Appendix – key performance indicators for principal Poste Italiane Group companies 87
2. Basis of preparation and signifciant accounting policies 98 3. Poste Italiane Group for the year ended 31 December 2016 124 4. Poste Italiane SpA – separate financial statements for the Year ended 31 December 2016 254 5. BancoPosta RFC separate report for the year ended 31 December 2016 366 6. Reports and attestations 474
Total permanent and flexible workforce expressed in full-time equivalent terms 141,246 143,700
Express Delivery items and Parcels handled by Group (volumes in million) 97 86
The Board of Directors will remain in office until the General Meeting’s approval of the financial statements for the year ended 31 December 2016.”
(4) The only internal member, Head of Poste Italiane SpA’s Internal Auditing.
(5) This Committee was established by the Board of Directors on 10 September 2015.
Directors Giovanni Azzone Elisabetta Fabri Mimi Kung Umberto Carlo Maria Nicodano Chiara Palmieri Filippo Passerini Roberto Rao
Corporate governance Poste Italiane’s shares are listed on the Mercato Telematico Azionario (the MTA, an electronic stock exchange) organised and managed by Borsa Italiana SpA. The Company is controlled by the Ministry of the Economy and Finance (“MEF”), which holds a direct 29.3% interest and an indirect 35% interest through Cassa Depositi e Prestiti SpA (CDP), itself controlled by the MEF.
This ownership structure is the result of the following transactions: • On 31 May 2016 the Italian cabinet, on the recommendation of the Minister of the Economy and Finance, approved a draft Cabinet Office Decree setting out the terms of Poste Italiane SpA’s privatisation and the method for selling a further tranche of shares in the Company held by the Ministry of the Economy and Finance – MEF (which currently holds a 64.7% interest). The plan is to retain a stake of not less than 35% in the Company (to be held through and managed separately by Cassa Depositi e Prestiti SpA (CDP)), which will continue to be under the control of the MEF. On 24 June 2016, the extraordinary general meeting of Cassa Depositi e Prestiti SpA’s shareholders approved the issue of new shares to the MEF amounting to €2.930 billion, inclusive of the share premium. As payment for the new shares, on 20 October 2016, the MEF transferred a 35% interest in Poste Italiane to CDP, consisting of 457,138,500 ordinary shares. Following this transaction, the MEF holds a stake of approximately 29.7% in Poste Italiane.
• On 30 December 2016 and 7 February 2017, a total of 5,739,602 ordinary shares were awarded to shareholders who – as indicated in the Offering Circular for the Initial Public Offering (“IPO”) and admission to trading on the MTA – had held the shares purchased at the time of the IPO continuously for a period of twelve months. As a result of the award of these bonus shares, the interest held by the selling shareholder (the MEF) has been reduced to 29.3%.
The corporate governance structure reflects the recommendations in the Corporate Governance Code for listed companies published by Borsa Italiana, the provisions of Legislative Decree 58 of 24 February 1998 (the Consolidated Law on Finance), where applicable, and the Supervisory Standards issued by the Bank of Italy and applicable to Poste Italiane in view of the unbundled activities conducted by BancoPosta RFC (Patrimonio destinato BancoPosta). Poste Italiane has adopted a “traditional” governance model, separating the roles of the Board of Directors and the Board of Statutory Auditors. The Company’s accounts are audited by an independent firm of auditors. Poste Italiane’s financial management is overseen by the Italian Court of Auditors (Law 259 of 21 March 1958); the relevant controls are conducted by a Magistrate appointed by the Court of Auditors, who attends meetings of the Board of Directors and the Board of Statutory Auditors.
The Board of Directors and Board of Statutory Auditors and their respective chairpersons are elected and dismissed by General Meeting of shareholders, which is also responsible for determining the related remuneration and for appointing independent auditors. The General Meeting also approves the annual financial statements, amendments to the Company’s By-laws and transactions of a non-recurring nature, such as rights issues, mergers and demergers. The Board of Directors consists of nine members (eight non-executives and one executive) and normally meets once a month to examine and vote on resolutions regarding the operating performance, the results of operations, proposals relating to the organisational structure and transactions of strategic importance. The Board met 16 times in 2016. Of the nine members of the Board, six meet the requirements to qualify as independent. In accordance with the provisions of the Italian Civil Code, the Board of Directors has delegated certain executive powers to the Chief Executive Officer and has established, in accordance with the recommendations in the Corporate Governance Code and the Bank of Italy’s supervisory standards, four Board Committees to provide recommendations and advice: the Nominations Committee, the Remuneration Committee, the Audit and Risk Committee and the Related and Connected Parties Committee. The members of the latter committee are all independent Directors, with roles and responsibilities defined by the regulations governing related and connected party transactions. The role of the Chairwoman is to lead and oversee the Board of Directors. She is the Company’s legal representative and exercises the powers provided for by law and the Company’s By-laws, and those assigned by the Board of Directors’ meeting of 7 May 2014. The Chief Executive Officer and General Manager, to whom all key departments report, has, again on the basis of the Board of Directors’ resolution of 7 May 2014, full powers for the administration of the Company across the organisational structure, unless otherwise provided for by law and the Company’s By-laws and with the exception of the powers reserved to the Board of Directors. The Chief Executive Officer is also the Company’s legal representative within the scope of the powers delegated to him. The Board of Statutory Auditors in office has 3 standing members and 3 alternates. The Board verifies compliance with the law, the Company’s By-laws and with correct corporate governance principles, also verifying the adequacy of the organisational structure and administrative and accounting systems adopted by the Company and their functionality. On 17 May 2016, the Board of Directors voted to assign supervisory responsibilities to two bodies with separate roles: the Board of Statutory Auditors and the Supervisory Board, as defined by Legislative Decree 231/2001. As a result, the Board appointed the new Supervisory Board with effect from 24 May 2016. Until this date, the related functions had been carried out by the Board of Statutory Auditors in office.
In order to successfully fulfil its mission, the Group has embarked on an overall action plan that focuses on developing both its businesses and key business enablers.
In 2016, the Financial Services segment continued with the implementation of innovative online payment solutions and the development of its e-money offering, which led, in September, to an agreement that will see Poste Italiane acquire an indirect 14.85% interest in SIA SpA, a leader in the provision of e-money, e-payment and network services. This acquisition will play a key role in driving the Group’s growth in the area of digital payments and transactions and, as a result, in e-Commerce, in full accordance with the guidelines set out in the Business Plan.
In terms of the digital transformation programme, work on developing a multi-access channel approach continued. This led to the launch of new dematerialisation solutions for contracts, with the aim of improving the customer experience in post offices through use of the Ufficio Postale App, the Postepay App and the digital version of the Sconti BancoPosta programme. In addition, in 2016, Poste Italiane was accredited by the Agency for Digital Italy to carry out the role of Digital Identity Manager, using our “PosteID abilitato a SPID” digital identity solution (“SPID” is a Public System for Digital Identity Management).
The key enablers of the above businesses are represented by the Group’s investment in human resources and technology platforms, paying continuous attention to the world of innovation and start-ups, a strategy that has, among other things, led to: (i) creation of Poste Italiane’s Talent Garden, a platform that allows digital, technology and creative innovators to work, learn and connect; (ii) acquisition of the start-up, IndaBox Srl, which offers its customers the possibility to receive or send parcels using its collection and delivery network, made up of over 3,100 participating retail outlets.
The activities carried out by Poste Mobile (MVNO and operator of the Group’s telecommunications infrastructure).
• The partial demerger of the fixed line telecommunications business of the subsidiary, PosteMobile SpA, to Poste Italiane was executed on 27 April 2016 and the transaction was effective from 1 May 2016.
• On 7 November 2016, Poste Italiane acquired the entire share capital of the start-up Indabox Srl, whose core business involves offering services that enable products purchased online to be picked up at a network of affiliated outlets. The company has a network of around 3,000 affiliated outlets, including bars, supermarkets (including the Carrefour chain), tobacconists, etc. This acquisition is part of the development of third-party networks, aimed at gaining expertise in this field.
• On 30 December 2016, an extraordinary general meeting of Poste Tributi ScpA’s shareholder approved the voluntary winding up and liquidation of the company. This decision derives from the fact that tax collection activities are no longer deemed to be in line with the new strategic context and no longer serve the development of Poste Italiane’s business. Nevertheless, Poste Tributi will fulfil the commitments undertaken prior to the liquidation, either directly or by identifying a party to whom the company may be transferred within the scope of the liquidation. The appointment of a liquidator was published in the Companies’ Register on 24 January 2017.
The operation will be effective for legal, accounting and tax purposes from 1 April 2017.
• On 15 February 2017 – in implementation of the preliminary agreement signed on 16 September 2016 between Poste Italiane SpA and Cassa Depositi e Prestiti (CDP) regarding the transfer by FSI Investimenti SpA (a company 77%-owned by CDP Equity SpA) to Poste Italiane of an indirect shareholding in SIA SpA (equal to 14.85%), a leader in the provision of e-money, e-payment and network services – the acquisition of a 30% stake in FSIA Investimenti Srl (a company with a 49.5% interest in SIA) that is wholly owned by FSI Investimenti SpA was completed. On completion of the transaction, following clearance from the relevant antitrust authorities and authorisation from the Bank of Italy, Poste Italiane paid 80% of the transaction price, totalling €278 million. The final price is subject
(1) On 14 October 2016, Poste Italiane announced that it had notified Banca Popolare di Milano Scarl of its intention not to renew the shareholders’ agreement signed by the parties on 26 June 2015 and due to expire on 16 April 2017, relating to the companies’ respective shareholdings in Anima Holding SpA. As a result, as of the expiry date of 16 April 2017, the shareholders’ agreement will no longer be in effect.
to upward or downward adjustment based on predetermined amounts for SIA’s net debt at 31 December 2016 and its operating results for 2017. At the same time as the transaction completed, the shareholders’ agreement between Poste Italiane and CDP Equity, covering the governance and ownership structures of FSIA and SIA, over which the parties will exercise joint control, became effective. This is also a related party transaction (as Poste Italiane and FSI Investimenti are subject to the common control of the Ministry of the Economy and Finance) of lesser importance.
As noted previously, there are a number of Group companies that provide support services for mail, express delivery, logistics, parcels and philately: Mistral Air Srl provides air mail services to Poste Italiane SpA (in conjunction with Consorzio Logistica Pacchi ScpA) as part of postal service operations, in addition to air freight and passenger services for other customers. Europa Gestioni Immobiliari SpA (EGI) operates in the real estate sector, managing and developing properties through urban and property redevelopment, with a view to their commercialisation (leases and sales). Due to the nature of the properties, the service is mainly provided to large customers, often public entities. The company also procures energy for the Poste Italiane Group, acting as a wholesale purchaser, and deals with energy saving projects for Poste Italiane SpA. PosteTutela SpA offers secure funds logistics services (transport, escort, custody, and currency counts), fixed and mobile security, as well as all types of surveillance and protection of sensitive data. These services are provided to the Poste Italiane’s operating units and customers outside the Group, for whom it primarily carries out the movement of cash and valuables. PatentiViaPoste ScpA is a not-for-profit, joint-stock consortium that serves as a jointly owned vehicle for its shareholders in managing and fulfilling the contract regarding the centralised printing, distribution and delivery of European driving licences and vehicle registration certificates. The not-for-profit consortium, PosteMotori, serves as a jointly owned vehicle for its shareholders in managing and fulfilling the contract regarding management and remittance services for payments, by road users, for the services provided by the Department of Transport. The Mail, Logistics and Communication function is aimed at bringing all areas of business relating to the postal, logistics and communications services provided by the Group(2) under one roof. This function is responsible for end-to-end management of operating processes, development and management of the offering and the activities involved in its supply. The logistics network(3) is locally organised on two levels, the first of which deals with coordination and is represented by Area Logistics Offices responsible for one or more regions, whilst the second is operational and includes sorting centres (mechanical and manual) and distribution centres (Delivery Offices).
(3) The logistics process breaks down into receipt, collection, transport, sorting and delivery.
Financial services The Financial services segment primarily regards the BancoPosta RFC offering, with these activities being regulated by Presidential Decree 144 of 14 March 2001, as amended. These activities include: management of private and Public Administration customer deposits and the related investment, postal savings deposits issued by Cassa Depositi e Prestiti (Savings Books and Interest-bearing Postal Certificates), collection and payment services, the sale and distribution of financial products issued by banks and other finance companies authorised to provide investment services, and electronic money services via the issue of debit and prepaid cards.
(4) The black box is a satellite device mounted on a vehicle that monitors and registers all data regarding the vehicle. (5) Poste Tributi ScpA reports to the BancoPosta function.
Insurance services and asset management The Insurance Services business is run by the Postevita insurance group, a registered insurance group that includes the parent, Poste Vita SpA, and its subsidiaries, Poste Assicura SpA and Poste Welfare Servizi Srl. The Group operates in the life and non-life insurance business, as well as in the provision of health insurance. As already mentioned, from 2016, BancoPosta Fondi SpA SGR – a company responsible for the collective management of savings via the establishment and management of mutual investment funds, and the individual management of investment portfolios relating to on behalf of other institutions within the Group – now forms part of the Insurance Services and Asset Management segment, having previously been allocated to the Financial Services segment.
Back-office activities are partly carried out at post offices, and partly at 15 specialist service centres (Centralised Service Teams) spread around the country, which carry out back-office processes and are the sole point of reference for post offices with regard to such activities(6), handling both Private Customers and business customers.
In continuation of the rationalisation process(7), the number of post offices was reduced in 2016 from 13,048 at 31 December 2015 to 12,845 at 31 December 2016.
Action continued during the year with the aim of improving the organisational and commercial management of the retail and SME segments. The “new retail service model” was implemented at an additional 1,409 post offices (a total of 2,309 post offices at 31 December 2016 compared with the 900 at the end of 2015). The model provides for a more focused approach to customers with the introduction of consultants specialised in terms of target customers, and a new staff role dedicated to welcoming and guiding customers inside post offices. In order to maximise their effectiveness and coverage in keeping with the growth potential for these target customers, changes to the specialised sales formats (consulting rooms and corners) within post offices continued. In this regard, the new “UP Corner” sales format was introduced into 108 post offices with high growth potential, with the aim of promoting the offer of ancillary current account services and providing information on the insurance offering, directing interested customers to the relevant insurance specialists. Discontinuation of the “Insurance Corner” format was also completed, with the related sales activities now carried out by specialist “Insurance Consulting Rooms” (at 31 December 2016, the number of post offices with these consulting rooms numbers 175). The number of Consulting Rooms, which total 6,376 at 31 December 2016, was increased. This includes 2,300 rooms with staff dedicated to affluent customers (900 at 31 December 2015) and 182 with staff having expertise in loan products (159 at 31 December 2015). From October, 105 post offices were equipped with the “Guided Consultancy” platform which, in addition to assisting counter staff with compliance with investment regulations, provides a guide to identifying the best investment solutions for customers. A network of 51 Philately experts was introduced at Branch Offices, designed to strengthen the marketing of philately products by managing the related commercial initiatives; these staff also provide support for post offices that specialise in the sale of philately products, as well as developing relations within the areas for which they are responsible. Antimoney laundering initiatives were also strengthened among the Centralised Service Teams, together with increases in staff numbers at post-sales sites. The number of Specialist Commercial Financial Promoters(8) was also increased (374 staff at 31 December 2016, compared with 206 at 31 December 2015), and new roles were introduced in each Area Office with responsibility for their coordination and support including via provision of direct assistance during the sales phase.
Additional activities regarded: • an increase in the number of post offices equipped with a dedicated counter for BancoPosta account holders (2,831 at 31 December 2016 compared with 2,808 at 31 December 2015), as well as an increase in the number of post offices where the “New queue management” system has been installed (1,746 post offices at 31 December 2016 compared with 720 at 31 December 2015); • expansion of the network of multi-ethnic post offices (23 at 31 December 2016, compared with the 18 operating at 31 December 2015); (6) This regards the processing of certain products and services, such as current accounts, financial products, probate services, and money laundering prevention requirements.
• consolidation of the ATM network, which stood at 7,249 machines at 31 December 2016 (7,235 at 31 December 2015), and boosting of the network of PosteMobile corners which included 340 operating units at 31 December 2016 (339 corners operating at 31 December 2015); • the extension of free Wi-Fi for customers at additional offices (at 31 December 2016 the number of offices equipped with Wi-Fi totals 3,224, compared with 917 offices at 31 December 2015); • a boost to the commercial effectiveness of the Business Channel by increasing the number of Specialist Business Finance Consultants and expanding the Business Sales Force(9) (491 at 31 December 2016 compared with 464 at 31 December 2015), redistribution of Specialist Business Consultants across a larger number of post offices in order to guarantee more effective management of areas with a high concentration of businesses (at 31 December 2016, 946 post offices had Specialist Business Consultants compared with 907 at 31 December 2015), and activation of a service on an experimental basis to customers at 422 offices without such consultants, enabling them to book an appointment with a specialist at a nearby office.
Following the tragic earthquakes that hit the population of central Italy during 2016, Poste Italiane immediately launched a series of initiatives aimed at assisting residents of the most badly affected areas by opening mobile post offices within hours of the quakes striking, in order to keep all services up and running. Among other things, this enabled pensioners living in the areas affected by the earthquakes to draw their pensions at any post office across Italy. It was also decided to immediately suspend payment of current mortgage and loan instalments, at the request of those concerned. Finally, via activation of the “Seguimi” service, delivery of mail to people who had been temporarily transferred was guaranteed, partly in collaboration with the Civil Defence Department and other emergency management facilities.
The channel also assists customers in setting up access to the SPID service. In this regard, Poste Italiane, in the role of Digital Identity Manager accredited by the Agency for Digital Italy, completed the process of launching the SPID, which allows all citizens and companies to access any service provided by the Public Administration or participating businesses using a single PIN and certifying their identity only once. Poste Italiane’s Digital Identity solution is called “PosteID abilitato a SPID” and can be requested – depending on the customer’s requirements – on line, at any post office in Italy, or at a customer’s home via the network of postmen and women. At the end of 2016, Poste Italiane had activated 900 thousand PosteID digital identities, ranking as the SPID system’s number one identity provider. In terms of monitoring and overseeing customer satisfaction, with the aim of offering increasingly better support services, the Group has begun a structured process designed to analyse the channel’s perceived quality, based on surveys conducted with customers who contact the Contact Centre. Customers for all services are automatically asked if they wish to take part in the surveys on a daily and permanent basis.
The web distribution channel, via the website www.poste.it and other dedicated web portals, provides access to online services for 12.7 million retail and business customers(10) (10.7 million at 31 December 2015), operating as a direct endto -end sales channel and as a support provider for other channels. As well as carrying out evolutionary maintenance work on the portal during 2016, a series of initiatives was carried out, as part of the digital transformation process, with the aim of improving the Group’s online offering. In particular, the Poste.it website was re-engineered and redefined in architectural, application and user experience terms. In line with the multichannel access strategy, the new website is closely linked to the other Poste Italiane touchpoints, such as apps, ATMs and above all post offices (for example, the post office search function, or the option to book your turn at the counter on line). New functions were also added to the www.postepay.it website, including the ability to view historical transactions over the last year, the option of carrying out an international bank transfer from the new PostePay Evolution prepaid card and of activating the Postepay card directly on line. The www.postevita.it website also saw the addition of new functions for customers, including the introduction of
(*) Human Resources and Organization, Real Estate , Communications, lnstitutional Relations and Security and Safety functions are part of the Vice General Manager area of responsibilities.
(**) Legai Affairs, Corporale Affairs and Corporate Assurance & General Affairs functions are part of Legal and Corporate Affairs function.
(****) The Vice General Manager leads Customer Operations and Financial Back Office lntegration Projects.
NON-CURRENT ASSETS – this indicator represents the sum of property, plant and equipment, investment property, intangible assets and investments measured using the equity method.
NET INVESTED CAPITAL – the sum of non-current assets and working capital, deferred tax assets, deferred tax liabilities, provisions for risks and charges and provisions for employee termination benefits and pension plans. Following the above application of IFRS 5, for 2016 the assets and liabilities attributable to BancoPosta Fondi Sgr and BdM-MCC are shown separately within the Group’s net invested capital in “Non-current assets and disposal groups held for sale” and “Liabilities related to assets held for sale”. This reclassification includes the financial assets and liabilities that, in 2015, were presented in the Group’s net funds/(debt). The investments in the two companies are, on the other hand, shown separately within Poste Italiane SpA’s net invested capital in “Non-current assets held for sale and discontinued operations”.
GROUP NET FUNDS/(DEBT) – the sum of financial liabilities, technical provisions for the insurance business, financial assets, technical provisions attributable to reinsurers, cash and deposits attributable to BancoPosta and cash and cash equivalents. This indicator is also shown separately for each operating segment. Following the above application of IFRS 5, for 2016 net funds/(debt) does not take into account the financial assets and liabilities attributable to BdM-MCC SpA and BancoPosta Fondi SpA SGR, which are classified in “Non-current assets and disposal groups held for sale” and “Liabilities related to assets held for sale”.
INDUSTRIAL NET FUNDS/(DEBT), IN ACCORDANCE WITH ESMA GUIDELINES, for the Postal and Business Services and Other Services segments – the sum of the following items, shown according to the format recommended by ESMA, the European Securities and Markets Authority (document 319 of 2013): financial liabilities after adjusting for intersegment transactions, current financial assets after adjusting for intersegment transactions and cash and cash equivalents.
Macroeconomic environment 2016 continued to register moderate growth and a substantial absence of inflation, which has characterised the macroeconomic environment for some years now. Global growth gradually strengthened from the summer onwards, thanks to positive signs from emerging countries, but this did not translate into a solid recovery in international trade. Oil prices were particularly volatile as a result of excess supply, although the cut in production agreed by OPEC countries at the end of November led to a rapid increase in prices, temporarily reducing fears of potential financial instability in the producing countries. Among the industrialised economies, the USA continues to grow, with growth in the first nine months of 2016 driven primarily by an increase in domestic demand, before losing momentum in the last quarter of the year. At the end of the year, in response to an improving labour market and inflation expectations, the Federal Reserve began raising interest rates again for the first time since the end of 2015. The prospects for the USA remain subject to various uncertainties surrounding the economic policies of the new administration: if, on the one hand, they might stimulate growth in the US economy, as a result of the deregulation and fiscal stimulus included in the new President’s electoral programme, on the other, they could represent a risk to the global economy, given the stated intention to introduce protectionist measures. The UK also closed 2016 having chalked up its seventh consecutive year of growth, thanks to consumer spending and exports that benefitted from the weakness of sterling. In Japan, the central bank’s expansionary policies and the government’s package of measures designed to stimulate the economy have yet to yield the hoped for results and economic activity remains subdued, with prices declining. The leading emerging economies, China and India, ended 2016 with growth rates just below those of 2015, driven by strong internal demand, whilst Brazil and Russia saw another year of recession.
Consolidated operating results The Poste Italiane Group’s profit for 2016 amounts to €622 million, a 12.7% improvement on the figure for 2015, amounting to €552 million. Operating profit of €1,041 million is up 18.3% on the €880 million of 2015. Despite the fact that the Postal and Business Services segment contributed a loss of €436 million, this is an improvement of 23.2% on the operating loss of €568 million for the previous year. This reflects the positive contribution from the fees paid by BancoPosta RFC in return for use of the Group’s distribution network.
(12) On 21 December 2015, Visa Europe informed its Principal Members, including Poste Italiane which held an ordinary share previously allocated at the time of the company’s incorporation, that each of them would be paid a consideration as a result of the acquisition and merger of Visa Europe Ltd with the US-registered company, Visa Incorporated. This transaction was completed on 21 June 2016 and, as a result, Poste Italiane was paid the above consideration, based on a total fair value of the investment of €121 million.
Total revenue of €33.1 billion is up 7.7% on 2015. The improvement primarily reflects the positive performance of insurance services and asset management, where total revenue amounts to €23.8 billion (up 10.8% compared with the previous year). Postal and Business Services contributed total revenue of €3,822 million, registering a reduction of 1.5% due to the expected decline in traditional letter post. It should be noted that there has been an ongoing slowdown in the pace of decline in this segment’s total revenue over a number of quarters. Despite this, the decline in revenue from traditional letter post is only partially being replaced by revenue from the parcels business. Revenue for the year also includes portions of Universal Service compensation relating to previous years, as described in more detail below. Total revenue from Financial Services amounts to €5,294 million, marking an increase of 2.7% due to a rise in “Other income from financial activities”, which is up from €442 million in 2015 to €604 million in 2016. This income includes €121 million in non-recurring income generated by the sale of the Group’s investment in Visa Europe Ltd.. As noted above, the Insurance Services and Asset Management segment which, from 1 January 2016, also includes the activities of BancoPosta Fondi Sgr, delivered excellent results during the year (€23.8 billion in total revenue), with Poste Vita and its subsidiary, Poste Assicura, recording premium revenue of €19.9 billion (premium revenue of €18.2 billion in 2015). This primarily reflects the performances of traditional Class I investment and savings products, where the Group has built up a strong presence. Total revenue from Other Services amounts to €224 million (€243 million in 2015) and is generated by Poste Mobile.
Raw, ancillary and consumable materials and goods for resale 146 175 (29) –16.6%
The cost of goods and services is down 4.4% from €2,590 million in 2015 to €2,476 million, reflecting a reduction across all items of expenditure and the Group’s commitment to making savings on its controllable costs.
The net change in technical provisions for the insurance business and other claims expenses, which is closely linked to the above growth in premium revenue recorded by Poste Vita, amounts to €22 billion (€19.7 billion in the previous year).
Salaries, social security contributions and sundry expenses(*) 5,738 5,787 (49) –0.8%
Ordinary personnel expenses, linked to salaries, contributions and sundry expenses, are down €49 million, declining from €5,787 million in 2015 to €5,738 million in 2016. This reflects a reduction in the average permanent and flexible workforce employed during the year (approximately 2,400 fewer full-time equivalents or FTEs compared with 2015). This offset the additional costs incurred as a result of public holidays falling on a Sunday, the inability to exempt performance bonuses from the payment of social security contributions, and provisions linked to the expected increase in pay in the renewed national collective labour contract. The non-recurring component reflects an increase in early retirement incentives, which are up from €78 million in 2015 to €167 million in 2016, and provisions of €342 million (€316 million in 2015) for restructuring charges, made to cover the estimated costs to be incurred by the Parent Company for early retirement incentives, under the current redundancy scheme for employees leaving the Company by 31 December 2018. The provisions of €316 million made in 2015 were used in full during 2016. Finally, the 1.5% increase in total personnel expenses reflects the income of €11 million recognised by the Poste Italiane in 2015, following the agreements concluded with the labour unions, regarding the re-employment by court order of staff previously employed on fixed-term contracts.
The profit on investments accounted for using the equity method, totalling €6 million (€3 million in 2015) primarily regards the investment in Anima Holding SpA.
Income tax expense is up from €381 million for 2015 to €434 million for 2016. The effective tax rate of 41.09% reflects an IRES tax rate of 34.48% and an IRAP tax rate of 6.61%.
Directors’ report on operations for the year ended 31 December 2016 for the year ended 31 December 2015
The pace and extent of the decline in letter volumes continues to vary from one European operator to another, depending on a range of factors, such as the level of internet penetration, the degree to which public and private organisations have shifted to electronic invoicing and billing (e-substitution), the level of market competition and deregulation, the degree of demand elasticity to price changes and other macroeconomic factors.
The Postal and Business Services segment reports an operating loss of €436 million, although this marks an improvement of €132 million on 2015 (a loss of €568 million).
An analysis of costs reveals a reduction in the cost of goods and services (down €68 million on 2015), primarily due to efficiency improvements achieved during the year, whilst personnel expenses are up (rising €85 million compared with 2015). The latter trend reflects non-recurring expenses linked to the cost of early retirement incentives during the year, and provisions for restructuring charges, made to cover the estimated costs to be incurred by the Parent Company for early retirement incentives. These items offset the impact of the reduction in the average workforce in 2016, compared with the average for the previous year.
Direct Marketing and Unaddressed Mail 813 980 (167) –17.0% 176 192 (16) –8.3%
(**) Universal Service compensation also includes compensation relating to the ordinary parcels service.
Total Express delivery, Logistics and Parcels 97 86 11 12.8% 649 610 39 6.4%
(*) The item, “Other”, includes Dedicated Services, Logistics, other SDA Express Courier SpA services and other revenue attributable to Consorzio Logistica Pacchi ScpA.
(13) State Aid SA. 43243 (2015/N) – Italy” Decision of 4 December 2015.
On 29 July 2016, AGCom published Resolution 166/16/CONS, launching a public consultation on the draft ruling concerning assessment of the net cost of the universal postal service in 2013 and 2014. On 27 September 2016, Poste Italiane submitted its contribution to the consultation to the regulator.
Other regulatory measures regarding the sector include the draft of Law 2085 “Annual market and competition law”, approved by the lower house of Parliament on 7 October 2015 and currently being examined by the Senate. Art. 27 provides for the repeal, from 10 June 2017, of art. 4 of Legislative Decree 261/99, giving Poste Italiane SpA exclusive rights (as the Universal Service provider) to offer services relating to legal process and the notification of violations of the Highway Code. To date, the parliamentary procedure has yet to be completed, so the rights are still attributed to Poste Italiane.
Legislative Decree 244/2016 of 30 December 2016 (the so-called “Mille Proroghe” decree), in force from 1 January 2017, has extended the provision of subsidies for postal services introduced by the Interministerial Decree of 21 October 2010, aimed at publishing houses and non-profit organisations entered in the Register of Communications Providers (ROC), and has also restored the government subsidies introduced by Law 46 of 27 February 2004. The Decree also confirmed the subsidised tariffs for promotional mailshots by non-profit organisations. The state budget for 2017 has made provision of €60 million from 2017. This amount is expected to be sufficient to compensate for the reduced prices to be applied to the entities due to benefit as a result of the legislation. This compensation is classified as state aid and must, therefore, be notified and approved in accordance with EU legislation.
Operating review The Group has proceeded with its restructuring of its postal and logistics operations. As previously mentioned in the section, “Organisational structure”, the aim is to develop a new, quality Universal Service that is sustainable and in keeping with the changing needs of citizens. In this regard, as part of the optimisation, digital transformation and automation process, the following have been completed: • the “Digital signature for postmen and women” project, which enables the addressee’s signature to be obtained directly on the handheld device as proof of delivery of the letter or package, alongside the GPS coordinates of the place of delivery; • new procedures for the issue of the PosteID(14) digital identity product by postmen and women, with the possibility for citizens to complete all the necessary steps and receive their “Digital ID” directly at home; • the activation of Driven Parcel Sorting machines for automating and tracking parcels at the Bologna, Florence, Milan Peschiera Borromeo, Turin, Padua and Rome Fiumicino sorting centres; • the launch of a partnership with the customer, Amazon, covering the delivery of small packages throughout Italy, using the network of postmen and women.
In terms of initiatives designed to improve the quality performance, the monitoring of the most important service provision processes continued via the introduction, at local level, of the quality dashboard(15). Each dashboard indicator
Directors’ report on operations for the year ended 31 December 2016 enables assessment of the performances of both the organisation as a whole and each organisational unit (Distribution Centre/Primary/Secondary/Decentralised Distribution Centres) against their assigned targets.
An extraordinary general meeting of Uptime SpA’s shareholders was held on 2 February 2017. During the meeting, the sole liquidator was made aware of a liability of approximately €3.5 million, which as yet requires further confirmation. Given that the general meeting voted, among other things, to cover the company’s losses by reducing the share capital to zero and recapitalising the company, involving capital contributions or payments into a share premium reserve of the required amount, based on the financial position currently being reassessed. As the shareholder, Gepin Contact, has opted not to take up its rights, the entire capital increase could be subscribed for by just one of the shareholder, SDA Express Courier. The deadline for taking up the rights expires 90 days after the date of the above general meeting.
From 1 October 2015, AGCom Resolution 396/15/CONS has introduced new prices and defined the new percentage quality targets for each product covered by the Universal Service.
In a memorandum dated 27 November 2015, AGCom asked IZI SpA to transfer its sample quality checks on Priority Mail to the Ordinary Mail service from December 2015.
On 30 June 2016, in compliance with art. 9, paragraph 1, letters b) and c) of annex A to AGCom Resolution 413/14/ CONS, the Group published the report on the Company’s website, containing the results for the quality of deregulated delivery services provided in 2015, and submitted the same report to the regulator. AGCom then published its own data for post services covered by the Universal Service on 30 December 2016. In view of the fact that, from 1 October 2015, the quality standards for all products covered by the Universal Service have been modified, that the ordinary (Posta4) mail product and the new priority (Posta1) product have been introduced, for which sub-targets in terms of region and route have been abolished, it is not possible to arrive at an annual figure for 2015 on which to base measurement of the overall performance.
On 26 September 2016, the results for registered, bulk and priority mail and ordinary parcel post in the first half of 2016 were submitted to AGCom. All the results were in line with the relevant regulatory targets. In addition, statistics relating to the quality of the service covering the notification of legal process were submitted. The performance of this service, which is not covered by regulatory targets set by the regulator in accordance with art. 12 of Legislative Decree 261/99, was assessed on the basis of the 2015 Stability Law and using, merely for reference purposes, the indicators for registered mail. All the statistics were in line with regulatory targets. On 22 December 2016, in compliance with the above Resolution 413/14/CONS, the Company provided the regulator with an explanatory table for 2017, setting out the quality standards and related methods for measuring performance used by the Company for unregulated postal services.
In 2015, a long-term transformation programme was launched aimed at increasing the level of automation of mail and parcel logistics procedures, in all processing phases, from collection to delivery, partly through the development of ICT support systems and platforms. This programme will enable a substantial strengthening of performance monitoring. In this context, the Company has submitted a statement to the judiciary, appearing as the injured party and submitting a report prepared by Internal Auditing, in which the measures taken by the Company, including action against the personnel involved, are described. The report has also been filed with the other independent authorities.
In accordance with AGCom Resolution 396/15/CONS, the delivery of Posta1 and Posta4 products must meet the following delivery targets: • for the Posta1 product – within one working day of receipt for at least 80% of items (in municipalities in which delivery takes place on alternate days, this target can vary from 1 to 3 days depending on the area of collection/ destination for items) and within four working days of receipt for at least 98% of all items sent; • for the Posta4 product – within four working days of receipt for 90% of items and within six working days of receipt for 98% of all items sent.
(2) Based on data certified by IZI at the request of AGCom.
Finally, with regard to Regulation (EU) 596/2014 of the European Parliament and Council, dated 16 April 2014, on Market Abuse, applicable from July 2016, the Group had completed the process of complying with the new regulations, updating the processes used to monitor securities trading by its customers in order to identify any potential Market Manipulation or Insider Trading.
Profits/(Losses) on trading, on disposals or repurchases and fair value adjustments in hedge accounting 582 429 153 35.7%
Net losses /recoveries on impairment of loans and advances (6) (9) 3 –33.3%
Operating profit generated by the Financial Services segment in 2016 amounts to €813 million, down 10.4% compared with the previous year (€907 million in 2015). This essentially reflects an increase in operating expenses (up 6.2% compared with 2015, as detailed below), partially offset by an improvement in net interest and other banking income, which totals €5,685 million (up 3.4% compared with the €5,500 million of 2015). Net interest income of €1,517 million marks a slight reduction of 1.7% (€1,543 million in 2015), essentially reflecting a reduction in the return earned by BancoPosta RFC on deposits with the Ministry of the Economy and Finance, in line with market trends. Net fee and commission income is up from €3,528 million in 2015 to €3,586 million in 2016. This income primarily consists of commissions earned on the distribution of postal savings products, totalling €1,577 million, and €2,026 million from the processing of bills paid by payment slip, insurance broking, the distribution of loan products and other collection and payment services. Net interest and other banking income is up from €5,500 million in 2015 to €5,685 million (up 3.4%), primarily due to gains on the sale of available-for-sale financial assets held by BancoPosta RFC, totalling €594 million (€426 million in the previous year). This figure includes the impact of the sale of the investment in Visa Europe Ltd. to Visa Incorporated, which resulted in non-recurring income of €121 million, in recognition of Poste Italiane’s contribution over the years as a provider of electronic money services. The result also reflects specific impairment losses of €13.7 million on non-performing loans at Banca del Mezzogiorno-Medio Credito Centrale (BdM-MCC).
Revenue from: management of deposits taken and related investments(1) 1,983 1,974 9 0.5%
the placement and distribution of financial products(3) 327 272 55 20.2%
(2) Includes fees for the acceptance of payment slips, delegated services, fund transfers and other revenue from bank accounts.
(3) Includes revenue related to loans, credit cards, other investment products and Banca del Mezzogiorno.
Operating review In the Financial Services segment, efforts aimed at developing the commercial offering and foster the cross-selling of products continued in 2016, taking advantage of a business model centred around the construction of long-term relationships with customers and building customer loyalty. In this context, the main initiatives aimed at developing the offering of Postal Savings products. This entailed relaunching the offer of retail loans and increasing the range of transaction banking services on offer, including electronic money, collection and payment services. With regard to collection and payment services, the process of updating and refreshing the traditional payment of bills using payment slips, so as to enable payments to be made via multiple digital channels, continued. The new Payments section, accessible from the “www.poste.it” site, was launched, providing a single digital channel for the payment of payments slips, utility bills, amounts due to businesses and the Public Administration, taxes using form F24 and, from October, the payment of road tax. As regards international money transfers, an advertising campaign was run to promote the MoneyGram product, with the aim of extending the services offered in order to build awareness of the BancoPosta brand. In the electronic money sector, the number of Postamat cards in circulation is stable at 7 million, whilst the number of Postepay cards stands at over 16 million, including 3.3 million of the new Postepay Evolution cards. Moreover, the release of a new version of the Postepay app during the year means that, in addition to new graphics and greater ease of use, the app has been expanded with the new real-time money transfer service (P2P), offering a new form of payment that allows the customer to make online purchases using a With regard to third-party loan products, new solutions have been introduced, including an expanded range of salary loans for retail customers and the offer of new types of business loan (Postal Savings Books holders and professionals) for people looking, for example, to purchase operating assets or renovate a property for commercial use. A new tool has been introduced to help advisors identify the most suitable product for each customer. Finally, thanks to the partnership with Banca del Mezzogiorno, the offer of salary loans for the employees of Poste Italiane and the principal Group companies has been extended, as has the offering of medium/long-term loan products for business customers, designed to meet the financing needs of limited companies that have had an account for at least six months and meeting certain requirements in terms of turnover and location.
Net financial income from assets related to index- and unit-linked products 35 193 (158) –81.9%
Change in technical provisions where investment risk is transferred to policyholders (20) (15) 5 33.3%
As a result of the above operating performance and the corresponding revaluation of insurance liabilities due to the positive financial performance, the matching change in technical provisions, after the portion ceded to reinsurers, amounts to €22.0 billion, compared with €19.7 billion in the same period of the previous year. Of the above change, claims paid to customers, inclusive of policy expirations of approximately €3.8 billion, amount to approximately €7.5 billion (€8.0 billion in 2015). Total surrenders accounted for 2.9% of initial provisions (3.3% in 2015), a figure that continues to be far lower than the industry average.
As a result of the above, net premium revenue at the end of 2016 amounts to approximately €12.4 billion (€10.1 billion 2015). Investment management expenses, amounting to €17 million (€15 million in 2015), primarily regard portfolio management fees and fees for the custody of securities. The increase is due to growth in the portfolio. Given the positive operating performance, infra-group commissions for distribution and collection amount to €482 million (€436 million in 2015). The increase has benefitted the Group’s Financial Services segment, which is responsible for marketing the products, and the Postal and Business Services segment in return for the distribution services provided.
In terms of investments during the period, against a backdrop of falling interest rates and declining yields on government securities, the investment policy continues to be marked by the utmost prudence, based on the guidelines in the above-mentioned business plan. The portfolio is primarily invested in Italian government securities and highly-rated corporate bonds, with an overall exposure that, whilst lower than in 2015, represents over 85% of the entire portfolio. In addition, in 2016, whilst maintaining a moderate risk appetite, the company continued with the gradual process of diversifying investments by increasing its exposure to equities (up from 10.6% to 14.2%), above all multi-asset, harmonised open-end funds of the UCITS (Undertakings for Collective Investment in Transferable Securities) type. In line with its strategic asset allocation policy, moreover, the company continued to invest in real estate funds (targeting retail and office properties) primarily in Europe. As a result of the above operating and financial performance, technical provisions for the direct Italian portfolio amount to €104.3 billion (€90.5 billion at the end of 2015), including €95.9 billion for Class I and V products (€81.7 billion at the end of 2015). Provisions for products where the investment risk is borne by policyholders amount to €6.8 billion (€7.2 billion at 31 December 2015). Deferred Policyholder Liability (DPL) provisions, linked to the change in the fair value of
Directors’ report on operations for the year ended 31 December 2016 the financial instruments covering the provisions, are down from €9.7 billion at the end of 2015 to €9.3 billion, reflecting an increase in fair values as a result of the more positive performance of financial markets compared with the end of the previous year. Technical provisions for the non-life business, before the portion ceded to reinsurers, amount to €143.3 million at the end of the period, up 28% compared with the end of 2015.
In terms of the prudential Solvency II requirements, which came into effect from 1 January 2016, an early indication of Poste Vita’s solvency position at 31 December 2016 shows that it has own funds of €8,057 million (€6,841 million at the end of 2015), a capital requirement of €2,734 million (€1,687 million at the end of 2015) and a solvency ratio that, whilst down on the figure for 2015 (from 405% to 295% at the end of 2016), continues, in any event, to be well above the regulatory requirement and the market average. The growth in own funds (up €1,216 million) primarily reflects a significant increase in the present value of future profits from the existing portfolio, as a direct consequence of the growth in business, which has more than offset the distribution of reserves and the partial repayment of subordinated borrowing in 2016. The positive performance of own funds was, however, accompanied by an increase in capital requirements of €1,046 million, primarily due to the greater amount of capital needed to cover market risk. This is linked to interest rate trends and the spread on Italian government bonds in the last quarter of 2016, to the greater degree of diversification of investments (a lower proportion invested in government securities) and to the above growth in business.
The above figures reflect application of the Standard Solvency II Formula and comply with the regulations issued thus far, namely Delegated Regulation (EU) 2015/35 issued by the Commission on 10 October 2014, as amended. The Poste Vita group does not plan to use an internal model. As a result of the assessment conducted, the Standard Formula accurately represents Poste Vita SpA’s risk capital position and, as a result, the company’s solvency position.
Based on the most recent market information and in line with the approach adopted by other institutional investors, the company has proceeded to recognise a prudent impairment loss on the investment of 50%, amounting to a total of approximately €106 million. €94 million of the impairment, allocated to cover separately managed accounts, has been recognised in deferred liabilities due to policyholders (reflecting application of the shadow accounting method), whilst the €12 million relating to the insurance company’s free capital has been recognised in finance costs.
The mobile telecommunications market In 2016, the mobile telecommunications market continued where it left off towards the end of 2015: further rationalisation of price offerings, with bundles that include even more traffic (primarily mobile data). Basing their strategies around triple and quad play bundles(20), operators are expanding their offerings with the introduction of on-demand TV/video and streaming packages, with a view to capturing a large portion of consumers’ communication and entertainment spend. The trend towards convergent landline and mobile services has continued, as has the development of partnerships between the suppliers of digital content and the operators of telecommunications networks. A number of retail market trends have continued, with the use of social media due for further expansion in all key markets, both for recreational purposes and for online searches, above all in connection with m-commerce. In the business market, operators aim to play a leading role in the digital transformation of Italian companies across all sectors, including the Public Administration. In 2016, after announcement of the combination of the telecommunications businesses of Wind and H3G, the European Commission, at the end of its investigation launched in the first quarter of 2016, cleared the merger subject, however, to the market entry of a new mobile operator. This is to ensure that the Italian market remains competitive and that consumers can continue to enjoy fairly priced innovative mobile services and quality networks. This operator is to be the French company, Iliad. Further details are provided in the section, “Principal relations with the authorities”.
The Other Services segment, which includes the company, PosteMobile, reports operating profit of €28 million for 2016, down €3 million on the previous year (€31 million in 2015). The reduction reflects the performance of revenue, which is down 19.8% to €268 million, primarily as a result of the extraordinary transaction consisting of the demerger of the fixed line telecommunications business(21) and its transfer to Poste Italiane SpA, resulting in a reduction of €47 million in intersegment revenue (down 51.6% on 2015). In the mobile telecommunications business, the trend towards a gradual repositioning of the offering towards flat-rate offerings continued, with a reduction in pay-as-you-go voice and messaging revenue only to a small extent offset by an increase in data revenue. The cost of goods and services is down 23% compared with the previous year to €167 million, reflecting the above demerger and the cost efficiencies resulting from the contract with the new operator that has enabled PosteMobile to sell its own SIM cards as a Full MVNO and to migrate SIMs from the ESP platform. Personnel expenses are also down 19% (down €4 million compared with 2015), following a reduction in the workforce, which is down from an average of 309 FTEs in 2015 to 249 in 2016. The decrease primarily reflects the transfer of the workforce employed by the fixed line telecommunications business to the Parent Company. Depreciation and amortisation is down approximately €9 million, primarily as a result of the demerger of the fixed line telecommunications business, whilst other operating costs and provisions are down €1 million due to reduced impairment losses on trade and other receivables.
(21) On 26 January 2016, Poste Italiane’s Board of Directors approved the partial demerger of PosteMobile’s fixed line telecommunications business to the Parent Company. The deed was formally executed on 27 April 2016.
Group financial position and cash flow NET INVESTED CAPITAL AND RELATED FUNDING
Investments accounted for using the equity method 218 214 4 1.9%
Working capital: Trade receivables and other receivables and assets 5,843 5,546 297 5.4%
Provisions for employee termination benefits and pension plans (1,347) (1,361) 14 –1.0%
Non-current assets total €2,867 million (€3,010 million at the end of 2015). In addition to depreciation, amortisation and impairments of €581 million recognised during the year, the movement in this indicator reflects capital expenditure of €451 million, including €381 million invested by Poste Italiane and primarily relating to IT assets, which continue to play a key role in enabling the Group to achieve the objectives set out in its business plan. In particular, work on developing hardware, storage and backup systems continued, as did work on the rationalisation and consolidation of the Group’s Data Centre infrastructure. Over the years, these activities have led to the original 35 data rooms distributed nationwide being reduced to the current 7 Data Centres, including the new Data Centre in Viale Europa in Rome, completion of which, including the related testing, is expected to occur in early 2017. Work was also completed, in the second half of 2016, on enlargement (rooms 3 and 4) of the Turin Data Centre. In keeping with the plan to ensure the security of IT infrastructure, work on the “Rinnovo Tecnologico dei sistemi PosteItaliane” project continued, with the aim of upgrading the systems used by the rationalised Data Centres, in order to maximise their efficiency. In this context, the Group’s server farms were expanded during the year, partly under contracts concluded, at Group level, with the most important IT providers (i.e. Oracle and Microsoft) with the
Directors’ report on operations for the year ended 31 December 2016 objective of obtaining more systemic solutions and achieving cost savings due to economies of scale. Work on Storage infrastructure also took place in 2016 in order to keep pace with the growing needs of the various businesses. The upgrade of IT hardware also proceeded at local level (post offices, head offices and delivery offices), as did the extension of free Wi-Fi points at post offices, with a total of 3,224 Wi-Fi points operating at the end of 2016. To support the planned Digital Transformation, work on integrating the new platform within the existing infrastructure continued in 2016, from the viewpoint of both hardware and software. There was further investment in the development of advanced solutions relating to the Public System for Digital Identity Management (SPID), and in implementing the full acquiring service for all the main debit cards that use Italy’s network (Pagobancomat) or the international networks operated by VISA, VISA Electron, VPAY and Mastercard, Maestro. Work on the single Customer Database also continued, in line with the project carried out in the previous year, designed to ensure close links with the Customer Relationship Management (CRM) and Enterprise Data Warehouse (EDWH) systems. On the IT security front, work on the analysis and assessment of Information Security risks continued, resulting in the definition of the security requirements needed to ensure an adequate level of data protection. In terms of Group companies, the investment activities of PosteMobile SpA primarily related (over 60%) to the development of landline services, with the aim of supporting the evolution of Group business processes. The main initiatives carried out during the year relating to the mobile network were aimed at boosting the competitiveness and innovative nature of the retail offering in the mobile market, at expanding the range of services provided to business customers and on developing BancoPosta and PosteMobile apps.
Initiatives in the Postal Logistics segment continued in 2016 via three courses of action: implementation of the postal network, involving activities designed to guarantee the operational continuity of facilities and delivery centres by supplying equipment; optimisation of the postal network which, in 2016, resulted in the rollout of electronic signatures on handheld devices throughout Italy, which will boost the efficiency of signed-for deliveries and enable provision of an increasingly innovative services meeting customer needs; and evolution of the postal network, entailing the launch of a project to redesign the logistics network with the introduction of new sorting and delivery models, in line with the new regulatory framework. Activities regarding application platforms continued, aimed at developing the integrated Group-level system for tracking items of mail. In addition, with regard to business support, work on the systems needed to rollout the “next day” service envisaged by the partnership with the customer, Amazon, was completed.
Technical provisions for insurance business – – (113,678) – – (113,678)
Cash and deposits attributable to BancoPosta – 3,161 – – – 3,161
Industrial net funds/(debt), in accordance with ESMA guidelines An analysis of the industrial net funds/(debt) of the Postal and Business Services and Other Services segments at 31 December 2016, in accordance with ESMA guidelines, computed on the basis of paragraph 127 of the recommendations contained in ESMA document 319 of 2013, is provided below: B. Other cash equivalents 1,575 1,329
Cash flow generated by /(used in) movements in working capital (83) 2,040
Cash generated by/(used for) assets and liabilities attributable to insurance activities 38 166
Operating activities generated a cash inflow of €2,258 million as a result of, among other things, profit for the year (€622 million). The cash generated was primarily used to finance capital expenditure which, after disposals, resulted in an outflow of €446 million, and to pay off short-term borrowings of approximately €521 million. Cash and cash equivalents is up €760 million, after the payment of dividends of €444 million.
Mail, Logistics and Communications Services 413,643 36,259 1,520 451,422 594,459 32,873 1,796 629,128
Business Sales and Public Administration 5,557 26,818 1,021 33,396 1,844 8,067 858 10,769
Classroom hours converted to person days 204,219 70,009 1,953 276,181 256,746 60,187 1,403 318,336
Mail, Logistics and Communications Services 160,335 10,662 2,004 173,001 143,682 7,398 715 151,795
Business Sales and Public Administration 997 4,673 1,088 6,758 706 2,983 476 4,165
Online hours converted to person days 123,554 17,924 1,712 143,190 93,272 20,125 945 114,341
(22) The participations include staff who have participated in only one course, and staff who have participated in more than one course.
Various training initiatives were implemented for line managers, aimed at strengthening professional leadership of Private Customer, Business and Public Sector function staff, as well as training regarding the new retail service model for Private Customer staff and the new delivery model for Mail, Logistics and Communication staff.
For new recruits (on permanent and fixed-term contracts) and interns, a course called “Sistema InPoste” was launched, aimed at raising awareness and understanding of the organisational culture of the Group’s businesses. In addition to initiatives relating to the above-mentioned transformations of the post offices service model and sales network customer relations, technical and specialist training saw the launch of courses for financial and insurance specialists on strategic themes: “Insurance Culture Development – Savings Protection”, “Guided Consultancy” and “Asset Management”. Cross-functional initiatives, in addition to workplace safety training (approximately 488,000 hours and 72,000 participations), include: • courses on compliance (IVASS (the insurance regulator), Transparency, Money Laundering Prevention, MiFID, Transport Safety, Legislative Decree 231, Privacy and IT Security) involving over 983,000 training hours; • courses on project management (650 participations and 10,000 training hours); • training activities for the development and consolidation of so-called soft skills (professional self-sufficiency, management and development of staff, interpersonal communication techniques, management by objectives and results orientation, etc.).
Human resources management and development Recruitment and selection activities in 2016 primarily focused on the quest for new business and finance graduates, to work as commercial specialists and financial promoters, with a view to strengthening frontline commercial activities. Staff numbers were also boosted at multi-ethnic post offices, whilst, at Corporate level, Strategic Marketing functions – specifically regarding digital skills – as well as IT Systems and BancoPosta, were strengthened. External recruitment also regarded the specific business requirements of Group companies, especially Poste Vita. In relation to procedures aimed at ensuring the appropriate distribution of staff around the country, a number of personnel were transferred on the basis of applications submitted in accordance with the union agreement regarding nationwide mobility and in keeping with requirements as they arose.
During the year the managerial skills model launched in 2015, which consists of three processes each with its own specific activities involving different sectors of the workforce, was consolidated: scouting with initiatives aimed at identification and development of young talents, enhancement of middle managers under development who have further growth potential, and assessment of senior managers’ potential; managerial planning that enabled identification of 111 potential successors from across various sectors of the workforce for first- and second-level organisational roles; development via individual initiatives to support the growth of staff with high potential.
Regarding the MBO management incentive scheme, evaluation of objectives relating to 2015 was completed and bonuses were paid out, and the 2016 objectives were finalised. Regarding the latter, an overall framework was defined, together with objectives for the General Manager and a scheme for key management personnel, in line with the principles set out in the “Remuneration Report 2016”, approved by the Annual General Meeting of 24 May 2016. The same Meeting also approved the information circular, prepared in accordance with art 84-bis of the Regulations for Issuers, regarding the “Long-term Incentive Plan for 2016-2018 – Phantom Stock Plan”.
Industrial relations Industrial relations at Poste Italiane primarily entailed negotiations during 2016 with labour unions on the following matters.
Uptime SpA in liquidation Following the launch of a collective redundancy scheme for all the staff of Uptime SpA, which is partly owned by SDA Express Courier SpA, as previously mentioned, on 31 May 2016 Poste Italiane signed an agreement with the labour unions aimed at safeguarding jobs. This envisages, among other things, that Poste Italiane will hire all former Uptime employees who have failed to find alternative employment on permanent part-time contracts. In the second half of 2017, following the outplacement activities provided for in the above agreement, procedures were launched to hire staff who had not found alternative employment at Poste Italiane. As regards Gepin, in collaboration with the Ministry for Economic Development, possible solutions to deal with the impact on employment are being evaluated.
Performance-related bonus On 26 July 2016 an agreement was reached on performance-related bonuses for: Poste Italiane SpA, Poste Vita SpA, Poste Assicura SpA, Postetutela SpA, Poste Tributi ScpA, EGI SpA and BancoPosta Fondi SpA SGR. The agreement is valid for one year and enables the assessment of staff contributions to the achievement of corporate objectives for 2016. The structure of the bonus for the following three-year period will be defined in the first quarter of 2017.
Bilateral Agencies The activities of the Ente Bilaterale per la Formazione e Riqualificazione del Personale (the Bilateral Agency for Staff Training and Retraining) continued with the signing of agreements to enable access to the funding provided by Fondimpresa and the Solidarity Fund for income support, employment and professional retraining of Poste Italiane Group staff. The Organismo Paritetico Nazionale (Joint National Body) also continued its workplace health and safety initiatives, relating to consistent and correct application of workplace health and safety guidelines.
Social policies and Corporate Social Responsibility Once again in 2016, the well-established welfare system continued to improve the range and quality of inclusive services provided to socially vulnerable groups, and implement initiatives geared towards the needs of employees and their families. Activities in support of the inclusion and active participation of women in the world of work continued with various initiatives including the “maam u” project, aimed at encouraging active parenthood and involving 270 employees on maternity leave, while on the healthcare front the Health Plan was launched at several sites nationwide, with information meetings and free specialist medical examinations for 450 staff in 15 cities. During 2016, 220 staff took advantage of the socially innovative organisational and technological tool of telecommuting.
Among the initiatives to support the development of future generations, the “PosteOrienta” project was launched,
Directors’ report on operations for the year ended 31 December 2016 including professional guidance workshops and studies dedicated to employees’ children, and the setting up of a website, specifically designed to help young people over 13 in making their future choices. Over 500 young people participated in the 17 workshops held. Moreover, in collaboration with Intercultura, Poste Italiane offered its employees’ children the opportunity to live and study abroad by organising a competition regarding 14 scholarships for the entire school year and for the summer. Procedure 231, “Agreements with third parties relating to special product and service offers”, was also launched, based on which temporary thematic campaigns and 160 agreements relating to special product and service offers were activated nationwide, specifically focusing on health-related services and summer camps for children and youngsters. In 2016, in synergy with the non-profit organisation Fondazione Poste Insieme, the “Corporate Volunteering” project was launched with the aim of creating a solidarity network, increasing Poste Italiane’s ethical value, strengthening people’s collaboration capacities and developing local relations networks. The first phase of the initiative was completed with the gathering of over 1,000 spontaneous applications from Group staff, and subsequently the funded projects were defined, in collaboration with the Foundation where Company volunteers may be deployed. Also in collaboration with the non-profit organisation Fondazione Poste Insieme Fondazione, the first volunteering project called “Mentoring to combat early school leaving” was launched, with the active involvement of 20 volunteer employees acting as mentors, aimed at students in junior and senior high schools in Campania, Calabria, Apulia and Sicily. Finally, 7 allowances were granted to members of staff in documented situations of need, while initiatives relating to gender differences were stepped up via training courses, events, testimonials and working groups.
Following the earthquakes that struck central Italy, the Company (also representing Group companies that apply the National Collective Labour Contract for Poste Italiane’s non-managerial staff) signed two statements of agreement with the labour unions relating to initiatives designed to help affected staff and the local population. The agreements enable advances on termination payments to be requested to meet any financial obligations arising from the earthquakes, while also confirming the commitment to take periods during which post offices were forced to close into account when assessing the achievement of performance targets. The restructuring of delivery operations was temporarily put on hold in the municipalities affected by the quake, and the issue of individual transfers and temporary transfers to other locations was also carefully examined. Finally, the agreement establishes the Group’s participation in the initiative launched by Confindustria and CGIL-CISL-UIL regarding activation of the Solidarity Fund for the Populations of Central Italy. In particular, with the establishment of the “Ethical Hour”, staff may help by contributing the equivalent of one hour’s pay or, in the case of managerial staff, one day’s pay that the Company will match by donating an equal amount.
Labour disputes Compared with the previous year, the number of labour disputes is down by around 27%; the number of actions brought amounted to 1,002, compared with 1,379 in 2015. With regard to disputes over flexible employment: • in relation to fixed-term contracts, 49 new claims were filed, compared with the 91 in the previous year. The number of cases lost – calculated on the basis of outcomes notified regardless of the year in which the claims were filed – was approximately 10% (around 13% in 2015); • in relation to temporary and agency work, 14 new claims were filed, compared with 12 in the previous year, with cases lost amounting to around 47% (46.6% in 2015).
Prototypes are being made to test new technologies, and pilot projects implemented to engineer the tested solutions, with a special focus on big data technologies, applied to both Security issues and business development. In this area, new solutions in support of digital marketing were tested, especially with regard to the customer journey process. Furthermore, as regards Group companies, an assessment of the levels of security of the IT systems used by Postel, Postecom, SDA, PosteVita, PosteMobile (in respect of both fixed and mobile telecommunications) has been completed.
These types of risk are dealt with in Poste Italiane’s financial statements for the year ended 31 December 2016 (Notes to the consolidated financial statements of the Poste Italiane Group – Risk management; Notes to the financial statements of Poste Italiane SpA – Risk management).
Events after the end of the reporting period are described in other sections of the Annual Report for 2015, and there are no other significant events occurring after 31 December 2016.
The reinvestment of liquidity from securities maturing in the first quarter of 2017 was largely carried out in the last quarter of 2016. Operations will, therefore, focus on the investment of new liquidity in the form of postal current account deposits. Active management of the portfolio, with the aim of stabilising returns, will continue during the year in accordance with market conditions. As regards the Parent Company’s financial investments, in view of press reports on the liquidity position, solvency and exposure to financial, business and reputational risks of the Group that includes the debtor, Midco SpA, the company that owns 51% of Alitalia SAI, and whose Contingent Convertible Notes, with an original value of €75 million, Poste Italiane subscribed for on 23 December 2014, the Company will continue to monitor the information provided by the above Midco SpA under the terms of the existing contract. based on the best information available to the Company, the terms and conditions applicable to the loan and the Alitalia Group’s most recent business plan, prepared at the end of 2014. At the date of preparation of this Annual Report, here is no indication of the need to recognise an impairment of the investment. However, we cannot exclude that future developments regarding the agreement in place between the airline, its shareholders and its banks, as well as the risks to which the industry may be exposed, could influence a future assessment of the recoverability of the loan of €82 million at 31 December 2017 (further information is provided in the “Notes to the Poste Italiane Group’s consolidated financial statements – Financial assets”, and the “Notes to Poste Italiane SpA’s financial statements – Financial assets”). Finally, the above investment does not give rise to any involvement on the part of Poste Italiane in the management of the issuer.
In accordance with Law 190/2014 (the 2015 Stability Law), AGCom has authorised a series of initiatives aimed at redefining the universal postal service in order to guarantee its financial sustainability, and in line with the changing requirements of users. In particular: • with Resolution 395/15/CONS, AGCom authorised an alternate day delivery model for mail within the scope of the universal service; • with Resolution 396/15/CONS, AGCom introduced new statistical quality targets and new tariffs for universal service mail.
On the basis of Resolution 728/13/CONS, Poste Italiane drew up, submitted to the regulator (on 1 September 2016) and published (on 7 December 2016) a new price list for signed-for products (e.g. registered and insured mail, legal process), with the new prices to come into effect from 10 January 2017. The new price list and the related acts are the subject of a legal challenge, notified on 16 January 2017, brought by the consumers’ association, CODACONS, which has also applied to the court for suspensive relief. This association also challenged previous changes to prices introduced by Poste Italiane with effect from 1 December 2014. Judgement of this earlier case is still pending.
On 14 April 2015, AGCom issued formal notification of penalty 02/15/DSP, launching a procedure against Poste Italiane for alleged violation of certain legal obligations relating to provision of the Universal Postal Service, with regard to the exceptional closure of 21 post offices in the city and Province of Messina on certain days in July and August 2014. Following the Company’s submission of a defence brief, with Resolution 517/15/CONS of 25 September 2015, notified to the Company on 26 October 2015, the regulator halted the penalty procedure regarding 29 of the 42 violations initially claimed. Regarding the other violations, having rejected Poste Italiane’s defence, with Resolution 631/15/CONS of 21 December 2015, AGCom ordered the Company to pay a fine of €296,000. Poste Italiane lodged an appeal with the Lazio Regional Administrative Court which, in ruling 11023/2016, turned down the appeal. Poste Italiane has appealed this ruling before the Council of State, which has scheduled a hearing on the merits for 18 January 2018.
On 10 July 2015, AGCom issued formal notification of penalty 04/15/DISP, launching a procedure against Poste Italiane for the alleged violation of its legal obligations relating to certain post offices and local area offices, following monitoring carried out by IZI SpA in 2014 in connection with changes to post office opening hours during the summer period. On 7 August 2015, Poste Italiane sent the regulator a defence brief, rejecting the alleged violations. On 18 March 2016, AGCom summoned Poste Italiane to a hearing to look into the matter. In response, on 4 April 2016, the Company sent the regulator its closing arguments. Subsequently, with Resolution 143/16/CONS of 19 April 2016, AGCom halted the entire proceedings.
AGCM (the Antitrust Authority) With regard to investigation PS/10009, launched by the AGCM in 2015, into alleged violation of articles 20, 21 and 22 of the Consumer Code, regarding the “Libretto Smart” product, on 21 December 2015, the Authority imposed a fine of €540,000, limited to a tenth of the maximum applicable amount taking into account the mitigating circumstance that Poste Italiane had adopted initiatives aimed at allowing customers to benefit from the bonus rate.
Poste Italiane lodged an appeal against this ruling before the Lazio Regional Administrative Court (RG 2288/16) on 24 February 2016. At the hearing held on 23 March 2016, the court adjourned the case until a hearing on the merits. In addition, on 7 March 2016, the AGCM, as part of a compliance audit, sent a request for information on the nature of the Libretto Smart product from 1 July 2015 and on the related “Supersmart” offering. Poste Italiane replied to the Authority on 22 March 2016, and on 24 June 2016 AGCM informed Poste Italiane that insufficient evidence is currently available to conduct an investigation.
On 8 June 2016, the AGCM notified Poste Italiane of the launch of investigation A493 pursuant to art. 14 of Law 287/90, aimed at determining whether behaviour towards Nexive SpA, in multi-item ordinary mail delivery markets, constitutes an abuse of its dominant market position as per art. 102 of the TFEU. In particular, the AGCM intends to ascertain whether Poste Italiane refuses to offer Nexive, in geographical areas where the company does not have a presence with its own distribution networks, the Posta Time service, namely the service that Poste Italiane offers to end customers in those areas, only making available its Bulk Mail service, for which it charges higher rates than for its Posta Time service. Moreover, according to the Antitrust Authority, Poste Italiane operates a policy of applying loyalty-building discounts on its Posta Time product for the benefit of end customers. The proceedings will conclude on 31 October 2017. On 9 September 2016, Poste Italiane submitted a set of commitments designed to settle the Authority’s competition concerns and, given the AGCM’s rejection on 4 October 2016, is taking steps to defend its position as the proceedings continue.
With regard to postal services available for purchase on line, on 22 April 2016, the AGCM sent Poste Italiane a request to remedy certain shortcomings that could possibly be considered examples of unfair commercial practices (PS/10408), in accordance with art. 4, paragraph 5 of the “Regulations on investigations of misleading and comparative advertising, unfair commercial practices, the violation of consumer rights in contracts, the violation of prohibitions on discriminatory conduct and vexatious clauses”. The AGCM’s request regarded: i) the inclusion of Poste Italiane’s email address on the website, on the homepage or in an indicated section of the website, ii) a clearer indication, before confirmation of purchase, of the prices of postal
Directors’ report on operations for the year ended 31 December 2016 services available for purchase on line, above all with regard to any additional costs, such as stamp duty. On 13 May 2016, Poste Italiane responded to the Authority, sending it certain relevant documentation. After this, on 9 August 2016, the AGCM requested further information on Poste Italiane’s telephone number and email address, to be used by consumers to contact the Company. On 6 September 2016, Poste Italiane provided an appropriate response. Folowing this, on 30 November 2016, the AGCM announced that it had halted the proceeding as Poste Italiane had responded to the Authority’s request to remedy the identified shortcomings. The AGCM has lodged a challenge with the Lazio Regional Administrative Court against INPS and Poste Italiane, seeking cancellation of the tender process awarding the contract for non-automated mail delivery services for INPS’s head office and regional offices. In ruling 5335 of May 2016, the Regional Administrative Court rejected the challenge, thus confirming the legitimacy of the INPS tender. In September 2016, the AGCM announced its intention to appeal the above ruling and a decision on the appeal is currently awaited.
On 18 July 2016, following a recent inspection at Banca del Mezzoggiorno – MedioCredito Centrale, completed on 20 April 2016, the Bank of Italy notified the findings of the audit, which identified certain aspects of the Bank’s organisation and activities that require corrective action, expressing a partly unfavourable opinion. The inspection did not give rise to any imposition of fines on the bank or its representatives.
On 10 February 2017, the Bank of Italy announced an inspection pursuant to art. 54 of Legislative Decree 385 of 1993, with the aim of assessing the governance, control and operational and IT risk management systems in relation to BancoPosta’s operations.
Commissione di Vigilanza sui Fondi Pensione (the pensions regulator) On 4 October 2016, the pensions regulator launched an inspection focusing on the PostaPrevidenza Valore individual pension plan. The inspection is still in progress.
European Commission The Court of the European Union’s sentence of 13 September 2013 upheld Poste Italiane SpA’s appeal against the European Commission’s decision of 16 July 2008 regarding state aid (Decision C42/2006), ordering the latter to pay the related costs. In compliance with the Decision, and as requested by the Ministry of the Economy and Finance, in November 2008 the Company returned the related amounts (€443 million, plus interest of €41 million). Under the 2015 Stability Law, in order to implement the Court of the European Union’s sentence of 13 September 2013, €535 million has been set aside for payment to Poste Italiane for 2014. These amounts were collected from the Central Treasury on 13 May 2015. The European Commission subsequently reopened the enquiry, appointing an external expert to check that the levels of interest paid to the Company from 1 January 2005 to 31 December 2007 on deposits held at the Ministry of the Economy and Finance (as per art. 1, paragraph 31, of Law 266 of 23 December 2005 “2006 Budget Law”) were in line with the market. To date, the expert has submitted to the Commission a preliminary revised version of the assessment originally carried out by the Commission. Poste Italiane intends to actively collaborate with the national authorities to demonstrate the fairness of the returns it received during the relevant period.
On 5 February 2016, Hutchison and VimpelCom notified the European Commission, in accordance with the EC Merger Regulation (no. 139/2004), of a plan to create a joint venture to operate in the Italian mobile market by merging their respective subsidiaries, Hutchison 3G Italy and WIND. The combination would reduce the number of mobile operators with their own networks from four to three. The Commission has thus initiated an investigation of the merger, in which PosteMobile also took part as an interested third party (PosteMobile is a mobile virtual network operator in that it does not have its own network). On 30 March 2016, the Commission decided to begin the second stage of the procedure, announcing to the parties that the notified merger raised doubts over its compatibility with the single market. The transaction may, in fact, lead to higher prices, less choice for consumers and reduced innovation in the Italian mobile market. In addition, mobile virtual network operators could have less choice and reduced bargaining power when negotiating access to the networks of operators with their own infrastructure (the wholesale access market). In accordance with the EU procedure, on 6 June 2016, the notifying parties submitted commitments designed to eliminate any anti-competitive impact of the merger. In the light of the commitments submitted by the notifying parties, on 1 September 2016, the Commission approved the merger, subject to specific conditions (“remedies”), with the aim of enabling a fourth operator to enter the Italian mobile market. This operator had already been selected by the notifying parties via an agreement with the French operator, Iliad. The conditions imposed by the Commission are primarily the following: • the sale, by Wind/H3G, of radio spectrum to Iliad; • the co-location and provision to Iliad of a number of mobile base station sites; • a transitional agreement with Iliad granting access to Wind/H3G’s new technologies, enabling Iliad to progressively equip itself with its own network infrastructure.
Information on litigation and tax and social security disputes is provided in Poste Italiane’s financial statements for the year ended 31 December 2016 (Notes to the consolidated financial statements of the Poste Italiane Group – Principal proceedings pending and relations with the authorities; Notes to the financial statements of Poste Italiane SpA – Principal proceedings pending and relations with the authorities).
Despite a reduction in the cost of goods and services (down €85 million or 4.7% compared with the previous year), total costs are up €53 million from €7,938 million in 2015 to €7,991 million in 2016, largely due to the following performance of personnel expenses.
Total personnel expenses incurred in 2016 amount to €5,992 million, marking an increase of 1.6% on 2015, when the figure benefitted from net releases of €12 million from provisions for disputes, after updated estimates of the liabilities and related legal expenses, and from income of €11 million recognised by Poste Italiane SpA, following the agreements concluded with the labour unions in July 2015, regarding the re-employment by court order of staff previously employed on fixed-term contracts. Ordinary personnel expenses, linked to salaries, contributions and sundry expenses, are down 0.8% (a reduction of €42 million) compared with 2015. This reflects a reduction in the average workforce employed during the year (approximately 2,000 fewer full-time equivalents or FTEs compared with 2015). This easily offset the additional costs incurred as a result of public holidays falling on a Sunday, the inability to exempt performance bonuses from the payment of social security contributions, and provisions linked to the expected increase in pay in the renewed national collective labour contract. The non-recurring component reflects an increase in early retirement incentives, which are up from €76 million in 2015 to €165 million in 2016, and provisions of €342 million (€316 million in 2015) for restructuring charges, made to cover the estimated costs to be incurred by Poste Italiane SpA for early retirement incentives, under the current redundancy scheme for employees leaving the Company by 31 December 2018.
Income tax expense is up from €145 million in 2015 to €154 million for 2016. The total effective tax rate for 2016 is 19.72%, reflecting an IRES tax rate of 16.59% and an IRAP tax rate of 3.13%. The difference in the effective tax rate for IRES, compared with the statutory rate of 27.5%, primarily reflects the deductibility (95%) of dividends received from certain subsidiaries.
(27) The workforce at 1 January of each year is identical to the workforce at 31 December of the previous year. (28) Art. 2, paragraph 1-bis of Legislative Decree 368/01 requires, among other things, that fixed-term contracts must not represent more than 15%
of a company’s workforce on 1 January of the year in which the staff are recruited. (29) Art. 1, paragraph 1 of Legislative Decree 368/01, as amended by Law Decree 34/14 (the so-called “Jobs Act”) establishes, among other things, that employees recruited on fixed-term contracts cannot exceed 20% of a company’s permanent workforce at 1 January of the year in which they are recruited, after rounding up to the nearest whole number should the figure be equal to or above 0.5.
Financial position and cash flow of Poste Italiane SpA NET INVESTED CAPITAL AND RELATED FUNDING
Poste Italiane SpA’s net invested capital amounts to €2,050 million, amply financed by equity. A comparison with the end of the previous year, when the figure was €1,896 million, shows an increase of €154 million. This is primarily due to the movement in net deferred tax liabilities after offsetting against deferred tax assets, as described in detail below. Non-current assets of €4,235 million are down €478 million compared with the end of 2015. The reduction essentially reflects the reclassification, in application of IFRS 5, of the investments in BdM-MCC and BancoPosta Fondi, amounting to €384 million, to “Non-current assets and disposal groups held for sale”. Other movements in investments affecting non-current assets regard: the recapitalisation of SDA Express Courier SpA (€38 million) in order to cover the losses incurred by the subsidiary through to 31 March 2016 and replenish its other equity reserves, resulting from Poste Italiane’s commitment to provide financial support for the subsidiary(31); and impairment losses on the investments in SDA Express Courier SpA (€29 million) and EGI SpA (€4 million), applied on the basis of the available information and the results of impairment tests carried out at 31 December 2016. Movements in non-current assets also reflect the acquisition of infrastructure equipment, technology assets and software applications, totalling €38 million, as a result of the partial demerger of PosteMobile’s fixed line telecommunications business to Poste Italiane. Movements in this indicator also reflect: capital expenditure of €381 million, as described in the description of the Group’s non-current assets; and depreciation, amortisation and impairments of property, plant and equipment, intangible assets and investment property, amounting to €504 million. Working capital amounts to €18 million at 31 December 2016, marking a reduction of €259 million compared with the previous year, primarily due to an increase in trade payables and other liabilities, which are up from €3,563 million at the end of 2015 to €3,942 million. Movements in this indicator also include an increase in amounts due to staff, reflecting the recognition of amounts, formerly included in provisions for risks and charges at 31 December 2015, relating to early retirement incentives payable and an increase in accrued stamp duty on outstanding postal savings certificates at 31 December 2016. The reduction in net deferred tax liabilities, after offsetting against deferred tax assets, amounts to €612 million. This is largely due to the net positive effect on taxation (an increase in deferred tax assets and/or a reduction in deferred tax liabilities) of increased fair value losses on investments in available-for-sale financial assets.
(31) Poste Italiane SpA is committed to providing financial support to the subsidiaries SDA Express Courier SpA and Mistral Air Srl for 2017 and to Poste Tributi ScpA throughout its liquidation.
Net funds amount to €4,110 million at 31 December 2016, down compared with 31 December 2015, when the figure was €5,750 million. This primarily reflects the component linked to fair value measurement of BancoPosta RFC’s available-for-sale financial assets, totalling approximately €2,215 million, before tax.
Italiane” which, in implementation of the BancoPosta RFC Regulation, establish the procedures to be used in contracting out BancoPosta RFC’s functions to Poste Italiane in terms of decision-making processes, the minimum content of operating guidelines, levels of services, information flows and control procedures; • the guidelines in the Internal Control and Risk Management System (also “SCIGR”), describing the roles and duties of BancoPosta RFC’s control functions, and the procedures for coordinating and ensuring the exchange of information between these functions and Poste Italiane’s control functions and the flow of information to corporate bodies; • the system for delegating powers to function heads in accordance with their responsibilities.
In terms of BancoPosta RFC’s organisational structure, the existing organisational model set out in the Regulation requires, among other things: • an interface between staff units (e.g., BancoPosta’s Accountancy and Control; HR Business Partner BancoPosta)
and the matching corporate functions at Poste Italiane; • the establishment of autonomous and independent control functions in compliance with the Bank of Italy’s supervisory requirements: Risk Management, Internal Auditing, Compliance and Anti-Money Laundering.
Risk management system BancoPosta RFC has an independent Risk Management unit, responsible for ensuring, in collaboration with the Group Risk Management function, an integrated, retrospective and prospective view of the risk environment and of BancoPosta RFC’s capital and organisational adequacy. Among other things, the function provides a detailed evaluation of the risk profile of the financial products sold to customers and provides the operational and business functions involved in product development and placement with advice and support. It is also responsible for periodic reporting. During 2016, the Risk Appetite Framework was revised in accordance with the budget. The annual report for 2015 and the programme of activities for 2016 were submitted to the Board of Statutory Auditors, the Audit and Risk Committee and the Board of Directors, as were the ICAAP (Internal Capital Adequacy Assessment Process) report and the Public Risk Report for 2015. These bodies also received quarterly reports on the performance of the effective risk profile versus the determined risk appetite. The principal types of risk to which BancoPosta RFC is exposed in the course of its ordinary activities are described below: • credit risk (including counterparty risk); • market risk (including banking book rate risk); • liquidity risk; • operational risk.
In terms of the evolution of significant risks, the first half of 2016 witnessed a further reduction in the yields on Italian government securities, resulting in a further increase in fair value gains, partly recognised in profit or loss. This was partly due to the ECB’s announcement of the continuation of its Quantitative Easing programme. In the second half of the year, these trends reversed and the yields on 10-year Treasury Notes (BTPs) began to rise, driven by international political events (Brexit in the UK and the presidential elections in the USA) and national issues (the constitutional referendum). This trend was reflected in unrealised gains, which were significantly reduced, reflecting the rise in the spread between BTPs and German Bunds, which rose from just under 100 to around 161 basis points. The Basel III leverage ratio has remained within the limits set by the Company’s risk appetite framework and, at around 3%, is just below the required threshold. The natural “aging” of the securities portfolio and active management during the period, in keeping with the market scenario, have enabled BancoPosta RFC to contain the average duration of assets. This trend, allied with positive performance of postal current account deposits and prepaid cards, has resulted in a reduced exposure to banking book interest rate risk. Moreover, from the end of the first quarter of 2016, in terms of economic value, BancoPosta RFC was exposed to falling rates, rather than rising ones; the entity of the exposure is consistent with the risk appetite framework, in terms of the impact on capital adequacy. In terms of operational risk, with regard to real estate funds sold in the period 2002-2005, which have given rise to a number of complaints and disputes, Poste Italiane SpA is closely monitoring market developments and the related initiatives put in place in order to protect its customers, in order to assess any impact on provisions for risks and charges in the financial statements. In this regard, on 16 January 2017, following a resolution passed by the Board of Directors, Poste Italiane took action – with the aim of consolidating its historical customer relationships, based on trust
Net interest income / Net interest and other banking income(3) 26% 28%
(1) Represents the ratio of profit for the period and total assets.
Net losses /recoveries on impairment of loans and advances (6) (11) 5 –45.5%
The interest margin amounts to €1,469 million (€1,490 million in 2015) and is the difference between: • interest earned primarily on investments in government securities and deposits at the MEF, amounting to €1,543 million (€1,545 million in 2015); • interest expense of €74 million (€55 million in 2015), including €20 million paid to current account holders (€34 million in 2015), €16 million (€21 million in 2015) payable for repurchase agreements, €33 million in accrued differentials on Asset Swaps (in 2015 these differentials were positive and totalled approximately €4 million) and €5 million (€1 million in 2015) in interest on guarantee deposits.
Net fee and commission income amounts to €3,537 million (€3,483 million in 2015), and includes: • fee and commission income of €3,603 million (€3,538 million in 2015), including €1,577 million generated by the agreement with Cassa Depositi e Prestiti (€1,610 million in 2015) and €2,026 million (1,928 million in 2015) from the processing of bills paid by payment slip, sundry payments and from other services offered to customers (e.g. insurance broking); • fees and commissions paid, amounting to €66 million (€55 million in 2015), primarily relating to debit/credit card clearing services.
Income before tax from continuing operations of €803 million (€858 million in 2015) includes net provisions for risks and charges, which are up from €60 million in 2015 to €95 million, reflecting the initiative designed to protect the customers who invested in the real estate funds sold by Poste Italiane in the period between 2002 and 2005.
With regard to the financial position, at 31 December 2016, cash and cash equivalents amount to €2,511 million (€3,169 million at the end of 2015) and include €2,288 million (€2,953 million at 31 December 2015) in cash on hand at post offices and cash in transit services deriving from postal current account balances, postal savings products (Interest-bearing Postal Certificates and Postal Savings Books deposits) not yet deposited at Cassa Depositi e Prestiti, or advances collected from the State Treasury to finance post office operations.
Available-for-sale financial assets amount to €37,263 million (€32,597 million at 31 December 2015) and consist of investments in Italian government securities, securities guaranteed by the Italian government and equity instruments (primarily shares in Mastercard Incorporated and Visa Incorporated). The increase in debt securities, which are up from €32.4 million in 2015 to €37.2 million, is linked to the purchase of new securities in which to invest the increased volume of current account deposits in 2016, which has offset fair value losses. In addition, in view of the macroeconomic
Other assets are up from €1,626 million at 31 December 2015 to €1,766 million at the end of 2016. They essentially regard the payment of tax withholdings and items in progress that will be settled after the end of the reporting period.
The amount due to banks, totalling €5,799 million (€5,259 million at 31 December 2015), primarily regards repurchase agreements amounting to €5,381 million (€4,895 million at 31 December 2015), relating to: • €3,904 million relating to Long Term Repos entered into with primary counterparties, with the resulting resources invested in Italian fixed-income government securities of a matching nominal amount; • €1,477 million relating to BancoPosta’s ordinary borrowing operations with primary financial institutions as funding for incremental deposits used as collateral for Asset Swaps and repurchase agreements.
BancoPosta RFC events after 31 December 2016 Events after the end of the reporting period are described in other sections of the document and there are no further material events occurring after 31 December 2016 to report.
Outlook for BancoPosta RFC In 2017, BancoPosta RFC will continue to implement the strategic objectives forming the basis for the Business Plan, with particular attention to: • developing the customer base, through targeted offerings of products and services capable of consolidating customer relations and boosting both deposits and the related investments in financial instruments; • focusing on the management of Postal Savings, with talks on the terms and conditions for the new Agreement, governing the provision of intermediation services on behalf of Cassa Depositi e Prestiti SpA due to continue in 2017; • strengthening the position in transaction banking, focusing above all on collections and payments;
Separate financial statements Poste Italiane SpA’s financial statements include separate BancoPosta financial statements in compliance with art. 2, paragraph 17-undecies of Law 10 converting Legislative Decree 225 of 29 December 2010, requiring separate disclosure of BancoPosta’s ring-fenced assets and liabilities.
Information on proceedings and BancoPosta RFC’s relations with the authorities are provided in the section, “Principal relations with the authorities”
Details of the impact of related party transactions on the financial position and profit or loss are provided in Poste Italiane’s financial statements for the year ended 31 December 2016 (Notes to the Poste Italiane Group’s financial statements – Additional information; Notes to Poste Italiane SpA’s financial statements – Additional information)
The Board of Directors proposes that the Annual General Meeting approve Poste Italiane SpA’s financial statements for the year ended 31 December 2016 (including BancoPosta RFC’s Separate Report), accompanied by the Directors’ Report on Operations.
Based on the fact that the Poste Italiane Group’s consolidated profit for 2016 amounts to approximately €622,160 thousand (entirely attributable to owners of the Parent), in line with the agreed dividend policy, the Board of Directors proposes that the Annual General Meeting: • appropriate BancoPosta RFC’s profit for the year of €568,276,740 as follows: a.1) €110,000,000 to “Reserves and retained earnings”; a.2) €458,276,740 at the Company’s disposal.
(*) In the first half of 2016, PosteShop SpA was merged with and into Postel SpA, effective for accounting and tax purposes from 1 May 2016.
(*) Equity includes the recapitalisation of €38 million carried out by the Parent Company in 2016.
Appendix - Key performance indicators for principal Poste Italiane Group companies
(**) Insurance premium revenue is reported gross of outward reinsurance premiums.
2 Basis of preparation and significant accounting policies 98 3 Poste Italiane Group for the year ended 31 december 2016 124 4 Poste italiane SpA for the year ended 31 december 2016 254 5 BancoPosta RFC separate report for the year ended 31 december 2016 366 6 Reports and attestations 474
Poste Italiane’s shares have been listed on the Mercato Telematico Azionario (the MTA, an electronic stock exchange) since 27 October 2015 and, at 31 December 2015, the Company was 64.7% owned by Ministry of the Economy and Finance (“MEF”). On 20 October 2016, the MEF subscribed for new shares issued by Cassa Depositi e Prestiti SpA (CDP), amounting to €2,930 million, inclusive of the share premium. The new shares were paid for via the MEF’s transfer of a 35% interest in Poste Italiane SpA to CDP. On 30 December 2016, the MEF awarded approximately 5.7 million bonus shares, representing 0.4% of Poste Italiane’s share capital, to purchasers of the shares during the Initial Public Offering of 27 October 2015 who had held the shares continuously for twelve months. At 31 December 2016, therefore, the Company is 35% owned by CDP and 29.3% owned by the MEF, with the remaining shares held by institutional and retail investors. Poste Italiane SpA continues to be under the control of the MEF.
Note 5 includes BancoPosta RFC’s Separate Report, which forms an integral part of Poste Italiane SpA’s financial statements, but is prepared in accordance with the specific financial reporting rules laid down by the applicable banking regulations.
The consolidated financial statements of the Poste Italiane Group and the separate financial statements of Poste Italiane SpA (also, the annual accounts) refer to the year ended 31 December 2016 and have been prepared in euros, the currency of the economy in which the Group operates.
The term IFRS includes all the International Financial Reporting Standards, International Accounting Standards (“IAS”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”, previously known as the Standing Interpretations Committee or “SIC”), adopted by the European Union and contained in the EU regulations published as of 15 March 2017, the date on which the Board of Directors of Poste Italiane SpA approved the annual accounts.
The statement of financial position has been prepared on the basis of the “current/non-current distinction”(33). In the statement of profit or loss, expenses are classified according to their nature. The indirect method(34) has been applied in preparation of the statement of cash flows.
In order to allow comparison on a like-for-like basis with amounts for the year ended 31 December 2015, when organisational changes made it necessary to re-allocate certain Group companies to the relevant operating segments(35) and to make a number of changes to presentation, certain amounts and notes for the comparative period have been reclassified.
2.3 Summary of significant accounting policies and measurement criteria The Poste Italiane Group’s financial statements have been prepared on a historical cost basis, with the exception of certain items for which fair value measurement is obligatory. The principal accounting policies adopted by the Poste Italiane Group are described below.
When the impairment resulting from the test is higher than the carrying amount of the goodwill attributed to the cash generating unit, the residual amount is attributed to the assets included in the cash generating unit in proportion to their carrying amounts. The minimum attributable amount is the highest of: • the related fair value of the asset less costs to sell,
Industrial patents, intellectual property rights, licences and similar rights The costs of acquiring industrial patents, intellectual property rights, licences and similar rights are capitalised. Amortisation is applied on a straight-line basis, in order to allocate the purchase cost over the shorter of the expected useful life of the asset and any related contract terms, from the date the entity has the right to use the asset.
Regardless of any impairment indicator, the assets listed below are tested for impairment every year: • intangible assets with an indefinite useful life or that are not yet available; the impairment test can take place at any time during the year, provided that it is performed at the same time in each of the following years; • goodwill acquired in a business combination.
An impairment loss is recognised in profit or loss for the amount by which the net carrying amount of the asset, or the CGU to which it belongs, exceeds its recoverable amount. Except in the case of goodwill, if the impairment indicators no longer exist, the carrying amount of the asset is reinstated and the reversal recognised in profit or loss. The reversal must not exceed the carrying amount that would have been determined had no impairment loss been recognised and depreciation or amortisation been charged.
Investments In the Poste Italiane Group’s consolidated financial statements, investments in subsidiaries that are not significant and are not consolidated and those in companies over which the Group exerts significant influence (“associates”) are accounted for using the equity method. See the note on the “Basis of consolidation”.
Financial Assets On initial recognition, financial assets are classified in one of the following categories and valued as follows: • Financial assets at fair value through profit or loss
(38) This is possible for transactions carried out on organised markets (the “regular way”). (39) The amortised cost of a financial asset or liability means the amount recognised initially, less principal repayments and plus or minus accumulated amortisation, using the effective interest method, of the difference between the initial amount and the maturity amount, after reductions for impairment and insolvency. The effective interest rate is the rate that exactly discounts contractual (or expected) future cash payments or receipts over the expected life of the asset or liability to its initial carrying amount. Calculation of amortised cost must also include external costs and income directly attributable to the asset or liability on initial recognition.
Available-for-sale financial assets are non-derivative financial instruments that are either designated in this category or not attributable to any of the other categories described above. These financial instruments are recognised at fair value and any resulting fair value gains or losses are recognised in an equity reserve, with movements in such reserve being accounted for in “Other comprehensive income” (the “Fair value reserve”). This reserve is only recycled to profit or loss when the financial asset is effectively disposed of (or settled) or, in the event of accumulated losses, when there is evidence that the impairment recognised in equity cannot be recovered. Solely in the case of debt securities, if the fair value subsequently increases as the objective result of an event that took place after an impairment loss was recognised in profit or loss, the value of the financial instrument is reinstated and the reversal recognised in profit or loss. The recognition of returns on debt securities under the amortised cost method takes place through profit or loss, as do the effects of movements in exchange rates, whilst movements in exchange rates relating to available-for-sale equity instruments are recognised in a specific equity reserve, with movements in the reserve accounted for in “Other comprehensive income”. The classification of an asset as current or non-current depends on the term to maturity of the financial instrument. Financial instruments expected to be realised within twelve months of the end of the reporting period are, in any event, classified as current assets.
(40) A hedge of the exposure to a change in fair value of a recognised asset or liability or of an unrecognised firm commitment attributable to a particular risk, and that could have an impact on profit or loss.
This exemption applies to the recognition and measurement of forward electricity contracts entered into by the subsidiary EGI SpA if the following conditions have been met: • the contract involves the physical supply of a commodity; • the entity has not entered into an offsetting contract; • the transaction must be entered into in accordance with expected purchase and/or sale or usage requirements.
In the event of application of the own use exemption, the commitments assumed are reported in section D3.
Inventories Inventories are valued at the lower of cost and net realisable value. The cost of interchangeable items and goods for resale is calculated using the weighted average cost method. In the case of non-interchangeable items, cost is measured on the basis of the specific cost of the item at the time of purchase. The value of the inventories is adjusted, if necessary, by provisions for obsolete or slow moving stock. When the circumstances that previously led to recognition of the above provisions no longer exist, or when there is a clear indication of an increase in the net realisable value, the provisions are fully or partly reversed, so that the new carrying amount is the lower of cost and net realisable value at the end of the reporting period. Assets are not, however, recognised in the statement of financial position when the Group has incurred an expense that, based on the best information available at the date of preparation of the financial statements, is deemed unlikely to generate economic benefits for the Group after the end of the reporting period. In the case of properties held for sale(42), cost is represented by the fair value of each asset at the date of acquisition, plus any directly attributable transaction costs, whilst the net realisable value is based on the estimated sale price under normal market conditions, less direct costs to sell. Long-term contract work is measured using the percentage of completion method, using cost to cost accounting(43).
Investment contracts (a type of contract not currently present) which are not related to separately managed accounts, and which include a portion of “linked” contracts, are accounted for in accordance with IAS 39, as follows: • technical provisions are recognised as financial liabilities and are measured at fair value, whilst the related financial instruments are accounted for as assets; • premiums and changes in technical provisions are not recognised in income, but rather, only fees and commissions are recorded as revenue, and commissions and other charges are recorded as cost. IAS 18 and IAS 39 require revenue and costs associated with the contracts to be allocated over the contract term, based on the service supplied.
The undiscounted value of short-term employee benefits to be paid to employees in consideration of employment services provided over the relevant period is accrued as personnel expenses.
Post-employment benefits are of two types: defined benefit plans and defined contribution plans. Since, for defined benefit plans, the amount of benefits payable can only be determined subsequent to the cessation of employment, the related cost and obligations can only be estimated by actuarial techniques in accordance with IAS 19. Under defined contribution plans, contributions payable are recognised in profit or loss when incurred, based on the nominal value.
Defined benefit plans include employee termination benefits payable to employees in accordance with article 2120 of the Italian Civil Code.
For all companies with at least 50 employees, covered by the reform of supplementary pension provision, from 1 January 2007 vesting employee termination benefits must be paid into a supplementary pension fund or into a Treasury Fund set up by INPS. Accordingly the company’s defined benefit liability is applicable only to the provisions made up to 31 December 2006(46).
(46) Where, following entry into effect of the new legislation, the employee has not exercised any option regarding the investment of vested employee termination benefits, the Group has remained liable to pay the benefits until 30 June 2007, or until the date, between 1 January 2007 and 30 June 2007, on which the employee exercised a specific option. Where no option was exercised, from 1 July 2007 vested employee termination benefits have been paid into a supplementary pension fund.
Other long-term employee benefits consist of benefits not payable within twelve months of the end of the reporting period during which the employees provided their services. Generally, there is not the same degree of uncertainty regarding the measurement of other long-term employee benefits as there is in relation to post-employment benefits. As a result, IAS 19 permits use of a simplified method of accounting: the net change in the value of the liability during the reporting period is recognised in full in profit or loss. Measurement of the other long-term employee benefits liability is recognised in the financial statements based on calculations performed by independent actuaries.
Revenue recognition Revenue is recognised at the fair value of the consideration received, net of rebates and discounts, and in accordance with the accruals basis of accounting. Revenue from the rendering of services is recognised when it can be reliably measured on the basis of the stage of completion of the service provided. Revenue from activities carried out in favour of or on behalf of the state and Public Administration entities is recognised on the basis of the amount effectively accrued, with reference to the laws and agreements in force, taking account, in any event, of the instructions contained in legislation regarding the public finances.
Diluted: At the date of preparation of these financial statements no financial instruments have been issued which have potentially dilutive characteristics(47).
Revenue and receivables due from the State The Group has substantial receivables due from the State, though the amount is much lower than in the past. Revenue from activities carried out in favour of or on behalf of the State and Public Administration entities is recognised on the basis of the amount effectively accrued, with reference to the laws and agreements in force, taking account, in any event, of the instructions contained in legislation regarding the public finance. The legal framework of reference is still subject to change and, as has at times been the case, circumstances were such that estimates made in relations to previous financial statements, with effects on the statement of profit and loss, had to be changed.
At 31 December 2016, Poste Italiane Group’s receivables outstanding with central and local authorities amounted to approximately €1 billion (€1.3 billion at 31 December 2015), gross of provisions for doubtful debts. The significant decrease in the amounts outstanding at 31 December 2016 and 31 December 2015, with respect to the past, reflects the effects of the review of the main exposures conducted by a joint working group with the MEF – Treasury and General Accounting Department, which ended in August 2015. On 7 August 2015, the MEF committed “the Ministry to complete all the procedures necessary in order to pay the amounts due in accordance with procedures and timing consistent with the current privatisation process (…), including provision of the necessary funding” and sent the Parent Company a letter signed by the Director General of the Treasury Department and General Accounting Office (the “MEF letter”), constituting a legally binding commitment.
The table below summarises receivables due from the State: Receivables (€m)
Receivables due from Ministries and Public Administration entities: Cabinet Office for publisher tariff subsidies (vi) 1 52
Total amounts due from the MEF and Public Administration entities 1,010 1,266
Specifically, at 31 December 2016, the total exposure to the State includes the following items.
(i) Receivables related to Universal Service compensation, totalling €139 million, including: • €67 million relating to the remaining compensation due for 2015, which is funded in the state budget for 2017; • €72 million relating to compensation for previous years, of which €41 million funded in the state budget for 2017 and €31 million unfunded.
In 2016, the Group received €262 million in accrued compensation for the period, as per the new Contratto di Programma (Service Contract), an additional €131 million related to compensation for 2015 and €64 million related to compensation for past years.
(iii) Sums due from the MEF in the amount of €36 million, accruing during the period and not giving rise to any particular concerns.
(vii) Receivables due from the Ministry of Economic Development, amounting to €75 million, including receivables of €62 million that are the subject of legal proceedings following the decision by the State Attorney’s Office not to clear a negotiated settlement worth approximately €50 million; with regard to the remaining amount, a joint
(ix) Other receivables of €8 million under collection, though provisions for the full amount have been made.
(x) Corporate income tax (IRES) overpayments and related interest to be recovered in relation to the unreported IRAP deduction of €56 million. Recovery of a large part of the amount due, attributable to the Parent Company, Poste Italiane, is disputed and, on 24 November 2016, the Provincial Tax Tribunal for Rome upheld Poste Italiane’s appeal, ordering the tax authorities in Rome to refund the amounts claimed. There is uncertainty over the time necessary to collect the amount due. Any elements of uncertainty or risk arising as the dispute progresses will be re-assessed by the Company and reflected in future financial statements.
(48) In the test carried out at 31 December 2016, use was made of an assumed growth rate of 1.2%, while the WACC for each CGU tested for impairment, determined in accordance with best market practices and for each operating segment, ranged from 6.16% to 6.97%.
Measurement of other non-current assets The current economic and financial crisis – which has resulted in highly volatile markets and great uncertainty with regard to economic projections – and the decline of the postal market in which the Group operates make it difficult to produce forecasts that can, with certainty, be defined as reliable. In this context, as at 31 December 2016, the Parent Company’s Postal and Business Services segment was tested again for impairment. In this respect, reference was made, among other things, to the transfer prices that BancoPosta RFC is expected to pay for the services provided by Poste Italiane’s network, as determined in the 2015-2019 business plan approved by the Parent Company’s Board of Director on 15 May 2015. The impairment test determined that the related carrying amounts are fair.
Technical provisions for insurance business The measurement of technical provisions for the insurance business is based on the calculations performed by actuaries employed by Poste Vita SpA; such calculations are then regularly verified by independent external actuaries. In order to verify the adequacy of the provisions, liability adequacy tests (LATs), (which measure the ability of future cash flows from the insurance contracts to cover liabilities towards the policyholders), are periodically performed. The LAT is conducted on the basis of the present value of future cash flows, obtained by projecting expected future cash flows from the existing portfolio to the end of the reporting period, based on appropriate assumptions regarding the cause of termination (death, surrender, redemption, reduction) and the performance of claims expenses. If necessary, technical provisions are topped up and the related cost charged to profit or loss.
Share-based payment As more fully described in section D4, the Annual General Meeting of Poste Italiane SpA’s shareholders held on 24 May 2016 approved the “Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan”. The Plan terms and conditions link the award of the related options to the occurrence of certain events, such as the achievement of performance targets and performance hurdles and, in certain areas of operation, compliance with certain capital adequacy and short-term liquidity requirements. For these reasons, measurement of the liability, based on the outcome of an appraisal by external actuaries, involves the use of estimates based on current knowledge of factors that may change over time, potentially resulting in outcomes that may be significantly different from those taken into account in preparing these financial statements.
Level 1: this level is comprised of fair values determined with reference to unadjusted prices quoted in active markets for identical assets or liabilities to which the entity has access on the measurement date. For the Poste Italiane Group, these include the following types of financial instruments: Bonds quoted on active markets: • Bonds issued by EU government bodies or Italian or foreign corporate bonds: measurement is based on bid prices, according to a hierarchy of sources where the MTS (the wholesale electronic market for government securities) ranks first, MILA (Milan Stock Exchange) second, for bonds intended for retail customers, and the CBBT (Bloomberg Composite Price) third; • Financial liabilities: measurement is based on the ask prices quoted by CBBT (Bloomberg Composite Price).
Equities and ETFs (Exchange Traded Funds) quoted on active markets: measurement is based on the price resulting from the last trade of the day on the stock exchange of reference.
The derivatives held in Poste Italiane’s portfolio may be pledged as collateral and the fair value, consequently, need not be adjusted for counterparty risk. The yield curve used to compute present value is selected to be consistent with the manner in which cash collateral is remunerated. This approach is also followed for security in the form of pledged debt securities, given the limited level of credit risk inherent in the securities held as collateral by the Poste Italiane Group.
• IAS 16 – Property, Plant and Equipment and IAS 38 – Intangible Assets amended by Regulation (EU) no. 2231/2015. The amendment clarifies whether it is appropriate to use revenue-based methods to calculate the depreciation or amortisation of an asset (in addition to those permitted by the pre-existing versions of IAS 16 and IAS 38 for tangible and intangible assets, respectively). The amendment defined this method as inappropriate in the case of tangible assets and as appropriate for intangible assets but only if it can be demonstrated that revenue and the consumption of the economic benefits of the intangible assets are highly correlated. The amendment is founded on the existence of cases where the revenue generated by the activity that includes the use of an asset typically reflects factors that are not directly linked to consumption of the economic benefits embodied in the asset, such as selling activity, a different production process, changes in selling prices.
• Amendments to IFRS 10 and 12 and to IAS 28 adopted with Regulation (EU) no.1703/2016, with the aim of providing clarification regarding investment entities – applying the consolidation exception.
The new standard, which will replace IAS 18 - Revenue, IAS 11 – Construction Contracts and IFRIC 13 – Customer Loyalty Programmes, introduces a model for revenue recognition that is no longer based on the nature of the item to be transferred to the customer (goods, services, interest, royalties, etc.), but is based on the distinction between a performance obligation that is fulfilled at a point in time and one that is fulfilled over time.
In the case of a performance obligation fulfilled at a point in time, revenue must be recognised only when full control of the good or service exchanged has been transferred to the customer. Not only must exposure to the significant risks and rewards related to ownership of the good or service be taken into account, but also physical possession, acceptance by the customer and the existence of legal title, etc.
In the case of a performance obligation fulfilled over time, measurement and recognition of revenue should, in theory, reflect progressive levels of customer satisfaction; in practice, the entity must apply an accounting method based on the stage of completion or the costs incurred. The standard provides specific guidance to aid the entity in choosing the most appropriate accounting method.
As a result of this approach, measurement and the timing of revenue recognition may differ from the approach used under IAS 18.
• IFRS 9 – Financial Instruments, adopted with Regulation (EU) no. 2067/2016.
ii) Impairment; under the new model, Expected Losses, credit losses are recognised on an expected basis over the life of the financial instrument, requiring immediate recognition, rather than the occurrence of a trigger event, as under the existing Incurred Losses model. IFRS 9 requires entities to account for 12-month expected credit losses (stage 1) from the moment of initial recognition of the financial instrument. Expected credit losses must, instead, be measured over the remaining life of the asset being measured, when there has been a significant deterioration in the credit quality of the financial instrument since initial recognition (stage 2) or in the case of credit-impaired assets (stage 3).
iii) General Hedge accounting; partially amended with respect to IAS 39. Key aspects of the main changes introduced regard: an expanded scope of application of hedge accounting; the testing of hedge effectiveness is only prospective; the introduction of the option of rebalancing without interrupting the pre-existing hedge.
• Amendments to IAS 12 on the Recognition of Deferred Tax Assets for Unrealised Losses.
• Amendments to IAS 7 on the information to be provided on cash flows from financing activities.
• Amendments to IFRS 2: Classification and measurement of share-based payments.
• Amendments to IFRS 4: Transitional provisions for the application of IFRS 9 – Financial Instruments to insurance contracts, whilst awaiting the issue of a specific new accounting standard.
• Interpretation IFRIC 22 – Foreign Currency Transactions and Advance Consideration.
2.6.3 IFRS 15 and 9: Transitional provisions and ESMA disclosures The following information is provided in accordance with the recommendations issued in 2016 by the European Securities and Markets Authority (“ESMA”) in its annual Public Statements. The recommendations aim to facilitate the gradual and transparent application of IFRS 15 and IFRS 9, and ensure appropriate disclosure in annual and interim financial statements published prior to the effective date for the new standards.
The Group began a preliminary assessment of the impact of IFRS 15 in 2016 and this is in the process of being completed. The Group has taken into account the clarifications issued by the IASB in April 2016, as well as the results of discussions with the ad hoc Technical Resource Group set up by the IASB to aid first-time adopters of the new standard, and will assess any further developments as practice evolves.
Initial analysis, conducted through to the date of preparation of these financial statements, has identified a significant percentage of the Group’s revenue at 31 December 2016 falling within the scope of application of IFRS 15(49). The Group is utilising an assessment method that follows the logical steps involved in the new process of identifying and measuring revenue contained in IFRS 15, using a tool developed internally. Work has begun on assessing contracts of sale, categorised according to the nature of the Group’s different areas of business, to identify any gaps between the accounting policies currently applied and those introduced by the new standard. The revenue streams(50) identified, on the basis of specific and consistent contractual characteristics, are summarised below, together with the results of the analysis conducted so far: Revenue from Postal and Business Services: based on the results of the analysis in progress, the Group does not expect the accounting models currently used to differ significantly from those soon to be introduced.
(49) Revenue falling within the scope of IFRS15 accounts for approximately 20% of total consolidated revenue; recognition of the remainingg forms of revenue is governed by other accounting standards (IFRS 4, IAS 39, etc).
(50) Identification of the listed revenue streams is subject to change as the above analysis progresses.
Revenue from Financial Services: based on the results of the analysis in progress, the Group does not expect the accounting models currently used to differ significantly from those soon to be introduced.
Finally, in view of the new disclosure requirements, the Group plans to accompany the above process with detailed assessment of its systems, policies and procedures to evaluate any resulting impact.
The Group believes that further analysis will confirm expectations regarding the potential impact of IFRS 15. Furthermore, the Group believes that its planning and completion of the current evaluation process will enable it, in the coming months, to obtain exhaustive qualitative and quantitative information, and the elements necessary in order to complete preparations for adoption of IFRS 15 in time for its entry into force.
The Poste Italiane Group has opted to apply IFRS 9 from its effective date (1 January 2018, as required by EU Regulation 2067/2016, which published the standard). The Group has not opted for early application.
Initial analysis shows that the main effects, at least from a qualitative viewpoint, will regard the classification and measurement of investments in securities held by the Group and of medium/long-term receivables due from the Public Administration.
Finally, a further area of potential impact regards classification and measurement in the insurance segment, in which the Group operates through Poste Vita SpA and its subsidiary, Poste Assicura. Whilst awaiting definition of the regulatory framework (also in view of the fact that, at the date of preparation of these financial statements, the ”Amendment to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” has yet to be endorsed), the Group is proceeding with its assessment and, at this time, has not identified the areas of most significant impact.
Consolidated financial statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
Investments accounted for using the equity method [A4] 218 218 214 214
Cash and deposits attributable to BancoPosta [A9] 2,494 – 3,161 –
Employee termination benefits and pension plans [B7] 1,347 – 1,361 –
Liabilities related to assets held for sale [A11] 2,060 130 – –
CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER
Profit/(Loss) on investments accounted for using the equity method [A4] 6 – 3 –
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER
Increase/(decrease) in fair value during the year [tab. B4] (15) 13
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (1,086) 1,490 of which, attributable to owners of the Parent (1,086) 1,490 of which, attributable to non-controlling interests – –
Reserves related to group of assets and liabilites held for sale
Other changes – – – – – – – – – – –
Other shareholder transactions – – – – – – – (1) (1) – (1)
Total comprehensive income for the year – – – (1,648) (27) – – 589(*) (1,086) – (1,086)
Attribution of profit to reserves – – – – – – – – – – –
Changes due to share-based payments – – – – – – – – – – –
Reclassifications to reserves related to disposal groups and liabilites held for sale – – – 1 – (1) – – – – –
Change in scope of consolidation – – – – – – – – – – –
Amount due from MEF following cancellation of EC Decision of 16 July 2008 – – – – – – – 6 6 – 6
(*) This item includes profit for the year of €622 million and actuarial losses on provisions for employee termination benefits of €51 million after current and deferred tax expense of €18 million.
Use of provisions for risks and charges [tab. B6] (448) (392)
Cash flow generated by operating activities before movements in working capital [a] 1,439 1,192
Cash flow generated by /(used in) movements in working capital [b] (83) 2,040
Net cash generated by/(used for) held-to-maturity financial assets attributable to financial activities 370 1,404
Payment of liabilities linked to financial contracts attributable to insurance activities [tab. B8] – –
Net cash generated by/(used for) financial assets at fair value through profit or loss attributable to insurance activities (6,100) (6,236)
Disposals: Property, plant and equipment, investment property, intangible assets and assets held for sale 5 4
Net cash flow from/(for) financing activities and shareholder transactions [g] (964) (436)
Cash and cash equivalents reclassified to non-current assets and disposal groups held for sale [h] [tab. A11] (90) –
Unrestricted net cash and cash equivalents at end of year 2,292 1,783
Investments in subsidiaries that are not significant and are not consolidated, and those in companies over which the Group exerts significant influence (assumed when the Group holds an interest of between 20% and 50%), hereinafter “associates”, and joint ventures are accounted for using the equity method .
At the time of acquisition, the investment is accounted for using the equity method. Any difference between the cost of acquisition of the investment and the net fair value of the investee’s identifiable assets and liabilities is accounted for as follows: a) goodwill related to an associate or a joint venture is included in the carrying amount of the investment. Amortisation of such goodwill is not permitted; b) in determining the initial value of the entity’s investment, any excess of the entity’s interest in the net fair value of investee’s identifiable assets and liabilities over cost is recognised as income in determining the acquirer’s interest in the profit (loss) for the period of the associate or joint venture in the period in which the interest is acquired.
After acquisition, appropriate adjustments are made to the entity’s share of the profits or losses of the associate or joint venture to account, for example, for additional depreciation or amortisation of the investee’s depreciable or amortisable assets, based on the excess of their fair values over their carrying amounts at the time the investment was acquired, and of any impairment losses on goodwill or property, plant and equipment.
The equity method is as follows: • the Group’s share of an entity’s post-acquisition profits or losses is recognised in profit or loss from the date on which significant influence or control is obtained until the date on which significant influence or control is no longer exerted by the Group; provisions are made to cover a company’s losses that exceed the carrying amount of the investment, to the extent that the Group has legal or constructive obligations to cover such losses; changes in the equity of companies accounted for using the equity method not related to the profit/(loss) for the year are recognised directly in equity; • unrealised gains and losses on transactions between the Parent Company/subsidiaries and the company accounted for using the equity method are eliminated to the extent of the Group’s interest in the associate; unrealised losses, unless relating to impairment, are eliminated.
• On 25 July 2016, the deed governing the merger of SDS Nuova Sanità Srl with and into SDS System Data Software Srl was signed and the merged entity renamed Poste Welfare Servizi Srl. The merger was effective for accounting and tax purposes from 1 January 2016.
• The memorandum of association of Equam SpA, a company 80% owned by Risparmio Holding SpA and 20% owned by Anima Holding SpA, was signed on 17 October 2016. The business purpose of the new company is to arrange for the acquisition of equity investments, loans to companies or entities in which it holds equity and trading in securities.
In addition the following material events occurred in early 2017: • On 24 January 2017, the appointment and powers of the liquidator to take charge of Poste Tributi ScpA, whose liquidation was approved by the extraordinary general meeting of the company’s shareholders held on 30 December 2016, was published in the Companies’ Register.
• On 30 January 2017, the deed governing the partial demerger of assets belonging Postecom SpA to Postel SpA, and the ensuing deed regarding the merger of Postecom SpA with and into Poste Italiane SpA, were executed. The transaction will be effective for legal, accounting and tax purposes from 1 April 2017.
• Following receipt of clearance from the relevant antitrust authorities and authorisation from the Bank of Italy, and fulfilment of the conditions precedent set out in the preliminary agreement dated 16 September 2016, on 15 February 2017 Poste Italiane acquired a 30% stake in FSIA Investimenti Srl at a cost of €278.3 million. This company owns a 49.5% interest in SIA SpA (SIA), a wholly owned subsidiary of FSI Investimenti, in turn a subsidiary of CDP Equity SpA via its 77.1% interest in the company. Following this transaction, Poste Italiane holds an indirect interest of 14.85% in SIA. 80% of the above consideration was paid on completion. The final price is subject to upward or downward adjustment based on predetermined amounts for SIA’s net debt at 31 December 2016
Basis of consolidation and corporate actions and its operating results for 2017. At the same time as the transaction completed, the shareholders’ agreement between Poste Italiane and CDP Equity, covering the governance and ownership structures of FSIA and SIA, over which the parties will exercise joint control, became effective.
Adoption of IFRS 5 in order to present the above corporate actions has resulted, at the reporting date, in recognition of the net assets of BancoPosta Fondi SpA SGR and BdM-MCC SpA as “Non-current assets and disposal groups held for sale” and “Liabilities related to assets held for sale” and restatement of the related amounts, where lower, in line with the expected realisable value (section A11).
The following table shows movements in property, plant and equipment in 2016: TAB. A1 – MOVEMENTS IN PROPERTY, PLANT AND EQUIPMENT
Change in scope of consolidation – – – – – – – –
(Impairments)/Reversal of impairments – 8 (3) – 7 – – 12
At 31 December 2016, property, plant and equipment includes assets belonging to the Parent Company located on land held under concession or sub-concession, which are to be handed over free of charge at the end of the concession term. These assets have a total carrying amount of €67 million.
The carrying amount of assets held under finance leases, consisting of buildings, is shown below: TAB. A1.1 – PROPERTY,PLANT AND EQUIPMENT HELD UNDER FINANCE LEASES
Capital expenditure of €221 million in 2016, including €5 million in capitalised costs for self-constructed assets, consists of: • €29 million relating to extraordinary maintenance of post offices and local head offices around the country (€21 million) and mail sorting offices (€7); • €46 million relating to plant, with the most significant expenditure made by the Parent Company, of which €27 million for plant and equipment related to buildings and €6 million for the installation and extraordinary maintenance of video surveillance, €5 million for the installation of ATMs and €5 million for the purchase of telecommunications infrastructure; • €26 million to upgrade plant and the structure of properties held under lease; • €72 million relating to “Other assets”, of which €53 million for the purchase of new computer hardware for post offices and head offices and the consolidation of storage systems and €7 million for the purchase of furniture and fittings in connection with the new layouts for post offices and €2 million to renew the equipment used in mail delivery; • €41 million relating to assets under construction, of which €35 million incurred by the Parent Company and including €19 million regards the restyling of post offices, €6 million the restructuring of head offices, €6 million the renovation of primary distribution centres and €3 million the purchase of hardware and other technological equipment not yet operational.
Reversals of impairment losses are due to changes in estimates relating to buildings (property used in operations) and sorting centres owned by the Parent Company, and reflect prudent consideration of the effects on the relevant values in use that might arise as a result of reduced utilisation or future removal from the production cycle (note 2.4 – Use of estimates).
Investment property primarily relates to residential accommodation previously used by post office directors and former service accommodation owned by Poste Italiane SpA in accordance with Law 560 of 24 December 1993. The following movements in Investment property took place in 2016: TAB. A2 – MOVEMENTS IN INVESTMENT PROPERTY
Purchases of industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights total €138 million, before amortisation for the period, and relate primarily to the purchase and entry into service of new software programmes and the acquisition of software licences. The table below shows amounts for the IT platform used in development of the Full MVNO (Mobile Virtual Network Operator) project and held under lease finance arrangements by PosteMobile SpA. The platform is amortised over 10 years.
Goodwill has been tested for impairment in accordance with the relevant accounting standards. Based on the information available and the impairment tests conducted, there has been no need to recognise impairment losses on the goodwill accounted for at 31 December 2016.
There as an increase in the carrying amount of the investment in Anima Holding SpA, totalling approximately €3.4 million, during the year. This is due to the combined effect of a reduction of €7.7 million, following the payment of dividends for 2015, and an increase of €11.1 million, including €9.7 million representing the share of profit booked by the investee between 30 September 2015 and 30 September 2016 (the latest data available) and approximately €1.4 million due to the recognition of other items in equity.
A list of subsidiaries, joint ventures and associates accounted for using the equity method is provided in section D5, together with key data.
Financial assets at fair value through profit or loss 20,996 3,907 24,903 16,233 1,899 18,132
Guarantee deposits, totalling €1,435 million relate to €1,391 million provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes) and €44 million provided to counterparties in repurchase agreements (with collateral contemplated by specific a Global Master Repurchase Agreements).
Other amounts to be charged to customers, amounting to €116 million, primarily regard: withdrawals from BancoPosta ATMs, the use of debit cards issued by BancoPosta, cheques and other collection items settled in the clearing house.
Other receivables include €8 million arising from Poste Italiane’s sale of the Visa Europe Ltd. share to Visa Incorporated, payable after three years from 21 June 2016, when the transaction was consummated (the transaction is described after tab A5.2).
Movements in investments in securities in 2015 and 2016 are as follows: TAB. A5.2.1 – MOVEMENTS IN INVESTMENTS IN SECURITIES
Changes in fair value through profit or loss – (432) – (432)
Effect of sales on profit or loss – 385 1 386
Changes in fair value through profit or loss – 856 – 856
Recl. to non-current assets and disposal groups held for sale – (749) – (749)
(*) The item “Changes in cash flow hedge transactions”, relates to the purchase of forward contracts in relation to cash flow hedge transactions, reflects changes in the fair value of such forward contracts between the date of purchase and the settlement date, which are recognised in equity, in the cash flow hedge reserve.
At 31 December 2016, the fair value(55) of the held-to-maturity portfolio, accounted for at amortised cost, is €14,447 million (including €170 million in accrued interest).
Fair value gains in the year under review, amounting to €9 million, have been recognised in the relevant equity reserve (section B4).
The fair value hedges in place, which are held to limit the price volatility of certain available-for-sale fixed rate instruments, saw their effective portion record a decrease in fair value of €885 million (of which €69 million attributable to financial instruments purchased during the period under review), whilst the hedged securities (tab. A5.2.1) recorded a fair value gain of €856 million, with the difference of €29 million due to paid differentials.
In the year under review, the Parent Company carried out the following transactions: • forward purchases with a nominal value of €875 million, including €475 million settled at 31 December 2016; • new asset swaps used as cash flow hedges with a nominal value of €100 million; • the settlement of asset swaps, used as cash flow hedges for securities sold, with a nominal value of €410 million; • new asset swaps used as fair value hedges with a nominal value of €4,525 million; • the settlement of asset swaps, used as fair value hedges for securities sold, with a nominal value of €130 million.
Receivables of €54 million relate primarily to Poste Vita SpA’s subscription and payment for unissued units of mutual investment funds (€30 million) and accrued interest to be collected (€22 million).
Movements in available-for-sale financial assets are as follows: TAB. A5.5 – MOVEMENTS IN AVAILABLE-FOR-SALE FINANCIAL ASSETS
Fair value gains and losses through equity 1,092 (7) (1) 1,084
Sales, redemptions and settlement of accrued income (15,730) (232) (14) (15,976)
The above changes in the fair value of available-for-sale financial assets during the period had a net positive impact on the relevant equity reserve of €36 million (tab. B4).
The remaining balance is represented by the fair value of fixed income instruments, totalling €178 million, held by Poste Assicura SpA.
In April 2016, Poste Vita decided to invest approximately €260 million in an alternative investment fund called “Atlante”, and, in July 2016, invested approximately a further €200 million in the alternative investment fund named “Atlante 2”. Both funds, which are managed by Quaestio Capital Management, are closed-end funds restricted to professional investors, investing primarily in financial instruments issued by banks looking to strengthen their capital and nonperforming loans held by various Italian banks. At 31 December 2016, the Atlante fund has called up €211.0 million, including €186.6 million allocated to the separately managed account, PostaValorePiù, and €24.4 million allocated to the company’s free capital, whilst the subscribed capital of the Atlante 2 fund, allocated entirely to the separately managed account, PostaValorePiù, has yet to be called up. For the purposes of transparent disclosure of the fund’s performances, on 31 January 2017, the management company announced the results of an independent valuation of the Atlante fund, revealing a potential impairment loss with respect to the initial value of the investment of approximately 24%. The management company also noted that, “as stated by the appraiser, the valuation is subject to significant uncertainty due to the limited availability of objective data and to use of a method of calculation based exclusively on equity market multiples, despite the fact that the companies are unquoted, and to the fact that the sector is currently embarking on a radical process of restructuring and consolidation”. Based on the most recent market information and in line with the approach adopted by other institutional investors, Poste Vita has proceeded to recognise a prudent impairment loss on the investment of 50%, amounting to a total of approximately €106 million. €94 million of the impairment, allocated to cover separately managed accounts, has been recognised in deferred liabilities due to policyholders (reflecting application of the shadow accounting method described in note 2.3), whilst the €12 million relating to the insurance company’s free capital has been recognised in finance costs.
Effects of sales on profit or loss (6) 21 – 15
Fair value gains and losses through profit or loss 145 (3) 485 627
These financial instruments are held by the subsidiary, Poste Vita SpA, and relate to: • fixed income securities, amounting to €9,566 million and consisting of €5,451 million in coupon stripped BTPs acquired to cover the contractual obligations arising on Class III insurance policies, while the balance of €4,086 million is primarily made up of corporate bonds issued by blue-chip companies and primarily linked to separately managed accounts, with €29 million relating to securities in which the company’s free capital has been invested.
At 31 December 2016, outstanding instruments primarily regard warrants executed by Poste Vita SpA to cover contractual obligations deriving from Class III policies with a fair value of €233 million and a notional amount of €5,558 million. The reduction of €12 million in the value of these derivative financial instruments is entirely attributable to fair value. Details of the Group’s warrants are as follows.
These amount to €140 million and consist of loans of €82 million and receivables of €58 million.
The impact of such developments will be taken into account in accordance with the relevant accounting standards.
Available-for-sale financial assets, held primarily by the Parent Company, and the related movements break down as follows: TAB. A5.9 – MOVEMENTS IN AVAILABLE-FOR-SALE FINANCIAL ASSETS
Fair value gains and losses through equity 4 – – 4
Fair value gains and losses through profit or loss (5) – – (5)
Fair value gains and losses through equity (4) 1 – (3)
Fixed income instruments regard BTPs with a total nominal value of €500 million (fair value of €562 million). Of these, instruments with a value of €375 million have been hedged using asset swaps designated as fair value hedges.
Equity instruments primarily reflects the investment in CAI SpA (formerly Alitalia CAI SpA), which was acquired for €75 million in 2013 and written off in 2014, the historical cost of approximately €4.5 million for the 15% equity interest in Innovazione e Progetti ScpA, which is in liquidation, unchanged from last year.
(**) Transactions settled include forward transactions settled, accrued differentials and the settlement of asset swaps linked to securities sold.
(61) In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Unfranked mail delivered and other value added services 24 274 298 27 322 349
Parcel express courier and express parcel services – 238 238 – 227 227
– The payment of pensions and vouchers on behalf of INPS (the National Institute of Social Security), totalling €59 million.
Notes to the financial statements – Assets accounting standards. Discussions are taking place with the counterparty with a view to reaching agreement on the settlement of these and other receivables due to Poste Italiane.
• Amounts due from Cassa Depositi e Prestiti refer to fees and commissions for BancoPosta’s deposit-taking activities during 2016.
• Receivables from overseas counterparties relate to postal services carried out by the Parent Company for overseas postal operators.
• Receivables for parcel, express courier and express parcel services refer to services provided by SDA Express Courier SpA, and to the mailing of parcels by the Parent Company.
• Receivables for overdrawn current accounts are amounts due to BancoPosta for temporarily overdrawn current accounts largely due to recurring BancoPosta bank charges, including accumulated sums, which have largely been written down, that BancoPosta is in the process of recovering.
• Other trade receivables include mainly: €60 million related to PosteMobile Spa for sales of terminals, services rendered to other operators and for the sale of top-ups through other channels; €38 million for Posta Time services, €33 million for Posta Target services, €19 million related to Notification of Legal Process service, €18 million for telegraphic services, €18 million relating to air transport provided by Mistral Air Srl and €15 million for Advice and Billing Mail services.
Uses Recl. to non-current assets and disposal groups held for sale
Specifically: • Universal Service compensation includes: TAB. A7.3.1 – UNIVERSAL SERVICE COMPENSATION RECEIVABLE
In 2016, collections for the entire period amounted to €262 million. Moreover: – The outstanding balance of the compensation for 2015 has been provided for in the state budget for 2017. The €131 million provided for in the state budget for 2015 was collected in March 2016.
– The outstanding receivable relating to compensation for 2005 was subject to cuts in the budget laws for 2007 and 2008.
Finally, with regard to the outstanding balance of the compensation for 2013, which was collected in full in 2015, with resolution 493/14/CONS of 9 October 2014, AGCom has initiated an assessment of the net cost incurred by the Company. On 24 July 2015, the regulator notified the Company that it will extend the assessment to include the 2014 financial year. On 29 July 2016, AGCom published Resolution 166/16/CONS, launching a public consultation on the draft ruling concerning assessment of the net cost of the universal postal service in 2013 and 2014, in which the cost of universal provision was estimated to be €345 million for 2013 and €365 million for 2014, compared with revenue of €343 and €277 million, respectively, recognised in the Parent Company’s statement of profit or loss for services rendered in those years. The Parent Company submitted its observations to the public consultation on 27 September 2016.
• Payments for delegated services 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, which expired on 31 December 2016 and is in the process of being renewed.
Provisions for doubtful debts due from the MEF reflect the lack of funding of the state budget, which make it difficult to collect certain receivables recognised on the basis of laws, contracts and agreements in force at the time of recognition. The release of provisions and previously deferred revenue recognised in 2016, totalling €116 million, reflects new provision in the state budget for 2017.
Accrued income and prepaid expenses from trading transactions – 16 16 – 16 16
Other amounts due from associates – – – – – –
Other amounts due from subsidiaries – – – – – –
Other amounts due from joint ventures – – – – – –
Specifically: • substitute tax paid refers mainly to: – €1,614 million paid in advance by Poste Vita SpA for the financial years 2012-2016, relating to withholding and substitute tax paid on capital gains on life policies(62); – €945 million (€927 million non-current) charged to holders of Interest-bearing Postal Certificates and Class III and V insurance policies for stamp duty at 31 December 2016(63). This amount is balanced by a matching entry in “Other taxes payable” until expiration or early settlement of the Interest-bearing Postal Certificates or the insurance policies, i.e. the date on which the tax is payable to the tax authorities (tab. B10.3); – €329 million relating to advances paid in relation to stamp duty to be paid in virtual form in 2017 and charged to customers and to be recovered from customers by Poste Italiane; – €154 million relating to stamp duty charged to Postal Savings Books, which Poste Italiane SpA pays in virtual form as required by law; – €16 million to advances paid in relation to withholding tax on interest earned by current account holders for 2016, which is to be recovered from customers.
• Amounts that cannot be drawn on due to court rulings include €58 million in amounts seized and not assigned to creditors, in the process of recovery, and €13 million in amounts stolen from the Parent Company in December 2007 as a result of an attempted fraud and that have remained on deposit with an overseas bank. The latter sum may only be recovered once the legal formalities are completed.
• The amount due from the MEF following cancellation of EC Decision 16/07/08, totalling €6 million, is described in section B2.
• Accrued interest on IRES refund, amounting to €47 million, refers to interest accruing up to 31 December 2016 in relation to the tax credit determined by an unreported deduction of IRAP paid on labour costs from IRES and almost entirely attributable to the Parent Company. Recovery of the amount in question has been disputed and, on 24 November 2016, the Provincial Tax Tribunal for Rome upheld Poste Italiane’s appeal, ordering the tax authorities in Rome to refund the amounts claimed. With regard to the remaining overall tax credit, amounting to €56 million (i.e. including current tax assets and related interest), described in note 2.4 – Use of estimates, there is uncertainty over the time necessary to collect the amount due.
Public Administration entities for sundry services 13 – – 13 – – 13
A11 – Non-current assets and disposal groups held for sale and liabilities related to assets held for sale
Movements in this item are as follows: TAB. A11.1 – NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE
Impairments of disposal groups held for sale – – (37) (37)
The impairment of €37 million regards BdM-MCC SpA and has been recognised to align the carrying amount of the company’s net assets with its estimated realisable value, less costs to sell (further details are provided in the section, “Basis of consolidation and corporate actions”).
Liabilities related to assets held for sale amount to €2,060 million and regard BdM-MCC SpA (€2,049 million) and BancoPosta Fondi SpA SGR (€11 million).
At 31 December 2016, all the shares in issue are fully subscribed and paid up. No preference shares have been issued and the Parent Company does not hold treasury shares.
The following table shows a reconciliation of the Parent Company’s equity and profit/(loss) for the year with the consolidated amounts: TAB. B1 – RECONCILIATION OF EQUITY
Financial statements of Poste Italiane SpA 6,160 (2,111) 625 7,646 690 451 6,505
– Fees to be amortised attributable to Poste Vita SpA and Poste Assicura SpA (39) – – (39) – (5) (34)
– Effects of contributions and transfers of business units between Group companies
SDA Express Courier SpA 2 – – 2 – – 2
– Elimination of adjustments to value of consolidated companies 400 – 37 363 – 84 279
Equity attributable to owners of the Parent 8,134 (2,146) 622 9,658 688 552 8,418
– Non-controlling interests (excluding profit/(loss) – – – – – – –
– Non-controlling interests in profit/loss – – – – – – –
Non-controlling interests in equity – – – – – – –
As resolved at the General Meeting of shareholders held on 24 May 2016, on 22 June 2016 the Parent Company paid dividends totalling €444 million, based on a dividend per share of €0.34).
(64) Deferred tax assets of approximately €2 million on this amount have already been used; the overall impact on equity thus amounts to approximately €4 million. Absent further recognition of claims by the MEF, in line with the past, at 31 December 2016, the component of the Company’s equity relating to the residual receivable of approximately €39 million is shown with a nil balance.
Reserves related to group of assets and liabilities held for sale
Tax effect of transfers to profit or loss – – 151 23 – – 174
Transfers to profit or loss – – (592) (22) – – (614)
Gains/(Losses) recognised in equity – – (1,648) (27) – – (1,675)
• The cash flow hedge reserve, attributable to the Parent Company, reflects changes in the fair value of the effective portion of cash flow hedges. In 2016, fair value losses of €15 million were attributable to the value of BancoPosta RFC’s derivative financial instruments.
Technical provisions where investment risk is transferred to policyholders 6,900 7,218
Details of movements in technical provisions for the insurance business and other claims expenses are provided in the notes to the consolidated statement of profit or loss.
Movements in provisions for risks and charges are as follows: TAB. B6 – MOVEMENTS IN PROVISIONS FOR RISKS AND CHARGES FOR THE YEAR ENDED 31 DECEMBER 2016
Provisions for disputes with staff (1) 142 22 – (13) (30) (1) 120
Provisions for disputes with third parties 383 73 1 (32) (26) – 399
Provisions for disputes with staff (1) 184 16 – (22) (36) – 142
Other provisions for risks and charges (2) 80 12 – (10) (6) – 76
• Other provisions cover probable liabilities of various type, including: estimated liabilities deriving from the risk that specific legal actions undertaken in order to reverse seizures of the Parent Company’s assets may be unable to recover the related amounts, claims for rent arrears on properties used free of charge by the Parent Company, and claims for payment of accrued interest expense due to certain suppliers.
Balance at end of period (3) (5) (8) – – –
The main actuarial assumptions applied in calculating provisions for employee termination benefits and the pension plan, where the latter relates solely to BdM-MCC employees, are as follows: TAB. B7.1 – ECONOMIC AND FINANCIAL ASSUMPTIONS
Actuarial gains and losses are generated by the following factors: TAB. B7.3 – ACTUARIAL GAINS AND LOSSES
The sensitivity of employee termination benefits and the pension plan to changes in the principal actuarial assumptions is analysed below.
The following table provides further information in relation to employee termination benefits.
Payables deriving from postal current accounts – 45,125 45,125 – 43,468 43,468
Fair value through profit or loss – – – – – –
Payables deriving from postal current accounts represent BancoPosta’s direct deposits, and include interest accrued at 31 December 2016, which was settled with customers in January 2017.
Bonds consist of the following: • Two issues by Poste Italiane SpA, recognised at an amortised cost of €812 million under the EMTN – Euro Medium Term Note programme of €2 billion listed by the Company in 2013 on the Luxembourg Stock Exchange. In particular: – bonds with a nominal value of €750 million, placed through a public offering for institutional investors at a below par price of 99.66 on 18 June 2013. The bonds have a term to maturity of five years and pay annual coupon interest at a fixed rate of 3.25%. The fair value (65) of this borrowing at 31 December 2016 is €799 million; – bonds with a nominal value of €50 million subscribed by investors through a private placement at par on 25 October 2013. The term to maturity of the loan is ten years and the interest rate is 3.5% for the first two years and variable thereafter (EUR Constant Maturity Swap rate plus 0.955%, with a cap of 6% and a floor of 0%). The interest rate risk exposure was hedged as described in section A5; the fair value (66) of this borrowing at 31 December 2016 is €52 million.
(65) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1. (66) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
At 31 December 2016, the value of the four bonds issued by BdM-MCC SpA (€479 million at 31 December 2015) has been reclassified, following the application of IFRS 5, to “Liabilities related to assets held for sale” (section A11).
Outstanding liabilities for repurchase agreements at 31 December 2016 amount to €5,381 million and relate to contracts with a total nominal value of €4,761 million, entered into by the Parent Company with major financial institutions. These liabilities consist of: • €3,904 million relating to Long Term Repos entered into with primary counterparties, with the resulting resources invested in Italian fixed income government securities of a matching nominal amount; • €1,477 million relating to BancoPosta’s ordinary borrowing operations via repurchase agreement transactions with primary financial institutions as funding for incremental deposits used as collateral.
The fair value(71) of the two fixed rate EIB loans of €400 million obtained by the Parent Company amounts to €404 million.
ECB and other loans attributable to BdM-MCC SpA have been reclassified, following the application of IFRS 5, to “Liabilities related to assets held for sale” (section A11).
(70) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2. (71) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
These reflect the outstanding principal due under finance lease agreements for fixed assets, as shown in the following table.
TAB. B8.2 – RECONCILIATION OF TOTAL FUTURE PAYMENTS AND THEIR PRESENT VALUE
At 31 December 2016 within 1 year from 1 to 5 years over 5 years Total
At 31 December 2016, the MEF account held at the Treasury has a debit balance of €2,429 million. This breaks down as follows: TAB. B8.4 – MEF ACCOUNT, HELD AT THE TREASURY
• The balance of cash flows from the management of postal savings, amounting to a positive €4 million, represents the balance of withdrawals less deposits during the last two days of the year and cleared early in the following year. The balance at 31 December 2016 consists of €92 million payable to Cassa Depositi e Prestiti, less €96 million receivable from the MEF for Interest-bearing Postal Certificates issued on its behalf.
• Amounts payable for operational risks (€35 million) regard the portion of advances obtained to fund the operations of BancoPosta, in relation to which asset under recovery is certain or probable.
The above information does not take into account credit facilities attributable to BdM-MCC SpA.
Amounts to be credited to customers – 75 75 – 160 160
Amounts due to BdM-MCC SpA customers – – – – 88 88
• Amounts due on domestic and international money transfers represent the exposure to third parties for: – domestic postal orders, totalling €536 million; – domestic and international transfers, totalling €63 million.
• Amounts payable for guarantee deposits, totalling €32 million, include €29 million received in relation to asset swaps (collateral provided by specific Credit Support Annexes) and €3 million received from counterparties in relation to repurchase agreements covering fixed-income securities (collateral under specific Global Master Repurchase Agreements).
Accrued liabilities and deferred income 14 68 82 16 56 72
Amounts due to staff relate primarily to amounts accrued and not paid at 31 December 2016. Details are as follows: TAB. B10.1 – AMOUNTS DUE TO STAFF
Thirteenth and fourteenth month salaries – 236 236 – 240 240
Other amounts due to staff – 89 89 – 85 85
• Amounts payable to pension funds relate to sums due to FondoPoste and other pension funds following the decision by certain Group employees to join supplementary funds.
In particular: • Stamp duty relates mainly to the amount accrued at 31 December 2016 on Interest-bearing Postal Certificates outstanding and on Class III and V insurance policies pursuant to the new law referred to in section A8.
• Tax due on insurance provisions relates to Poste Vita SpA and is described in section A8.
• Withholding tax on employees’ and consultants’ salaries relates to amounts paid to the tax authorities by Group companies in January and February 2017 as withholding agents.
• Withholding tax due on postal current accounts refers to amounts withheld by BancoPosta RFC on interest accrued during the year on customer current accounts.
• Substitute tax, relating mainly to Poste Vita SpA, refers to the tax payable on annual revaluations of individual pension plans and the monthly withholdings for December, which were both paid in January and February 2017.
The item includes: • €12 million, reflecting payables arising from pension payments made by the MEF to former Poste Italiane SpA employees between 1 January 1994 and 31 July 1994; • €9 million, relating to the return of the extraordinary contribution, pursuant to article 2 Law 778/85, received from the MEF to cover shortfalls of the pension fund of the former Postal and Telecommunications Administration.
In detail: • sundry payables attributable to BancoPosta’s operations primarily relate to prior year balances currently being verified.
• guarantee deposits primarily relate to amounts collected from the Parent Company’s customers as a guarantee of payment for services (postage-paid mailing services, the use of post office boxes, lease contracts, telegraphic service contracts, etc.).
Revenue from sales and services, amounting to €8,743 million, breaks down as follows: TAB. C1 – REVENUE FROM SALES AND SERVICES
Revenue from Postal and Business Services breaks down as follows: TAB. C1.1 – REVENUE FROM POSTAL AND BUSINESS SERVICES
• Automated franking by third parties or at post offices, relates to revenue from the mailing of correspondence franked by customers or at post offices using a franking machine.
• Revenue from electronic document management and e-procurement services relates to the distribution and supply of stationery, forms and printed documents by the subsidiary, Postel SpA.
Revenue from Financial Services, which relate mainly to services rendered by the Parent Company’s BancoPosta RFC and by BdM-MCC SpA, break down as follows: TAB. C1.2 – REVENUE FROM FINANCIAL SERVICES
Income from investments in securities relates to interest earned on investment of deposits paid into postal current accounts by private customers. The total includes the impact of the interest rate hedge described in note A5.
• Income from delegated services primarily regards amounts received by the Parent Company for the payment of pensions and vouchers issued by INPS and for the provision of treasury services on the basis of the agreement with the MEF.
(*) Insurance premium revenue is reported net of outward reinsurance premiums
Income from financial assets at fair value through profit or loss 1,256 567
Other operating income relates to the following: TAB. C4 – OTHER OPERATING INCOME
Real estate leases relate almost entirely to the buildings from which the Group operates (post offices, Delivery Logistics Centres and Sorting Centres). Under the relevant lease agreements, rents are increased annually on the basis of the price index published by the Istituto Nazionale di Statistica (ISTAT, the Italian Office for National Statistics). Lease terms are generally six years, renewable for a further six. Renewal is assured from the clause stating that the lessor “waives the option of refusing renewal on expiry of the first term”, by which the lessor, once the agreement has been signed, cannot refuse to renew the lease, except in cases of force majeure. The Parent Company has the right to withdraw from the contract at any time, giving six months’ notice, in accordance with the standard lease contract.
TAB. C5.3 – RAW, ANCILLARY AND CONSUMABLE MATERIALS AND GOODS FOR RESALE
Change in inventories of work in progress, semi-finished and finished goods and goods for resale [tab. A6] – 2
C6 – Net movement in technical provisions for insurance business and other claim expenses
The net movement in technical provisions for the insurance business and other claims expenses primarily includes: • claims paid, policies redeemed and the related expenses incurred by Poste Vita SpA during the period, totalling €7,682 million; • the change in mathematical provisions, totalling €14,325 million, reflecting increased obligations to policyholder; • the decrease in technical provisions where investment risk is transferred to policyholders (so-called class D), totalling €319 million.
Personnel expenses include the cost of staff seconded to other organisations. The recovery of such expenses, determined by the relevant chargebacks, is posted to “Other operating income”. Personnel expenses break down as follows: TAB. C8 – PERSONNEL EXPENSES
Net provisions (reversals) for disputes with staff [tab. B6] 3 (13)
Taking account of staff on flexible contracts, the total average number of full-time equivalent staff in 2016 is 141,246 (143,700 in 2015).
Depreciation, amortisation and impairments break down as follows: TAB. C9 – DEPRECIATION, AMORTISATION AND IMPAIRMENTS
Goodwill impairment refers to Postel SpA, as described in section A3.
Capitalised costs and expenses break down as follows: TAB. C10 – INCREASES RELATING TO ASSETS UNDER CONSTRUCTION
Net provisions and losses on doubtful debts (uses of provisions) 22 (42)
Provisions (reversal of provisions) for receivables due from MEF [tab. A7.4] (7) (68)
Provisions (reversal of provisions) for sundry receivables [tab. A8.1] 4 4
Income from financial assets at fair value through profit or loss – –
(2) Finance income on discounted receivables regards interest on amounts due from staff and INPS under the fixed-term contract settlements of 2006, 2008, 2010, 2012 and 2013.
(1) For the purposes of reconciliation with the statement of cash flows, in 2016 financial costs after foreign exchange losses and impairment losses on available-for-sale financial assets amount to €85 million (€101 million in 2015).
The tax rate for 2016 is 41.09% and consists of: TAB. C13.1 – RECONCILIATION BETWEEN THEORETICAL AND EFFECTIVE IRES RATE
Net provisions for risks and charges and bad debts 19 1.79% 12 1.30%
Realignment of tax bases and carrying amounts and taxation for previous years 11 1.09% (4) –0.40%
Deduction from IRES tax base of IRAP paid on personnel expenses – 0.00% (4) –0.40%
Non-recurring income/(expenses) for deferred taxes recycled to profit or loss – 0.00% 7 0.71%
prepayments for the current year 269 27 296 213 46 259 balance payable for the previous year 19 2 21 12 4 16
Provisions to profit or loss (358) (73) (431) (288) (59) (347)
of which: (*) Mainly due to credits resulting from withholdings on fees.
Net non-recurring income/(expenses) recognised in profit or loss due to adjustment to IRES rate (14) (24)
Net non-recurring income/(expenses) recognised in equity due to adjustment to IRES rate – 119
Recl. to disposal groups and liabilities held for sale (11) –
The following table shows movements in deferred tax assets and liabilities, broken down according to the events that generated such movements: TAB. C13.6 – MOVEMENTS IN DEFERRED TAX ASSETS
Income/(expenses) recognised in profit or loss 1 1 (2) (40) 44 1 – – 5 10
Income/(expenses) recognised in equity – – (73) – – – – – – (73)
Income/(expenses) recognised in profit or loss due to adjustment to IRES rate – – – (9) (5) – – – – (14)
Income/(expenses) recognised in equity – – 230 – – – 230
Income/(expenses) recognised in equity – – (451) – – – (451)
Income tax expense calculated on actuarial gains on employee termination benefits recognised in equity decreased by €22 million. Therefore, the decrease of equity in the year under review due to income tax expense amounts to €643 million.
Following a number of organisational changes, from 2016 the allocation of certain companies to the related operating segments has been modified. Specifically, BancoPosta Fondi SpA SGR, which was previously allocated to the Financial Services segment, now forms part of the Insurance Services and Asset Management segment (until 31 December 2015, the segment was named Insurance Services), whilst Poste Tributi ScpA, which was previously allocated to the Postal and Business Services segment, has been transferred to the Financial Services segment. The relevant comparative amounts for 2015 have been reclassified accordingly.
The Postal and Business Services segment also earns revenue from the services provided by the various Poste Italiane SpA functions to BancoPosta RFC. In this regard, separate General Operating Guidelines have been developed and approved by Poste Italiane SpA’s Board of Directors which, in implementation of BancoPosta RFC’s By-laws, identify the services provided by Poste Italiane SpA functions to BancoPosta and determines the manner in which they are remunerated.
(73) Postal and Business Services include also the activities performed by the various departments of the Parent Company in managing BancoPosta’s ring-fenced capital and the other areas in which the Group operates. In addition, this segment includes the operations of Postel SpA, SDA SpA, Mistrail Air Srl and Postecom SpA. Financial Services refer to BancoPosta’s activities provided for by Presidential Decree 144 of 14 March 2001, to which the ring-fenced capital is allocated within the Parent Company. In addition, this segment includes the operations of BdM-MCC SpA and Poste Tributi Scarl. Insurance Services and Asset Management concern the operations of the Poste Vita group and BancoPosta Fondi SpA SGR. Other Services include the mobile telephony operations of PosteMobile SpA.
Finally, as described in more detail in “Basis of consolidation and corporate actions”, at 31 December 2016, following application of IFRS 5 to the operations of BdM-MCC SpA and BancoPosta Fondi SpA SGR, the two companies’ assets and liabilities have been reclassified to “Non-current assets and disposal groups held for sale” and “Liabilities related to assets held for sale”.
Non-current assets and disposal groups held for sale – 2,665 71 – (16) 2,720
Liabilities related to assets held for sale – 2,300 27 – (267) 2,060
Profit/(Loss) on investments accounted for using the equity method – – 3 – – 3
Investments accounted for using equity method 211 – 3 – – 214
Disclosure about geographical segments, based on the geographical areas in which the various Group companies are based or the location of its customers, is of no material significance. At 31 December 2016, all entities consolidated on a line-by-line basis are based in Italy, as is the majority of their client base; revenue from foreign clients does not represent a significant percentage of total revenue.
The impact of related party transactions on the financial position and profit or loss is shown below.
Address Software Srl – – – – – 1 – – –
Anima Holding Group – – – – – – – – 1
At 31 December 2016, total provisions for risks and charges made to cover probable liabilities arising from transactions with related parties external to the Group attributable to trading relations amount to €60 million (€60 million al 31 December 2015).
Provision for doubtful debts owing from external related parties – (157) (10) – – – –
IMPACT OF RELATED PARTY TRANSACTIONS ON PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2016
Anima Holding Group – – – – – – 3 – – –
Other SDA group associates 4 – – – – – 4 – – –
Uptime SpA – – – – – – 6 – – –
Anima Holding Group – – – – – – – – – –
Other SDA group associates 3 – – – – 3 – – –
• Amounts received from the MEF relate primarily to payment for carrying out the USO, the management of postal current accounts, for delegated services, integrated e-mail services, the franking of mail on credit, the collection of tax returns and for collection and accounting of electronic payments and, with reference to previous years alone, the reimbursement of electoral tariff reductions and subsidies.
• Amounts received from CDP SpA primarily relate to payment for the collection of postal savings deposits. The costs incurred with the CDP Group refer mainly to software maintenance and electronic payment card management services performed by SIA SpA
Provisions for risks and charges 1,507 60 4.0 1,397 61 4.4
Revenue from sales and services 8,743 2,312 26.4 8,810 2,390 27.1
Cash flow from/(for) investing activities (444) (22) 5.0 (689) (1,725) n.a.
Financial assets at fair value through profit or loss – – 24,903 – – 24,903 570
Technical provisions attributable to reinsurers – – 66 – – 66 –
Borrowings from financial institutions (917) (6,101) – – – (7,018) (77)
Financial assets at fair value through profit or loss – – 18,132 – – 18,132 569
Technical provisions attributable to reinsurers – – 58 – – 58 –
Cash and deposits attributable to BancoPosta – 3,161 – – – 3,161 –
An analysis of the industrial net funds/(debt) of the Postal and Business Services and Other Services segments at 31 December 2016, in accordance with ESMA guidelines, computed on the basis of paragraph 127 of the recommendations contained in ESMA document 319 of 2013, is provided below: ESMA NET FINANCIAL INDEBTEDNESS
Industrial net funds/(debt) including intersegment transactions 893 307 of which: – Postal and Business Services 845 269
Financial assets at fair value through profit or loss 10,094 14,635 174 24,903 8,067 10,065 – 18,132
Details of transfers of financial instruments measured at fair value between level 1 and level 2 of the hierarchy on a recurring basis are as follows.
NET TRANSFERS BETWEEN LEVEL 1 AND 2 AT 31 DECEMBER 2016
Gains/Losses in profit or loss due to sales – – – –
Movements in Level 3 of the hierarchy during the year include the sale of the Parent Company’s investment in Visa Europe Ltd. (at 31 December 2015, accounted for at a fair value of €111 million), as described in note A5.2, and the recognition of the Series C Visa Inc. convertible preferred stock received as partial payment. The fair value of the Series C Visa Inc. convertible preferred stock (at 31 December 2016, equal to €27 million) is subject to change following alterations that may occur in the discount factor applied in determining fair value, in order to take into account the illiquid nature of the shares. This discount factor, estimated using an internal valuation technique, is above all influenced by the annual volatility of the underlying shares. Applying the maximum volatility according to the technique used, the potential reduction in fair value could reach approximately 34%.
In particular, the disclosures in question concern the following positions at 31 December 2016: • derivative assets and liabilities and related collateral, represented by both cash and government securities; • reverse repurchase agreements and the related collateral, represented by both cash and government securities.
For 2016, following the reclassifications carried out in application of IFRS 5, borrowings and the related government securities used as collateral for transactions entered into by BdM-MCC SpA with the ECB are not shown in the following table.
FINANCIAL ASSETS/LIABILITIES OFFSET IN THE STATEMENT OF FINANCIAL POSITION OR THAT ARE SUBJECT TO A MASTER NETTING AGREEMENT OR SIMILAR ARRANGEMENTS
In accordance with IFRS 7 – Financial Instruments: Disclosures, this section provides additional information on the transfer of financial assets that are not derecognised (continuing involvement). At 31 December 2016, these assets concern reverse repurchase agreements entered into with primary financial intermediaries.
Financial liabilities arising from repos [B8] – – – (510) (510) (510)
Loans used as collateral for transactions with CdP – – 72 72
Receivables used as collateral provided by GMRAs 44 44 7 7
Securities used as collateral provided by CSAs 676 716 344 373
Securities used as collateral for intraday credit from the Bank of Italy and for Sepa Direct Debits 493 505 576 583
The following table provides a breakdown of postal savings deposits collected by the Parent Company in the name of and on behalf of Cassa Depositi e Prestiti, by category. The amounts are inclusive of accrued, unpaid interest.
Purchase commitments relating primarily to the Parent Company break down as follows.
Sureties and other guarantees issued: by banks/insurance companies in the interests of Group companies in favour of third parties 321 281
The following table shows fees, in thousands of euros, broken down by type of service, payable to the Parent Company’s auditors, PricewaterhouseCoopers SpA and companies within its network for 2016.
In order to make investments as consistent as possible with the risk-return profiles of the policies issued, ensuring management flexibility and efficiency, in certain cases Poste Vita SpA has purchased over 50% of the assets managed by certain investment funds. In these cases, tests have been performed in keeping with IFRS to determine the existence of control. The results of the tests on such funds suggest that the company does not exercise any control within the meaning of IFRS 10 – Consolidated Financial Statements. However, these funds qualify as unconsolidated structured entities. A structured entity is an entity designed in such a way as not to make voting rights the key factor in determining control over it, as in the case where voting rights refer solely to administrative activities and the relevant operations are managed on the basis of contractual arrangements.
Investment in real estate assets, real property rights, including those resulting from property lease-translational arrangements, concessions and other similar rights in accordance with the legislation from time to time in effect
Investiment in real estate assets, real property rights, including those resulting from property lease arrangements, participating interests in property companies and in units of alternative real estate funds
LU1193254122 MFX – GLOBAL FUND – ASSET GLOBAL FUND (PIMCO MULTI ASSET)
Available-for-sale financial assets 486 58 428 Change between market price as of reporting date and guaranteed performance
Available-for-sale financial assets 190 36 154 VaR 99.5% over a 1-year time horizon
IT0005215113 FONDO CBRE DIAMOND Financial assets FVPL – 0 – Analytical VaR 99.5% annualised
All Beneficiaries must be measured against an indicator of shareholder value creation, based on the Total Shareholder Return, used to measure performance based on the value created for Poste Italiane’s shareholders compared with other FTSE MIB-listed companies.
Vesting of the Phantom Stocks is subject to achievement of the Performance Hurdle, designed to ensure sustainability of the Plan at Group level. The Performance Hurdle corresponds with achievement of a certain target for the Group’s cumulative EBIT over a three-year period at the end of each Performance Period. In addition, in the case of the General Manager (and Chief Executive Officer) and BancoPosta RFC’s Risk Takers, vesting of the Phantom Stocks is also subject to achievement of Qualifying Conditions, designed to ensure the stability of BancoPosta RFC’s capital and liquidity position, as follows: • Indicator of capital adequacy, based on CET 1 at the end of the period; • Indicator of short-term liquidity, based on LCR at the end of the period.
The Phantom Stocks will be awarded by the end of the year following the end of the Performance Period, and immediately converted into cash. In the case of the General Manager, BancoPostaRFC’s Risk Takers and the Poste Vita group’s personnel, they are subject to a one-year retention period, before they can be converted into cash, following confirmation that the Qualifying Conditions have been met.
(**) Poste Italiane SpA is committed to providing financial support to the subsidiaries SDA Express Courier SpA and Mistral Air Srl for 2017 and to Poste Tributi ScpA throughout its liquidation.
Anima Holding SpA (Milan) (a) Associate 216,580 10.32% 1,196,453 402,033 794,420 560,505(*) 63,262
Conio Inc. (San Francisco) (b) Associate 24 20.00% 45 56 (11) 132 9
Programma Dinamico SpA – in liquidation (Rome) (d) Subsidiary – 0.00% 136 166 (30) – (149)
(e) The other associates of the SDA Express Courier Group are: Uptime SpA (in liquidation), MDG Express Srl, Speedy Express Courier Srl and T.W.S. Express Courier Srl.
(*) The amount includes commissions, interest income and other similar income.
• Poste Italiane SpA’s financial transactions primarily relate to BancoPosta’s operations, asset financing and liquidity investment.
(75) 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.
As of 1 April 2015 the match between BancoPosta’s private customer deposits and related investments, which is verified on a quarterly basis, relates to the amortised cost calculated on the ex coupon value of the financial instruments held in portfolio. Before, the equivalence was measured based on the nominal value of the instruments.