Sustainability has a key, aggregating role in this process. For Poste Italiane, being sustainable means, above all, defining a single Group strategy which brings together financial and operating objectives within a clear vision of environmental, social and governance issues (the so-called “ESG” - Environmental, Social and Governance). In this regard, the main goal of the “Deliver 2022” plan announced in February 2018 is to maximise the value of Italy’s largest distribution network, responding to the changing needs of customers and taking advantage of the growth opportunities offered by digital transformation. The Group plans to invest a total of €2.8 billion over the life of the Plan in strategic opportunities that will enable us to achieve financial results based on realistic expectations, with a limited execution risk. The Group has already reached a number of goals in various business areas in relation to the delivery of the plan. Examples of the Group’s significant achievements refer to the agreement with trade unions regarding the innovative new delivery model (the “Joint Delivery Model”), which involves afternoon and weekend deliveries, as well as the partnerships with Amazon and other major operators. Further important elements of this process include the creation of the Payments, Mobile and Digital division, which acts as a competence centre to support the implementation of the Group’s digital strategy, and the establishment of PostePay SpA, the biggest Electronic Money Institution in Italy. Finally, with regard to financial services, important steps in delivery of the plan include the threeyear distribution agreement with Intesa Sanpaolo, the loan distribution agreement with Unicredit, the agreements with ANIMA designed to strengthen our partnership in the asset management sector, and the agreement with Generali Real Estate, which will enable both groups to leverage their respective expertise and experience in the property sector and focus on the search for co-investment opportunities in the leading categories of the real estate sector in Italy and Europe.
Through concise and synthetized information disclosure, the Integrated Report describes how the organisation’s strategy, governance, business model, future outlook and performances contribute to the creation of value.
The customer contact channels are managed by two Poste Italiane functions dedicated to the sale of products and services and specialised by type of customer: Post Office Network and Business and Public Administration.
Numerous new functions were added to the Web and App channels for end users in 2018 and, in line with the digital transformation process, work continued on improving the Group’s online offering.
1. The following Group companies report to the Mail, Logistics and Communication function: Postel, SDA Express Courier, Consorzio Logistica Pacchi and Mistral Air. 2. The logistics process covers receipt, collection, transport, sorting and delivery.
To estimate the results of the Company’s economic activity, an “Input-Output” analysis was conducted using multipliers based on statistics and data made available by ISTAT (Italy’s Office for National Statistics) and the Ministry of the Economy and Finance. The multipliers show the effects on GDP, taxation, employment and earned income resulting from changes in spending on goods and services in a specific industrial sectors. These effects are the result of intersectoral dependencies present in an economic system, due to which changes in the conditions in one sector of the economy lead to further impacts on related sectors and on the economic system and society as a whole. The multipliers were applied to the “basic” figures obtained internally by the Group. Within cautionary approach, the model does not include the impacts generated by investing activities. A future goal is to be able to also estimate the impact of this activity, creating a specific model for this purpose.
Creation of a Materiality Matrix with topics reflecting the material social and environment impacts
Contribute to the modernisation of Italy and digital and technological evolution through the development of new products and services and the adoption of digital technologies to be incorporated into products, services and business processes, in order to be ready to respond to changes in scenario, new customer needs and opportunities offered by social and environmental changes.
�� Identification of possible training initiatives to create "culture" for all staff �� Staff engagement programmes (e.g. “employee engagement programme”, activation of a welfare platform, an absenteeism competence centre, etc.) �� Incentivisation of the use of remote working tools
Insufficient consideration regarding access to financial services by specific customer categories (e.g. the elderly, foreigners, etc.)
�� Study and monitoring of regulatory and doctrinal developments in the field of labour law 3. Freedom of association and collective bargaining 4. Discrimination �� Group Code of Ethics
�� Specific audits at suppliers' premises to verify the conditions declared in the contract
�� Investment in sectors that contribute to the Sustainable Development Goals (SDGs), which are disseminated at international level by the United Nations (e.g. investment in bonds classified as "Green", "Social" and "Sustainable" in line with the standards and principles defined by the International Capital Market Association).
�� Communication with the responsible organisations and with international protection and defence bodies (e.g. participation in drills or other initiatives, etc.)
The Mail, Parcels and Distribution segment has been reorganised to serve the growth of e-commerce. In order to increase the market share of Parcel delivery, the Company reached an agreement with labour unions regarding an innovative delivery operating model ("Joint Delivery Model"), which provides for afternoon and weekend deliveries. Furthermore, the partnership signed with Amazon in June 2018 marks another fundamental step in the implementation of the plan. Finally, investments will be made in new sorting and automation technologies to support the development of the division. In this context, Poste Italiane has also signed a framework collaboration agreement with the Italian Tobacconists' Federation, which provides for tobacconists operating as pick-up points for mail and parcels.
Proposed appropriation of earnings 19 April 2018 Revision of the Group's Code of Ethics
The process for managing financial risk is regulated and overseen by supervisory authorities (the Bank of Italy and IVASS, the insurance industry regulator) and is the responsibility of the Risk Management units belonging to the various business units, coordinated by the function responsible for coordinating risk governance at Group level.
9. Source: 10. Source: Prometeia, Economic Outlook - December 2018; Il Sole 24 ore (October and December 2018) 11. Source: Prometeia, Economic Outlook - December 2018; Il Sole 24 (November 2018) 12. Source: Prometeia, Economic Outlook - December 2018; Il Sole 24 (January 2019).
Income tax expense of €92 million (€378 million in 2017) benefitted from the positive impact of deferred tax income of €385 million recognised by Poste Vita on temporary differences resulting the application of paragraph 1-bis of art. 111 of the Consolidated Law on Income Tax (introduced by art. 38, paragraph 13-bis of Law Decree 78 of 31 May 2010). This legislation provides for a partial exemption (based on a specific percentage deduction) of the movement in the obligatory technical provisions relating to the Life business from taxation, whereas the full amount of such movements was previously included in the tax base for the purposes of IRES. In Poste Vita’s case, the percentage deduction is 98.5%.
Property, plant and equipment and Investment property 1,993 2,053 (60) -2.9%
Approximately 33% of investment (€178 million) regarded work on real estate, physical security and information technology, with aim of guaranteeing business continuity in the post office network, at head offices and delivery offices. This investment also focused primarily on the Mail, Parcels and Distribution Strategic Business Unit.
With Resolution 571/18/CONS, published on 11 February 2019, AGCom has launched a public consultation on the assessment of the net cost of providing the Universal Postal Service in 2015 and 2016, with the estimated costs of providing the service amounting to €378 million for 2015 and €355 million for 2016, compared with revenue of €279 million and €262 million recognised by Poste Italiane. Interested parties have 45 days from publication of the Resolution in which to send their contributions to the consultation. The above figures may be adjusted by the regulator in its final decision following closure of the consultation.
Poste Italiane has begun talks with the interested parties with a view to reaching agreement on a new Contratto di Programma.
The compensation partially covering the cost of the Universal Service for 2018, as provided for in the 2015-2019 Service Contract in force, amounts to €262 million.
Other information On 3 October 2018, the Company proceeded to pay the fine of €23 million plus interest imposed by the Autorità Garante della Concorrenza e del Mercato (AGCM - the Antitrust Authority) following its ruling, in January 2018, that Poste Italiane had abused its dominant market position as per art. 102 of the TFEU. This does not constitute acceptance or admission of liability in relation to the alleged misconduct and does not affect the Company’s right to defend its position through the appropriate channels. At 31 December 2018, the provisions made in 2017 have been used in full.
Doubtful loans within the banking system, after impairments and provisions made from own funds, amounted to approximately €29 billion in December 2018, sharply down compared with the figure for December 2017 (€64 billion). In percentage terms, doubtful loans have fallen from 3.70% of total lending in December 2017 to 1.72% in December 2018. The average interest rate applied to household loans (current account overdrafts and revolving credit) continued to fall, declining to 4.53% in December 2018 (5.0% in December 2017).
With regard to the real estate funds marketed in the period between 2002 and 2005, on 19 February 2018, Poste Italiane SpA’s Board of Directors approved an initiative designed to protect customers of the Europa Immobiliare 1 fund. On 28 March 2018, the manager of the fund, Vegagest SGR, announced to the market that it had provisionally suspended the resolution approving the final liquidation financial statements and, in June 2018, approved the partial repayment to quotaholders of 50% of the final liquidation value. Poste Italiane’s Board of Directors subsequently reviewed the above initiative designed to protect customers, with the resulting impact on risks and charges at 31 December 2018 of approximately €17 million.
On 29 January 2019, Vegagest SGR announced to investors that it was to pay a further return of €98.78 per quota. Payment took place on 6 February 2019.
As regards Transaction Banking services, marketing of the new BancoPosta account continued. In addition to guaranteeing multi-channel access in line with customer needs and market trends, this product offers customers a competitive, low-cost alternative.
Based on the available official data, at 31 December 201827, new business for Life insurance policies, including EU undertakings, amounts to €99.2 billion (including €14 billion relating to undertakings operating on a freedom of establishment basis), slightly down (1.2%) compared with 2017. New business for Italian undertakings is up 3.8% to €85.5 billion, whilst EU undertakings operating in Italy have registered a 24.2% decline in new business to approximately €14 billion.
Based on the available official data28 total direct Italian premiums in the Non-life insurance market, thus including policies sold by Italian and overseas undertakings, amounted to €26.2 billion at the end of the third quarter of 2018, slightly up compared with 2017 (2.4%). This marks the sixth consecutive quarter reversing the negative trend seen over the previous five years. The performance was helped by both the slight increase in premium revenue from vehicle insurance and further growth in other Non-life classes.
* Includes finance income from investments by the Non-life business and other income and expenses from insurance activities.
Technical provisions for the Non-life business, before the portion ceded to reinsurers, amount to €183 million at the end of the period, up 16% compared with the end of 2017 (€160 million).
Income tax expense is up from €56 million for 2017 to €149 million for 2018. The total effective tax rate for 2018 is 20.3%, reflecting an IRES tax rate of 15.24% and an IRAP rate of 5.06%. The difference in the effective IRES tax rate compared with the statutory rate (24%) is primarily due to the fact that 95% of the dividends received from a number of subsidiaries and the realised gain on investments was exempt from taxation, under the participation exemption. In 2017, the Parent Company received more dividends from investees, which had a greater impact on the tax rate.
Net fee and commission income amounts to €3,721 million, an increase of 4.4% (€157 million) compared with 2017. This reflects fee and commission income of €3,861 million (up 6.4% or €232 million compared with 2017), after benefitting primarily from the collection of Post Savings on behalf of Cassa depositi e prestiti, due to the strong performance of this service (the related fees are up from €1,566 million in 2017 to €1,827 million) and reflecting the mechanisms provided for in the new agreement that came into effect from 1 January 2018.
Postal Savings will continue to be governed by the three-year agreement entered into with Cassa depositi e prestiti in December 2017, effective from 2018.
WE HAVE A RESPONSIBILITY TO ENSURE CORRECT AND TRANSPARENT CONDUCT IN DEALINGS WITH OUR STAKEHOLDERS.
In 2018, Poste Italiane’s commitment to integrity, the prevention of corruption and compliance with legislation was rewarded by the absence during the year of proceedings relating to established corruption cases and sanctions regarding anti-trust/anti-competitive practices.
With regard to the IT Services product category, the Company set up a Vendor Rating (VR) system to monitor the behaviour of business operators in the tender procedure participation phases, and in the subsequent execution and management phases of the contracts awarded. This system will be extended to all qualifying segments in 2019.
20% of middle managers and 25% of white-collar staff with respect to the total number of middle managers and white-collar staff meeting the access criteria for these programmes by 2022
Reduce the occupational injury seriousness rate for Group employees down 8% compared with the 2017 seriousness rate by 2021
Aware of the key role women play within and outside the Company, Poste Italiane has been at the forefront of women’s efforts to ensure equal opportunities and combat gender-based violence for years. Taking advantage of its nationwide presence, the Company is a key interlocutor for the main organisations and authorities engaged in supporting the many victims of violence through the implementation of dedicated initiatives aimed at reintegrating victims leaving anti-violence centres within the labour market and the community.
With a view to sharing and discussing the issue with the main national and local authorities and associations involved in projects relating to the reintegration of women victims of violence within the labour market, on 23 November 2018, Poste Italiane, in collaboration with the Equal Opportunities Department of the Cabinet Office, wished to dedicate the Eighth Confindustria Corporate Culture Week event to the theme of combating gender-based violence. The meeting enabled presentation of the main support tools and methods provided for by the activation of projects aimed at creating financial independence pathways, a key element in supporting the reintegration of victims of violence within the social fabric.
Poste Italiane is constantly engaged in the creation of a collaborative and trusting working environment, within which people are one of the greatest resources adding value to the corporate system.
Financial Services With regard to specialised technical and managerial training, several courses were planned, including the course “Business Continuity Management ” and the project “Ascoltiamoci” (Let’s Listen), consisting in a structured dialogue between the Company functions BancoPosta and Private Customers.
In addition to offering financial benefits, the Company crèche provides employees with a flexible and distinctive educational service.
Employees’ children who are disabled also benefit from 15-day residential holidays, with a dedicated assistant provided for each child. The cost is fully borne by the Company, and families accompanying children are offered packages at reduced rates.
Promoting constant dialogue with workers’ representatives is a priority for the Group, which is committed to ensuring the wellbeing of its workers and protection of their rights, both under normal operating conditions and in the event of significant organisational changes.
Reorganisation of delivery activities In line with sharing activities with the labour unions, on 8 February 2018 a draft agreement was signed regarding reorganisation of delivery activities. The new arrangements include: �� an alternate day delivery model for the areas covered by the existing regulatory framework (AGCom Resolution 395/15/CONS), where a basic service operating on alternate days will be in place. In the case of business opportunities linked to specific commercial agreements, such as the distribution of newspapers in certain areas, temporary business arrangements will be adopted; �� a Joint Delivery model for the remaining areas, in which mail delivery will be in the form of a basic service and a business service for the daily door-to-door delivery of products under Service Level Agreements.
Active labour policies The Group’s commitment to establishing relations aimed at ensuring its workers’ wellbeing and protection of their rights has been expressed by signing four agreements regarding labour policies.
Increase the number of post offices in small municipalities with free Wi-Fi customers 5,007 more post offices equipped with free Wi-Fi by 2020
Continue financial education and inclusion projects 20 financial education events by 2022
�� Free Wi-Fi at all Post Offices in small municipalities: Extension of Wi-Fi to all small municipalities not covered by the service.
�� Social solidarity real estate projectse: Provision, free of charge, of Company-owned land and buildings in small municipalities for social and public interest purposes to benefit the community. The commitment also includes a plan to refurbish and decorate post offices by creating murals on their external walls, as well as renovation of mail boxes in the most disadvantaged areas of small municipalities.
Poste Italiane offers the winning municipalities its professional and planning experience, and activates consulting sessions to guide the pre-selected local authorities in implementing actions. To ensure the success of the project, the Company will use its own managers and corporate volunteers.
In continuity with the initiatives promoted in recent years aimed at increasing people’s knowledge and skills relating to financial, insurance and social security matters - an objective of significant social and institutional value as an enabling factor in making informed choices in a constantly changing economic context - the Company plans to launch the project “Educazione Finanziaria” (Financial Education) project, which, in collaboration with the competent functions, aims to draw up an action plan to support the growth of knowledge and customers and citizens’ financial culture.
WE HAVE THE RESPONSIBILITY TO PROVIDE AN INCREASINGLY EFFICIENT AND WIDESPREAD SERVICE.
Invited customers joining the initiative will participate in surveys, forums and discussion groups regarding Poste Italiane Group products and services via the online platform www.dilloaposteitaliane.it. It will also be possible to establish a direct link between customers and Poste Italiane managers through periodic web chats on specific topics. Listening activities could be launched by Poste Italiane, Banco Posta and PostePay, as promoters of the initiative. For this reason, various brands have been created - “Dillo a Poste Italiane”, “Dillo a Banco Posta” and “Dillo a Poste Pay” - to personalise the individual initiatives aimed at customers according to the Function or Group company that launches them.
Ensuring adequate levels of confidentiality, integrity and availability of data, information and services provided to customers requires increasingly advanced protection systems to safeguard personal data, tangible and intangible assets and intellectual property. Consequently, in line with business needs, Poste Italiane has developed and adopted a specific IT security framework that, starting from the objectives defined in the IT Security Policy, provides specific methodologies regarding the IT risk analysis, cross-cutting interventions and technological projects needed to ensure the proper functioning of the security platforms, “Security by Design” activities and cross-cutting security technological infrastructures. The framework is completed by integrated management of information flows deriving from the various IT security structures and an Integrated Management System for IT Quality and Security that incorporates the aspects highlighted by international standards and postal sector benchmarks. Adoption of this framework guarantees an adequate level of performance of the security measures and appropriate resilience of business services, as well as enabling information flows to the fed to internal audit bodies and/or the relevant Authorities.
Environmental protection is a priority that Poste Italiane Group has established in its Code of Ethics, in which it recognises the importance of safeguarding the environment as a primary asset, undertakes to promote rational use of resources within its structures, and focuses on seeking innovative solutions to ensure a reduction in the direct and indirect environmental impacts generated by its activities.
From an environmental responsibility perspective, the Group considers energy efficiency to be one of the main elements for combining economic growth and sustainable development.
Total settlements discussed 1,084 1,368 1,499 * Settlements discussed regarding IRS real estate fund only relate to 2017. As a result, there is no figure for 2018. The same protections and conciliation procedures have been adopted with regard to the Europa Immobiliare 1 fund as used for the IRS fund. In 2018, 47 applications for conciliation were received sand these will be processed in 2019. The related figures will thus be reported in 2019.
NEW CUSTOMERS IN THE CATEGORIES MOST AT RISK OF FINANCIAL EXCLUSION AS A PERCENTAGE OF TOTAL NEW ACQUISITIONS
The location-based method, on the other hand, is based on average emission factors for regional, sub-national or national power generation. Applying the location-based method, the Group’s total Scope 2 emissions in 2016 amount to 195,451 tonnes of CO2, in 2017 to 191,678 tonnes and in 2018 to 183,486 tCO2e. The same emission factors were used as were sued for the market-based method. The target set for 2018 is 9,476 tCO2e.
The agreement also provides for initiatives that will have a positive impact on employment, involving over 3,800 personnel in 2019. This will involve the offer of permanent contracts to 2,000 staff formerly employed on fixed-term contracts, the conversion of 920 staff from part-time to full-time contracts, and the recruitment of 500 specialists and 420 new part-time personnel for operational sites and post offices.
The following table shows the link between the information disclosure required by the Decree and the corresponding sections within the Annual Report and other company documents required by law.
Report on Operations: Materiality matrix; Poste Italiane’s sustainability strategy; Support for the socio-economic development of local communities 103-2 The management approach and its components 103-3 Evaluation of the management approach
Report on Operations: Materiality matrix; Poste Italiane’s sustainability strategy; IT security and business continuity 103-2 The management approach and its components 103-3 Evaluation of the management approach
End hunger, achieve food security and improved nutrition and promote sustainable agriculture.
Regarding the identification of contracts in scope, the Group elected not to remeasure contracts outstanding at the date of transition that had (or had not been) classified previously as leases or as containing a lease component. As a result of this expedient, lease contracts or contracts containing a lease component, which had been accounted for in accordance with IAS 17, now fall within the scope of IFRS 16.
With respect to the determination of the lease term, particularly for property lease agreements, the Group used a valuation approach that is based first of all on the duration of the obligation, as per the agreement between the parties and/or the legal framework of reference (Law 392 of 27 July 1978), and extended their term as a result of an interpretation/forecast of events, circumstances and future intentions, including of a strategic nature, of both the lessor and the lessee. This resulted in a set of rules to determine the lease term, to be applied to leased properties classified previously in three distinct clusters: (i) properties where the lease is subject to legal restrictions and high commercial-value properties, (ii) properties for civilian use, such as the company accommodation for Group employees and executives, and (iii) properties used in operations. The lease term for all the other agreements was set as equal to the duration of the obligation agreed upon between the parties, in keeping with future intent in wanting and being able to complete the term and past experience.
General description of the models utilised The Group uses the general impairment model in accordance with risk ratings estimated on the basis of the type of counterparty: �� Securities/deposits with sovereign and banking counterparties (and certain residual corporate types): Internal risk rating estimation models; �� Other corporate and government securities: risk ratings provided by an external provider and average default rates for the sector.
The main assumptions/choices adopted in the determination of the factors are as follows: �� PD - As indicated from the start a forward-looking point-in-time (PIT) PD was adopted over a defined time horizon (12 months or lifetime); �� LGD – Use was made of values consistent with the Internal Rating Based (IRB) approach under the Basel regulations (45% for senior risk-assets and 75% for subordinated risk-assets); �� EAD – Exposure calculated prospectively until maturity of the instrument, starting from the development of expected cash flows. The development took into account the specific indexation assumptions for each asset class (fixed-income instruments, floating-rate instruments, inflation-linked instruments, etc.); �� TF – The effective interest rate determined for each position has been adopted as discount rate.
Reclassifications (IFRS 15)* Adjustments (IFRS 9 and 15)** Balance at 1
Effect of adjustment for expected credit losses on instruments measured at amortised cost (11) (11)
The provisions for doubtful debts related to other receivables and assets changed by €1 million.
Expected credit loss provisions at 31 December 2017 (IAS 39 compliant) 517
Following the receipt of clearance from the Bank of Italy on 11 July 2018, extraordinary general meetings of the shareholders of BancoPosta Fondi SGR and Anima SGR approved the spin-off, which was effective from 1 November 2018. In return for transferring its shares in Anima SGR to Anima Holding, Poste Italiane SpA received €120 million on 24 October 2018, with the Group recognising a non-recurring gain in profit or loss (€116 million in the Parent Company’s profit or loss).
60. “Deferred tax assets”. 61. These elements are linked to the notion of “new information” and “new developments” in para. 5 of IAS 8, meaning changes in the circumstances on which an estimate was based or more experience acquired after the previous financial statements were approved for publication.
Poste Italiane SpA: dispute with the AGCM On 3 October 2018, the Company proceeded to pay the fine of €23 million plus interest imposed by the Autorità Garante della Concorrenza e del Mercato (AGCM - the Antitrust Authority) following its ruling, in January 2018, that Poste Italiane had abused its dominant market position as per art. 102 of the TFEU. This does not constitute acceptance or admission of liability in relation to the alleged misconduct and does not affect the Company’s right to defend its position through the appropriate channels. At 31 December 2018, the provisions made in 2017 have been used in full (note 9 – Proceedings pending and principal relations with the authorities).
Postel SpA: Impairment of goodwill At 31 December 2018, an impairment test of the value of the goodwill allocated to Postel SpA, based on the available projections, revealed the need to write off the related carrying amount, resulting in recognition of an impairment loss of €33 million in consolidated profit or loss.
Assets (€m) Note 2018 of which, related party transactions 2017 of which, related party transactions
Net change in technical provisions for insurance business and other claim expenses
Operating profit/(loss) 1,499 1,123 of which, non-recurring costs - of which, non-recurring income - 3
Balance at 31 December 2018 * This item includes net profit for the year of €1,399 million and actuarial gains on provisions for employee termination benefits of €12 million, after the related current and deferred taxation.
Total fair value losses for the period amount to €1,562 million, with losses of €1,887 million recognised in the relevant equity reserve in relation to the portion of the portfolio not hedged by fair value hedges, and a gain of €325 million recognised through profit and loss in relation to the hedged portion.
Other receivables regard €69 million (a nominal value of €70 million) representing the remaining amount receivable from Invitalia SpA as a result of the sale of Banca del Mezzogiorno-MedioCreditoCentrale SpA on 7 August 201773. Following the agreement between the parties finalised in January 2019, €20 million of this amount was collected on 27 February 2019.
Of which: * Transactions settled include forward transactions settled, accrued differentials and the settlement of interest rate swaps linked to securities sold.
Movements in level 3 during the year are shown below: 75. In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
– Reimbursement of the costs associated with the management of property, vehicles and security incurred on behalf of the Ministry for Economic Development, totalling €76 million, of which €1 million relates to the amount accrued during the year (see note 2.577 for information on this item). – Unfranked mail services provided on credit, totalling €73 million, to central and local government entities. – The payment of pensions and vouchers on behalf of INPS (the National Institute of Social Security), totalling €68 million. In February 2019, having conducted a joint assessment, Poste Italiane and INPS signed an agreement that, among other things, has settled the respective outstanding trade receivables (note B6).
�� Other trade receivables include mainly: €64 million related to PostePay SpA, primarily for sales of terminals, subscriptions for telecommunications services, services rendered to other operators and for the sale of top-ups through other channels; €34 million for Posta Time services; €27 million for non-universal postal services; €25 million for Posta Target services; €23 million for Posta Contest services; €19 million relating to air transport provided by Mistral Air Srl; €19 million for telegraphic services; and €18 million for the delivery of legal process.
�� Payments for delegated services, collected in February 2019, relate to fees accrued solely in the year under review for treasury services performed by BancoPosta on behalf of the state in accordance with a special agreement with the MEF, renewed on 16 November 2017 for the three-year period 2017-2019.
- Effects of contributions and transfers of business units between Group companies - Effects of intercompany transactions (including dividends) (1,878) (14) (278) (1,586) - (1,586)
Reserves related to disposal groups and liabilities held for sale - - - - - -
Other amounts payable to third parties - 145 145 - 68 68
Other amounts due to joint ventures - - - - 1 1
Revenue from Insurance Services after movements in technical provisions and other claims expenses [C4] 1,471 1,456
The movement in technical provisions for the insurance business and other claims expenses primarily reflect: �� claims paid, policies redeemed and the related expenses incurred by Poste Vita SpA during the period; �� the change in mathematical provisions reflecting increased obligations to policyholders; �� the decrease in technical provisions where investment risk is transferred to policyholders (so-called class D).
Raw, ancillary and consumable materials and goods for resale 120 141
Total employees on permanent contracts* 126,151 131,358 122,665 127,431 * Figures expressed in Full Time Equivalent terms.
Unrestricted net cash and cash equivalents at end of year 1,107,568 1,968,216
The increase in industrial patents and intellectual property rights, totalling €110 million, before amortisation for the year, relates primarily to the purchase and entry into service of new software programmes following the purchase of software licences.
103. In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, €16,780 million of the total amount qualifies for inclusion in level 1 and €4,409 million for inclusion in level 2.
At 31 December 2018, the fair value103 of these instruments is €21,189 million.
Financial assets measured at fair value through profit or loss Movements in financial assets at fair value through profit or loss (FVTPL), including the impact of first-time adoption of the new IFRS 9, are shown below: 104. Until the assigned shares are fully converted into ordinary shares, the share exchange ratio may be reduced if Visa Europe Ltd. incurs liabilities that, as of the reporting date, were considered as merely contingent.
Receivables of approximately €8 million arise from the deferred portion of the consideration due to the Company following the sale of its Visa Europe Ltd. share to Visa Incorporated (payable three years after transaction closing on 21 June 2016). Following its failure to pass the SPPI test, this receivable has been measured at fair value through profit or loss.
�� Receivables due from Cassa depositi e prestiti refer to fees for BancoPosta’s deposit-taking activities during 2018.
Fair value gains on financial assets at FVTPL net of tax effect 24 B C
Specifically: �� Provisions for non-recurring charges relate to operational risks arising from BancoPosta’s operations. They primarily regard the liabilities arising from to disputes with customers regarding certain investment products whose performance is not in line with expectations, deriving from the provision of delegated services for social security agencies, the reconstruction of operating ledger entries at the time of the Company’s incorporation fraud, violations of administrative regulations, compensation and adjustments to income for previous years, or to the erroneous application of statute barring and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee-defendant.
Actuarial gains and losses are generated by the following factors: TAB. B5.3 - ACTUARIAL GAINS AND LOSSES
The sensitivity of employee termination benefits to changes in the principal actuarial assumptions is analysed below: TAB. B5.4 - SENSITIVITY ANALYSIS
Income from investments in securities derives from the investment of deposits paid into postal current accounts held by private customers. The total includes the impact of the interest rate hedge described in note A5 – Financial assets attributable to BancoPosta.
C7 - Depreciation, amortisation and impairments (€474 million) TAB. C7 - DEPRECIATION, AMORTISATION AND IMPAIRMENTS
Foreign exchange losses* 4 12 * For the purposes of reconciliation with the statement of cash flows, in 2018 financial costs after foreign exchange losses amount to €66 million (€56 million in 2017).
Ministry of the Economy and Finance 5,930 - 197 11 1,306 3,649 - 43 8
Transactions with staff pension funds Poste Italiane SpA and the subsidiaries that apply the National Collective Labour Contract are members of the Fondoposte Pension Fund, the national supplementary pension fund for Poste Italiane personnel, established on 31 July 2002 as a non-profit entity. The Fund’s officers and boards are the General Meeting of delegates, the Board of Directors, the Chairman and Deputy Chairman of the Board of Directors and Board of Statutory Auditors. Representation of members on the above boards is shared equally between the companies and the workers that are members of the Fund. The participation of members in the running of the Fund is guaranteed by the fact that they directly elect the delegates to send to the General Meeting.
Introduction 115. Following the amendment of art. 1, paragraph 1097 of Law 296 of 27 December 2006, introduced by art. 1, paragraph 285 of the 2015 Stability Law (Law 190 of 23 December 2014), it became possible for BancoPosta RFC to invest up to 50% of its deposits in securities guaranteed by the Italian government.
Nominale Fair value +100bps -100bps +100bps -100bps +100bps -100bps +100bps -100bps 2018 effects
Impairment of fixed income instruments/receivables held at the beginning of the period - - -
POSTE ITALIANE GROUP - CREDIT RISK - TRADE RECEIVABLES IMPAIRED ON THE ANALYTICAL BASIS
Sensitivity to cash flow interest rate risk at 31 December 2018 on the Poste Italiane Group’s positions is shown in the table below.
For nearly all the products in the portfolio there are no surrender penalties. The surrender risk only becomes significant, however, in the event of mass surrenders which, on the basis of historical evidence, have a low probability of occurrence (a surrender rate of approximately 2.9% in 2018).
130. The hypothetical derivative uses the fixed rate, which makes the present value at the settlement date equal to zero, while the actual derivative uses the interest rate agreed upon with the counterparty.
For the purposes of the prospective effectiveness test, different approaches have been applied, depending on the characteristics of the hedging swap. In particular: �� the “Critical terms” approach for derivatives for which it has been determined at inception that the characteristics of the indexed leg of the swap make it possible to replicate exactly the variable cash flows generated by the hedged item; �� the “Dollar offset through the hypothetical derivative” approach for derivative contracts with a fixed rate applicable to a nominal amount growing constantly at six-month intervals until the derivative expires. For these contracts the prospective effectiveness test is performed by calculating the hedge ratio between the change in fair value of the hypothetical derivative and the change in fair value of the actual derivative131. The hedge is considered effective if the hedge ratio falls in the interval between 80% and 125%.
In November 2018, Consorzio Postemotori received notice of an order issued by the Criminal Court in Rome and of the precautionary seizure of a BancoPosta current account in the consortium’s name, amounting to €4.6 million. This was accompanied by precautionary measures concerning both the people under investigation and real property. In response, the consortium’s management board declared itself in full agreement with the considerations and conclusions contained in two independent expert opinions, one of which regarded the public law aspects of the concession under which the consortium provides its services to the Ministry of Infrastructure and Transport (management and registration of payments due from users in return for the services provided by the Department of Land Transportation) and the other the related tax aspects. The former concluded that the concession’s legal framework and, in particular, the payments due to the consortium, are in compliance with the legislation governing service concessions, without identifying any critical issues or illegality regarding the payments due or the billing of those payments. The latter judged the risk of potential tax liabilities for the consortium as a result of the charges brought by the Public Prosecutor to be remote.
ognition and in order to restore peaceful business relations, the parties abandoned the dispute in question. By signing the agreement, Poste Italiane undertook to pay WindTre SpA a total of €1.5 million to cover the operating, general and staff costs incurred, also in relation to disputes, including but not limited to the collection and processing of information and corporate data by WindTre’s offices, legal fees and legal aid expenses, charges relating to technical consultancy services, etc.. On 28 May 2018, the Court of Rome ordered that the case be dismissed.
On 8 October 2018, the AGCM notified Poste Italiane of the launch of investigation PS11215 – pursuant to art. 27, paragraph 3 of Legislative Decree 206/05 (the Consumer Code) and art. 6 of the Regulation for Investigations – with an accompanying request for information pursuant to art. 12, paragraph 1 of the above Regulation. The investigation is in response to complaints filed on 24 July 2018 by “Altroconsumo” and on 8 August 2018 by “Centro Tutela Consumatori e Utenti” (two consumers’ associations). The Authority is primarily looking into an advertising campaign called “Buoni e libretti – Buono a sapersi”, promoting Interest-bearing Postal Certificates and Postal Savings Books via TV and press adverts. The investigation regards the alleged violation of articles 21 and 22, paragraph 1 and 4 letter a) of the Consumer Code, as the effect of taxation was, in the Authority’s view, not clearly indicated.
On 29 October 2018, Poste Italiane replied to the request for information. Moreover, following a hearing at the offices of the AGCM on 28 November 2018, Poste Italiane sent the Authority a list of its commitments – pursuant to art. 27, paragraph 7 of the Consumer Code, art 8, paragraph 7 of Legislative Decree 145/2007 and art. 9 of the above Regulation for investigations. The commitments were later added to on 11 January 2019.
Events after the end of the reporting period are described in the above notes and no other significant events have occurred after 31 December 2018.
Receivables used as collateral provided by CSAs 30 30 40 40
Investment in "core" and "core plus" real estate assets for retail use, located in the Eurozone and eurodenominated
Investment in real estate assets, real property rights, including those resulting from property leasetranslational arrangements and concessions and in investment in unquoted property companies
IT0004937691 Tages Platinum Growth Financial assets at FVTPL 426 36 390 Provided by fund management company
The table below shows the types of financial instruments in which the funds invest and the main markets of reference as at 31 December 2018.
Details of investments are as follows: LIST OF INVESTMENTS CONSOLIDATED ON A LINE-BY-LINE BASIS
Instalments falling due: within 1 year of the reporting date 213 16 255 13 between 2 and 5 years after the reporting date 412 26 454 30 more than 5 years after the reporting date 55 1 55 5
Sureties and other guarantees issued: by banks in the interests of Poste Italiane SpA in favour of third parties 182 172 by Poste Italiane SpA in the interests of subsidiaries in favour of third parties 59 59 letters of patronage issued by Poste Italiane SpA in the interests of subsidiaries 21 21
Comprehensive income for 2017 * This item corresponds to the BancoPosta RFC reserve.
Cash and cash equivalents at beginning of the year 3,217,163,704 2,510,820,434
The new rules established by IFRS 9 on the rationale and methods to calculate impairments (Expected Credit Loss – ECL) and the forecast models adopted, had a negative impact (before tax) on Retained earnings for €24 million, as shown below: �� €7 million in expected credit losses on debt instrument classified as “Financial assets measured at amortised cost” and €3 million in addition to the provisions made in previous years in relation to other financial assets measured at amortised cost (other than securities), with a total effect of €10 million on Equity; �� €14 million in expected credit losses recognised on debt instruments classified as “Financial assets measured at fair value through other comprehensive income”. Considering that financial assets in this item are measured through OCI, the adjustment had no effect on Equity.
Effects resulting from provisions for expected credit losses - IFRS 9 (24)
The project to adopt the new financial reporting standard was conducted by Poste Italiane in 2017. The purpose of the process was to assess contracts of sale, categorised by type of activity, and identify each existing performance obligation and any gaps between the accounting policies currently applied and those introduced by the new standard. Against this backdrop, the administrative/ accounting processes, the available information systems and the existing procedures were reviewed to determine compliance with the new rules.
In determining the fair values shown in the table, the following criteria were used: �� debt securities recognised at amortised cost were measured applying the same rules as those used in the fair value measurement of financial assets measured at fair value through other comprehensive income; these instruments are shown in Level 1 of the fair value hierarchy; �� the fair value of repurchase agreements was measured using the discounted cash flow techniques described in paragraph A.4.1; these financial instruments are shown in Level 2 of the fair value hierarchy; �� the carrying amount of other financial assets and liabilities represents a reasonable approximation of fair value and is shown in the column corresponding to Level 3 in the fair value hierarchy.
Section 3 – Financial assets measured at fair value through other comprehensive income – Item 30143 3.1 Financial assets measured at fair value through other comprehensive income: analysis
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 of which: instruments with low credit risk of which: acquired or originated impaired financial assets * Amount reported for disclosure purposes.
148. A guarantee fund established with payments from participants in the derivative, equity and bond markets, as a further guarantee for the transactions carried out. The fund can be used to meet the charges arising from any participant default.
Credit Commodities Other 1. Financial assets measured at fair value through other comprehensive income 2. Financial assets measured at amortised cost 50 x - - x x x - x x 2. Portfolio of financial assets and financial liabilities
Current tax assets receivable from Poste Italiane SpA outside the ring-fence 2 22
1.2 Financial liabilities measured at amortised cost: composition of due from customers
Amounts payable to Poste Italiane outside the ring-fence: 409 255 - for services rendered by Poste Italiane SpA 322 255 - contribution of card payments and payment services unit 73 -
C.2 Decreases due to changed discount rates - - - -
Provisions for operational risks reflect mainly risks for claims by customers in relation to investment products whose performance is not in line with expectations, risks related to delegated services for social security agencies, compensation and adjustments to income for previous years, the liabilities arising from the reconstruction of operating ledger entries at the time of Poste Italiane SpA’s incorporation, risks linked to errors deriving from the distribution of postal saving products created in past years, violations of administrative regulations, probable frauds and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee-defendant.
To compile the tables – in line with the IFRS 7 and the update of the Circular of the Bank of Italy 262 relating to the provisions governing banks’ financial statements – it is noted that repurchase agreements are measured at amortised cost while derivative transactions are measured at fair value. The relevant financial guarantees are measured at fair value.
“Financial assets” includes interest payable to Poste Italiane SpA’s functions outside the ring-fence, totalling €4 million.
The above limits for BancoPosta RFC are set out in Poste Italiane SpA’s “Guidelines for financial transactions”152, which also contain rating limits that only permit dealings with investment grade counterparties and governments of the euro zone with a rating at least equal to that of the Italian Republic.
Expected credit losses are determined either over a 12-month horizon or a lifetime horizon, depending on the stage of the exposure, on the basis of the following metrics: �� Probability di Default (PD); �� Loss Given Default (LGD); �� Exposure at Default (EAD); �� Time Factor (TF).
With respect to payment delays, the definition of default is based on the following approach: �� late payments, even by one day, or debt renegotiation for financial instruments with sovereign counterparties: �� payments 90 days past due, for financial instruments with banking and corporate counterparties.
B.2 Inflows from acquired or originated impaired financial assets - - -
C.6 Transfers to other categories of non-performing exposure - - -
C.7 Contract amendments without termination - - - - of which: exposures sold but not derecognised - - -
A.3 Non-performing past-due exposures - - - - - - - -
Section 2 – Market risk Market risk relates to: �� price risk: the risk that the value of a financial instrument fluctuates as a result of market price movements, deriving from factors specific to the individual instrument or the issuer, and factors that influence all instruments traded on the market; �� foreign exchange risk: the risk that the value of a financial instrument fluctuates as a result of movements in exchange rates for currencies other than the functional currency; �� fair value interest rate risk: the risk that the value of a financial instrument fluctuates as a result of movements in market interest rates; �� spread risk: the risk relates to the potential fall in the value of bonds held, following a deterioration in the creditworthiness of issuers; �� cash flow interest rate risk: the risk that the cash flows from a financial instrument will fluctuate because of movements in market interest rates; �� cash flow inflation rate risk: the risk that the cash flows from a financial instrument will fluctuate because of movements in inflation rates.
Unspecified maturity 1. On-balance sheet assets 1 - - - - - - - 1.1 Debt securities - - - - - - - 2. On-balance sheet liabilities - - - - - - - - 2.1 Due to customers - - - - - - - 2. 2 Due to banks - - - - - - - - - current accounts - - - - - - - - - other deposits - - - - - - - 2. 3 Debt securities - - - - - - - - - with prepayment option - - - - - - - - - other - - - - - - - 2. 4 Other liabilities - - - - - - - - - with prepayment option - - - - - - - - - other - - - - - - - 3. Financial derivatives 3.1 With underlying securities - Options - Other derivatives + long positions - - - - - - - - + short positions - - - - - - - 3. 2 Without underlying securities - Options - Other derivatives 4. Other off-balance sheet transactions
In order to jointly monitor spread and fair value interest rate risks, the following table shows the results of the VaR analysis conducted with reference to financial assets measured at fair value through other comprehensive income and the relevant derivative financial instruments (except forward purchases), taking into account the variability of both risk factors: Average VaR (417) (356)
Cash - Account held at Bank of Italy 348 3 (3) 396 4 (4)
The change is fair value of the actual derivative is recognised through equity, for the effective portion of the hedge, while the change in fair value of the ineffective portion is recognised through profit or loss.
BancoPosta RFC’s cash is dynamically managed by treasury for the timely and continual monitoring of private customer postal current account cash flows and the efficient management of short-term cash shortfalls and excesses. In order to assure flexible investments in securities consistent with the dynamic nature of current accounts, BancoPosta RFC can also use the MEF buffer account within certain limits and subject to payment of a fee.
2. Related party transactions IMPACT OF RELATED PARTY TRANSACTIONS ON THE FINANCIAL POSITION AT 31 DECEMBER 2018
Italiane Group’s consolidated financial statements during the period from 1 January 2018 to 31 December 2018.