BancoPosta RFC’s Separate Report, which forms an integral part of Poste Italiane SpA’s financial statements, prepared in accordance with the specific financial reporting rules laid down by the applicable banking regulations, is dealt with separately in this Section.
The term IFRS includes all the International Financial Reporting Standards, International Accounting Standards (“IAS”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”, previously known as the Standing Interpretations Committee or “SIC”), adopted by the European Union and contained in the EU regulations published as of 19 March 2019, the date on which the Board of Directors of Poste Italiane SpA approved the annual accounts.
The accounting policies described below reflect the fact that the Group and Poste Italiane SpA will remain fully operational in the foreseeable future, in accordance with the going concern assumption, and are consistent with those applied in the preparation of the annuals accounts for the previous year. Amendments to accounting standards applicable from the accounting period under review have not had an impact on these financial statements (note 2.7 – New accounting standards and interpretations and those soon to be effective).
In view of the above, the impact of transition to the new international financial reporting standards and the Poste Italiane Group’s new accounting policies are described in these annual accounts.
frequency. These items of income and expense are only presented separately when they are both of an exceptional nature and were generated by a materially significant transaction.
With regard to the interpretation and application of newly published, or revised, international accounting standards, and to certain aspects of taxation37, where the related interpretations are based on examples of best practice or case-law that cannot yet be regarded as exhaustive, the financial statements been prepared on the basis of the relevant best practices. Any future changes or updated interpretations will be reflected in subsequent reporting periods, in accordance with the specific procedures provided for by the related standards.
37. The tax authorities have issued regular official interpretations only in respect of certain of the tax-related effects of the measures contained in Legislative Decree 38 of 28 February 2005, Law 244 of 24 December 2007 (the 2008 Budget Law) and the Ministerial Decree of 1 April 2009, implementing the 2008 Budget Law, which introduced numerous changes to IRES and IRAP. The MEF Decree issued on 8 June 2011 contains instructions regarding the coordinated application of EU-endorsed international accounting standards coming into effect between 1 January 2009 and 31 December 2010, in addition to regulations governing determination of the tax bases for IRES and IRAP.
Intangible assets An intangible asset is an identifiable non-monetary asset without physical substance, which is controllable and capable of generating future economic benefits. Intangible assets are recognised at cost, including any directly attributable costs required to prepare the asset for its intended use, less accumulated amortisation and any accumulated impairment losses. Borrowings costs are capitalised as part of the cost of the asset only if directly attributable to its purchase or development; otherwise, they are recognised as an expense in the period in which they are incurred. Amortisation is applied from the date the asset is ready for use, systematically over the remaining useful life of the asset, or its estimated useful life.
Costs associated with developing or maintaining software programmes are recognised in profit or loss in the period in which they are incurred. Costs that are directly associated with the production of identifiable and unique software products, and that generate economic benefits beyond one year, are recognised as intangible assets. Directly attributable costs, to the extent separately identifiable and measurable, include the cost of staff involved in software development and an appropriate portion of the relevant overheads. Amortisation is calculated on the basis of the estimated useful life of the software, which is usually three years. Research costs are not capitalised.
Regardless of any impairment indicator, the assets listed below are tested for impairment every year: �� place at any time during the year, provided that it is performed at the same time in each of the following years; intangible assets with an indefinite useful life or that are not yet available; the impairment test can take; �� goodwill acquired in a business combination.
38. If the amount of the impairment loss is greater than the carrying amount of the asset or CGU, in accordance with IAS 36, no liability is recognised, unless recognition of a liability is required by an international accounting standard other than IAS36.
Investments In the Poste Italiane Group’s consolidated financial statements, investments in subsidiaries that are not significant (individually or in the aggregate) and are not consolidated, and those in companies over which the Group exerts significant influence (“associates ”) and in joint ventures, are accounted for using the equity method. See the note 2.4 – Basis of consolidation.
The relationship between each hedging instrument and the hedged item is documented, as well as the risk management objective, the strategy for undertaking the hedge transaction and the methods used to assess effectiveness. Assessment of whether the hedging derivative is effective takes place both at inception of the hedge and throughout the term of the hedge.
40. 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.
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). If, during the life of the derivative, the forecast hedged transaction is no longer expected to occur, the related gains and losses accumulated in the cash flow hedge reserve are immediately reclassified to profit or loss for the period. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the related gains and losses accumulated in the cash flow hedge reserve at that time remain in equity and are recognised in profit or loss at the same time as the original underlying.
The Group’s tax expense and related accounting treatment reflect the effects of the election to adopt a tax consolidation arrangement, in accordance with relevant legislation, by Poste Italiane SpA, together with the subsidiaries, Poste Vita SpA, SDA Express Courier SpA, Mistral Air Srl, Postel SpA, Risparmio Holding in liquidazione SpA, Europa Gestioni Immobiliari SpA, Poste Welfare Servizi Srl, Poste Assicura SpA, BancoPostaFondi SpA SGR and PostePay SpA. The tax consolidation arrangement is governed by Group regulations based on the principles of neutrality and equality of treatment, which are intended to ensure that the companies included in the tax consolidation are in no way penalised as a result. Following adoption of the tax consolidation arrangement, the Parent Company’s tax expense is determined at consolidated level on the basis of the tax expense or tax losses for the period for each company included in the consolidation, taking account of any withholding tax or advances paid. Poste Italiane SpA posts its IRES tax expense to income taxes for the period, after adjustments to take account of the positive or negative impact of tax consolidation adjustments. Should the reductions or increases in tax expense deriving from such adjustments be attributable to the companies included in the tax consolidation, Poste Italiane SpA attributes such reductions or increases in tax expense to the companies in question. The economic benefits deriving from the offset of tax losses transferred to the consolidating entity by the companies participating in the tax consolidation arrangement are recognised in full by Poste Italiane SpA. Other taxes not related to income are included in “Other operating costs”.
Long-term contract work is measured using the percentage of completion method, using cost to cost accounting42.
for in profit or loss in the year in which the transaction occurs. At the end of the year, any surplus emission allowances deriving from purchases are accounted for in closing inventory at the lower of cost and net realisable value. Any surplus emission allowances allocated free of charge are not accounted for in closing inventory. In the event of a shortfall in emission allowances the resulting charge and related liability are accounted for at the end of the year at fair value.
Cash and cash equivalents Cash and cash equivalents refer to cash in hand, deposits held at call with banks, amounts that at 31 December 2018 the Parent Company has temporarily deposited with the MEF and other highly liquid short-term investments with original maturities of ninety days or less. Current account overdrafts are accounted for in current liabilities.
If, after the date of preparation of the financial statements, an asset (or disposal group) no longer meets the conditions for classification as held for sale, it must be reclassified following measurement at the lower of: �� the carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any depreciation, amortisation, impairments or reversals of impairments that would have been recognised if the asset (or disposal group) had not been classified as held for sale; �� the recoverable amount, calculated at the date on which the decision not to sell was made.
Share capital Share capital is represented by Poste Italiane SpA’s subscribed and paid-up capital. Incremental costs directly attributable to the issue of new shares are recognised as a reduction of the share capital, net of any deferred tax effect.
Insurance contracts are classified and measured as insurance contracts or finance contracts, based on their prevalent features. Contracts issued by Poste Vita SpA primarily relate to life assurance. In 2010 Poste Assicura SpA began operating in the non-life sector.
The Group applies the following bases for classification and measurement of these contracts.
Insurance contracts in accordance with the provisions of IFRS 4 Contracts classified as insurance contracts in accordance with IFRS 4 include Class I and Class V life insurance policies, Class III policies that qualify as insurance contracts and non-life insurance contracts. These products are accounted for as follows: �� insurance premiums are accounted for when the policies are written, recognised as income and classified in revenue (shown net of outward reinsurance premiums); they include annual or single premiums accruing during the period and deriving from insurance contracts outstanding at the end of the reporting period, net of cancellations; �� technical provisions are made in respect of earned premiums to cover obligations to policyholders; such provisions are calculated on an analytical basis for each contract using the prospective method, based on actuarial assumptions appropriate to cover all outstanding obligations. An increase in technical provisions and the cost of claims are recognised as expenses in profit or loss, whilst a reduction in technical provisions, compared with the previous period, is recognised in income.
The calculation technique used in applying the shadow accounting method is based on the prospective yield on each separately managed account, considering a hypothetical realisation of unrealised gains and losses over a period which is consistent with the characteristics of the assets and liabilities held in the portfolio. The amount to be recognised as a deferred liability also takes account, for each separately managed account, of contractual obligations, the level of minimum returns guaranteed at the time of concluding the contract and any financial guarantees provided.
44. A contractual right of investors to receive returns on the separately managed account.
Short-term benefits Short-term employee benefits are those that will be fully paid within twelve months of the end of the year in which the employee provided his or her services. Such benefits include wages, salaries, social security contributions, holiday pay and sick pay.
45. Where, following entry into effect of the new legislation, the employee has not exercised any option regarding the investment of vested employee termination benefits, the Group has remained liable to pay the benefits until 30 June 2007, or until the date, between 1 January 2007 and 30 June 2007, on which the employee exercised a specific option. Where no option was exercised, from 1 July 2007 vested employee termination benefits have been paid into a supplementary pension fund.
Other long-term employee benefits Other long-term employment benefits consist of benefits not payable within twelve months of the end of the reporting period during which the employees provided their services. The net change in the value of any of the components of the liability during the reporting period is recognised in full in profit or loss. Measurement of the other long-term employee benefits liability is recognised in the financial statements also on the basis of calculations performed by independent actuaries.
Share-based payment Goods or services received or acquired and the liability assumed in a share-based payment transaction – settled in cash, equity instruments or in other financial instruments – are recognised at fair value. In the case of a cash-settled transaction, the fair value of the liability is remeasured at the end of each reporting period, with any changes in fair value recognised in profit or loss, until the liability is settled. In the case of employee benefits, the expense is recognised in personnel expenses over the period in which the employee renders the relevant service.
Revenue recognition The method of recognising revenue from contracts with customers has been modified following the introduction of IFRS 15 – Revenue from Contracts with Customers. The new policy is described in paragraph 3, “Changes to accounting policies”.
Revenue from activities carried out in favour of or on behalf of the state and Public Administration entities is recognised on the basis of the amount effectively accrued, with reference to the laws and agreements in force, taking account, in any event, of the instructions contained in legislation regarding the public finances. The return on the current account deposits held by the MEF is determined using the effective interest method and is recognised as revenue from financial services. The same classification is applied to income from euro area government securities, in which deposits paid into accounts by private customers are invested.
Government grants Government grants are recognised once they have been formally allocated to the Group by the public entity concerned and only if, based on the information available at the end of the year, there is reasonable assurance that the project to which the grant relates will be effectively carried out and completed in accordance with the conditions attached to the grant. Government grants are recognised in profit or loss as other operating income as follows: grants related to income are recognised in proportion to the costs actually incurred for the project and accounted for to the public entity; grants related to property, plant and equipment are recognised in proportion to the depreciation charged on the assets acquired and used to carry out the projects and whose cost have been accounted for to the public entity.
Finance income and costs Finance income and costs are recognised on an accruals basis based on the effective interest method, i.e. using an interest rate that discounts all cash flows relating to a given transaction in the same way.
Interest income deriving from application of the effective interest rate method, as defined in paragraph 82(a) of IAS 1 – Presentation of Financial Statements, is described in section 5.4 – Notes to the statement of profit or loss.
Related parties Related parties within the Group refer to Poste Italiane SpA’s direct and indirect subsidiaries and associates. Related parties external to the Group include the MEF and its direct or indirect subsidiaries and associates. The Group’s key management personnel are also classified as related parties, as are funds providing post-employment benefits to the Group’s employees and the related entities. The state and Public Administration 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.
46. Diluted earnings per share are calculated by taking into account the potentially dilutive effect of all instruments which can be converted into ordinary shares issued by the Parent Company. The calculation is based on the ratio of profit attributable to the Parent Company, adjusted to take account of any costs or income deriving from the conversion, net of any tax effect, and the weighted average number of shares outstanding, assuming conversion of all convertible securities.
The Poste Italiane Group’s consolidated financial statements include the financial statements of Poste Italiane SpA and of the companies over which the Parent Company directly or indirectly exercises control, as defined by IFRS 10, from the date on which control is obtained until the date on which control is no longer held by the Group. The Group controls an entity when it simultaneously: �� has power over the investee; �� is exposed, or has rights to, variable returns from its involvement with the investee; �� has the ability to influence those returns through its power over the investee.
used for line-by-line consolidation are as follows: �� the assets, liabilities, costs and revenue of consolidated entities are accounted for on a line-by-line basis, separating where applicable the equity and profit/(loss) amounts attributable to non-controlling interests in consolidated equity and consolidated profit or loss; �� business combinations, in which control over an entity is acquired, are accounting for using the acquisition method. The cost of acquisition is based on the fair values of the assets given, the liabilities incurred and the equity instruments issued by the acquirer, plus any directly attributable acquisition costs incurred. Any difference between the cost of acquisition and the fair values of the assets and liabilities acquired, following review of their fair value, is recognised as goodwill arising from consolidation (if positive), or recognised in profit or loss (if negative); �� acquisitions of non-controlling interests in entities already controlled by the Group are not accounted for as acquisitions, but as equity transactions; in the absence of a relevant accounting standard, the Group recognises any difference between the cost of acquisition and the related share of net assets of the subsidiary in equity; �� any significant gains and losses (and the related tax effects) on transactions between companies consolidated on a lineby -line basis, to the extent not yet realised with respect to third parties, are eliminated, as are intercompany payables and receivables, costs and revenue, and finance costs and income; �� gains and losses deriving from the disposal of investments in consolidated companies are recognised in profit or loss based on the difference between the sale price and the corresponding share of consolidated equity disposed of.
The following table shows the number of subsidiaries by method of consolidation and measurement: Subsidiaries and joint ventures At 31 December 2018 At 31 December 2017
At 31 December 2018, Poste Italiane Group’s receivables outstanding with central and local authorities amounts to €881 million (€969 million at 31 December 2017), gross of provisions for doubtful debts.
Shareholder transactions: Amount due from MEF following cancellation of EC Decision of 16 July 2008 (iv) 39 39
Receivables due from Ministries and Public Administration entities: Cabinet Office for publisher tariff subsidies
Receivables due from Ministries and Public Administration entities: Ministry for Econ. Dev.
iii. Sums due from the MEF in the amount of €67 million accruing during the period.
iv. Receivables of €39 million following cancellation of the EC Decision of 16 July 2008 and the interest due as a result of the sentence of the European Court of 30 September 2013, the impact of which on the Parent Company’s equity was deferred or adjusted.
vi. Receivables due from the Ministry for Economic Development, amounting to €78 million, including receivables of €62 million that are the subject of legal proceedings following the decision by the State Attorney’s Office not to clear a negotiated settlement worth approximately €50 million; with regard to the remaining amount, a joint working group has been set up with the debtor to agree on the amount of the services to be billed, partly on the basis of the results of the expert appraisal conducted as part of the above legal action.
vii. Regarding receivables outstanding with central and local government entities, totalling €490 million, certain items are still overdue, mainly because no provision was made in the relevant budgets or in connection with contracts or agreements. To this end, steps continue to be taken to renew the expired agreements and to make the necessary provisions48.
viii. Other receivables of €3 million, for which provisions for doubtful debts for the full amount have been made, and for which legal action and out-of-court procedures are in progress.
ix. Remaining current assets and the related interest to be recovered in relation to: – €55 million in IRES to be recovered on the unreported lump-sum deduction equal to 10% of IRAP and the unreported deduction of IRAP incurred on personnel expenses, including €8 million in principal and €47 million in interest. Recovery of a large part of the amount due, attributable to the Parent Company, Poste Italiane, is the subject of two disputes heard by the Provincial Tax Tribunal for Rome, which has upheld Poste Italiane’s appeals, ordering the tax authorities in Rome to refund the amounts claimed, in addition to the payment of interest. The tax authorities have appealed both rulings before the Regional Tax Tribunal and, on 23 March 2018, the Tribunal upheld the tax authorities’ appeal against one of the rulings. Poste Italiane has appealed this ruling before the Supreme Court of Cassation. The recent ruling, in contrast with other previous favourable rulings, introduces new elements of uncertainty as regards the final outcome. The progress of the dispute is being closely monitored and should further developments lead the Company to reach a new and revised assessment of the situation, this will be reflected in future financial statements.
At 31 December 2018, provisions for doubtful debts reflect receivables for which no provision had been made in the state budget and uncertainty regarding past due amounts due from the Public Administration.
48. The principal agreements that have expired regard those governing relations with the tax authorities in relation to the collection and the reporting of payments.
In the Parent Company’s case, the Mail, Parcels and Distribution segment, to which goodwill is allocated, was tested for impairment. Each of the other Group companies is considered a separate CGU.
The impairment tests at 31 December 2018 were performed on the basis of the business plans of the units concerned or the latest available projections. Data from the last year of the plan have been used to project cash flows for subsequent years over an indefinite time, and the resulting value was then discounted using the Discounted Cash Flow (DCF) method. For the determination of value in use, NOPLAT (net operating profit less adjusted taxes) was capitalised using an appropriate growth rate and discounted using the related WACC (Weighted Average Cost of Capital)49.
Deferred tax assets The recognition of deferred tax assets is based on the expectation of taxable income in future years. Assessments of expected taxable income depend on factors which may change over time, impacting on the valuation of the deferred tax assets in the statement of financial position.
Technical provisions for insurance business The measurement of technical provisions for the insurance business is based on estimates made by actuaries employed by Poste Vita SpA, based on a series of material assumptions, including technical, actuarial, demographic and financial assumptions, as well as on projections of future cash flows from the insurance contracts entered into by Poste Vita and Poste Assicura and effective at the end of the year. In order to verify the adequacy of the provisions, liability adequacy tests (LATs), (which measure the ability of future cash flows from the insurance contracts to cover liabilities towards the policyholders), are periodically performed. The LAT is conducted on the basis of the present value of future cash flows, obtained by projecting expected future cash flows from the existing portfolio to the end of the reporting period, based on appropriate assumptions regarding the cause of termination (death, surrender, redemption, reduction) and the performance of claims expenses. If necessary, technical provisions are topped up and the related cost charged to profit or loss.
Employee termination benefits (TFR) The calculation of employee termination benefits is conducted also by independent actuaries, considering vested termination benefits for the period of service to date and actuarial assumptions of a demographic, economic and financial nature. These assumptions, which are based on the Group’s experience and relevant best practices, are subject to periodic reviews.
The Poste Italiane Group has adopted a fair value policy, setting out the general principles and rules to be applied in determining fair value for the purposes of preparing the financial statements, conducting risk management assessments and supporting the market transactions carried out by the Finance departments of the various Group entities. The principles and rules to be applied in measuring the fair value of financial instruments are unchanged with respect to 31 December 2017 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.
�� Structured bonds: measurement is based on a building blocks approach, where the structured bond is broken down into its basic components: the bond component and the option component. The bond component is measured by discounting cash flows to present value in line with the approach applicable to straight bonds, as defined above. The option component - which considering the features of the bonds included in the portfolio of the Poste Italiane Group relates to interest rate risk - is measured in accordance with a standard closed form expression as with classical option valuation
models with underlyings exposed to such risks. In the case of structured bonds used to hedge index-linked policies (before ISVAP regulation no. 32), measurement is based on the bid price provided by the financial counterparties with which buyback agreements have been struck.
�� Bond forward: valuation is based on the present value of the differential between the forward price of the underlying instrument as of the measurement date and the settlement price.
�� Warrant: considering the features of the securities held, measurement is based on the local volatility model. In particular, considering that buyback agreements have been entered into with the counterparties that structured these warrants, and that such counterparties use valuation models consistent with those used by the Group, these instruments are measured on the basis of the bid price quoted by the counterparties.
In the rare instances where collateral agreements do not substantially reduce counterparty risk, measurement takes place by discounting to present value the cash flows generated by the securities held as collateral, using as the input a yield curve that reflects the spread applicable to the issuer’s credit risk. Alternatively, use is made of fair value to calculate the CVA/DVA (Credit Valuation Adjustment/Debit Valuation Adjustment), in relation to the main technical and financial characteristics of the agreements and the counterparty’s probability of default.
Buy & Sell Back used for the short-term investment of liquidity: valuation is based on discounted cash flow techniques involving the computation of the present value of future cash flows. Buy and Sell Back agreements may be pledged as collateral and the fair value, consequently, need not be adjusted for counterparty risk.
Financial liabilities either quoted on inactive markets or not at all: �� Straight bonds: these are measured by discounting their future cash flows using as input a yield curve reflecting the spread applicable to the issuer’s credit risk; �� Structured bonds: measurement is based on a building blocks approach, where the structured product is broken down into its basic components: the bond component and the option component. The bond component is measured by discounting cash flows to present value in line with the approach applicable to straight bonds, as defined above. The option component - which considering the features of the bonds included in the portfolio of the Poste Italiane Group relates to interest rate risk - is measured in accordance with a standard closed form expression as with classical option valuation models with underlyings exposed to such risks.
Level 3: this category includes the fair value measurement of assets and liabilities using inputs which cannot be observed, in addition to Level 2 inputs. For the Poste Italiane Group the following categories of financial instrument apply: Fixed rate and variable rate instruments: measurement is based on discounted cash flow. The counterparty’s credit spread is set according to best practices, by using the probability of default and transition matrices created by external information providers and loss given default parameters determined by prudential regulations for banks or in accordance with market standards.
2.7 New accounting standards and interpretations and those soon to be effective 50. In November 2018, the IASB proposed to defer the effective date for IFRS 17, the new standard on insurance contracts, for a year, that is until 2022. The proposal made also covers extension until 2022 of the temporary exemption from application of IFRS 9 granted to insurance companies. In this way, IFRS 9 and IFRS 17 can be applied at the same time. The proposal is still being consulted on.
51. In particular, as a result of the new provisions, insurance companies may elect: a) to take advantage of the temporary exemption from application of IFRS 9, which allows companies to continue to apply IAS 39 until 1 January 2021. This exemption has, however, been granted to the extent that the company’s activities are predominantly connected with insurance; or b) to apply the so-called overlay approach, whereby the difference between the profit/(loss) for the “Financial assets designated at fair value through profit or loss” applying IFRS 9 and the profit/(loss) for the same financial assets applying IAS 39 is reclassified to other comprehensive income. This reclassification would ensure the consistency of the effect on profit or loss of the financial assets in question, regardless of the accounting treatment used
Accounting standards and interpretations applied from 1 January 2018 The following are applicable from 1 January 2018: �� IFRS 9 – Financial Instruments, adopted with Regulation (EU) 2067/2016. The purpose of the new accounting standard, which replaces a large part of IAS 39 – Financial Instruments: Recognition and Measurement, is to improve disclosures on financial instruments with the aim of addressing the concerns that arose during the financial crisis. The standard also introduces an accounting model that aims to the timely recognition of expected impairment losses on financial assets. A detailed description of the main changes introduced by the standard is provided in the paragraph, “Changes to accounting policies”.
�� IFRS 15 – Revenue from Contracts with Customers, adopted with Regulation (EU) 1905/2016. The new standard, which will replace IAS 18 - Revenue, IAS 11 – Construction Contracts and IFRIC 13 – Customer Loyalty Programmes, introduces an innovative, single framework that substantially changes the definitions, criteria and methods used for measuring and recognising revenue in the financial statements. A detailed description of the main changes introduced by the standard is provided in the paragraph, “Changes to accounting policies”.
�� Annual Improvements Cycle to IFRSs 2014 – 2016, adopted with Regulation (EU) 182/2018 in connection with the annual projects to improve and revise international accounting standards. The accounting standard affected by the amendments introduced by this Regulation, applicable from 1 January 2018 are IAS 28 – Investments in Associates and Joint Ventures and IFRS 1 – First-time Adoption of International Financial Reporting Standards.
�� Amendments to IFRS 2 – Share-based Payment adopted with Regulation (EU) 289/2018. The Regulation introduces certain formal amendments and examples, to facilitate an understanding of the situations covered by the standard; it also provides specific indications on the accounting treatment of vesting and non-vesting conditions in case of cash-settled sharebased payment transactions. In addition, the Regulation again illustrates the rules on Share-based Payment Transactions with a Net Settlement Feature for Withholding Tax Obligations.
The standard grants the option of not applying the new provisions in the case of short-term contracts (for up to 12 months) and low-value contracts (where the underlying asset does not exceed US$5,000). For these contracts, the lessor may elect continue with the current accounting treatment
Lastly, as of the reporting date, the IASB has issued certain financial reporting standards, amendments and interpretations not yet endorsed by the European Commission: �� IFRS 17 - Insurance Contracts; �� Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures; �� Annual improvements cycle to IFRS 2015 - 2017; �� Amendments to IAS 19: Plan Amendment, Curtailment or Settlement; �� Amendments to the Conceptual Framework; �� Amendments to IFRS 3: Business Combinations; �� Amendments to IAS 1 and IAS 8: Definition of Material.
New International Financial Reporting Standards: Transitional provisions and ESMA disclosures The Public Statement issued on 26 October 2018 by the European Securities and Market Authority requires entities to provide adequate disclosure, in their annual financial statements for 2018, of the progress in the implementation of IFRS 16, of the manner in which they have carried out the transition between the alternative methods outlined by the standard, and of the expected quantitative impact of first-time adoption. Based on the above, attention is called to the following.
Transition method and main assumptions Of the methods allowed for the transition to IFRS 16, the Poste Italiane Group opted for the simplified retrospective approach that requires the recognition of: �� the financial liability of the lease starting from the date of initial application and taking into account future lease payments until contract expiration; �� the right of use at an amount equal to the financial liability of the lease as adjusted for any deferred income or accrued income related to the leases reported in the statement of financial position immediately preceding the date of initial application.
The approach does not require the restatement of comparative data and allows the use of practical expedients to calculate the financial liability and the right of use at the transition date. Specifically, the Group used such practical expedients for: �� identifying the contracts in scope (IFRS 16, para. C3)52; 52. As a practical expedient, an entity is not required to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, the entity is permitted: a) to apply this standard to contracts that were previously identified as leases applying IAS 17 - Leases and IFRIC 4 - Determining Whether an Arrangement Contains a Lease.
�� setting the discount rate for minimum future payments (IFRS 16 para. C10, point a.)53; �� determining the lease term (IFRS 16 para. C10, point e.); �� not applying the standard to low value and short-term leases (IFRS 16 para. 5)54, and those where the underlying asset is an intangible asset, other than copyrights and similar (IFRS 16 paragraphs 3 and 4)55.
Regarding the determination of the discount rate, reference was made to an incremental borrowing rate (“IBR”) applicable to a hypothetical loan that might have been obtained in the current economic environment, the value date, the maturity date and the credit spread that reflects the entity’s organisation and financial structure. The IBR associated at the inception of each contract will be revised in connection with any lease modification, i.e. substantive and significant amendments to the contract (e.g. term of the contract or future lease payments).
Further assumptions in the application of IFRS 16 The Group adopted also the practical expedient not to separate the non-lease components from the lease components for the rental contracts of the corporate fleet and vehicles for business and personal use.
Quantitative impacts of first-time adoption of IFRS 16 At the date of transition, the types of contract falling within the scope of IFRS 16 regard: �� Properties used in operations (approximately 10,600 contracts); �� Corporate fleet rented for the delivery of postal products and vehicles for business and personal use given to employees (plus contracts for approximately 19,200 vehicles); �� Properties used as accommodation for employees (approximately 250 contracts); �� Aircraft used by the Group’s airline (6 contracts); �� Other types of asset (7 contracts).
Lease liabilities resulting from application of IFRS 16 at 1 January 2019 1,373
Lease liabilities resulting from application of IFRS 16 at 1 January 2019 1,228
From 1 January 2018, the Poste Italiane Group has adopted IFRS 9 Financial Instruments (adopted with Regulation (EU) 2067/2016) and IFRS 15 Revenue from Contracts with Customers (adopted with Regulation (EU) 1905/2016). Below, details are provided of the new classification and measurement methods introduced by the abovementioned IFRS and the impact of their first-time adoption on the statements of financial position of the Poste Italiane Group and Poste Italiane SpA.
Financial assets On initial recognition, financial assets are classified in one of the following categories, based on the business model adopted to manage them and the characteristics of their contractual cash flows: �� Financial assets measured at amortised cost This category reflects financial assets held to collect the contractual cash flows (the held to collect or HTC business model) representing solely payments of principal and interest (SPPI). These assets are recognised at amortised cost, that is the amount of the asset on initial recognition, less principal repayments, plus or minus the accumulated amortisation, using the effective interest method on the difference between the initial principal and principal at maturity, after deducting any impairments. The business model on which the classification of financial assets is based permits the sale of such assets; if the sales are not occasional, and are not immaterial in terms of value, consistency with the HTC business model should be assessed.
�� Financial assets measured at fair value through other comprehensive income (FVTOCI) This category includes financial assets held both to collect the relevant contractual cash flows and for sale (the held to collect and sell or HTC&S business model), with the contractual cash flows representing solely payments of principal and interest. These assets are recognised at fair value through other comprehensive income – except for impairment losses and revaluations and foreign exchange gains and losses – until the financial asset is derecognised or reclassified. If the financial asset is derecognised, the accumulated gains/(losses) recognised in OCI are recycled to profit or loss.
�� Financial assets measured at fair value through profit or loss This category includes: (a) financial assets primarily held for trading; (b) those that qualify for designation at fair value through
profit or loss, exercising the fair value option; (c) financial assets that must be recognised at fair value through profit or loss; (d) derivative instruments, with the exception of the effective portion of those designated as cash flow hedges. Financial instruments in this category are classified as short-term if they are held for trading or if they are expected to be realised within twelve months of the end of the reporting period. Derivative instruments at fair value through profit or loss are recognised as assets or liabilities depending on whether the fair value is positive or negative. Fair value gains and losses on outstanding transactions with the same counterparty are offset, where contractually permitted.
Classification in current or non-current assets depends on the maturity of the instrument, given that current assets include instruments expected to mature within 12 months of the reporting date.
An expected credit loss (ECL) provision must be made for financial assets recognised at amortised cost and financial assets at fair value through OCI, as follows: (i) specific provisions for doubtful debts are made for expected losses on financial assets measured at amortised cost; (ii) expected losses on financial assets measured at fair value through other comprehensive income are recognised in profit or loss, with a contra entry in the fair value reserve in equity. The method utilised is the “General impairment model”, whereby: �� If on the reporting date the credit risk of a financial instrument has not increased significantly since initial recognition, a 12-month ECL is recognised (stage 1). Interest on the instrument is calculated on the gross carrying amount (amortised cost inclusive of the ECL); �� If on the reporting date the credit risk of the financial instrument has increased significantly since initial recognition, a lifetime ECL is recognised (stage 2). Interest on the instrument is calculated on the gross carrying amount (amortised cost inclusive of the ECL); �� If a financial instrument is already impaired on initial recognition or shows objective evidence of impairment as at the reporting date, lifetime expected losses are recognised. Interest is calculated on amortised cost (stage 3).
In case of a change in the business model, financial assets already accounted for are reclassified to a new category. The effects of the reclassification are only recognised prospectively, without any recalculation of gains/losses and interest recognised previously.
Financial assets are derecognised when there is no longer a contractual right to receive cash flows from the investment or when all the related risks and rewards and control have been substantially transferred.
Financial liabilities Financial liabilities, including borrowings, trade payables and other payment obligations, are carried at amortised cost using the effective interest method. If there is a change in the expected cash flows and they can be reliably estimated, the value of borrowings is recalculated to reflect the change on the basis of the present value of estimated future cash flows and the internal rate of return initially applied. Financial liabilities are classified as current liabilities, unless there is an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period.
3.1.2 IFRS 15 – Revenue from Contracts with Customers Revenue is recognised to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services (the transaction price).
Revenue is recognised on the basis of a 5-step framework, which consists of the following: 1. Identification of the contract with the customer (sale contracts except leases, insurance contracts, financial instruments and non-monetary exchanges); 2. Identification of the performance obligations in the contract, such as the express or implied obligation to transfer a specific good or service to the customer; 3. Determination of the transaction price; 4. In case of multiple offers (“bundles”) that give rise to different performance obligations, allocation of the transaction price to the performance obligations; in this case it is necessary to estimate the standalone selling price related to each performance obligation; 5. Recognition of revenue as and when the performance obligations are satisfied, i.e. when title to the good or service passes to the customer. Performance obligations may be satisfied either: �� “at point in time”: In this case revenue is recognised only when total “control” over the good or the service exchanged passes to the customer. In this respect, account is taken not only of the significant exposure to the risks and rewards associated with the god or service but also physical possession, customer acceptance, existence of legal rights, etc.; �� “over time”: In this case revenue measurement and recognition reflect, virtually, progress of the customer’s level of satisfaction. An appropriate approach is defined to measure progress of the performance obligation (the output method).
Identification of the performance obligation Every single supplier obligation with the customer is considered, measured and recognised separately. This approach involves a preliminary accurate analysis of the contract to identify every “single product/service” or every “single component” of a product /service that the supplier promises to provide, attributing to each the relevant consideration, and to monitor each such obligation during the life of the contract (in terms both of manner and timing of fulfilment and the customer’s level of satisfaction).
Of the elements of variable consideration, particularly important are penalties (other than those related to compensation for damages). These expenses are deducted directly from revenue.
Allocation of the transaction price In the presence of multiple performance obligations, the transaction price is allocated to each performance obligation to the extent of the consideration that the entity is entitled to receive for the transfer of the relevant goods and services to the customer. The transaction price will be allocated on the basis of the standalone selling price of the goods and services associated with the performance obligation. The standalone selling price is the price at which an entity would sell the goods and services separately to the customer, under similar circumstances and to similar customers. If the standalone selling price is not observable, the Company would need to estimate it considering all the information available (market conditions, information on the customer or the class of customers) and the estimation methods used in similar circumstances.
Contract costs The incremental costs of obtaining a contract must be capitalised and amortised over the useful life of the contract, if longer than 12 months, while any non-incremental costs of obtaining a contract are expensed as incurred. Costs incurred to fulfil performance obligations related to a contract that do not qualify for treatment under other standards (IAS 2 – Inventories, IAS 16 – Property, Plant and Equipment and IAS 38 – Intangible Assets) are capitalised only if the following conditions are met: �� the costs related directly to a contract (general and administrative costs are not capitalised); �� the costs generate or enhance resources; �� the costs are expected to be recovered.
Contract assets and liabilities A contract asset is an entity’s right to payment for goods and services already transferred to a customer. If goods or services are transferred to the customer before the relevant payment is due, the amount must be recognised as a contract asset.
A contract liability is the obligation to transfer to the customer goods or services for which payment has already been obtained (or for which the customer’s consideration is due before the goods and services are provided). This consideration is recognised as a contract liability.
3.2 Use of estimates in relation to IFRS 9 and IFRS 15
Determination of the elements of variable consideration The main factors in revenue recognition include the elements of variable consideration, particularly penalties (other than those related to compensation for damages). Elements of variable consideration are identified at the inception of the contract and estimated as of every close of the accounts for the entire contract term, to take into account new circumstances and changes in the circumstances already considered for the previous estimations. Elements of variable consideration include refund liabilities.
The Poste Italiane Group elected to apply IFRS 9 and IFRS 15 as of its effective date, 1 January 2018, without early adoption. Regarding the methods allowed for the transition, it was decided: �� for the transition to IFRS9, to use the exemption under IFRS 9.7.2.15 whereby the retrospective cumulative effect of the change in accounting standard is recognised as of 1 January 2018 in retained earnings and in the fair value reserve, where appropriate, without restating the comparative year-earlier accounts; �� for the transition to IFRS 15, to adopt the simplified transition method, whereby the cumulative effect of the change of accounting standard is recognised as of 1 January 2018 in retained earnings, without any restatement of the comparative year-earlier accounts. It also opted not to take into account the so-called “completed contracts” at the transition date, which continue to be recognised in accordance with IAS 18 and related interpretations.
Key elections This paragraph illustrates the key elections by the Poste Italiane Group regarding the application of IFRS 9 – Financial Instruments and formalised on 13 December 2017 by Poste Italiane SpA’s Board of Directors. The Board also approved specific IFRS 9 Guidelines, in relation to: �� the choice of Business Models to be adopted at Group level; �� the approach to estimating the impairment of financial instruments, relating to both securities and receivables, and expected credit losses; �� the stage allocation criteria, to allocate financial instruments to the applicable stages on the basis of any significant increase in credit risk; �� hedge accounting choices.
Below a description is provided of the most significant aspects addressed by the IFRS 9 Guidelines regarding Classification & Measurement, Impairment and Hedge Accounting.
Classification & Measurement Based on IFRS 9 - Financial Instruments, the Poste Italiane Group has identified the following Business Models: �� Hold to Collect (HTC): where the financial asset is held to collect contractual cash flows, in the form of principal and interest, with rare sales and/or limited volumes; financial instruments that fall into this business model, and that met the SPPI test, are recognised at amortised cost.
Equity instruments account for a residual portion of the portfolio compared with the debt instruments and shares/units of mutual investment funds held by the Poste Italiane Group. Nearly all the shares held by the Group are reported at fair value through profit or loss.
Credit risk management practices: inputs, assumptions and estimation techniques The new impairment model applicable to financial instruments measured at amortised cost and at fair value through other comprehensive income is based on Expected Credit Losses (ECL). Below, the methods adopted to manage credit risk are described.
The ratings used in stage allocation derive from internal models in the case of banking and sovereign counterparties, and external models in the case of corporate and government counterparties. Based on the above information, the Poste Italiane Group rebuts the presumption that there have been significant increases in credit risk following initial recognition, when financial assets are more than 30 days past due.
57. The additive factor is built in view of the rating level at the reporting date, where the better the final rating the higher the threshold for the transition to Stage 2. 58. The judgmental factor can summarise important aspects in determining the significant increase in credit risk, taking into account such elements as: • an actual or expected significant change in the internal/external credit rating of the financial instrument; • existing or expected negative changes in economic, financial or business conditions that might cause a significant change in the debtor’s ability to honour its obligations, such as an actual or expected increase in interest rates or an actual or expected significant increase in unemployment rates.
Collective and individual provisions A collective provision criterion is applied to a homogeneous group of financial assets that defines the extent of the ECL on such assets, without attributing the expected loss to a specific exposure. The method of grouping is based on the type of counterparty using the method for estimating PD.
This methodology involves the use of target variables linked to the external ratings produced by the rating agencies. The target may be directly the rating or, alternatively, the default rate associated with the rating grade.
To determine the rating of corporate bonds, reference is made to the ratings assigned by the main agencies. In the absence of such information, the rating is estimated by filling a scorecard that takes into account, among others: �� the risk specific to the company; �� the risk specific to the industry in which the company operates; �� the specific and generic risk of the country to which the company belongs.
3.4 Impact of the adoption of IFRS 9 and IFRS 15 3.4.1 Impact of the adoption of IFRS 9 and IFRS 15 on the Group’s statement of financial position The tables below show the effects determined by the transition to IFRS 9 and IFRS 15 on every single line item of the Group’s accounts. In particular, the Group’s statement of financial position includes the effects deriving from the new classification and measurement rules of IFRS 9 and applied to individual assets on transition; adjustments, on the other hand, include the rules deriving from initial application of the new impairment model.
Reclassifications (IFRS 15)* Adjustments (IFRS 9 and 15)** Balance at 1 January 2018
Equity attributable to owners of the Parent 7,550 1,231 (15) 8,766
Fair value reserve at 1 January 2018 - IFRS 9 (FVTOCI) 1,604
Summary of the effects of first-time adoption The effects of the first-time adoption of IFRS 9 are described below, separately by Classification & Measurement and Impairment.
Classification & Measurement The table below describes the original classification under IAS 39 and the new classification under IFRS 9 for each of the Poste Italiane Group’s financial asset classes at 1 January 2018.
Other investments: Fair value through profit or loss Fair value through profit or loss 22,514 22,514
Equity instruments Fair value through profit or loss Fair value through profit or loss 58 58
Non-hedging derivatives Fair value through profit or loss Fair value through profit or loss 184 184
Hedging derivatives Fair value - Hedging instrument Fair value - Hedging instrument 395 395
Reclassifications from AFS to amortised cost i) a (17,014) 17,014 - - - - 17,014
Reclassifications from AFS to FVTOCI i) b (117,072) - 117,067 - - 5 117,072
Reclassifications from loans and receivables to FVTPL ii) c (216) - - 216 - - 216
AFS: Available-for-sale HTM: Held-to-maturity FVTPL: Fair value through profit or loss FVTOCI: Fair value through other comprehensive income i. Reclassification of available-for-sale financial assets to the following IFRS 9 categories: a. Amortised cost, totalling €17,014 million, with an increase of €255 million in the fair value reserve. b. FVTOCI, totalling €117,072 million, including €5 million in equity instruments for which the Group has exercised the
FVTOCI option. c. FVTPL, totalling €1,719 million, regarding financial assets held under a business model other than the above, that is financial assets that do not pass the SPPI test. This category also includes equity instruments that were not measured at FVTOCI, whose reclassification has resulted in an increase in retained earnings and a simultaneous decrease in the fair value reserve of €16 million, attributable to the Visa Inc. shares.
At 31 December 2018, the fair value of instruments reclassified from the AFS category to the amortised cost category amounts to approximately €14,573 million, whilst the fair value loss that would have been recognised in equity at 31 December 2018, if on transition €17,014 million had not been reclassified from the AFS category to the amortised cost category, would have amounted to approximately €787 million (before the related taxation).
POSTE ITALIANE GROUP - CREDIT RISK - TRADE RECEIVABLES ADJUSTED FOR INDIVIDUAL IMPAIRMENTS
The tables below show the effects determined by the transition to IFRS 9 and IFRS 15 on every single line item of Poste Italiane SpA’s accounts. In particular, the Group’s statement of financial position includes the effects deriving from the new classification and measurement rules of IFRS 9 and applied to individual assets on transition; adjustments, on the other hand, include the rules deriving from initial application of the new impairment model.
Total liabilities and equity 75,809 1,767 (6) 77,570 * The column “Classification and measurement (IFRS 9) and Reclassifications (IFRS 15) includes: - remeasurements resulting from first-time adoption of the new rules for the classification and measurement in compliance with IFRS 9.7.2.3 et seq.; - reclassifications resulting from first-time adoption of IFRS 15; ** Adjustments primarily include the impairment resulting from first-time adoption of IFRS 9.
Structured bonds Fair value through profit or loss Fair value through profit or loss - -
Fair value through profit or loss Fair value through profit or loss - -
Below, details are provided of the main effects, as of the transition date, resulting from application of the new classification, measurement and expected loss rules.
Reclassifications from HTM to FVTOCI ii)b (9,666) - 9,666 - - - 9,666
Reclassifications from loans and receivables to FVTPL ii)c (8) - - 8 - - 8
Balance of financial assets attributable to BancoPosta at 1 January 2018 (IFRS 9)
Reclassifications from AFS to amortised cost - - - - - - -
Reclassifications from HTM to FVTOCI - - - - - - -
Reclassifications from loans and receivables to FVTPL - - - - - - -
i. Reclassification of available-for-sale financial assets to the following IFRS 9 categories: a. Amortised cost, totalling €15,398 million, with an increase of €458 million in the fair value reserve; b. FVTOCI, totalling €24,256 million, including €5 million in equity instruments for which the Company has exercised the FVTOCI option; c. FVTPL, totalling €41 million, regarding Visa Incorporated shares that the Company has not elected to measure at FVTOCI and whose reclassification has resulted in an increase in retained earnings and a simultaneous decrease in the fair value reserve of €16 million.
Effect of adjustments for expected losses (2) - - - -
Impairment The effects of the application of the new impairment model, which during the transition had a contra-entry in retained earnings, are outlined below: a. €10 million in expected losses in relation to financial instruments recognised at amortised cost; b. €14 million in expected losses in relation to financial instruments recognised at FVTOCI (impairment losses taken on these financial instruments have an offsetting entry in the fair value reserve); c. €3 million in expected losses, including €2 million in additional provisions in relation to trade receivables and €1 million in additional provisions in relation to other receivables and assets.
Poste Italiane Financial Statements for the year ended 31 December 2018 3. Changes to accounting policies
from AAA to AA+ from A+ to BBB- from BB+ to C Not rated Hedge accounting effects
from AAA to AA- from A+ to BBB- from BB+ to C Not rated Hedge accounting effects
Additional impairments recognised at 1 January 2018 on: Trade receivables 2
Poste Italiane and Anima Holding: new binding agreement to strengthen partnership in asset management On 6 March 2018, Poste Italiane Spa and Anima Holding SpA, together with Poste Vita SpA, BancoPosta Fondi SpA SGR and Anima SpA SGR, to the extent of their respective responsibilities, signed implementing agreements designed to strengthen their partnership in the asset management sector, in accordance with the terms and conditions announced on 21 December 2017.
�� With reference to the sale of the 100% interest in Banca del Mezzogiorno–Mediocredito Centrale SpA (“BdM”), agreed on 8 February 2017 by Poste Italiane SpA, the seller, and Invitalia, the buyer, on 31 October 2018, Invitalia informed Poste Italiane that the Bank of Italy had requested the buyer not to proceed with the reduction of BdM’s capital scheduled for 2018, and preparatory to payment of a €40 million tranche of the related consideration. In line with the terms of the agreement, Poste Italiane and Invitalia, acting in good faith, concluded an agreement that resulted in Invitalia’s payment of a sum of €20 million on 27 February 2019. The remaining €20 million will be paid from the dividends to be paid by BdM in 2018, 2019 and 2020. At 31 December 2018, this receivable has been assessed in view BdM’s expected ability to pay dividends and taking into account the supervisory instructions and recommendations from the Bank of Italy.
In accordance with IAS 8, these changes are classed as a change in accounting estimates, as the change to the method of determining DTA is connected with new elements introduced or identified in 2018 and is, above all, due to changes of a technical and organisational nature and the resulting improvement in the available information61.
Poste Vita SpA: Ancillary Own Funds (AOF) In 2018, market volatility and the performance of the spread between Italian and German government securities led to a deterioration in the Solvency II Ratio of the subsidiary, Poste Vita SpA, which declined from 284% in March 2018 to 172% at 30 September 2018.
Poste Italiane SpA: authority to purchase and hold treasury shares On 29 May 2018, the Ordinary and Extraordinary General Meeting of Poste Italiane SpA’s shareholders authorised the Company to purchase and hold up to 65.3 million of the Company’s ordinary shares, representing approximately 5% of the share capital, at a total cost of up to €500 million. Purchase of the treasury shares will be permitted for eighteen months from the date of the shareholder resolution granting the authority. There is, in contrast, no limit on the period of time in which the treasury shares will be at the Company’s disposition. The General Meeting also, as proposed by the Board of Directors, defined the purposes, terms and conditions for the purchase and sale of treasury shares, establishing the methods for calculating the purchase price, and the operating procedures for carrying out purchases.
From 4 February 2019, Poste Italiane SpA launched a buyback programme63 via purchases in the Mercato Telematico Azionario (the MTA, an electronic stock exchange) in order to create a stock of treasury shares of up to €50 million, equal to approximately 7 million shares or less than 1% of the share capital, partly to service any future staff incentive plans. At 15 February 2019, Poste Italiane had purchased 5,257,965 own shares at an average price of €7.608, making a total cost of approximately €40 million and equal to 0.4026% of the share capital.
Poste Italiane Financial Statements for the year ended 31 December 2018 4. Material events during the year
5. Poste Italiane Group for the year ended 31 December 2018 5.1 Consolidated financial statements
Cash and deposits attributable to BancoPosta [A9] 3,318 - 3,196 -
Liabilities and equity (€m) Note 2018 of which, related party transactions 2017 of which, related party transactions
(€m) Note 2018 of which, related party transactions 2017 of which, related party transactions
Revenue from Mail, Parcels & other [C1] 3,579 490 3,631 513
Revenue from Payments, Mobile & Digital [C2] 628 48 586 64 of which, non-recurring income 120 91
Impairment loss/(reversal) on financial instruments [C13] 20 20 94 of which, non-recurring expense/(income) - 82
Profit/(Loss) on investments accounted for using the equity method [A4] (24) - 17 -
Profit/(Loss) before tax 1,490 1,067 of which, non-recurring expense/(income) (351) (9)
Net profit for the year 1,399 689 of which, attributable to owners of the Parent 1,399 689 of which, attributable to non-controlling interests - -
Actuarial gains/(losses) on provisions for employee termination benefits [tab. B7] 16 (1)
Balance at 1 January 2018 including IFRS 9 and IFRS 15 effects
Losses and impairment losses/(Reverseals of impairment losses) on receivables [tab. C11] 46 55
Cash flow generated by operating activities before movements in working capital [a] 1,528 1,306
Increase/(decrease) in liabilities attributable to financial activities, payments, cards and acquiring 4,513 2,911
Cash generated by/(used for) assets and liabilities attributable to financial activities [c] 741 (1,486)
Net cash generated by/(used for) financial assets attributable to insurance activities (5,860) (9,941)
Cash generated by/(used for) assets and liabilities attributable to insurance activities [d] 633 (315)
Cash and cash equivalents reclassified from non-current assets and disposal groups held for sale [h] [tab. A11] - 1
A1 - Property, plant and equipment (€1,945 million) The following table shows movements in property, plant and equipment in 2018: TAB. A1 - MOVEMENTS IN PROPERTY, PLANT AND EQUIPMENT
At 31 December 2018, 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 €43 million.
A2 - Investment property (€48 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 2018: 64. 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.
Purchases of intangible assets under construction primarily regard the development for software relating to the infrastructure platform and for BancoPosta services.
Goodwill has been tested for impairment in accordance with the relevant accounting standards. The information available and the impairment tests conducted revealed the need to write off the goodwill allocated to Postel SpA, totalling €33 million.
TAB. A4 - INVESTMENTS Item (€m) Balance at 31 December 2018 Balance at 31 December 2017
MOVEMENTS IN INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD DURING 2018
Adjustments Balance at 31 December 2018 accounted for using the equity method dividend adjustments in subsidiaries
Investments in associates refer almost entirely to the investment in Anima Holding. The movement in investments primarily regards: �� Poste Italiane SpA’s subscription for its share of the rights issue carried out by the associate, Anima Holding SpA on 12 April 2018, amounting to a total of approximately €30 million and enabling the Company to retain its 10.04% interest; �� a net increase in the carrying amount of the investment of approximately €7.1 million, primarily reflecting a reduction of €5.9 million following the payment of dividends for 2017, and an increase of €13 million representing the share of profit booked by the investee between 30 September 2017 and 30 September 2018 (the latest data available); Annual Report Poste Italiane Group 2018
�� an impairment loss of €42 million following the impairment test conducted on the basis of the latest available information66.
In 2018, Poste Italiane SpA obtained tax relief, pursuant to art. 15, paragraph 10 of Law Decree 185 of 2008, on the increase in the value of the goodwill and other intangible assets relating to acquisition of the investment in FSIA Investimenti Srl recognised in Poste Italiane’s consolidated financial statements at 31 December 2017.
In order to qualify for the relief, the Company paid substitute tax (IRES and IRAP) of approximately €32 million, equal to 16% of the amounts to which the relief applies, totalling approximately €198 million. Specifically, the amount qualifying for relief consists of the following: (€m)
This process will allow the Parent Company to deduct tax amortisation of the revalued amounts from the tax bases for IRES and IRAP from the second tax period following the one in which the substitute tax was paid (from 2020).
A list of subsidiaries, joint ventures and associates accounted for using the equity method is provided in Additional information – Information on investments (note 13).
Poste Italiane Financial Statements for the year ended 31 December 2018 5. Poste Italiane Group for the year ended 31 December 2018
Financial assets at amortised cost 21,507 9,714 31,221 11,675 8,837 20,512
Financial assets at amortised cost 1,420 85 1,505 - 258 258
Financial assets at fair value through profit or loss - - - - - -
PAYMENT SERVICES AND CARD PAYMENTS - 53 53 - - -
Financial assets at amortised cost - 53 53 - - -
Financial assets by operating segment break down as follows: �� Financial Services, relate primarily to the financial assets of BancoPosta RFC and the company, BancoPosta Fondi SpA SGR; �� Insurance Services, includes the financial assets of Poste Vita SpA and its subsidiary, Poste Assicura SpA; �� Postal and Business Services, representing all the other financial assets held by the Parent Company (different from those held by BancoPosta) and the other financial assets held by companies that provide postal and business services; �� Payment Services and Card Payments, representing the financial assets held by the ring-fenced EMI; �� The impact of the transition to IFRS 9 is commented on in note 3 – Changes to accounting policies, to which reference should be made.
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 indices68. Following the introduction of IFRS 9, the deposits have been adjusted to reflect accumulated impairments of approximately €3 million, reflecting the risk of counterparty default. In 2018, the Parent Company entered into derivatives with the aim of converting the return on the deposits in question into a fixed rate. The transaction was designed to fix the return on the indexed components of the deposits, through a series of forward purchases and spot sales of BTPs, with settlement of the differential between the forward price of the securities and their market value.
This portfolio includes fixed rate instruments amounting to €4,500 million (including €2,000 million acquired in 2018), issued by Cassa depositi e prestiti SpA and guaranteed by the Italian government (at 31 December 2018, their fair value totalled €4,539 million).
68. 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.
69. A guarantee fund established with payments from participants in the derivative, equity and bond markets, as a further guarantee for the transactions carried out. The fund can be used to meet the charges arising from any participant default.
70. In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, €16,780 million of the total amount qualifies for inclusion in level 1 and €4,409 million for inclusion in level 2.
Movements in financial assets at fair value through profit or loss (FVTPL), including the impact of first-time adoption of the new IFRS 9, are shown below: 71. 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.
Fair value gains and losses through profit or loss - 9 9
Receivables of approximately €8 million arise from the deferred portion of the consideration due to the Parent Company following the sale of its Visa Europe Ltd. share to Visa Incorporated (payable three years after transaction closing on 21 June 2016). Following its failure to pass the SPPI test, this receivable has been measured at fair value through profit or loss.
This item regards the following: �� €45 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 13.88671 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; �� €5 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.
The following table shows movements in derivative instruments during the year: TAB. A5.4 - MOVEMENTS IN DERIVATIVE FINANCIAL INSTRUMENTS
Forward sales nominal fair value nominal fair value nominal fair value nominal fair value nominal fair value nominal fair value nominal fair value
Of which: * 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 activities. *** Transactions settled include forward transactions settled, accrued differentials and the settlement of interest rate swaps linked to securities sold.
In the year under review, the Parent Company carried out the following transactions: �� the conclusion of forward purchases with a nominal value of €3,050 million. During the year, purchases of €1,505 million were settled; �� the conclusion of forward sales with a nominal value of €1,340 million; �� the settlement of forward sales outstanding at 31 December 2017, totalling €1,408 million; �� the conclusion of new cash flow interest rate swaps with a nominal value of €500 million; �� the conclusion of new fair value interest rate swaps with a nominal value of €5,280 million; �� the unwinding of fair value interest rate swaps hedging securities that have been sold, with a nominal value of €1,445 million.
Following the introduction of IFRS 9, fixed income instruments recognised at amortised cost are adjusted to take into account the related impairments. Accumulated impairments at 31 December 2018 amount to approximately €0.6 million (unchanged with respect to 1 January 2018).
Effects of sales on profit or loss 222 - - 222
These financial instruments have recorded a net fair value loss of €4,570 million. This includes €4,522 million deriving primarily from the measurement of securities held by Poste Vita SpA and transferred to policyholders, with a contra-entry made in technical provisions in accordance with the shadow accounting method, and a portion of €48 million reflected in a matching negative movement in the related equity reserve.
At 31 December 2018, fixed income instruments relate primarily to investments held by Poste Vita SpA, totalling €94,454 million (a nominal value of €92,262 million) issued by European governments and European blue-chip companies. These instruments are mainly intended to cover separately managed accounts, where gains and losses are transferred in full to policyholders and recognised in technical provisions using the shadow accounting method. These fixed income instruments comprise bonds issued by CDP SpA, with a fair value of €1,107 million.
Following the introduction of IFRS 9, fixed income instruments recognised at FVTOCI are adjusted for impairment through the relevant equity reserve, with a matching entry in profit or loss. Accumulated impairments at 31 December 2018 amount to €41 million, including a portion of €40 million transferred to policyholders using the shadow accounting method (at 1 January 2018, impairments amounted to €43 million, including €42 million transferred to policyholders using the shadow accounting method).
At 31 December 2018, Cassa depositi e prestiti’s private placement of a Constant Maturity Swap, classified as at FVTOCI, amounts to €525 million. Fair value losses registered during the period, totalling €21 million, have been transferred to policyholders using the shadow accounting method.
This item regards receivables relating to contributions made in the form of subscriptions and payment for unissued units of mutual investment funds.
At 31 December 2018, fixed income securities amounting to €1,571 million, consist of €825 million in coupon stripped BTPs and Zero Coupon bonds and of €746 million made up of corporate bonds issued by blue-chip companies. Financial instruments totalling €478 million are linked to separately managed accounts, €1,078 million covers contractual obligations arising on Class III insurance policies and the remaining €15 million relating to securities in which the company’s free capital has been invested.
Other investments of €21 million relate to a Constant Maturity Swap placed by Cassa depositi e prestiti (a nominal value of €22 million) and covering products linked to separately managed accounts.
Financial assets at amortised cost refer solely to financial receivables totalling €90 million.
This item breaks down as follows: TAB. A5.9 - RECEIVABLES AT AMORTISED COST
This item regards BTPs with a total nominal value of €500 million. Of these, instruments with a value of €375 million have been hedged using asset swaps designated as fair value hedges.
This item primarily reflects the investment in CAI SpA (formerly Alitalia CAI SpA), which was acquired for €75 million in 2013 and written off in 2014.
This item consists of equity instruments (as defined by art. 2346, paragraph 6 of the Italian Civil Code) resulting from the conversion of Contingent Convertible Notes74, whose value at 31 December 2018 is zero.
Derivative financial instruments 74. 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. On the fulfilment of certain negative pledge conditions, in 2017 the loan was converted into equity instruments (as defined by art. 2346, paragraph 6 of the Italian Civil Code), carrying the same rights associated with the Notes.
(Net transfers between Level 1 and 2) (6,701) 6,701 595 (595)
Movements in fair value through profit or loss - 95 - 95
Other movements (including accruals at end of period) - (212) - (212)
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.
76. At 31 December 2018, the balance of trade receivables includes €14 million, net of the related provisions for doubtful accounts, relating to rental income falling within the scope of IFRS 15 – Revenue from Contracts with Customers.
Subsidiaries, associates and joint ventures - 4 4 - - -
Ministries and Public Administration entities - 672 672 - 658 658
�� Receivables for parcel, express courier and express parcel services refer to services provided by SDA Express Courier SpA, and to the mailing of parcels by the Parent Company.
�� Receivables for overdrawn current accounts are amounts due to BancoPosta for temporarily overdrawn current accounts largely due to recurring BancoPosta bank charges, including accumulated sums, which have largely been written down, that BancoPosta is in the process of recovering.
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 Poste Italiane SpA. 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, which is still pending.
With Resolution 571/18/CONS, published on 11 February 2019, AGCom has launched a public consultation on the assessment of the net cost of providing the Universal Postal Service in 2015 and 2016, with the estimated costs of providing the service amounting to €378 million for 2015 and €355 million for 2016, compared with revenue of €279 million and €262 million recognised by the Parent Company for the services rendered in those years.
�� Receivables arising from electoral subsidies refer to compensation for previous years, for which provision has been made in the state budget. In 2018, after agreement was reached with the MEF regarding the release of the funds, a total of €55 million was made available, having been deposited by the MEF in a non-interesting bearing escrow account in Poste Italiane SpA’s name, held with the Treasury, in 2017; a further €27 million was also collected.
Provisions for doubtful debts due from the MEF are described in note 7 – Risk management.
78. Of the total amount, €518 million, assessed on the basis of provisions at 31 December 2018, has yet to be paid and is accounted for in “Other taxes payable” (tab. B10.3).
Amounts due from social security agencies and pension funds (excl. fixed-term contract settlements)
Accrued income and prepaid expenses from trading transactions - 11 11 - 11 11
Interest accrued on IRAP refund - 3 3 - 3 3
Specifically: �� substitute tax paid refers mainly to: – €2,140 million on non-current receivables paid in advance by Poste Vita SpA for the financial years 2012-2018, relating to withholding and substitute tax paid on capital gains on life policies78; – €1,231 million charged to holders of Interest-bearing Postal Certificates and Class III and V insurance policies for stamp duty at 31 December 201879; This amount is balanced by a matching entry in “Other taxes payable” until expiration or early settlement of the Interest-bearing Postal Certificates or the insurance policies, i.e. the date on which the tax is payable to the tax authorities (tab. B10.3); – €303 million relating to advances paid in relation to stamp duty to be paid in virtual form in 2019 and charged to customers and to be recovered from customers by Poste Italiane; – €127 million relating to stamp duty charged to Postal Savings Books, which Poste Italiane SpA pays in virtual form as required by law.
�� Accrued interest on IRAP refund, amounting to €3 million, refers to interest accruing up to 31 December 2018 on the IRAP credit in relation to the failure to deduct personnel expenses for disabled staff employed in 2003.
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 (€842 million) and companies that provide cash transportation services whilst awaiting transfer to the Italian Treasury (€2,125 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 €348 million.
Bank deposits and amounts held at the Italian Treasury 1,877 2,034
The balance of cash at 31 December 2018 includes approximately €1,556 million, including €1,392 million in liquidity covering technical provisions for the insurance business, €53 million in amounts deposited with the MEF in a so-called buffer account, consisting of customer deposits subject to restrictions on their use, €72 million deposited by the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office – Publishing department) in a non-interest bearing escrow account with the Italian Treasury as advance payment for publisher tariff subsidies due to the Parent Company (note A7), and €21 million resulting from the collection of cash on delivery and amounts subject to other restrictions.
A11 - Non-current assets and disposal groups held for sale and liabilities related to assets held for sale This item, which at 31 December 2017 had a negative balance of €0.3 million, was reduced to zero in 2018, following completion of the spin-off of BancoPosta Fondi SpA SGR under the agreement executed with Anima Holding described in note 4.1.
Equity at 1 January 2018 including IFRS 9 and IFRS 15 effects
At 31 December 2018, earnings per share is €1.071 (€0.528 at 31 December 2017).
At 31 December 2018, 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 (as described above in note 4.2, from 4 February 2019, Poste Italiane SpA launched a buyback programme and on 19 March purchased 5,257,965 own shares, representing 0.4026% of the share capital).
Changes resulting from IFRS 9 and IFRS 15 - - 1,233 - - 1,233
Balance at 1 January 2018 including IFRS 9 and IFRS 15 effects 299 1,000 1,604 (61) 2 2,844
Increases/(decreases) in fair value during the year - - (1,946) 191 - (1,755)
Tax effect of transfers to profit or loss - - 113 (5) - 108
Details are as follows: �� the fair value reserve regards changes in the value of financial assets at fair value through other comprehensive income. Fair value losses in 2018, totalling €1,946 million, reflect: – a net decrease of €1,887 million in financial assets attributable to the Group’s Financial Services; – a net decrease of €48 million in financial assets attributable to the Group’s Insurance Services segment; – a net decrease of €11 million in 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 2018, the fair value gain of €191 million was primarily attributable to the value of BancoPosta RFC’s derivative financial instruments.
Other provisions 2,115 8,315 for operating costs 108 90 for deferred liabilities to policyholders 2,007 8,225
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 2018 and, to a lesser extent, on financial instruments at fair value through profit or loss. The reduction in the provisions reflects the effect of the change in the spread in the last two months of the period under review.
Provisions for early retirement incentives 446 444 - (1) (442) 447
Provisions for expired and statute barred postal savings certificates 15 - - (15) - -
�� 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 2020. These schemes may qualify for other forms of incentive, such as early retirement in accordance with Law 92 of 28 June 2012, supplemented by article 1, paragraph 160 of Law 205/2017. €442 million of the provisions made at 31 December 2017, amounting to €446 million, were used during the year.
�� Provisions for taxation/social security contributions have been made to cover potential future tax and social security liabilities.
B7 - Employee termination benefits (€1,187 million) The following movements in employee termination benefits took place in 2018: TAB. B7 - MOVEMENTS IN PROVISIONS FOR EMPLOYEE TERMINATION BENEFITS
The main actuarial assumptions applied in calculating provisions for employee termination benefits, are as follows: TAB. B7.1 - ECONOMIC AND FINANCIAL ASSUMPTIONS
Payables deriving from postal current accounts - 46,240 46,240 - 46,575 46,575
Borrowings Other than the guarantees described in the following notes, borrowings are unsecured and are not subject to financial covenants, which would require Group companies to comply with financial ratios or maintain a certain minimum rating.
At 31 December 2018, outstanding liabilities of €8,473 million relate to repurchase agreements entered into by the Parent Company with major financial institutions and Central Counterparties, amounting to a total nominal value of €8,166 million. €6,684 million of this amount regards Long Term Repos and €1,789 million to ordinary borrowing operations, the resources from both invested in Italian fixed income government securities and as funding for incremental deposits used as collateral. The fair value85 of the repurchase agreements in question at 31 December 2018 is €8,488 million.
An EIB loan of €200 million granted to the Parent Company in the past reached maturity and was repaid in April 2018.
Finally, 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 €535 million, and the facility is unused at 31 December 2018.
Amounts payable due to theft - 157 157 - 157 157
The balance of cash flows for advances, represents the net amount payable as a result of advances from the MEF to meet the cash requirements of BancoPosta. These break down as follows: TAB. B8.2.1 - BALANCE OF CASH FLOWS FOR ADVANCES
Other financial liabilities Other financial liabilities have a fair value that approximates to their carrying amount.
Domestic and international money transfers - 688 688 - 734 734
Other amounts due to staff - 63 63 - 197 197
At 31 December 2018, certain liabilities, that, at 31 December 2017, were included in provisions for personnel expenses, were determinable with reasonable certainty and, as such, were recognised as payables.
In particular: �� Stamp duty represents the amount payable to the tax authorities for stamp duty in virtual form, before the adjustment applied in 2019 pursuant to note 3-bis to art. 13 of the Tariff introduced by Presidential Decree 642/1972. The non-current portion of stamp duty payable primarily regards the amount due at 31 December 2018 on interest-bearing postal certificates in circulation and on Class III and V insurance policies under the legislation referred to in note A8 – Other receivables and assets.
�� Withholding tax on employees’ and consultants’ salaries relates to amounts paid to the tax authorities by Group companies in January and February 2019 as withholding agents.
Deferred income regards components of income recognised on the basis of accounting standards other than IFRS15 and includes: �� €24 million in prepaid telephone traffic sold as of 31 December 2018 by PostePay SpA and not yet used by customers; �� €7 million in grants approved by the competent public authorities in favour of the Parent Company, where the matching costs have yet to be incurred.
Revenue from Payments, Mobile and Digital [C2] 628 586 of which Revenue from contracts with customers 320 recognised at a point in time 87 recognised over time 233
Revenue from Financial Services [C3] 5,186 4,956 of which Revenue from contracts with customers 3,388 recognised at a point in time 513 recognised over time 2,875
Revenue from contracts with customers breaks down as follows: �� Revenue from mail, parcel & other revenue, referring to services provided to customers through retail and business sales channels. Revenue generated through the retail channel is recognised at a point in time given the number of transactions handled through the various sales channels (post offices, call centres and on line) and measured on the basis of the rates applied. Revenue generated through the business channel is generally earned as a result of annual or multi-annual contracts and is recognised over time using the output method determined on the basis of shipments requested and handled. These contracts include elements of variable consideration (primarily volume discounts and penalties linked to the quality of service provided) estimated using the expected value method and recognised as a reduction from revenue.
– Payment services, primarily relating to fees for collection and reporting recognised at a point in time (€55.5 million) and revenue from the processing of tax payments using forms F23/F24 recognised over time based on the level of service rendered (€61.9 million).
�� Revenue from financial services, which breaks down as follows: – revenue from placement and intermediation services: these are recognised over time and measured on the basis of the volumes placed, quantified on the basis of commercial agreements with financial institutions. In terms of payment for the collection of postal savings, the agreement entered into with Cassa depositi e prestiti envisages payment of a variable consideration on achieving certain levels of inflows, determined annually on the basis of the volume of inflows and expected redemptions. Certain commercial agreements, entered into with leading financial partners for the placement of financial products, envisage the return of placement fees in the event of early termination or surrender by the customer; – revenue from current account and related services: these are recognised over time, measured on the basis of the service rendered (including the related services, e.g. bank transfers, securities deposits, etc.) and quantified on the basis of the contract terms and conditions offered to the customer; – revenue from fees on the processing of payment slips: these are recognised at a point in time given the number of transactions handled by post offices and quantified on the basis of the terms and conditions in the contract of sale.
C1 - Revenue from mail, parcels and other revenue (€3,579 million) This item breaks down as follows: TAB. C1 - REVENUE FROM MAIL, PARCELS & OTHER
Universal Service compensation relates to amounts paid by the MEF to cover the costs of fulfilling the USO. Compensation for services rendered during the year, amounting to €262 million, was recognised on the basis of the Contratto di Programma (Service Contract) for 2015-2019, which took effect on 1 January 2016.
Other revenue breaks down as follows: 87. Law Decree 244/2016 (the so-called “Mille Proroghe” decree), converted with amendments into Law 19 of 27 February 2017, has extended the provision of subsidies for postal services introduced by the Interministerial Decree of 21 October 2010, aimed at publishing houses and non-profit organisations entered in the Register of Communications Providers (ROC), and has also restored the government subsidies introduced by Law 46 of 27 February 2004. The Decree also confirmed the subsidised tariffs for promotional mailshots by non-profit organisations.
C3 - Revenue from financial services (€5,186 million) This item breaks down as follows: TAB. C3 - REVENUE FROM FINANCIAL SERVICES
This revenue primarily regards revenue generated by the Parent Company’s BancoPosta RFC.
Revenue from Financial Services breaks down as follows: TAB. C3.1 - REVENUE FROM FINANCIAL 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
Interest expense on asset swaps of financial assets at FVTOCI and at amortised cost 7 (49)
�� Revenue from the distribution of loan products relate to commissions received by the Parent Company on the placement of personal loans and mortgages on behalf of third parties.
C4 - Revenue from insurance services after movements in technical provisions and other claim expenses (€1,471 million) 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
Total movement in technical provisions for insurance business and other claims expenses: Life 17,098 22,326
Expenses from insurance activities break down as follows: TAB. C4.4 - EXPENSES FROM INSURANCE ACTIVITIES
Real estate leases relate almost entirely to the buildings from which the Group operates (post offices, Delivery Logistics Centres and Sorting Centres). Under the relevant lease agreements, rents are increased annually on the basis of the price index published by the Istituto Nazionale di Statistica (ISTAT, the Italian Office for National Statistics). Lease terms are generally six years, renewable for a further six. Renewal is assured from the clause stating that the lessor “waives the option of refusing renewal on expiry of the first term”, by which the lessor, once the agreement has been signed, cannot refuse to renew the lease, except in
TAB. C5.3 - RAW, ANCILLARY AND CONSUMABLE MATERIALS AND GOODS FOR RESALE
C6 – Expenses from financial activities (€46 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 256 258
Net provisions (reversals) for disputes with staff [tab. B6] 2 (25)
The following table shows the Group’s average and year-end headcount for 2018.
Taking account of staff on flexible contracts, the total average number of full-time equivalent staff in 2018 is 134,360 (138,040 in 2017:).
Industrial patents and intellectual property rights,concessions, lincenses, trademarks and similar rights
C9 - Capitalised costs and expenses (€17 million) Capitalised costs and expenses break down as follows: TAB. C9 - INCREASES RELATING TO ASSETS UNDER CONSTRUCTION
C10 - Other operating costs (€239 million) Other operating costs break down as follows: TAB. C10 - OTHER OPERATING COSTS
TAB. C11 - IMPAIRMENT LOSSES/(REVERSALS OF IMPAIRMENT LOSSES) ON DEBT INSTRUMENTS, RECEIVABLES AND OTHER ASSETS
Net provisions and losses on receivables and other assets (uses of provisions) 46 55
Provisions (reversal of provisions) for receivables due from the MEF (1) -
C12 - Finance income (€106 million) and costs (€71 million) Income from and costs incurred on financial instruments relate to assets other than those in which deposits collected by BancoPosta and the financial and insurance businesses are invested.
Finance costs on provisions for employee termination benefits and pension plans [tab. B7] 20 21
For the purposes of reconciliation with the statement of cash flows, in 2018 financial costs after foreign exchange losses amount to €66 million (€80 million in 2017).
C13 - Impairment losses/(reversals of impairment losses) on financial assets (€20 million) TAB. C13 - IMPAIRMENT LOSSES/(REVERSALS OF IMPAIRMENT LOSSES) ON FINANCIAL ASSETS
Income tax expense includes deferred tax income of €385 million (€351 million in non-recurring income relating to the tax periods 2010-2017) recognised by Poste Vita on temporary differences resulting the application of paragraph 1-bis of art. 111 of the Consolidated Law on Income Tax (introduced by art. 38, paragraph 13-bis of Law Decree 78 of 31 May 2010), as described in more detail in note 4.2 – Other material events.
The tax rate for 2018 (before the recognition of non-recurring deferred tax income of €351 million) is 29.64%. The effective tax rate for the year is 6.11%.
Net provisions for risks and charges and bad debts 4 0.28% 15 1.42%
Realignment of tax bases and carrying amounts and taxation for previous years (9) -0.58% (17) -1.62%
Realignment of tax bases and carrying amounts and taxation for previous years (2) -0.16% - -0.01%
At 31 December 2018, current tax assets/(liabilities) include: �� the tax asset of €56 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; Poste Italiane Financial Statements for the year ended 31 December 2018 5. Poste Italiane Group for the year ended 31 December 2018
Deferred tax assets and liabilities 88. The nominal IRAP rate is 3.90% for most taxpayers, 4.20% for companies that operate under concession arrangements other than motorway and tunnel construction and operating companies, 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. C14.6 - MOVEMENTS IN DEFERRED TAX ASSETS
Income/(expenses) recognised in profit or loss 1 (1) - 6 (12) 1 385 15 395
Income/(expenses) recognised in equity - - 261 - - (5) - - 256
Movements in deferred tax assets and liabilities recognised directly in equity during the year are as follows: TAB. C14.8 - INCOME/(EXPENCE) RECOGNISED IN EQUITY
The identified operating segments, which are in line with the Group’s new strategic guidelines reflected in the Strategic Plan for the period 2018-2022 and the organisational changes that took place in 2017, are as follows: �� 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.
Net external revenue from ordinary activities 3,579 628 5,186 1,471 - 10,864
Net revenue from ordinary activities 8,211 966 6,095 1,472 (5,880) 10,864
(Impairment loss)/reversal on debt instruments, receivables and other assets (20) - - - - (20)
Net profit/(loss) for the year (372) 153 617 1,001 - 1,399
Investments accounted for using equity method 3 281 214 - - 498
External revenue from contracts with customers 3,504 320 3,388 10 - 7,222
Net external revenue from ordinary activities 3,631 586 4,956 1,456 - 10,629
Net profit/(loss) for the year (502) 146 499 546 - 689
Impact of related party transactions on the financial position of profit or loss The impact of related party transactions on the financial position and profit or loss is shown below.
At 31 December 2018, 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 €70 million (€71 million at 31 December 2017).
Losses and impairment losses/ (reversals of impairment losses) on debt instruments, receivables and other assets
Losses and impairment losses/ (reversals of impairment losses) on financial assets
At 31 December 2018, 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 €70 million (€71 million at 31 December 2017).
�� Revenue from financial services received from the Anima group refers to the gain recognised on the sale to Anima Holding SpA of shares in Anima (note A4).
Non-current assets and disposal groups held for sale - - n/a - - n/a
Provisions for risks and charges 1,519 70 4.6 1,595 71 4.5
Revenue from Payments, Mobile & Digital 628 48 7.6 586 64 10.9
Cash flow from/(for) investing activities (281) 254 n/a (263) (65) n/a
The remuneration paid to members of the Parent Company’s Supervisory Board amounts to approximately €58 thousand at 31 December 2018. 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.
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.
No loans were granted to key management personnel during the year and, at 31 December 2018, Group companies do not report receivables in respect of loans granted to key management personnel.
Transactions with staff pension funds The Parent Company and the subsidiaries that apply the National Collective Labour Agreement are members of the Fondoposte Pension Fund, the national supplementary pension fund for Poste Italiane personnel, established on 31 July 2002 as a non-profit entity. The Fund’s officers and boards are the General Meeting of delegates, the Board of Directors, the Chairman and Deputy Chairman of the Board of Directors and Board of Statutory Auditors. Representation of members on the above boards is shared equally between the companies and the workers that are members of the Fund. The participation of members in the running of the Fund is guaranteed by the fact that they directly elect the delegates to send to the General Meeting.
Poste Italiane Financial Statements for the year ended 31 December 2018 6. POSTE ITALIANE SPA FOR THE YEAR ENDED 31 DECEMBER 2018
Operating profit/(loss) 777,968,883 779,635,299 of which non-recurring costs - - 2,570,648 -
Impairment loss/(reversal) on financial instruments [C11] 19,878,102 19,885,407 82,279,608 of which non-recurring costs - 82,067,306 -
Income tax for the year [C12] 148,651,799 - 55,926,464 of which, non-recurring expense/(income) - (8,634,273) -
Increase/(decrease) in fair value during the year [tab. B3] 191,444,411 (56,619,724)
Poste Italiane Financial Statements for the year ended 31 December 2018 6. Poste Italiane SpA for the year ended 31 December 2018
Balance at 31 December 2018 of which attributable to BancoPosta RFC
* This item includes net profit for the year of €584 million and actuarial losses on provisions for employee termination benefits of €16 million after the related taxation of €4 million.
Losses and impairment losses/(Reversals of impairment losses) on receivables [tab. C9] 20,649 29,487
Cash generated by/(used for) financial assets and liabilities attributable to BancoPosta [c] 829,059 (1,072,437)
Net cash flow from/(for) operating activities [d]= [a+b+c] 1,974,379 4,698 - of which related party transactions 2,607,150 723,071
Nature of assets and contractual rights and authorisations BancoPosta’s assets, contractual rights and authorisations pursuant to notarial deed were conferred on BancoPosta RFC exclusively by Poste Italiane SpA without third-party contributions. BancoPosta’s operations consist of those listed in Presidential Decree 144 of 14 March 2001, as amended89, with the exception of activities linked to card payments and payment services, now carried out by the subsidiary, PostePay SpA. More details on this aspect are provided below: �� the collection of all forms of savings deposit from the public in accordance with art. 11, para. 1 of Legislative Decree 385/1993 of 1 September 1993 - Consolidated Banking Law (Testo Unico Bancario, or TUB) - and all related and consequent activities; �� the collection of savings through postal securities and deposits; �� payment services, including the issuance, administration and sale of prepaid cards and other payment instruments pursuant to art. 1, para. 2, letter f) numbers 4) and 5), TUB; �� foreign currency exchange services; �� promotion and arrangement of loans issued by approved banks and financial brokers; �� investment and related services pursuant to art. 12, Presidential Decree 144/2001; �� debt collection services; �� professional gold trading, on own behalf or on behalf of third parties, in accordance with the requirements of Law 7 of 17 January 2000.
On 25 January 2018, Poste Italiane SpA’s Board of Directors approved the removal from BancoPosta RFC’s ring-fence of the assets, liabilities and contractual rights attributable to the card payments and payment services business unit and their subsequent transfer to the subsidiary, PosteMobile SpA, in order to enable the latter to operate as a hybrid electronic money institution (“EMI”). Following the receipt of clearance from the Bank of Italy on 24 April 2018, the Extraordinary General Meeting of Poste Italiane’s shareholders held on 29 May 2018 approved the proposed removal of the assets,
In compliance with the 2007 Budget Law, from 2007 the Company is required to invest the funds raised from deposits paid into postal current accounts by private customers in euro area government securities91. Funds deposited by Public Administration entities are, instead, deposited with the Ministry of the Economy and Finance and earn a variable rate of return linked to a basket of government securities and money market indices, in accordance with a specific agreement with the MEF regarding treasury services, renewed on 2 October 2017 and covering the two-year period 2017-2018. In addition, under the agreement with the MEF, renewed on 16 November 2017 for the three-year period 2017-2019, a percentage of the funds deriving from private customer deposits may be placed in a special “Buffer” account at the MEF, with the objective of ensuring flexibility with regard to investments in view of daily movements in amounts payable to current account holders. These deposits are remunerated at a variable rate calculated on the basis of the Euro OverNight Index Average (EONIA)92 rate.
Cost and revenue allocation and measurement of operations contracted out by BancoPosta RFC 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 Officer; �� 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.
91. In addition, 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.
Post Office Network Percentage of net revenue generated by product/service category
Essential operating functions Control functions 93. The Guidelines were revised on 28 June 2018 and 31 January 2019.
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 Report94.
On 27 May 2014, the Bank of Italy issued specific Supervisory Standards for BancoPosta RFC, which, in taking into account the entity’s specific organisational and operational aspects, has established prudential requirements that are substantially in line with those applicable to banks. These include regulations covering the organisational structure and governance, the system of internal controls and the requirements regarding capital adequacy and risk containment.
A1 - Property, plant and equipment (€1,834 million) Movements in property, plant and equipment are as follows: TAB. A1 - MOVEMENTS IN PROPERTY, PLANT AND EQUIPMENT
At 31 December 2018, 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 €43 million.
�� €25 million relating to assets under construction, of which €10 million regards the restyling of post offices and €10 million the renovation of primary distribution centres. the renovation of primary distribution centres.
A2 - Investment property (€48 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
The fair value of investment property at 31 December includes approximately €65 million representing the sale price applicable to the Company’s former service accommodation in accordance with Law 560 of 24 December 1993, while the remaining balance reflects price estimates computed internally by the Company96.
Concessions, licences, trademarks and similar rights Assets under construction and advances Total
Movements in investments in subsidiaries, joint ventures and associates are as follows: TAB. A4.1 - MOVEMENTS IN INVESTMENTS IN THE YEAR ENDED 31 DECEMBER 2018
Poste Tributi ScpA (in liquidation) - - - - - - - - -
Risparmio Holding SpA (in liquidation) - - - - - - - - in joint ventures in associates
�� The subscription and payment for new shares issued by PosteMobile SpA, amounting to €140 million, via the contribution of the card payments and payment services business unit attributable to BancoPosta RFC, effective for legal, accounting and tax purposes from 1 October 2018. From the same date, PosteMobile SpA changed its name to PostePay SpA.
�� The injection of €90 million in fresh capital into SDA Express Courier to cover losses incurred through to 30 June 2018 and to recapitalise the company and to establish an extraordinary reserve, as approved by the extraordinary general meetings of the investee company’s shareholders on 30 January and 25 September 2018, partly via the use of other provisions for risks and charges made in 2017 (€23 million).
�� The subscription for the new shares issued by Anima Holding, totalling €30 million, as approved by Poste Italiane SpA’s Board of Directors on 25 January 2018.
�� The merger, on 13 February 2018, of PosteTutela SpA with and into Poste Italiane. The transaction was effective for legal purposes from 1 March 2018, and for accounting and tax purposes from 1 January 2018. The transaction accounted for at historical cost, generated a merger surplus of €13 million, recognised in the appropriate equity reserve.
Corporate actions during 2018, are described in notes 3.1 – Principal corporate actions.
Poste Italiane SpA has committed to providing financial support to the subsidiaries, SDA Express Courier SpA and Mistral Air Srl, for 2019 and Poste Tributi ScpA throughout its liquidation.
98. Impairment losses on investments in subsidiaries amount to €94 million and have been recognised in “Other operating costs” (tab. C8), whilst the impairment loss on the investment in Anima Holding SpA, totalling €27 million, has been recognised in “Finance costs” (tab. C10.2).
The following table shows a list of investments in subsidiaries, joint ventures and associates at 31 December 2018: TAB. A4.2 - LIST OF INVESTMENTS
Poste Tributi ScpA (in liquidation)** 88.89 2,325 - (1,785) (1,587) - (1,587)
Risparmio Holding SpA (in liquidation)**,*** 80.00 50 (55) 1,036 829 323 506 joint ventures associates * Consortium fund in the case of consortia. The registered offices of all the companies are located in Rome, with the exception of Anima Holding SpA and FSIA Investimenti Srl, whose registered offices are in Milan, and Conio Inc., whose registered office is in California (USA).
The operations in question regard the financial services provided by the Company pursuant to Presidential Decree 144/2001, which from 2 May 2011 are attributable to the ring-fenced capital, and which relate to the management of postal current accounts deposits, carried out in the name of BancoPosta but subject to statutory restrictions on the investment of the liquidity in compliance with the applicable legislation, and the management of collections and payments on behalf of third parties (see note 6.2 - Information on BancoPosta RFC).
Financial assets measured at amortised cost Movements in financial assets measured at amortised cost, including the impact of first-time adoption of the new IFRS 9, are shown below: TAB. A5.1 - MOVEMENTS IN FINANCIAL ASSETS AT AMORTISED COST
Carrying amount Carrying amount Nominal value Carrying amount Nominal value Carrying amount
Changes in fair value through profit or loss - - 342 - 342
Sales and settlement of accrued income (3,983) (2,623) (2,955) (2,623) (6,938)
Receivables include: 100. The Central Counterparty is an entity that acts as an intermediary in a transaction between two parties, avoiding the parties’ exposure to the risk that one of the counterparties to the agreement may default and guaranteeing successful completion of the transaction.
�� Other financial receivables include: (i) €1,652 million in guarantee deposits - including €1,332 million provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes) and €186 million provided to counterparties in repurchase agreements on fixed income securities (with collateral contemplated by specific Global Master Repurchase Agreements) and €134 million in collateral deposited with the Central Counterparty, in relation to the clearing system (i.e. the Default Fund)102 - (ii) €174 million in amounts receivable from the subsidiary, PostePay SpA, primarily in relation to amounts debited in early 2019, and (iii) € amounts to be charged to customers using debit cards issued by BancoPosta, totalling €131 million.
These regard investments in fixed income euro area government securities, consisting of bonds issued by the Italian government and securities guaranteed by the Italian government, having a nominal value of €20,935 million. Their carrying amount of €22,872 million reflects the amortised cost of unhedged fixed income bonds, totalling €10,309 million, the amortised cost of fair-value hedged fixed-rate bonds, totalling €11,570 million, increased by €993 million to take into account the effects of the hedge. Following the introduction of IFRS 9, fixed income instruments recognised at amortised cost are adjusted to take into account the related impairments. Accumulated impairments at 31 December 2018 amount to approximately €9 million (€7 million at 1 January 2018).
Changes in fair value through equity - - (1,886) - (1,886)
Changes in fair value through profit or loss - - 325 - 325
Changes in cash flow hedge transactions* - - 12 - 12
Effect of sales on profit or loss - - 378 - 378
Sales and settlement of accrued income - (3,478) (4,495) (3,478) (4,495)
These are Eurozone fixed income instruments, consisting of government securities issued by the Italian government with a nominal value of €30,229 million.
Following the introduction of IFRS 9, fixed income instruments recognised at FVTOCI are adjusted for impairment through the relevant equity reserve, with a matching entry in profit or loss. Accumulated impairments at 31 December 2018 amount to €13 million (€14 million at 1 January 2018).
Equity instruments include: �� €45 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 13,886104 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; �� €5 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 Class C share), which are listed on the New York Stock Exchange, if disposal is desired.
(€m) notional fair value notional fair value notional fair value notional fair value notional fair value notional fair value notional fair value
Balance at 31 December 2018 of which * 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.
Fair value hedges in the form of interest rate swaps regard instruments classified as at amortised cost, with a nominal value of €10,730 million, and instruments classified as FVTOCI, with a nominal value of €12,860 million.
Cash flow hedges in the form of interest rate swaps and forward sales regard instruments classified as FVTOCI, with nominal values of €1,610 million and €1,340 million, respectively.
Cash flow interest rate hedges recorded a total fair value gain of €192 million on the effective portion, reflected in the cash flow hedge reserve.
Fair value hedges recorded a net fair value loss on the effective portion of €669 million, whilst the hedged securities (tab. A5.2) recorded a net fair value gain of €667 million, with the difference of €2 million due to paid differentials.
In the year under review, the Company carried out the following transactions: �� the conclusion of forward purchases with a nominal value of €3,050 million. During the year, purchases of €1,505 million were settled; �� the conclusion of forward sales with a nominal value of €1,340 million; �� the settlement of forward sales outstanding at 31 December 2017, totalling €1,408 million; �� the conclusion of new cash flow interest rate swaps with a nominal value of €500 million; �� the conclusion of new fair value interest rate swaps with a nominal value of €5,280 million; �� the unwinding of fair value interest rate swaps hedging securities that have been sold, with a nominal value of €1,445 million.
Fair value hierarchy of BancoPosta’s financial assets The following table shows the classification of BancoPosta’s financial assets measured at fair value by level in the fair value hierarchy: TAB. A5.5 - FAIR VALUE HIERARCHY
Financial assets at amortised cost 283 163 446 284 358 642
Financial assets measured at amortised cost Movements in financial assets measured at amortised cost are shown below: TAB. A6.1 - MOVEMENTS IN FINANCIAL ASSETS AT AMORTISED COST
These loans break down as follows: TAB. A6.1.1 - LOANS AT ADMORTISED COST
Following the introduction of IFRS 9, loans are adjusted to take into account the related impairments of €0.3 million, reflecting counterparty default risk (unchanged with respect to 1 January 2018).
105. Of a total consideration of €387 million, €158 million was collected in 2017 and €159 million in early 2018. As regards the remaining amount receivable, on 31 October 2018, Invitalia informed Poste Italiane that the Bank of Italy had requested the buyer not to proceed with the reduction of BdM’s capital scheduled for 2018, and preparatory to payment of a €40 million tranche of the related consideration. In line with the terms of the agreement, Poste Italiane and Invitalia, acting in good faith, concluded an agreement that resulted in Invitalia’s payment of a sum of €20 million on 27 February 2019. The remaining €20 million will be paid from the dividends to be paid by BdM in 2018, 2019 and 2020. Payment of the remaining €30 million is expected to take place between 30 June 2021 and 30 June 2022 once certain conditions have been met.
Other receivables of €69 million (a nominal value of €70 million) regard the remaining amount due from Invitalia SpA as a result of the sale of Banca del Mezzogiorno-MedioCreditoCentrale SpA on 7 August 2017105. Following the agreement between the parties finalised in January 2019, €20 million of this amount was collected on 27 February 2019.
Nominal value Fair value Fair value Nominal value Fair value Nominal value Fair value
Changes in fair value through equity - (11) - - - - (11)
Changes in cash flow hedge transactions - - - - - - -
This item includes the investment in CAI SpA (formerly Alitalia CAI SpA), which was acquired for €75 million in 2013 and written off in 2014, and the historical cost of €4.5 million for a 15% equity interest in Innovazione e Progetti ScpA, which is in liquidation.
There were no transfers of the related financial instruments measured at fair value on a recurring basis between level 1 and level 2 in 2018.
Total of which attributable to BancoPosta RFC - 891 891 - 789 789
�� Receivables from overseas counterparties primarily relates to postal services carried out by the Company for overseas postal operators.
�� Other trade receivables primarily include €133 million generated by parcel post operations, €34 million for Posta Time services, €27 million for non-universal postal services, €25 million related to Posta Target services, €23 million for Posta Contest services, €19 million for telegraphic services and €18 million related to the Notification of Legal Process service.
Receivables due from the MEF This item relates to trade receivables due from the Ministry of the Economy and Finance: TAB. A7.3 - RECEIVABLES DUE FROM THE MEF
�� Payments for delegated services, collected in February 2019, to fees accrued solely in 2018 for treasury services performed by BancoPosta on behalf of the state in accordance with a special agreement with the MEF, renewed on 16 November 2017 for the three-year period 2017-2019.
Receivables relating to fixed-term contract settlements 82 85 167 101 87 188
Amounts restricted by court rulings - 78 78 - 75 75
Other amounts due from subsidiaries - 25 25 - 4 4
Provisions for doubtful debts due from others - (63) (63) - (67) (67)
�� Amounts due from staff under fixed-term contract settlements consist of salaries to be recovered following the agreements of 13 January 2006, 10 July 2008, 27 July 2010, 18 May 2012, 21 March 2013, 30 July 2015 and 19 June 2018 between Poste Italiane SpA and the trade unions, regarding the re-employment by court order of staff previously employed on fixed-term contracts. This item refers to receivables with a present value of €167 million from staff, from INPS and pension funds recoverable in the form of variable instalments, the last of which is due in 2040. A breakdown of the receivables by individual agreement is provided below: TAB A8.1 - RECEIVABLES FROM FIXED-TERM CONTRACT SETTLEMENTS
The item includes €42 million receivable from INPS (formerly IPOST), covered by a specific agreement with IPOST dated 23 December 2009. Payment of this amount consists of six instalments of €6.9 million each, falling due between 30 June 2012 and 31 December 2014 and deemed to collectible in full. Negotiations are underway with a view to recovering this amount and, in the event of a negative outcome, Poste Italiane will resort to legal action
�� Amounts due from subsidiaries include €19 million in amounts receivable from subsidiaries by Poste Italiane SpA, as the consolidating entity in the tax consolidation arrangement (note 2.3 – Summary of significant accounting standards and policies). The related amounts are due from the subsidiaries, PostePay SpA and Poste Assicura SpA.
�� Accrued interest on IRAP refund, amounting to €3 million, regards interest accruing up to 31 December 2018 on IRAP to be recovered on the unreported deduction of expenses for disabled personnel in 2003, described in note C12.
Movements in the related provisions for doubtful debts are described in note 7 – Risk management.
A9 - Cash and deposits attributable to BancoPosta (€3,318 million) Details of this item are as follows: TAB. A9 - CASH AND DEPOSITS ATTRIBUTABLE TO BANCOPOSTA
Cash and cash equivalents in hand 11 12 of which attributable to BancoPosta RFC 1,318 391
In accordance with the resolution adopted by shareholders at the Annual General Meeting held on 29 May 2018, on 20 June 2018, the Company paid dividends of €549 million (a dividend of €0.42 per share).
Balance at 1 January 2018 including IFRS 9 effects 299 1,000 1,564 (61) 2 2,804 of which attributable to BancoPosta RFC - 1,000 1,552 (62) - 2,490
Transfers to profit or loss - - (385) 20 - (365)
Tax effect of transfers to profit or loss - - 110 (5) - 105
- cash flow hedge reserve 90 - - - merger surplus 15 A B D
Provisions for disputes with staff* 75 9 - (3) (17) 64
Provisions for early retirement incentives 440 444 - - (440) 444
Overall analysis of provisions: * Net provisions for personnel expenses total €2million. Service costs (legal assistance) total €4 million.
Provisions for the year, totalling €96 million, primarily reflect risks linked to errors in the distribution of postal products, revised estimates regarding compensation and adjustments to income for previous years and an updated estimate of the liabilities linked to disputes with customers regarding certain investment instruments and products sold in the past and whose performance is not in line expectations. In this latter regard, during the year, the situation was closely monitored, as was the process of liquidating the real estate funds previously marketed by the Company. With specific regard to the Europa Immobiliare I fund (which reached maturity on 31 December 2017), as approved by Poste Italiane’s Board of Directors on 19 February 2018 and 28 June 2018, on 24 September 2018, the Company launched a voluntary initiative designed to protect customers who had invested in the fund. This process came to a conclusion on 7 December 2018. Total uses amount to €93 million and regard €52 million in liabilities settled with customers who had invested in the Europa Immobiliare I fund and who accepted the above offer. With regard to liabilities arising from the services rendered on behalf of social security agencies, as reported in note A7, in February 2019, having conducted a joint assessment, Poste Italiane and INPS signed an agreement that has settled outstanding trade receivables due to the Company and determined the amount payable by Poste Italiane to INPS as a result of certain claims regarding the payment of pensions carried out under agreements in effect until 31 August 2009. At 31 December 2018, all the liabilities provided for in the agreement are reflected in provisions for operational risk.
�� Provisions for disputes with staff regard liabilities that may arise following labour litigation and disputes of various types. Net provisions of €6 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 introduced a cap on current and future compensation payable to an employee in the event of “court-imposed conversion” of a fixed-term contract to a permanent one.
�� 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 €73 million to reflect the estimated value of new liabilities and decreased as a result of past contingent liabilities that failed to materialise (€31 million) and settled disputes (€50 million).
�� 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, losses incurred by subsidiaries that the Company intends to cover and fraud. Provisions of €6 million for the year primarily regard the first type of liability. Uses totalling €30 million primarily regard the coverage of losses incurred by subsidiaries (note A4 – Investments).
Balance at 31 December 1,158 of which attributable to BancoPosta RFC 3
The main actuarial assumptions applied in calculating provisions for employee termination benefits are as follows: TAB. B5.1 - ECONOMIC AND FINANCIAL ASSUMPTIONS
Payables deriving from postal current accounts These payables include net amounts accrued at 31 December 2018 and settled with customers in January 2019. The balance includes amounts due to Poste Italiane Group companies, totalling €4,903 million, with €4,271 million relating to postal current accounts in the name of PostePay SpA and €526 million deposited in postal current accounts by Poste Vita SpA.
At 31 December 2018, the fair value111 of the above borrowings amounts to €8,488 million.
Balance of cash flows from management of postal savings - (89) (89) - (84) (84)
MEF postal current accounts and other payables - 670 670 - 671 671
The balance of cash flows from the management of postal savings, amounting to a positive €89 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 2018 consists of €29 million payable to Cassa depositi e prestiti, less €118 million receivable from the MEF for Interest-bearing Postal Certificates issued on its behalf.
Domestic and international money transfers - 689 689 - 734 734
Cheques to be credited to postal savings books - 243 243 - 243 243
Other amounts payable to third parties - 145 145 - 67 67
Payables for items in process - 105 105 - 190 190 * Following the contribution of the card payments and payment services unit to PostePay SpA, the balance at 31 December 2018 solely regards liabilities arising following payments made by payment slip.
Payable for items in process regard €21 million in amounts credited to the subsidiary, PostePay SpA, primarily in early 2019.
Borrowings from financial institutions 112. A commitment given to creditors by which a borrower undertakes not to give senior security to other lenders ranking pari passu with existing creditors, unless the same degree of protection is also offered to them.
EIB fixed rate loan maturing 11 April 2018 - - - - 200 200
An EIB loan of €200 million granted to the Company in the past reached maturity and was repaid in April 2018.
At 31 December 2018, the committed and uncommitted lines have not been used. Unsecured guarantees with a value of €182 million have been used on behalf of Poste Italiane SpA and with a value €59 million, on behalf of Group companies. No collateral has been provided to secure the lines of credit obtained.
Finally, 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 €535 million, and the facility is unused at 31 December 2018.
Contract liabilities 329 254 of which attributable to BancoPosta RFC 159 63
Overseas postal operators* 110 108 of which attributable to BancoPosta RFC 18 29 * The amount due to overseas counterparties regards fees payable to overseas postal operators and companies in return for postal and telegraphic services received.
Deferred income from trading transactions of which attributable to BancoPosta RFC 9 27 36 (36) 33 33
Prepayments and advances from customers This item refers to amounts received from customers as prepayment for the following services to be rendered: TAB. B8.3.1 - PREPAYMENTS AND ADVANCES FROM CUSTOMERS
Amounts due to staff These items primarily regard accrued amounts that have yet to be paid at 31 December 2018. The following table shows a breakdown: TAB. B9.1 - AMOUNTS DUE TO STAFF
Other amounts due to staff - 58 58 - 191 191 of which attributable to BancoPosta RFC 1 11 12 - 14 14
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 Company by the subsidiary, Poste Vita SpA, BancoPosta Fondi SpA SGR and Postel SpA, and the benefit connected with the tax losses contributed by Mistral Air Srl, SDA Express Courier SpA and Risparmio Holding SpA in 2018.
The amount payable to the subsidiary, PostePay SpA, includes €72 million relating to the difference between the carrying amounts of the assets and liabilities of the card payments and payment services business unit contributed to PostePay from 1 October 2018, which will be settled by Poste Italiane in early 2019 (note 6.2 – Information on BancoPosta RFC).
Accrued expenses and deferred income This item breaks down as follows: TAB. B9.6 - ACCRUED EXPENSES AND DEFERRED INCOME
Total of which attributable to BancoPosta RFC - - - - 27 27
Deferred income attributable to BancoPosta RFC and relating to fees on Postemat and Postepay Evolution cards collected in advance, which at 31 December 2017 amounted to €27 million, following the adoption of IFRS15, is recognised in contract liabilities from 1 January 2019.
BancoPosta services 5,419 5,106 of which Revenue from contracts with customers 3,863 recognised at a point in time 505 recognised over time 3,358
Revenue from contracts with customers breaks down as follows: �� Revenue from Postal Services referring to services provided to customers through retail and business sales channels. Revenue generated through the retail channel is recognised at a point in time given the number of transactions handled through the various sales channels (post offices, call centres and on line) and measured on the basis of the rates applied. Revenue generated through the business channel is generally earned as a result of annual or multi-annual contracts and is recognised over time using the output method determined on the basis of shipments requested and handled. These contracts include elements of variable consideration (primarily volume discounts and penalties linked to the quality of service provided) estimated using the expected value method and recognised as a reduction from revenue.
�� Revenue from BancoPosta Services, which breaks down as follows: (i) revenue from placement and intermediation services: these are recognised over time and measured on the basis of the volumes placed, quantified on the basis of commercial agreements with financial institutions. In terms of payment for the collection of postal savings, the agreement entered into with Cassa depositi e prestiti envisages payment of a variable consideration on achieving certain levels of inflows, determined annually on the basis of the volume of inflows and expected redemptions. Certain commercial agreements, entered into with leading financial partners for the placement of financial products, envisage the return of placement fees in the event of early termination or surrender by the customer; (ii) revenue from current account and related services: these are recognised over time, measured on the basis of the service rendered (including the related services, e.g. bank transfers, securities deposits, etc.) and quantified on the basis of the contract terms and conditions offered to the customer; (iii) revenue from fees on the processing of payment slips: these are recognised at a point in time given the number of transactions handled by post offices and quantified on the basis of the terms and conditions in the contract of sale. Revenue from financial services includes, for the first nine months, revenue from card payments and payment services, relating mainly to the issue of PostePay cards (recognised at a point in time, upon issue) and the related services (recognised over time on the basis of use by the customer).
114. Law Decree 244/2016 (the so-called “Mille Proroghe” decree), converted with amendments into Law 19 of 27 February 2017, has extended the provision of subsidies for postal services introduced by the Interministerial Decree of 21 October 2010, aimed at publishing houses and non-profit organisations entered in the Register of Communications Providers (ROC), and has also restored the government subsidies introduced by Law 46 of 27 February 2004. The Decree also confirmed the subsidised tariffs for promotional mailshots by non-profit organisations.
Automated franking by third parties and at post offices 676 731
Publish tariff subsidies114 relate to the amount receivable by the Company 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 2018, but the subsidies are subject to the approval of the European Commission.
Interest income on asset swaps of available-for-sale financial assets 7 (49)
�� Other products and services mainly reflect fees deriving from the processing of tax payment forms (F24) (€41 million).
Other sales of goods and services The main components are: income from the subsidiary, PostePay SpA, in relation to card payment services (€31 million), fees received for collecting applications for residence permits, totalling €23 million and income from call centre services, amounting to €7 million.
Name (€m) For the year ended 31 December 2018 For the year ended 31 December 2017
Real estate leases relate almost entirely to the buildings from which the Company operates (post offices, Delivery Logistics Centres and Sorting Centres). Under the relevant lease agreements, rents are increased annually on the basis of the price index published by the Istituto Nazionale di Statistica (ISTAT, the Italian Office for National Statistics). Lease terms are generally six years, renewable for a further six. Renewal is assured from the clause stating that the lessor “waives the option of refusing renewal on expiry of the first term”, by which the lessor, once the agreement has been signed, cannot refuse to renew the lease, except in cases of force majeure. Poste Italiane SpA has the right to withdraw from the contract at any time, giving six months’ notice, in accordance with the standard lease contract.
Item (€m) For the year ended 31 December 2018 For the year ended 31 December 2017
C6 - Personnel expenses (€5,947 million) Personnel expenses include the cost of staff seconded to other organisations. The recovery of such expenses, determined by the relevant chargebacks, is posted to other operating income. Personnel expenses break down as follows: TAB. C6 - PERSONNEL EXPENSES
Net provisions (reversals) for disputes with staff [tab. B4] 2 (25)
Net provisions for disputes with staff and provisions for early retirement incentives are described in note B4 - Provisions for risks and charges.
TAB. C9 - IMPAIRMENT LOSSES/(REVERSALS OF IMPAIRMENT LOSSES) ON DEBT INSTRUMENTS, RECEIVABLES AND OTHER ASSETS
Net impairment losses on debt instruments and receivables attributable to financial activities
Finance costs on provisions for employee termination benefits [tab. B5] 19 20
Net provisions for risks and charges and bad debts 3 0.37% 20 2.97%
Net provisions for risks and charges and bad debts 2 0.29% 5 0.80%
First-time adoption of IFRS 9 5 - 5 prepayments for the current year 202 32 234 balance payable for the previous year - 3 3
The nominal tax rate for IRES is 24% from 1 January 2017, whilst the nominal tax rate for IRAP is 3.90% for entities as a whole and 4.20% for entities that hold concessions other than those relating to the construction and operation of motorways and tunnels (+/–0.92% resulting from regional surtaxes and/or relief and +0.15% as a result of additional surtaxes levied in regions with a health service deficit). The Company’s average statutory rate for IRAP is 4.49%. Movements in deferred tax assets and liabilities are shown below: TAB. C12.5 - MOVEMENTS IN DEFERRED TAX ASSETS AND LIABILITIES
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 profit or loss 1 - 6 (17) - 10 5 5
At 31 December 2018, deferred tax assets and liabilities recognised directly in equity are as follows: TAB. C12.8 - DEFERRED TAX ASSETS AND LIABILITIES RECOGNISED IN EQUITY
At 31 December 2018, 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 (€71 million at 31 December 2017).
Poste Tributi ScpA (in liquidation) 1 - - - - - - - - - -
Ministry of the Economy and Finance 514 3 - - - 5 3 - - - 1
The nature of the Company’s principal transactions with related parties external to the Group is summarised below: �� Amounts received from the MEF relate primarily to payment for carrying out the USO, the management of postal current accounts, as payment for delegated services, integrated e-mail services, the franking of mail on credit, collection services, and for the integrated notification and reporting service for processing tax returns.
Provisions for risks and charges 1,431 71 5.0 1,538 71 4.6
Cost of goods and services 1,725 585 33.9 1,666 614 36.9
Net cash flow from/(for) operating activities 1,974 2,607 n.a. 5 723 n.a.
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
No loans were granted to key management personnel during the year and, at 31 December 2018, the Company does not report receivables in respect of loans granted to key management personnel.
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
�� The note on “Risk management” is common to both the Group and Poste Italiane SpA. It deals with both financial risk (as defined by IFRS 7) and other types of risk that the Group deems it appropriate or necessary to disclose. Quantitative disclosures for Poste Italiane SpA alone are provided in the specific section of this note, unless otherwise indicated.
Information on financial risk management at 31 December 2018 is provided below, in accordance with the requirements of the new international financial reporting standard, IFRS 7 – Financial Instruments: Disclosures.
Until 31 December 2018, responsibility for coordinating and managing the investment strategy and the hedging of capital market risks has been assigned to the Parent Company’s Coordination of Investment Management function, which aims to ensure a uniform approach across the Poste Italiane Group’s various financial entities. From 1 January 2019, responsibility for BancoPosta RFC’s financial management has been transferred to BancoPosta Fondi SpA SGR. Centralised treasury management, definition of the capital structure for the Group, and the assessment of funding transactions and extraordinary and subsidised transactions are the responsibility of the Parent Company’s Administration, Finance and Control function.
�� 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 securities115, 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 use of 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. Management of the relationship between the structure of deposits and investments is handled through an appropriate Asset & Liability Management system. 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
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 24 October 2018. 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, the focus is on the management of liquidity in order to meet claims.
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.
�� an Investment Committee established at the Group’s insurance company, Poste Vita SpA, which, based on analyses by the relevant functions, provides advice to senior management on the development, implementation and oversight of investment strategy; �� appropriate functions established within the Parent Company and the subsidiaries providing financial and insurance services (BancoPosta Fondi SGR SpA and Poste Vita SpA) that perform Risk Measurement and Control activities, ensuring the organisational separation of risk assessment from risk management activities. The results of these activities are examined by the relevant advisory Committees, which are responsible for carrying out an integrated assessment of the main risk profiles.
Price risk This is 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.
Price risk relates to financial assets classified as measured at fair value through other comprehensive income (“FVTOCI”) or as measured at fair value through profit or loss (“FVTPL”), and certain derivative financial instruments where changes in value are recognised in profit or loss.
The sensitivity analysis at 31 December 2018 took into account positions potentially exposed to fluctuations in value. Financial statement balances have been subjected to a stress test, based on actual volatility during the year, considered to be representative of potential market movements. The results of the sensitivity analysis carried out as at 31 December 2018 for the Poste Italiane Group are shown in the following table.
+ Vol - Vol + Vol - Vol + Vol - Vol + Vol - Vol 2018 effects
In relation to financial assets recognised at fair value through profit or loss, price risk concerns the following: �� investments in units of mutual investment funds held by Poste Vita SpA, with a fair value of €27,338 million, including approximately €25,987 million used to cover Class I policies, approximately €1,345 million used to cover Class III policies and a residual amount relating the free capital; �� equity instruments held by Poste Vita SpA, totalling €166 million, used to cover Class I policies linked to separately managed accounts and to cover Class III policies; Poste Italiane financial statements for the year ended 31 december 2018 7. Risk management
�� equities held by BancoPosta RFC, totalling €50 million, consisting of €45 million in Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) and €5 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.
In relation to derivative financial instruments, price risk concerns investments in warrants held by Poste Vita SpA used to cover Class III policies.
Sensitivity analysis of the items subject to foreign exchange risk was based on the most significant positions, assuming a stress scenario determined by the levels of exchange rate volatility applicable to each foreign currency position. The test applies an exchange rate movement based on volatility during the year, which was considered to be representative of potential market movements.
The risk in question regards equities held by the Parent Company and units in certain alternative investment funds in which Poste Vita SpA has invested.
The table below shows the sensitivity analysis for the fair value interest rate risk at 31 December 2018 for the Poste Italiane Group’s positions.
Fair value though profit or loss - - - - - - - - - 2017 effects
At 31 December 2018, with reference to the interest rate risk exposure determined by the average duration119 of the portfolios, the duration of BancoPosta’s overall investments went from 5.30 to 5.18. 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 6.13 at 31 December 2017 at 6.18 at 31 December 2018, whilst the duration of the liabilities went from 7.84 to 8.18 (assessment of the duration was carried out using the new Coherent Duration method 120). The financial instruments intended to cover the technical provisions for Class III policies have maturities that match those of the liabilities.
POSTE ITALIANE SPA - EFFECT OF CREDIT SPREAD ON FAIR VALUE
The following table shows the maximum potential loss computed at 31 December 2018, limited, in terms of materiality, to the financial assets held by the Parent Company and the Poste Vita group.
Financial liabilities * The VAR indicated for derivative financial instruments only refers to forward purchases, whilst the VAR relating to fixed income instruments also takes into account forward sales.
Exposure to credit risk With regard to the financial assets exposed to this risk and to which the accounting rules governing impairment apply (as described in the paragraph, “Credit risk management practices”), the following table shows the Poste Italiane Group’s exposure at 31 December 2018, relating to financial assets measured at amortised cost and at fair value through other comprehensive income, for which general deterioration model was used. The analysis shows the exposure by financial asset class by stages. The amounts refer to the gross carrying amount (amortised cost before ECL), unless otherwise indicated, and do not take into account guarantees or other credit enhancements.
Poste Italiane financial statements for the year ended 31 december 2018 7. Risk management
The main types of instrument used to mitigate credit risk are described below: Fixed income securities Debt instruments held by the Group and secured by guarantees or other risk mitigation instruments are as follows: �� bonds issued by CDP SpA guaranteed by the Italian State and subscribed by BancoPosta RFC, amounting to a nominal value of €4,500 million. These are recognised as financial assets measured at amortised cost and, in determining the associated expected credit losses, account was taken of the PD of the Italian Republic; �� bonds held by the Poste Vita group, with a nominal value of €3,543 million at 31 December 2018, recognised in assets measured at fair value through other comprehensive income (€3,487 million) and in assets measured at fair value through profit or loss (€56 million). In these cases, the guarantee covers 100% of the nominal value of the securities. The guarantees securing these financial instruments are as follows: – corporate bonds backed by personal guarantees provided the parent company or another associate, amounting to a nominal value of €3,111 million; – covered bonds backed by mortgages, primarily property mortgages, amounting to a nominal value of €329 million; – bonds guaranteed by sovereign states, amounting to a nominal value of €102 million.
The calculation of positions in derivatives and repurchase agreements and the related risk mitigation instruments are illustrated in the paragraph “Offsetting financial assets and liabilities”.
Trade receivable To mitigate the risks arising from the extension of credit terms to its customers, the Poste Italiane Group has implemented a policy and suitable guidelines that govern the management of trade receivables, the terms and conditions of payment applicable to customers and defines the corporate process aimed at checking the customer’s creditworthiness, as well as the sustainability of the business risk inherent in the contract involving extended payment terms.
The Poste Italiane Group accepts mainly guarantees issued by primary banks or insurance companies. Alternatively, upon request of the customer and after a risk analysis, it accepts sureties issued by other institutions, security deposits or the opening of postal escrow account.
POSTE ITALIANE GROUP - CREDIT RISK - DETAILS OF THE PROVISION TO COVER EXPECTED LOSSES ON FINANCIAL INSTRUMENTS AT AMORTISED COST
Impairment of fixed income instruments/receivables purchased/paid in the period - 3 3
At 31 December 2018, estimated expected losses on financial instruments measured at amortised cost amount to approximately €33 million. The net increase of €20 million primarily regard the impairment of receivables at amortised cost (note A5 – Financial assets).
Reversal of fixed income instruments/receivables held at the beginning of the period - (1) (1)
Impairment of fixed income instruments/receivables purchased/paid in the period - 1 1
At 31 December 2018, estimated expected losses on financial instruments measured at fair value through other comprehensive income amount to approximately €14 million, in line with the provision made at 1 January 2018.
Receivables due from the MEF 31 2 33 (1) - 32
Receivables relating to fixed-term contract settlements 9 - 9 1 - - 10
Credit risk – comparative exercise at 31 December 2017 The entry into effect of IFRS 9 – Financial Instruments has radically altered the quantity of information required in relation to credit risk.
The Poste Italiane Group has decided not to restate comparative year amounts during transition to the new accounting standard. The following tables showing credit risk in the Annual Report for 2017 are not comparable with those for 2018.
Due from subsidiaries, associates and joint ventures - of which past due 467
In particular, the disclosures in question concern the following positions relating to Poste Italiane SpA at 31 December 2018: �� 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.
In order to compile the tables and in compliance with the requirements of IFRS 7, repurchase agreements are shown at amortised cost, whilst derivative transactions are shown at fair value. The related financial collateral is shown at fair value.
121. 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.”
Flows from Poste Vita group’s policies 15,154 35,121 124,600 174,875 12,913 37,877 110,200 160,990
Sensitivity to cash flow interest rate risk relating to these instruments is calculated by assuming a parallel shift in the yield curve +/- 100 bps.
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 SpA, with a nominal value of €13,439 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 €5,930 million; Poste Italiane financial statements for the year ended 31 december 2018 7. Risk management
�� fixed rate government bonds held by the Parent Company and swapped into variable rate through fair value hedges, with a total nominal amount of €2,440 million (including €1,900 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 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 €1,682 million, reflecting collateral posted to secure liabilities arising in relation to derivative financial instruments held by BancoPosta RFC, amounting to €1,652 million.
Financial assets at amortised cost - - - - - - - -
At 31 December 2018, 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 €10,479 million are held by Poste Vita SpA and securities totalling €1,875 million by BancoPosta RFC.
Financial assets at fair value through profit or loss 50 13 (13) 13 (13) - 2017 effects
Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3
Reversal of fixed income instruments/receivables held at the beginning of the period (34) (182) (216)
Impairment of fixed income instruments/receivables held at the beginning of the period - 27 27
Reversal of fixed income instruments/receivables held at the beginning of the period - (579) (579)
ASSETS OUTSIDE THE RING-FENCE - CREDIT RISK - DETAILS OF THE PROVISION TO COVER EXPECTED LOSSES ON FINANCIAL INSTRUMENTS AT AMORTISED COST
Impairment of fixed income instruments/receivables purchased/paid in the period - - - - - -
CREDIT RISK - TRADE RECEIVABLES ADJUSTED ON THE BASIS OF THE PROVISION MATRIX
Receivables due from the MEF 31 2 33 (1) - - 32 of which attributable to BancoPosta RFC 150 - 150 3 - (1) 152
DETAILS OF THE PROVISION TO COVER EXPECTED LOSSES DUE FROM OTHERS
Financial assets at amortised cost 16,435 18,333 16,857 12,692 12,913 14,384
Balance at 31 December 2017 da Aaa a Aa3 da A1 a Baa3 da Ba1 a Not rated Total
Trade Receivables due from subsidiaries 288 of which past due 373
Accruals and deferrals of a trading nature and other assets 6 -
Interest accrued on IRAP refund 3 of which past due 46
Nominal +100 bps -100 bps +100 bps -100 bps 2018 Effects
Other risks The other principal risks to which the Poste Italiane Group is exposed at 31 December 2018 are described below.
At 31 December 2018, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. In particular: Event Type Number of types
�� Catastrophe risk: the risk that extreme and exceptional events have a negative impact that has not been taken into account when pricing the policies.
123. Details of the initiative have been published on Poste Italiane SpA’s corporate website at
126. For the hypothetical derivative use is made of the mid-market spread, which makes the present value at the settlement date equal to zero, and for the actual derivative the interest rate agreed upon with the counterparty.
Below is a description of the hedging transactions entered into by the Poste Italiane Group, as distinguished between fair value hedges and cash flow hedges, which are accounted for as per IAS 39 – Financial Instruments: Recognition and Measurement. The fair value hedges and cash flow hedges described below refer mainly to fixed income instruments held by BancoPosta.
To limit the effects of interest rates on fair value, BancoPosta RFC enters into Over the Counter (OTC) interest rate swaps to hedge the fair value of the bonds held in portfolio. The objective of these transactions is to have instruments that can offset changes in fair value of the portfolio due to interest rate fluctuations and the rate of inflation. The credit risk of the Italian Republic is not hedged and is set for the duration of the swap.
The Group evaluates the effectiveness of every hedging relationship in offsetting movements in fair value through a retrospective effectiveness test and a prospective effectiveness test124, using the approaches illustrated in the following notes.
For the purposes of the prospective effectiveness test, different approaches have been adopted, depending on the characteristics of the hedging swap. In particular: �� the “Critical terms127” approach for swap spot starts, for which it has been determined at inception that the characteristics of the fixed leg make it possible to replicate exactly the fixed cash flows generated by the hedged item; �� the “Dollar offset through the hypothetical derivative” approach for forward start swaps, for which the prospective effectiveness test is performed by calculating the hedge ratio between the change in fair value of the hypothetical derivative and the change in fair value of the actual derivative128. The hedge is considered effective if the hedge ratio falls in the interval between 80%and 125%.
128. Calculated by assuming a parallel shift of + / - 100 bps of the yield curves. 129. The notional amount of the forward contract must be set, at the settlement date, as equal to the nominal amount of the instrument in the event of a purchase, and equal or lower than the nominal amount of the instrument in the event of a sale. The underlying of the forward contract must coincide with the instrument that must be purchased or sold (in this case it must be an instrument in the portfolio) at the settlement date. The settlement date must be the same as the date on which the cash flow to be hedged is expected, in the event of a forward purchase, or must be related to the year in which the total return is meant to be stabilised, in the event of a forward sale.
As to the hedges of forecast transactions, the retrospective effectiveness test involves the calculation of a hedge ratio defined as the ratio of the difference between the fair value of the forward transaction entered into with the counterparty on the test and inception date and the present value of the difference between the theoretical forward price of the BTP calculated as of the test and inception date. Assuming a perfect match between the forward prices of the counterparties and the theoretical forward prices, the hedge ratio is always equal to 100%. As such, there are no sources of ineffectiveness.
The table below shows the hedging instruments by expiration date. The average interest rate of the interest rate swaps shown represents the contractually expected average fixed rate of the hedging transaction by maturity band.
TIME DISTRIBUTION BASED ON REMAINING DURATION OF FAIR VALUE HEDGE CONTRACTS
Up to 1 year Over 1 year and up to 5 years Over 5 years Total
Poste Italiane financial statements for the year ended 31 december 2018 8. Hedging transactions
In 2009, the Regional Tax Office for Large Taxpayers (Agenzia delle Entrate - Direzione Regionale del Lazio - Ufficio Grandi Contribuenti) notified Poste Vita SpA of an alleged violation of the VAT regulations in the 2004 tax year, resulting in fines of approximately €2.3 million for the alleged failure to pay VAT on invoices for service commissions. Poste Vita SpA appealed the above findings before the Provincial Tax Tribunal of Rome. In December 2010 and September 2011, the tax Authorities sent notices of two further small fines for the same violation in fiscal years 2005 and 2006. These fines have also been appealed. The Provincial Tax Tribunal of Rome found in the company’s favour, ruling that the tax Authorities’ allegations are without grounds. The tax Authorities have challenged such rulings, filing a series of appeals. The Regional Tax Tribunal of Rome rejected both appeals and confirmed the lack of grounds for the claims against Poste Vita. With regard to the disputes relating to 2004 and 2006, on 23 October 2015, the State Attorney’s Office challenged these decisions and summoned the company to appear before the Court of Cassation. The likely outcome of this tax dispute continues to be taken into account in determining provisions for risks and charges.
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. As notified on 3 October 2018, the tax Authorities appealed to the Regional Tax tribunal in Rome. Postel appeared before the Tribunal to argue its case on 30 November 2018. A date for the appeal hearing has yet to be scheduled; �� 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. The appeal hearing was held on 13 December 2018. The company opted to settle the tax disputes in return for concessions (art. 6 of Law Decree 119 of 23 October 2018, converted into Law 136 of 17 December 2018) and withdrew its appeal. On 13 December 2018, the Tribunal adjourned the hearing until 11 July 2019.
Since 2012, the Istituto Nazionale per la Previdenza Sociale (INPS, the National Institute of Social Security) office at Genoa Ponente has issued Postel SpA and Postelprint SpA (regarding which an agreement relating to a merger with Postel SpA was signed on 27 April 2015, effective for accounting and tax purposes from 1 January 2015) a number of notices of adjustment, some of which have resulted in payment orders, for a total amount payable of €19.6 million at 31 December 2017. According to INPS, this amount represents social security contributions funding income support, extraordinary income support, unemployment benefit and family benefits not covered by the contributions paid to IPOST and which, according to INPS, the two companies have failed to pay. The companies immediately challenged the grounds for the payment orders, initially through administrative channels before the Administrative Committee for Employee Pensions, and then in the form of legal action before the Court of Genoa. In a memo issued on 20 October 2016, the Ministry of Labour stated that the social security contributions system applicable to Poste Italiane also applies to all the other Group companies, with the sole exception of those that provide air transport, banking and express delivery services.
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. Postel filed an appearance in both actions, claiming that the proposed appeals are inadmissible and unfounded. The company in turn submitted a cross-appeal that is dependent on the Court of Appeal in Genoa accepting the appeals filed by INPS. In two judgements dated 28 December 2018, the Court of Appeal in Genoa confirmed in full the judgements at first instance, rejecting INPS’s appeals. The agency has six months after the judgements are filed to appeal to the Supreme Court.
On 4 June 2015, the AGCM launched an investigation pursuant to art.8, paragraph 2 quater of Law 287/90, aimed at ascertaining whether actions taken by Poste Italiane were designed to prevent H3G SpA (now Wind tre SpA) from accessing the post office network. Requests to participate in the investigation from Fastweb SpA and Vodafone Omnitel BV, as well as PostePay (formerly PosteMobile). With the ruling adopted at a meeting held on 16 December 2015, the Authority deemed that Poste Italiane had failed, when requested, to offer a competitor of the subsidiary, PostePay equal access to goods and services that are exclusively available from Poste Italiane, as they form part of the activities carried out within the scope of the Universal Postal Service. In the same ruling, the Authority also ruled that Poste Italiane should desist from such conduct in the future. The Authority did not impose a fine.
Poste Italiane and PostePay 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, PostePay132.
Following the above ruling from the AGCM, H3G submitted a writ of summons to the Court of Rome, citing Poste Italiane and PostePay 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.
Finally, on 28 March 2018, Poste Italiane, PosteMobile and Wind Tre SpA reached an agreement whereby, without any rec-
On 4 March 2019, the AGCM notified the Company that it was satisfied that the actions taken by Poste Italiane to remedy the earlier issues had been effective and that the Company was in compliance with the regulations, ruling therefore that: (i) no further fine would be imposed; (ii) Poste Italiane can continue to offer competing alternative operators a service equivalent to Posta Time; (iii) Poste Italiane, within 30 days of notice of the ruling, must inform the regulator in writing of the degree to which the Posta Time equivalent service has been extended.
Following transposition into Italian law of the third European postal services directive (Directive 2008/6/CE), the so-called “net avoided cost” method has been applied in quantifying the cost of the universal service133. In this regard: i. On 29 July 2014, the board of AGCom issued Resolution 412/14/CONS, approving the measure defining the method of calculating and quantifying the net cost of the universal postal service for 2011 and 2012. In confirming that the cost of the universal service for 2011 and 2012 is, in certain respects, unfair and thus merits compensation, the resolution quantified the cost for 2011 and 2012, respectively, as €381 million and €327 million, compared to sums recorded originally by Poste Italiane SpA for approximately €357 million and €350 million. On 13 November 2014, Poste Italiane SpA challenged this resolution by filing an appeal before the Regional Administrative Court (TAR). The case is still pending.
133. 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.
Following an inspection of a sample of post offices that was completed in December 2017, relating to efforts to combat money laundering and the financing of terrorism, in May 2018, the Bank of Italy invited BancoPosta to provide a report, updated to 30 September 2018, on the progress made in implementing all the initiatives undertaken in this regard. The report in question, containing a list of the initiatives implemented as of the above date and those to be taken in future, together with the related time-scale, was sent to the Bank of Italy on 29 October 2018, after having been presented to Poste Italiane’s Board of Directors on 18 October 2018.
The Bank of Italy’s Financial Intelligence Unit (UIF) conducted a number of inspections of Poste Vita SpA conducted in 2015 and 2016, in relation to money laundering prevention as per art. 47 and art. 53, paragraph 4, of Legislative Decree 231 of 2007. On 8 July 2016, the UIF sent Poste Vita a notice of assessment and violation, alleging the company’s failure to promptly report suspect transactions (regarding transactions relating to a single policy) pursuant to art. 41 of Legislative Decree 231/2007. The violation in question may result in a fine of up to €0.4 million. Poste Vita has sent the Ministry of the Economy and Finance a defence memorandum and is awaiting a final decision.
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. 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, in March.
emerging during the process. Finally, during the above meeting, the CONSOB requested further details on specific issues, later formalised in writing, to which the Group gave a full and timely response.
10. Material non-recurring events and/or transactions 134. Events and transactions are defined as such when their occurrence is non-recurring, being transactions or events that do not recur frequently in the ordinary course of business.
135. Such transactions are defined as transactions that due to their significance/materiality, the nature of the counterparties, the purpose of the transaction, the manner of determining the transfer price and timing of the transaction may give rise to doubts over the correctness and/or completeness of the disclosures in the financial statements, over a conflict of interest, safeguards for the Company’s financial position and protections for non-controlling shareholders.
A brief summary of the impact of material non-recurring events and transactions134 involving the Poste Italiane Group in 2018, is provided below, as required by CONSOB ruling DEM/6064293 of 28 July 2006: �� income of €120 million from the sale to Anima Holding SpA of shares in Anima SGR, as described in more detail in note 4 – Material events during the year (in the parent Company’s financial statements, the related non-recurring income amounts to €116 million).
�� Income of €351 million following Poste Vita’s recognition of deferred tax income (for the tax periods from 2010 to 2017) on temporary difference resulting from the application of paragraph 1-bis of art. 111 of the Consolidated Law on Income Tax (introduced by art. 38, paragraph 13-bis of Law Decree 78 of 31 May 2010), as described in more detail in note 4 - Material events during the year.
Technical provisions attributable to reinsurer - - - (71) - (71) -
Technical provisions for insurance business - - - 123,650 - 123,650 -
Technical provisions attributable to reinsurers - - - (71) - (71) -
Net funds attributable to the Mail, Parcels and Distribution Strategic Business Unit at 31 December 2017 have been adjusted to take into account a financial receivable of €490 million, following the reclassification of the investments in FSIA and Anima Holding, in the Payments, Mobile and Digital and Financial Services segments, respectively.
At 31 December 2018, total consolidated net funds amount to €5,372 million, as shown above.
The change during the year reflects a reduction in the fair value of financial instruments measured at FVTOCI, totalling €636 million, including the impact of first-time adoption of IFRS 9. The fair value reserve relating to these instruments, before the related taxation, is a negative €115 million.
An analysis of the net funds of the Parent Company outside the ring-fence at 31 December 2018, in accordance with ESMA recommendation 319/2013, is provided below: ESMA NET FINANCIAL INDEBTEDNESS FOR CAPITAL OUTSIDE RING-FENCE
Financial assets at amortised cost 3,424 3,527 3,363 4,407 4,486 4,890
Financial liabilities resulting from repurchase agreements (8,477) (8,473) (8,484) (4,840) (4,842) (4,853)
Securities used as collateral provided by CSAs and GMRAs 247 246 253 269
With regard to financial assets, as required by Communication DEM/11070007 of 28 July 2011, implementing Document 2011/266 published by the European Securities and Markets Authority (ESMA) and later amendments, the Group’s exposure to sovereign debt at 31 December 2018 is shown in the table below.
Financial assets at amortised cost 3 3 3 - - -
In order to make investments as consistent as possible with the risk-return profiles of the policies issued, ensuring management flexibility and efficiency, in certain cases Poste Vita SpA has purchased over 50% of the assets managed by certain investment funds. In these cases, tests have been performed in keeping with IFRS to determine the existence of control. The results of the tests on such funds suggest that the company does not exercise any control within the meaning of IFRS 10 – Consolidated Financial Statements. However, these funds qualify as unconsolidated structured entities. A structured entity is an entity designed in such a way as not to make voting rights the key factor in determining control over it, as in the case where voting rights refer solely to administrative activities and the relevant operations are managed on the basis of contractual arrangements. Whilst maintaining a moderate risk appetite, in 2018, the gradual process of diversifying investments, begun in 2015, continued by increasing investments in open-end harmonised multi-asset funds of the UCITS type, above all those belonging to the “MULTIFLEX” SICAV.
IT0005212193 Diamond Italian Properties Italian-registered, closed-end alternative real estate investment funds
Investment in "core" and "core plus" real estate assets for office use, located in the Eurozone and eurodenominated
Master fund which invests primarily in commercial properties and, marginally, in office buildings and alternative sectors. It does not invest in property debt
IT0005215113 Fondo Cbre Diamond Italian-registered, closed-end alternative real estate investment funds
Financial assets at FVTPL 3,816 378 3,438 Provided by fund management company
LU1407711800 Multiflex - Dynamic Multi Asset Fund Financial assets at FVTPL 3,482 210 3,272 Provided by fund management company
IT0005174450 Fondo Diamond Eurozone Office Ubs Financial assets at FVTPL 195 72 123 VaR 99.5% over a 1-year time horizon
IT0005210387 Diamond Eurozone Retail Property Fund Financial assets at FVTPL 102 25 77 VaR 99.5% over a 1-year time horizon
LU1081427665 Shopping Property Fund 2 Financial assets at FVTPL 57 24 33 VaR 99.5% over a 1-year time horizon
QU0006738854 Prima Credit Opportunity Fund Financial assets at FVTPL 126 54 72 VaR 99.5% over a 1-year time horizon
IT0005215113 Fondo Cbre Diamond Financial assets at FVTPL 68 25 43 VaR 99.5% over a 1-year time horizon
QU0006738052 Prima Eu Private Debt Opportunity Fund Financial assets at FVTPL 138 59 79 VaR 99.5% over a 1-year time horizon
IT0005247819 Fondo Diamond Value Added Properties Financial assets at FVTPL 54 13 41 VaR 99.5% over a 1-year time horizon
IT0004597396 Advance Capital Energy Fund Financial assets at FVTPL 23 13 10 VaR 99.5% over a 1-year time horizon * Maximum loss is estimated without considering the ability of liabilities to offset losses, thus representing a more prudential estimate
Description of the Plan As described in the above 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 Phantom Stock Plan for the period 2016-2018 entails the award to Beneficiaries of phantom stocks granting them the right to receive stock representing the value of Poste Italiane’s shares and the related cash bonus at the end of a vesting period. The number of phantom stocks awarded to each Beneficiary is dependent on achieving the Performance Hurdle and meeting the Qualifying Conditions and the related Performance Targets over a three-year period. The Plan covers a medium- to long-term period. In particular, the plan includes three award cycles, corresponding to the financial years 2016, 2017 and 2018, each with a duration of three years.
Plan terms and conditions The Performance Targets, to which receipt of the cash bonus is subject, are as follows: �� for the General Manager and other beneficiaries of the Plan employed by Poste Italiane, other than Bancoposta personnel, an indicator of earnings based on the Group’s cumulative EBIT over a three-year period, used to account for the continuity and sustainability of earnings over the long term; �� for Beneficiaries included among BancoPosta RFC’s Risk Takers, the three-year RORAC (Return On Risk Adjusted Capital), used for the LTIP with the aim of taking into account the continuity and sustainability of the long-term performance after appropriately adjusting for risk; �� for Beneficiaries included among personnel belonging to the Poste Vita insurance group, the RORAC registered by the Poste Vita insurance group over a three-year period, used for the LTIP with the aim of taking into account the continuity and sustainability of the long-term performance after appropriately adjusting for risk.
Vesting of the Phantom Stocks is subject to achievement of the Performance Hurdle, designed to ensure sustainability of the Plan at Group level. The Performance Hurdle corresponds with achievement of a certain target for the Group’s cumulative EBIT over a three-year period at the end of each Performance Period. In addition, in the case of the General Manager (and Chief Executive Officer) and BancoPosta RFC’s Risk Takers, vesting of the Phantom Stocks is also subject to achievement of Qualifying Conditions, designed to ensure the stability of BancoPosta RFC’s capital and liquidity position, as follows: �� Indicator of capital adequacy, based on CET 1 at the end of the period.
�� For personnel belonging to the Poste Vita insurance group, vesting of the Phantom Stocks, in addition to achievement of the Performance Hurdle (Group’s cumulative EBIT over a three-year period), is subject to achievement of the specific Qualifying Condition, namely the Solvency II ratio at the end of the period.
�� The Phantom Stocks will be awarded by the end of the year following the end of the Performance Period, and immediately converted into cash. In the case of the General Manager, BancoPosta RFC’s Risk Takers and the Poste Vita group’s personnel, they are subject to a one-year retention period, before they can be converted into cash, following confirmation that the Qualifying Conditions for each plan have been met.
Poste Italiane SpA The effects on profit or loss of the above Long-Term Incentive scheme at 31 December 2018 for Poste Italiane SpA are shown below.
Payment of the deferred portion will take place each year, provided that BancoPosta RFC’s minimum regulatory capital and liquidity requirements have been met. The effects on profit or loss and on equity are recognised in the period in which the instruments vest136.
Determination of fair value and effects on profit or loss At 31 December 2018, the number of phantom stocks is 101,694, whilst the number of phantom stocks estimated on the basis of the best available information, with the aim of recognising the related service cost, is 145,860. An independent expert, external to the Group, was appointed to measure the value of the stocks, based on best market practices. The liability recognised at 31 December 2018 amounts to €1.4 million.
At 31 December 2018, the number of outstanding phantom stocks totals 276,744. The liability recognised is €1.7 million.
Address Software Srl (Rome) Subsidiary 268 51.00% 994 467 527 1,104 62
Anima Holding SpA (Milan) (a) Associate 213,728 10.04% 2,078,252 872,908 1,205,344 815,733* 97,379
Conio Inc. (San Francisco) (b) Associate 27 18.50% 140 136 4 - (205)
FSIA Investimenti Srl (Milan) (c) Joint venture 279,814 30.00% 992,721 62,662 930,059 21,185** 11,325
Risparmio Holding SpA (Rome) (e) Subsidiary 828 80.00% 1,113 77 1,036 - (55)
Uptime SpA - in liquidation (Rome) (d) Subsidiary - 100.00% 771 4,702 (3,931) - (598)
Other SDA Express Courier associates (f) Associate 4 a. Data derived from the latest consolidated interim accounts for the period ended 30 September 2018 approved by the company’s board of directors. b. Data for Conio Inc. and its subsidiary, Conio Srl at 31 December 2017. c. Data derived from the latest interim accounts for the period ended 30 September 2018 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 2017, the latest approved by the company. e. Data derived from the accounts for the period ended 30 September 2018, 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. ** The amount includes dividends and measurement of the investments using the equity method.
The information is provided in thousands of euros and on a cash basis, indicating the Group company that received and/or disbursed the grant. In addition, given the numerous interpretative doubts, the following information is provided on the basis of the best interpretation of the legislation available to date, in the light of the guidance provided by Assonime in Circular 5 of 22 February 2019.
Item (€m) At 31 December 2018 related to subsidiaries At 31 December 2017 related to subsidiaries
Commitments deriving from property leases and other lease payments falling due: within 1 year of the reporting date 203 248 between 2 and 5 years after the reporting date 481 436 more than 5 years after the reporting date 96 65
Unsecured guarantees issued by the Group and Poste Italiane SpA are as follows: GUARANTEES
Third-party assets held by Group companies are shown below. This type of asset refers solely to the Parent Company, Poste Italiane SpA.
Total 3,136 * The above amounts do not include incidental expenses and charges.
Part B – Information on the statement of financial position 546
Part E – Information on risks and related hedging policies 590
Liabilities and equity (€) 2018 2017 10. Financial liabilities measured at amortised cost 64,202,714,720 59,636,019,238 a) due to banks 5,984,821,231 5,949,610,345 b) due to customers 58,217,893,489 53,686,408,893 c) debt securities in issue - 20.
10. Interest and similar income 1,555,587,952 1,476,745,714 of which: interest income calculated using the effective interest rate method 1,555,587,952 1,476,745,714 20. Interest and similar expense (28,570,167) (28,950,210)