Poste Italiane Group Annual Report 2016 of deposits and loans. The above mentioned model is thus the general reference for the investments, in order to limit exposure to interest rate risk and liquidity risks. The prudential requirements introduced by the third revision of the Bank of Italy Circular 285/2013 require BancoPosta to apply the same regulations applicable to banks in terms of its controls, establishing that its operations are to be conducted in accordance with the Consolidated Law on Banking (TUB) and the Consolidated Law on Finance (TUF). BancoPosta RFC is, therefore, required to establish a system of internal controls in line with the provisions of Circular 285(76), which, among other things, requires definition of a Risk Appetite Framework (RAF(77)), the containment of risks within the limits set by the RAF, protection of the value of assets and against losses, and identification of material transactions to be subject to prior examination by the risk control function.
Traditional life policies, classified under Class I and V, primarily include products whose benefits are revaluated based on the return generated through the management of pools of financial assets, which are separately identifiable in accounting terms only, within the company’s assets (so-called separately managed accounts). Typically, the Company guarantees a minimum return payable at maturity on such products (31 December 2016, this return ranged between 0% and 1.5%). Gains and losses resulting from measurement are attributed in full to policyholders and accounted for in specific technical provisions under the shadow accounting method. The calculation technique used by the Group in applying this method is based on the prospective yield on each separately managed account, considering a hypothetical realisation of unrealised gains and losses over a period of time that matches the assets and liabilities held in the portfolio (see note 2.3 in relation to “Insurance contracts”).
• the Finance, Savings and Investment Committee, which is responsible for establishing policies governing management of the savings of retail customers, as well as strategies to be applied in managing the Group’s financial assets. In view of the matters dealt with, the Committee is divided into three sections: – Finance, with the role of defining and overseeing the financial strategy; – Savings, with responsibility for establishing guidelines to be applied in the development of savings products; – Financial investment strategies, with the role of ensuring effective governance and the greatest possible alignment with strategic decisions regarding the allocation and management of the Group’s financial assets.
• an Investment Committee established at the Group’s insurance company, Poste Vita SpA, which, based on analyses by the relevant functions, provides advice to senior management on the development, implementation and oversight of investment strategy; • appropriate functions established within the Parent Company and the subsidiaries providing financial and insurance services (BancoPosta Fondi SGR SpA, BdM-MCC SpA and Poste Vita SpA) that perform Risk Measurement and Control activities, ensuring the organisational separation of risk assessment from risk management activities. The results of these activities are examined by the relevant advisory Committees, which are responsible for carrying out an integrated assessment of the main risk profiles; • BancoPosta RFC’s Cross-functional Committee, set up under the BancoPosta RFC Regulation, which provides advice, makes recommendations and coordinates BancoPosta’s operations with those of other Poste Italiane functions. The Committee is chaired by the Parent Company’s CEO. Other permanent members are the Head of BancoPosta and the heads of the functions within Poste Italiane SpA primarily involved with BancoPosta.
The following sensitivity analysis relates to the principal positions potentially exposed to fluctuations in value. Financial statement balances at 31 December 2016 have been subjected, where applicable to a stress test, based on actual volatility during the year, considered to be representative of potential market movements.
+ Vol – Vol + Vol – Vol + Vol – Vol + Vol – Vol 2016 effects
Financial asset at fair value through profit or loss 14,786 586 (586) 586 (586) – – – –
Fair value through profit or loss 233 59 (59) 59 (59) – – – –
Available-for-sale financial assets 1,427 162 (162) 146 (146) – – 16 (16)
Financial asset at fair value through profit or loss 10,004 436 (436) 436 (436) – – – –
Fair value through profit or loss 245 58 (58) 58 (58) – – – –
Available-for-sale financial assets mainly refer to the Parent Company’s investments in equity instruments and Poste Vita SpA’s position in other investments, represented by equity mutual investment funds.
Other investments include: • units of mutual investment funds, amounting to €1,208 million, held by Poste Vita SpA, to meet its obligations to policyholders under the separately managed portfolios; • units of mutual investment funds held by the Parent Company outside the ring-fence, amounting to €7 million.
In relation to financial assets recognised at fair value through profit or loss, price risk concerns investments held by Poste Vita SpA, totalling €14,786 million, of which €1,290 million used to cover Class III policies, €13,495 million used to cover Class I policies and €0.1 million in mutual fund units held in the Company’s free capital.
The table below shows the sensitivity to foreign exchange risk at 31 December 2016.
Available-for-sale financial assets 143 136 11 (11) – – 11 (11)
Financial assets at FV through profit or loss 9,879 10,117 (341) 329 (340) 328 (1) 1 – –
Fair value though profit or loss – – – – – – – – – –
Financial assets at FV through profit or loss 8,042 8,128 (249) 247 (249) 247 – – – –
Fair value hedges – – – – – – – – – –
Within the context of derivative financial instruments, the risk in question concerns forward purchase contracts for government bonds with a total nominal value of €400 million, entered into during the year by BancoPosta RFC and a derivative contract entered into by the Parent Company in 2013 to hedge the cash flows of the bond with a nominal value of €50 million (tab. A5.10).
At 31 December 2016, with reference to the interest rate risk exposure determined by the average duration(79) of the portfolios, the duration of BancoPosta’s overall investments went from 5.58 to 5.56. On the other hand, with respect to Class I and Class V policies sold by Poste Vita SpA, the duration of the matching assets went from 6.19 at 31 December 2015 at 6.08 at 31 December 2016. On the other hand, with respect to Class I and Class V policies sold by Poste Vita SpA, the duration of the liabilities went from 7.05 to 7.26. The financial instruments intended to cover the technical provisions for Class III have maturities that match those of the liabilities.
The progressive deterioration in the market perception of Italy’s sovereign credit rating in 2016, despite the Quantitative Easing carried out by the ECB, has had a negative influence on the price of Italian government bonds. Indeed, the spreads between ten-year Italian government bonds and German bunds is approximately 161 bps at 31 December 2016 (97 bps at 31 December 2015).
(78) Coupon stripping consists in detaching the interest payment coupons from a note or bond. Coupon stripping transforms each government security into a series of zero-coupon bonds. Each component may be traded separately.
Over the period under review, the fall in Italian government bond prices, linked to movements in the spread and the reduction in risk-free interest rates to close to all-time lows, has had the following impact on the Group’s portfolio: (i) a net reduction in the fair value of BancoPosta RFC’s available-for-sale portfolio (a nominal value of approximately €32 billion) of approximately €0.8 billion. The increase in the fair value of instruments hedged against interest rate risk, amounting to approximately €0.8 billion, was offset by a reduction in the fair value of the related derivatives, whilst the reduction in the fair value of unhedged instruments and of the component subject to spread risk (unhedged) was reflected in consolidated equity (approximately €1.6 billion); (ii) a net reduction in the fair value of the Poste Vita insurance group’s available-for-sale portfolio (a nominal value of approximately €80 billion) of approximately €0.7 billion, almost entirely passed on to policyholders and recognised in specific technical provisions under the shadow accounting mechanism (the impact on the specific fair value reserve amounts to approximately €36 million).
The table below shows the results of the analysis of sensitivity to country risk of the most significant positions in the portfolios of both the Parent Company and the Poste Vita group at 31 December 2016.
Derivative financial instruments – – – – – – – –
Cash flow hedges – – – – – – – –
Fair value hedges – – – – – – – –
Available-for-sale financial assets 80,533 89,182 (6,071) 6,071 (5,895) 5,895 – – (176) 176
Available-for-sale financial assets 74,176 82,632 (5,630) 5,630 (5,440) 5,440 – – (190) 190
The table below shows the VaR analysis performed on the portfolios of the Parent Company and the Poste Vita group at 31 December 2016, solely with reference to spread risk.
Financial assets at FV through profit or loss 9,879 10,117 8 2015 effects
Poste Italiane Group’s financial assets exposed to credit risk at 31 December 2016 are shown in the table below. The ratings reported in the table have been assigned by Moody’s.
Held-to-maturity financial assets – 12,683 – 12,683 – 12,886 – 12,886
Financial assets at FV through profit or loss 249 9,892 417 10,558 190 8,639 76 8,905
Fair value through profit or loss – 233 – 233 – 245 – 245
Credit risk arising from derivative transactions is mitigated through rating limits and by monitoring group/counterparty concentrations. In addition, interest rate, asset swap and forward purchase contracts are collateralised by deposits or the physical delivery of financial instruments (in accordance with Credit Support Annexes). Exposure is quantified and monitored using the “market value” method provided for by Regulation (EU) 575/2013 (Basel 3).
The Poste Italiane Group’s trade receivables exposed to credit risk at 31 December 2016 are shown in the table below.
In relation to “Revenue and receivables due from the state”, the nature of the Group’s customers, the structure of revenue and the method of collection limit the risk of default on trade receivables. However, as explained in note 2.4, in the case of certain of the Parent Company’s activities, regulated by statute and specific agreements or contracts involving particularly complex renewal processes, prompt and full payment of the amounts due is dependent on availability of the necessary funds in the state budget or in the budgets of the related public sector entities.
Receivables due from staff under fixed-term contract settlements 203 (7) 232 (7)
Accrued income and prepaid expenses from trading transactions 16 – 16 –
(80) “Sovereign debt” includes bonds issued by, and loans provided to, central and local governments and government bodies.
Financial assets at FV through profit or loss 5,445 5,451 5,451 5,678 5,665 5,665
Non-current assets and disposal groups held for sale 749 793 793 – – –
Following the reclassifications carried out in application of IFRS 5, the government bonds held by BdM-MCC SpA and BancoPosta Fondi SpA SGR are shown in the table in “Non-current assets and disposal groups held for sale”.
The following tables compare the Group’s liabilities and assets at 31 December 2016, in terms of liquidity risk.
Flows from Poste Vita group's policies 13,174 39,603 84,851 137,628 9,728 40,039 69,376 119,143
Available-for-sale financial assets 7,997 46,455 107,835 162,287 7,551 40,035 89,619 137,205
In the case of assets, cash inflows are broken down by maturity, shown at nominal value and increased, where applicable, by interest receivable. Held-to-maturity and available-for-sale financial assets include financial instruments held by BancoPosta RFC and the Group’s insurance companies,shown on the basis of expected cash flows, consisting of principal and interest paid at the various payment dates.
Sensitivity to cash flow interest rate risk relating to these instruments is calculated by assuming a parallel shift in the yield curve (+/– 100 bps).
Sensitivity to cash flow interest rate risk at 31 December 2016 on the Poste Italiane Group’s positions is shown in the table below.
Nominal +100 bps –100 bps +100 bps –100 bps +100 bps –100 bps 2016 effects
Borrowings from financial institutions – – – – – – –
At 31 December 2016, cash flow inflation risk regards inflation-linked government securities not subject to cash flow hedges or fair value hedges. These have a total nominal value of €9,825 million, of which €7,705 million were held by the Poste Vita group and €2,120 million by BancoPosta RFC.
Poste Vita SpA and Poste Assicura SpA have also drawn up and finalised their own framework for identifying, assessing and managing operational risks. The adopted approach reflects the specific nature of the processes and operational risk events typical of an insurance company. The process of assessing operational risk exposure involves both qualitative and quantitative analysis and is conducted through a structured process of identifying and assessing potential risks in terms of frequency, impact and mitigation. The overall risk exposure is modest thanks to the adoption of organisational measures and mitigating risk controls.
Insurance risks derive from the stipulation of insurance contracts and the terms and conditions contained therein (technical bases adopted, premium calculation, terms and conditions of cash surrender, etc.).
In technical terms, mortality is one of the main risk factors for Poste Vita SpA, i.e. any risk associated with the uncertainty of a policyholder’s life expectancy. Particular attention is paid in selling pure life insurance policies, an area where procedures set underwriting limits to the capital and the age of the policyholder. In terms of “pure life” insured amounts the Group’s insurance companies transfer their risks to reinsurers in keeping with the nature of the products sold and conservation levels adequate to the companies’ capital structure. The main reinsurers of the Group are characterised by substantial financial strength.
Nevertheless, at 31 December 2016, the mortality risk is limited for the Group, considering the features of the products offered. The only area where this risk is somewhat significant is term life insurance, for which actual death rates are compared from time to time with those projected on the basis of the demographics adopted for pricing purposes; to date, the former have always turned out to be much lower than the latter. Moreover, mortality risk is mitigated through reinsurance and by setting limits on both the capital and the age of the policyholder when policies are sold.
For nearly all the products in the portfolio there are no surrender penalties. The surrender risk only becomes significant, however, in the event of mass surrenders which, on the basis of historical evidence, have a low probability of occurrence.
Poste Assicura SpA is exposed to the following insurance risks: • Underwriting risk: the risk deriving from the conclusion of insurance contracts associated with the events insured, the processes followed when pricing and selecting risks and unfavourable claims trends compared with previous estimates. This risk can be divided into the following categories: – Pricing risk: the risk linked to the company’s pricing of its policies which depends on the assumptions used in order to calculate premiums. If prices are based on inadequate assumptions, the insurer may be exposed to the risk of being unable to meet its contractual obligations to policyholders. These risks include those related to disability-morbidity, or the risk associated with the payment of benefits or claims for illness and/or injury. Pricing risk also includes the risk that the premiums charged are not sufficient to cover the actual costs incurred in the management of the contract and the risk of excessive growth in operations associated with poor selection of risks or the absence of resources sufficient to keep up with the pace of growth.
• Catastrophe risk: the risk that extreme and exceptional events have a negative impact that has not been taken into account when pricing the policies.
In 2015, calls for tenders were launched to find a suitable provider to manage the entire service. On completion of the tender process, the companies to which SDA Express Courier had outsourced the services until the end of 2015 – Uptime SpA(81) and Gepin Contact SpA (the other shareholder of Uptime SpA) – were not awarded the contract and, on 30 December 2015, SDA terminated its relationships with these companies, as provided for in the relevant contracts, with effect from 1 July 2016.
Finally, on 21 December 2016, Poste Italiane and SDA were served a writ of summons by Gepin and Uptime, containing joint and several claims for approximately €66.4 million, as compensation for the damages incurred by Uptime SpA as a result of the alleged unjustified termination of the above contract, and for approximately €16.2 million, as compensation for the damages incurred by Gepin as a result of the alleged reduction in the value of its investment. These claims will also be opposed in court.
In 2011, as part of a criminal investigation of third parties, the Tax Office in Rome, acting on behalf of local judicial authorities, seized accounting and administrative documents from Postel SpA related to e-procurement transactions carried out in 2010 and, to a lesser extent, in 2011; as a precautionary measure, e-procurement operations were suspended in 2011. The company and its external legal advisors will consider what actions to take to best safeguard the company’s interests, should it be necessary.
In November 2011, the tax authorities notified EGI SpA of three notices of assessment for the years 2006, 2007 and 2008, resulting in the identification of the same irregularity in each of the three years. This concerned the application, for the purposes of IRES, of art. 11, paragraph 2 of Law 413/1991 to properties of historical and artistic interest owned by EGI and leased by it to third parties. Following the ruling in first instance of the Provincial Tax Tribunal of Rome, on 7 May 2014, the company proceeded to pay a total amount due of approximately €2.1 million. Furthermore, as a result of the ruling in second instance, handed down by the Regional Tax Tribunal of Rome in EGI SpA’s favour, on 10 June 2015, the company obtained a refund of the amount paid. On 24 April 2015, the tax authorities notified EGI that they had filed an appeal with the Court of Cassation, requesting annulment of the judgement on appeal, and on 12 June 2015 EGI SpA presented a cross appeal. The litigation is currently pending before the Supreme Court of Cassation.
In 2009, the Regional Tax Office for Large Taxpayers (Agenzia delle Entrate – Direzione Regionale del Lazio – Ufficio Grandi Contribuenti) notified Poste Vita SpA of an alleged violation of the VAT regulations in the 2004 tax year, resulting in fines of approximately €2.3 million for the alleged failure to pay VAT on invoices for service commissions. Poste Vita SpA appealed the above findings before the Provincial Tax Tribunal of Rome. In December 2010 and September
On 18 October 2016, the tax authorities notified Postel SpA of a tax assessment notice, amounting to €1.2 million, plus penalties and interest, for 2011: the notice refers to the tax audit reports notified on 25 November 2014 and 8 October 2015, following the audits conducted by the tax authorities relating to e-procurement transactions entered into by the company and findings concerning the revision of contracts entered into with a supplier. On 16 December 2016, the company appealed the assessment notice, whilst at the same time making a provisional payment of approximately €0.48 million. A date for the appeal hearing has yet to be fixed. The likely outcome of this dispute continues to be taken into account in determining provisions for risks and charges.
Notes to the financial statements – Proceedings pending and relations with the authorities updated version of the analysis originally performed by the Commission. Poste Italiane will collaborate with the relevant national authorities to demonstrate the appropriate nature of the returns earned during the period in question.
On 9 March 2015, the Authority notified Poste Italiane SpA of an investigation of BancoPosta RFC for alleged violation of articles 20, 21 and 22 of the Consumer Code, regarding the “Libretto Smart” product. Specifically, the Authority claimed that, in advertising campaigns in February 2015, emphasis was placed on returns offered by Libretto Smart without providing details of the offer the advertised returns were associated with. On 12 June 2015, the Authority notified its rejection of the proposed set of commitments and its intention to ascertain whether any violation had occurred. On 3 July 2015, the Authority notified its intention to extend the investigation to include Cassa Depositi e Prestiti SpA. On 21 December 2015, the AGCM notified Poste Italiane of its final ruling in which it deemed the Company’s conduct unfair and imposed a fine of €0.54 million, 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 the AGCM informed Poste Italiane that insufficient evidence is currently available to conduct an investigation.
On 13 March 2017, the AGCM notified Poste Italiane SpA of the launch of investigation pursuant to art. 27, paragraph 3 of the Consumer Code, with the aim of assessing whether or not the unilateral changes to the Bancopostaclick contract and to the fees applicable to the Postamat payment card constitute unfair commercial practices. Above all, the Authority intends to investigate whether Poste Italiane has failed to provide accurate information regarding the free nature of the Postamat card for Bancopostaclick current account customers, wrongfully inducing account holders to accept the additional cost of the Postamat card, not granting them the right to withdraw from the part of the contract relating to the Postamat card alone and providing for withdrawal from the current account package as a whole.
Following transposition into Italian law of the third European postal services directive (Directive 2008/6/CE), the socalled “net avoided cost” method has been applied in quantifying the cost of the universal service. This method defines the cost incurred as the difference between the net operating cost incurred by a designated universal service provider when subject to universal service obligations and the net operating cost without such obligations. In this regard: (i) On 29 July 2014, the board of AGCom issued Resolution 412/14/CONS, approving the measure defining the method of calculating and quantifying the net cost of the universal postal service for 2011 and 2012. In confirming that the cost of the universal service for 2011 and 2012 is, in certain respects, unfair and thus merits compensation, the resolution quantified the cost for 2011 and 2012, respectively, as €381 million and €327 million, compared to sums recorded originally by Poste Italiane SpA for approximately €357 million and €350 million. On 13 November 2014, Poste Italiane SpA challenged this resolution by filing an appeal before the Regional Administrative Court (TAR). A date for the hearing has yet to be fixed.
(iii) AGCom has not yet announced the start of the process of assessing the cost for 2015. In application of the subsidy cap provided for in the Contratto di Programma (Service Contract) for 2009-2011, Poste Italiane has quantified the compensation due for this year as €329.1 million (note 2.4).
Following the inspection that took place between 1 April and 14 July 2014, for the purposes of assessing the governance, management and control of investments and financial risk, and compliance with anti-money laundering regulations, on 17 September 2014, IVASS notified Poste Vita SpA of its recommendations and the start of an administrative procedure regarding the alleged violation of four provisions concerning anti-money laundering regulations. On 12 May 2016, the Authority notified the company of the ruling in which two of the four violations challenged were upheld. Poste Vita paid the fine of €70,000 and, based on the findings of an analysis and assessment carried out, the company’s Board of Directors decided not to challenge the ruling.
Between September 2015 and September 2016, IVASS notified Poste Vita of eight alleged violations of art. 183, paragraph 1.a) of the Codice delle Assicurazioni Private (Private Insurance Code or CAP), as a result of delays in the payment of claims. Having ascertained that four of the above violations had been committed, IVASS notified Poste Vita that it was imposing the relevant fines for three of the violations in August 2016 and for a further violation in January 2017. The fines are not of a significant amount. No fine is to be imposed for one of the remaining violations, whilst the other proceedings are still pending.
On 4 October 2016, the pensions regulator launched an inspection focusing on the PostaPrevidenza Valore individual pension plan. The inspection is still in progress.
On 29 May 2015, in response to certain press reports, the Data Protection Authority asked Poste Italiane SpA to provide information regarding alleged processing of the personal data of persons operating at companies appointed to monitor postal service quality standards. According to the Authority, the data was processed without providing the parties concerned with the relevant privacy notices and without obtaining their consent to use of the data. Poste Italiane has met all of the Authority’s requests, providing a full and documented response and setting out details of the resulting internal audit carried out, the disciplinary proceedings regarding the staff involved and the organisational and procedural steps taken or in the process of being implemented. The Authority will be informed of the outcome of the final audit. In the light of this, on 23 March 2016, the Authority, in view of the provisions of Authority regulation 1/2007 (art. 11, paragraph 1, letter d), announced that, at that time, there were no grounds for applying restrictions or prohibitions. From the findings of the internal audit, it appears, however, that certain members of staff interfered with quality control systems in violation of the Company’s policy. It is currently impossible to ascertain whether this behaviour may have influenced determination of the service quality indicators recorded, and the possibility that the impact of such events may give rise to legal proceedings and fines cannot be ruled out. In response to the above findings, 246 reprimands have been notified and there have been 15 dismissals and 156 disciplinary measures without dismissal relating to managerial and non-managerial staff. A technical committee was set up to manage these proceedings in order to verify the findings regarding the contested audits, taking into account the defence arguments put forward by the parties concerned and any other evidence that may emerge. All these measures also refer to the Company’s right to take action to protect its rights and interests with respect to findings that may yet emerge and damages the Company may suffer for any reason or cause whatsoever. Following completion of the audit carried out in the meantime, an in-depth investigation was conducted by the above technical committee. This identified specific evidence of wrongdoing by the personnel involved. As a result, disciplinary action was taken against a further 988 people from early May 2016 onwards. On completion of the related procedures, which were carried out with the aid of the above technical committee, there were a total of 976 disciplinary measures without dismissal relating to managerial and non-managerial staff. This marks the end of any possible disciplinary action, given that there are no further irregularities to be penalised.
Note 2016 of which, related party transactions 2015 of which, related party transactions
Cash and deposits attributable to BancoPosta [A9] – 2,494,150,897 – 2,494,150,897
From 2016, current tax assets and liabilities attributable to BancoPosta RFC are presented in intersegment relations, as they are settled with the segment of the Company outside the ring-fence, within the scope of internal relations with Poste Italiane SpA, which continues to be the sole taxable entity. The corresponding amounts at 31 December 2015 have been accordingly reclassified.
(€) Note 2016 of which, related party transactions 2015 of which, related party transactions
Changes due to share-based payments – – – – – 552,284 552,284
of which attributable to BancoPosta RFC – – 1,000,000,000 2,499,982,110 8,463,736 1,533,707,577 5,042,153,423
Changes due to share-based payments – – – – – 260,714 260,714
Amount due from MEF following cancellation of EC Decision of 16 July 2008 – – – – – 5,720,748 5,720,748 of which attributable to BancoPosta RFC – – 1,000,000,000 888,943,631 (17,371,417) 1,514,595,531 3,386,167,745
(*) This item includes profit for the year of €625 million and actuarial losses on provisions for employee termination benefits of €49 million after the related taxation of €17 million.
Use of provisions for risks and charges [tab. B4] (435,652) (390,820)
Cash generated by/(used in) movements in working capital [b] 286,191 2,223,321
Net cash generated by/(used for) financial assets held for trading (89) 939
Cash generated by/(used for) financial assets and liabilities attributable to BancoPosta [c] 947,207 (802,903)
Net cash flow from /(for) operating activities [d]=[a+b+c] 2,422,346 2,303,017 - of which related party transactions 3,598,562 (1,616,762)
Disposals: Property, plant and equipment, investment property and assets held for sale 2,493 3,576
Receivable authorised by 2015 Stability Law in implementation of Sentence of the European Court – 535,000
(83) As revised on the issuance of Law Decree 179 of 18 October 2012 converted into law with amendments by Law 221 of 17 December 2012.
The services provided by Poste Italiane to BancoPosta are subdivided into three macro areas in accordance with their nature: • Commercial activities, represented by the sale of BancoPosta products and services to all customer segments.
• Support services, meaning the coordination and management of investments, IT systems, customer care and postal services.
• Staff services, represented by the provision of support for the coordination and management of BancoPosta RFC across all areas of business.
In compliance with Bank of Italy Circular 285/2013(87), these services are in turn classified in the General Guidelines as essential and non-essential control and operating functions.
In line with 2015, the transfer prices set out in the Operating Guidelines are determined according to objective criteria that reflect the real contribution of the various functions to BancoPosta RFC’s results. In this regard, the transfer prices paid, inclusive of commissions and any other form of remuneration due, are determined on the basis of market prices and tariffs for the same or similar services, identified, where possible, following a benchmarking process. When the specifics and/or the particular nature of a service provided by one of the Issuer’s functions do not allow the use of a comparable market price, a cost-based method is used, again with the support of benchmarking to ensure that the price charged is adequate for the service provided. In this case, an appropriate mark-up, determined with reference to those used by comparable peers, is applied. The resulting transfer prices are reviewed annually.
Post Office Network Percentage of revenue generated Penalties for failure to meet predetermined quality standards
Information Technology Fixed component: Cost + mark-up Variable component: determined with reference to the maintenance of operating performance
The interest paid on the intersegment accounts between BancoPosta RFC and the Poste Italiane functions outside the ring-fence, used for settlements between the two entities, is the same rate paid by the MEF on the relevant Buffer account, at the Euro OverNight Index Average (EONIA) rate.
Obligations Poste Italiane SpA’s liability, pursuant to art. 2, paragraph 17-nonies of Law Decree 225 of 29 December 2010 converted into Law 10, to creditors of BancoPosta RFC is limited to the ring-fenced capital, represented by the assets and contractual rights originally allocated or arisen after the separation. Poste Italiane’s liability is, however, unlimited with respect to claims arising from actions in tort relating to the management of BancoPosta or for transactions for which no indication was made that the obligation was taken specifically by BancoPosta RFC. The Regulation approved at the Extraordinary General Meeting of Poste Italiane SpA’s shareholder on 14 April 2011 SpA, and subsequently amended on 31 July 2015, provides that BancoPosta RFC’s equity shall be sufficient to ensure that it is able to comply with supervisory capital requirements and is aligned with the risk profile of its operations.
Cumulative actuarial gains/(losses) on defined benefit plans (3) (3) – –
Further regulatory aspects Pursuant to art. 2, paragraph 17-undecies of Law Decree 225 of 29 December 2010(89), which states that “the assets and contractual rights included in BancoPosta’s ring-fenced capital shall be shown separately in the Company’s statement of financial position”, Poste Italiane SpA’s statement of financial position includes a “Supplementary statement showing BancoPosta RFC”.
(88) Actuarial gains and losses on defined benefit plans, which in the Company’s financial statements are accounted for in retained earnings, are accounted for in the valuation reserves in the Separate Report (Item 130 of Liabilities).
Movements in property, plant and equipment are as follows: TAB. A1 – MOVEMENTS IN PROPERTY, PLANT AND EQUIPMENT
Reversals of impairment losses are due to revised estimates relating to buildings (property used in operations) and sorting centres, 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).
Purchases of industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights total €106 million, before amortisation for the year, and relate primarily to the purchase and entry into service of new software programmes following the purchase of software licences.
The balance of intangible assets under construction includes activities primarily regarding the development of software relating to the infrastructure platform (€35 million), BancoPosta services (€21 million), the provision of support to the sales network (€12 million) and the postal products platform (€8 million). Software is also being developed in relation to the engineering of reporting processes for other business and staff functions (€6 million).
During the year the Company effected reclassifications from “Intangible assets under construction” to “Industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights”, amounting to €52 million, reflecting the completion and commissioning of software and the upgrade of existing software.
Banca del MezzogiornoMedioCredito Centrale SpA 372 – – – (372) – – –
Cons. per i Servizi di Telefonia Mobile ScpA – – – – – – – –
Poste Vita SpA 1,219 – – – – – – 1,219
Risparmio Holding SpA(1) – – – – – – – –
BancoPosta Fondi SpA SGR 12 – – – – – – 12
Poste Holding Participações do Brasil Ltda 1 – – (1) – – – –
SDA Express Courier SpA 23 40 – – – – (63) –
The following movements occurred in 2016: • The injection of €38 million into SDA Express Courier SpA to cover the losses incurred by the subsidiary through to 31 March 2016 and establish other equity reserves, as approved by the extraordinary general meeting of the investee company’s shareholders on 6 October 2016.
• The partial demerger of PosteMobile SpA’s fixed line telecommunications business (“Rete Fissa TLC”) and its transfer to Poste Italiane SpA, as approved by the extraordinary general meetings of the companies’ shareholders on 26 January 2016. The net carrying amount of the related assets was approximately €11 million and the transaction was effective legal, accounting and tax purposes from 1 May 2016.
In addition: • On 10 November 2016, Poste Italiane SpA, Cassa Depositi e Prestiti and Anima Holding SpA signed a Framework Agreement for a joint project involving the creation of a leading asset management company. Under the agreement, Poste Italiane and Anima Holding have committed, at the earliest opportunity, to complete the transfer of Poste Italiane’s 100% interest in the subsidiary, BancoPosta Fondi SpA SGR, to Anima Holding. Following this transaction, Poste Italiane will increase its investment in Anima Holding SpA from 10.32% to up to 24.9%. In accordance with the terms and commitments assumed as at 31 December 2016, the transaction involves an exchange of equity instruments, after which Poste Italiane will have increased its investment in Anima Holding SpA without, however, assuming, under the existing conditions at the date of preparation of these financial statements, control thereof(91). Completion of the transaction is subject to receipt of the related clearance and consents required by law and the applicable regulations. Any future developments affecting the alliance and/or the manner in which the transaction will be executed will be disclosed in accordance with the relevant accounting standards.
• In line with the Group’s strategic guidelines and following negotiations during the last quarter of 2016, resulting in a proposal from the buyer on 10 January 2017, on 8 February 2017 the boards of directors of Poste Italiane SpA and Agenzia Nazionale per l’Attrazione degli Investimenti e lo Sviluppo d’Impresa SpA (Invitalia) approved the transfer of Poste Italiane’s 100% interest in Banca del Mezzogiorno–MedioCreditoCentrale SpA (BdM-MCC SpA) to Invitalia at a total price of €390 million. Approximately €360 million of this amount will be collected in instalments during 2017, with €30 million to be collected after five years. The transaction, which requires the approval of the Bank of Italy, the Ministry for Economic Development and the European Central Bank, is expected to complete in the first half of 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.
(91) 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.
(92) As Risparmio Holding SpA is jointly controlled by Poste Italiane and CDP SpA, the impact on the statement of profit or loss is shown in finance costs (tab C9.2).
• On 30 January 2017, the deed governing the partial demerger of the assets relating to Postecom SpA’s investments in PatentiViaPoste ScpA and Consorzio Poste Motori 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 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.
Based on the available projections and the results of the impairment tests carried out, impairment losses totalling €33 million (tab. C8) have been recognised on the following investments. In particular: • in the case of SDA Express Courier SpA, an impairment loss of €29 million was recognised, based on the value of equity as the best approximation of value in use which, in the circumstances, was deemed not to be lower than the company’s recoverable value; • in the case of EGI SpA, an impairment loss of €4 million was recognised, based on the value of equity adjusted for unrealised after-tax gains on the property it owns as the best approximation of value in use, prudently deemed to be a valid indicator of the company’s recoverable value.
Poste Italiane SpA has committed to providing financial support to the subsidiaries SDA Express Courier SpA and Mistral Air Srl for 2017 and Poste Tributi ScpA throughout its liquidation.
(2) These figures have been calculated under IFRS, and may not be consistent with those included in the investee company’s financial statements prepared in accordance with the Civil Code and Italian GAAP.
(4) Figures taken from the company’s latest approved financial statements at 30 September 2016.
Financial assets attributable to BancoPosta break down as follows at 31 December 2016.
Amounts deposited with the MEF – 6,189 6,189 – 5,855 5,855
MEF on behalf of the Italian Treasury(*) – – – – 1,331 1,331
• At 31 December 2016, the Company’s MEF account at the Treasury has a debit balance and, as a result, movements during 2016 are described in section B6.
Items to be debited to customers – 116 116 – 233 233
Change in amortised cost – 3 – (20) – – – (17)
Changes in fair value through equity – – – 1,401 – – – 1,401
Changes in fair value through profit or loss – – – (432) – – – (432)
Transfers to equity – – – (472) – – – (472)
Change in amortised cost – (3) – (39) – – – (42)
Changes in fair value through profit or loss – – – 856 – – – 856
Effect of sales on profit or loss – – – 471 – – – 471
The fair value of the available-for-sale portfolio is €37,159 million (including €331 million in accrued interest). The overall fair value loss for the period of €787 million has been recognised in the relevant equity reserve, recording a negative amount of €1,643 million in relation to the portion of the portfolio not hedged by fair value hedges, and through profit and loss, in relation to the gain of €856 million on the hedged portion.
(94) In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1.
The available-for-sale portfolio includes two fixed rate bonds, amounting to €750 million each, with six-monthly interest payments and maturing in 4 and 5 years, issued by Cassa Depositi e Prestiti and guaranteed by the Italian government (at 31 December 2016, their fair value totalled €1,509 million).
(95) On 21 December 2015, Visa Europe informed its Principal Members that each of them would receive a consideration for the purchase, and subsequent merger with and into the US-registered Visa Incorporated, of Visa Europe Ltd (in which Poste Italiane held an equity interest assigned to it when the company was incorporated).
Movements in derivative financial instruments are as follows: TAB. A5.3 – MOVEMENTS IN DERIVATIVE FINANCIAL INSTRUMENTS
Gains/(Losses) through profit or loss(**) – – – – – – – – – – – –
(*) Increases / (decreases) refer to the nominal value of new transactions and changes in the fair value of the overall portfolio during the period.
In the year under review, the 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.
(97) This is a loan convertible, on the fulfilment of certain negative pledge conditions, into an equity instrument pursuant to art. 2346 paragraph 6 of the Italian Civil Code, carrying the same rights associated with the loan.
Accrued interest on non-current loans 1 – 1 3 – 3
Due from the purchasers of service accommodation 7 – 7 8 – 8
Guarantee deposits of €50 million relate to collateral provided to counterparties with whom the Company has entered into asset swaps (section D2).
Changes in fair value through profit or loss – – (5) – – (5)
Sales and settlement of accrued income – – (6) – – (6)
Changes in fair value through profit or loss – – (3) – – (3)
These instruments primarily include the investment in CAI SpA (formerly Alitalia CAI SpA), which was acquired for €75 million in 2013 and written off in 2014, and the historical cost of €4.5 million for a 15% equity interest in Innovazione e Progetti ScpA, which is in liquidation and is unchanged from last year.
Movements in derivative financial instruments are as follows: TAB. A 6.4 – MOVEMENTS IN DERIVATIVE FINANCIAL INSTRUMENTS
Trade receivables break down as follows: TAB. A7 – TRADE RECEIVABLES
Specifically: • Amounts due from Ministries and Public Administration entities refer mainly to the following services: – Integrated Notification and mailroom services rendered to central and local government bodies, amounting to €314 million; – Unfranked mail services provided on credit to central and local government bodies, totalling €80 million; – Reimbursement of the costs associated with the management of property, vehicles and security incurred on behalf of the Ministry for Economic Development, totalling €74 million, of which €3 million relates to the amount accrued during the year.
– The payment of pensions and vouchers on behalf of INPS (the National Institute of Social Security), totalling €59 million. In order to settle the amount due, INPS has expressed a willingness to offset receivables due to the Company with liabilities that, in Poste Italiane’s opinion, are not subject to the same degree of certainty, liquidity or enforceability, and which the Company has recognised according to the procedures and to the extent required by the relevant 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.
• Receivables arising from Unfranked mail delivered include €75 million in amounts due from customers who use the service on their own behalf and €82 million for amounts due from agents who provide the service for third parties, primarily regarding bulk mail. Collection of these receivables is delegated to the authorised agents who provide the service. €24 million of the total is classified in “Non-current assets”.
December 2016 of which attributable to BancoPosta RFC 128 10 – – 138 4 – (1) 141
Provisions for doubtful debts relating to Public Sector entities regard amounts that may be partially unrecoverable as a result of legislation restricting government spending, delays in payment and problems at debtor entities.
These trade receivables include: • Poste Vita SpA: largely regarding fees deriving from the sale of insurance policies through post offices and attributable to BancoPosta RFC (€128 million); • Postel SpA: mainly relating to receivables deriving from the delivery of Bulk Mail by Poste Italiane SpA and collected by the subsidiary (€40 million).
Movements in provisions for doubtful debts due from the MEF are as follows: TAB. A7.5 – MOVEMENTS IN PROVISIONS FOR DOUBTFUL DEBTS DUE FROM THE MEF
Receivables relating to fixed-term contract settlements 121 89 210 144 95 239
Amounts due from social security agencies and pension funds (excl. fixed-term contract settlements) – 88 88 – 77 77
Amounts restricted by court rulings – 71 71 – 68 68
Other amounts due from subsidiaries – 60 60 – 3 3
Provisions for doubtful debts due from others – (59) (59) – (57) (57)
Amount due from MEF following cancellation of EC Decision of 16 July 2008 [B2] – 6 6 – – –
• Amounts due from staff under fixed-term contract settlements consist of salaries to be recovered following the agreements of 13 January 2006, 10 July 2008, 27 July 2010, 18 May 2012, 21 March 2013 and 30 July 2015 between Poste Italiane SpA and the trade unions, regarding the re-employment by court order of staff previously employed on fixed-term contracts. This item refers to receivables with a present value of €210 million from staff, from INPS and pension funds recoverable in the form of variable instalments, the last of which is due in 2040.
Receivables due from staff under agreement of 2006 4 2 6 6 6 3 9 9 due from staff under agreement of 2008 38 13 51 56 47 16 63 69 due from staff under agreement of 2010 35 7 42 54 40 8 48 61 due from staff under agreement of 2012 30 7 37 46 34 7 41 52 due from staff under agreement of 2013 4 1 5 6 5 1 6 7 due from staff under agreement of 2015 5 1 6 7 6 2 8 8
• 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 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.
Receivables from fixed-term contract settlements 6 1 – 7 – – 7 of which attributable to BancoPosta RFC 19 1 – 20 2 – 22
Details of this item are as follows: TAB. A9 – CASH AND DEPOSITS ATTRIBUTABLE TO BANCOPOSTA
Bank deposits and amounts held at the Italian Treasury 1,395 1,120
Bank deposits and amounts held at the Italian Treasury include €12 million whose use is restricted by court orders related to different disputes.
This item primarily consists of the carrying amount of the investments in BancoPosta Fondi SpA SGR and Banca del Mezzogiorno–MedioCreditoCentrale SpA, totalling €384 million, as described in greater detail in section A4.
Equity Poste Italiane SpA’s available and distributable reserves are shown below. Retained earnings include profit for 2016 of €625 million.
At 31 December 2016, all the shares in issue are fully subscribed and paid up. No preference shares have been issued and the Company does not hold treasury shares.
Regarding shareholder transactions, as described more extensively in the Annual Report for 2015, following the ruling of the General Court of the European Union dated 13 September 2013, which found in Poste Italiane’s favour, the Company has a residual claim on the MEF of €45 million, relating to the return of sums paid in the past to the MEF out of retained earnings. At 31 December 2016, the sum of €6 million, previously recognised in the MEF’s letter of 7 August 2015, has been earmarked in the state budget for 2017 and has, therefore, been recognised in “Other receivables and assets”(101).
Increases/(decreases) in fair value during the year – – 1,531 13 1,544
Details are as follows: • the fair value reserve regards changes in the fair value of available-for-sale financial assets. The decrease of €1,637 million occurred during 2016 reflects: – a net decrease of €1,634 million in available-for-sale financial assets attributable to BancoPosta RFC, due to the combined effect of a loss on securities of €1,643 million and a gain of €9 million on equity instruments; – €3 million regarding the net fair value loss on available-for-sale financial assets outside the ring-fence.
• the cash flow hedge reserve represents changes in the fair value of the effective portion of cash flow hedges outstanding. In 2016, net fair value losses of €16 million include €13 million relating to the value of derivative financial instruments attributable to BancoPosta RFC and €3 million regarding the value of financial instruments held outside the ring-fence.
Provisions for expired and statute barred postal savings certificates 13 – 1 – – 14
(1) For the purposes of reconciliation with the statement of cash flows, uses of the provisions in 2016, after transfers following the partial demerger of the fixed line telecommunications business (“Rete Fissa TLC”) of the subsidiary, PosteMobile SpA , amount to €78 million.
The interest component is recognised in finance costs. The current service cost, which from 2007 is paid to pension funds or third-party social security agencies and is no longer included in the employee termination benefits managed by the Company, is recognised in personnel expenses. Net uses of provisions for employee termination benefits amount to €77 million, of which €75 million related to payments made to beneficiaries, €4 million to substitute tax and €2 million to transfers from a number of Group companies.
Actuarial gains and losses are generated by the following factors: TAB. B5.3 – ACTUARIAL GAINS AND LOSSES
Payables deriving from postal current accounts – 45,416 45,416 – 43,684 43,684
MEF account, held at the Treasury – 2,429 2,429 – – –
These payables include net amounts accrued at 31 December 2016 and settled with customers in January 2017. The balance includes amounts due to Poste Italiane Group companies, totalling €291 million, with €159 million deposited in postal current accounts by Poste Vita SpA.
At 31 December 2016, borrowings from financial institutions amount to €5,381 million and regard repurchase agreements, having a total nominal value of €4,761 million, entered into 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.
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. B6.1 – MEF ACCOUNT HELD AT THE TREASURY
• The balance of cash flows for advances, amounting to €2,239 million, represents the net amount payable as a result of advances from the MEF to meet the cash requirements of BancoPosta. These break down as follows: TAB. B6.1.1 – BALANCE OF CASH FLOWS FOR ADVANCES
Ministry of Justice – Orders for payment – – – – 1 1
• Amounts payable due to thefts from post offices regard the Company’s liability to the MEF on behalf of the Italian Treasury for losses resulting from theft and fraud, totalling €159 million. This liability derives from cash withdrawals from the Treasury to make up for the losses resulting from these criminal acts, in order to ensure that post offices can continue to operate. Movements in this liability during the year are as follows: TAB. B6.1.2 – MOVEMENTS IN AMOUNTS PAYABLE DUE TO THEFT
During 2016, Poste Italiane SpA made repayments to the Italian Treasury for thefts that took place up to 31 December 2015, amounting to €3 million, and in the first half of 2016, totalling €4 million.
Cheques to be credited to postal savings books – 284 284 – 508 508
Tax collection and road tax – 153 153 – 106 106
Amounts to be credited to customers – 102 102 – 168 168
As part of the Company’s EMTN – Euro Medium Term Note programme, totalling €2 billion, the following bonds listed on the Luxembourg Stock Exchange were issued in 2013: • bonds with a nominal value of €750 million, placed through a public offering for institutional investors at a price below par 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(104) of this borrowing at al 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, while the interest rate is 3.5% for the first two years and is variable thereafter (EUR Constant Maturity Swap rate plus 0.955%, with a cap of 6% and a floor of 0%). The cash flow interest rate risk exposure was hedged as described in section A6. The fair value(105) of this borrowing at 31 December 2016 is €52 million.
(103) A commitment given to creditors by which a borrower undertakes not to give senior security to other lenders ranking pari passu with existing creditors, unless the same degree of protection is also offered to them.
(104) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1. (105) 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 following credit facilities are available: • committed lines of €1,173 million; • uncommitted lines of credit of €1,118 million; • overdraft facilities of €81 million; • unsecured guarantee facilities with a value of €377 million.
At 31 December 2016, the committed and uncommitted lines have not been used. Unsecured guarantees with a value of €212 million have been used on behalf of Poste Italiane SpA and with a value €59 million, on behalf of Group companies. No collateral has been provided to secure the lines of credit obtained.
From 2014, the Bank of Italy has granted BancoPosta RFC access to intraday credit in order to fund intraday interbank transactions. Collateral for this credit facility is provided by securities with a nominal value of €464 million, and the facility is unused at 31 December 2016.
SDA Express Courier SpA 36 16 of which attributable to BancoPosta RFC 35 32
This item refers to amounts received from customers as prepayment for the following services to be rendered: TAB. B8.3 – PREPAYMENTS AND ADVANCES FROM CUSTOMERS
Other amounts due to subsidiaries 6 17 23 7 29 36
Accrued expenses and deferred income from trading transactions 12 25 37 14 19 33 of which attributable to BancoPosta RFC 936 61 997 792 100 892
Other amounts due to staff – 82 82 – 77 77 of which attributable to BancoPosta RFC – 14 14 – 13 13
Poste Italiane SpA – Separate financial statement for the year ended 31 December 2016
Withholding tax on employees' and consultants' salaries – 108 108 – 108 108
Withholding tax on postal current accounts – 3 3 – 7 7 of which attributable to BancoPosta RFC 861 11 872 716 59 775
• Stamp duty represents the accrued amount payable to the tax authorities at 31 December 2016 on Interestbearing Postal Certificates outstanding, as referred to in section A8.
Poste Vita SpA – – – – 12 12 of which attributable to BancoPosta RFC – – – – – –
This item breaks down as follows: TAB. B9.5 – SUNDRY PAYABLES
Sundry payables attributable to BancoPosta 75 7 82 76 8 84 of which attributable to BancoPosta RFC 75 8 83 76 8 84
In particular: • sundry payables attributable to BancoPosta’s operations primarily relate to transactions effected in previous years in the process of settlement; • guarantee deposits primarily relate to amounts collected from customers as a guarantee of payment for services (postage-paid mailing services, the use of post office boxes, lease contracts, telegraphic service contracts, etc.).
Total of which attributable to BancoPosta RFC – 21 21 – 14 14
Deferred income attributable to BancoPosta RFC (€21 million) regards fees on Postemat and Postepay Evolution cards collected in advance.
Revenue from sales and services, amounting to €8,219 million, breaks down as follows: TAB. C1 – REVENUE FROM SALES AND 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.
• Integrated services relate primarily to the delivery of administrative notices and fines (€182 million).
Notes to the financial statements – Statement of profit or loss
• Income from the investment of postal current account deposits breaks down as follows: TAB. C1.2.1 – INCOME FROM INVESTMENT OF POSTAL CURRENT ACCOUNTS DEPOSITS
Remuneration of current account deposits (deposited with the MEF) 20 34
• Revenue from insurance brokerage derives from fees receivable from the subsidiaries, Poste Vita and Poste Assicura, in return for the sale of insurance policies.
This relates to income from ordinary activities that is not directly attributable to the specific Postal services and BancoPosta segments. The main components are: fees received for collecting applications for residence permits, totalling €27 million and income from call centre services, amounting to €6 million.
This item breaks down as follows: TAB. C4.1 – COST OF SERVICES
Lease expense breaks down as follows: TAB. C4.2 – LEASE EXPENSE
This item refers to the following: TAB. C4.4 – INTEREST EXPENSE
Portion of interest expense on own liquidity (finance costs) (1) –
Compared to the previous year, interest paid to customers decreased, mainly as a result of a fall in the interest rates paid on certain types of postal current account.
Expenses from financial instruments at fair value through profit or loss – 2
Provisions for employee termination benefits: supplementary pension funds and INPS 254 258
Furthermore, taking account of staff on flexible contracts, the average number of full-time equivalent staff in 2016 is 136,928 (in 2015: 139,133).
This item breaks down as follows: TAB. C7 – DEPRECIATION, AMORTISATION AND IMPAIRMENTS
Other operating costs break down as following: TAB. C8 – OTHER OPERATING COSTS
Net provisions and losses on doubtful debts (uses of provisions) 10 (63)
Provisions (reversal of provisions) for sundry receivables [tab. A8.3] 4 2
Net provisions for tax and social security liabilities made/ (released) [tab. B4] – (2)
(1) For the purposes of reconciliation with the statement of cash flows, in 2016 finance income after foreign exchange gains and dividends from associates amounts to €35 million (€52 million in 2015).
Finance costs on financial liabilities 30 38 on financial institutions borrowings 2 8 on derivative financial instruments 1 1 on amounts payable to subsidiaries – 2
(1) For the purposes of reconciliation with the statement of cash flows, in 2016 financial costs after foreign exchange losses amount to €63 million (€70 million in 2015).
This item breaks down as follows: TAB. C10 – INCOME TAX EXPENSE
The tax rate for 2016 is 19.72% and consists of: TAB. C10.1 – RECONCILIATION BETWEEN THE THEORETICAL IRES TAX RATE AND THE EFFECTIVE IRES TAX RATE
Non-recurring income/(expenses) for deferred taxes recycled to profit or loss – – (24) –3.97%
prepayments for the current year 183 – 183 189 30 219 balance payable for the previous year 7 – 7 – – –
Adjustment of IRES refund claimed – – – (9) – (9)
of which: (*) This item regards credits resulting from withholdings on fees.
The nominal tax rate for IRES is 27.5% for 2016 and 24% from 1 January 2017, whilst the nominal tax rate for IRAP is 3.90% for entities as a whole and 4.20% for entities that hold concessions other than those relating to the construction and operation of motorways and tunnels (+/–0.92% resulting from regional surtaxes and/or relief and +0.15% as a result of additional surtaxes levied in regions with a health service deficit). The Company’s average statutory rate for IRAP is 4.55%. Movements in deferred tax assets and liabilities are shown below: TAB. C10.5 – MOVEMENTS IN DEFERRED TAX ASSETS AND LIABILITIES
Non-recurring income/(expense) recognised in equity due to adjustment to IRES rate [tab. C10.8] – 109
The following table shows movements in deferred tax assets and liabilities, broken down according to the events that generated such movements: TAB. C10.6 – MOVEMENTS IN DEFERRED TAX ASSETS
Income/(expenses) recognised in profit or loss due to adjustment to IRES rate (2) – (2) (11) – (5) (20)
Income/(expenses) recognised in equity due to adjustment to IRES rate – (4) – – (4) (1) (9)
Income/(expenses) recognised in profit or loss due to adjustment to IRES rate – – (9) (5) – – (14)
Income/(expenses) recognised in equity – 174 – – (5) (2) 167
Consorzio Servizi Telef. Mobile ScpA – – – – – – – 9 –
Poste Assicura SpA – – 7 – – 3 – – –
Ministry of the Economy and Finance 6,189 1 327 21 1,310 2,429 – 108 21
Cassa Depositi e Prestiti Group 1,509 – 364 – – – – 18 –
Leonardo Group – – – – – – – 30 –
Provisions for doubtful debts from external related parties – – (40) (10) – – – – –
IMPACT OF RELATED PARTY TRANSACTIONS ON THE FINANCIAL POSITION AT 31 DECEMBER 2015
Other related parties external to the Group – – 3 – – – – 3 61
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 at 31 December 2015).
Banca del Mezzogiorno-MedioCredito Centrale SpA 2 26 2 – – – – – –
BancoPosta Fondi SpA SGR 31 32 – – – – – – –
Ministry of the Economy and Finance 535 4 – – – 3 – (6) 1
Cassa Depositi e Prestiti Group 1,588 – – – 5 23 – – –
Enel Group 81 – – – – – – – –
Other related parties external to the Group 7 – – – – 21 42 – –
Banca del Mezzogiorno-MedioCredito Centrale SpA 2 34 2 – – – – – –
Consorzio PosteMotori 39 – – – – – – – –
Consorzio Servizi Telef. Mobile ScpA – – – – – 99 – – –
Mistral Air Srl – – – – – – – – –
Poste Energia SpA – – – – – 101 – – –
PosteShop SpA 1 – – – – – – – –
Ministry of the Economy and Finance 560 1 2 – – 2 – (64) –
Cassa Depositi e Prestiti Group 1,612 – – – 2 21 – – –
Other related parties external to the Group 17 1 – – – 16 40 – –
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 €6 million (€9 million at 31 December 2015).
• Amounts received from the MEF relate primarily to payment for carrying out the USO, the management of postal current accounts, as payment for delegated services, integrated e-mail services, the franking of mail on credit and for the collection and processing of tax returns and, with reference to previous years alone, the reimbursement of electoral tariff reductions and subsidies.
• The costs incurred with the CDP Group refer mainly to software maintenance and electronic payment card management services performed by SIA SpA.
Financial liabilities attributable to BancoPosta 59,193 2,747 4.6 53,235 223 0.4
Net cash flow from/(for) operating activities 2,422 3,599 n,a, 2,303 (1,617) n,a,
Net cash flow from/(for) financing activities and shareholder transactions (987) (477) 48.3 (1,251) (419) 33.5
No loans were granted to key management personnel during the year and, at 31 December 2016, the Company does not report receivables in respect of loans granted to key management personnel.
Poste Italiane SpA and the subsidiaries that apply the National Collective Labour Contract are members of the Fondoposte Pension Fund, the national supplementary pension fund for non-managerial staff. As indicated in article 14, paragraph 1 of Fondoposte’s By-laws, the representation of members among the various officers and boards (the General Meeting of delegates, the Board of Directors, Chairman and Deputy Chairman, Board of Statutory Auditors) is shared equally between the workers and the companies that are members of the Fund. The Fund’s Board of Directors takes decisions about matters including: • the general criteria for the allocation of risk in terms of investments and investment policies; • the choice of fund manager and custodian bank.
MEF account held at the Treasury – (2,429) – (2,429) (2,429)
Cash and deposits attributable to BancoPosta – 3,161 – 3,161 –
At 31 December 2016, the fair value reserves related to available-for-sale financial assets amount to €1,241 million (€3,455 million at 31 December 2015), inclusive of the relevant taxation.
An analysis of the industrial net funds/(debt) attributable to capital outside the ring-fence 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 FOR CAPITAL OUTSIDE RING-FENCE
Industrial net debt for capital outside ring-fence including intersegment transactions 887 317
Financial assets attributable to BancoPosta 35,280 2,147 27 37,454 30,648 2,166 111 32,925
Available-for-sale financial assets 35,280 1,956 27 37,263 30,648 1,838 111 32,597
Available-for-sale financial assets 569 – 5 574 575 – 5 580
Financial liabilities attributable to BancoPosta – (2,305) – (2,305) – (1,547) – (1,547)
Movements in Level 3 of the hierarchy include the sale of the 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%.
FINANCIAL ASSETS/LIABILITIES OFFSET IN THE STATEMENT OF FINANCIAL POSITION, OR SUBJECT TO A MASTER NETTING AGREEMENT OR SIMILAR ARRANGEMENTS
(*) The gross amount of financial assets and liabilities includes financial instruments offset in the statement of financial position or subject to a master netting agreement or similar arrangements, regardless of whether they are offset.
This paragraph provides information on the nominal value and carrying amount of financial assets delivered to counterparties as collateral for repurchase agreements and Asset Swaps, and financial assets delivered to the Bank of Italy as collateral for intraday credit granted to the Company and as collateral for SEPA Direct Debits.
The following table provides a breakdown of postal savings deposits collected by the Company in the name of and on behalf of Cassa Depositi e Prestiti, by category. The amounts are inclusive of accrued, unpaid interest.
Future commitments related to property leases, which may generally be terminated with six months’ notice, break down by due date as follows: PROPERTY LEASE COMMITMENTS
Unsecured guarantees issued by Poste Italiane SpA are as follows: GUARANTEES
The beneficiaries of the Plan are: Poste Italiane’s Chief Executive Officer, in his role as General Manager, certain managers within the Poste Italiane Group and Material Risk Takers who work for BancoPosta RFC, including key management personnel.
The Performance Targets, to which receipt of the cash bonus is subject, are as follows: • for the General Manager and other beneficiaries of the Plan employed by Poste Italiane, other than BancoPosta personnel, an indicator of earnings based on the Group’s cumulative EBIT over a three-year period, used to account for the continuity and sustainability of earnings over the long term; • for Beneficiaries included among BancoPosta RFC’s Risk Takers, the three-year RORAC (Return On Risk Adjusted Capital), used for the LTIP with the aim of taking into account the continuity and sustainability of the long-term performance after appropriately adjusting for risk.
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 and BancoPosta RFC’s Material Risk Takers, 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.
The total number of Phantom stocks awarded to the 51 Beneficiaries of the First Cycle of the Plan amounted to 654,319. The fair value of each stock at 31 December 2016 was estimated to be €5.435 with regard to the plan for the Chief Executive Officer and General Manager and for BancoPosta RFC personnel, and €5.721 relating to the plan for the remaining Poste Italiane personnel. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was based on best market practices. The cost recognised for 2016 is approximately €1.2 million, equivalent to the liability recognised in personnel expenses.
During 2016, BancoPosta RFC’s leverage ratio (the ratio of its Common Equity Tier1 and total assets) declined as a result of the significant increase in activity, linked to the positive performance of deposits and the related investments.
(108) 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 customers’ 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.
(109) See in particular the provisions laid down in Part I – Section IV – Chapter 3. (110) The RAF consists of a framework that defines, in keeping with the maximum acceptable risk, the business model and strategic plan, the risk appetite, risk tolerance thresholds, risk limits, and risk management policies, together with the processes needed to define and implement them.
The risk environment is defined on the basis of the framework established by IFRS 7 – Financial Instruments: Disclosures, which distinguishes between four main types of risk (a non-exhaustive classification): • market risk; • credit risk; • liquidity risk; • cash flow interest rate risk.
Credit risk is the risk of default of one of the counterparties to which there is an exposure.
+ Vol – Vol + Vol – Vol + Vol – Vol 2016 effects
Sensitivity analysis of the items subject to foreign exchange risk was based on the most significant positions, assuming a stress scenario determined by the levels of exchange rate volatility applicable to each foreign currency position. The test applies an exchange rate movement based on historical volatility, which was considered to be representative of potential market movements.
At 31 December 2016, this item primarily refers to equity instruments denominated in US dollars and Special Drawing Rights. The table below shows the sensitivity to foreign exchange risk at 31 December 2016 of the Company’s financial assets.
Available-for-sale financial assets 500 562 (5) 6 – – (5) 6
(111) Duration is the indicator used to estimate the percentage change in price of in response to a shift in market returns (i.e. + 100 bps).
Available-for-sale financial assets 32,178 37,159 (3,615) 4,292 – – (3,615) 4,292
Poste Italiane SpA estimates the VaR for available-for-sale financial assets and derivative instruments, also taking into account the combined effects of fair value interest rate risk and spread risk (also in this case the VaR is estimated on statistical bases over a 1-day time horizon and at a 99% confidence level). The analysis reveals the following: • BancoPosta RFC is subject to potential maximum losses of €440 million at 31 December 2016 (€332 million at 31 December 2015); • assets held outside the ring-fence are subject to potential maximum losses of €3 million at 31 December 2016 (€4 million at 31 December 2015).
In 2016, the ratings revised by the main agencies resulted in changes in the weighted average rating of the Company’s exposures, which, for investments other than Italian government bonds, was A2 at 31 December 2016, an improvement on the rating of A3 assigned at 31 December 2015.
Available-for-sale financial assets – 37,159 – 37,159 – 32,415 – 32,415
Balance at 31 december 2016 Balance at 31 december 2015 from Aaa to
Held-to-maturity financial assets – – – – – – – –
Fair value through profit or loss – – – – – – – –
In relation to “Revenue and receivables due from the state”, the nature of the Company’s customers, the structure of revenue and the method of collection limit the risk of default on trade receivables. However, as explained in note 2.4, in the case of certain of the Company’s activities, regulated by statute and specific agreements or contracts involving particularly complex renewal processes, prompt and full payment of the amounts due is dependent on availability of the necessary funds in the state budget or in the budgets of the related public sector entities.
Due from tax authorities – tax withholdings 1,388 – 1,219 –
Receivables due from staff under fixed-term contract settlements 204 (7) 232 (6)
Amount due under 2015 Stability Law implementing EU Court sentence 6 – – –
Financial assets at FV through profit or loss – – – – – –
In order to minimise the risk of experiencing difficulties in raising sufficient funds, at market conditions, to meet its obligations, the Company applies a financial policy based on: • diversification of the various forms of short-term and long-term borrowings and counterparties; • availability of relevant lines of credit in terms of amounts and the number of banks; (112) “Sovereign debt” includes bonds issued by, and loans provided to, central and local governments and government bodies.
Financial liabilities attributable to BancoPosta 21,923 13,540 21,455 56,918 22,370 12,351 17,129 51,850
The above table shows expected cash outflows at the date of the financial statements, broken down by maturity. The maturities of postal current account deposits are based on a statistical/econometric model of typical postal current account interest rates and maturities, in turn based on a prudent projection of the future volume of deposits. Repayments of principal at nominal value are increased by interest payments calculated, where applicable, on the basis of the yield curve applicable at 31 December 2016.
Lastly, for the proper evaluation of the liquidity risk attributable to BancoPosta RFC, it should be borne in mind that, unless they are restricted, investments in Eurozone government securities are highly liquid assets and can be used as collateral in interbank reverse repurchase agreements to obtain short-term financing. This practice is normally adopted by BancoPosta.
Cash flow interest rate risk refers to the uncertainty over future cash flows generated by variable rate instruments and variable rate instruments created through fair value hedges following fluctuations in market interest rates. Sensitivity to cash flow interest rate risk relating to these instruments is calculated by assuming a parallel shift in the yield curve (+/- 100 bps). Sensitivity to cash flow interest rate risk at 31 December 2016 on the Company’s positions is shown in the table below.
Specifically, with respect to financial assets attributable to BancoPosta, the cash flow interest rate risk primarily relates to: • investment of the funds deriving from the current account deposits of Public Administration entities in the following: deposits with the MEF, with a nominal value of €6,189 million; fixed and variable rate government bonds with a total nominal value of €170 million, as well as fixed rate bonds swapped into variable rate through fair value hedges, with a total nominal amount of €1,965 million; and an inflation-linked bond issued by the Italian Republic, with a nominal value of €100 million, which has been hedged against changes in its fair value; • receivables of €1,435 million reflecting collateral posted to secure liabilities arising in relation to derivative financial instruments.
With respect to financial assets, the cash flow interest rate risk primarily relates to: • loans to other Group companies, totalling €630 million; • fixed rate government bonds swapped into variable rate bonds via fair value hedges, amounting to a total nominal amount of €375 million.
With the regard to the transaction’s impact on jobs, on 16 March 2016, an Ordinary General Meeting of Uptime SpA’s shareholders determined, with the vote of the majority shareholder (Gepin) alone, to terminate operations and windup the company. The shareholder, SDA, abstained. Following the start of the process that will make all 93 employees redundant, on 31 May 2016, Poste Italiane and labour unions representing most of the workers involved reached agreement on the redeployment of the workers involved. This envisages, among other things, that Poste Italiane will hire all former Uptime employees who have failed to find alternative employment by 31 December 2016 on permanent part-time contracts.
In the second half of February 2017, following the outplacements provided for in the above agreement, the process of finding positions at Poste Italiane for personnel who have failed to find alternative employment began. As regards Gepin, efforts are being made, in collaboration with the Ministry for Economic Development, to find solutions for the company’s personnel.
A brief summary of the impact of material non-recurring events and transactions, involving Poste Italiane in 2016, is provided below, as required by CONSOB ruling DEM/6064293 of 28 July 2006. In this regard, events and transactions are defined as such when their occurrence is non-recurring, being transactions or events that do not recur frequently in the ordinary course of business: • the sale of the share in Visa Europe Ltd to Visa Incorporated, resulting in the Company’s recognition of a nonrecurring realised gain, accounted for in “Other income from financial activities” at a total fair value of €121 million. The impact on profit or loss and the financial position are described in detail in section A5; • the 2016 Stability Law, which has reduced the IRES rate from 27.5% to 24% with effect from 1 January 2017. Non-recurring charges of €14 million were recognised in the period under review, following a reassessment of deferred tax assets due to the occurrence of temporary taxable differences that differed from those estimated in 2015.
Under the definition provided by the CONSOB ruling of 28 July 2006, Poste Italiane did not conduct any exceptional and/or unusual transactions in 2016.
In this regard, such transactions are defined as transactions that due to their significance/materiality, the nature of the counterparties, the purpose of the transaction, the manner of determining the transfer price and timing of the transaction may give rise to doubts over the correctness and/or completeness of the disclosures in the financial statements, over a conflict of interest, safeguards for the Company’s financial position and protections for non-controlling shareholders.
Other events after the end of the reporting period are described in the notes.
Part E – Information on risks and related hedging policies 426
40. Available-for-sale financial assets 37,263,441,355 32,597,102,765 50. Held-to-maturity financial assets 12,682,587,907 12,886,100,728 90. Adjustments for changes in hedged financial assets portfolio (+/–) – –
140. Non-current assets held for sale and discontinued operations – –
40. Fee and commission income 3,602,704,357 3,538,129,910 50. Fee and commission expense (66,084,130) (54,748,272)
60. Net fee and commission income 3,536,620,227 3,483,381,638 70. Dividends and similar income 690,388 478,412 80. Profits/(Losses) on trading 3,133,641 8,648,747 90. Fair value adjustments in hedge accounting (910,193) 338,982 100. Profits/(Losses) on disposal or repurchase of: 587,484,549 426,100,371 a) loans and advances – –
b) available-for-sale financial assets 593,952,484 426,100,371 c) held-to-maturity financial assets – –
110. Profits/(Losses) on financial assets/liabilities designated at fair value – –
140. Net income from banking activities 5,589,812,372 5,398,070,019 b) other administrative expenses (4,554,636,736) (4,347,654,607)
Other components of comprehensive income after taxes not reclassified to profit or loss 20. Property, plant and equipment – –
60. Share of valuation reserve attributable to equity-accounted investments – –
Other components of comprehensive income after taxes reclassified to profit or loss 70. Hedges of foreign investments – –
Attribution of retained earnings – – – – – – – – (586,969,571) (586,969,571)
Dividends and other attributions – – – – – – – – (586,969,571) (586,969,571)
Movements during the year – – – 3,150 – (1,637,295,997) – – 568,276,740 (1,069,016,107)
Purchase of treasury shares – – – – – – – – – –
Movements in equity instruments – – – – – – – – – –
Derivatives on own shares – – – – – – – – – –
Adjustments to opening balances – – – – – – – – – –
Attribution of retained earnings – – – 150,000,000 – – – – (439,664,565) (289,664,565)
Dividends and other attributions – – – – – – – – (289,664,565) (289,664,565)
Movements during the year – – – 6,672 – 887,980,380 – – 586,969,571 1,474,956,623
Movements in reserves – – – 6,672 – – – – – 6,672
– profit/(loss) for the year (+/–) 568,276,740 586,969,571 – gains/(losses) on financial assets held for trading and on assets and liabilities designated at fair value (–/+) 68,387 (2,233,704) – gains/(losses) on hedging activities (–/+) 910,193 (338,982) – net losses/recoveries on impairment (+/–) 6,363,522 10,955,347 – net losses/recoveries on property, plant and equipment (+/–) – – – net provisions and other expenses/income (+/–) 398,219,073 252,210,138 – unpaid taxes and duties (+) 234,017,820 270,871,841 – net losses/recoveries on discontinued operations after tax (+/–) – – – other adjustments (+/–) (557,818,029) (405,799,060)
2. Cash flow from/(used for) financial assets (5,941,565,182) (3,687,945,062) – financial assets held for trading – – – financial assets designated at fair value – – – available-for-sale financial assets (5,467,991,805) (2,723,802,144) – due from banks: on demand (399,288) 2,255,643 – due from banks: other (103,403,902) (387,971,864) – due from customers 20,821,972 (447,817,062) – other assets (390,592,159) (130,609,635)
– disposal of investments – – – dividends received on investments – – – disposal of held-to-maturity financial assets 1,300,000,002 1,196,000,003 – disposal of property, plant and equipment – – – disposal of intangible assets – – – disposal of business division – –
2. Cash flow used for (1,120,543,164) – – acquisition of investments – – – acquisition of held-to-maturity financial assets (1,120,543,164) – – acquisition of property, plant and equipment – – – acquisition of intangible assets – – – acquisition of business division – –
Net cash flow from / (used for) investing activities 179,456,838 1,196,000,003 C. FINANCING ACTIVITIES
Cash and cash equivalents at end of the year 2,510,820,434 3,168,696,276
The Separate Report has been prepared in compliance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). These were endorsed for application in the European Union by European Regulation (EC) 1606/2002 of 19 July 2002, as transposed into Italian law by Legislative Decree 38 of 28 February 2005 governing the introduction of IFRS into Italian legislation. The term “IFRS” means all International Financial Reporting Standards, all International Accounting Standards (“IAS”), and all interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) previously known as the Standing Interpretations Committee (“SIC”) endorsed for application in the European Union by EU Regulations issued prior to 15 March 2017, the date on which the Board of Directors of Poste Italiane SpA approved the BancoPosta RFC Separate Report as part of the Company’s Annual Report.
The relevant information is provided in note 2.6 – New Accounting standards and interpretations and those soon to be effective – in this section – Poste Italiane financial statements – of the Annual Report.
The provision of services to BancoPosta RFC by Poste Italiane SpA functions is governed by specific General Guidelines governing the process of contracting out BancoPosta’s corporate functions to Poste Italiane (the “General Guidelines”), the latest version of which was approved by Poste Italiane SpA’s Board of Directors. In implementation of BancoPosta RFC’s Regulation, these General Guidelines identify the services in question and determine the manner in which they are remunerated. The general policies and instructions contained in the General Guidelines in relation to transfer pricing are detailed in specific Operating Guidelines, jointly developed by BancoPosta and other Poste Italiane SpA functions. The Operating Guidelines establish, among other things, levels of service and the related transfer prices, and become effective, in accordance with the General Guidelines, following an authorisation process involving the relevant functions, the Chief Executive Officer and, when provided for, Poste Italiane SpA’s Board of Directors. When BancoPosta intends to contract out a major operating process or a control procedure, whether in its entirety or in part, to Poste Italiane SpA in accordance with specific Operating Guidelines, it must give prior notice to the Bank of Italy. In accordance with Bank of Italy Circular 285 issued on 17 December 2013, Part Four, Chapter 1 BancoPosta, Section II, paragraph 2, the Board of Statutory Auditors is required to verify, at least every six months, that the policies adopted are fit for purpose and are in compliance with the related statutory requirements and supervisory standards.
a cost-based method is used, again with the support of benchmarking to ensure that the price charged is adequate for the service provided. In this case, an appropriate mark-up, determined with reference to those used by comparable peers, is applied. The resulting transfer prices are reviewed annually.
For the purposes of oversight of the unbundled accounts, in 2016 the Board of Statutory Auditors conducted the relevant audit activities during 4 meetings, reporting its conclusions in its annual report to shareholders for the year ended 31 December 2016.
On 13 March 2017, the AGCM notified Poste Italiane SpA of the launch of investigation pursuant to art. 27, paragraph 3 of the Consumer Code, with the aim of assessing whether or not the unilateral changes to the Bancopostaclick contract and to the fees applicable to the Postamat payment card constitute unfair commercial practices.
Above all, the Authority intends to investigate whether Poste Italiane has failed to provide accurate information regarding the free nature of the Postamat card for Bancopostaclick current account customers, wrongfully inducing account holders to accept the additional cost of the Postamat card, not granting them the right to withdraw from the part of the contract relating to the Postamat card alone and providing for withdrawal from the current account package as a whole.
On 10 February 2017, the Bank of Italy ordered an inspection of Poste Italiane SpA in relation to BancoPosta RFC’s operations, in accordance with art. 54 of Legislative Decree 385 of 1 September 1993. The inspection will look at governance and control systems and the management of operational and IT risks.
Available-for-sale financial assets are recognised at fair value and any resulting fair value gains or losses are recognised in an equity 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 the 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(114) 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.
(114) The amortised cost of a financial asset or liability is the amount at which the asset or liability is initially recognised less any repayments of principal, plus or minus accumulated amortisation, in application of the effective interest rate method, of all differences between the amount initially recognised and the amount repayable on maturity less any impairment due to insolvency or any other reason. 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.
Held-to-maturity financial assets are initially recognised on settlement date. They are initially recognised at fair value which is generally the price paid. When recognition in this category arises in connection with the reclassification of available-for-sale financial assets, the fair value of the asset at the date of reclassification is deemed to be the asset’s amortised cost.
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and maturities that BancoPosta RFC has a positive intention and ability to hold to maturity.
Held-to-maturity financial assets are measured at amortised cost using the effective interest rate method adjusted for any impairments. Any gains or losses are recognised in profit or loss in line item 10 – Interest and similar income. In the event that there is objective evidence of an impairment, the impairment loss recognised as the amount that would equate the carrying amount to the present value of the projected cash flows. Any impairment loss is then recognised in profit or loss. If, subsequently, the reasons giving rise to the impairment cease to exist, the impairments are reversed to reinstate the amortised cost that would have been the carrying amount if there had been no impairment.
Loans and advances are non-derivative, unlisted financial instruments largely consisting of deposits at the Ministry of the Economy and Finance (the MEF) which are expected to generate income of fixed amounts or which can be determined. Receivables relate to operations and are trade in nature. Loans and advances are recognised on settlement, whereas receivables relating to operations are recognised when the service is rendered.
Receivables, loans and advances are carried at amortised cost determined using the effective interest rate method adjusted for any impairment. Impairments are recognised as described in the note on held-to-maturity financial assets.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges after initial recognition is recognised in a specific equity reserve (the “Cash flow hedge reserve”). A hedging transaction is generally considered highly effective if, both at inception of the hedge and on an ongoing basis, changes in the expected future cash flows of the hedged item are substantially offset by changes in the fair value of the hedging instrument. Amounts accumulated in equity are recycled to profit or loss in the period in which the hedged item affect profit or loss.
Current tax assets and liabilities form part of intersegment relations and are presented in the Separate Report in “Other assets” and “Other liabilities”, as they are settled with the segment of Poste Italiane SpA outside the ring-fence, within the scope of internal relations with Poste Italiane SpA, which continues to be the sole taxable entity.
Provisions for risks and charges are recorded to cover losses that are either probable or certain to be incurred, for which, however, there is an uncertainty as to the amount or as to the date on which they will occur. Provisions for risks and charges are made when the entity has a present (legal or constructive) obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation. Provisions are measured on the basis of management’s best estimate of the use of resources required to settle the obligation. The value of the liability is discounted at a rate that reflects current market values and takes into account the risks specific to the liability. In those rare cases, in which disclosure of some or all of the information regarding the risks in question could seriously prejudice BancoPosta RFC’s position in a dispute or in ongoing negotiations with third parties, BancoPosta RFC exercises the option granted by the relevant accounting standards to provide limited disclosure.
13 – Due to banks, due to customers and debt securities in issue a) recognition and classification
Financial liabilities held for trading are derecognised on the cessation of rights to the cash flows associated with the liability or when BancoPosta RFC has substantially transferred all the related risks and rewards.
Defined benefit plans include employee termination benefits payable to employees in accordance with article 2120 of the Italian Civil Code. Benefits vesting up to 31 December 2006(115), which are covered by the reform of supplementary pension provision, must, from 1 January 2007, be paid into a supplementary pension fund or into a Treasury Fund set up by INPS. Accordingly the BancoPosta RFC’s defined benefit liability is applicable only to the provisions made up to 31 December 2006.
The termination of employment (TFR) liability is calculated using the projected unit credit method and then discounted to recognise the time value of money prior to the liability being settled. The liability recognised in the financial statements is based on calculations performed by independent actuaries. The termination of employment (TFR) liability to be paid on cessation of employment is calculated using the projected unit credit method and then discounted to recognise the time value of money prior to the liability being settled. The liability recognised in the financial statements is based on calculations performed by independent actuaries. As the BancoPosta RFC is not liable for employee termination benefits accruing after 31 December 2006, the actuarial calculation of employee termination benefits no longer takes account of future salary increases. Actuarial gains and losses are recognised directly in equity at the end of each reporting period, based on the difference between the carrying amount of the liability and the present value of the BancoPosta RFC’s obligations at the end of the period, due to changes in the actuarial assumptions.
Employee termination benefits payable pursuant to art. 2120, Italian Civil Code fall within the scope of defined contribution plans provided they vested subsequent to 1 January 2007 and were paid into a Supplementary Pension Fund or a Treasury Fund at INPS. Contributions to defined contribution plans are recognised in profit or loss when incurred, based on their nominal value.
Other long-term employment 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.
In the event of share-based payment transactions settled in cash, shares or other financial instruments, BancoPosta RFC is required to measure the goods or services acquired and the liability incurred at fair value. Until the liability is settled, the fair value of the liability must be remeasured at the end of each reporting period, recognising any changes
(115) Where, following entry into effect of the new legislation, the employee has not exercised any option regarding the investment of vested employee termination benefits, BancoPosta RFC 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.
Service costs charged by Poste Italiane SpA’s functions outside the ring-fence, which include a portion of the fees paid included in the transfer prices charged in accordance with the operating guidelines for Poste Italiane’s commercial network, are normally recognised in “Item 150 b) – Other administrative expenses”.
The fair value of financial instruments that are not traded on an active market is based on prices quoted by external dealers or on internal valuation techniques which estimate the transaction price on the measurement date in an arm’s length exchange motivated by normal business considerations. The valuation models are primarily based on market variables, considering where possible, the prices in recent transactions and quoted market prices for substantially similar instruments, and of any related credit risk. Further details on the techniques used to measure the fair value of unquoted financial instruments are contained in Part A, Section A.4.1.
BancoPosta RFC is prohibited by Presidential Decree 144 of 14 March 2001 from making loans to customers. Impairments and recoveries of loans and receivables, consequently, relate exclusively to unpaid trade receivables. Impairments and reversals are made with reference to assessments of credit risk based on historical experience of similar receivables, an analysis of past due items (current and historical), losses and collections and the monitoring of the current and future economic conditions in the related markets.
BancoPosta RFC had adopted the Poste Italiane Group’s fair value policy. This policy sets out the general principles and rules to be applied in determining fair value for the purposes of preparing the financial statements, conducting risk management assessments and supporting the market transactions carried out by the Finance departments of the various Group entities. The principles and rules to be applied in measuring the fair value of financial instruments have been defined in compliance with indications from the various (banking and insurance) regulators and the relevant accounting standards, ensuring consistent application of the valuation techniques adopted at Group level. The methods used have been revised, where necessary, to take into account developments in operational procedures and in market practices during the year.
• Unquoted equities, for which it is to use the price of quoted equities of the same issuer as a benchmark. The price inferred in this manner is adjusted through the application of a discount, quoted by primary market counterparties, representing the cost implicit in the process to align the value of the unquoted shares to the quoted ones.
– Interest rate swaps with an embedded option: valuation is based on a building block approach, entailing decomposition of a structured position into its basic components: the linear and option components. The linear component is measure using the discounted cash flow techniques described for plain vanilla interest rate swaps above. Using the derivatives held in BancoPosta RFC’s portfolio as an example, the option component is derived from interest rate or inflation rate risks and is valued using a closed form expression, as with classical option valuation models with underlyings exposed to such risks.
• Buy and Sell Back agreements used for the short-term investment of liquidity: valuation is based on discounted cash flow techniques involving the computation of the present value of future cash flows. Buy and Sell Back agreements may be pledged as collateral and the fair value, consequently, need not be adjusted for counterparty risk.
• Financial liabilities either quoted on inactive markets or not at all, consisting of repurchase agreements used to raise finance are valued using discounted cash flow techniques involving the computation of future contractual cash flows. Repos may also be used for collateral and in such cases fair value need not be adjusted for the counterparty credit risk.
2. Financial liabilities designated at fair value – – – – – –
Intangible assets 2.2.1. Profit or loss – – – – – –
3.4. Transfers to other levels – – – – – –
3. Debt securities in issue – – – – – – – –
In determining the fair values shown in the table, the following criteria were used: • debt securities classified in the held-to-maturity category were measured applying the same rules as those used in the fair value measurement of available-for-sale investments; these instruments are shown in Level 1 of the fair value hierarchy; • the fair value of repurchase agreements was measured using the discounted cash flow techniques described in paragraph A.4.1; these financial instruments are shown in Level 2 of the fair value hierarchy; • the carrying amount of other financial assets and liabilities represents a reasonable approximation of fair value and is shown in the column corresponding to Level 3 in the fair value hierarchy.
IAS 39 requires financial instruments to be initially recognised at fair value, which is equal to the “transaction price”. The fair value of financial instruments not designated at fair value through profit or loss at the date of recognition normally coincides with the transaction price (the amount collected or paid). In the case of financial instruments designated at fair value through profit or loss and classifiable in level 3 (fair value determined with reference to unobservable inputs), any difference between the fair value and the transaction price generates a so-called “day one profit/loss”. This difference is recognised in profit or loss if it arises from changes in the factors on which market participants base their considerations in setting prices (including time). This form of profit or loss is not applicable to BancoPosta RFC.
BancoPosta RFC had no financial instruments in the trading book either at 31 December 2016 or 31 December 2015.
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1.1 Structured securities – – – – – –
Debt securities carried at fair value total €37,159 million (€331 million of which being accrued interest). At 31 December 2016, securities with a nominal value of €165 million and a fair value of €206 million are encumbered, as they have been delivered to counterparties for use as collateral in connection with repurchase agreements.
(116) On 21 December 2015, Visa Europe informed its Principal Members that each of them would receive a consideration for the purchase, and subsequent merger with and into the US-registered Visa Incorporated, of Visa Europe Ltd (in which Poste Italiane held an equity interest assigned to it when the company was incorporated).
(117) Until the assigned shares are fully converted into ordinary shares, the share exchange ratio may be reduced if Visa Europe Ltd. incurs liabilities that, as of the reporting date, were considered as merely contingent.
Balance at 31 December 2015 a) Governments and Central Banks 35,650 30,915 b) Other public entities – –
Balance at 31 December 2015 1. Micro-fair value hedged financial assets 18,792 14,927 b) Price risk – –
2. Micro-cash flow hedged financial assets 1,758 2,177 b) Foreign exchange risk – –
Disposals of equity instruments completed during the year regard the sale of the share in Visa Europe Ltd., described below table 4.1 in this section.
Securities with a nominal value of €5,765 million are encumbered as follows: • €4,596 million, carried at an amortised cost of €4,688 million (Part B, Other information, Table 2) and delivered to counterparties in connection with repurchase agreements concluded prior to 31 December 2016; BancoPosta RFC Separate Report for the year ended 31 December 2016
• €676 million, carried at an amortised cost of €716 million (Part B, Other information, Table 2) and delivered to counterparties for use as collateral for asset swaps and repurchase agreements; • €464 million, carried at an amortised cost of €475 million and delivered to the Bank of Italy as collateral for intraday credit granted; • €29 million, carried at an amortised cost of €30 million and delivered to the Bank of Italy in relation to the clearing service offered by the central bank for the execution of Sepa Direct Debits.
1. Time deposits – x x x – x x x 2. Compulsory reserves – x x x – x x x 3. Reverse repurchase agreements – x x x – x x x
2.2 Other debt securities – x x x – x x x
Performing Non-performing Level 1 Level 2 Level 3 Performing Non-performing Level 1 Level 2 Level 3
Other 2. Reverse repurchase agreements – – – x x x – – – x x x 3. Term loans – – – x x x – – – x x x 4. Credit cards, personal and salary loans – – – x x x – – – x x x 5. Finance leases – – – x x x – – – x x x
(118) The rate in question is calculated as follows: 50% is based on the return on 6 month BOTs, with the remaining 50% based on the monthly average Rendistato index. The latter represents the average yield on government securities with maturities greater than one year, which approximates the return on 7-year BTPs.
(119) The rate applied in overnight lending and calculated as the weighted average of overnight rates for transactions on the interbank market reported to the ECB by a panel of banks operating in the euro zone (the biggest banks in all the euro zone countries).
(€m) Fair value at 31 December 2016 Notional(*) amount at 31 December
Fair value at 31 December 2015 Notional amount at 31 December
Deferred tax assets through equity 148 28 26 5 – – – – 174 33
Deferred tax liabilities through equity 424 84 19 3 443 87
Deferred tax liabilities through profit or loss – – – – – –
Balance at 31 December 2015 2.1 Deferred tax assets derecognised in the year 185 11 a) relating to previous years – –
Section 14 – Non-current assets held for sale and discontinued operations and associated liabilities – Assets Item 140 and Liabilities Item 90
Current tax assets receivable from Poste Italiane SpA outside the ring-fence 29 –
Tax receivables primarily relate to tax payments on account, €329 million of which for virtual stamp duty payable in 2017 and €16 million for withholding tax on interest paid to current account holders for 2016.
outside the ring-fence prepayments for the current year 230 41 271 163 13 176 balance payable for previous year 73 11 84 73 – 73
Provisions to profit or loss for (211) (40) (251) (240) (30) (270)
Current tax liabilities payable to Poste Italiane SpA outside the ring-fence (item 100 Liabilities) – – – (73) (11) (84)
Balance at 31 December 2015 1. Due to Central Banks – –
At 31 December 2016, €5,381 million is due to banks under the terms of repurchase agreements involving securities with a total nominal value of €4,761 million. These regard: • €3,904 million (€3 million of which being accrued net interest) 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 ordinary borrowing operations via repurchase agreement transactions with primary financial institutions as funding for incremental deposits used as collateral.
“Current accounts and demand deposits” include €68 million in postal current accounts held by Poste Italiane SpA outside the ring-fence.
“Loans, Other” refers to the following: • the net amount of €2,429 million deposited in the MEF account held at the Treasury(121), which breaks down as follows: – the balance of cash flows for advances, amounting to €2,239 million, represents the net amount payable as a result of advances from the MEF to meet the cash requirements of BancoPosta; – 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 due to thefts from post offices regard the liability to the MEF on behalf of the Italian Treasury for losses resulting from theft and fraud, totalling €159 million. This liability derives from cash withdrawals from the Treasury to make up for the losses resulting from these criminal acts, in order to ensure that post offices can continue to operate; – amounts payable for operational risks (€35 million) regard the portion of advances obtained to fund operations, in relation to which asset under recovery is certain or probable; – €14 million relating to an amount due to Poste Italiane SpA’s functions outside the ring-fence in connection with the creation of BancoPosta RFC.
“Other payables” primarily consist of €2,141 million in prepaid PostePay card balances payable to customers and domestic postal orders, amounting to €536 million.
(121) At 31 December 2015, the accounts had a credit balance of €1,331 million and was presented in item 70 “Due from customers” under Assets; the change compared with the previous year is due to the different timing of pension payments, introduced by Legislative Decree 244/2016 (the socalled “Mille Proroghe” decree), which postponed the payment of pensions for January 2017 by one bank working day (from the first to the second working day). Consequently, compared with 31 December 2015, therefore, deposit of the amount required to pay the pensions for January 2017 by the paying entity, INPS, took place on the first working day of the month of payment, rather than on the last working day in December 2016.
No financial liabilities are held in portfolio designated at fair value through profit or loss (the “fair value option”).
(*) The settlement price for derivatives involving the exchange of principal (securities or other assets) has been indicated, as required by Bank of Italy Circular 262/2005.
Multiple risks 1. Available-for-sale financial assets 2,204 – – – – x 98 x x 3. Held-to-maturity financial assets x – – x – x – x x 5. Other transactions – – – – – x – x –
2. Portfolio of financial assets and liabilities x x x x x – x – –
Section 9 – Liabilities associated with non-current assets held for sale and discontinued operations– Item 90
Tax liabilities other than those included in item 80 1,026 881
– amounts to be credited to Postal Savings Books 284 508
Amounts payable to Poste Italiane SpA outside the ring-fence: 294 271
“Items in process, other” includes, among other things, domestic and international bank transfers, totalling €61 million, and unpaid postal cheques of €47 million.
“Amounts due to suppliers” include €3 million for services purchased from external suppliers and settled via Poste Italiane’s functions outside the ring-fence.
“Accrued expenses and deferred income not on own account”, totalling €21 million, refer to fees collected in advance on Postamat and “Postepay Evolution” cards.
Information on movements in current tax liabilities due to functions outside the ring-fence is provided in Section 15 in Assets.
Balance at 31 December 2015 1. Provisions for retirement benefits – –
Provisions for disputes with third parties regard expected liabilities deriving from different types of legal and out-ofcourt disputes with suppliers and third parties, the related legal expenses, and penalties and compensation payable to customers.
Provisions for expired and statute barred Postal Certificates held by BancoPosta have been made to cover the cost of redeeming certificates relating to specific issues, the value of which was recognised in revenue in Poste Italian SpA’s profit or loss in the years in which the certificates became invalid. The provisions were made in 1998 following the decision to redeem such certificates even if expired and statute barred. At 31 December 2016, the provisions represent the present value of total liabilities, based on a nominal value of €21 million, expected to be progressively paid off by 2043.
5) Assets pledged as collateral for third party commitments – –
Balance at 31 December 2015 1. Financial assets held for trading – –
“Held-to-maturity financial assets”, carried at amortised cost, relate to securities provided as collateral to counterparties in asset swaps registering fair value losses and for repos.
3. Custody and administration of securities 49,832 a) third party securities in custody: related to depository bank operations (excluding portfolio management) –
b) third party securities in custody (excluding portfolio management): other 5,262 1. securities issued by the reporting bank –
5. Financial assets offset in the financial statements or subject to framework netting arrangements or similar agreements
6. Financial liabilities offset in the financial statements or subject to framework netting arrangements or similar agreements
The sub-item, “Other assets, Other transactions” includes €7 million in interest income accruing during the year on reverse repos and €1 million in interest for the year receivable from Poste Italiane SpA’s functions outside the ring-fence.
December 2015 1. Due to Central Banks – x – – –
6. Financial liabilities designated at fair value – – – – –
9. Arrangement of third-party services: 2,245 2,175 d) Collection and payment services 1,070 1,080 e) Securitisation servicing – –
6. Door-to-door marketing of financial instruments, products and services – –
1. Financial assets held for trading – 3 – – 3 1.1 Debt securities – – – – –
Financial liabilities 2. Due to customers – – – – – –
3. Debt securities in issue – – – – – –
Section 7 – Profits/(Losses) on financial assets and liabilities designated at fair value – Item 110
Non-performing loans purchased – – – – – – – – –
December 2015 1) Cost of services provided by Poste Italiane SpA: (4,457) (4,251)
The cost of services provided by Poste Italiane functions outside the ring-fence relates to those services described in Part A – Accounting Policies, A.1, Section 4 – Other Information.
Section 15 – Profits/(Losses) on fair value measurement of property, plant and equipment and intangible assets – Item 220
(122) On 16 January 2017, Poste Italiane SpA’s Board of Directors passed a resolution aimed at taking steps to protect all the customers who, in 2003, purchased units issued by the Invest Real Security real estate fund and who still held the units at 31 December 2016, the date of the Fund’s maturity. The aim was to allow each investor to recover the difference between the amount they invested at the time of subscription, increased by any income distributions or early returns of capital over the life of the Fund, and the amount that the investor will receive from the Fund’s “Interim Liquidation Distribution” (the “Difference”). To anyone having reached the age of 80 at 31 December 2016, BancoPosta RFC has committed to pay, from its own resources, the Difference in the form of an amount to be credited to a current account or a postal savings book; other customers will be offered the option of taking out a Class I life insurance policy in which to invest the proceeds received from the Fund. To ensure that the value of the policy, which has a duration of 5 years, reaches the amount representing the Difference on maturity, BancoPosta RFC has committed to topping up the amount invested from its own resources.
Section 18 – Taxes on income from continuing operations – Item 260 18.1 Taxes on income from continuing operations: analysis
December 2015 2. Increase/(decrease) in current taxes of prior period taxation (+/–) 1 1 3. Reduction in current taxes (+) – –
3. bis Reduction in current taxation due to tax credit pursuant to Law 214/2011 (+) – –
Net provisions for risks and charges and impairments of receivables 6 0.7% 4 0.5%
Art. 1, paragraph 61 of the 2016 Stability Law (208/2015) has reduced the IRES tax rate from 27.5% to 24% with effect from periods of assessment commencing after 31 December 2016 (from 1 January 2017). Deferred tax expense of €3 million was recognised in the income statement in 2016, following application of the new IRES rate to deferred tax liabilities recognised on differences that will be taxable after 2016
Non-recurring (income)/expense for taxes charged to profit or loss – 0.0% (10) –1.2%
Other components of comprehensive income not reclassified to profit or loss 20. Property, plant and equipment – – –
60. Share of valuation reserve attributable to equityaccounted investments – – –
Other components of comprehensive income reclassified to profit or loss – – –
The funds deposited by private account holders in postal current accounts are invested in euro zone government securities(123), with the option of investing up to 50% of the deposits in securities guaranteed by the Italian government(124), whilst deposits by Public Administration entities are deposited with the MEF. In 2016, BancoPosta RFC’s operations focused on investment of the significantly increased volume of current account deposits, the reinvestment of funds deriving from maturing government securities and in the active management of financial instruments.
The above limits for BancoPosta RFC are set out in Poste Italiane SpA’s guidelines for financial transactions, which also contain rating limits that only permit dealings with investment grade counterparties, whilst concentration limits are applied as required by prudential regulations for banks(125).
The standard method(126), as defined by EU Regulation 575/2013, is used by BancoPosta to measure credit and counterparty risks. The method entails the use of Standard & Poor’s, Moody’s and Fitch for the computation of counterparty credit rating classes.
In terms of prudential oversight, the following methods are used to estimate the exposure to counterparty risk inherent in each of the following types of transaction: • the “Market Value” method(127) is used for asset swaps and forward purchases of government securities; • Credit Risk Mitigation (CRM) techniques, the Full Method(128), are used for repurchase transactions.
(127) The “Market Value” method to measure the risk inherent in derivatives entails summing two components: the current substitution cost, represented by fair value, if positive, and an add-on equal to the product of the nominal value and the probability that the fair value, if positive, increases the value or, if negative, turns positive.
(128) The full CRM method entails reducing risk exposure by the value of guarantee. Specific rules are applied to take into account market price volatility of the guaranteed asset as well as the collateral received.
In order to limit the counterparty risk’s exposure, partly for the purposes of prudential supervisory standards, BancoPosta RFC has concluded standard ISDA master agreements and special agreements for the mitigation of risk for repo transactions (GMRAs) and OTC derivatives (CSAs). More specifically, the agreements provide for the netting of asset and liability positions and the posting of cash or government securities as collateral.
6. Financial assets held for sale – – – – – –
A. On-balance sheet exposures a) Doubtful loans – – – – X – X –
– of which: forborne exposures – – – – X – X –
c) Non-performing past-due exposures – – – – X – X –
– of which: forborne exposures X X X X – X – –
e) Other performing exposures X X X X 1,314 X – 1,314
- of which: forborne exposures – – – – X – X –
- of which: forborne exposures X X X X – X – –
“Off-balance sheet exposures, Performing” relates to the credit risk associated with the debtors underlying forward purchases, recognised at the settlement value.
A. On-balance sheet credit exposure 1 1,402 58,306 – – – 451 60,160
The rating agency equivalents of credit rating classes are shown below: Credit rating class Fitch Moody’s S&P
1 AAA to AA- Aaa to Aa3 AAA to AA2 A+ to A- A1 to A3 A+ to A3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB4 BB+ to BB- Ba1 to Ba3 BB+ to BB5 B+ to B- B1 to B3 B+ to B6 CCC+ and below Caa1 and below CCC+ and below
A.2 Unlikely to pay – – X – – X – – X – – X – – X – – X
B.1 Doubtful loans – – X – – X – – X – – X – – X – – X
B.3 Other non-performing assets – – X – – X – – X – – X – – X – – X
B.4 Performing exposures 416 X – – X – – X – – X – – X – – X –
B.1 Doubtful loans – – – – – – – –
B.2 Unlikely to pay – – – – – – – – – –
B.3 Other non-performing assets – – – – – – – – – –
A.2 Unlikely to pay – – – – – – – –
B.2 Unlikely to pay – – – – – – – –
B.3 Other non-performing assets – – – – – – – –
In compliance with the supervisory standards in force, the table for “Large exposures” shows information on exposures to customers or groups of connected customers that exceed 10% of total own funds. The exposures are determined with reference to total on-balance sheet risk assets and off-balance sheet transactions, without applying any risk weightings. Based on these criteria, the table includes entities that, despite having a risk weighting of 0%, represent an unweighted exposure in excess of 10% of own funds. Exposures to the Italian state shown in the table represent approximately 85% of the total carrying amount. The remaining exposures regard primary counterparties represented by European banks and other central counterparties in Italy. However, in view of the fact that it cannot lend to the public, the Bank of Italy has exempted BancoPosta RFC from application of the requirements regarding limits on large exposures. No further exemptions from the remaining obligations have been granted.
A = Full recognition of financial assets sold to third parties (carrying amount)
C = Partial recognition of financial assets sold to third parties (gross amount)
Total 1. Due to customers – – – – – – –
b) asset partially recognised – – – – – – –
Market risk relates to: • price risk: the risk that the value of a financial instrument fluctuates as a result of market price movements, deriving from factors specific to the individual instrument or the issuer, and factors that influence all instruments traded on the market; • foreign exchange risk: the risk that the value of a financial instrument fluctuates as a result of movements in exchange rates for currencies other than the functional currency; • fair value interest rate risk: the risk that the value of a financial instrument fluctuates as a result of movements in market interest rates; • spread risk: the risk relates to the potential fall in the value of bonds held, following a deterioration in the creditworthiness of issuers; BancoPosta RFC Separate Report for the year ended 31 December 2016
There were no supervisory trading book assets or liabilities at 31 December 2016. Poste Italiane SpA’s financial operations guidelines for BancoPosta RFC prohibit the acquisition of assets and liabilities with the intention to trade, as defined by article 104 of EU Regulation 575/2013 in relation to classification of the “supervisory trading book”.
Cash flow interest rate risk arises from the mismatch – in terms of interest rate, interest rate resets and maturities – of financial assets and liabilities until their contractual maturity and/or expected maturity (banking book), with effects in terms of interest spreads and, as such, an impact on future results. This risk is of particular relevance to variable rate assets and liabilities or assets and liabilities which have been transformed into variable rate by fair value hedges.
Fair value interest rate risk primarily refers to the effects of changes in interest rates on the price of fixed rate financial instruments or variable rate financial instruments converted to fixed rate via cash flow hedges and, to a lesser degree, the effects of changes in interest rates on the fixed components of floating rate financial instruments or fixed rate financial instruments converted to variable rate via fair value hedges. BancoPosta RFC’s portfolio is predominantly invested in instruments that are originally fixed rate, or converted into fixed rate bonds via asset swaps used as cash flow hedges. In this regard, a significant part of the fixed rate instruments, with a fair value of €16,087 million, have been hedged using fair value hedges of the forward start type. Interest rate risk is measured internally using the economic value method. This results in a need to develop an amortisation schedule for the funding consistent with its nature and to select a time horizon and confidence levels for the estimates. A maximum time horizon (cut-off point) of 20 years is used for retail customer deposits, 10 years for business customer deposits and PostePay cards, and 5 years for Public Administration deposits, based on a 99% confidence level. This approach entails the computation of an ALM rate risk through the determination of asset/liability maturity gaps.
Interest rate risk management and mitigation is based on the conclusions of the measurement of risk exposure and compliance – in line with the risk appetite and thresholds and limits established in the RAF – with financial operations guidelines as approved from time to time by Poste Italiane SpA’s Board of Directors.
BancoPosta RFC’s fair value interest rate risk hedges include entering into OTC fair value hedge asset swaps primarily with banks for individual securities in portfolio. These derivatives cannot hedge spread risk since they hedge market interest rate fluctuations through rate swaps. BancoPosta RFC made greater use of this type of transaction in 2016, in response to the low level of interest rates and in order to protect against the negative effects of rising interest rates.
– current accounts 8 – – – – – – –
2.1 Due to customers 49,690 – – – – – – –
– other deposits 4,593 – – – – – – –
Demand 3 months or less 6 months – 1 year years
Unspecified maturity 1. On-balance sheet assets 1 – – – – – – –
1.2 Due from banks 1 – – – – – – –
– other loans – – – – – – – –
2. On-balance sheet liabilities – – – – – – – –
2.2 Due to banks – – – – – – – –
– current accounts – – – – – – – –
2.3 Debt securities – – – – – – – –
+ short positions – – – – – – – –
Financial assets held for trading – – – – – – – –
Asset – Hedging derivatives – – – – – – – –
In addition to sensitivity analyses, BancoPosta RFC monitors fair value interest rate risk by computing maximum potential loss or VaR – Value at Risk. The results of the VaR analysis regarding the variability of spread risk are shown below.
The sensitivity to cash flow interest rate risk at 31 December 2015 and 31 December 2016 is summarised in the table below and was computed assuming a +/– 100 bps parallel shift in the market forward interest rate curve.
– Account held at Bank of Italy 223 2 (2) 216 1 (1)
– Due from customers (Poste Italiane SpA outside the ring-fence) 629 6 (6) 577 6 (6)
Cash flow interest rate risk at 31 December 2016 was primarily inherent in the placement of Public Administration deposits with the MEF.
The Class B Mastercard Incorporated shares, Class C Visa Incorporated shares and the Series C Convertible Participating Preferred Stock issued by Visa Incorporated held in portfolio were sensitivity tested using similar listed shares, after adjusting for 2016 volatility. The shares’ price risk is also monitored through the computation of VaR.
The VaR sensitivity analyses are shown below: Closing VaR (2) (3)
A.7 OTC financial derivatives – banking book: notional amount, gross negative and positive fair value by counterparty – contracts not falling within the scope of netting agreements
- positive fair value – – – – – – –
B.1 Financial derivatives on debt securities and interest rates 586 645 16,725 17,956
B.2 Financial derivatives on equity instruments and stock indices – – – –
Other entities 1) Bilateral agreements financial derivatives - positive fair value – – 28 – – – –
- net counterparty risk – – 9 – – – –
2) Bilateral agreements credit derivatives - positive fair value – – – – – – –
- net counterparty risk – – – – – – –
It is policy to minimise liquidity risk through: • diversification of the various forms of short-term and long-term borrowings and counterparties; • gradual and consistent distribution of the maturities of medium/long-term borrowings; • use of dedicated analytical models to monitor the maturities of assets and liabilities: • the availability of the interbank markets as a source of repurchase agreement finance, with collateral in the form of securities held in portfolio, due to the fact that such assets consist of financial instruments deemed to be highly liquid assets by current standards.
BancoPosta RFC’s liquidity is assessed, in the form of stress tests, through risk indicators (the Liquidity Coverage Ratio and Net Stable Funding Ratio) defined by the Basle 3 prudential regulations. These indicators aim to assess whether or not the entity has sufficient high-quality liquid assets to overcome situations of acute stress lasting a month, and to verify that assets and liabilities have sustainable maturity profiles assuming a stress scenario lasting one year. Thanks to the nature of its balance sheet (significant holdings of EU government securities and a preponderance of retail deposits), in BancoPosta’s case the indicators are well above the limits imposed by the prudential regulations.
A.3 UCIs – – – – – – – – – –
B.1 Deposits and current accounts – – – – – – – – – –
C.5 Financial guarantees issued – – – – – – – – – –
C.6 Financial guarantees received – – – – – – – – – –
– Short positions – – – – – – – – – –
A.2 Other debt securities – – – – – – – – – –
– Customers – – – – – – – – – –
B.2 Debt securities – – – – – – – – – –
The prudential regulations applicable to banks and investment firms from 1 January 2014 are contained in Bank of Italy Circular 285/2013, the purpose of which was to implement EU Regulation 575/2013 (the so-called Capital Requirements Regulation, or “CRR”) and Directive 2013/36/EU (the so-called Capital Requirements Directive, or “CRD IV”), containing the reforms required in order to introduce the “Basel 3” regulations. In the third revision of the above Circular, the Bank of Italy has extended the prudential requirements applicable to banks to BancoPosta, taking into account the specific nature of the entity. As a result, BancoPosta RFC is required to comply with Pillar 1 capital requirements (credit, counterparty, market and operational risks) and those regarding Pillar 2 internal capital adequacy (Pillar 1 and interest rate risks), for the purposes of the ICAAP process. The relevant definition of capital in both cases is provided by the above supervisory standards.
“Reserves, other” consists of the initial reserve of €1 billion provided to BancoPosta RFC on its creation, through the attribution of Poste Italiane SpA’s retained earnings.
(131) A definition of the RAF is provided in the “Introduction” to Part E.
UCIs Loans 2.1 Increases in fair value 35 8 – –
3.3 Reversal to income statement of positive reserve on disposal (332) (110) – –
SECTION 2 – Own funds and capital ratios 2.1 Own funds
According to the framework defined by the Bank of Italy, own funds consist of two levels: • Tier 1 Capital, in turn consisting of: – Common Equity Tier 1 – CET1; – Additional Tier 1 - AT1; BancoPosta RFC Separate Report for the year ended 31 December 2016
BancoPosta’s CET1 consists of: • other reserves, being revenue reserves, amounting to €1 billion originating from the creation of the ring-fence, and any further amounts attributed by Poste Italiane SpA that meet the requirements for inclusion in own funds(132); • undistributed earnings, being Bancoposta RFC’s profits appropriated on approval of Poste Italiane SpA’s financial statements.
A. Common Equity Tier 1 – CET1, before application of prudential filters 1,949 1,949 of which CET1 instruments subject to transitional requirements – –
G. Additional Tier 1 – AT1 before elements to be deducted and adjustments for the transitional regime – –
M. Tier 2 – T2 before investments to be deducted and adjustments for the transitional regime – –
Q. Total own funds (F + L + P) 1,949 1,949
(135) See the previous description in Part E – Section 1, Credit risk. (136) The estimated risk exposure for derivative financial instruments is based on the “Market value” method, whilst the exposure deriving from repurchase agreements is estimated using the Credit Risk Mitigation (CRM) techniques, the “Full Method”. Further information is provided in Part E – Section 1, Credit risk.
At 31 December 2016, BancoPosta RFC complies with the prudential requirements specified in the section on qualitative information.
Banca del Mezzogiorno MCC SpA - - - - - 25 -
Ministry of the Economy and Finance - 7,550 - - - 2,429 -
Provision for doubtful debts owing from external related parties - (7) - - - - -
Banca del Mezzogiorno MCC SpA – – – – – 5 –
BancoPosta Fondi SpA SGR – 12 – – – 3 –
Ministry of the Economy and Finance – 7,646 – – – – –
Provision for doubtful debts owing from external related parties – (10) – – – – –
Ministry of the Economy and Finance 40 (2) 130 – – 2 – –
Impact of related party transactions on profit or loss for the year ended 31 December 2015
Poste Italiane SpA – (1) – – – – (4,251) –
Poste Assicura SpA – – 15 – – – – –
Cassa Depositi e Prestiti Group – – 1,611 – – – (8) –
The total number of Phantom stocks awarded to the 4 Beneficiaries of the First Cycle of the Plan amounted to 36,190 units. The fair value of each stock at 31 December 2016 was estimated to be €5.435. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was based on best market practices.
April 2017 This document is available for inspection on the Company’s website at www.posteitaliane.it/en