolidated Annual Accounts and Management Report for the financial year ending 31 December 2009 of Sociedad Estatal Correos y Telégrafos, S.A. and subsidiary companies

The preceding Consolidated Annual Accounts of Sociedad Estatal Correos y Telégrafos, S.A., which comprise the Consolidated Balance Sheet, the Consolidated Profit and Loss Account, the Consolidated Cash Flow Statement, the Statement of Changes in the Consolidated Net Assets and the Consolidated Annual Accounts Report corresponding to the financial year ending 31 December 2009, together with the Consolidated Management Report corresponding to the same year, were submitted for approval by the Governing Board of Sociedad Estatal Correos y Telégrafos, S.A. on 30 March 2010. In accordance with current provisions, the administrators sign and give their conformity with all the abovementioned documents.

Madrid, 30 March 2010

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Correos Group Annual Report 2009

This Annual Report is published every year in printed and electronic format. It is available at www.correos.es, together with previous Annual Reports and other corporate information.


Vía de Dublín 728070 MadridCustomer service helpline: +(34) 902 197 197www.correos.es

Chronoexprés, S.A.

Av. Europa 828820 Coslada(Madrid)Customer service helpline: +(34) 902 111 021 / +(34) 902 122 333www.chronoexpres.com

Correo Híbrido, S.A.

C/ Hiedra 728070 MadridCustomer service helpline: +(34) 913 962 500www.correohibrido.es

Correos Telecom, S.A.

C/ Conde de Peñalver 19 bis28070 MadridCustomer service helpline: +(34) 913 531 750www.correostelecom.es

ANNUAL REPORTSOCIEDAD ESTATAL CORREOS Y TELÉGRAFOS, S.A. AND SUBSIDIARY COMPANIES

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