�� As regards Poste Italiane SpA’s investment in the Contingent Convertible Notes issued by Midco SpA, subscribed for in December 2014 and having an original value of €75 million, on 2 May 2017, following a general meeting of the shareholders of Alitalia SAI SpA (51% owned by Midco SpA), which noted the serious financial difficulties faced by the airline, the withdrawal of support by shareholders and the impossibility of quickly finding alternative solutions, the airline’s board of directors decided to file for extraordinary administration, granted by Ministry for Economic Development decree. On 11 May 2017, the Court of Civitavecchia declared Alitalia SAI SpA to be insolvent and, on 17 May 2017, the appointed administrators invited expressions of interest from parties wishing to acquire the airline and take it out of extraordinary administration. On 5 July 2017, a general meeting of Midco SpA’s shareholders approved the company’s financial statements for the year ended 31 December 2016, in which its investment in Alitalia SAI was written off. The financial statements show that the company’s equity has been reduced to such an extent as to trigger conversion of the Notes held by Poste Italiane SpA into equity instruments. Based on the above events, a non-recurring loss equal to the total value of the Notes, amounting to €82 million at 31 December 2016, including interest recognised, has been recognised in finance costs for 2017.
�� On 14 December 2017, following the resolutions approved by their respective boards of directors, Cassa depositi e prestiti SpA and Poste Italiane SpA signed a new agreement covering the collection of postal savings in the three-year period 2018-2020.
Poste Italiane Financial statements for the year ended 31 December 2017 3. Material events during the year
4. Poste Italiane Group FOR THE YEAR ENDED 31 DECEMBER 2017
4. Poste Italiane Group for the year ended 31 December 2017 4.1 Consolidated financial statements Consolidated statement of financial position at 31 December
Assets (€m) Note 2017 of which, related party transactions 2016 of which, related party transactions
Profit/(Loss) on investments accounted for using the equity method [A4] 17 - 6 -
Increase/(decrease) in fair value during the year [tab. B4] (315) (1,673)
Reclassifications to/ from reserves related to disposal groups and liabilites held for sale
Reclassifications to/ from reserves related to disposal groups and liabilites held for sale * This item includes profit for the year of €689 million and actuarial losses on provisions for employee termination benefits of €1 million after the related current and deferred taxation.
Cash flow generated by operating activities before movements in working capital
Movements in working capital: (Increase)/decrease in Inventories [tab. A6] (1) (3)
Movement in group of assets and liabilites held for sale (12) -
Net cash generated by/(used for) available-for-sale financial assets attributable to financial activities
Net cash generated by/(used for) held-to-maturity financial assets attributable to financial activities
Cash generated by/(used for) assets and liabilities attributable to financial activities
Cash generated by/(used for) assets and liabilities attributable to insurance activities
Disposals: Property, plant and equipment, investment property, intangible assets and assets held for sale
Net cash flow from /(for) investing activities [f] (263) (444) - of which related party transactions (65) (22)
Net cash flow from/(for) financing activities and shareholder transactions - of which related party transactions (327) (286)
Cash and cash equivalents reclassified from non-current assets and disposal groups held for sale
Cash and cash equivalents at end of year [tab. A10] 2,428 3,902
Amounts that cannot be drawn on due to court rulings (15) (12)
Unrestricted net cash and cash equivalents at end of year 1,978 2,292
At 31 December 2017, property, plant and equipment includes assets belonging to the Parent Company located on land held under concession or sub-concession, which are to be handed over free of charge at the end of the concession term. These assets have a total carrying amount of €55 million.
Reversals of impairment losses are due to changes in estimates relating to buildings (property used in operations) and sorting centres owned by the Parent Company, and reflect prudent consideration of the effects on the relevant values in use that might arise as a result of reduced utilisation or future removal from the production cycle (note 2.5 – Use of estimates).
All of the properties formerly held under finance lease arrangements, totalling €9 million, were purchased at the end of the leases in 2017.
A2 - Investment property (€52 million) Investment property primarily relates to residential accommodation previously used by post office directors and former service accommodation owned by Poste Italiane SpA in accordance with Law 560 of 24 December 1993. The following movements in Investment property took place in 2017: tab. A2 - Movements in investment property
Most of the properties included in this category are subject to lease agreements classifiable as operating leases, given that the Group retains substantially all the risks and rewards of ownership of the properties. Under the relevant agreements, tenants usually have the right to break off the lease with six months’ notice. Given the resulting lack of certainty, the expected revenue flows from these leases are not referred to in these notes.
56. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, service accommodation qualifies for level 3, while the other investment property qualifies for level 2.
�� the acquisition of the investment in FSIA Investimenti Srl (a joint venture) for €278.3 million in February 2017 (see the information provided in note 3 – Material events during the year). The carrying amount of this investment was subsequently increased by over €7 million, primarily due to the investee’s result for the first nine months of 2017.
At 31 December 2017, given the highly volatile performance of Anima Holding SpA’s shares, the value of goodwill implicit in the carrying amount of the investment was tested for impairment. Based on the prospective information available, there was no need to recognise an impairment loss on the goodwill accounted for at the time of acquisition of the investment.
A5 - Financial assets (€186,766 million) tab. A5 - Financial assets
Financial assets at fair value through profit or loss 27,857 1,481 29,338 20,996 3,907 24,903
Receivables include: �� Amounts deposited with the MEF, including public customers’ current account deposits of BancoPosta RFC, which earn a variable rate of return, calculated on a basket of government bonds and money market indices57.
Investments in securities and equity instruments tab. A5.2 - Investments in securities and equity instruments
Fixed income instruments 57. 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 maturity greater than 1 year, approximating the return on 7-year BTPs.
Effect of sales on profit or loss - 505 - 505
The overall fair value loss of the available-for-sale portfolio during the period is €819 million, recognised in the relevant equity reserve, recording a negative amount of €323 million in relation to the portion of the portfolio not hedged by fair value hedges, and through profit and loss, in relation to the loss of €496 million on the hedged portion.
Investments in equity instruments include: �� €37 million, reflecting the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) received for the sale of the Visa Europe Ltd. share to Visa Incorporated on 21 June 2016. These shares are convertible at the rate of 13,89359 ordinary shares for each C share, minus a suitable illiquidity discount, considering the staggered conversion between the fourth and the twelfth year after the closing; �� €4 million, reflecting the fair value of 11,144 class C shares of Visa Incorporated. These shares are not traded on an organised exchange, but are convertible into Class A shares (at the rate of four ordinary shares for each C share), which are listed on the New York Stock Exchange, if disposal is desired.
Derivative financial instruments The following table shows movements in derivative instruments during the year: tab. A5.3 - Movements in derivative financial instruments
59. 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.
Loans and receivables Receivables of €258 million relate primarily to contributions in the form of subscriptions and payment for unissued units of mutual investment funds.
Fair value gains and losses through equity (1,030) 38 2 (990)
Sales, redemptions and settlement of accrued income (13,573) (1,247) (29) (14,849)
In 2016, Poste Vita decided to invest approximately €260 million in an alternative investment fund called “Atlante”, and, in July 2016, invested approximately a further €200 million in the alternative investment fund named “Atlante 2” (now called the “Italian Recovery Fund”). Both funds, which are managed by Quaestio Capital Management SGR SpA, are closed-end funds restricted to professional investors, investing primarily in financial instruments issued by banks looking to strengthen their capital and non-performing loans held by various Italian banks. At 31 December 2017, the Atlante fund has called up €239.6 million, including €211.9 million allocated to the separately managed account, PostaValorePiù, and €27.7 million allocated to the company’s free capital, whilst the Atlante 2 fund (now called the “Italian Recovery Fund”) has called up a total of €101.9 million, allocated in full to the separately managed account, PostaValorePiù.
Fair value gains and losses through profit or loss 143 (4) 289 2 430
�� Other investments, amounting to €22,514 million and relating to units of mutual investment funds, which include €21,484 million to cover Class I products and €1,030 million to cover Class III products. Details of the funds in question are provided in note 11 – Additional information - Unconsolidated structured entities.
Equity instruments primarily reflects the investment in CAI SpA (formerly Alitalia CAI SpA), which was acquired for €75 million in 2013 and written off in 2014.
Financial assets at fair value through profit or loss 6,796 21,788 754 29,338 10,094 14,635 174 24,903
Non-current assets and disposal groups held for sale - - - - 793 123 - 916
Movements in level 3 during the year are shown below: Movements in financial instruments at fair value (level 3)
Financial instruments classified in level 3 are held primarily by Poste Vita SpA and, to a residual extent, by Poste Italiane SpA. In the case of the Group’s insurance company, instruments in level 3 regard funds that invest primarily in unlisted instruments, whose fair value measurement is based on the latest available NAV (Net Asset Value) as announced by the fund manager. This NAV is adjusted according to the capital calls and reimbursements announced by the managers which occurred between the latest NAV date and the measurement date. These financial instruments primarily consist of investments in private equity funds and, to a lesser extent, real estate funds associated entirely with Class I products related to separately managed accounts. Movements during the year regard the purchase of new investments, redemptions of units of unquoted close-end funds, changes in fair value (including gains of €11 million on the “Series C Visa Inc. convertible preferred stock” held by the Parent Company), and the impairment loss on the alternative investment fund, “Atlante”, as described above.
Work in progress, semi-finished and finished goods and goods for resale 12 (2) 10
This item refers entirely to properties held for sale, which include the portion of EGI SpA’s real estate portfolio to be sold, whose fair value61 at 31 December 2017 amounts to approximately €285 million.
Subsidiaries, associates and joint ventures - - - - 3 3 61. In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Ministries and Public Administration entities - 658 658 - 633 633
Parcel express courier and express parcel services - 259 259 - 238 238
Amounts due for other BancoPosta services - 87 87 - 113 113
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. Whilst waiting for the counterparty to acknowledge its obligations, the Parent Company has instructed its legal counsel to take the necessary steps to recover the amount due.
�� Amounts due from Cassa Depositi e Prestiti refer to fees and commissions for BancoPosta’s deposit-taking activities during 2017.
�� Other trade receivables include mainly: €48 million related to PosteMobile Spa for sales of terminals, services rendered to other operators and for the sale of top-ups through other channels, €45 million for Posta Time services, €26 million for Posta Target services, €22 million relating to air transport provided by Mistral Air Srl, €20 million related to Notification of Legal Process service, €14 million for Advice and Billing Mail services and €14 million for telegraphic services
Receivables due from the MEF This item relates to trade receivables due to the Parent Company from the Ministry of the Economy and Finance.
Specifically: �� Universal Service compensation includes: tab. A7.3.1 - Universal Service compensation receivable
�� Receivables arising from electoral subsidies refer to compensation for previous years. Funds have been earmarked in the state budgets for 2017 and previous years, but they are still being reviewed by the European Commission. These receivables are shown gross of collection of the amount of €55 million deposited in an escrow account with the MEF in December 2017. For this reason, the account, which is non-interest bearing and held with the Treasury, is accounted for in “Prepayments received”. The release of the amount deposited with the MEF and derecognition of the receivables in question will occur once the European Commission has given the related consent.
A8 - Other receivables and assets (€3,997 million) tab. A8 - Other receivables and assets
Interest accrued on IRES refund [C12.1] - 47 47 - 47 47
64.Introduced by article 19 of Law Decree 201/2011, converted as amended by Law 214/2011, in accordance with the MEF Decree dated 24 May 2012: Manner of implementation of paragraphs from 1 to 3 of article 19 of Law Decree 201 of 6 December 2011, on stamp duty on current accounts and financial products (Official Gazette 127 of 1 June 2012).
�� Amounts that cannot be drawn on due to court rulings include €62 million in amounts seized and not assigned to creditors, in the process of recovery, and €13 million in amounts stolen from the Parent Company in December 2007 as a result of an attempted fraud and that have remained on deposit with an overseas bank. The latter sum may only be recovered once the legal formalities are completed. The risks associated with collection of these items are taken into account in the provisions for doubtful debts due from others.
Cash at post offices, relating exclusively to BancoPosta RFC, regards cash deposits on postal current accounts, postal savings products (Interest-bearing Postal Certificates and Postal Savings Books) or advances obtained from the Italian Treasury to fund post office operations. This cash may only be used in settlement of these obligations. Cash and cash equivalents in hand are held at post offices (€813 million) and companies that provide cash transportation services whilst awaiting transfer to the Italian Treasury (€1,986 million). Bank deposits relate to BancoPosta RFC’s operations and include amounts deposited in an account with the Bank of Italy to be used in interbank settlements, totalling €396 million.
A10 - Cash and cash equivalents (€2,428 million) tab. A10 - Cash and cash equivalents
Bank deposits and amounts held at the Italian Treasury 2,034 2,581
The balance of cash at 31 December 2017 includes approximately €450 million the use of which is restricted, including €358 million in liquidity covering technical provisions for the insurance business, €55 million deposited in a non-interest bearing escrow account with the MEF in December 2017, as prepayment of electoral subsidies to cover discounts granted by the Parent Company, €15 million whose use is restricted by court orders related to different disputes and €21 million resulting from the collection of cash on delivery and amounts subject to other restrictions.
Further information is provided in Material events during the year (note 3).
Movements in the related assets are as follows: tab. A11.1 - Non-current assets and disposal groups held for sale
Impairments of disposal groups held for sale (37) - (3) 40 - -
Current provisions for risks and charges 5 (2) - (3) - -
At 31 December 2017, all the shares in issue are fully subscribed and paid up. No preference shares have been issued and the Parent Company does not hold treasury shares.
- Elimination of adjustments to value of consolidated companies - Amortisation until1 January 2004/Impairment of goodwill - Impairments of disposal groups held for sale (40) - (3) (37) - (37) -
Equity attributable to owners of the Parent 7,550 (1,273) 689 8,134 (2,146) 622 9,658 - (excluding profit/(loss))
(*) This includes the reversal of non-recurring income of €14 million from Poste Italiane SpA’s sale of its 100% interest in Banca del Mezzogiorno–MedioCreditoCentrale SpA to Invitalia SpA.
B2 – Shareholders transactions As resolved at the General Meeting of shareholders held on 27 April 2017, on 21 June 2017 the Parent Company paid dividends totalling €509 million, based on a dividend per share of €0.39.
B3 – Earnings per share The calculation of basic and diluted earnings per share (EPS) is based on the Group’s profit for the year. The denominator used in the calculation of both basic and diluted EPS is represented by the number of the Parent Company’s shares in issue, given that no financial instruments with potentially dilutive effects have been issued at 31 December 2017 or at 31 December 2016. As a result, at 31 December 2017, earnings per share is €0.528 (€0.476 at 31 December 2016).
Reserves related to groups of assets and liabilities held for sale
Increases/(decreases) in fair value during the period - - (315) (57) - - (372)
Tax effect of transfers to profit or loss - - 176 2 - - 178
Investees accounted for using equity method - share of OCI (net of tax)
Gains/(losses) recognised in equity - - (722) (43) 2 - (763)
Reserves related to disposal groups and liabilities held for sale - - 1 - (1) - -
Details are as follows: �� the fair value reserve regards changes in the fair value of available-for-sale financial assets which, during 2017, resulted in fair value losses totalling €315 million, reflecting: • a net decrease of €312 million in available-for-sale financial assets attributable to the Group’s Financial Services segment, due to the combined effect of a loss on securities of €323 million and a gain on equity instruments of €11 million; • a net decrease of €2 million in available-for-sale financial assets attributable to the Group’s Insurance Services segment; • a net decrease of €1 million in available-for-sale financial assets attributable to the Group’s Postal and Business Services segment.
�� The cash flow hedge reserve, attributable to the Parent Company, reflects changes in the fair value of the effective portion of cash flow hedges. In 2017, fair value losses of €57 million were attributable to the value of BancoPosta RFC’s derivative financial instruments.
These provisions refer to the contractual obligations of the subsidiaries, Poste Vita SpA and Poste Assicura SpA, in respect of their policyholders, inclusive of deferred liabilities resulting from application of the shadow accounting method, as follows: tab. B5 - Technical provisions for insurance business
Other provisions 8,315 9,360 for operating costs 90 79 for deferred liabilities to policyholders 8,225 9,281
The provisions for deferred liabilities due to policyholders include portions of gains and losses attributable to policyholders under the shadow accounting method. In particular, the value of the provisions reflects the attribution to policyholders, in accordance with the relevant accounting standards (to which reference is made for more details), of unrealised profits and losses on available-for-sale financial assets at 31 December 2017 and, to a lesser extent, on financial instruments at fair value through profit or loss.
B6 - Provisions for risks and charges (€1,595 million) Movements in provisions for risks and charges are as follows: tab. B6 - Movements in provisions for risks and charges for the year ended 31 December 2017
Provisions for expired and statute barred postal savings certificates 14 - 1 - - - 15
Provisions for taxation/social security contributions 28 4 - (10) (8) - 14
Other provisions for risks and charges 94 23 - (3) (13) 1 102
Overall analysis of provisions: (1) Net accruals for Personnel expenses amount to €10 million. Service costs (legal assistance) total €3 million.
Specifically: �� Provisions for non-recurring charges relate to operational risks arising from BancoPosta’s operations. They primarily regard the liabilities arising from the reconstruction of operating ledger entries at the time of the Company’s incorporation, liabilities deriving from the provision of delegated services for social security agencies, fraud, violations of administrative regulations, compensation and adjustments and outstanding income for previous years, risks linked to disputes with customers regarding certain investment products whose performance is not in line expectations, risks linked to customer complaints relating to the erroneous application of statute barring and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee-defendant. Provisions for the year, totalling €180 million, primarily reflect a revised estimate of probable liabilities linked to third-party financial products sold in the early 2000s, including €35 million relating to the voluntary action taken to protect customers, approved by Poste Italiane’s Board of Directors on 19 February 2018, in relation to customers who had invested in the Europa Immobiliare 1 fund (which reached maturity on 31 December 201765), and the revision of other liabilities due to adjustments and revised estimates of income for previous years. Uses, amounting to €95 million include €48 million relating to the settlement of amounts due to customers who had invested in the IRS real estate fund, following the decision to take extraordinary measures by Poste Italiane’s Board of Directors on 16 January 2017.
�� Provisions for disputes with third parties regard the present value of expected liabilities deriving from different types of legal and out-of-court disputes with suppliers and third parties, the related legal expenses, and penalties and indemnities payable to customers. Provisions for the year of €102 million reflect the estimated value of new liabilities measured on the basis of expected outcomes. The reduction of €65 million relates to the reversal of liabilities recognised in the past, whilst a reduction of €17 million regards the value of disputes settled.
�� Provisions for disputes with staff regard liabilities that may arise following labour litigation and disputes of various types. Net releases of €20 million relate to an update of the estimate of the liabilities and the related legal expenses, taking account of both the overall value of negative outcomes in terms of litigation, and the application of Law 183 of 4 November 2010 (“Collegato lavoro”), which has introduced a cap on current and future compensation payable to an employee in the event of "court-imposed conversion" of a fixed-term contract.
�� Provisions for early retirement incentives reflect the estimated costs to be incurred as a result of the Company’s binding commitment to pay early retirement incentives on a voluntary basis, under the current redundancy scheme agreed with the labour unions for a determinate number of employees who will leave the Company by 31 December 2019.
�� Other provisions cover probable liabilities of various type, including: estimated liabilities deriving from the risk that specific legal actions undertaken in order to reverse seizures of the Parent Company’s assets may be unable to recover the related amounts, claims for rent arrears on properties used free of charge by the Parent Company, claims for payment of accrued interest expense due to certain suppliers and frauds.
Advance rate Specific table with rates differentiated by length of service
The sensitivity of employee termination benefits plan to changes in the principal actuarial assumptions is analysed below.
Payables deriving from postal current accounts - 46,575 46,575 - 45,125 45,125
MEF account, held at the Treasury - 3,483 3,483 - 2,429 2,429
Bonds consist of the following: �� Two issues by Poste Italiane SpA, recognised at an amortised cost of €813 million under the EMTN – Euro Medium Term Note programme of €2 billion listed by the Company in 2013 on the Luxembourg Stock Exchange. In particular: • bonds with a nominal value of €750 million, placed through a public offering for institutional investors at a below par price of 99.66 on 18 June 2013. The bonds have a term to maturity of five years and pay annual coupon interest at a fixed rate of 3.25%. The fair value67 of this borrowing at 31 December 2017 is €775 million; 67. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1.
• bonds with a nominal value of €50 million subscribed by investors through a private placement at par on 25 October 2013. The term to maturity of the loan is ten years and the interest rate is 3.5% for the first two years and variable thereafter (EUR Constant Maturity Swap rate plus 0.955%, with a cap of 6% and a floor of 0%). The interest rate risk exposure was hedged as described in note A5; the fair value68 of this borrowing at 31 December 2017 is €53 million.
At 31 December 2017, the fair value72 of the above repurchase agreements amounts to €4,853 million.
72. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2. 73. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Amounts payable due to theft - 157 157 - 159 159
MEF postal current accounts and other payables - 671 671 - 671 671
The balance of cash flows from the management of postal savings, amounting to a positive €84 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 consists of €43 million payable to Cassa Depositi e Prestiti, less €127 million receivable from the MEF for Interest-bearing Postal Certificates issued on its behalf.
Amounts payable due to thefts from post offices regard the Parent Company’s liability to the MEF on behalf of the Italian Treasury for losses resulting from theft and fraud. 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 regard the portion of advances obtained to fund the operations of BancoPosta, in relation to which asset under recovery is certain or probable.
Derivative financial instruments Movements in derivative financial instruments during 2017 are described in note A5 – Financial assets.
Other financial liabilities Other financial liabilities have a fair value that approximates to their carrying amount and refer mainly to BancoPosta RFC.
Domestic and international money transfers - 734 734 - 599 599
Tax collection and road tax - 145 145 - 153 153
Amounts to be credited to customers - 88 88 - 75 75
Payables for items in process - 190 190 - 117 117
The following reconciliation of financial liabilities is provided in accordance with IAS 7, following the amendments introduced by EU Regulation 1990/2017 of 6 November 2017.
(*) The total amount of €432 million is included in the cash flow from /(for) operating activities, the balance of which in the statement of cash flows amounts to an outflow of €709 million and regards borrowings and other financial liabilities not attributable to financing activities.
Fair value hierarchy In terms of the fair value hierarchy, derivative financial instruments held at 31 December 2017 (€1,676 million) are classified in level 2.
Amounts due to suppliers tab. B9.1 - Amounts due to suppliers
(1) The amount due to overseas counterparties relates to fees payable to overseas postal operators and companies in return for postal and telegraphic services received.
Prepayments and advances from customers relate to amounts received from customers as prepayment for the following services to be rendered: tab. B9.2 - Prepayments and advances from customers
Accrued liabilities and deferred income 11 79 90 14 68 82
Other amounts due to staff - 197 197 - 89 89
Tax due on insurance provisions - 489 489 - 443 443
Withholding tax on employees' and consultants' salaries - 98 98 - 113 113
In particular: �� Stamp duty relates mainly to the amount accrued at 31 December 2017 on Interest-bearing Postal Certificates outstanding and on Class III and V insurance policies pursuant to the new law referred to in note A8 – Other receivables and assets.
Automated franking by third parties and at post offices 731 789
Publisher tariff subsidies75 relate to the amount receivable by Poste Italiane from the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office - Publishing department) as compensation for the discounts applied to publishers and non-profit organisations when sending mail. The compensation is determined on the basis of the tariffs set in the decree issued by the Ministry for Economic Development, in agreement with the Ministry of the Economy and Finance, on 21 October 2010 and Law Decree 63 of 18 May 2012, as converted into Law 103 of 16 July 2012. In this regard, provision has been made in the state budget for 2017 to cover the discounts applied by the Company in the period under review, but the subsidies are subject to the approval of the European Commission.
Other revenue breaks down as follows: tab. C1.2 - Other revenue
Other operating income 66 54 74. This amount was previously accounted for in “Provisions for doubtful debts due from the MEF” and recognised following new provision made in the State Budget to cover prior contractual obligations.
This item primarily regards revenue from the mobile telecommunications services provided by PosteMobile SpA and revenue generated by the Parent Company from e-money products and payments services.
�� Income from the investment of postal current account deposits breaks down as follows: tab. C3.1.1 - Income from investment of postal current account deposits
�� Revenue from current account services primarily relates to charges on current accounts, fees on amounts collected and on statements of account sent to customers, annual fees on debit cards and related transactions.
Details of this item are as follows: tab. C4 - Revenue from Insurance Services after movements in technical provisions and other claims expenses
A breakdown of premium revenue, showing outward reinsurance premiums, is as follows: tab. C4.1 - Insurance premium revenue
The movement in technical provisions for the insurance business and other claims expenses primarily reflect: �� claims paid, policies redeemed and the related expenses incurred by Poste Vita SpA during the period; �� the change in mathematical provisions reflecting increased obligations to policyholders; �� the decrease in technical provisions where investment risk is transferred to policyholders (so-called class D), totalling €3,370 million, primarily following the expiration of certain Class III products.
Raw, ancillary and consumable materials and goods for resale 141 146
Change in inventories of raw, ancillary and consumable materials [tab. A6] (2) 1
C6 - Expenses from financial activities (€57 million) The table below provides a breakdown of this item: tab. C6 - Expenses from financial activities
Provisions for employee termination benefits: supplementary pension funds and INPS 258 265
C10 - Other operating costs (€465 million) Other operating costs break down as follows: tab. C10 - Other operating costs
Provisions (reversal of provisions) for receivables due from MEF - (7)
Net provisions for risks and charges made/(released) 227 80 for disputes with third parties [tab. B6] 37 (28)
For the purposes of reconciliation with the statement of cash flows, in 2017 financial costs after foreign exchange losses and impairment losses on available-for-sale financial assets amount to €80 million (€85 million in 2016).
The tax rate for 2017 is 35.17% and consists of: tab. C12.1 - Reconciliation between theoretical and effective IRES rate
Realignment of tax bases and carrying amounts and taxation for previous years (17) -1.64% 11 1.09%
Adjustments for change in IRES tax rate introduced by 2016 Stability Law - 0.00% 14 1.35%
Net provisions for risks and charges and bad debts 5 0.48% 2 0.22%
In the movements in current and deferred tax assets and liabilities shown below and the provisions to profit or loss do not take into account provisions for current tax expense (€14 million) and deferred tax expense (€2 million) for the period made by BdMMCC SpA and BancoPosta Fondi SGR SpA, which are included in movements in “Non-current assets and disposal groups held for sale” and in “Liabilities related to assets held for sale”.
Current tax assets and liabilities tab. C12.3 - Movements in current tax assets/(liabilities)
prepayments for the current year 323 68 391 balance payable for the previous year 68 13 81
Current tax assets/(liabilities) include: �� the tax asset of €53 million reflects payments of IRES and IRAP on account, refundable IRAP from the previous year and IRES withholding tax incurred, after provisions for IRES and IRAP for the year; �� the assets described in note 2.5 – Use of estimates, amounting to €17 million..
Net non-recurring income/(expenses) recognised in profit or loss due to adjustment to IRES rate - (14)
Recl. to disposal groups and liabilities held for sale - (11)
76. The nominal IRAP rate is 3.90% for most taxpayers, 4.65% for banks and other financial entities and 5.90% for insurance companies (+/-0.92%, representing regional increases and cuts and + 0.15% representing an increase for regions that showed a healthcare deficit).
The following table shows movements in deferred tax assets and liabilities, broken down according to the events that generated such movements: tab. C12.6 - Movements in deferred tax assets
Income/(expenses) recognised in equity - - 60 - - (1) - 59
Change in scope of consolidation - - - 3 (3) - - tab. C12.7 - Movements in deferred tax liabilities
Movements in deferred tax assets and liabilities recognised directly in equity during the year are as follows: tab. C12.8 - Income/(expense) recognised in equity
Income tax expense calculated on actuarial losses on employee termination benefits recognised in equity decreased by €1 million. Therefore, the decrease in equity in the year under review due to income tax expense amounts to €287 million.
4.4 Operating segments As described in the previous notes, during 2017, the Group has revised the way it assesses and reports on the performance of its business, so as to reflect the Group’s new strategic guidelines and the internal reorganisation that took place during the year (further details are provided in note 1, “Introduction”, to these financial statements).
As a result of this revision, the segment disclosures provided in this note have undergone significant changes compared with the past, in keeping with the new management view reflected in the Strategic Plan for the period 2018-2022. A brief summary of events and the resulting changes is provided below: �� The Payments, Mobile and Digital (PMD) function was created in 2017, with the aim of establishing a single provider services to retail, business and Public Administration customers, combining in one entity the Poste Italiane Group’s distinctive competencies in the field of mobile and digital payments. This function, which forms a new operating segment, primarily includes (as explained in more detail in note 3.1 “Material events during the year – Launch of the process of establishing an e-money institution within the Group”) the payment and e-money services provided by BancoPosta and the activities of PosteMobile SpA. For this purpose, on 25 January 2018, Poste Italiane SpA’s Board of Directors approved the separation and transfer of certain assets, contractual rights and authorisations from BancoPosta RFC to a separate new e-money and payment services unit to be set up within PosteMobile SpA, following prior receipt of all the consents needed to comply with existing statutory and regulatory requirements. The PMD segment also includes the investment in SIA SpA.
�� Finally, the names of operating segments have been revised so as to make the nature of the segments more readily identifiable.
The identified operating segments at the date of preparation of these financial statements are, therefore, the following: �� Mail, Parcels and Distribution
In addition to managing the mail and parcel service, the Mail, Parcels and Distribution segment also includes the activities of the distribution network and the activities of Poste Italiane SpA corporate functions that provide services to BancoPosta RFC and the other segments in which the Group operates. In this regard, separate General Operating Guidelines have been approved by Poste Italiane SpA’s Board of Directors which, in implementation of BancoPosta RFC’s By-laws, identify the services provided by Poste Italiane SpA functions to BancoPosta and determines the manner in which they are remunerated. The Payments, Mobile and Digital segment includes the activities of the new function created by the Parent Company and the mobile telecommunications services provided by PosteMobile SpA and Consorzio per i servizi di telefonia Mobile ScpA. The Financial Services segment includes the activities of BancoPosta RFC, BancoPosta Fondi SpA SGR and Poste Tributi ScpA in liquidation. Insurance Services segment includes the activities carried out by the Poste Vita group.
Investments accounted for using equity method 490 7 11 - - 508
Net external revenue from ordinary activities 3,822 570 5,009 1,242 - 10,643
Net intersegment revenue from ordinary activities 4,540 359 982 - (5,881) -
Net revenue from ordinary activities 8,362 929 5,991 1,242 (5,881) 10,643
Liabilities related to assets held for sale - - 2,313 - (253) 2,060
Assets include those deployed by the segment in the course of ordinary business activities and those that could be allocated to it for the performance of such activities.
At 31 December 2017, 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 €71 million (€60 million al 31 December 2016).
At 31 December 2017, net provisions for risks and charges used to cover probable liabilities arising from transactions with related parties external to the Group attributable to trading relations amount to €11 million (€6 million al 31 December 2016).
�� Purchases from the Leonardo Group primarily relate to the supply, by Leonardo SpA, of equipment, maintenance and technical assistance for mechanised sorting equipment, and systems and IT assistance regarding the creation of document storage facilities, specialist consulting services and software maintenance, and the supply of software licences and of hardware.
Provisions for risks and charges 1,595 71 4.5 1,507 60 4.0
Liabilities related to assets held for sale - - n.a. 2,060 130 6.3
Cash flow from/(for) operating activities (709) 241 n.a. 2,258 3,648 161.6
Cash flow from/(for) investing activities (263) (65) 24.7 (444) (22) n.a.
Cash flow from/(for) financing activities and shareholder transactions (503) (327) 65.0 (964) (286) 29.7
The remuneration paid to members of the Parent Company’s Supervisory Board amounts to approximately €76 thousand in 2017. In determining the remuneration, the amounts paid to managers of Poste Italiane who are members of the Supervisory Board is not taken into account, as this remuneration is passed on to the employer.
Following conclusion of the agreement, from October 2017, five repurchase agreements and 23 buy & sell back transactions, which expired during the period, have been entered into, in addition to two Interest rate Swaps for hedging purposes and two forward sales of securities.
5. Poste Italiane SpA for the year ended 31 December 2017 5.1 Financial statements
Cash and deposits attributable to BancoPosta [A9] 3,196,090,710 - 2,494,150,897 -
of which, related party transactions 2016 of which, related party transactions
Cash and deposits attributable to BancoPosta [A9] - 3,196,090,710 - 3,196,090,710
Cash and deposits attributable to BancoPosta [A9] - 2,494,150,897 - 2,494,150,897
Items to be reclassified in the Statement of profit or loss for the year
Increase/(decrease) in fair value during the year [tab. B3] (313,350,744) (1,637,143,892)
Increase/(decrease) in fair value during the year [tab. B3] (56,619,724) (15,406,658)
Actuarial gains/(losses) on provisions for employee termination benefits [tab. B5] (1,605,572) (48,563,432)
Total comprehensive income for the year - - - (713,275,172) (43,526,063) - 615,804,987 (*) (140,996,248)
(*) This item includes profit for the year of €617 million and actuarial losses on provisions for employee termination benefits of €2 million after the related taxation of €1 million.
Cash generated by operating activities before movements in working capital [a] 929,522 1,188,948
Cash generated by/(used for) financial assets and liabilities attributable to BancoPosta [c] (1,072,437) 947,207
Net cash flow from /(for) operating activities [d]=[a+b+c] 4,698 2,422,346 - of which related party transactions 723,071 3,598,562
Disposals: Property, plant and equipment, investment property and assets held for sale 135,315 2,493
Net cash flow from /(for) financing activities and shareholder transactions [f] (501,286) (987,293)
78. All assets, contractual rights and authorisations were conferred on BancoPosta as required to engage in the following types of operation: a. Contracts for the collection of savings from the public, both in the form of deposits (e.g., postal current accounts) and the related services (e.g., issuance of postal cheques, payment of bills by payment slip and direct debits) and in other forms; b. Contracts for the provision of payment services including the issuance, management and sale of payment cards, including prepaid cards (e.g., “postamat”,
80. The rate applied in overnight lending and calculated as the weighted average of overnight rates for transactions on the interbank market reported to ECB by a panel of banks operating in the euro zone (the biggest banks in all the euro zone countries).
Cost and revenue allocation Given the fact that Poste Italiane is a single legal entity, the Company’s general accounting system maintains its uniform characteristics and capabilities. In this context, the general principles governing administrative and accounting aspects of BancoPosta RFC are as follows: �� identification of transactions in Poste Italiane SpA’s general ledgers relating to BancoPosta’s ring-fenced operations which are then extracted for recording in BancoPosta’s separate ledgers; �� allocation to BancoPosta of all relevant revenues and costs. In particular the services rendered by the different functions of Poste Italiane SpA to BancoPosta RFC, are exclusively recorded as payables in BancoPosta’s separate books, in special intersegment accounts only, and subsequently settled; �� settlement of all incoming and outgoing third party payments by Poste Italiane SpA’s Chief Financial Office; �� allocation of income taxes based on BancoPosta’s separate income statement after adjusting for deferred taxation; �� reconciliation of BancoPosta’s separate books to Poste Italiane’s general ledger; �� the activities – or services – carried out by the various departments within Poste Italiane SpA on behalf of BancoPosta RFC are indicated in specific General Guidelines governing the process of contracting out BancoPosta’s corporate functions to Poste Italiane (the “General Guidelines”) approved by Poste Italiane SpA’s Board of Directors on 28 February 2017. In implementation of BancoPosta RFC’s Regulation, these General Guidelines identify the services in question and determine the manner in which they are remunerated.
�� 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//201381, these services are in turn classified in the General Guidelines as essential and non-essential control and operating functions.
In line with 2016, 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. From 2017, the resulting transfer prices are reviewed every two years.
Percentage of revenue generated Priced on the basis of the type of contract + recharge of external costs Penalties for failure to meet predetermined quality standards
Fees by professional role based on market benchmarks Recharge of external costs, where applicable
In this regard, the Operating Guidelines drawn up for the two-year period 2017-2018, relating to key operating functions and control functions, have been submitted to the Bank of Italy, as required by the Supervisory Standards, and the 60-day term for the Bank to notify its prohibition on implementation has expired.
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.
In this regard, the following table shows a reconciliation of the components of BancoPosta RFC’s equity, as shown in the Company’s statement of financial position and in the Separate Report82.
82. 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).
Further regulatory aspects Pursuant to art. 2, paragraph 17-undecies of Law Decree 225 of 29 December 201083, 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”.
On 25 January 2018, Poste Italiane SpA’s Board of Directors approved the separation and transfer of certain assets, contractual rights and authorisations from BancoPosta RFC to a new ring-fenced e-money and payment services unit to be set up within PosteMobile SpA, as well as the separation of the contractual rights and authorisations relating to back-office and anti-money laundering activities. These corporate actions were subject to approval by Extraordinary General Meeting, following prior receipt of all the consents needed to comply with existing statutory and regulatory requirements. Submission to the Bank of Italy of a request for authorisation to remove the ring-fence from the assets, contractual rights and authorisations that make up the e-money and payment services unit was also approved. Further details on this corporate action are provided in note 3.1 – Principal corporate actions.
At 31 December 2017, property, plant and equipment includes assets located on land held under concession or sub-concession, which are to be handed over free of charge at the end of the concession term, with a carrying amount of €55 million.
The merger contribution of €2 million regards the acquisition of plant and technology assets already in use, following the merger of the subsidiary, Postecom SpA, with and into the Company.
Reclassifications from assets under construction, totalling €39 million, relate primarily to the acquisition cost of assets that became available and ready for use during the year. In particular, these assets regard the rollout of hardware held in storage and completion of the process of restyling leased and owned properties.
A2 - Investment property (€52 million) Investment property primarily regards former service accommodation owned by Poste Italiane SpA pursuant to Law 560 of 24 December 1993, and residential accommodation previously used by post office directors. None of the property included in this item is attributable to BancoPosta RFC. Movements in investment property are as follows: tab. A2 - Movements in investment property
Most of the properties included in this category are subject to lease agreements classifiable as operating leases, given that Poste Italiane SpA retains substantially all the risks and rewards of ownership of the properties. Under the relevant agreements, tenants usually have the right to break off the lease with six-month notice. Given the resulting lack of certainty, the expected revenue flows from these leases are not referred to in these notes.
84. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, service accommodation qualifies for level 3, while the other investment property qualifies for level 2.
Industrial patents, intellectual property rights, concessions, licences, trademarks and similar rights
Investment in Intangible assets during 2017 amounts to €193 million, including €12 million in internal software development costs and the related expenses. Research and development costs, other than those incurred directly to produce identifiable software used, or intended for use, within the Company, are not capitalised.
The merger contribution, totalling €7 million, regards the acquisition of applications and software licences already in use, and applications yet to enter service, following the merger of the subsidiary, Postecom SpA, with and into the Company.
A4 – Investments (€2,081 million) This item includes the following: tab. A4 - Investments
�� The injection of capital amounting to €4 million into Mistral Air Srl to cover the losses incurred by the subsidiary through to 31 March 2017, and to establish an extraordinary reserve, as approved by the extraordinary general meeting of the investee company’s shareholders on 28 June 2017.
�� On 30 January 2017, the partial demerger of assets belonging to Postecom SpA to Postel SpA, including the investments in PatentiViaPoste ScpA and Consorzio Poste Motori, and the ensuing merger of Postecom SpA with and into Poste Italiane SpA, was completed. The transaction, accounted for on a predecessor basis and effective for legal, accounting and tax purposes from 1 April 2017, has generated a merger surplus of €2 million, recognised in a specific equity reserve.
�� The payment of non-refundable contributions of €4.2 million to Risparmio Holding SpA to enable the company to meet the commitments assumed in 2016, as approved by the investee company’s Board of Directors on 13 January 2017, partly via use of the provisions for risks and charges made in 2016 (€3.9 million).
Corporate actions during 2017 and in early 2018 are described in notes 3.1 – Principal corporate actions and 10 – Events after the end of the reporting period
Poste Italiane SpA has committed to providing financial support to the subsidiaries, SDA Express Courier SpA and Mistral Air Srl, for 2018 and Poste Tributi ScpA throughout its liquidation.
85. As a result of the transaction, Poste Italiane indirectly holds a 14.85% interest in SIA SpA. 86. The method applied and the criteria used in conducting impairment tests at 31 December 2017 are described in note 2.5 – Use of estimates, with regard to the impairment testing of cash generating units and investments.
The following table shows a list of investments in subsidiaries, joint ventures and associates at 31 December 2017.
Poste Tributi ScpA (in liquidation)(2) 80.00 2,583 (1,053) (1,590) (1,272) - (1,272)
(3) Figures taken from the company’s latest approved financial statements at 31 December 2016. (4) Figures taken from the company’s interim financial statements at 30 September 2017, as approved by its board of directors, and including measurement of the SIA group using the equity method and recognition of the related effects with regard to Purchase Price Allocation. (5) Figures taken from the company’s interim financial statements at 30 September 2017, as approved by its board of directors. (6) Investment acquired following the merger of Postecom SpA with and into the Company.
�� Other financial receivables of €1,179 million, including €1,110 million provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes) and €69 million provided to counterparties in repurchase agreements on fixed income securities (with collateral contemplated by specific Global Master Repurchase Agreements).
Changes in cash flow hedge transactions(*) (22) - - - - (22)
Accrued income for current year 152 - 331 - - 483
87. 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 1 year, approximating the return on 7-year BTPs.
The fair value of the available-for-sale portfolio is €39,099 million (including €331 million in accrued interest). The overall fair value loss for the period of €819 million has been recognised in the relevant equity reserve, recording a negative amount of €323 million in relation to the portion of the portfolio not hedged by fair value hedges, and through profit and loss, in relation to the loss of €496 million on the hedged portion.
The available-for-sale portfolio includes fixed rate instruments amounting to €2,500 million (including €1,000 million acquired in 2017), issued by Cassa Depositi e Prestiti SpA and guaranteed by the Italian government (at 31 December 2017, their fair value totalled €2,485 million).
Fair value gains in the year under review, amounting to €11 million, have been recognised in the relevant equity reserve (see note B3).
Derivative financial instruments Movements in derivative financial instruments are as follows: tab. A5.3 - Movements in derivative financial instruments
Forward sales notional fair value notional fair value notional fair value notional fair value notional fair value notional fair value notional fair value
(*) Increases / (decreases) refer to the nominal value of new transactions and changes in the fair value of the overall portfolio during the period. (**) Gains and losses through profit or loss refer to any ineffective components of hedges, recognised in other income and other expenses from financial and insurance activities. (***) Transactions settled include forward transactions settled, accrued differentials and the settlement of asset swaps linked to securities sold.
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Available-for-sale financial assets 36,244 2,859 37 39,140 35,280 1,956 27 37,263
Total financial assets at fair value 36,244 3,254 37 39,535 35,280 2,147 27 37,454
There were no transfers of the related financial instruments measured at fair value on a recurring basis between level 1 and level 2 in 2017.
The current portion regards overdrafts on intercompany current accounts granted to subsidiaries, paying interest on an arm’s length basis.
These loans break down as follows: tab. A6.1 - Current portion of loans Balance at 31 December 2017 Balance at 31 December 2016
Receivables tab. A6.2 - Receivables Balance at 31 December 2017 Balance at 31 December 2016
Guarantee deposits relate to collateral provided to counterparties with whom the Company has entered into asset swaps (note D2).
Other receivables regard the remaining amount due from Invitalia SpA as a result of the sale of Banca del MezzogiornoMedioCreditoCentrale SpA on 7 August 2017 (note A11).
Effects of sales on profit or loss - - 4 4
Sales and settlement of accrued income - - (5) (5) (7) (12)
Other investments consist of equity instruments (as defined by art. 2346, paragraph 6 of the Italian Civil Code) resulting from the conversion of Contingent Convertible Notes90 held by Poste Italiane SpA, whose value at 31 December 2017 is zero. As described in greater detail in note 3.2 – Other material events, during the year under review, the Company recognised a non-recurring impairment loss equal to the value of the Notes, amounting to €82 million, including interest recognised at 31 December 2016. The loss was accounted for in finance costs.
90. These are Contingent Convertible Notes with an original value of €75 million, a twenty-year term to maturity and issued by Midco SpA, which in turn owns 51% of the airline Alitalia SAI SpA. The Notes were subscribed for by Poste Italiane SpA on 23 December 2014, in connection with the strategic transaction that resulted in Etihad Airways’ acquisition of an equity interest in Alitalia SAI, without giving rise to any involvement on the part of Poste Italiane in the management of the issuer or its subsidiary. Interest and principal payments were provided for in the relevant terms and conditions if, and to the extent that, there was available liquidity. The loan was convertible, on the fulfilment of certain negative pledge conditions, into an equity instrument (as defined by art. 2346, paragraph 6 of the Italian Civil Code), carrying the same rights associated with the Notes. From 1 January 2015 to 31 December 2016, the Notes paid a nominal rate of interest of 7% per annum.
At 31 December 2017, outstanding derivative financial instruments include: �� nine asset swaps used as fair value hedges in 2010 to protect the value of BTPs with a nominal value of €375 million against movements in interest rates. These instruments have enabled the Company to sell the fixed rate on the BTPs of 3.75% and purchase a variable rate; �� a swap contract entered into in 2013 to hedge the cash flows of a €50 million bond issued on 25 October 2013 (note B7). With this transaction, the Company took on the obligation to pay a fixed rate of 4.035% and sold the variable rate of the bond which, at 31 December 2017, is 1.843%.
Available-for-sale financial assets 551 - 5 556 569 - 5 574
Receivables due from Cassa Depositi e Prestiti refer to fees for BancoPosta’s deposit-taking activities during 2017.
Receivables arising from Unfranked mail delivered include €74 million in amounts due from customers who use the service on their own behalf and €86 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. €20 million of the total is classified in “Non-current assets”.
Balance at 31 December 2017 of which attributable to BancoPosta RFC
Poste Assicura SpA 6 7 of which attributable to BancoPosta RFC 172 162
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 (€136 million); �� Postel SpA: mainly relating to receivables deriving from the delivery of Bulk Mail by Poste Italiane SpA and collected by the subsidiary (€24 million).
Receivables due from the MEF This item relates to trade receivables due from the Ministry of the Economy and Finance: tab. A7.4 - Receivables due from the MEF
A total of €370 million was collected in 2017, including €262 million relating to compensation for 2017 and €108 million in residual compensation for 2015 and 2014. With reference to the amount receivable for 2012, AGCom has recognised a net cost incurred by the Company of €327 million, compared with compensation of €350 million originally recognised. Provision has not been made in the state budget for the remaining €23 million. The Company appealed AGCom’s decision on 13 November 2014 before the Regional Administrative Court (TAR). The outstanding receivable relating to compensation for 2005 was subject to cuts in the budget laws for 2007 and 2008. Finally, with regard to the outstanding balance of the compensation for 2013, which was collected in full in 2015, with resolution 493/14/CONS of 9 October 2014, AGCom has initiated an assessment of the net cost incurred by the Company. On 24 July 2015, the regulator notified the Company that it would extend the assessment to include the 2014 financial year. At the end of the public consultation, launched by AGCom in 2016, the regulator published Resolution 298/17/CONS, in which it assessed the cost of providing the universal service for 2013 and 2014 to be €393 million and €409 million, respectively, compared with revenue of €343 million and €277 million recognised in the Company’s statement of profit or loss for services rendered in the relevant years. The regulator also announced that the compensation fund to cover the cost of providing the universal service has not been set up. The Company filed a legal challenge to AGCom’s resolution before the Regional Administrative Court on 6 November 2017. On 27 October 2017, AGCom announced the launch of the process of verifying the net cost of the universal postal service for 2015 and 2016
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
Accrued income and prepaid expenses from trading transactions and other assets
Other amounts due from subsidiaries - 4 4 - 60 60
92. Introduced by article 19 of Law Decree 201/2011, converted as amended by Law 214/2011, in accordance with the MEF Decree dated 24 May 2012: Manner of implementation of paragraphs from 1 to 3 of article 19 of Law Decree 201 of 6 December 2011, on stamp duty on current accounts and financial products (Official Gazette 127 of 1 June 2012).
�� The amount due from the MEF following cancellation of EC Decision 16/07/08, recognised in the MEF’s letter of 7 August 2015, was collected on 30 November 2017.
A10 - Cash and cash equivalents (€2,039 million) Details of this item are as follows: tab. A10 - Cash and cash equivalents
Bank deposits and amounts held at the Italian Treasury 1,648 1,395
Cash and cash equivalents in hand 12 10 of which attributable to BancoPosta RFC 391 1,321
Bank deposits and amounts held at the Italian Treasury include €55 million deposited in a non-interest bearing escrow account with the MEF in December 2017, as prepayment of subsidies to cover discounts granted by the Company. In addition, bank deposits and amounts held at the Italian Treasury include €15 million whose use is restricted by court orders related to different disputes.
B1 – Share capital (€1,306 million) Poste Italiane SpA’s share capital consists of 1,306,110,000 no-par value ordinary shares, of which Cassa Depositi e Prestiti SpA (CDP) holds 35% and the Ministry of the Economy and Finance holds 29.3%, while the remaining shares are held by institutional and retail investors.
Increases/(decreases) in fair value during the year - - (313) (57) - (370)
Details are as follows: �� the fair value reserve regards changes in the fair value of available-for-sale financial assets. The decrease of €313 million during 2017 reflects: • a net decrease of €312 million in available-for-sale financial assets attributable to BancoPosta RFC, due to the combined effect of a loss on securities of €323 million and a gain on equity instruments of €11 million; • €1 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 2017, total fair value losses of €57 million are attributable to the value of BancoPosta RFC’s derivative financial instruments.
Information on the BancoPosta RFC reserve is provided in note 5.2 – Information on BancoPosta RFC.
B3 - Availability and distributability of reserves The following table shows the availability and distributability of Poste Italiane SpA’s reserves. Retained earnings include the profit for 2017 of €617 million.
- cash flow hedge reserve (61) - - - merger surplus 2 A B D
A: for capital increases B: to cover losses C: to cover BancoPosta losses D: for shareholder distributions
Provisions for disputes with third parties 309 90 - (40) (18) 341
Provisions for expired and statute barred postal savings certificates 14 - 1 - - 15 of which attributable to BancoPosta RFC 462 208 1 (19) (108) 544
Overall analysis of provisions: (1) Net provisions for personnel expenses total €25million. Service costs (legal assistance) total €5 million.
�� Provisions for disputes with third parties regard the present value of expected liabilities deriving from different types of legal and out-of-court disputes with suppliers and third parties, the related legal expenses, and penalties and indemnities payable to customers. Provisions for the year of €90 million reflect the estimated value of new liabilities measured on the basis of expected outcomes. The reduction of €40 million relates to the reversal of liabilities recognised in the past, whilst a reduction of €18 million regards the value of disputes settled.
�� Provisions for personnel expenses are made to cover expected liabilities arising in relation to the cost of labour, with are certain or likely to occur but whose estimated amount is subject to change. They have increased by €85 million to reflect the estimated value of new liabilities and decreased as a result of past contingent liabilities that failed to materialise (€28 million) and settled disputes (€119 million).
�� Provisions for expired and statute barred Postal Certificates have been made to cover the cost of redeeming certificates relating to specific issues, even after the certificates have become invalid95.
�� Other provisions cover probable liabilities of various type, including: estimated liabilities deriving from the risk that specific legal actions undertaken in order to reverse seizures of the Company’s assets may be unable to recover the related amounts; losses incurred by subsidiaries that the Company intends to cover; claims for rent arrears on properties used free of charge by the Company; and claims for payment of accrued interest expense due to certain suppliers. Provisions of €39 million for the year primarily regard the first two types of liability.
Balance at 1 January 1,315 interest component 20 effect of actuarial gains/(losses) 2
95. Provisions for expired and statute barred Postal Certificates were made in 1998 to cover the cost of redeeming certificates relating to specific issues, the value of which was recognised in revenue in profit or loss in the years in which the certificates became invalid. The provisions were made in response to the Company’s decision to redeem such certificates even if expired and statute barred. At 31 December 2017, the provisions represent the present value of total liabilities, based on a nominal value of €21 million, expected to be progressively settled by 2043.
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 €91 million, €4 million to substitute tax and €2 million to transfers from a number of Group companies.
The main actuarial assumptions applied in calculating provisions for employee termination benefits are as follows: tab. B5.1 - Economic and financial assumptions
At 31 December 2017 At 30 June 2017 At 31 December 2016
Rate of employee turnover Specific table with rates differentiated by length of service. The average length of service for participants corresponds to an annual rate of 0.14%
Actuarial gains and losses are generated by the following factors: tab. B5.3 - Actuarial gains and losses
(1) 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 2017, borrowings from financial institutions amount to €4,842 million and regard repurchase agreements having a total nominal value of €4,407 million, entered into with major financial institutions. These liabilities consist of: �� €3,903 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; �� €939 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 2017, the fair value96 of the above borrowings amounts to €4,853 million.
96. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Derivative financial instruments Movements in derivative financial instruments during 2017 are described in note A5.
Cheques to be credited to postal savings books - 243 243 - 284 284
Amounts to be credited to customers - 118 118 - 102 102
B7 - Financial liabilities (€1,355 million) tab. B7 - Financial liabilities
Borrowings Other than the guarantees described in the following notes, borrowings are unsecured and are not subject to financial covenants, which would require the Company to comply with financial ratios or maintain a certain minimum rating. Financial institutions borrowings are subject to standard negative pledge clauses97.
The fair value100 of the two fixed rate EIB loans, totalling €400 million, is €402 million at 31 December 2017.
At 31 December 2017, the following credit facilities are available: �� committed lines of €1,173 million (including lines with a value of €1 billion extinguished on 2 February 2018); �� uncommitted lines of credit of €1,059 million; �� overdraft facilities of €160 million; �� unsecured guarantee facilities with a value of €505 million.
Derivative financial instruments Movements in derivative financial instruments during 2017 are described in note A6.
Other trade payables 9 12 of which attributable to BancoPosta RFC 63 87
Amounts due to suppliers tab. B8.1 - Amounts due to suppliers
Overseas postal operators(*) 108 128 of which attributable to BancoPosta RFC 29 40
(*) The amount due to overseas counterparties regards fees payable to overseas postal operators and companies in return for postal and telegraphic services received.
Prepayments and advances from customers 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
B9 - Other liabilities (€2,775 million) tab. B9 - Other liabilities
Other amounts due to subsidiaries 7 30 37 6 17 23
Accrued expenses and deferred income from trading transactions 11 30 41 12 25 37 of which attributable to BancoPosta RFC 1,115 65 1,180 936 61 997
Amounts due to staff These items primarily regard accrued amounts that have yet to be paid at 31 December 2017. The following table shows a breakdown: tab. B9.1 - Amounts due to staff
Total of which attributable to BancoPosta RFC - 7 7 - 7 7
Other amounts due to subsidiaries and joint ventures tab. B9.4 - Other amounts due to subsidiaries
This item primarily regards the amount payable to subsidiaries by Poste Italiane SpA, as the consolidating entity in the tax consolidation arrangement (note 2.3 – Summary of significant accounting standards and policies), to whom the subsidiaries have transferred tax assets in the form of payments on account, withholding taxes and taxes paid overseas, after deducting IRES payable to the Parent Company by the subsidiary, Poste Vita SpA, and the benefit connected with the tax losses contributed by Mistral Air Srl, Postel SpA, SDA Express Courier SpA and Risparmio Holding SpA in 2017.
Postal Services Revenue from Postal Services breaks down as follows: tab. C1.1 - Revenue from Postal Services
Other products and services 67 83 101. This amount was previously accounted for in “Provisions for doubtful debts due from the MEF” and recognised following new provision made in the State Budget to cover prior contractual obligations.
In particular: �� Fees for the collection of postal savings deposits relate to remuneration for the provision and redemption of Interestbearing Postal Certificates and payments into and withdrawals from Postal Savings Books. This service is provided by Poste Italiane SpA on behalf of Cassa Depositi e Prestiti under the Agreement of 4 December 2014, originally intended to cover the five-year period 2014-2018. On 14 December 2017, the new Agreement for the three-year period 2018-2020 was signed.
�� 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
Interest income on asset swaps of available-for-sale financial assets (49) (33)
�� Other revenue from current account services primarily relates to charges on current accounts (€210 million), fees on amounts collected and on statements of account sent to customers (€112 million), annual fees on debit cards (€28 million) and related transactions (€50 million).
Other sales of goods and services 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 €23 million and income from call centre services, amounting to €7 million.
Realised gains on other investments in 2017 regard the gain generated by the sale of shares in Mastercard Incorporated, as described in note A5 – Financial assets attributable to BancoPosta.
Gains on the sale of investments are non-recurring and regard the sale of the 100% interest in Banca del Mezzogiorno– MedioCreditoCentrale SpA.
Net provisions (reversals) for disputes with staff [tab. B4] (25) 4
The following table shows the Company’s average and year-end headcounts by category: tab. C6.1 - Workforce
Permanent workforce 2017 2016 At 31 December 2017 At 31 December 2016
C7 - Depreciation, amortisation and impairments (€481 million) tab. C7 - Depreciation, amortisation and impairments
Net provisions and losses on doubtful debts (uses of provisions) 30 10
(1) For the purposes of reconciliation with the statement of cash flows, in 2017 finance income after foreign exchange gains and dividends from associates amounts to €24 million (€35 million in 2016).
(2) Finance income on discounted receivables regards interest on amounts due from staff and INPS under the fixed-term contract settlements of 2006, 2008, 2010, 2012, 2013 and 2015.
Net provisions for risks and charges and bad debts 20 2.97% 26 3.36%
Net provisions for risks and charges and bad debts 5 0.80% 1 0.15%
Deferred tax assets and liabilities Details of this item at 31 December 2017 are shown in the following table: tab. C10.4 - Deferred taxes
Non-recurring income/(expense) recognised in profit or loss due to adjustment to IRES rate -
Income/(Expenses) recognised in profit or loss - - 3 22 - 3 28
Income/(expenses) recognised in equity - 60 - - (1) - 59 tab. C10.7 - Movements in deferred tax liabilities
Consorzio Servizi Telef. Mobile ScpA - - - - - 6 - 9 -
Poste Tributi ScpA (in liquidation) - 2 5 1 - 7 - - -
Ministry of the Economy and Finance 6,011 - 312 17 379 3,483 - 97 8
Monte dei Paschi di Siena Group - - 2 - 6 - - - -
Banca del Mezzogiorno-MedioCredito Centrale SpA - 250 1 - - 25 - - -
Consorzio Servizi Telef. Mobile ScpA - - - - - - - 9 -
Other related parties external to the Group - - 4 - - - - 14 62
Provisions for doubtful debts from external related parties - - (40) (10) - - - - -
At 31 December 2017, total provisions for risks and charges made to cover probable liabilities arising from transactions with related parties external to the Company and attributable primarily to trading relations amount to €71 million (€60 million at 31 December 2016).
�� Other income from the Invitalia group refers to the gain recognised following the sale of the investment in Banca del Mezzogiorno–MedioCreditoCentrale SpA (note A11).
Impact of related party transactions and positions The impact of related party transactions on the financial position, profit or loss and cash flows is shown in the following table: Impact of related party transactions
Provisions for risks and charges 1,538 71 4.6 1,408 60 4.3
Financial liabilities attributable to BancoPosta 61,853 4,191 6.8 59,193 2,747 4.6
Revenue from sales and services 8,060 2,844 35.3 8,219 2,910 35.4
Net cash flow from/(for) operating activities 5 723 n.a. 2,422 3,599 n.a.
Net cash flow from/(for) investing activities (180) 183 n.a. (240) 112 n.a.
Net cash flow from/(for) financing activities and shareholder transactions (501) (328) 65.5 (987) (477) 48.3
Key management personnel Key management personnel consist of Directors, members of the Board of Statutory Auditors and the Supervisory Board, managers at the first organisational level of the Company and Poste Italiane’s manager responsible for financial reporting. The related remuneration, gross of expenses and social security contributions, is as follows: Remuneration of key management personnel
6. Risk management 103. Following the amendment of art. 1, paragraph 1097 of Law 296 of 27 December 2006, introduced by art. 1, paragraph 285 of the 2015 Stability Law (Law 190 of 23 December 2014), it became possible for BancoPosta RFC to invest up to 50% of its deposits in securities guaranteed by the Italian government. As of 1 April 2015 the match between BancoPosta’s private customer deposits and related investments, which is verified on a quarterly basis, relates to the amortised cost calculated on the ex coupon value of the financial instruments held in portfolio. Before, the equivalence was measured based on the nominal value of the instruments.
�� Poste Italiane SpA’s financial transactions primarily relate to BancoPosta’s operations, asset financing and liquidity investment. BancoPosta RFC’s operations consist in the active management of liquidity generated by postal current account deposits, carried out in the name of BancoPosta but subject to statutory restrictions, and collections and payments on behalf of third parties. The funds deposited by private account holders in postal current accounts are invested in euro zone government securities103, whilst deposits by Public Administration entities are deposited with the MEF. The investment profile is based on the constant monitoring of habits of current account holders and a use of a leading market operator’s statistical/econometric model that forecasts the interest rates and maturities typical of postal current accounts. Accordingly, the portfolio composition aims to replicate the financial structure of current accounts by private customers. The company has also an asset-liability
model in place to match the maturities 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 285104, which, among other things, requires definition of a Risk Appetite Framework (RAF105), 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. Following the positive performance of current account deposits in 2017, from June onwards, the process of monitoring the risk profile indicated that there had been a decline in the leverage ratio to below the threshold set in the Risk Appetite Framework (RAF). The leverage ratio at 31 December 2017 stands at approximately 3.11% (3% being the minimum level required by the regulations). In order to restore the leverage ratio to the target level set out in the RAF (3.15%), on 25 January 2018, Poste Italiane SpA’s Board of Directors approved the recapitalisation of BancoPosta by transferring free reserves of €210 million. The relevant functions will continue to keep a close eye on the leverage ratio throughout 2018 to ensure, over time, that it continues to meet the related targets, thresholds and limits established in the RAF. Operations not covered by BancoPosta RFC, primarily relating to management of the Parent Company’s own liquidity, are carried out in accordance with investment guidelines approved by the Board of Directors, which require the Company to invest in instruments such as government securities, high-quality corporate or bank bonds and term bank deposits. Liquidity is also deposited in postal current accounts, subject to the same requirements applied to the investment of deposits by private current account holders.
�� Financial instruments held by the insurance company, Poste Vita SpA, primarily relate to investments designed to cover its contractual obligations to policyholders on traditional life policies and index-linked and unit-linked policies. Other investments in financial instruments regard investment of the insurance company’s free capital. 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 2017, 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 impact of financial risk on investment performance can be absorbed in full or in part by the insurance provisions based on the level and structure of the guaranteed minimum returns and the profit-sharing mechanisms of the “separate portfolio” for the policyholder. The company determines the sustainability of minimum returns through periodic analyses using an internal financial-actuarial (Asset-Liability Management) model which simulates, for each separate portfolio, the change in value of the financial assets and the expected returns under a “central scenario” (based on current financial and commercial assumptions) and under stress and other scenarios based on different sets of assumptions. This model makes it possible to manage the risks assumed by Poste Vita SpA on a quantitative basis, thereby fostering reduced earnings volatility and optimal allocation of financial resources. Index-linked and unit-linked products, relating to Class III insurance products, regard policies where the premium is invested in Italian government securities, warrants and mutual investment funds. In the case of index-linked policies issued, the company assumes sole liability for solvency risk associated with the instruments in which premiums are invested, providing a guaranteed minimum return only when called for by contract. The company continuously monitors changes in the risk profile of individual products, focusing especially on the risk linked to the insolvency of issuers.
Poste Assicura SpA’s investment policies are designed to preserve the Company’s financial strength, as outlined in the framework resolution approved by the Board of Directors on 19 October 2017. Regular analyses of the macroeconomic context and market trends for the different asset classes, with the relevant effects on asset-liability management, are conducted. For the non-life business, such analyses do not consider guaranteed minimum returns but, rather, focus on the management of liquidity in order to meet claims.
�� the Financial and Insurance Services Committee, established on 19 March 2018 to replace the previous Finance, Savings and Investment Committee, with the aim of overseeing the process of developing the products and services distributed by BancoPosta, in order to take a uniform, integrated view of the entire offering and to monitor the performance of the financial investments in which private customer deposits are invested.
+ Vol - Vol + Vol - Vol + Vol - Vol + Vol - Vol 2017 effects
Available-for-sale financial assets 1,248 117 (117) 111 (111) - - 6 (6)
Financial asset at fair value through profit or loss 22,452 804 (804) 804 (804) - - - -
Fair value through profit or loss (liabilities) - - - - - - - - 2016 effects
Fair value through profit or loss 233 59 (59) 59 (59) - - - -
Available-for-sale financial assets refer to: �� Other investments in the form of units of mutual investment funds, amounting to €1,190 million, held by Poste Vita SpA to meet its obligations to policyholders under the separately managed portfolios; �� equities held by BancoPosta RFC, totalling €41 million, consisting of €37 million in Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) and €4 million in Class C shares of Visa Incorporated. For the purposes of the sensitivity analysis, the equities are matched with the corresponding amount of the Class A shares, considering the volatility of the shares listed on the NYSE; �� equities held by Poste Vita SpA in Class I separately managed portfolios, totalling €17 million.
Available-for-sale financial assets - - - - - - 2016 effects
The table below shows the sensitivity to foreign exchange risk of the Poste Italiane Group’s most significant positions at 31 December 2017.
Available-for-sale financial assets 143 136 11 (11) - - 11 (11)
The risk in question regards equities held by the Parent Company and two private equity funds in which Poste Vita SpA has invested.
This 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. The impact of these effects is directly related to the financial instrument’s duration.
Available-for-sale financial assets 124,162 134,552 (6,614) 6,536 (5,450) 5,450 - - (1,164) 1,086
Available-for-sale financial assets 113,211 126,903 (6,386) 6,319 (5,144) 5,144 - - (1,242) 1,175
Financial assets at FV through profit or loss 9,879 10,117 (341) 329 (340) 328 (1) 1 - -
Fair value though profit or loss - - - - - - - - - -
Within the context of financial assets at fair value through profit or loss, fair value interest rate risk concerns a portion of the fixed rate investments of Poste Vita SpA, totalling €6,220 million (consisting of investments with a fair value of €2,152 million, relating to coupon stripped106 BTPs primarily covering obligations associated with Class III insurance products, investments with a fair value of €4,068 million, relating to corporate bonds primarily covering Class I and V contractual obligations linked to separately managed accounts, and investment of the company’s free capital), investments with a fair value of €546 million, relating to bonds issued by CDP SpA to cover Class III policies, and, to a lesser extent, Poste Vita SpA’s investments in “Other investments”, represented by mutual funds, totalling €120 million.
106. 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.
At 31 December 2017, with reference to the interest rate risk exposure determined by the average duration107 of the portfolios, the duration of BancoPosta’s overall investments went from 5.56 to 5.30. 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 6.08 at 31 December 2016 at 6.13 at 31 December 2017, whilst the duration of the liabilities went from 7.26 to 7.84. The financial instruments intended to cover the technical provisions for Class III policies have maturities that match those of the liabilities.
Nominal Fair value +100 bps -100 bps +100 bps -100 bps +100 bps -100 bps 2017 effects
Available-for-sale financial assets 35,738 39,099 (1,009) 931 - - (1,009) 931
Financial liabilities 107. Duration is the indicator used to estimate the percentage change in price of in response to a shift in market returns.
The value of the portfolio of bonds issued or guaranteed by the Italian government is much more sensitive to the credit risk associated with the Italian Republic than to changes in so-called risk-free interest rates. This is due to the fact that changes in credit spreads are not hedged and regard the entire securities portfolio, meaning both the fixed and variable rate components. In this latter case, in fact, fair value derivatives, used to convert variable rate instruments, hedge only the risk-free interest rate risk and not credit risk. This means that a change in the credit spread has an equal impact on both fixed and variable instruments.
Available-for-sale financial assets 32,178 37,159 (3,615) 4,292 - - (3,615) 4,292
Available-for-sale financial assets 500 562 (21) 22 - - (21) 22
Nominal Fair value +100 bps -100 bps +100 bps -100 bps +100 bps -100 bps +100 bps -100 bps 2017 effects
The table below shows the VaR analysis performed on the portfolios of the Parent Company and the Poste Vita group at 31 December 2017, solely with reference to spread risk.
This risk is managed though minimum rating requirements for issuers/counterparties, based on the type of instrument; concentration limits per issuer/counterparty; the monitoring of changes in the ratings of counterparties.
Balance at 31 December 2017 Balance at 31 December 2016 from Aaa to
Financial assets at FV through profit or loss 136 6,058 572 6,766 249 9,892 417 10,558
Fair value through profit or loss - 184 - 184 - 233 - 233
The Poste Italiane Group’s trade receivables exposed to credit risk at 31 December 2017 are shown in the table below.
Poste Italiane Group - Credit risk on other receivables and assets
Due from tax authorities - tax withholdings 3,467 - 3,110 -
Accrued income and prepaid expenses from trading transactions 11 - 16 -
Interest accrued on IRAP refund 3 - - of which past due 58 46
Total from Aaa to Aa3 from A1 to Baa3 from Ba1 to Not rated
Held-to-maturity financial assets - - - - - - - -
Amount due under 2015 Stability Law implementing EU Court sentence - - 6 -
The above table shows expected cash outflows at the date of the financial statements, broken down by maturity, while the maturities of postal current account deposits are reported on the basis of the estimates made with a statistic/econometric model. 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 2017. The liabilities of Poste Vita SpA and Poste Assicura SpA are reflected in “Flows from Poste Vita group’s policies”.
Available-for-sale financial assets 9,619 55,447 110,169 175,235 7,997 46,455 107,835 162,287
Financial assets at FV through profit or loss 2,316 4,602 37,801 44,719 4,483 4,987 22,294 31,764
In terms of BancoPosta RFC’s specific operations, the liquidity risk regards current account deposits and prepaid cards, the related investment of the deposits in Eurozone government securities and /or securities guaranteed by the Italian government, and the margins on derivative transactions. The potential risk derives from a mismatch between the maturities of investments in securities and those of liabilities, represented by current accounts where the funds are available on demand, thus compromising the Parent Company’s ability to meet its obligations to current account holders. This potential mismatch between assets and liabilities is monitored via comparison of the maturity schedule for assets with the statistical model of the performance of current account deposits, in accordance with the various likely maturity schedules and assuming the progressive total withdrawal of deposits over a period of twenty years for retail customers, ten years for business customers and PostePay cards and five years for Public Administration customers.
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 euro area government securities are highly liquid assets and can be used as collateral in interbank repurchase agreements to obtain short-term financing. This practice is normally adopted by BancoPosta.
Available-for-sale financial assets 4,143 9,767 39,362 53,272 2,005 9,087 36,522 47,614
Sensitivity to cash flow interest rate risk at 31 December 2017 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 2017 effects
Specifically, with respect to financial assets, the cash flow interest rate risk primarily relates to: �� a portion of the securities portfolio held by the Poste Vita group, with a nominal value of €14,197 million; �� investment by the Parent Company 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 €6,011 million; �� fixed rate government bonds held by the Parent Company and swapped into variable rate through fair value hedges, with a total nominal amount of €1,985 million (including €745 million in securities hedged against changes in fair value, where the hedges will begin to have an effect on profit or loss in the 12 months after the end of the period under review); in addition to a security issued by CDP with a nominal value of €500 million and an inflation-linked bond issued by the Italian Republic, with a nominal value of €100 million, both of which have been hedged against changes in its fair value; �� receivables of €1,219 million, reflecting collateral posted to secure liabilities arising in relation to derivative financial instruments held by BancoPosta RFC, amounting to €1,179 million.
In relation to cash and cash equivalents, cash flow interest rate risk primarily regards the bank deposits of Poste Italiane SpA and Poste Vita SpA, in addition to amounts deposited by the Parent Company with the MEF and held in the so-called buffer account.
The table below analyses the sensitivity of future cash flows for the Poste Italiane Group’s financial assets at 31 December 2017.
Position Change in value Effect on liabilitiy toward policyholders Pre-tax profit
Available-for-sale financial assets 12,475 14,136 43 (43) 40 (40) 3 (3)
At 31 December 2017, cash flow inflation risk regards inflation-linked government securities not subject to cash flow hedges or fair value hedges. Of the total nominal value, securities totalling €10,320 million are held by the Poste Vita group and securities totalling €2,145 million by BancoPosta RFC.
In 2017, a series of steps have been taken to refine the operational risk management framework, with the aim of making the process of recording operational losses more efficient and mitigating such risks. This has involved the creation of cross-functional working groups. Support has also been provided to the specialist units and the user responsible for the process of analysing and assessing IT risk, in keeping with the approach adopted in 2016.
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 is carried out in keeping with the related solvency requirements, and involves both qualitative and quantitative analysis, conducted through a structured process for identifying internal losses 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 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.).
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.
Reputational risk In line with the related regulatory requirements and leading practices, Poste Italiane SpA is developing a specific, integrated framework for assessing, monitoring and reporting reputational risks at Group level, using a process-based approach. The model identifies the Group’s key stakeholders (among them employees, customers, suppliers and regulators), topics of interest and the drivers of the related impacts (for example, integrity and transparency). It also identifies the departments within Poste Italiane SpA and Group companies involved in managing stakeholders, defining the related roles and responsibilities, assessment criteria, the tools and flows involved in reporting to senior management and corporate bodies. The project forms part of the steps being taken to put in place a formalised stakeholder engagement programme, with the aim of addressing sources of reputational risk, guiding sustainability initiatives and reporting on them, partly for the purposes of the disclosures of non-financial information.
In this regard, in order to optimise the risk-return profile of the products offered to its customers, Poste Italiane SpA has adopted competitive selection policies and procedures for third-party issuers, entailing the selection of domestic and foreign issuers consisting solely of banks and other financial companies with investment grade ratings. In addition, in order to protect and safeguard the Group’s excellent reputation and public confidence in its operations and to protect its commercial interests from potential dissatisfaction among savers, significant monitoring activity is carried out throughout the Group to keep track of the performance of individual products and of changes in the risks to which customers are exposed; this involves conducting careful assessments based on the contractual nature of the products in question in terms of how they meet the needs of the various customers.
In particular, with regard to real estate funds sold in the period 2002-2005, which have given rise to a number of complaints and disputes, the Company is closely monitoring performance through to the respective maturities, assessing the potential impact on the provisions for risks and charges accounted for in the financial statements. During the year ended 31 December 2017, the estimate of the liabilities deriving from risks linked to disputes with customers regarding certain financial instruments and investment products, sold in previous years and that have not yet reached maturity, whose performance is not in line with expectations, was prudently revised. on 16 January 2017, Poste Italiane SpA’s Board of Directors passed a resolution aimed at protecting 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 estimated liabilities resulting from this initiative were recognised in provisions for risks and charges, with a total of €48 million used at 31 December 2017 following implementation. In addition, with a view to consolidating the Company’s historical customer relationships, based on trust and transparency, on 19 February 2018, Poste Italiane SpA’s Board of Directors approved an initiative designed to protect customers who, in 2004, against a different economic and regulatory backdrop compared with today’s, purchased units issued by the Europa Immobiliare 1 fund and who still held the units at 31 December 2017, the date of the fund’s maturity. With sole regard to this product, the aim is 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 “Final Liquidation Distribution”. The estimated liabilities resulting from this initiative have been recognised in provisions for risks and charges at 31 December 2017 (note B6).
Information on categories of reputational risk other than those linked to the sale of financial products is provided below.
On 30 December 2015, SDA terminated contracts for the provision of call centre services previously entered into with Uptime SpA – a company in which it held a 28.57% interest – and Gepin Contact SpA - Uptime SpA’s majority shareholder – with effect from 1 July 2016.
In December 2016, Poste Italiane and SDA were served a writ of summons by Gepin and Uptime, containing claims for damages of approximately €66.4 million, in the case of Uptime (in liquidation), and approximately €16.2 million, in the case of Gepin. At the hearing in October 2017, Gepin Contact SpA’s legal counsel announced the company’s bankruptcy.
On 27 February 2015, the tax authorities notified Poste Italiane SpA of an indictment for accounting irregularities before the Court of Auditors for the Lazio region, regarding a number of accounting records for the handling and distribution of revenue stamps in the years between 2007 and 2010. The hearing was held on 2 July 2015. With sentence no. 332 of 9 July 2015, the Court of Auditors for the Lazio region fined the Parent Company an amount of €8 million, plus monetary revaluation and legal interest. The Company filed an appeal and, on 15 November 2017, the Court of Auditors issued judgement 542, upholding the appeal and limiting the initial fine to the sum already paid by the Company, amounting to €4 million.
Tax disputes 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 addition, based on the findings set out in the tax audit report of 8 October 2015, the tax authorities: �� with regard to the 2012 tax year, on 25 November 2016, notified Postel SpA of a tax assessment notice relating to IRES, IRAP, VAT and withholding tax of €0.1 million, plus penalties and interest. On 19 January 2017, the company appealed the assessment notice, at the same time paying a provisional amount equal to about half of the requested amount. At the hearing held on 13 February 2018, the appeal was upheld and the tax authorities were ordered to pay costs.
�� with regard to the 2013 tax year, on 24 July 2017, notified Postel SpA of a tax assessment notice relating to VAT, IRES, IRAP and withholding tax of approximately €0.2 million, plus penalties and interest. The company appealed the assessment notice on 23 October 2017, at the same time paying a provisional amount equal to about half of the requested amount. A date for the appeal hearing has yet to be fixed.
Poste Italiane Financial statements for the year ended 31 December 2017 7. Proceedings pendingand principal relations with the authorities
In relation to the three combined actions of the five pending before the Court of Genoa, on 11 July 2017, the court read out the judgement upholding INPS’s claim, amounting to €9.16 million, only to the extent of the difference in contributions between the family benefits paid by Postel to employees and the amount assessed by INPS in the form of contributions for family benefits. The company was ordered to pay just €0.22 million. The contribution for income support, extraordinary income support, unemployment benefit (€8.94 million) is not payable, on the basis that, given that Postel is wholly owned by the State through the Parent Company (the requirement was met until Poste Italiane SpA’s floatation), it is included among the state-owned enterprises which are exempted by law from the obligation to pay contributions for income support and unemployment benefit. On 20 October 2017, the company proceeded to pay the sum requested. On 9 March 2018, INPS filed an appeal, contesting the merits of the judgement at first instance and the sum arrived at. In the view of INPS, the rate applicable for contributions for family benefits, in line with recent guidance issued by INPS, should have been 4.40% in place of the 0.68% applied in the payment notices involved in the court action. The company will oppose INPS’s claims, as they are inadmissible in court.
The other two cases are still pending and are still at the preliminary stage, relating to the appeals filed by Postel SpA against the payment orders for the periods from February 2011 to September 2017, amounting to outstanding contributions of €9 million, in addition to approximately €0.645 million in contributions for 2017, for which no payment orders or adjustment notices have been received.
Taking into account the favourable judgement at first instance on 11 July 2017 and the reasons given, the company has adjusted its provisions for risks and charges to reflect the relevant liability.
109. In fact, in its ruling of 14 September 2016, the AGCM clarified that, at that time, there were no grounds to justify action pursuant to Law 287/90, as art. 8, paragraph 2-quater of Law 287/90 does not establish a generic obligation to grant access to the network on ad hoc terms, but an obligation to grant access on equivalent terms to those applied to subsidiaries.
European Commission On 13 September 2013, the Court of Justice of the European Union upheld Poste Italiane SpA’s appeal, overturning the decision of the European Commission of 16 July 2008 on state aid, ordering the EC to pay legal costs. Acting on the European Commission’s Decision, and in accordance with instructions from the Parent Company’s shareholder, in November 2008 Poste Italiane SpA made available €443 million plus interest of €41 million to the MEF, which collected the sum in January 2009. In implementation of the European Court’s (by then definitive) decision, in accordance with art.1 paragraph 281 of the 2015 Budget Law, (Law 190 of 23 December 2014), on 13 May 2015, the Company collected the amount of €535 million from its then sole shareholder, the MEF. Following the European Court’s decision, however, the European Commission reopened its review and appointed an external expert to determine whether (in accordance with art. 1, paragraph 31 of the 2006 Budget Law - Law 266 of 23 December 2005) the rates of interest earned by the Company on deposits with the MEF during the period from 1 January 2005 to 31 December 2007 were in line with market rates. The external expert has provided the Commission, on a preliminary basis, with an 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.
AGCM (the Antitrust Authority) 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. 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, which has adjourned the case until a hearing on the merits.
Poste Italiane and PosteMobile lodged an appeal against the ruling before Lazio Regional Administrative Court which, whilst rejecting the appeals lodged by Poste and Poste Mobile, confirmed the principle, backed by Poste Italiane and expressly approved by the AGCM, under which the obligation established by art. 8, paragraph 2-quater of Law 287/90 regards equality of treatment. As a result, H3G’s request was unlawful, as it aimed to limit access to certain areas of Poste Italiane’s network and was not interested in obtaining treatment equal to that applied by Poste Italiane to its subsidiary, Poste Mobile109.
Following the above ruling from the AGCM, H3G submitted a writ of summons to the Court of Rome, citing Poste Italiane and PosteMobile and requesting an order to pay compensation for damages incurred, arising from the violations referred to in the above ruling, amounting to approximately €375.8 million. At the hearing held on 29 March 2017, the investigating judge ordered the appointment of an independent expert.
On 13 December 2017, the Authority handed down the final ruling of the investigation, notified on 15 January 2018, by which an infringement regarding abuse of dominant position was ascertained, with a warning to the Company to refrain from similar conduct in the future. The same ruling imposed an administrative fine which was limited – compared with the Authority’s previous fines – to 2% of turnover and discounted in relation to the compliance obligations undertaken in advance by Poste Italiane and positively assessed by Nexive, amounting to €23 million. The Company has taken this fine into account when calculated provisions for disputes with third parties (note B6) at 31 December 2017. The AGCM set a 60-day deadline for submitting the compliance report.
Poste Italiane lodged an appeal against the above ruling before the Lazio Regional Administrative Court with a request for suspension, which was not granted, and a hearing on the merits was set for 5 December 2018. In the meantime, the Company has entered into dialogue with the Antitrust Authority to define the compliance proposals.
Autorità per le Garanzie nelle Comunicazioni (AGCOM - the Italian Communications Authority) Law Decree 201 of 6 December 2011, converted into Law 214 of 22 December 2011, transferred responsibility for regulation and supervision of the postal sector from the Ministry for Economic Development to the Italian Communications Authority (AGCom).
iv. In September 2017, the regulator published Resolution 298/17/CONS relating to its assessment of the net cost of the universal postal service incurred by the Company for 2013 and 2014 and the applicability of the mechanism for allocating such cost. In detail, the regulator has assessed the cost of providing the universal service for 2013 and 2014 to be €393 million and €409 million, respectively, compared with revenue of €343 million and €277 million recognised in Poste Italiane SpA’s statement of profit or loss in previous years. The regulator has also announced that the compensation fund to cover the cost of providing the universal service, as provided for in art. 10 of Legislative Decree 261/1999, has not been set up. On 6 November 2017, the Company challenged this resolution by filing an appeal before the Regional Administrative Court (TAR).
110. 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.
IVASS - Istituto per la Vigilanza sulle Assicurazioni (the insurance regulator) On 20 March 2017, IVASS began an inspection of Poste Vita pursuant to art. 189 of the Private Insurance Code (Legislative Decree 209 of 7 September 2005) ended on 28 June 2017. The focus of the inspection was “an audit of the best estimate of liabilities and the assumptions used in computing such liabilities and solvency capital requirements (SCR), including on a prospective basis”. On 27 September 2017, Poste Vita provided the documentation requested. On 27 September 2017, IVASS sent Poste Vita the results of the inspection. Finding that the degree of implementation of the Solvency II framework was satisfactory overall, the regulator did not identify any specific shortcomings, and issued a partially favourably opinion, making a number of points and observations. Therefore, on 25 October 2017 the company submitted its considerations regarding the investigations and corrective measures required by the inspection report to IVASS, and planned a series of activities aimed at implementing the improvement initiatives recommended by the Authority. To date, Poste Vita’s implementation of the planned actions is on schedule.
CONSOB In 2017, in line with the roll-out plan launched in October 2016, IT releases were completed for the new guided consultancy platform, which was gradually extended to the entire Poste Italiane network during the year. In parallel, during the second half of 2017, the segment was subject to further compliance initiatives aimed at implementing the MiFID 2 Directive, which came into force on 3 January 2018. The innovations made to procedural and IT structures, and the further initiatives planned in 2018 to consolidate the Company’s oversight of them, were the subject of specific reporting to the CONSOB.
Italian National Anti-Corruption Authority (ANAC) On 18 November 2016, the Italian National Anti-Corruption Authority (ANAC) notified Postel SpA that it was launching an investigation following a report from the commissioning body, Fondimpresa, following Postel’s exclusion from a tender called to award a contract for the provision of digital mail and document storage services. The total value of the contract was €0.4 million. The exclusion was based on the fact that Postel, subjected to the checks required by art. 48, paragraph 2 of Legislative Decree 163/2006, did not provide evidence, within the required deadline, that it could meet the related financial and technical and organisational requirements contained in the tender terms and conditions. On 9 August 2017, the Authority notified Postel and the commissioning body of its decision to close the proceedings, without imposing any sanctions.
�� On 19 February 2018, Poste Italiane SpA’s Board of Directors approved an initiative designed to protect customers who invested in the “Europa Immobiliare n.1” fund, granting the Chief Executive Officer the authority and the powers to take all the preparatory and consequent steps to implement the initiative.
113. 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.
MEF account, held at the Treasury - - 2,429 - - 2,429 2,429
Technical provisions for insurance business - - - 113,678 - 113,678 -
Loans from Cassa Depositi e Prestiti - 2,429 - 2,429 2,429
An analysis of the net funds of the Parent Company outside the ring-fence at 31 December 2017, in accordance with ESMA recommendation 319/2013, is provided below: ESMA net financial indebtedness for capital outside ring-fence
114. Paragraph 42 of IAS 32 provides that “A financial asset and a financial liability can be offset and the net amount presented in the statement of financial position when, and only when, an entity: a. currently has a legally enforceable right to set off the recognised amounts; and b. intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.”
In particular, the disclosures in question concern the following positions relating to Poste Italiane SpA at 31 December 2017: �� derivative assets and liabilities and related collateral, represented by both cash and government securities; �� repurchase agreements and reverse repurchase agreements and the related collateral, represented by both cash and government securities.
Financial assets/liabilities offset in the statement of financial position, or subject to a master netting agreement or similar arrangements
In accordance with IFRS 7 – Financial Instruments: Disclosures, this section provides additional information on the transfer of financial assets that are not derecognised (continuing involvement).
Financial liabilities arising from repos (4,840) (4,842) (4,853) (5,379) (5,381) (5,419)
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 Parent Company and as collateral for SEPA Direct Debits.
Securities used as collateral for intraday credit from the Bank of Italy and for Sepa Direct Debits 520 533 493 505
Nature of the involvement in the unconsolidated structured entity The purpose of Poste Vita’s investment in the funds is to diversify its portfolio of financial instruments intended to cover Class I products (Separately Managed Accounts), with the objective of mitigating the concentration of investments in Italian government. Details are provided below.
Available-for-sale financial assets horizon * Maximum loss is estimated without considering the ability of liabilities to offset losses, thus representing a more prudential estimate
The table below shows the types of financial instruments in which the funds invest and the main markets of reference.
The total number of phantom stocks awarded to the 44 Beneficiaries of the First Cycle of the Plan amounted to 473,073. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was done using Monte Carlo simulations. The cost recognised for 2017 is approximately €0.2 million, whilst the liability recognised in amounts due to staff is approximately €1.5 million.
The total number of phantom stocks awarded to the 55 Beneficiaries of the Second Cycle of the Plan amounted to 609,491. The fair value of each stock at 31 December 2017 was estimated to be €3.98 with regard to the plan for the Chief Executive Officer and General Manager, BancoPosta RFC personnel and Poste Vita’s personnel, and €4.17 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 done using Monte Carlo simulations. The cost recognised for 2017 is approximately €0.8 million, equivalent to the liability recognised in amounts due to staff.
The total number of phantom stocks awarded to the 42 Beneficiaries of the First Cycle of the Plan outstanding at 31 December 2017 amounted to 447,800. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was done using Monte Carlo simulations. The cost recognised for 2017 is approximately €0.2 million, whilst the liability recognised in amounts due to staff is approximately €1.4 million.
The total number of phantom stocks awarded to the 52 Beneficiaries of the Second Cycle of the Plan amounted to 574,141. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was done using Monte Carlo simulations. The cost recognised for 2017 is approximately €0.8 million, equivalent to the liability recognised in amounts due to staff.
Severance payments on termination of employment Severance payments to BancoPosta RFC’s Material Risk Takers on early termination are paid in accordance with the same procedures applied to short-term variable remuneration as regards deferral, payment in financial instruments and verification of the minimum regulatory capital and liquidity requirements for BancoPosta RFC.
Consorzio per i Servizi di Telefonia Mobile ScpA (Rome) (*) 100.00% 120 - 120
Address Software Srl (Rome) Subsidiary 237 51.00% 931 466 465 1,087 38
Anima Holding SpA (Milan) (a) Associate 218,911 10.04% 1,212,463 372,770 839,693 578,620 (*) 78,347
Conio Inc. (San Francisco) (b) Associate 68 20.00% 346 136 210 - 220
Other SDA Express Courier associates (f) Associate 4 a. Data derived from the latest consolidated interim accounts for the period ended 30 September 2017 approved by the company’s board of directors. b. Data for Conio Inc. and its subsidiary, Conio Srl at 30 June 2017. c. Data derived from the latest interim accounts for the period ended 30 September 2017 approved by the company’s board of directors, including measurement of the SIA group at equity and the effects recognised at the time of Purchase Price Allocation. d. Data derived from the accounts for the period ended 31 December 2016, the latest approved by the company. e. Data derived from the accounts for the period ended 31 December 2015, the latest approved by the company. f. The other associates of the SDA Express Courier Group are: MDG Express Srl and Speedy Express Courier Srl. (*) The amount includes commissions, interest income and other similar income.
Item� (€m) At 31 December 2017 related to subsidiaries At 31 December 2016 related to subsidiaries
Instalments falling due: within 1 year of the reporting date 145 7 146 7 between 2 and 5 years after the reporting date 333 20 316 5 more than 5 years after the reporting date 55 5 53 1
Sureties and other guarantees issued: by banks/insurance companies in the interests of Group companies in favour of third parties 283 321 by the Group in its own interests in favour of third parties 21 -
Sureties and other guarantees issued: by banks in the interests of Poste Italiane SpA in favour of third parties 172 212 by Poste Italiane SpA in the interests of subsidiaries in favour of third parties 59 59 letters of patronage issued by Poste Italiane SpA in the interests of subsidiaries 21 1
(*) The above amounts do not include incidental expenses and charges. (**) The amounts shown do not include fees for auditing services performed in respect of funds managed by BancoPosta Fondi SGR SpA and payable by investors, amounting to €119 thousand.
12. BancoPosta RFC Separate Report FOR THE YEAR ENDED 31 DECEMBER 2017
Liabilities and equity (€) at 31 December 2017 at 31 December 2016 30. Debt securities in issue - 40.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Financial statements
b) available-for-sale financial assets - c ) held-to-maturity financial assets - d ) other financial transactions - 140.
Net income from banking activities 5,626,015,715 5,589,812,372 b) other administrative expenses (4,522,368,521) (4,554,636,736)
170. Net losses/recoveries on property, plant and equipment - 180. Net losses/recoveries on intangible assets - 190. Other operating income/(expenses) (57,613,621) (39,373,904)
210. Profits/(Losses) on investments - 220. Profits/(Losses) on fair value measurement of property, plant and equipment and intangible assets - 240. Profits/(Losses) on disposal of investments - 250. Income/(Loss) before tax from continuing operations 770,019,838 802,520,847 260. Taxes on income from continuing operations (185,040,191) (234,244,107)
270. Income/(Loss) after tax from continuing operations 584,979,647 568,276,740 280. Income/(Loss) after tax from discontinued operations - 290. Profit/(Loss) for the year 584,979,647 568,276,740
for the year ended 31 December 2017 for the year ended 31 December 2016 10. Profit/(Loss) for the year 584,979,647 568,276,740
Other components of comprehensive income after taxes not reclassified to profit or loss 20. Property, plant and equipment - 50. Non-current assets held for sale - 60. Share of valuation reserve attributable to equity-accounted investments - -
1. Cash flow from operations 669,944,592 650,037,706 - profit/(loss) for the year (+/-) 584,979,647 568,276,740 - gains/(losses) on financial assets held for trading and on assets and liabilities designated at fair value (-/+) 1,095,199 68,387 - gains/(losses) on hedging activities (-/+) (1,897,984) 910,193 - net losses/recoveries on impairment (+/-) 14,583,719 6,363,522 - net losses/recoveries on property, plant and equipment (+/-) - - - net provisions and other expenses/income (+/-) 444,520,215 398,219,073 - unpaid taxes and duties (+) 185,040,192 234,017,820 - net losses/recoveries on discontinued operations after tax (+/-) - 2. Cash flow from/(used for) financial assets (2,070,552,058) (5,941,565,182)
- dividends received on investments - - - disposal of held-to-maturity financial assets 1,300,000,002 1,300,000,002 - disposal of property, plant and equipment - - - disposal of intangible assets - - - disposal of business division - 2.
- issuance/purchase of own shares - - - issuance/purchase of equity instruments - - - dividends and other payments (458,276,740) (586,969,571)
for the year ended 31 December 2017 for the year ended 31 December 2016
Accounting standards and interpretations applicable from 1 January 2017 and those soon to be effective
In 2017, Poste Italiane SpA prepared for implementation of the new accounting standard, IFRS 9, which will come into effect from 1 January 2018 and will largely replace the current standard, IAS 39. The purpose of the process was: i) to identify the impact of the standard (“Classification & Measurement”, “Impairment” and “Hedge accounting”), ii) to determine the quantitative and qualitative effects of transition, iii) to identify and implement the applications and organisational changes necessary in order to ensure consistent, organic and effective adoption within the Group.
BancoPosta RFC’s securities portfolio at 31 December 2017 consists of the following: �� “Held-to-maturity financial assets”: €12.9 billion; �� “Available-for-sale financial assets”: €39.1 billion.
Following application of IFRS 9 as indicated in the above note 2.7, and assuming a positive outcome to the checks being carried out, BancoPosta RFC’s securities portfolio at 1 January 2018 will consist of the following: �� “Financial assets measured at amortised cost” (business model: Hold to Collect): €19.1 billion; �� “Financial assets measured at fair value through other comprehensive income” (business model: Hold to Collect and Sell): €34.8 billion.
In 2017, Poste Italiane SpA also prepared for implementation of the new accounting standard, IFRS 15 – Revenue from Contracts with Customers, which will come into effect from 1 January 2018 and which will replace IAS 18, IAS 11 and IFRIC 13. The purpose of the process was to assess contracts of sale, categorised by type of activity, and identify each existing performance obligation and any gaps between the accounting policies currently applied and those introduced by the new standard. This involved analysing administrative and accounting processes, the available IT systems, and existing procedures to assess their compliance with the new standard. A description of the assessment carried out is provided in the above note 2.7. Application of the new standard at the transition date will not have any impact on BancoPosta RFC’s revenue reserves.
116. Under the indirect method, net cash from operating activities is determined by adjusting profit/(loss) for the year to reflect the impact of non-cash items, any deferment or provisions for previous or future operating inflows or outflows, and revenue or cost items linked to cash flows from investing or financing activities.
The Separate Report forms an integral part of Poste Italiane SpA’s financial statements and has been prepared on a going concern basis in that BancoPosta’s operations are certain to continue in the foreseeable future. BancoPosta’s accounting policies, described in the Separate Report, are the same as those adopted by Poste Italiane SpA and are relevant to all of BancoPosta RFC’s operations.
Section 3 – Events after the end of the reporting period �� On 25 January 2018, Poste Italiane SpA’s Board of Directors approved the Company’s transfer of free reserves of €210 million to BancoPosta RFC in order to restore the leverage ratio to the target level set out in the Risk Appetite Frameworkk117. At the same time, it was decided to submit the proposal to strengthen BancoPosta RFC’s capital for approval by an Extraordinary General Meeting of Poste Italiane SpA’s shareholders.
Assets 40. Available-for-sale financial assets 39,140 - 37,263 50. Held-to-maturity financial assets 12,912 - 12,683 -
In line with 2016, the services are charged for in the form of transfer prices. 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 a Poste Italiane function 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. From 2017, the resulting transfer prices are reviewed every two years.
For the purposes of oversight of the unbundled accounts, in 2017 the Board of Statutory Auditors conducted the relevant audit activities during 3 meetings, reporting its conclusions in its annual report to shareholders for the year ended 31 December 2017.
a) Recognition Available-for-sale financial assets are initially recognised on the settlement date at fair value which is generally the price paid. Any changes in fair value occurring between the trade and settlement dates are recognised in the Separate Report. If, exceptionally, recognition is the result of the reclassification of Held-to-maturity assets, recognition is at fair value at the time of the reclassification. Any difference in the initial amount at which debt securities are recognised and the amount of repayments is amortised over the term of the security.
b) Classification Available-for-sale financial assets are non-derivative financial instruments that are either designated in this category or not attributable to any of the other categories described in paragraphs 1, 3 and 4.
d) Derecognition Available-for-sale financial assets are derecognised when the contractual rights to the cash flows of those financial assets cease or on the disposal of the financial asset and substantially all risks and rewards relating to the financial asset are transferred. Any securities received as part of a transaction entailing subsequent re-sale and the delivery of securities as part of a transaction entailing their subsequent repurchase are not either recognised or derecognised.
118. 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.
a) 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.
d) Derecognition Held-to-maturity financial assets are derecognised when the contractual rights to the cash flows of those financial assets lapse or on the disposal of the financial asset and all risks and rewards relating to the financial asset are substantially transferred. Any securities received as part of a transaction entailing subsequent re-sale and the delivery of securities as part of a transaction entailing their subsequent repurchase are not either recognised or derecognised.
4 – Loans and receivables a) Classification and recognition 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.
c) Derecognition Receivables, loans and advances are derecognised when the contractual rights to the cash flows of those financial assets lapse or on disposal of the financial asset and all risks and rewards relating to the financial asset are substantially transferred.
�� Cash flow hedges: A hedge of the exposure to the variability of cash flows attributable to a particular risk associated with an asset or liability or with a highly probable forecast transaction, and that could have an impact on profit or loss.
�� Fair value hedges When the hedge is related to recognised assets or liabilities, or an unrecognised firm commitment, changes in the fair values of both the hedging instrument and the hedged item are recognised in profit or loss. Any difference represents the ineffective portion of the hedge and is accounted for as a loss or gain, recognised separately in line “Item 90 - Fair value adjustments in hedge accounting”.
In the case of hedges associated with a highly probable forecast transaction (such as, forward purchases of fixed income debt securities), the reserve is reclassified to profit or loss in the period or in the periods in which the asset or liability, subsequently accounted for and connected to the aforementioned transaction, will affect profit or loss (for example, an adjustment to the return on the security).
12 – Provisions for risks and charges 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. Under the option granted by the relevant accounting standards, limited disclosure is provided when, in rare cases, disclosure of some or all of the information regarding the risks in question could seriously prejudice BancoPosta RFC’s position, reputation or operating capability in a dispute or in ongoing negotiations with third parties, or when it could prejudice the regular operation of markets.
b) Measurement and recognition of gains and losses Due to banks and customers are measured at amortised cost, employing the effective interest rate method. If there is a change in expected cash flows and they can be reliably estimated, the value of borrowings is recalculated to reflect the change in estimated future cash flows and the internal rate of return initially applied.
14 – Financial liabilities held for trading a) Classification and recognition Financial liabilities held for trading consist either of derivatives which do not qualify for classification as hedging instruments in accordance with accounting standards or originally obtained as a hedge which was subsequently discontinued. Financial liabilities held for trading are recognised on the derivative contract date.
b) Measurement Financial liabilities held for trading are carried at fair value though profit or loss.
c) derecognition 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.
a) Recognition Foreign currency transactions are initially recognised in the functional currency by translating the foreign currency amount at the transaction date spot rate.
b) Classification, measurement, derecognition and recognition of gains and losses Foreign currency items are translated at each reporting date as shown below: �� monetary items at closing exchange rates; �� non-monetary items are recognised at their historical cost translated at the transaction date spot rate; �� non-monetary items designated at fair value at closing exchange rates.
Foreign exchange differences realised on the settlement of monetary items or on the translation of monetary and non-monetary items, using exchange rates other than the rate used to translate the item on initial recognition, are recognised in profit or loss in line “Item 80 - Profits/(Losses) on trading”.
Revenue recognition Revenue is recognised at the fair value of the consideration received, net of rebates and discounts, and in accordance with the accruals basis of accounting. Specifically: �� interest is evenly accrued over time at the contractual rate of interest or, for items carried at amortised cost, the effective interest rate; �� dividends are recognised in profit or loss when the right to receive payment is established, which generally corresponds with approval of the distribution by the shareholders of the investee company; �� service fee income is recognised in accordance with the underlying contracts in the period in which the services are rendered.
Fees, less associated costs, are recognised on a percentage of completion basis to the extent that there is reasonable certainty that they will be paid. Fees on activities carried out in favour of or on behalf of the state and Public Administration entities are recognised on the basis of the amount effectively accrued, with reference to the laws and agreements in force, taking account, in any event, of the instructions contained in legislation regarding the public finances; �� returns on the portion of current account deposits deposited with the MEF are determined on an accruals basis, using the effective interest rate method, and classified in “Item 10 – Interest and similar income”; �� the same classification is applied to income from euro area government securities, in which deposits paid into accounts by private customers are invested; �� revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods are transferred to the buyer.
Related parties external to the Group include the MEF and its direct and indirect subsidiaries and associates. Related parties also include Poste Italiane SpA’s key management personnel and the funds representing poste-employment benefit plans for the personnel of BancoPosta RFC and its related parties. The state and public sector entities other than the MEF are not classified as related parties. Related party transactions do not include those deriving from financial assets and liabilities represented by instruments traded on organised markets.
Under defined contribution plans, contributions payable are recognised in profit or loss when incurred, based on the nominal value.
�� Defined benefit plans 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 2006119, 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 Separate Report is also based on calculations performed by independent actuaries. The calculation takes account of termination benefits accrued for the period of service to date and is based on actuarial assumptions. These primarily regard: demographic assumptions (such as employee turnover and mortality) and financial assumptions (such as rate of inflation and a discount rate consistent with that of the liability). As 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.
�� Defined contribution plans 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.
Termination benefits payable to employees are recognised as a liability when BancoPosta RFC gives a binding commitment, also on the basis of consolidated relationships and mutual undertakings with union representatives, to terminate the employment of an employee, or group of employees, prior to the normal retirement date or, alternatively, an employee or group of employees accepts an offer of benefits in consideration of a termination of employment. Termination benefits payable to employees are immediately recognised as personnel expenses.
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”.
Use of estimates Preparation of the Separate Report requires the application of accounting standards and methods that are at times based on complex subjective judgments and estimates based on historical experience, and assumptions that are considered reasonable and realistic under the circumstances. Use of such estimates and assumptions affects the amounts reported in the financial statements, with reference to the statement of financial position, the income statement, the statement of comprehensive income, the statement of cash flows and the notes. The actual amounts of items for which the above estimates and assumptions have been applied may differ from those reported in previous financial statements, due to uncertainties regarding the assumptions themselves and the conditions on which estimates are based. Estimates and assumptions are periodically reviewed and the impact of any changes is reflected in the financial statements for the period in which the estimate is revised if the revision only influences the current period, or also in future periods if the revision influences both current and future periods. This section provides a description of accounting treatments that require the use of subjective estimates and for which a change in the conditions underlying the assumptions used could have a material impact on BancoPosta RFC’s Separate Report.
Provisions for risks and charges represent probable liabilities in connection with personnel, customers, suppliers, third parties and, in general, liabilities deriving from present obligations. The amounts of the provisions are based, among other things, on the estimated cost of operating contingencies, such as disputes with customers regarding investment products of a nature and/or performance deemed by customers to be inconsistent with their expectations, seizures incurred and not yet definitively assigned, and the likelihood of paying compensation or refunds to clients in those cases where there is no definitive ascertainment.
A.4.1 Fair value levels 2 and 3: valuation techniques and inputs 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 general principles to be applied in measuring the fair value of financial instruments have not changed with respect to 31 December 2016 and 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, and the guidelines for the Group’s financial management reviewed and approved by Poste Italiane SpA’s Board of Directors in December 2017.
For BancoPosta RFC, these include the following types of financial instrument: �� Straight Italian and international government and non-government bonds, quoted on inactive markets or not at all: valuation is based on discounted cash flow techniques involving the computation of the present value of future cash flows, inputting rates from yield curves incorporating spreads reflecting credit risk that are based on spreads determined with reference to quoted and liquid benchmark securities issued by the issuer, or by other companies with similar characteristics to the issuer. Yield curves may be slightly adjusted to reflect liquidity risk relating to the absence of an active market.
�� 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.
�� 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.
Sensitivity analysis of recurring fair value measurements classified in Level 3 of the hierarchy is conducted for the Series C Visa Incorporated Convertible Participating Preferred Stock. Measurement of these financial instruments is in fact 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 31%.
A.4.5.1 Financial assets and liabilities measured at fair value on a recurring basis by fair value level
1. Financial assets held for trading - - - - - 2. Financial assets designated at fair value - - - - - 3. Available-for-sale financial assets 36,244 2,859 37 35,280 1,956 27 1. Financial liabilities held for trading - - - - - 2. Financial liabilities designated at fair value - - - - - -
Assets/Liabilities not designated at fair value or not measured at fair value on a recurring basis by fair value level (€m)
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Held-to-maturity financial assets 12,912 14,384 - - 12,683 14,447 - 4. Property, plant and equipment held for investment purposes - - - - - - - 5. Non-current assets held for sale and discontinued operations - - - - - - - 4. Liabilities associated with noncurrent assets held for sale and discontinued operations
A.5 – Information on day one profit/loss This form of profit or loss is not applicable to BancoPosta RFC.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Notes - Part A
“Cash” is comprised of cash at post office counters and companies that provide cash transportation services, consisting of cash deposits on postal current accounts, postal savings products (Interest-bearing Postal Certificates and Postal Savings Books) or advances obtained from the Treasury to fund post office operations. This cash may only be used in settlement of these obligations. Cash includes banknotes totalling €11 million.
BancoPosta RFC had no financial instruments in the trading book either at 31 December 2017 or 31 December 2016.
Section 3 – Financial assets designated at fair value – item 30 No financial assets are held in portfolio designated at fair value through profit or loss (the “fair value option”).
Debt securities carried at fair value total €39,099 million (€331 million of which being accrued interest).
Equity instruments comprise: �� €37 million, reflecting the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) received for the sale of the Visa Europe Ltd. share to Visa Incorporated on 21 June 2016 convertible at the rate of 13,893121 ordinary shares for each C share, minus a suitable illiquidity discount, considering the staggered conversion between the fourth and the twelfth year after the closing; �� €4 million, reflecting the fair value of 11,144 class C shares of Visa Incorporated. These shares are not traded on an organised exchange, but are immediately convertible into Class A shares (at the rate of four ordinary shares for each C share), which are listed on the New York Stock Exchange, if disposal is desired.
Finally, during the last quarter of 2017, BancoPosta RFC sold its holding of 756,280 Class B Mastercard Incorporated shares in a series of transactions, following their conversion into Class A shares. The transaction generated a gain of €91 million, recognised the income statement in “Item 100 - Profits/(Losses) on disposal or repurchase”.
Balance at 31 December 2016 1. Micro-fair value hedged financial assets 21,648 18,792 c) Foreign exchange risk - 2.
There was an overall reduction of €819 million in the fair value of debt securities in the period under review, with a net loss of €323 million, on securities for which fair value hedges had not been arranged, recognised in a separate equity reserve, and a net loss of €496 million on the hedged portion recognised in profit or loss (Part C, table 5.1).
At 31 December 2017, €153 million of the aggregate fair value of the held-to-maturity portfolio was accrued interest.
Securities with a nominal value of €5,180 million are encumbered as follows: �� €4,407 million, carried at an amortised cost of €4,486 million (Part B, Other Information, Table 2), and delivered to counterparties in connection with repurchase agreements concluded prior to 31 December 2017; �� €253 million, carried at an amortised cost of €269 million (Part B, Other information, Table 2) and delivered to counterparties for use as collateral for asset swaps and repurchase agreements; �� €490 million, carried at an amortised cost of €502 million and delivered to the Bank of Italy as collateral for intraday credit granted; �� €30 million, carried at an amortised cost of €31 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.
“Other loans, Other” includes cash collateral held by counterparties for asset swaps (€1,027 million as collateral pursuant to Credit Support Annexes), entered into for cash flow and fair value hedging purposes by BancoPosta RFC, and repurchase agreements (€69 million as collateral pursuant to specific Global Master Repurchase Agreements).
Section 7 – due from customers – item 70 7.1 Due from customers: analysis
“Other transactions” primarily consist of: �� €6,038 million, €27 million of which being accrued interest, in public customers’ current account deposits deposited with the MEF, which earn a variable rate of return, calculated on a basket of government securities and money market indexes122; �� €377 million, €2 million of which being accrued interest, in deposits at the MEF (the “Buffer account”), remunerated at the EONIA rate123; �� €374 million in fees receivable from Cassa Depositi e Prestiti during the year in connection with postal savings; �� €84 million in guarantee deposits provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes) entered into for cash flow and fair value hedging purposes by BancoPosta RFC; �� €66 million in amounts due for the payment of pensions and vouchers on behalf of INPS (the National Institute of Social Security). In order to settle the amount due, INPS has expressed a willingness to offset receivables due to BancoPosta RFC with liabilities that, in Poste Italiane SpA’s opinion, are not subject to the same degree of certainty, liquidity or enforceability, and which BancoPosta RFC has recognised according to the procedures and to the extent required by the relevant accounting standards. Whilst waiting for the counterparty to acknowledge its obligations, Poste Italiane SpA has instructed its legal counsel to take the necessary steps to recover the amount due, reserving the right to take action to enforce its claims once it has exhausted all the possible options to resolve the dispute; �� €734 million in amounts receivable from Poste Italiane SpA’s functions outside the ring-fence, €732 million of which relates to Poste Italiane SpA’s Finance function’s intersegment financial account, used for the processing of payments to and from third parties.
122. 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.
8.1 Hedging derivatives by type of hedge and fair value level
December 2016 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Section 9 – Adjustments for changes in hedged financial assets portfolio – item 90 No macro-hedges have been arranged at the reporting date.
Section 10 – Investments – item 100 There are no investments in subsidiaries, joint arrangements or companies subject to significant influence.
Section 12 – Intangible assets – item 120 There are no intangible assets.
Section 13 – Tax assets and liabilities – assets item 130 and liabilities – item 80 Current tax assets and liabilities form part of intersegment relations and are shown in “Other assets” (item 150 in Assets) and “Other liabilities” (item 100 in Liabilities), as they are settled with Poste Italiane SpA’s functions outside the ring-fence, within the scope of internal relations with Poste Italiane SpA, as the sole taxable entity.
Deferred tax assets through equity 196 37 28 5 - - - - 224 42
Deferred tax liabilities through equity 246 48 12 2 258 50
Balance at 2.1 Deferred tax assets recognised in the year 26 29 a) relating to previous years - b ) due to changes in accounting policies - 2. 2 New taxes or tax rate increases - 3. 1 Deferred tax assets derecognised in the year - (10)
b) write-downs of non-recoverable items - c ) due to changes in accounting policies - 3. 2 Reduction of tax rate - (3)
Balance at 2.1 Deferred tax assets derecognised in the year 92 185 a) relating to previous years - b ) due to changes in accounting policies - 2. 2 New taxes or tax rate increases - 3. 1 Deferred tax assets derecognised in the year (33) (10)
Section 15 – Other assets – item 150 15.1 Other assets: analysis
Tax assets other than those included in item 130 372 357
“Items in process, other” includes: �� customer postal cheques of €29 million in collection from banks; �� uses of debit cards issued by BancoPosta to be debited to customer accounts, totalling €14 million; �� €67 million in withdrawals from BancoPosta ATMs yet to be debited to customer accounts or awaiting settlement; �� amounts due from commercial partners for providing PostePay top-ups, totalling €41million, and processing payments slips, totalling €40 million, to be credited to beneficiaries; �� unsettled debit card payments made at post offices, totalling €45 million; �� account maintenance and custody fees of €6 million to be debited to customers.
Poste Italiane SpA outside the ring-fence prepayments for the current year 158 39 197 230 41 271 balance payable for previous year - - - 73 11 84
Collection of IRES refund claimed - - - - - -
Current tax liabilities payable to Poste Italiane SpA outside the ring-fence (item 100 Liabilities)
(*) Primarily due to amounts receivable following the payment of withholding tax on fees received.
Section 1 – Due to banks – item 10 1.1 Due to banks: analysis
Balance at 3 1 December 2016 1. Due to Central Banks - 2. 1 Current accounts and demand deposits 1,023 385 2.4 Obligations to repurchase equity instruments - -
At 31 December 2017, €4,842 million is due to banks under the terms of repurchase agreements involving securities with a total nominal value of €4,407 million. These regard: �� €3,903 million (€2 million of which being accrued net interest) relating to Long Term Repos entered into with primary financial institutions, with the resulting resources invested in Italian fixed income government securities of a matching nominal amount; �� €939 million relating to ordinary borrowing operations via repurchase agreement transactions with primary financial institutions as funding for incremental deposits used as collateral.
BancoPosta RFC has uncommitted overnight lines of credit amounting to €1,059 million and overdraft arrangements of €160 million provided by Poste Italiane SpA, both undrawn at 31 December 2017. 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 €490 million and the facility is unused at 31 December 2017.
Balance at 31 December 2016 1. Current accounts and demand Deposits 46,468 45,097 4. Obligations to repurchase equity instruments - -
The fair value of this line item approximates to its carrying amount and it is consequently classified as Level 3.
Section 6 – Hedging derivatives – item 60 6.1 Hedging derivatives by type and fair value level
Cash flow hedges include forward sales entered into by BancoPosta RFC during the period under review, having a settlement value of €1,705 million.
Multiple risks 1. Available-for-sale financial assets 1,524 - - - - x 90 x x 3. Held-to-maturity financial assets x - - x - x - x x 2. Portfolio of financial assets and liabilities x x x x x - x - -
Section 8 – Tax liabilities – item 80 Please refer to Assets, Section 13.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Notes - Part B
Tax liabilities other than those included in item 80 1,194 1,026
Items in process: 637 555 - amounts to be credited to Postal Savings Books 243 284 - items in transit between local branches 5 4
“Tax liabilities other than those included in Item 80” primarily include: �� €1,040 million in stamp duty accrued to 31 December 2017 on outstanding Interest-bearing Postal Certificates in accordance with the requirements referenced in Part B, Assets, Table 15.1; �� €145 million regarding taxes and road tax payable to collection agents, the tax authorities and regional authorities for payments made by customers; �� €1 million in tax withholdings on current account interest earned by customers.
“Accrued expenses and deferred income not on own account”, totalling €27 million, refer to fees collected in advance on Postamat and “Postepay Evolution” cards.
“Other increases” were the result of transfers from Poste Italiane SpA or other Group companies. The current service cost is not applicable to the employee termination benefits attributable to BancoPosta RFC, since this cost is recognised in personnel expenses, as the contributions are paid over to pension funds or other social security institutions.
Measurement of the liability entails actuarial computations for which the following assumptions were used in 2017 and 2016: Key economic and financial assumptions
“B.1 Provisions for the year” includes personnel expenses of €8 million. Other decreases relate to transfers to the income statement during the year as a result of the derecognition of prior year liabilities, including a part of the provisions for personnel expenses.
tion, liabilities deriving from the provision of delegated services for social security agencies, fraud, violations of administrative regulations, adjustments and outstanding income for previous years, risks linked to disputes with customers regarding certain investment products whose performance is not in line with expectations, or to the erroneous application of statute barring and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee -defendant. Uses, amounting to €95 million include €48 million relating to the settlement of amounts due to customers who had invested in the IRS (Invest Real Security) real estate fund, following the decision to take extraordinary measures by Poste Italiane’s Board of Directors on 16 January 2017.
Provisions for expired and statute barred Postal Certificates have been made to cover the cost of redeeming certificates relating to specific issues, even after the certificates have become invalid125.
“Other commitments” include €360 million relating to the nominal value of securities to be delivered under repurchase agreements, accounted for in “Held-to-maturity financial assets”, and €1,408 million relating to the nominal value of securities in the “Available-for-sale financial assets” to be delivered under forward sale agreements.
Balance at 31 December 2016 1. Financial assets held for trading - 2. Financial assets designated at fair value - 3. Available-for-sale financial assets - 206 4. Held-to-maturity financial assets 4,755 5,404 7. Property, plant and equipment - -
6. Financial liabilities offset in the financial statements or subject to master netting agreements or similar arrangements
BancoPosta RFC is not a party to enforceable master netting agreements or similar arrangements meeting the requirements of IAS 32, paragraph 42 for offsetting in the financial statements. The above tables have been compiled in accordance with IFRS 7 – Financial Instruments: Disclosure, which requires a specific disclosure regardless of whether or not the financial instruments have been offset.
Section 1 – Interest – items 10 and 20 1.1 Interest and similar income: analysis
For the year ended 31 December 2016 5. Financial liabilities held for trading - - - - 6. Financial liabilities designated at fair value - - - - 7. Other liabilities and provisions x x (4) (4) (5)
“Other liabilities and provisions – Other transactions” includes interest payable to Poste Italiane SpA’s functions outside the ring-fence, totalling €3 million.
For the year ended 31 December 2016 3. Third-party products and services 2,258 2,245
During the year, BancoPosta RFC received dividends on its shares in Mastercard Incorporated and Visa Incorporated, accounted for in “Available-for-sale financial assets”.
C. Financial assets designated at fair value - - - -
Section 4 – Profits/(Losses) on trading – item 80 4.1 Profits/(Losses) on trading: analysis
- on debt securities and interest rates - - - - - - on equity instruments and share indices - - - - - - on foreign exchange and gold x x x x -
Gross hedging income (A) 552 1,024 B. Cost of: B.1 Fair value hedge derivatives (27) (941) B.2 Hedged financial assets (fair value) (523) (84) B.3 Hedged financial liabilities (fair value) - - B.4 Cash flow hedge derivatives - - B.5 Foreign currency assets and liabilities - -
Section 7 – Profits/(Losses) on financial assets and liabilities designated at fair value – item 110 Not applicable.
Section 8 – Net losses/recoveries on impairment – item 130 8.1 Net losses/recoveries on impairment of loans and advances: analysis
h) cost of share-based payments - i ) other employee benefits (6) (7)
3) Directors and Statutory Auditors - 5 ) Recovery of employment costs of staff seconded to other companies - 6 ) Refund of costs of third party employees seconded to the company - 9. 2 Average number of employees by category (*)
For the year ended 31 December 2016 1) Cost of services provided by Poste Italiane SpA: (4,418) (4,457)
Section 12 – Net losses/recoveries on intangible assets – item 180 Not applicable.
Section 15 – Profits/(Losses) on fair value measurement of property, plant and equipment and intangible assets – item 220 Not applicable.
Section 17 – Profits/(Losses) on disposal of investments – item 240 Not applicable.
For the year ended 31 December 2016 2. Increase/(decrease) in current taxes of prior period taxation (+/-) 13 1 3. Reduction in current taxes (+) - 3.
bis. Reduction in current taxation due to tax credit pursuant to Law 214/2011 (+) - 4. Increase/(decrease) in deferred tax assets (+/-) 25 17 5. Increase/(decrease) in deferred tax liabilities (+/-) - 18. 2 Reconciliation between theoretical tax charge at statutory rate and effective tax charge
Adjustments for change in IRES tax rate introduced by 2016 Stability Law - 0.0% 3 0.4% Non-recurring (income)/expense for taxes charged to profit or loss - 0.0% - 0.0% Net provisions for risks and charges and impairments of receivables 2 0.3% 6 0.7% Taxation for previous years (13) -1.7% (1) -0.1% Capital gains and dividends (21) -2.7% (32) -4.0%
The funds deposited by private account holders in postal current accounts are invested in euro zone government securities, with the option of investing up to 50% of the deposits in securities guaranteed by the Italian government127, whilst deposits by Public Administration entities are deposited with the MEF. In 2017, 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 investment profile is based, among other things, on the constant monitoring of habits of current account holders and a use of a leading market operator’s statistical/econometric model of typical postal current account interest rates and maturities, based on a prudent projection of the future volume of deposits. The above mentioned model is thus the general reference for the investments (the limits of which are determined by specific guidelines approved by the Board of Directors) in order to limit exposure to interest rate and liquidity risks.
Financial risk management Balanced financial management and monitoring of the main risk/return profiles are carried out and ensured by dedicated organisational structures, both within and without the BancoPosta ring-fence, that operate separately and independently. In addition, specific processes are in place governing the assumption and management of and control over financial risks. In this regard, on 19 February 2018, Poste Italiane SpA’s Board of Directors adopted a revised version of the Guidelines for Internal Control and Risk Management System (SCIGR), which contains integrated guidelines for Poste Italiane SpA’s Internal Control and Risk Management System. From an organisational viewpoint, the model consists of: �� the Audit and Risk Committee, which, with regard to BancoPosta’s operations, provides support to the Board of Directors in relation to risks and the internal control system, with particular reference to all the activities deemed instrumental and necessary to enable the Board of Directors to correctly and effectively determine the Risk Appetite Framework and risk management policies; �� the Cross-functional Committee, set up under the BancoPosta RFC Regulation and chaired by Poste Italiane SpA’s CEO and General Manager. Other permanent members are the Head of BancoPosta and the heads of the functions within Poste Italiane SpA primarily involved with BancoPosta. The Committee provides advice, makes recommendations and coordinates BancoPosta’s operations with those of other Poste Italiane functions; 127. 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).
The above prudential standards have imposed the same obligations on BancoPosta as those applicable to banks in terms of corporate governance, internal controls and risk management, requiring, among other things, achievement of the following objectives: �� definition of a Risk Appetite Framework (RAF); �� oversight of implementation of Poste Italiane SpA’s strategies and policies; �� the containment of risks within the limits set by the RAF; �� protection of the value of assets and against losses; �� identification of material transactions to be subject to prior examination by the risk control function.
Credit risk relates to the possibility that a change in a borrower’s credit rating could result in a loss, i.e., the risk that a debtor comes into full or partial breach of its repayment obligations for principal and interest.
The role of BancoPosta RFC’s Risk Management function is the management and control of credit, counterparty and concentration risks.
Monitoring credit risk is particularly focused on the following exposures: �� euro area government securities (or those guaranteed by the government) in which private customer account deposits are invested; �� deposits at the MEF in which Public Administration account deposits are invested; �� any eventual amounts due from the Italian Treasury as a result of depositing funds gathered less payables for advances disbursed; �� items in process: cheque clearing, use of electronic cards, collections; �� temporarily overdrawn post office current accounts caused by debiting fees: limited to those which were not classified as impaired since the accounts were in funds in early 2018; �� cash collateral for outstanding transactions with banks and customers, in accordance with agreements intended to mitigate counterparty risk (CSA - Credit Support Annexes and GMRA – Global Master Repurchase Agreements); �� securities provided as collateral in accordance with agreements intended to mitigate counterparty risk (CSAs and GMRAs); �� trade receivables payable for financial/insurance product arrangement.
BancoPosta RFC’s concentration risk is monitored to limit the instability that could be caused by the default of one customer or a group of related customers to which BancoPosta has a significant credit and counterparty risk exposure.
The above limits for BancoPosta RFC are set out in Poste Italiane SpA’s “Guidelines for financial transactions”128, which also contain rating limits that only permit dealings with investment grade counterparties, whilst concentration limits are applied as required by prudential standards129.
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” method131 is used for asset swaps and forward purchases of government securities; �� Credit Risk Mitigation (CRM) techniques, the Full Method132, are used for repurchase transactions.
Concentration risk is measured using the method described in EU Regulation 575/2013 with regard to large exposures.
There were no impaired financial assets on BancoPosta RFC’s books at 31 December 2017.
Other performing exposures Total 1. Available-for-sale financial assets - - - - 39,099 39,099 2. Held-to-maturity financial assets - - - - 12,912 12,912 5. Financial assets designated at fair value - - - - - 6. Financial assets held for sale - - - - - -
Net exposure 1. Available-for-sale financial assets - - - 39,099 - 39,099 39,099 2. Held-to-maturity financial assets - - - 12,912 - 12,912 12,912 5. Financial assets designated at fair value - - - X X - 6. Financial assets held for sale - - - - - - -
A. On-balance sheet credit exposure - 1,041 59,916 - 1 - 155 61,113
The rating agency equivalents of credit rating classes are shown below: Credit rating class Fitch Moody's S&P
The nature of BancoPosta’s operations exposes it to a substantial degree of concentration in respect of the Italian state. The concentration can be seen in Table A.2.1 under External Rating Class 3, which includes the Italian state.
B.3 Distribution of on and off-balance sheet credit exposures to banks by geographic area and carrying amount
Net expos. Coll. prov. Net expos. Coll. prov. Net expos. Coll. prov. Net expos. Coll. prov.
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 90% 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.
Large exposures a) Carrying amount (€m) 70,280 b) Weighted amount (€m) 1,782
A B C A B C A B C A B C A B C A B C At 31 December
Market risk relates to: �� price risk: the risk that the value of a financial instrument fluctuates as a result of market price movements, deriving from factors specific to the individual instrument or the issuer, and factors that influence all instruments traded on the market; �� foreign exchange risk: the risk that the value of a financial instrument fluctuates as a result of movements in exchange rates for currencies other than the functional currency; �� fair value interest rate risk: the risk that the value of a financial instrument fluctuates as a result of movements in market interest rates; �� spread risk: the risk relates to the potential fall in the value of bonds held, following a deterioration in the creditworthiness of issuers; �� cash flow interest rate risk: the risk that the cash flows from a financial instrument will fluctuate because of movements in market interest rates; �� cash flow inflation rate risk: the risk that the cash flows from a financial instrument will fluctuate because of movements in inflation rates.
Interest rate risk is inherent in the operations of a financial institution and can affect income (cash flow interest rate risk) and the value of the firm (fair value interest rate risk). Movements in interest rate can affect the cash flows associated with variable rate assets and liabilities and the fair value of fixed rate instruments.
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 fixed rate instruments, some of which, with a fair value of €19,013 million, have been hedged using fair value hedges of the forward start type or index-linked instruments amounting to approximately €1,400 million, converted to fixed rate via asset swaps used as cash flow hedges.
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.
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 again made use of this type of transaction in 2017, in response to the low level of interest rates and in order to protect against the negative effects of rising interest rates.
BancoPosta RFC’s cash flow interest rate risk hedges include entering into OTC cash flow hedge asset swaps primarily with banks for individual securities in portfolio.
The pattern of portfolio maturities results in the need to invest funds in euro government securities resulting in an exposure to risk of an increase in prices as a consequence of decreasing yields. Where appropriate, BancoPosta RFC is a buyer of cash flow hedges of a forecast transaction to hedge this type of cash flow interest rate risk.
Financial liabilities held for trading - - - - - - - -
All of BancoPosta RFC’s investments are classified as held-to-maturity and available-for-sale financial assets. The sensitivity analysis shown above is for the last of these categories.
Financial assets held for trading - - - - - - - 2016 effect
In order to jointly monitor spread and fair value interest rate risks, the following table shows the results of the VaR analysis conducted with reference to available-for-sale financial assets and derivative financial instruments, taking into account the variability of both risk factors: Closing VaR (325) (434)
Taking into account both available-for-sale financial assets (including the related hedges outstanding) and forward sales, the combined analysis of spread risk and fair value interest rate risk at 31 December 2017 results in a potential loss of €318 million (VaR at the end of the period).
The sensitivity to cash flow interest rate risk at 31 December 2016 and 31 December 2017 is summarised in the table below and was computed assuming a +/- 100 bps parallel shift in the market forward interest rate curve.
Cash - Account held at Bank of Italy 396 4 (4) 223 2 (2)
Due to customers (Poste Italiane SpA outside the ring-fence) (14) - - (14) - -
Cash flow inflation rate risk at 31 December 2017 relates to government inflation indexed bonds which were not hedged through the arrangement of cash flow hedges or fair value hedges entered into by BancoPosta RFC, having a nominal value of €2,145 million and a fair value of €2,594 million. The effects of sensitivity analysis are immaterial.
The sensitivity of financial instruments to price risk is analysed using a stress test based on one-year historical volatility, considered to be representative of potential market movements.
The 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 2017 volatility. The shares’ price risk is also monitored through the computation of VaR.
The VaR sensitivity analyses are shown below: Closing VaR - (2)
Central counterparties 1. Debt securities and interest rates 22,570 - 17,956 2. Equity instruments and stock indices - - - -
A.5 / A.6 OTC financial derivatives - supervisory trading book: notional amount, gross negative and positive fair value by counterparty - contracts falling and not falling within the scope of netting agreements
Other public entities Banks Finance companies Insurance companies Non-finance companies Other entities 1) Bilateral agreements financial derivatives 2) Bilateral agreements credit derivatives 3) Cross product agreements
The liquidity risk resulting from contract terms requiring the provision of additional collateral in the event of a downgrade of Poste Italiane SpA is negligible. Such contracts include those for margin lending of derivatives, which require the threshold
Asset - Liability/Residual terms to maturity (€m) Demand > 5 years
Balance at 31 December 2016 b) required by articles - - - Available-for-sale financial assets 179 889 - Property, plant and equipment - - - Hedges of net investments in foreign operations - - - Non-current assets held for sale - - - Actuarial profits/(losses) on defined benefit plans (2) (3)
B.3 Valuation reserve for available-for-sale financial assets: movements during the year
C. CET1 before investments to be deducted and adjustments for the transitional regime (A+/- B) 2,059 1,949
Q. Total own funds (F + L + P) 2,059 1,949
CET1 consists of the initial equity reserve of €1,000 million provided to BancoPosta RFC on its creation and retained earnings of €1,059 million.
In calculating both the capital requirements regarding credit and counterparty risk and the Credit Valuation Adjustment (CVA), the standardised approach provided for by EU Regulation 575/2013 is used.
In the case of BancoPosta RFC, credit risk derives primarily from exposures in the form of cash deposits and securities pledged as collateral (under counterparty risk mitigation agreements, such as CSAs and GMRAs), and trade receivables due from partners as a result of the distribution of financial and insurance products139.
Exposures resulting from the investment of funds raised from deposits paid into accounts by private and Public Administration customers (bonds issued or guaranteed by the Italian government and amounts deposited with the MEF) and any eventual amounts due from the Italian Treasury as a result of depositing funds gathered, less payables for advances disbursed, do not, for the purposes of credit risk, result in the absorption of capital, as these exposures have a zero weighting.
Counterparty risk derives from exposures resulting from cash flow and fair value hedges and repurchase agreements140.
Market risks solely regard foreign exchange risk which, in BancoPosta RFC’s case, principally derives from foreign currency bank accounts, foreign currency holdings and the VISA shareholding. In calculating the capital requirements regarding foreign exchange risk, the standardised approach provided for by EU Regulation 575/2013 is applied.
137. Risk weighted assets, or RWAs, are calculated by applying a risk weighting to the assets exposed to credit, counterparty, market and operational risks. 138. The capital conservation buffer is designed to ensure a minimum level of regulatory capital under adverse market conditions by enabling the build-up of highquality capital outside periods of market stress. A transitional regime will reduce this buffer from 1 January 2017, with the aim of applying equal treatment to Italian banks with respect to other intermediaries operating in the euro zone. The new minimum ratios are: 1.250% from 1 January 2017 to 31 December 2017; 1.875% from 1 January 2018 to 31 December 2018; 2.500% from 1 January 2019.
Unweighted risk exposures do not take into account risk mitigation techniques and the credit conversion factors used for off-balance sheet exposures.
The principal risk is operational, which absorbs approximately 85% of total prudential requirements. Credit risk amounts to €108 million, whilst the remaining amount absorbed regards counterparty risk (approximately €9 million). Market risk solely regards foreign exchange risk, which absorbs less than 1% of total capital requirements.
At 31 December 2017, BancoPosta RFC complies with the prudential requirements specified in the section on qualitative information.
Part G – Business combinations No business combinations took place either during or subsequent to the period under review.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Notes - Part G
Ministry of the Economy and Finance - 6,491 - - - 3,483 1
Ministry of the Economy and Finance 27 (4) 118 - - (1) (3) -
Ministry of the Economy and Finance 40 (2) 130 - - 2 - -
Long-term incentive scheme: phantom stock plan The Annual General Meeting of Poste Italiane SpA’s shareholders held on 24 May 2016 approved the information circular for the “Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan”, prepared in accordance with art 84-bis of the Regulations for Issuers. The LTIP, set up in line with market practices, aims to link a portion of the variable component of remuneration to the achievement of earnings targets and the creation of sustainable shareholder value over the long term.
The beneficiaries of the Plan are BancoPosta RFC’s Material Risk Takers.
The total number of phantom stocks awarded to the 3 Beneficiaries of the First Cycle of the Plan amounted to 22,278 units. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was done using Monte Carlo simulations.
The total number of phantom stocks awarded to the 5 Beneficiaries of the Second Cycle of the Plan amounted to 36,022 units. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was done using Monte Carlo simulations.
Short-term incentive schemes: MBO On 27 May 2014, the Bank of Italy issued specific Supervisory Standards for BancoPosta (Part IV, Chapter I, “BancoPosta” including in Circular 285 of 17 December 2013 “Prudential supervisory standards for banks”) which, in taking into account BancoPosta’s specific organisational and operational aspects, has extended application of the prudential standards for banks to include BancoPosta. This includes the standards relating to remuneration and incentive policies (Part I, Title IV, Chapter 2 “Remuneration and incentive policies and practices” in the above Circular 285/2013). These standards provide that a part of the bonuses paid to BancoPosta RFC’s Material Risk Takers may be awarded in the form of financial instruments over a multi-year timeframe. As a result, with regard to the management incentive schemes adopted for BancoPosta RFC, where the incentive is above a certain materiality threshold, the MBO management incentive scheme envisages the award of 50% of the incentive in the form of phantom stocks, representing the value of Poste Italiane’s shares, and application of the following deferral mechanisms: �� 60% of the award to be deferred for a 5-year period on a pro-rata basis, in the case of Material Risk Takers who are beneficiaries of both the short- and long-term incentive schemes; �� 40% of the award to be deferred for a 3-year period on a pro-rata basis for the remaining Material Risk Takers.
At 31 December 2017, the number of phantom stocks has been estimated on the basis of the best available information, with the aim of recognising the related service cost. An independent expert, external to the Group, was appointed to measure the value of the stocks, based on best market practices. The cost recognised for 2017 amounts to approximately €0.2 million, equivalent to the liability recognised in amounts due to staff.
3.2 the Directors’ Report on Operations includes a reliable analysis of the operating and financial performance and situation of the issuer and the companies included in the scope of consolidation, together with a description of the main risks and uncertainties to which they are exposed.
Companies, which the Company formally adopted with the Board of Directors’ resolution of 31 July 2015. The oversight activities required by law were also conducted in accordance with the standards for boards of statutory auditors drawn up by the Italian accounting profession
(Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili) on 15 April 2015.
Annual General Meeting of shareholders held on 24 May 2016, are Mauro Lonardo,
The Board of Statutory Auditors obtained the information necessary in order to carry out its appointed duties by attending all Board of Directors’ and Board Committee meetings, by taking part in the induction sessions organised by the Company, by holding meetings with the
The meetings were conducted in accordance with the By-laws, the related legislation and regulations governing their conduct and, within the scope of our responsibilities, the Board can provide reasonable assurance that the actions approved comply with the law, the By-laws and correct corporate governance principles and were not manifestly imprudent, risky or in conflict with resolutions approved by General Meeting, or such as to compromise the value of the Company; from the information provided during the Board of Directors’ meetings, there is no evidence that the Directors have carried out transactions giving rise to a potential conflict of interest with the Company.
The Board oversaw effective implementation of the rules governing related party transactions, by attending meetings of the Related and Connected Parties Committee. The
Company’s intranet; migration of the database of transactions to a secure platform has begun. The IT system will – from the release date of 30 June 2018 enable transactions to be loaded directly via a guided web interface, entering the contracts that are the responsibility of the department and, at the same time, automatically notifying the relevant function of any aspects that are of relevance with regard to related parties and for the correct reporting and management of the eventual authorisation process by the related committee.
Once the IT platform for tracking and reporting the numerous transactions has been completed, given their complexity and diverse nature, the Board recommends that the process be revised in line with the new IT system.
The Board of Statutory Auditors, identified by art. 19, paragraph 2 of the Consolidated
The Board of Statutory Auditors has verified the existence of adequate regulations and processes relating to the financial reporting process, examining the process that enables the Manager responsible for financial reporting, appointed pursuant to Law 262/2005, and the Company’s and the Group’s Chief Executive Officer to issue the attestations required by art. 154-bis of the Consolidated Law on Finance.
The Board of Statutory Auditors has also examined the reports prepared by the
Both the form and the content of audit reports on financial statements have been significantly revised, following the changes introduced by the reform of the statutory auditing process implemented by Legislative Decree 135/2016, which has amended the provisions of Legislative Decree 39/2010.
Details of the opinions and statements are provided in the reports issued by the
The Independent Auditor’s reports have been issued in the new format required by art.
recommendations with regard to 2017, in the light of the evidence made available to the
Independent Auditor by the Company and the checks conducted, no significant deficiencies have been identified for 2017. In addition, the three observations in the letter of recommendations for 2016, and which have been followed up on, are not considered by the Independent Auditor to be significant deficiencies.
In addition, the Independent Auditor has not reported any events or circumstances identified during the audit that might cast significant doubt on the entity’s ability to continue as a going concern, nor has it reported any significant deficiencies in the internal control system over financial reporting and/or in the accounting system, or any significant instances of non-compliance, whether effective or assumed, with laws and regulations or the By-laws, that have come to light during its audit.
The Independent Auditor has also today issued its report on the non-financial statement prepared pursuant to article 3, paragraph 10 of Legislative Decree 254/2016 and article 5 of CONSOB Regulation 20267. Based on the work performed, the Independent
5. and 6. Information on any complaints presented pursuant to art. 2408 and petitions