With the aim of formalising this commitment and aligning its business model with the sustainable development goals, Poste Vita adopted a Responsible Insurance Policy, a document that describes the approach the company intends to take in managing the risks and opportunities connected with environmental, social and governance factors within traditional insurance processes
Insurance products with social and environmental value In developing its offering of insurance services, Poste Vita targets, whenever sustainable, more vulnerable social categories, such as the young, the elderly and people with particular diseases. Among its individual pension plans, Postaprevidenza Valore is the form of supplementary pension fund with the highest number of members in Italy (975,000 customers registered at the end of 2018). As known, the projected pensions gap of younger generations – the difference between the expected basic pension and the last salary from employment, in other words how much will be needed to maintain a person’s standard of living – is high. In this context, Italian lawmakers, in reshaping pensions legislation, have introduced measures designed to drive the development of supplementary pensions. In this regard, Postaprevidenza Valore represents, for a significant portion of the population, an important way of topping of their basic pension.
Finally, in developing property protection products, the company is considering the introduction of guarantees providing customers with a valid way of transferring the risk relating to natural events, such as weather events or natural catastrophes that might be caused by climate change. Where possible and technically feasible, the company valorises environmental risk mitigations measures, which contribute to increasing the resilience of properties (including energy efficiency systems,) covered by the policy, thus making them more “insurable”. With the aim of providing concrete support to people living in areas at risk from catastrophic events, Poste Assicura has recently broadened its range of products and services, offering the Casa 360 policy that pays out in the event of damage, in addition to offering traditional protection against fire and weather events (including those linked to climate change), and against earthquake damage and collapse due to any other cause. The product, at the customer’s request, includes an electronic device that enables the property owner to monitor house conditions constantly and 24-hour assistance. The policy allows the customer to choose the type of coverage and guarantees based on their needs. This product is highly inclusive, as the cost of protection against earthquake damage or collapse is the same in areas with both a high and low risk of earthquake; such feature increases possibility of coverage where most needed. Approximately 23,000 policies were sold in 2018.
Increase the quota of middle managers and white-collar staff involved in the MLAB development plans and POP
Expand the scope of the workforce involved in the performance appraisal system
Increase staff training on the Group’s ethical principles (including respect for human rights)
Certify the main Group companies in accordance with the BS OHSAS 18001 standard
Monitor the ESG rating of the issuers present in the indirectly managed portfolios
Increase the number of electric vehicles used for Mail, Communication and Logistics services
Increase the share of “green” vehicles (electric, electric hybrid, natural gas and LPG) used for
No. Personnel No. Personnel No. Personnel * The figures refer to the Group company, Postel SpA.
Total number of Group companies assessed for risks related to corruption 17 18 18
Percentage of Group companies assessed for risks related to corruption 65 72 72
of which: * In 2018, the online training course on anti-corruption and the Law Decree n. 231/2001 (Italian law concerning the administrative responsability of corporate bodies related to crimes committed in the company’s interest), entitled “Law Decree n. 231/2001 - Our behavior and law provisions regarding corporate liability” was provided during two training campaigns addresset to all employees working in Poste Italiane. To this regard, a total number of 1,376 employees participated to both training initiatives.
Percentage of suppliers selected on the basis of environmental criteria 30.8 40.4 34.1 * The assessment regards tender processes for amounts above the EU threshold that include specific environmental criteria in the subject, in the technical specifications or in the participation and/or assessment criteria (e.g. ISO 14001, ISO 50001, hybrid/electric vehicles, low-environmental impact vehicles, Minimum Environmental Criteria, the use of recycled materials in supplies, etc.). The figures refer to Poste Italiane SpA.
Percentage of suppliers selected on the basis of social criteria 42.3 39.4 45.5 * The assessment regards tender processes for amounts above the EU threshold that include specific social criteria in the subject, in the technical specifications or in the participation and/or assessment criteria (e.g. SA8000, OHSAS 18001, etc.). The figures refer to Poste Italiane SpA.
Number of Group companies subject to human rights reviews 26 25 25
Total workforce on permanent contracts 136,658 131,358 126,151 132,502 127,431 122,665
[GRI 102-8] NUMBER OF PERSONNEL BY CONTRACT TYPE AND GENDER, BY STRATEGIC BUSINESS UNIT*
Men Women Total Men Women Total Men Women Total * The figures refer to the headcount.
* The percentages have been calculated for permanent Full Time Equivalent (FTE) staff only.
Revenue-generating functions**** 31.4 * The percentages regard the presence of women in formally designated organisational roles within Poste Italiane and Group companies. ** Includes first and second level staff within Poste Italiane, the chief executive officers and general managers of the main Group companies and staff reporting directly to them.
Enhancement of middle managers under development (MLAB)* 132 160 118 * The reduction of 26% in 2018 reflects a delay in launching the programme, which began at the end of the first quarter, following a review of the programme and the related methodology and technology (MLAB is managed by a software programme installed in 2018).
[401-2] BENEFITS PROVIDED TO FULL-TIME EMPLOYEES THAT ARE NOT PROVIDED TO TEMPORARY OR PART-TIME EMPLOYEE
Average cost of FTEs hired (€)** - - 34,900 * The turnover rate was calculated on the basis of the number of FTEs leaving the Group as a proportion of the total workforce for year n-1. The turnover rate, calculated on the basis of the number of FTEs leaving the Group as a proportion of the total workforce for year n, is 4.9 for 2016, 4.8 for 2017 and 5.0 for 2018. The voluntary turnover rate, showing the number of FTEs who voluntarily left during year as a proportion of the total workforce for year n, is 4.5 for 2016, 4.0 for 2017 and 4.4 for 2018.
** The average per capita annual cost of new hires regards all types of contract (permanent, flexible and executives). The per capita cost takes into account the following components: fixed pay, additional remuneration (performance-related bonus, overtime, various forms of compensation, etc.) plus contributions and employee termination benefits payable on the first two components. The per capita cost is determined using the average per capita cost for each category of employee joining the Company (the standard cost). Fixed-term personnel and agency staff are assumed as a rule to have been hired in 2018. The average cost for FTEs hired refers to the Parent Company. The figure for SDA is €28,765.77 and for Postel is €39,947.00.
[GRI 403-2] TYPE OF INJURY, INJURY RATE, LOST DAY RATE, OCCUPATIONAL DISEASE RATE, ABSENTEE RATE AND WORK-RELATED FATALITIES AT THE GROUP*
**** The number of cases of occupational diseases divided by the number of hours worked multiplied by 1,000,000. ***** The number of days of absence due to illness or injury divided by the number of days worked multiplied by 100. The rate is only calculated for permanent personnel and does not include executives. The target set for 2018 is 5.
Social and cultural initiatives (€000) 1,546.9 29 of which: Art, culture and education (€000) 806.5 15
Percentage of young current account holders (under 35) 24.6 25.4 24.9
Percentage of current account holders who are "new Italians" 12.4 12.6 12.3
Percentage of current account holders who are "new Italians" 19.6 20.6 22.1 * For Postepay Standard and Evolution cards, renewals during the year are excluded.
Customer satisfaction with overall post office experience** 8.4 8.7 8.7 * Average waiting times were measured at approximately 3,000 post offices. ** Source: Barometro 2018, a survey conducted each year, with the aim of analysing post office customer profiles, including the frequency of visits, perceived waiting times and the customer experience. The survey involved 5,062 face-to-face interviews with visitors to 514 post offices throughout Italy.
Transactions carried out via consumer digital channels (websites and apps)*** (millions) 33.2 39.3 47.9
Total number of complaints received regarding violations of privacy 12 6 22 of which: complaints received from third parties and recognised by the organisation 12 6 22 complaints received from regulatory bodies - - breaches, data theft and leaks of customer data identified* - - 205 * The figure relates to 204 cases relating to Consorzio PatentiviaPoste (which acts as the Data Supervisor for the Ministry of Infrastructure and Transport) and in 1 case to Poste Vita.
Total number of IT security breaches involving customers’ data 7 4 9
Ink/toner (kg) 97,108 87,749 59,784 * “Other” contains the following materials: labels, bags and seals, parcel string and security pouches.
Consumption of energy from non-renewable sources (GJ) 112,342 106,337 93,603 of which: Thermal energy (district heating) (GJ) 17,531 22,960 20,862
Consumption of energy from renewable sources (GJ) 1,791,787 1,812,423 1,742,370 of which: Self-produced photovoltaic electricity (GJ) 4,779 7,057 5,907
Total energy consumption (GJ) 4,592,911 4,735,634 3,799,619 of which: from renewable sources (GJ) 1,791,787 1,812,423 1,742,370 from non-renewable sources (GJ) 2,801,124 2,923,211 2,057,249 * Includes energy consumed by real estate and in road transport logistics and passenger transportation (only for the two-year period 2016-2017) and airmail. Source of factors used in conversion to GJ: IPC Guidelines.
** The reduction in Jet fuel consumption in 2018 is linked to Mistral Air’s progressive withdrawal from the passenger transport market to focus exclusively on its cargo business.
* Compared with the previous year, in order ensure a continuous improvement in reporting, the different types of emissions are shown in CO2 equivalent throughout the three years and no longer in CO2, in line with GRI requirements.
emission factor for 2016 was 0.37045 kg of CO2e/kWh, source: ISPRA data for 2016; the emission factor the two-year period 2017/2018 is 0.361 kg of CO2e/ kWh, source: ISPRA data for 2017). The conversion factors used to convert thermal energy into CO2e: 0.2 kg CO2e/kWh for 2016, 0.19 kg CO2e/kWh for 2017 and 0.18 kg CO2e/kWh for 2018.
Consumption of energy from renewable sources (GJ) 1,790,247 1,810,741 1,741,421 of which: Self-produced photovoltaic electricity (GJ) 4,779 7,057 5,907
WEIGHT OF ELECTRICITY CONSUMPTION RELATING TO REAL ESTATE FACILITIES BY TYPE OF BUSINESS
Total expenditure on energy (€)* 102,535,094 98,393,160 95,380,683 * The target set for 2018 is €95,441,365.
[GRI 302-1; GRI 305-1; GRI 305-2] ENERGY CONSUMPTION AND CO2 EQUIVALENT EMISSIONS TO THE COMPANY ROAD FLEET
Total energy consumed (GJ) 1,034,861 998,702 946,453 of which: Natural gas (GJ) 55,890 60,553 46,737
The Mail, Parcels and Distribution Strategic Business Unit will be engaged in completing implementation of the new joint delivery model, which will see the reorganisation of around a further 405 delivery centres during the year, in addition to the 350 reorganised in 2018. The Unit will also continue with the adoption of new automation technologies to support production processes, with the aim of boosting the efficiency and quality of sorting processes (the Bologna hub will enter service, as will the new mixed-mail centres and the centres for handling parcels, whilst work will begin on the creation of 2 further hubs in Milan and Rome for sorting parcels). These initiatives are designed to maximise synergies in the logistics and operations network and leverage all the Group’s available assets, enabling us to improve our competitive position in the parcels market by taking advantage of the opportunities arising from the growth of e-commerce.
On 8 March 2019, an agreement was signed with the labour unions regarding key aspects of the plans to reorganise Logistics activities, central and local staff departments and the post office network.
As regards Logistics, the Group plans to invest €150 million in automation over the life of the plan and in implementing a lean production system, which will enable it to reduce the number of full-time equivalents (“FTEs”) by at least 1,600 in 2019 across the various operational sites and internal departments.
The plans will be backed up by adequate incentives, in keeping with the long-standing policy regarding voluntary retirement schemes, and, where appropriate, by redeployment initiatives (reassignment to part-time roles or transfers to other locations or other positions).
Creation of the new Payments, Mobile and Digital Strategic Business Unit aims to deliver on the strategic objective of becoming Italy’s leading payments ecosystem, ensuring convergence between payments and mobile technology, and between physical and digital channels. In this regard, PostePay SpA intends to lead changes in the habits of consumers, businesses and the Public Administration, creating new integrated products and services, above all in the fields of acquiring, e-commerce and mobile and digital payments.
Work on developing the new Postepay Junior and Postepay IoStudio offering has already begun, with the aim of providing new parental control functions and making it easier for parents to top up their children’s cards. These new features will already be available in the first quarter of 2019.
In addition to ensuring compliance with the provisions of the Italian Legislative Decree 254/2016 (“Decree”) through the integrated disclosure provided in the NFS, conformity with the law requirements is also ensured by providing references to other sections of the Annual Report and to other company documents, when the information is already contained therein or if useful to provide additional clarifications. In particular: �� the company’s organizational and management model is illustrated within the Annual Report in the following paragraphs: “Incorporating sustainability within Poste Italiane’s strategy”, “Poste Italiane’s business model” and “Poste Italiane’s integrated internal control and risk management system”. Such paragraphs describe the way in which the organisation, thanks to its business activities, generates results enabling it to deliver on its strategic objectives and create value over the short, medium and long term; �� risk management, implemented through the Group Risk Management (“GRM”) model, based on the Enterprise Risk Management (ERM) framework, is described in the following paragraphs of the Annual Report: “Material topics of Poste Italiane” and “Poste Italiane’s integrated internal control and risk management system”, where the main non-financial risks, their potential impacts related to material topics and treatment actions are described in greater detail; �� company policies are described in the paragraph “The Group’s sustainability policies” which sets out the general rules of conduct on which all of Poste Italiane’s activities must be based. In addition, the section ““Objectives, Management Methods And Key Performances Achieved In The Pillars Of The Group’s Esg Strategic Plan ” provides information, with regard to each material topics, on the related strategic objectives and the operating processes used to deliver on them; �� performances are illustrated under the section “Objectives, Management Methods And Key Performances Achieved In The Pillars Of The Group’s Esg Strategic Plan”, which describes the main initiatives for the year, and in paragraph “Indicators tables”, which shows the results achieved in the last three years.
�� 6. Board of Directors; 6.1 Current composition and term of office
The Statement is included in the Report on Operations, which in turn is contained in the Annual Report for 2018 and constitutes Poste Italiane’s Integrated Report, prepared in accordance with the principles included in the “International Framework”, published by the International Integrated Reporting Council (IIRC).
In order to define the contents of the NFS, the accounting principles of the GRI Standards were observed, among which the principle of materiality to identify the significant aspects to be disclosed (for further information refer to paragraph “Material topics of Poste Italiane”) and to present the performances achieved by the Group with reference to such aspects and the sustainability goals. In particular, in relation to the materiality principle, the degree of detail regarding the various topics covered by the reporting process was defined according to the importance assigned to them in Poste Italiane Group’s business objectives and strategies and their relevance for the stakeholders, established via a structured process of materiality analysis.
In order to identify the contribution of Poste Italiane to achieving the 17 United Nations Sustainable Development Goals, a link was made with the targets established by Poste Italiane, the GRI Standards indicators and the SDGs, following the indications in the document “SDG Compass” drawn up by GRI, UN Global Compact and WBCSD (the World Business Council for Sustainable Development), further supplemented by an analysis of each Goal and the related 169 targets associated to them.
The following table outlines the relations among the scope of the Decree, Poste Italiane’s material topics and the corresponding GRI Standards and describes, for each material topic, the related impact generated both inside and outside of the organisation.
�� GRI 301 Materials Poste Italiane Group Suppliers and business partners
Dialogue and transparency in relations with the authorities - Poste Italiane Group -
Innovation and digitisation of products, services and processes - Poste Italiane Group -
Report on Operations: Corporate actions during the year; Poste Italiane’s organisational structure
Report on Corporate Governance and the Ownership Structure: Section I: Governance and ownership structures 102-11 Precautionary Principle or approach The cautionary approach required by principle 15 of the United Nations Rio Declaration is applied by Poste Italiane to protect the environment in the development and introduction of new products and services and in planning new operating activities.
Strategy 102-14 Statement from senior decision-maker Report on Operations: Statement from the Chairwoman and the Chief Executive Officer 102-15 Key impacts, risks and opportunities Report on Operations: Poste Italiane’s material topics; Poste Italiane’s integrated internal control and risk management system
Report on Operations: Management and supervisory bodies; Indicators tables – People development; Link: posteitaliane.it/it/consiglio-di-amministrazione.html
Report on Corporate Governance and the Ownership Structure: 7.2 Audit, Risk and Sustainability Committee 102-23 Chair of the highest governance body Report on Corporate Governance and the Ownership Structure: 6.6 Chief Executive Officer 102-24 Criteria used for nominating and selecting the highest governance body
Report on Corporate Governance and the Ownership Structure: 6. Board of Directors; 6.1 current composition and term of office (pursuant to art. 123-bis, para. 2.d), Consolidated Law on Finance); 6.8 Independent Directors, 6.10 Assessment of workings of the Board of Directors and Board Committees, 6.11 Diversity policies (pursuant to art. 123-bis, paragraph 2.d), Consolidated Law on Finance)
Report on Corporate Governance and the Ownership Structure: 6.6 Chief Executive Officer; 7.2 Audit, Risk and Sustainability Committee.
102-30 Effectiveness of the organisation’s risk management processes for economic, environmental, and social topics Report on Corporate Governance and the Ownership
Structure: 7.2 Audit, Risk and Sustainability Committee102-31 Frequency of the highest governance body’s review of economic, environmental, and social topics and their impacts, risks, and opportunities 102-33 Process for communicating critical concerns to the highest governance body
Report on Corporate Governance and the Ownership Structure: 5.5 Equity participation by employees: voting rights mechanisms (pursuant to art. 123-bis, paragraph 1.e), Consolidated Law on Finance); 7.2 Audit, Risk and Sustainability Committee 102-36 Process for determining remuneration Report on Corporate Governance and the Ownership Structure: 6.12 Remuneration
Report on Operations: Stakeholder engagement 102-43 Approach to stakeholder engagement Report on Operations: Stakeholder engagement; Quality and Customer Experience 102-44 Key topics and concerns that have been raised through stakeholder engagement and related actions
Report on Operations: The observations that emerged during the 2018 Multi-stakeholder Forum; Quality and Customer Experience
Report on Operations: 7. Consolidated Non-financial Statement 102-46 Defining report content and topic Boundaries Report on Operations: Poste Italiane’s material topics; 7. Consolidated Non-financial Statement 102-47 List of material topics Report on Operations: Poste Italiane’s material topics 102-48 Restatements of information provided in previous reports and reasons for doing so
Report on Operations: 7. Consolidated Non-financial Statement 102-55 GRI content index Report on Operations: GRI Standard Content Index 102-56 External assurance Report on Operations: 7. Consolidated Non-financial Statement
GRI 302: Energy 302-1 Energy consumption within the organisation Report on Operations: Indicators tables 302-2 Energy consumption outside of the organisation
GRI 303: Water 303-1 Water withdrawals by source Report on Operations: Indicators tables
GRI 305: Emissions 305-1 Direct (Scope 1) GHG emissions Report on Operations: Indicators tables
305-3 Other indirect GHG (Scope 3) emissions Report on Operations: Indicators tables
GRI 306: Effluents and waste 306-2 Waste by type and disposal method Report on Operations: Indicators tables
Report on Operations: Materiality matrix; Poste Italiane’s sustainability strategy; Legality and incorporation of ESG criteria within the procurement processes; Indicators tables 103-2 The management approach and its components 103-3 Evaluation of the management approach
GRI 401: Employment 401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employees
Report on Operations: Materiality matrix; Poste Italiane’s sustainability strategy; Relations with social partners 103-2 The management approach and its components 103-3 Evaluation of the management approach
For Parent Company and its subsidiaries which are signatories of the Poste Italiane’s National Collective Labour Agreement, the notice period for communicating major operational changes is four weeks (25 working days from the date of the first meeting with the labour unions, including Saturday) for talks at national level. In addition, a further two weeks (13 working days, including Saturday) is provided for in order to endorse any agreement reached by HR Coordination and an additional week (7 working days, including Saturday) for talks at local level. In addition, Article 2 (Contractual Arrangements) of the National Collective Labour Agreement of 30 November 2017 includes details of the notice period and procedures for consultation and negotiation with Trade Union Organisations
Report on Operations: Indicators tables Information not available. The current reporting system did not allow reporting disclosure on contractors. We expect to report this information in the next cycles of disclosure.
Italiane’s sustainability strategy; Staff training and development; Equal career development opportunities 103-2 The management approach and its components 103-3 Evaluation of the management approach
GRI 418: Customer privacy 418-1 Substantiated complaints regarding concerning breaches of customer privacy and losses of customer data
FS11 Percentage of assets subject to positive and negative environmental or social screening
Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.
Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.
The Board of Directors proposes that the Annual General Meeting approve Poste Italiane SpA’s financial statements for the year ended 31 December 2018 (including BancoPosta RFC’s Separate Report), accompanied by the Directors’ Report on Operations.
In line with the previously announced dividend policy, the Board of Directors proposes that the Annual General Meeting: �� appropriate BancoPosta RFC’s profit for the year of €596,808,586 to be put at the Company’s disposal; �� appropriate Poste Italiane SpA’s profit for 2018, amounting to €583,766,266, as follows: – to pay shareholders a dividend of €0.441 per share, payable to the holders of each of the ordinary shares in issue at the ex dividend date, excluding treasury shares held by the Company at that date; – to take the remaining amount after payment of the above dividend to shareholders to “Retained earnings”.
�� pay the above dividend of €0.441 per ordinary share for 2018 – before any applicable withholdings – from 26 June 2019, with an ex dividend date of 24 June 2019 for coupon number 4 and a record date (defined in accordance with art. 83-terdecies of Legislative Decree 58 of 24 February 1998 and art. 2.6.6, paragraph 2 of the Regulations for the Markets organised and managed by Borsa Italiana SpA) of 25 June 2019.
With the aim of ensuring the transparency and substantial and procedural correctness of transactions with related parties and connected persons, in 2015, Poste Italiane adopted “Guidelines for the management of transactions with related and connected parties”. The Guidelines have been drawn up in compliance with the principles established by the CONSOB in Regulation 17221 of 12 March 2010, as amended, and with the Supervisory Standards issued by the Bank of Italy and applicable to Poste Italiane in relation to the activities of BancoPosta.
Within the scope of the transactions with Cassa depositi e prestiti authorised by the Board of Directors on 11 October 2016, having obtained the consent of the Related and Connected Parties Committee, two repurchase agreements were entered into during 2018.
activities to the electronic money institution and the agreement on the promotion and placement of the EMI’s products by BancoPosta. Both were approved by the Board of Directors and took effect on 1 October 2018.
Under the definition provided by the CONSOB ruling of 28 July 2006, the Poste Italiane Group did not conduct any exceptional and/or unusual transactions34 in 2018.
In keeping with the guidelines published by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415), in addition to the financial disclosures required by IFRS, Poste Italiane has included a number of indicators in this report that have been derived from them. These provide management with a further tool for measuring the Group’s performance.
The following alternative performance indicators are used: EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) – this is an indicator of operating profit before non-operating financial expenses and taxation, and depreciation, amortisation and impairments of non-current assets.
EBIT margin – this is an indicator of the operating performance and is calculated as the ratio of operating profit (EBIT) to total revenue before non-operating financial expenses and taxation. This indicator is also presented separately for each Strategic Business Unit.
ROE (Return On Equity) – this is calculated as the ratio of net profit to the average value of equity (net of the fair value reserves) at the beginning and end of the reporting period.
NON-CURRENT ASSETS – this indicator represents the sum of property, plant and equipment, intangible assets and investments measured using the equity method. This indicator is also presented separately for each Strategic Business Unit inclusive of intersegment transactions.
This indicator is also presented separately for each Strategic Business Unit before adjusting for intersegment transactions.
GROUP NET (DEBT)/FUNDS - the sum of financial assets, cash and deposits attributable to BancoPosta, cash and cash equivalents, technical provisions for the insurance business (shown net of technical provisions attributable to reinsurers) and financial liabilities. This indicator is also shown separately for each Strategic Business Unit inclusive of intersegment transactions.
NET (DEBT)/FUNDS OF THE MAIL, PARCELS AND DISTRIBUTION STRATEGIC BUSINESS UNIT – this is the sum of the following items, shown according to the format recommended by ESMA, the European Securities and Markets Authority (document 319 of 2013): financial liabilities after adjusting for intersegment transactions, current financial assets after adjusting for intersegment transactions and cash and cash equivalents.
COMBINED RATIO is a measure of profitability, calculated by taking total claim-related losses and general business costs and dividing them by the value of gross earned premiums and gross premium revenue. It is the sum of the Loss Ratio and the Expense Ratio.
The figures shown in the tables below reflect the financial and operational indicators (as deduced from the related reporting packages) of the principal Group companies, prepared in accordance with International Financial Reporting Standards (IFRS) and approved by the boards of directors of the respective companies..
Profit/(loss) for the period (16,141) 118 (16,259) n/s n/s: not significant
* The figures shown have been prepared in accordance with IFRS and therefore may not coincide with those in the financial statements prepared in accordance with the Italian Civil Code and under Italian GAAP..
** Insurance premium revenue is reported gross of outward reinsurance premiums. *** During the year, the company paid dividends totalling €238 million.
** Insurance premium revenue is reported gross of outward reinsurance premiums. n/s: not significant
* During the year, the company paid dividends totalling €15 million.
POSTE ITALIANE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018
35. Current assets include assets (such as inventories and trade receivables) that are sold, consumed or realised as part of the normal operating cycle even when they are not expected to be realised within twelve months after the reporting period (IAS 1 (revised), paragraph 68).
36. Under the indirect method, net cash from operating activities is determined by adjusting profit/(loss) for the year to reflect the impact of non-cash items, any deferment or provisions for previous or future operating inflows or outflows, and revenue or cost items linked to cash flows from investing or financing activities.
The statement of financial position has been prepared on the basis of the “current/non-current distinction”35. In the statement of profit or loss, expenses are classified according to their nature. The indirect method36 has been applied in preparation of the statement of cash flows.
The accounting policies and recognition, measurement and classification criteria adopted in preparing these annual accounts are the same as those adopted in the preparation of the annual accounts at and for the year ended 31 December 31 December 2017, with the exception of the criteria applied to the classification, measurement and impairment of financial instruments, and the method of revenue recognition, which have changed following the entry into effect of the new accounting standards, IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers.
In accordance with CONSOB Resolution 15519 of 27 July 2006, the statement of financial position, the statement of profit or loss and the statement of cash flows show amounts deriving from related party transactions. The statement of profit or loss also shows, where applicable, income and expenses deriving from material non-recurring transactions, or transactions that occur infrequently in the normal course of business. Given the diverse nature and frequency of transactions conducted by Group companies, numerous income and expense items of a non-regular nature may occur with considerable
Pursuant to article 2447-septies of the Italian Civil Code, following the creation of BancoPosta’s ring-fenced capital in 2011, the assets and contractual rights included therein (hereafter: “BancoPosta RFC”) are shown separately in Poste Italiane SpA’s statement of financial position, in a specific supplementary statement, and in the notes to the financial statements.
Industrial patents, intellectual property rights, licenses and similar rights The costs of acquiring industrial patents, intellectual property rights, licences and similar rights are capitalised. Amortisation is applied on a straight-line basis, in order to allocate the purchase cost over the shorter of the expected useful life of the asset and any related contract terms, from the date the entity has the right to use the asset.
An impairment loss is recognised in profit or loss for the amount by which the net carrying amount of the asset, or the CGU to which it belongs, exceeds its recoverable amount. In particular, if the impairment loss regards goodwill and is higher than the related carrying amount, the remaining amount is allocated to the assets included in the CGU to which the goodwill has been allocated, in proportion to their carrying amount38. Except in the case of goodwill, if the impairment indicators no longer exist, the carrying amount of the asset or CGU is reinstated and the reversal recognised in profit or loss. The reversal must not exceed the carrying amount that would have been determined had no impairment loss been recognised and depreciation or amortisation been charged.
Financial instruments The accounting treatment for financial instruments, modified following the entry into effect of the new accounting standard IFRS 9, is described in paragraph 3, “Changes to accounting policies”.
When the hedge is related to recognised assets or liabilities, or an unrecognised firm commitment, the changes in fair value of both the hedging instrument and the hedged item are recognised in profit or loss. When the hedging transaction is not fully effective, resulting in differences between the above changes, the ineffective portion represents a loss or gain recognised separately in profit or loss for the period. IAS 39 allows, in addition to individual assets and liabilities, the designation of a cash amount, representing a group of financial assets and liabilities (or portions thereof) as the hedged item in such a way that a group of derivative instruments may be used to reduce exposure to fair value interest rate risk (a so-called macro hedge). Macro hedges cannot be used for net amounts deriving from differences between assets and liabilities. Like micro hedges, macro hedges are deemed highly effective if, at their inception and throughout the term of the hedge, changes in the fair value of the cash amount are offset by changes in the fair value of the hedges, and if the effective results fall within the interval required by IAS 39.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges after initial recognition is recognised in a specific equity reserve, with movements in the reserve accounted for in “Other comprehensive income” (the “Cash flow hedge reserve”). A hedging transaction is generally considered highly effective if, both at inception of the hedge and on an ongoing basis, changes in the expected future cash flows of the hedged item are substantially offset by changes in the fair value of the hedging instrument. If the hedging transaction is not fully effective, the gain or loss arising from a change in fair value relating to the ineffective portion is recognised in profit or loss for the period. Amounts accumulated in equity are recycled to profit or loss in the period in which the hedged item affects profit or loss. In particular, in the case of hedges associated with a highly probable forecast transaction (such as the purchase of fixed income 39. A hedge of the exposure to a change in fair value of a recognised asset or liability or of an unrecognised firm commitment attributable to a particular risk, and that could have an impact on profit or loss.
In the event of application of the own use exemption, the commitments assumed are reported in note 13 - Additional information - Commitments.
Income tax expense Current income tax expense (IRES and IRAP) is based on the best estimate of taxable profit for the period and the related regulations, applying the rates in force. Deferred tax assets and liabilities are calculated on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts, using tax rates that are expected to apply when the related deferred tax assets are realised or the deferred tax liabilities are settled. Deferred tax assets and liabilities are not recognised if the temporary differences derive from investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary difference is controlled by the Group or it is probable that the temporary difference will not reverse in the foreseeable future (IAS 12.39 and 12.40). In accordance with IAS 12, deferred tax liabilities are not recognised on goodwill deriving from a business combination.
Current and deferred taxes are recognised in profit or loss, with the exception of taxes charged or credited directly to equity, in which case the tax effect is recognised directly in equity. Current and deferred tax assets and liabilities are offset when they are applied by the same tax authority to the same taxpaying entity, which has the legally exercisable right to offset the amounts recognised, and the entity has the intention of exercising this right. As a result, tax liabilities accruing in interim periods that are shorter than the tax year are not offset against related assets deriving from withholding tax or advances paid.
Inventories Inventories are valued at the lower of cost and net realisable value. The cost of interchangeable items and goods for resale is calculated using the weighted average cost method. In the case of non-interchangeable items, cost is measured on the basis of the specific cost of the item at the time of purchase. The value of the inventories is adjusted, if necessary, by provisions for obsolete or slow-moving stock. When the circumstances that previously led to recognition of the above provisions no longer exist, or when there is a clear indication of an increase in the net realisable value, the provisions are fully or partly reversed, so that the new carrying amount is the lower of cost and net realisable value at the end of the reporting period. Assets are not, however, recognised in the statement of financial position when the Group has incurred an expense that, based on the best information available at the date of preparation of the financial statements, is deemed unlikely to generate economic benefits for the Group after the end of the reporting period.
In the case of properties held for sale41, if present, cost is represented by the fair value of each asset at the date of acquisition, plus any directly attributable transaction costs, whilst the net realisable value is based on the estimated sale price under normal market conditions, less direct costs to sell.
Green Certificates (Emission Allowances) With reference to Group companies subject to these rules43, Green Certificates (or Emission Allowances) are a means of reducing greenhouse gas emissions, introduced into Italian and European legislation by the Kyoto Protocol with the aim of improving the technologies used in the production of energy and in industrial processes.
The issue, free of charge, of emission allowances involves a commitment to produce, in the relevant year, a quantity of greenhouse gas emissions in proportion to the emission allowances received: this commitment is accounted for in the memorandum accounts based on the fair value of the emission allowances at the time of allocation. At the end of the year, the commitment is reduced or derecognised in proportion to the greenhouse gas emissions effectively produced and any residual value is reported in the section, “Additional information”, in the Annual Report. The purchase and sale of emission allowances are accounted 41. These are properties held by EGI SpA and not accounted for in “Investment property” as they were purchased for sale or subsequently reclassified as held for sale.
Reserves Reserves include capital and revenue reserves. They include, the BancoPosta ring-fenced capital reserve (hereafter “BancoPosta RFC”), representing the dedicated assets attributed to Bancoposta RFC, the Parent Company’s legal reserve, the fair value reserve, relating to items recognised at fair value through equity, and the cash flow hedge reserve, reflecting the effective portion of hedging instruments outstanding at the end of the reporting period.
Contracts for separately managed accounts with discretionary participation features In the case of contracts for separately managed accounts with discretionary participation features44 (as defined in Appendix A of IFRS 4), IFRS 4 makes reference to national GAAP. The contracts are classified as “financial”, but accounted for as “insurance” as follows: �� premiums, movements in technical provisions and other claims expenses are recognised in the same way as the insurance contracts described above; �� unrealised gains and losses attributable to policyholders are assigned to them and recognised in technical provisions (deferred liabilities payable to policyholders) under the shadow accounting method (IFRS 4.30).
Provisions for risks and charges Provisions for risks and charges are recorded to cover losses that are either probable or certain to be incurred, for which, however, there is an uncertainty as to the amount or as to the date on which they will occur.
Provisions for risks and charges are made when the Group has a present (legal or constructive) obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation. Provisions are measured on the basis of management’s best estimate of the use of resources required to settle the obligation. The value of the liability is discounted at a rate that reflects current market values and takes into account the risks specific to the liability. In those rare cases, in which disclosure of some or all of the information regarding the risks in question could seriously prejudice the Group’s position in a dispute or in ongoing negotiations with third parties, the Group exercises the option granted by the relevant accounting standards to provide limited disclosure.
The calculation takes account of termination benefits accrued for the period of service to date and is based on actuarial assumptions. These primarily regard: demographic assumptions (such as employee turnover and mortality) and financial assumptions (such as rate of inflation and a discount rate consistent with that of the liability). In the case of companies with at least 50 employees, as the company is not liable for employee termination benefits accruing after 31 December 2006, the actuarial calculation of employee termination benefits no longer takes account of future salary increases. Actuarial gains and losses are recognised directly in other comprehensive income at the end of each reporting period, based on the difference between the carrying amount of the liability and the present value of the Group’s obligations at the end of the period, due to changes in the actuarial assumptions, are recognised directly in Other comprehensive income.
Termination benefits Termination benefits payable to employees are recognised as a liability when the entity gives a binding commitment, also on the basis of consolidated relationships and mutual undertakings with union representatives, to terminate the employment of an employee, or group of employees, prior to the normal retirement date or, alternatively, an employee or group of employees accepts an offer of benefits in consideration of a termination of employment. Termination benefits payable to employees are immediately recognised as personnel expenses.
Diluted: At the date of preparation of these financial statements no financial instruments have been issued which have potentially dilutive characteristics46.
The consolidated financial statements have been specifically prepared at 31 December 2018, after appropriate adjustment, where necessary, to align accounting policies with those of the Parent Company.
Subsidiaries that, in terms of their size or operations, are, either individually or taken together, irrelevant to a true and fair view of the Group’s results of operations and financial position have not been included within the scope of consolidation. The criteria
A list of companies consolidated on a line-by-line basis and using the equity method is provided in note 11 - Additional information – Information on investments.
Preparation of the annual accounts requires the application of accounting standards and methods that are at times based on complex subjective judgments and estimates based on historical experience, and assumptions that are considered reasonable and realistic under the circumstances. Use of such estimates and assumptions affects the amounts reported in the financial statements and related disclosures. The actual amounts of items for which the above estimates and assumptions have been applied may differ from those reported in previous financial statements, due to uncertainties regarding the assumptions themselves and the conditions on which estimates are based. Estimates and assumptions are periodically reviewed and the impact of any changes is reflected in the financial statements for the period in which the estimate is revised if the revision only influences the current period, or also in future periods if the revision influences both current and future periods.
Revenue and receivables due from the State The Group has substantial receivables due from the State, though the amount is much lower than in the past. Revenue from activities carried out in favour of or on behalf of the State and Public Administration entities is recognised on the basis of the amount effectively accrued, with reference to the laws and agreements in force, taking account, in any event, of the instructions contained in legislation regarding the public finance. The legal framework of reference is still subject to change and, as has at times been the case, circumstances were such that estimates made in relations to previous financial statements, with effects on the statement of profit and loss, had to be changed. The complex process associated with the determination of receivables, which has not been completed yet, may result in changes in the results for the years after that ended 31 December 2018 to reflect variations in estimates.
The table below summarises receivables due from the State: Receivables at 31 December 2018 at 31 December 2017
Other trade receivables due from Public Administration entities (vii) 490 538
Other receivables and assets: Sundry receivables due from Public Administration entities (viii) 3 8
Specifically, at 31 December 2018, the total exposure to the State includes the following items.
i. Receivables related to Universal Service compensation, totalling €31 million and relating to compensation for previous years not funded in the state budget, for which provisions for doubtful debts for the full amount have been made. In 2018, the Group received €262 million in accrued compensation for the period (see note 6.3 – A7 Trade receivables).
ii. Residual receivables related to electoral tariff subsidies, totalling €1 million, fully funded 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 December 2017; a further €27 million was also collected.
v. A sum due from the Cabinet Office in the form of publisher tariff subsidies47, totalling €104 million, including €62 million accruing during the period and almost entirely funded in the state budgets for 2017 and 2018. These receivables are shown gross of collection of the amount of €72 million in subsidies for 2017 and the first half of 2018, which was deposited by the Cabinet Office in a non-interest bearing escrow account with the Italian Treasury and, for this reason, accounted for in “Prepayments received”. Release of the amount deposited and extinguishment of the receivables in question are awaiting approval from the European Commission.
Provisions for risks and charges The Group makes provisions for probable liabilities deriving from disputes with staff, suppliers, and third parties and, in general, for liabilities deriving from present obligations. These provisions cover the liabilities that could result from legal action of varying nature, the impact on profit or loss of seizures incurred and not yet definitively assigned, and amounts expected to be refundable to customers where the final amount payable has yet to be determined.
With regard to the impairment test of the investment in FSIA Investimenti Srl, given the absence of reliable medium-term projections, the fair value of the investment at 31 December 2018 was determined (level 3 in the hierarchy) using market multiples. To identify the market multiple to use, reference was made to a study of a comparable company by a leading investment bank. The multiple used was 13.5 based on EBITDA for 2019 and 14.8 based on EBITDA for 2018.
The results of impairment tests are reported in notes 5.2 - A4 – Investments accounted for using the equity method, 5.2 - A3 – Intangible assets (with regard to goodwill) and 6.3 – A4 Investments.
49. In the test carried out at 31 December 2018, use was made of an assumed growth rate between 1.48% and 1.67%, while the WACC for each CGU tested for impairment, determined in accordance with best market practices and for each operating segment, ranged from 6.42% to 8.57%. The cost of equity (Ke) is 7.99% for banking activities and 8.51% for asset management activities.
Measurement of other non-current assets The current economic and financial crisis - which has resulted in highly volatile markets and great uncertainty with regard to economic projections - and the decline of the postal market in which the Group operates make it difficult to produce forecasts that can, with certainty, be defined as reliable. In this context, as at 31 December 2018, in part in view of the content of the Group’s Strategic Plan for 2018-2022, approved by the Parent Company’s Board of Directors on 26 February 2018, and the ongoing crisis in the postal and real estate sectors, the Parent Company’s Mail, Parcels and Distribution segment was tested for impairment in order to determine a value in use to compare with the total carrying amount of net invested capital. In estimating the value in use of the segment, reference was made to revenue and cost projections in the Strategic Plan for 2018-2022, whilst the terminal value, calculated on the basis of data for the latest explicit projection period, was based on normalised earnings, taking into account the existence of potential positive elements whose value was not reflected in the explicit projections over the life of the plan. Reference was also made to the transfer prices that BancoPosta RFC is expected to pay for the services provided by Poste Italiane’s distribution network, as determined in the new Strategic Plan. A WACC of 6.42% was used. The impairment test determined that the related carrying amounts are fair.
In addition, in assessing the value of non-current assets of the Mail, Parcels and Distribution segment, account was taken of any effect on the value in use of certain properties, should such properties no longer be used in operations in future, making adjustments to certain impairment losses taken in the past in the light of new evidence available at 31 December 2018. The fair value of the Parent Company’s properties used in operations continued to be significantly higher than their carrying amount, as confirmed by the progressive updates of the property valuations carried out by a leading independent expert. As in the past, in determining the value of properties used as post offices and sorting centres, Poste Italiane SpA’s universal service obligation was taken into account, as was the inseparability of the cash flows generated from the properties that provide this service, (which the Parent Company is required to operate throughout the country regardless of the expected profitability of each location); the unique nature of the operating processes involved and the substantial overlap between postal and financial activities within the same outlets, represented by post offices, were also considered. On this basis, the value in use of the Parent Company’s land and buildings used in operations is relatively unaffected by changes in the commercial value of the properties concerned and, in certain critical market conditions, certain properties may have values that are significantly higher than their market value, without this having any impact on the cash flows or results of the Mail, Parcels and Distribution segment.
Share-based payment As more fully described in note 13 Additional information – Share-based payment arrangements, measurement of the fair value of the “Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan”, approved by Poste Italiane SpA’s shareholders on 24 May 2016, and the short-term incentive plan (MBO) for BancoPosta RFC’s material risk takers (approved by Poste Italiane SpA’s shareholders on 27 April 2017 and 29 May 2018) with the related impact following the termination of employment, was based on the conclusions of independent actuaries. The plan terms and conditions link the award of the related options to the occurrence of certain events, such as the achievement of performance targets and performance hurdles and, in certain areas of operation, compliance with certain capital adequacy and short-term liquidity requirements. For these reasons, measurement of the liability, based on the outcome of an appraisal by external actuaries, involves the use of estimates based on current knowledge of factors that may change over time, potentially resulting in outcomes that may be significantly different from those taken into account in preparing these financial statements.
Level 1: this level is comprised of fair values determined with reference to unadjusted prices quoted in active markets for identical assets or liabilities to which the entity has access on the measurement date. For the Poste Italiane Group, these include the following types of financial instruments: 1. Bonds quoted on active markets: �� Bonds issued by EU government bodies or Italian or foreign corporate bonds: measurement is based on bid prices, according to a hierarchy of sources where the MTS (the wholesale electronic market for government securities) ranks first, MILA (Milan Stock Exchange) second, for bonds intended for retail customers, and the CBBT (Composite Bloomberg Bond Trader) third; �� Financial liabilities: measurement is based on the ask prices quoted by CBBT (Bloomberg Composite Price).
2. Equities and ETFs (Exchange Traded Fund) quoted on active markets: measurement is based on the price resulting from the last trade of the day on the stock exchange of reference.
3. Quoted investment funds: measurement is based on the daily closing market price as provided by Bloomberg or the fund manager. Level 1 bond price quotations incorporate a credit risk component. Exchange rates published by the European Central Bank are used in determining the value of financial instruments denominated in currencies other than the euro.
Level 2: this level is comprised of fair values based on inputs other than Level 1 quoted market prices that are either directly or indirectly observable for the asset or liability. Given the nature of Poste Italiane Group’s operations, the observable data used as input to determine the fair value of the various instruments include yield curves and projected inflation rates, exchange rates provided by the European Central Bank, ranges of rate volatility, inflation option premiums, asset swap spreads or credit default spreads which represent the creditworthiness of specific counterparties and any liquidity adjustments quoted by primary market counterparties. For the Poste Italiane Group these include the following types of financial instruments: 1. Bonds either quoted on inactive markets or not at all: �� Straight Italian and international government and non-government bonds: valued using discounted cash flow techniques involving the computation of the present value of future cash flows, inputting rates from yield curves incorporating spreads reflecting credit risk that are based on spreads determined with reference to quoted and liquid benchmark securities issued by the issuer, or by other companies with similar characteristics to the issuer. Yield curves may be slightly adjusted to reflect liquidity risk relating to the absence of an active market.
2. Unquoted equities: this category may be included here provided it is possible to use the price of quoted equities of the same issuer as a benchmark. The price inferred in this manner would be adjusted through the application of the discount implicit in the process to align the value of the unquoted shares to the quoted ones.
3. Unquoted open-end investment funds: measurement is based on the latest available NAV (Net Asset Value) as provided by Bloomberg or as determined by the fund manager.
4. Derivative financial instruments: �� Interest rate swaps: Plain vanilla interest rate swaps: valued using discounted cash flow techniques, involving the computation of the present value of future differentials between the receiver and payer legs of the swap. The construction of yield curves to estimate future cash flows indexed to market parameters (money market rates and/or inflation) and computation of the present value of future differentials are carried out using techniques commonly used in capital markets. Interest rate swaps with an embedded option: valuation is based on a building block approach, entailing decomposition of a structured position into its basic components: the linear and option components. The linear component is measure using the discounted cash flow techniques described for plain vanilla interest rate swaps above. Using the derivatives held in Poste Italiane’s portfolio as an example, the option component is derived from interest rate or inflation rate risks and is valued using a closed form expression, as with classical option valuation models with underlyings exposed to such risks.
Unquoted closed-end funds: these include funds that invest mainly in unquoted instruments. Their fair value is determined by considering the latest NAV (Net Asset Value), available at least every six months, reported 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 valuation date.
The Poste Italiane Group has not taken advantage of this exemption. In the consolidated financial statements of the Poste Italiane Group and Poste Vita, IFRS 9 has been applied uniformly from 1 January 2018.
�� Amendments to IFRS 15 – Revenue from Contracts with Customers - Clarifications to IFRS 15, adopted with Regulation (EU) 1987/2017. Certain clarifications are introduced regarding the new treatment of revenue and further application relief is provided to entities that adopt the standard on the basis of the modified retrospective method.
�� Amendments to IFRS 4 – Applying IFRS 9 – Financial Instruments with IFRS 4 - Insurance Contracts, adopted with Regulation (EU) 1988/2017. These amendments aim to address the temporary accounting consequences of the different effective dates of IFRS 9 and the new standard for insurance contracts (IFRS 17), replacing IFRS 450 presumably starting from 1 January 202251.
�� Amendments to IAS 40 – Investment Property adopted with Regulation (EU) 400/2018. The amendments introduced clarify when an entity is authorised to change the designation of a property that was not an “investment property” as such and viceversa.
Poste Italiane Financial Statements for the year ended 31 December 2018 2. Basis of preparation and significant accounting policies
Accounting standards and interpretations soon to be effective The following are applicable from 1 January 2019: �� IFRS 16 - Leases, adopted with Regulation (EU) 1986/2017. The new standard intends to improve the accounting treatment of lease contracts, giving a basis for users of financial statements to assess the effect that leases have on the financial position, operating performance and cash flows of an entity. These provisions entail a substantial revision of the current accounting treatment of lease contracts by lessees, introducing for lessors a unified model for the different types of lease (finance and operating). The main provisions for the lessee’s financial statements include: a. for the contracts in scope, the lessee recognises a right-of-use asset in its statement of financial position (in the same way as an owned asset) and a financial liability; b. at the commencement date, the lessee will recognise the asset for an amount equal to the present value of all future lease payments; c. at the end of the reporting periods after the commencement date, and throughout the term of the lease contract, the asset is amortised systematically, while the financial liability increases by the amount of interest accrued, as calculated on the basis of the internal rate indicated in the lease contract; d. when a lease payment is made, the liability is reduced by the amount of the payment.
�� Amendments to IFRS 9 – Financial Instruments – Prepayment Features with Negative Compensation adopted with Regulation (EU) 498/2018. The amendments to this standard aim to clarify the classification of certain financial assets with prepayment features when IFRS 9 applies.
�� Interpretation IFRIC 22 - Foreign Currency Transactions and Advance Consideration, adopted with Regulation (EU) 519/2018. This interpretation clarifies the accounting treatment of transactions involving advance receipts or payments in foreign currency; �� Interpretation IFRIC 23 - Uncertainty over Income Tax Treatments; adopted with Regulation (EU) 1595/201. This interpretation aims to clarify how to reflect uncertainty in accounting for income tax.
IFRS 16 implementation plan At 31 December 2018, the final phase of the plan to implement IFRS 16 in the Poste Italiane Group has been completed, as scheduled. All the transitioning contracts were identified and, from an IT point of view, the map of all contract management and accounting support software was completed, along with the survey and data quality review of the information contained therein. The plan saw also the development of the systems/channels powering the calculation engine of the initial financial liability, the related right of use and the ensuing, recurring movements due to amortisation, borrowing costs, payments and any contractual changes. The accounting approach selected for the treatment of the contracts in scope was designed and has been fully operational since 1 January 2019. Lastly, activities began, and will be completed by the end of the first quarter of 2019, to define the new accounting disclosure on leases and to analyse and upgrade the company processes impacted by the new standard, which in some cases involved the redesign of the obligations and responsibilities involved.
Below, details are provided of the aspects that are most significant or expressly referred to in ESMA’s Public Statement.
IFRS 16 accounting approach The new approach to accounting for contracts falling within the scope of IFRS 16 calls for the following: �� the cost of lease payments is not recognised, with the exception of non-deductible VAT which, in line with the international theories/methods, is not part of the calculation of the items that are relevant under IFRS 16 (financial liability and right of use); �� the origination and repayment of amounts payable to the lessor, including those with an impact on profit or loss, are recognised originally in exclusive IFRS 16 sub-items of the line item “Financial liabilities”.
The approach adopted makes it possible to make appropriate offsetting entries for goods/services rendered, adjustments, invoice reviews etc. without any subsequent reversing entries.
b) not to apply this standard to contracts that were not previously identified as containing a lease, applying IAS 17 and IFRIC 4.
The tables below show the main preliminary effects on the financial position at 1 January 2019 resulting from the application of IFRS 16, for both the Group and the Parent Company, Poste Italiane SpA. However, the figures shown are still being reviewed.
53. A lessee may use one or more of the following practical expedients when applying this standard retrospectively in accordance with paragraph C5(b) to leases previously classified as operating leases applying IAS 17. A lessee is permitted to apply these practical expedients on a lease-by-lease basis: a) a lessee may apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment; b) Omissis; c) Omissis; d) Omissis; e) a lessee may use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease. 54. A lessee may elect not to apply the requirements of the standard to: a) short-term leases; and b) leases for which the underlying asset is of low value (omissis). 55. An entity shall apply this standard to all leases, including leases of right-of-use assets in a sublease, except for: omissis; e) rights held by a lessee under licensing agreements within the scope of IAS 38 - Intangible Assets for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights (para. 3). A lessee may, but is not required to, apply this standard to leases of intangible assets other than those described in paragraph 3 e) (par. 4).
Lastly, the tables below show the reconciliation between the lease commitments at 31 December 2018 (on the basis of IAS 17) and the amount of the lease liability recognised at 1 January 2019 (in accordance with IFRS 16).
Lease liabilities at 31 December 2018 within scope of IFRS 16 770
Lease liabilities at 31 December 2018 within scope of IFRS 16 650
3.1.1 IFRS 9 - Financial Instruments On initial recognition, financial assets and liabilities are classified at fair value based on the business purpose for which they were acquired. The purchase and sale of financial instruments is recognised by category, either on the date on which the Group commits to purchase or sell the asset (the transaction date), or, in the case of insurance transactions and BancoPosta’s operations, at the settlement date56. Any changes in fair value between the transaction date and the settlement date are recognised in the financial statements.
This category includes debt instruments that meet the above characteristics as well as equity instruments that would otherwise be recognised through profit or loss, for which the irrevocable election was made to recognise changes in fair value through OCI (the FVTOCI option). This option entails the recognition of dividends alone through profit or loss.
In determining whether credit risk has increased significantly, it is necessary to compare the risk of default of the financial instrument as at the reporting date with the risk of default of the financial instrument on initial recognition. However, there is a rebuttable default presumption if the financial instrument is more than 90 days past due, unless there is reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. Regarding trade receivables, a simplified approach is applied to measure the expected credit loss, if these receivables do not contain a significant financing component pursuant to IFRS 15. Under the simplified approach, use is made of a provision matrix based on observed historical losses.
The effects of the reclassification are as follows: �� if the financial asset is reclassified from amortised cost to fair value through profit or loss, the fair value of the asset is determined on the reclassification date. Gains and losses resulting from the difference between the previous amortised cost and fair value are recognised through profit or loss; �� if the financial asset is reclassified from fair value through profit or loss to amortised cost, the fair value on the reclassification date becomes the new gross carrying amount; �� if the financial asset is reclassified from amortised cost to fair value through other comprehensive income, the fair value of the asset is determined on the reclassification date. Gains and losses resulting from the difference between the previous amortised cost and fair value are recognised through other comprehensive income. The effective interest rate and the expected credit loss are not adjusted following reclassification; �� if the financial asset is reclassified from fair value through other comprehensive income to amortised cost, the cumulative gain (loss) recognised previously through other comprehensive income is derecognised from equity through an adjustment to the fair value of the financial asset on the reclassification date. Consequently, the financial asset is reported as though it had always been reported at amortised cost, by not changing the effective interest rate and the expected credit loss; �� if the financial asset is reclassified from fair value through profit or loss to fair value through other comprehensive income, the financial asset continues to be measured at fair value; �� if the financial asset is reclassified from fair value through other comprehensive income to fair value through profit or loss, the financial asset continues to be measured at fair value. The cumulative gain (loss) recognised previously through other comprehensive income is recycled to profit or loss on the reclassification date.
When required by the applicable IFRS (e.g. in case of derivative liabilities), or when the irrevocable fair value option is exercised, financial liabilities are recognised at fair value through profit or loss. In this case, changes in fair value attributable to changes in own credit risk are recognised directly in equity, unless this treatment creates or enhances an accounting asymmetry, whilst the residual amount of the changes in the fair value of liabilities is recognised through profit or loss.
Determination of the elements of variable consideration For revenue recognition purposes, IFRS 15 requires recognition of the elements of variable consideration. In particular, revenue incorporates these elements in the transaction price (discounts, rebates, allowances, incentives, penalties and similar).
Below, a description is provided of the estimates adopted by the Poste Italiane Group following application of the new rules under IFRS 9 and determination of the elements of variable consideration introduced by IFRS 15.
In the assessment phase of the project for the adoption of IFRS 9, the Poste Italiane Group - given the prevailing nature of Poste Vita SpA’s business and the stabilising effect of the shadow accounting mechanism - considered that the adoption of IFRS 9 by its insurance subsidiaries, Poste vita SpA and Poste Assicura SpA, would not give rise to significant volatility effects on the income statements, or any mismatches. Accordingly, the Poste Italiane Group decided that it would be fully compliant with IFRS 9 as of 1 January 2018.
�� Hold to Collect & Sell (HTC&S): where the financial asset is held to collect contractual cash flows, in the form of principal and interest, and well as proceeds from its sale; financial instruments that fall into this business model, and that met the SPPI test, are recognised at fair value through other comprehensive income.
�� Other: this is a residual category which includes financial assets with a business model other than the previous ones, including held-for-trading financial assets. Financial instruments that fail to meet the SPPI test, as well as the shares/units of UCITS held by Poste Vita SpA, are recognised at fair value through profit or loss.
Impairment and Stage Allocation Regarding the impairment of financial assets, the Group applies the general impairment model, on the basis of the estimated risk associated with the counterparty. On the other hand, for trade receivables the simplified approach is applied, whereby no determination is made of any significant increase in credit risk but provisions are set aside for lifetime expected credit losses.
A more detailed illustration of credit risk management, and how its practices relate to the estimation and recognition of expected losses on financial instruments, is provided in the paragraph “Credit risk management practices”
Hedge Accounting For hedge accounting transactions, the Poste Italiane Group has elected to use the option made available by IFRS 9 and has retained the accounting treatments provided for by IAS 39.
Significant increase in credit risk Based on the impairment model adopted by the Poste Italiane Group to meet the requirements of IFRS 9, any significant increase in credit risk associated with the financial instruments held, other than trade receivables, is determined on the basis of a change in the relevant credit rating between the time of the initial investment and the reporting date.
This change is set against a threshold value that takes into consideration the following factors: �� the rating of the financial instrument when it is first included in the portfolio; �� the rating of the financial instrument on the reporting date; �� the age of the position within the portfolio; �� an additive factor to mitigate the non-linearity of PD with respect to the rating classes57; �� a judgmental factor that is used only in the event of sudden changes in creditworthiness not yet reflected in internal and external credit ratings58.
Regarding trade receivables, given the adoption of the simplified approach under IFRS 9, expected credit losses are determined throughout the lifetime of the instrument.
Definition of default The Poste Italiane Group defines default on the basis of ad hoc assessments that take into account: �� any payment delays; �� market information, such as an assignment of default rating by rating agencies; �� internal analyses on specific credit exposures.
Forward looking information According to IFRS 9, the ECL calculation must also factor in forward looking components based on broad consensus scenarios.
The Poste Italiane Group incorporates forward looking information directly in the PD estimation. In particular, the internal model adopted allows completion of the input dataset necessary to calculate the PD starting from scenario values referring to a number of the model’s variables. The purpose of this approach is to estimate the variables that have not been assessed by using the historical correlation of the available information59.
Estimation techniques used Since events of default cannot be used, as they are not very frequent, to develop credit scoring models for sovereign and banking counterparties, a shadow rating approach has been adopted.
A key rating agency was selected to construct the target, taking into account both the large number of rated counterparties and the availability of historical data over what was deemed to be an adequate period of time.
The internal model estimate used a definition of default based on the following approach: �� Government financial instruments – payment delays, including also for one day, or debt renegotiation; �� Corporate and Banking financial instruments – 90-day payment delays.
59. The use of this approach is limited to situations in which it is deemed that, effectively, the available data no longer represents the real degree of risk associated with the counterparty.
ECL measurement Expected credit losses (ECL) are determined over a time horizon consistent with the stage level (12 months or lifetime) on the basis of the following factors: �� Probability of Default (PD); �� Loss Given Default (LGD); �� Exposure at Default (EAD); �� Time Factor (TF).
Trade receivables The Group adopts the simplified approach to test for the impairment of trade receivables, on the basis of which provisions for credit losses are determined for an amount equal to expected losses throughout the lifetime of the receivable. This approach is determined through the following process: �� based on total revenue or the historical credit exposure, all receivables or credit exposures exceeding a certain pre-established credit threshold are assessed analytically. This assessment of receivables implies an analysis of the credit quality and the debtor’s solvency, as determined on the basis of internal and external evidence to support the process; �� receivables below the pre-established threshold are evaluated through a provision matrix which shows the different percentages of the total receivable amount to be set aside as estimated on the basis of historical loss data, or on historical collection data. In setting up the provision matrix, receivables are grouped by homogeneous categories, depending on their characteristics, to take into account the historical loss experience.
3.3.2 IFRS 15 - Revenue from contracts with customers The main results of the assessments conducted are described below: �� for the subsidiary, PostePay SpA, it was necessary, pursuant to IFRS 15, to adjust opening equity, in the presence of contracts not completed as of the date of transition and contracts entailing multiple performance obligations for which the revenue recognition rules have been revised; �� there were penalties payable to customers (in the case of failure to achieve certain pre-established levels of service) and provisions involving the refund of fees received in return for the distribution of mortgages and loans where customers opt for early cancellation of the agreement (which to date have been refunded out of provisions for risks and charges). As of 1 January 2018, such fees are deducted directly from revenue; �� the effects of what has been described above generate, at the transition date, a decrease in retained earnings of approximately €1 million.
In addition, first-time adoption of IFRS 15 has resulted in the reclassification of trade receivables totalling approximately €28 million, relating to liabilities arising from contracts with customers that were previously recognised as other liabilities.
Investments accounted for using the equity method 508 - - 508
Liabilities related to assets held for sale - - - -
Total equity and liabilities 202,670 1,564 (15) 204,219 * 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.
Fair value reserve at 31 December 2017 - IAS 39 (AFS) 371
(€m) IAS 39 classification IFRS 39 classification IAS 39 carrying amount IFRS 39 carrying amount
Loans and Receivables Fair value through profit or loss 216 216
Fair value through profit or loss Fair value through profit or loss 2,420 2,420
Fair value through profit or loss FVOCI - Debt securities 3,800 3,800
Structured bonds: Fair value through profit or loss FVOCI - Debt securities 546 546
Reclassifications from AFS to FVTPL i) c (1,719) - - 1,660 59 - 1,719
Reclassifications from HTM to FVTOCI ii) b (9,666) - 9,666 - - - 9,666
Reclassification from FVTPL to FVTOCI iii) a (4,346) - 4,346 - - - 4,346
Balance of financial assets at 1 January 2018 (IFRS 9) 28,420 132,544 27,389 117 5 188,475
ii. Reclassification of held-to-maturity financial assets and loans and receivables to the following IFRS 9 categories: a. Amortised cost, totalling €11,162 million. b. FVTOCI, totalling €9,666 million, resulting in an increase in the fair value reserve of €1,465 million. c. FVTPL, totalling €216 million, including €208 million in receivables arising from capital contributions to mutual funds for which the corresponding shares/units have not yet been issued and an €8 million receivable from Visa Inc. that did not pass the SPPI test.
iii. Reclassification of Financial instruments recognised at fair value through profit or loss to the following IFRS 9 categories: a. FVTOCI, totalling €4,346 million, resulting in a decrease in retained earnings of approximately €3 million and a simultaneous increase in the fair value reserve and deferred liabilities due to policyholders (the latter amounting to approximately €1 million). b. FVTPL, totalling €24,992 million, maintaining the same amount as that under IAS 39.
Effect of adjustments for expected losses (12) - - - -
Exposure to credit risk The following tables provide information on the exposure to credit risk at 1 January 2018.
The analysis shows the exposure for each class of financial assets measured at amortised cost and those measured at fair value through other comprehensive income, for which the general deterioration model was used in stages. The amounts refer to the gross carrying amount and do not take into account guarantees or other instruments hedging credit risk.
Expected credit loss provisions at 1 January 2018 (IFRS 9 compliant) 626
3.4.2 Impact of the adoption of IFRS 9 and IFRS 15 on Poste Italiane SpA’s statement of financial position
Fair value reserve at 31 December 2017 - IAS 39 (AFS) 191
Fair value reserve at 1 January 2018 - IFRS 9 (FVTOCI) 1,564
Classification & Measurement The table below describes the original classification under IAS 39 and the new classification under IFRS 9 for each of Poste Italiane SpA’s financial asset classes at 1 January 2018.
Loans and receivables Fair value through profit or loss 8 8
Loans and receivables Fair value through profit or loss - -
Fair value through profit or loss FVOCI - Debt securities - -
Balance of financial assets at 31 December 2017 (IAS 39) 60,047
Reclassifications from AFS to amortised cost i)a (15,398) 15,398 - - - - 15,398
Reclassifications from AFS to FVTOCI i)b (23,700) - 23,700 - - - 23,700
Reclassifications from AFS to FVTPL i)c (41) - - - 41 - 41
Reclassification from FVTPL to FVTOCI - - - - - - -
Balance of financial assets at 31 December 2017 (IAS 39) 1,197
Reclassifications from AFS to FVTPL - - - - - - -
Effect of adjustment for expected credit losses on instruments designated at amortised cost
Balance of financial assets at 1 January 2018 (IFRS 9) 641 551 - - 5 1,197
ii. Reclassification of held-to-maturity financial assets and loans and receivables to the following IFRS 9 categories: a. Amortised cost, totalling €11,480 million; b. FVTOCI, totalling €9,666 million, generating an increase in the fair value reserve of €1,465 million; c. FVTPL, totalling €8 million, regarding the amount receivable from Visa Inc. that did not pass the SPPI test.
The application of IFRS 9 to trade receivables did not entail any reclassifications. The balance of provisions for doubtful debts was recalculated on the basis of the new impairment model.
POSTE ITALIANE SPA - CREDIT RISK - INTERNAL RATINGS BY BANCOPOSTA RFC
The following tables provide details of the measurement method applied to trade receivables and the reconciliation with the ECL provisions at 1 January 2018.
POSTE ITALIANE SPA - CREDIT RISK - TRADE RECEIVABLES ADJUSTED ON THE BASIS OF THE PROVISION MATRIX
Expected credit loss provisions at 1 January 2018 (IFRS 9 compliant) 519
The transaction envisaged the partial spin-off of management of the assets underlying Poste Vita SpA’s Class I insurance products (totalling over €70 billion), previously attributed to BancoPosta Fondi SpA SGR, to Anima SpA SGR and an extension of the partnership for a further 15 years.
Launch of the process of establishing an electronic money institution within the Group With the aim of more effectively driving growth in the payment services market and strengthening the service offering for retail, business and Public Administration customers, Poste Italiane has combined the Group’s expertise and competencies in the field of mobile and digital payments in one specialist entity. The initiative was implemented via the contribution, to PosteMobile SpA, of BancoPosta RFC’s card payments and payment services business and PosteMobile’s establishment of a separate ring-fenced entity through which it is able to operate as a “hybrid” electronic money institution (“EMI”), whilst also continuing to operate as a mobile virtual network operator. Following the receipt of clearance from the Bank of Italy, the Extraordinary General Meeting of Poste Italiane’s shareholders held on 29 May 2018 approved the proposed removal of the restriction on the rights and obligations of BancoPosta RFC relating to assets, contractual rights and authorisations that make up the card payments and payment services business unit from the ring-fence that applies to BancoPosta RFC. The transaction as a whole was effective from 1 October 2018. From the same date, PosteMobile SpA changed its name to PostePay SpA.
Injection of capital for BancoPosta RFC Following on from the Board of Directors’ resolution of 25 January 2018 and the subsequent Extraordinary General Meeting of Poste Italiane SpA’s shareholders, on 27 September 2018, Poste Italiane injected €210 million of fresh capital of into BancoPosta RFC. The aim of the transaction was to align BancoPosta RFC’s leverage ratio with the target set by the Risk Appetite Framework. At 31 December 2018 the leverage ratio was 3.2%.
The following material events also took place during 2018: �� On 13 February 2018, the deed for the merger of PosteTutela SpA with and into Poste Italiane SpA was executed. The transaction was effective for legal purposes from 1 March 2018, and for accounting and tax purposes from 1 January 2018.
�� On 12 April 2018, Poste Italiane SpA implemented the decision taken by its Board of Directors on 25 January 2018, subscribing for its share of the rights issue carried out by Anima Holding SpA, amounting to a total of approximately €30 million. This has enabled the Company to retain its 10.04% interest in the associate.
The following material events also occurred in 2018: Poste Vita SpA: deferred tax assets on the change in technical provisions 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) provides for a partial exemption (based on a specific percentage deduction) of the positive or negative movement in the obligatory technical provisions relating to the Life business from taxation. In Poste Vita’s case, the percentage deduction is 98.5%.
For each insurance policy, an increase in the related technical provisions is by necessity later followed by a matching reduction and the two movements are subject to the same tax treatment. This means that the partial non-deductibility of the increase in the provisions will always be followed by a later, matching non-taxable reduction. Therefore, in terms of each policy, the difference emerging in a certain reporting period between pre-tax profit and the related tax base is only temporary.
At the end of 2018, the insurance company completed a long-term project designed to enable it to calculate the specific deferred tax asset, on each policy, resulting from the temporary differences arising from application of the above legislation. This was to enable it to trace and monitor the related calculations. On completion of the project, the company was able to recognise deferred tax assets (“DTA”60) for the first time at 31 December 2018, amounting to approximately €385 million (€351 million in non-recurring income for the tax periods from 2010 to 2017). The process was also supported by the opinion issued by a leading independent expert, who confirmed the legitimacy of the recognition of deferred tax assets on the non-deductible movement in technical provisions.
Among the various instruments available to support the Solvency II Ratio, the company opted for so-called ancillary own funds (AOFs), represented by unfunded capital instruments in the form of unsecured guarantees or commitments that may be included in the computation of own funds, following prior authorisation from the supervisory authority. The transaction designed to strengthen the company’s capital position through the use of AOFs was formalised in November 2018 with Poste Italiane’s signature of an unconditional, irrevocable commitment letter with a five-year term. The letter commits the Parent Company, merely at the request of the subsidiary, to subscribe for ordinary shares to be issued in future by Poste Vita, amounting to up to €1,750 million. Following clearance from IVASS, the commitment letter signed by the Parent Company in the subsidiary’s favour can be included in the computation of Tier 2 AOFs, as defined by the Solvency II Directive and the regulatory framework for insurance companies, within the limits represented by the available amount, being approximately €1,000 million at 31 December 2018. This has had a positive impact on the solvency ratio of approximately 24 percentage points.
Poste Italiane SpA: Impairment of the investment in Anima Holding At 31 December 2018, in response to highly volatile movements in Anima Holding SpA’s share price, an impairment test was conducted on the goodwill implicit in the value of the investment. Carried out on the basis of the available projections, the test revealed the need to recognise an impairment loss on the goodwill accounted for at the time
of acquisition of the investment, resulting in the recognition of a loss of €42 million in consolidated profit or loss62
62. Deferred tax assets have not been recognised on the impairment, which has resulted in a permanent difference between statutory pre-tax profit and the tax base.
63. The purchases were made in execution of the shareholder resolution and in compliance with art. 144-bis, paragraph 1, letter B) of CONSOB Regulation 11971/1999 and the applicable provisions, so as to ensure equal treatment for all shareholders pursuant to art. 132 of the Consolidated Law on Finance, and in accordance with the operating procedures established in the organisational and management regulations of Borsa Italiana SpA.
Poste Italiane Financial Statements for the year ended 31 December 2018
Annual Report Poste Italiane Group 2018 5. POSTE ITALIANE GROUP FOR THE YEAR ENDED 31 DECEMBER 2018
Investments accounted for using the equity method [A4] 497 497 508 508
Non-current assets and disposal groups held for sale - - - -
Cost of goods and services [C5] 2,343 206 2,370 195 of which, non-recurring costs/(income) 33 -
Increase/(decrease) in fair value during the year [tab. B4] (1,946) (315)
Increase/(decrease) in fair value during the year [tab. B4] 191 (57)
After-tax increase/(decrease) in reserves related to group of assets and liabilites held for sale [tab. B4] - 2
Reclassifications to/(from) reserves related to disposal groups and liabilites held for sale
Use of provisions for risks and charges [tab. B6] (656) (617)
Impairment losses/(Reversals of impairment losses) on financial assets [tab. C13] 20 94
Movements in working capital: (Increase)/decrease in Inventories [tab. A6] (2) (1)
Movement in group of assets and liabilites held for sale - (12)
Net cash generated by/(used for) financial assets attributable to financial activities, payments, cards and acquiring (2,585) (2,290)
(Increase)/decrease in cash and deposits attributable to BancoPosta [tab. A9] (122) (702)
Disposals: Property, plant and equipment, investment property, intangible assets and assets held for sale 2 5
Net cash flow from/(for) financing activities and shareholder transactions [g] (1,549) (503)
Unrestricted net cash and cash equivalents at end of year 1,639 1,978
Capital expenditure of €260 million in 2018, including €2 million in capitalised costs for self-constructed assets, consists of: �� €31 million relating to extraordinary maintenance of post offices and local head offices around the country (€19 million) and mail sorting offices (€8 million); �� €78 million relating to plant, with the most significant expenditure made by the Parent Company, of which €29 million for plant and equipment related to buildings, €17 million for the purchase of telecommunications infrastructure, €16 million for the purchase of equipment for use in sorting letters and processing parcels and €9 million for the installation of ATMs; �� €31 million to upgrade plant (€21 million) and the structure of properties held under lease (€10 million); �� €69 million relating to “Other assets”, of which €40 million incurred by the Parent Company for the purchase of new computer hardware for post offices and head offices and the consolidation of storage systems and €14 million incurred by PostePay SpA for the purchase of electronic devices to be used in provision of electronic postman services (€10 million) and of “PosteMobile Casa” devices (€4 million); �� €45 million relating to assets under construction, of which €25 million incurred by the Parent Company and including €10 million regards the restyling of post offices and €10 million the renovation of primary distribution centres.
Reclassifications from assets under construction, totalling €33 million, relate primarily to the acquisition cost of assets that became available and ready for use during the year. In particular, this regards the entry into service of hardware held in storage and completion of the process of restyling leased and owned properties.
The balance of reclassifications of property, plant and equipment, totalling €3 million, regards the amended classification of a property owned by the subsidiary, EGI SpA, that is no longer held for sale (A6 – Inventories).
A3 - Intangible assets (€545 million) The following table shows movements in intangible assets in 2018: TAB. A3 - MOVEMENTS IN INTANGIBLE ASSETS
Investment in “Intangible assets” during 2018 amounts to €278 million, of which €15 million relates to internally developed software. Development costs, other than those incurred directly to produce identifiable software used, or intended for use, within the Group, are not capitalised.
The increase in industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights totals €136 million, before amortisation for the period, and relates primarily to the purchase and entry into service of new software programmes and the acquisition of software licences.
During the year the Group effected reclassifications from intangible assets under construction to industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights, amounting to €102 million, reflecting the completion and commissioning of software and the upgrade of existing software.
The recoverable value of the Postel CGU65, identified on the basis of the company’s value in use and determined on the basis of the budget for 2019 and the new Business Plan for 2020-2022, approved by the company’s board of directors on 27 February 2019, was lower than the company’s invested capital (including the related goodwill) by approximately €33 million. Value in use was determined using a WACC of 6.42% (6.12% at 31 December 2017) and a growth rate of 1.66% (1.4% at 31 December 2017).
A4 - Investments accounted for using the equity method (€497 million)
65. Postel SpA qualifies as a single CGU allocated to the Mail, Parcels and Distribution segment.
Investments in joint ventures refer almost entirely to the investment in FSIA Investimenti Srl. The reduction of approximately €6 million is due to a decrease of €11 million following the payment of dividends for 2017 and an increase of €5 million representing the share of profit booked by the investee, after amortisation of the intangible assets identified at the time of the purchase price allocation, between 30 September 2017 and 30 September 2018 (the latest data available).
The value of intangible assets and goodwill allocated to the investment in FSIA Investimenti Srl at the time of the purchase price allocation is shown below: 66. The recoverable value of the investment in Anima Holding, identified on the basis of the latest available projections, was lower than the company’s carrying amount by approximately €42 million. Value in use was determined using a cost of equity (Ke) of 8.51% (7.24% at 31 December 2017) and a growth rate of 1.475% (1.4% at 31 December 2017).
Financial assets at amortised cost 22,965 9,904 32,869 11,708 9,336 21,044
Financial assets at fair value through profit or loss 28,753 1,074 29,827 27,857 1,481 29,338
Financial assets at fair value through profit or loss 50 8 58 - - -
Financial assets at amortised cost 38 52 90 33 241 274
Movements in financial assets measured at amortised cost, including the impact of first-time adoption of the new IFRS 9, are shown below: 67. 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.
Changes in fair value through profit or loss - 342 342
* The item, “Changes in cash flow hedge transactions”, relates to the purchase of forward contracts in relation to cash flow hedge transactions and reflects changes in the fair value of these forward contracts between the date of purchase and the settlement date, with a matching entry in equity, in the cash flow hedge reserve.
This item breaks down as follows: TAB. A5.1.1 - LOANS AND RECEIVABLES AT AMORTISED COST
Loans refer to outstanding repurchase agreements with a total nominal value of €254 million, entered into with Cassa di Compensazione e Garanzia SpA (the Central Counterparty)67.
�� Other financial receivables include: (i) guarantee deposits of €1,652 million, including €1,332 million provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes), €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)69; (ii) amounts to be charged to customers using debit cards issued by BancoPosta, totalling €131 million.
These are Eurozone fixed income instruments held by BancoPosta RFC, consisting of government securities issued by the Italian government and securities guaranteed by the Italian government with 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).
At 31 December 2018, the fair value70 of these instruments is €21,189 million.
Changes in fair value through profit or loss for 2018 reflect a gain of €342 million, reflecting the impact of fair value hedges.
Movements in financial assets at fair value through other comprehensive income (FVTOCI), including the impact of first-time adoption of the new IFRS 9, are shown below: TAB. A5.2 - MOVEMENTS IN FINANCIAL ASSETS AT FVTOCI
Changes in fair value through profit or loss 325 - 325
These are Eurozone fixed income instruments held primarily by BancoPosta RFC, consisting of government securities issued by the Italian government with a nominal value of €30,260 million.
Fair value hedges recorded a net fair value loss on the effective portion of €669 million, whilst the hedged securities recorded a net fair value gain of €667 million, with the difference of €2 million due to paid differentials.
In addition, the Parent Company has entered into forward purchases and spot sales with a total nominal value of €852 million (recognised at fair value through profit or loss), with the aim of fixing the return, for the current year, on public customers’ current account deposits held at the parent, the MEF, and earning a variable rate of return (tab. A5.1.1). These transactions had a positive impact of €2 million on profit or loss for the year.
Movements in financial assets at amortised cost, including the impact of first-time adoption of the new IFRS 9, are shown below: 72. In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, €1,317 million of the total amount qualifies for inclusion in level 1 and €261 million for inclusion in level 2.
Financial receivables of €38 million include accrued interest of €20 million yet to be collected at 31 December 2018 and €12 million in amounts due for units of investment funds sold but not yet collected.
Fixed income instruments at amortised cost at 31 December 2018 have a carrying amount of €1,467 million. These instruments exclusively regard the free capital of Poste Vita SpA and Poste Assicura SpA. At 31 December 2018, the fair value72 of these instruments is €1,578 million.
Movements in financial assets at fair value through other comprehensive income (FVTOCI), including the impact of first-time adoption of the new IFRS 9, are shown below: TAB. A5.6 - MOVEMENTS IN FINANCIAL ASSETS AT FVTOCI
Fair value gains and losses through equity (4,549) (21) - (4,570)
Sales, redemptions and settlement of accrued income (13,801) - - (13,801)
Following the introduction of IFRS 9, this investment is adjusted for impairment through the relevant equity reserve, with a matching entry in profit or loss. Accumulated impairments at 31 December 2018 amount to €0.3 million, transferred in full to policyholders.
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: TAB. A5.7 - MOVEMENTS IN FINANCIAL ASSETS AT FVTPL
(€m) Receivables Fixed income instruments Other instruments Equity instruments Other instruments Total
First-time adoption of IFRS 9 208 (3,492) 806 17 - (2,461)
Effects of sales on profit or loss - (28) (6) 1 - (33)
At 31 December 2018, units of mutual investment funds amounting to €27,952 million include €26,601 million to cover Class I products and €1,345 million to cover Class III products. The remaining €5 million regards investment of the company’s free capital (see note 13 – Additional information - Unconsolidated structured entities). Net investment in funds during the period amounts €5,462 million, with fair value losses amounting to approximately €1,371 million, transferred in full to Class I policyholders under the shadow accounting method. At 31 December 2018, the investments primarily regard equity funds, totalling €26,290 million, units in real estate funds, totalling €1,047 million, and funds that primarily invest in bonds, totalling €614 million.
Equity instruments amount to €166 million. These are investments cover the contractual obligations arising on Class I products linked to separately managed accounts and Class III policies. The increase over the period reflects the combined effect of net investments of approximately €115 million, the proceeds from sales of approximately €1 million and a fair value loss of approximately €25 million.
At 31 December 2018, outstanding instruments primarily regard warrants executed by Poste Vita SpA to cover contractual obligations deriving from Class III policies with a fair value of €45 million and a notional amount of €797 million. The reduction in value in 2018 totalling €139 million reflects redemptions and sales (€119 million) and the change in fair value (€20 million). Details of the Group’s warrants are as follows.
In addition, at 31 December 2018, Poste Vita reports outstanding forward sales with a nominal value of €3 million and a negligible fair value.
Due from the purchasers of service accommodation 5 2 7 5 2 7
Guarantee deposits relate to collateral provided to counterparties with whom the Company has entered into interest rate swaps.
Financial assets at fair value through other comprehensive income 73. 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.
Changes in fair value through profit or loss (8) - (8)
Following the introduction of IFRS 9, fixed income instruments recognised at FVTOCI are adjusted to take into account the related impairments. Accumulated impairments at 31 December 2018 amount to approximately €0.2 million (unchanged compared with 1 January 2018).
At 31 December 2018, derivative financial instruments include: �� a swap contract entered into in 2013 to hedge the cash flows of a €50 million bond issued on 25 October 2013 (note B.8 – Financial liabilities). With this transaction, the Parent Company took on the obligation to pay a fixed rate of 4.035% and sold the variable rate of the bond which, at 31 December 2018, is 1.945%; �� nine asset swaps used as fair value hedges in 2010 to protect the value of BTPs with a nominal value of €375 million against movements in interest rates. These instruments have enabled the Parent Company to sell the fixed rate on the BTPs of 3.75% and purchase a variable rate.
Financial assets at amortised cost refer solely to financial receivables due to the ring-fenced EMI, amounting to €53 million.
Transfers between levels 1 and 2, relating entirely to the Poste Vita insurance group and assessed with reference to the levels in the fair value hierarchy at 1 January 2018 (the date of transition to the new accounting standard, IFRS 9 – Financial Instruments), are shown below: NET TRANSFERS BETWEEN LEVEL 1 AND 2 AT 30 JUNE 2018 (€M)
Reclassifications from level 1 to level 2 regard financial instruments whose value, at 31 December 2018, is not observable in a liquid and active market, as defined in the Group’s Fair Value Policy. Reclassifications from level 2 to level 1, on the other hand, regard financial instruments whose value, at 31 December 2018, is observable in a liquid and active market.
This item refers entirely to properties held for sale, which include the portion of EGI SpA’s real estate portfolio to be sold, whose fair value75 at 31 December 2018 amounts to approximately €281 million.
Parcel express courier and express parcel services - 352 352 - 259 259
Unfranked mail delivered and other value added services 18 252 270 20 254 274
Amounts due for other BancoPosta services - 83 83 - 87 87
Specifically76: �� Amounts due from ministries and Public Administration entities refer mainly to the following services: – Integrated Notification and mailroom services, amounting to €246 million, rendered to central and local government entities; – Compensation for the discounts applied to publishers, due from the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office – Publishing department), amounting to €104 million, of which €62 million accruing during the year. These receivables are shown gross of collection of the amount of €72 million in subsidies for 2017 and the first half of 2018, which was deposited by the Cabinet Office in a non-interest bearing escrow account with the Italian Treasury and, for this reason, accounted for in “Prepayments received”. Release of the amount deposited and extinguishment of the receivables in question are awaiting approval from the European Commission.
�� Amounts due from Cassa depositi e prestiti refer to fees and commissions for BancoPosta’s deposit-taking activities during 2018.
�� Receivables arising from unfranked mail delivered and other value added services refer to bulk mail services and other added value services.
Receivables due form the MEF This item relates to trade receivables due to the Parent Company from the Ministry of the Economy and Finance.
77. See “Revenue and receivables due from the State”, item (vi), showing overall amounts due from the Ministry for Economic Development (€78 million), including amounts due for postal and other residual services, amounting to €2 million.
Specifically: �� Universal Service compensation includes: TAB. A7.2.1 - UNIVERSAL SERVICE COMPENSATION RECEIVABLE
With reference to the amount receivable for 2012, AGCom has recognised a net cost incurred by the Company of €327 million, compared with compensation of €350 million originally recognised. Provision has not been made in the state budget for the remaining €23 million. The Company appealed AGCom’s decision
79. Introduced by article 19 of Law Decree 201/2011, converted as amended by Law 214/2011, in accordance with the MEF Decree dated 24 May 2012: Manner of implementation of paragraphs from 1 to 3 of article 19 of Law Decree 201 of 6 December 2011, on stamp duty on current accounts and financial products (Official Gazette 127 of 1 June 2012).
Note Non-current assets Current assets Total Non-current assets Current assets Total
Provisions for doubtful debts due from others - (96) (96) - (72) (72)
�� 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. 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 that cannot be drawn on due to court rulings include €65 million in amounts seized and not assigned to creditors, in the process of recovery, and €13 million in amounts stolen from the Parent Company in December 2007 as a result of an attempted fraud and that have remained on deposit with an overseas bank. The latter sum may only be recovered once the legal formalities are completed. The risks associated with collection of these items are taken into account in the provisions for doubtful debts due from others.
able to the Parent Company. Recovery of the amount in question has resulted in a dispute, the outcome of which is subject to uncertainty. With regard to the remaining overall tax credit, amounting to €55 million (i.e. including current tax assets and related interest), information is provided in note 2.5– Use of estimates.
A9 - Cash and deposits attributable to bancoposta (€3,318 million) TAB. A9 - CASH AND DEPOSITS ATTRIBUTABLE TO BANCOPOSTA
A10 - Cash and cash equivalents (€3,195 million) TAB. A10 - CASH AND CASH EQUIVALENTS
B1 - Share capital (€8,105 million) The following table shows a reconciliation of the Parent Company’s equity and net profit/(loss) for the year with the consolidated amounts: TAB. B1 - RECONCILIATION OF EQUITY
- Elimination of adjustments to value of consolidated companies 551 - 123 428 - 428 - Amortisation until 1 January 2004/Impairment of goodwill (156) - (17) (139) - (139)
- Impairments of disposal groups held for sale (40) - - (40) - (40)
Equity attributable to owners of the Parent 8,105 (2,060) 1,399 8,766 1,216 7,550 - Non-controlling interests (excluding net profit/(loss)) - - - - - - - Net profit/(loss) attributable to non-controlling interests - - - - - -
Equity attributable to non-controlling interests - - - - - -
B3 - Shareholders transactions As resolved at the General Meeting of shareholders held on 29 May 2018, on 20 June 2018 the Parent Company paid dividends totalling €549 million, based on a dividend per share of €0.42).
Tax effect of changes in fair value - - 556 (55) - 501
Transfers to profit or loss - - (396) 19 - (376)
Attribution of net profit for 2017 - - - - - -
B5 - Technical provisions for insurance business (€125,149 million) These provisions refer to the contractual obligations of the subsidiaries, Poste Vita SpA and Poste Assicura SpA, in respect of their policyholders, inclusive of deferred liabilities resulting from application of the shadow accounting method, as follows: TAB. B5 - TECHNICAL PROVISIONS FOR INSURANCE BUSINESS
B6 - Provisions for risks and charges (€1,519 million) Movements in provisions for risks and charges are as follows: TAB. B6 - MOVEMENTS IN PROVISIONS FOR RISKS AND CHARGES FOR THE YEAR ENDED 31 DECEMBER 2018
Provisions for disputes with third parties 369 46 1 (39) (42) 335
Provisions for disputes with staff* 77 9 - (3) (18) 65
Provisions for taxation/social security contributions 14 4 - - - 18
Other provisions for risks and charges 102 16 - (5) (7) 106
Overall analysis of provisions: * Net provisions for personnel expenses amount to €2 million. Service costs (legal assistance) amount to €4 million.
Specifically: �� Provisions for operational risk primarily relate to operational risks arising from BancoPosta’s operations. The provisions primarily regard liabilities linked to disputes with customers regarding certain investment instruments and products sold in the past and whose performance is not in line expectations, liabilities deriving from the provision of delegated services for social security agencies, compensation and adjustments to income for previous years, the settlement of items deriving from the reconstruction of operating items at the date of the Company’s establishment, risks linked to errors in the distribution of postal products issued in previous years, violations of an administrative nature, likely frauds and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee -defendant. Provisions for the year, totalling €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 Parent 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 €94 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 from the Parent Company. 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 Parent 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 third parties regard the present value of expected liabilities deriving from different types of legal and out-of-court disputes with suppliers and third parties, the related legal expenses, and penalties and indemnities payable to customers. Provisions for the year of €46 million reflect the estimated value of new liabilities measured on the basis of expected outcomes. The reduction of €39 million relates to the reversal of liabilities recognised in the past, whilst a reduction of €42 million regards liabilities settled.
�� Provisions for disputes with staff regard liabilities that may arise following labour litigation and disputes of various types. Net releases 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 has introduced a cap on current and future compensation payable to an employee in the event of “court-imposed conversion” of a fixed-term contract.
�� Provisions for 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 the estimated amount of new liabilities (€76 million) and decreased as a result of past liabilities that failed to materialise (€31 million) and settled disputes (€53 million).
�� Provisions for expired and statute barred Postal Certificates were made to cover the cost of redeeming certificates relating to specific issues, even if expired80. These provisions were released to profit or loss during the year, given that the obligation previously assumed by the Parent Company has expired.
80. Provisions for expired and statute barred Postal Certificates were made in 1998 to cover the cost of redeeming certificates relating to specific issues, the value of which was recognised in revenue in profit or loss in the years in which the certificates became invalid. The provisions were made in response to the Parent Company’s decision to redeem such certificates even if expired.
Actuarial gains and losses are generated by the following factors: TAB. B7.3 - ACTUARIAL (GAINS)/LOSSES
MEF account, held at the Treasury - 3,649 3,649 - 3,483 3,483
Payables deriving from postal current accounts Payables deriving from postal current accounts represent BancoPosta’s direct deposits, and include interest accrued at 31 December 2018, which was settled with customers in January 2019.
Bonds consist of the following: �� bonds recognised at an amortised cost of €50 million issued by Poste Italiane under the EMTN – Euro Medium Term Note programme of €2 billion listed by the Company in 2013 on the Luxembourg Stock Exchange. These bonds were issued through a private placement on 25 October 2013; the term to maturity of the loan is ten years and the interest rate is 3.5% for the first two years and variable thereafter (EUR Constant Maturity Swap rate plus 0.955%, with a cap of 6% and a floor of 0%). The interest rate risk exposure was hedged as described in note A5 – Financial assets; the fair value81 of this borrowing at 31 December 2018 is €50 million.
�� Subordinated bonds82 with a nominal value of €750 million and accounted for at their amortised cost of €762 million, issued at a below par price of 99.597 by Poste Vita SpA on 30 May 2014 and listed on the Luxembourg Stock Exchange. The bonds have a term to maturity of five years and pay annual coupon interest at a fixed rate of 2.875%. The fair value83 of this borrowing at of this borrowing at 31 December 2018 is €770 million.
Borrowings from financial institutions 81. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2. 82. The bondholders rank below customers holding the company’s insurance policies. 83. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1. 84. A commitment given to creditors by which a borrower undertakes not to give senior security to other lenders ranking pari status with existing creditors, unless the same degree of protection is also offered to them.
85. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2. 86. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
The fair value86 of the EIB loan amounts to €200 million.
At 31 December 2018, the following credit facilities are available: �� committed lines of €1,923 million; �� uncommitted credit facilities of €1,724 million, including €959 million in lines of credit, €160 million in overdraft facilities and €605 million in the form of personal guarantee facilities; �� overdraft facilities of €167 million; �� unsecured guarantee facilities with a value of €714 million (with €605 million available to the Parent Company), of which guarantees with a value of €283 million have been used in favour of third parties.
At 31 December 2018, the committed and uncommitted lines of credit have not been used. No collateral has been provided to secure the lines of credit obtained.
Derivative financial instruments Movements in derivative financial instruments during 2018 are described in note A5 – Financial assets.
Tax collection and road tax - 19 19 - 145 145
Amounts to be credited to customers - 220 220 - 88 88
Payables for items in process - 85 85 - 190 190
Following the Parent Company’s contribution, on 1 October 2018, of the card payments and payment services unit, liabilities relating to prepaid cards refer to the subsidiary, PostePay SpA.
Borrowings from financial institutions * The total amount of €4,684 million is included in the cash flow from/(for) operating activities, the balance of which in the statement of cash flows amounts to €2,597 million and regards borrowings and other financial liabilities not attributable to financing activities.
Overseas counterparties* 110 108 * The amount due to overseas counterparties relates to fees payable to overseas postal operators and companies in return for postal and telegraphic services received.
Prepayments and advances from customers relate to amounts received from customers as prepayment for the following services to be rendered: TAB. B9.2.1 -PREPAYMENTS AND ADVANCES FROM CUSTOMERS
Other contract liabilities primarily regard Postamat and “Postepay Evolution” card fees collected in advance.
The reduction in Other amounts due to staff reflects one-off payments made to staff following renewal of the national collective labour agreement.
Tax due on insurance provisions - 518 518 - 489 489
Withholding tax on postal current accounts - 3 3 - 1 1
Sundry payables attributable to BancoPosta 75 6 81 75 8 83
Deferred income 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.
Revenue from contracts with customers Item (€m) Note For the year ended 31 December 2018 For the year ended 31 December 2017
Revenue from Mail, Parcels and other [C1] 3,579 3,631 of which Revenue from contracts with customers 3,504 recognised at a point in time 605 recognised over time 2,899
Movement in technical provisions for insurance business and other claims expenses (17,111) (22,335)
of which Revenue from contracts with customers 10 recognised at a point in time recognised over time 10
�� Revenue from payment services, mobile and digital refers to: – mobile and fixed line telecommunications services, including: revenue from “standard telecommunications offerings” recognised over time using the output method and based on the traffic offered (voice, text and data) to the customer (€183.5 million); revenue generated by the fixed line “PosteMobile Casa” offering, recognised over time using the output method and based on the fee charged to the customer (€15.3 million); revenue in the form of SIM activation fees recognised at a point in time when the SIM card is handed over to the customer (€7.4 million). Within the Poste Italiane Group, the only mobile and fixed line telecommunications contracts used are in the form of bundles combining two performance obligations to which the implicit discount is allocated on the basis of the related fair value. The revenue from this type of offer, however, is not significant in terms of total revenue from payments, mobile and digital.
– card payments, relating primarily to the cards issued by Postepay (recognised at a point in time when issued) and the services linked to them (recognised over time as the service is used by the customer).
Automated franking by third parties and at post offices 677 731
Publisher tariff subsidies87 relate to the amount receivable by Poste Italiane from the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office - Publishing department) as compensation for the discounts applied to publishers and non-profit organisations when sending mail. The compensation is determined on the basis of the tariffs set in the decree issued by the Ministry for Economic Development, in agreement with the Ministry of the Economy and Finance, on 21 October 2010 and Law Decree 63 of 18 May 2012, as converted into Law 103 of 16 July 2012. In this regard, provision has been made in the state budget for 2018, to cover the discounts applied by the Company in the period under review, but the subsidies are subject to the approval of the European Commission.
C2 - Revenue from payment services, mobile and digital (€628 million) This item breaks down as follows: TAB. C2 - REVENUE FROM PAYMENTS, MOBILE & DIGITAL
This item primarily regards revenue from the mobile telecommunications services provided by PostePay SpA and revenue from card payments and payment services generated by the Parent Company in the first nine months of 2018 and by the EMI in the last quarter of 2018.
Other operating income includes non-recurring income of €120 million resulting from the sale to Anima Holding SpA of shares in Anima SGR, as described in more detail in note 4.1.
Remuneration of current account deposits (deposited with the MEF) 63 27
Income from insurance activities is as follows: TAB. C4.2 - INCOME FROM INSURANCE ACTIVITIES
Movement in technical provisions where investment risk is transferred to policyholders (878) (3,370)
Total movement in technical provisions for insurance business and other claims expenses: Non-life 35 29
cases of force majeure. The Parent Company has the right to withdraw from the contract at any time, giving six months’ notice, in accordance with the standard lease contract.
Change in inventories of raw, ancillary and consumable materials [tab. A6] 1 (2)
Portion of interest expense on own liquidity (finance costs) - (1)
C7 - Personnel expenses (€6,137 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. C7 - PERSONNEL EXPENSES
Net provisions for disputes with staff and provisions for restructuring charges are described in note B6 – Provisions for risks and charges.
C8 - Depreciation, amortisation and impairments (€570 million) Depreciation, amortisation and impairments break down as follows: TAB. C8 - DEPRECIATION, AMORTISATION AND IMPAIRMENTS
Net provisions for risks and charges made/(released) 81 227 for disputes with third parties [tab. B6] 7 37 for non-recurring charges [tab. B6] 78 170 for statute-barred postal savings certificates [tab. B6] (15) for other risks and charges [tab. B6] 11 20
Municipal property tax, urban waste tax and other taxes and duties 70 69
C11 - Impairment losses/(reversals of impairment losses) on debt instruments, receivables and other assets (€47 million)
Provisions (reversal of provisions) for receivables due from customers 23 40
For the purposes of reconciliation with the statement of cash flows, in 2018 finance income after realised gains and foreign exchange gains amounts to €95 million (€94 million in 2017).
Finance costs on financial liabilities 38 51 on borrowings from financial institutions 1 1 on derivative financial instruments 1 1
C14 - Income tax expense (€91 million) This item breaks down as follows: TAB. C14 - INCOME TAX EXPENSE
Assessment of deferred tax assets on non-deductible change in technical provisions (351) -23.53% - 0.00%
Net provisions for risks and charges and bad debts 4 0.25% 5 0.48%
Effects of first-time adoption of IFRS 9 and IFRS 15 5 - 5 payments on account for the current year 218 77 295 balance payable for the previous year 13 11 24
�� the substitute tax of €32 million paid by the Parent Company in order to obtain 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 (as described in more detail in note A4 – Investments accounted for using the equity method). By paying this substitute tax, the Parent Company can 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; �� the IRAP credit of €9 million to be recovered on the unreported deduction of expenses for disabled personnel in 2003, identified in 2017 following the ruling handed down by the Lazio Regional Tax Tribunal, which upheld the appeal previously submitted by the Company (see also the information in note 2.5 – Use of estimates); �� the remaining IRES credit of €8 million to be recovered on the unreported partial deduction of IRAP paid from IRES, which is the subject of claims submitted in accordance with art. 6 of Law Decree 185 of 29 November 2008 and art. 2 of Law Decree 201 of 6 December 2011 (further information on amounts receivable in relation to interest due on the refund is provided in note A8).
Effects of first-time adoption of IFRS 9 and IFRS 15 (483) -
Effects of first-time adoption of IFRS 9 and IFRS 15 331 - 331
The Payments, Mobile and Digital segment includes the activities carried out until 30 September 2018 by the relevant function within the Parent Company and for the remaining 3 months by PostePay SpA, as well as mobile telecommunications services.
Insurance Services segment includes the activities carried out by the Poste Vita group.
Net intersegment revenue from ordinary activities 4,632 338 909 1 (5,880) -
Profit/(Loss) on investments accounted for using the equity method (2) 7 12 - - 17
Investments accounted for using equity method 3 286 219 - - 508
Disclosures about geographical segments, based on the geographical areas in which the various Group companies are based or the location of its customers, is of no material significance. At 31 December 2018, all entities consolidated on a line-byline basis are based in Italy, as is the majority of their client base; revenue from foreign clients does not represent a significant percentage of total revenue.
IMPACT OF RELATED PARTY TRANSACTIONS ON THE FINANCIAL POSITION AT 31 DECEMBER 2018
Insurance Services after movements in technical provisions and other claims expenses
The nature of the Parent Company’s principal transactions with related parties external to the Group is summarised below in order of relevance.
�� 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.
Liabilities related to assets held for sale - - n/a - - n/a
Revenue from Mail, Parcels & other 3,579 490 13.7 3,631 513 14.1
Cost of goods and services 2,343 206 8.8 2,370 195 8.2
Cash flow from/(for) operating activities 2,597 (1,484) n/a (709) 241 n/a
Item (€000) Year ended 31 December 2018 Year ended 31 December 2017
Name (€000) Year ended 31 December 2018 Year ended 31 December 2017
Assets (€) Note 2018 of which, related party transactions 2017 of which, related party transactions
Cash and deposits attributable to BancoPosta [A9] 3,318,398,871 - 3,196,090,710 -
of which, related party transactions 2017 of which, related party transactions
Other income from financial activities [C2] 418,410,968 - 645,722,411 of which non-recurring income - - 91,265,681 of which non-recurring income 116,400,000 - 13,724,680 -
Increase/(decrease) in fair value during the year [tab. B3] (1,897,523,762) (313,350,744)
Actuarial gains/(losses) on provisions for employee termination benefits [tab. B5] 16,402,715 (1,605,572)
Balance at 1 January 2018 including IFRS 9 and IFRS 15 effects of which attributable to BancoPosta RFC
Use of provisions for risks and charges [tab. B4] (669,368) (607,140)
Cash generated by operating activities before movements in working capital [a] 794,024 929,522
Cash generated by/(used in) movements in working capital [b] 351,296 147,613
(Income)/Expenses and other non-cash components attributable to financial activities (1,063,845) (1,404,203)
Net cash flow from/(for) financing activities and shareholder transactions [f] (1,486,765) (501,286)
Cash and cash equivalents at end of year [tab. A10] 2,127,300 2,038,504
Amounts that cannot be drawn on due to court rulings (17,910) (14,782)
The separation of BancoPosta from Poste Italiane SpA is only partly comparable to other ring-fenced capital solutions. Indeed, BancoPosta is not expected to meet the requirements of articles 2447 bis et seq. of the Italian Civil Code or for other special purpose entities, in that it has not been established for a single specific business but rather, pursuant to Presidential Decree 144 of 14 March 2001, for several types of financial activities to be regularly carried out for an unlimited period of time. For this reason, the above legislation does not impose the 10% limit on BancoPosta’s equity, waiving the provisions of the Italian Civil Code unless expressly cited as applicable.
liabilities and contractual rights attributable to the card payments and payment services business unit from the ring-fence that applies to BancoPosta RFC. From 1 October 2018, Poste Mobile assumed its new name of “PostePay SpA” and began operating as an intermediary specialising in mobile and digital payments90.
BancoPosta RFC’s operations BancoPosta RFC’s operations consist of the investment of cash held in postal current accounts, in the name of BancoPosta but subject to statutory restrictions, and the management of third parties’ collections and remittances. This latter activity includes the collection of postal savings (Postal Savings Books and Interest-bearing Postal Certificates), carried out on behalf of Cassa depositi e prestiti and the MEF, and services delegated by Public Administration entities. These transactions involve the use of cash advances from the Italian Treasury and the recognition of financial items awaiting settlement. The specific agreement with the MEF requires BancoPosta to provide daily statements of all cash flows, with a delay of two bank working days with respect to the transaction date.
90. The business unit consists of assets and contractual rights linked to: • Own products: prepaid cards (card payments), payment services, acquiring services, tax payments using forms F23/F24 and international money transfers
(Moneygram) forming part of the operations carried out independently by the EMI. In particular, these products are issued by the EMI, which is responsible for their conception, development and management, whilst BancoPosta RFC acts as distributor of the products through the Group’s physical distribution network.
• Products handled under service agreements: payment products and services and money transfers carried out exclusively within the scope of BancoPosta RFC’s operations, as they are “reserved to” the ring-fence by Presidential Decree 144/01. In particular, with the aim of leveraging the infrastructure of the newly created hybrid EMI, BancoPosta has outsourced operations relating to payment products and services issued by BancoPosta, and distributed by BancoPosta through Poste Italiane’s physical network, to the EMI under an outsourcing agreement between BancoPosta and the EMI.
92. The rate applied in overnight lending and calculated as the weighted average of overnight rates for transactions on the interbank market reported to ECB by a panel of banks operating in the euro zone (the biggest banks in all the euro zone countries).
In compliance with the Circular, the General Guidelines approved by the Board of Directors93 these services are in turn classified as essential and non-essential control and operating functions.
BancoPosta RFC may therefore both outsource operating activities, entering into agreements with third parties, and contract out certain operating or control activities to Poste Italiane functions, agreeing “Specific Operating Guidelines” with the heads of the various functions. The Operating Guidelines establish, among other things, the applicable levels of service and transfer prices and are effective following an authorisation process involving the relevant functions, the Chief Executive Officer and, where required, the Company’s Board of Directors. The transfer prices set out in the Operating Guidelines are determined according to objective criteria that reflect the real contribution of the various functions to BancoPosta RFC’s results. In this regard, the transfer prices paid, inclusive of commissions and any other form of remuneration due, are determined on the basis of market prices and tariffs for the same or similar services, identified, where possible, following a benchmarking process. When the specifics and/or the particular nature of a service provided by one of the Issuer’s functions do not allow the use of a comparable market price, a cost-based method is used, again with the support of benchmarking to ensure that the price charged is adequate for the service provided. The prices set in each Operating Guidelines can be reduced in the presence of operating losses of the activities outsourced or in case of penalties due to the failure to achieve pre-established service levels, as measured by specific performance indicators. The Operating Guidelines for 2017-2018, which were due to expire originally on 31 December 2018, have been amended and updated following organisational changes and the corporate actions carried out in 2018 that entailed a significant impact on BancoPosta RFC in terms of reassessment of the scope of its activities. The new Operating Guidelines took effect on 1 October 2018 and will expire on 31 December 2020.
Information Technology Fixed component: recharge of costs based on direct and indirect drivers Variable component: determined with reference to the maintenance of operating performance
Fees by professional role based on market benchmarks + recharge of external costs
The relevant transactions, profit and loss and balance sheet amounts, generated by these relationships are only recorded in BancoPosta RFC’s Separate Report. In Poste Italiane SpA’s comprehensive accounts intersegment transactions are on the other hand eliminated, and are not presented. The accounting treatment adopted is similar to that provided for by the accounting standards regulating the preparation of the Group’s consolidated financial statements.
94. Actuarial gains and losses on defined benefit plans, which in the Company’s financial statements are accounted for in retained earnings, are accounted for in the valuation reserves in the Separate Report (Item 110 of Liabilities).
Further regulatory aspects Pursuant to art. 2, paragraph 17-undecies of Law Decree 225 of 29 December 201095, which states that “the assets and contractual rights included in BancoPosta’s ring-fenced capital shall be shown separately in the Company’s statement of financial position”, Poste Italiane SpA’s statement of financial position includes a “Supplementary statement showing BancoPosta RFC”.
The main movements during 2018 are described below: �� €29 million relating to extraordinary maintenance of post offices and local head offices around the country (€19 million) and mail sorting offices (€8 million); �� €75 million relating to plant, of which €29 million for plant and equipment related to buildings, €17 million for the purchase of telecommunications infrastructure, €16 million di euro for the purchase of equipment for use in sorting letters and processing parcels, €9 million for the installation of ATMs (automated teller machine) and €4 million for the installation and extraordinary maintenance of video surveillance systems; �� €32 million invested in the upgrade of plant (€21 million) and the structure (€11 million) of properties held under lease; �� €48 million relating to “Other assets”, including €40 million for the purchase of new computer hardware for post offices and head offices and the consolidation of storage systems; Annual Report Poste Italiane Group 2018
Reclassifications from assets under construction, totalling €29 million, relate primarily to the acquisition cost of assets that became available and ready for use during the year. In particular, these assets regard the rollout of hardware held in storage and completion of the process of restyling leased and owned properties.
A3 - Intangible assets (€448 million) The following table shows movements in intangible assets: 96. 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.
Investment in Intangible assets during 2018 amounts to €242 million, including € 12 million in internal software development costs and the related expenses, primarily relating to personnel expenses (€11 million). Research and development costs, other than those incurred directly to produce identifiable software used, or intended for use, within the Company, are not capitalised.
Purchases of intangible assets under construction refer mainly to activities for the development of software for infrastructure platforms and for BancoPosta services.
During the year the Company effected reclassifications from “Intangible assets under construction” to “Industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights”, amounting to €96 million, reflecting the completion and commissioning of software and the upgrade of existing software.
A4 - Investments (€2,198 million) This item includes the following: TAB. A4 - INVESTMENTS
�� The injection of capital amounting to €7 million into Mistral Air Srl to cover the losses incurred by the subsidiary through to 31 December 2017 and to establish an extraordinary reserve, as approved by the extraordinary general meeting of the investee company’s shareholders on 12 April 2018, partly via the use of other provisions for risks and charges made in 2017 (€2 million).
�� Completion, on 1 November 2018, following the receipt of clearance from the Bank of Italy, of the partial spin-off of BancoPosta Fondi SpA SGR to Anima SGR and the sale to Anima Holding SpA of shares in Anima SGR issued to Poste Italiane SpA. This transaction generated a net gain of €116 million, recognised as a non-recurring realised gain and accounted for in “Other operating income”.
The impairment tests required by the related accounting standards have been conducted in order to identify any evidence of impairment. Based on the available projections and the results of the impairment tests carried out97, impairment losses totalling €121 million98. In particular: �� in the case of EGI SpA, an impairment loss of €2 million was recognised, based on the value of equity adjusted for unrealised after-tax gains on the property it owns as the best approximation of value in use, prudently deemed to be a valid indicator of the company’s recoverable value; �� in the case of the investments in Mistral Air Srl and SDA Express Courier SpA, on which impairment losses totalling €49 million have been recognised, equity was sued as the closest approximation to value in use, which, under the circumstances, was deemed not to be lower than the companies’ recoverable values; �� in the case of the subsidiary, Postel SpA, based on its budget for 2019 and the new business plan for the period 2020-2022, approved by the company’s board of directors on 27 February 2019, the carrying amount of the investment was higher than the company’s equity value and an impairment loss of €43 million has been recognised; �� in the case of the associate, Anima Holding SpA, the recoverable value of the investment, identified on the basis of value in use and determined on the basis of the latest available projections, was lower than the carrying amount and an impairment loss of €27 million has been recognised99.
97. The method applied and the criteria used in conducting impairment tests at 31 December 2018, are described in note 2.5 – Use of estimates, with regard to the impairment testing of cash generating units and investments.
99. Value in use was determined using a cost of equity (Ke) of 8.51% (7.24% at 31 December 2017) and a growth rate of 1.475% (1.4% at 31 December 2017).
*** Figures taken from the company’s latest approved interim financial statements at 30 September 2018. **** Figures taken from the company’s interim financial statements at 30 September 2018, as approved by its board of directors, and including measurement of the SIA group using the equity method and recognition of the related effects with regard to Purchase Price Allocation. ***** Figures taken from the company’s latest approved financial statements at 31 December 2017. ****** Figures taken from the company’s latest interim financial statements at 30 September 2018, as approved by its board of directors.
A5 - Financial assets attributable to BancoPosta (€63,863 million) TAB. A5 - FINANCIAL ASSETS ATTRIBUTABLE TO BANCOPOSTA
First-time adoption of IFRS 9 - (11) 4,821 6,183 4,821 6,172
Changes in cash flow hedge transactions* - - (1) - (1)
Effect of sales on profit or loss - - - 1 - 1
At 31 December 2018, this item refers to outstanding repurchase agreements with a total nominal value of €254 million, entered into with Cassa di Compensazione e Garanzia SpA (the Central Counterparty)100.
101. 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 102. 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.
Amounts deposited with the MEF - 5,927 5,927 - 6,011 6,011
Total fair value losses for the period amount to €1,561 million, with losses of €1,886 million recognised in the relevant equity reserve in relation to the portion of the portfolio not hedged by fair value hedges, and a gain of €325 million recognised through profit and loss in relation to the hedged portion.
Certain securities are encumbered as they have been delivered to counterparties for use as collateral in connection with loans and hedging transactions, as described in note 12 – Additional information.
Fair value gains in the year under review, amounting to €9 million, have been recognised in profit or loss in “Revenue from financial activities”.
Derivative financial instruments Movements in derivative financial instruments: TAB. A5.4 - MOVEMENTS IN DERIVATIVE FINANCIAL INSTRUMENTS
*** Transactions settled include forward transactions settled, accrued differentials and the settlement of interest rate swaps linked to securities sold.
In addition, the Company has entered into forward purchases and spot sales with a total nominal value of €852 million (recognised at fair value through profit or loss), with the aim of fixing the return, for the current year, on public customers’ current account deposits held at the parent, the MEF, and earning a variable rate of return (tab. A5.1.1). These transactions had a positive impact of €2 million on profit or loss for the year (tab. C1.2.1).
Total financial assets at fair value 31,780 641 45 32,466 36,244 3,254 37 39,535
Poste Tributi ScpA (in liquidation) - - - - 2 2
This item includes: �� €251 million relating to an irredeemable subordinated loan, issued to Poste Vita SpA in order to bring the subsidiary’s capitalisation into line with expected growth in earned premiums, in compliance with the specific regulations governing the insurance sector; �� €104 million regarding overdrafts on intercompany current accounts granted to subsidiaries, paying interest on an arm’s length basis.
Impairment losses of €20 million were recognised on these receivables in the last quarter of 2018 following prudent application of the measurement criteria provided form in IFRS 9.
Movements in financial assets at fair value through other comprehensive income (FVTOCI) are shown below: TAB. A6.2 - MOVEMENTS IN FINANCIAL ASSETS AT FVTOCI
Changes in fair value through profit or loss - (8) - - - - (8)
Effect of sales on profit or loss - - - - - - -
Accrued income for current year - 5 - - - - 5
Sales and settlement of accrued income - (5) - - - - (5)
This item entirely 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.
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 €0.2 million (unchanged with respect to 1 January 2018).
Financial assets at fair value through profit or loss 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 Notes106 whose value at 31 December 2018 is zero.
Derivative financial instruments 106. 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.
Gains/(Losses) through profit or loss - - of which * Transactions settled include forward transactions settled, accrued differentials and the settlement of interest rate swaps linked to securities sold.
At 31 December 2018, outstanding derivative financial instruments include: �� swap contract entered into in 2013 to hedge the cash flows of a €50 million bond issued on 25 October 2013 (note B.7 – Financial liabilities). With this transaction, the Company took on the obligation to pay a fixed rate of 4.035% and sold the variable rate of the bond which, at 31 December 2018, is 1.945%; �� nine asset swaps used as fair value hedges in 2010 to protect the value of BTPs with a nominal value of €375 million against movements in interest rates. These instruments have enabled the Company to sell the fixed rate on the BTPs of 3.75% and purchase a variable rate.
Fair value hierarchy of financial assets The following table shows the classification of financial assets measured at fair value by level in the fair value hierarchy: TAB. A6.4 - FAIR VALUE HIERARCHY
Total financial assets at fair value 532 - 5 537 551 - 5 556
107. At 31 December 2018, the balance of trade receivables includes €13 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.
108. See “Revenue and receivables due from the State”, item (vi), showing overall amounts due from the Ministry for Economic Development (€78 million), including amounts due for postal and other residual services, amounting to €2 million.
Ministries and Public Administration entities - 663 663 - 642 642
Amounts due for other BancoPosta services - 82 82 - 87 87 of which attributable to BancoPosta RFC - 600 600 - 536 536
Specifically107: �� Amounts due from Ministries and Public Administration entities refer mainly to the following services: – Integrated Notification and mailroom services rendered to central and local government bodies, amounting to €246 million; – Compensation for the discounts applied to publishers, due from the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office – Publishing department), amounting to €104 million, of which €62 million accruing during the year. These receivables are shown gross of collection of the amount of €72 million in subsidies for 2017 and the first half of 2018, which was deposited by the Cabinet Office in a non-interest bearing escrow account with the Italian Treasury and, for this reason, accounted for in “Prepayments received”. Release of the amount deposited and extinguishment of the receivables in question are awaiting approval from the European Commission; – Reimbursement of the costs associated with the management of property, vehicles and security incurred on behalf of the Ministry for Economic Development, totalling €76 million, of which €1 million relates to the amount accrued during the year (see note 2.5108 for information on this item); – Unfranked mail services provided on credit to central and local government bodies, totalling €73 million; – The payment of pensions and vouchers on behalf of INPS (the National Institute of Social Security), totalling €68 million. In February 2019, having conducted a joint assessment, Poste Italiane and INPS signed an agreement that, among other things, has settled the respective outstanding trade receivables (note B4).
�� Receivables arising from Unfranked mail delivered include €72 million in amounts due from customers who use the service on their own behalf and €91 million for amounts due from agents who provide the service for third parties, primarily regarding bulk mail. Collection of these receivables is delegated to the authorised agents who provide the service.
�� Receivables for overdrawn current accounts are amounts due for temporarily overdrawn current accounts largely due to recurring BancoPosta bank charges, including accumulated sums in the process of being recovered, which have largely been written down.
Poste Assicura SpA 8 6 of which attributable to BancoPosta RFC 224 172
These trade receivables include: �� Poste Vita SpA: primarily regarding fees deriving from the sale of insurance policies through post offices and attributable to BancoPosta RFC (€140 million); �� PostePay SpA: primarily regarding amounts receivable for the distribution of products relating to payment services (€47 million) and amounts due for services relating to the provision of card payment and payment services (€31 million); �� Postel SpA: mainly relating to receivables deriving from the delivery of Bulk Mail by Poste Italiane SpA and collected by the subsidiary (€25 million).
Specifically: �� Universal Service compensation includes the following: TAB. A7.3.1 - UNIVERSAL SERVICE COMPENSATION RECEIVABLE
With reference to the amount receivable for 2012, AGCom has recognised a net cost incurred by the Company of €327 million, compared with compensation of €350 million originally recognised. Provision has not been made in the state budget for the remaining €23 million. The Company appealed AGCom’s decision on 13 November 2014 before the Regional Administrative Court (TAR). The outstanding receivable relating to compensation for 2005 was subject to cuts in the budget laws for 2007 and 2008. Provisions for doubtful debts have been made for the full amount of the above receivables. Finally, with regard to the outstanding balance of the compensation for 2013, which was collected in full in 2015, with resolution 493/14/CONS of 9 October 2014, AGCom has initiated an assessment of the net cost incurred by the Company. On 24 July 2015, the regulator notified the Company that it would extend the assessment to include the 2014 financial year. At the end of the public consultation, launched by AGCom in 2016, the regulator published Resolution 298/17/CONS, in which it assessed the cost of providing the universal service for 2013 and 2014 to be €393 million and €409 million, respectively, compared with revenue of €343 million and €277 million recognised in the Company’s statement of profit or loss for services rendered in the relevant years. The regulator also announced that the compensation fund to cover the cost of providing the universal service has not been set up. The Company filed a legal challenge to AGCom’s resolution before the Regional Administrative Court on 6 November 2017. 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 Company for the services rendered in those years.
�� The remuneration of current account deposits refers entirely to amounts accruing in 2018 and almost entirely relates to the deposit of funds deriving from accounts opened by Public Administration entities and attributable to BancoPosta RFC.
A8 - Other receivables and assets (€2,154 million) This item breaks down as follows: 109. Introduced by article 19 of Law Decree 201/2011, converted as amended by Law 214/2011, in accordance with the MEF Decree dated 24 May 2012: Manner of implementation of paragraphs from 1 to 3 of article 19 of Law Decree 201 of 6 December 2011, on stamp duty on current accounts and financial products (Official Gazette 127 of 1 June 2012).
Interest accrued on IRAP refund [C12] - 3 3 - 3 3 of which attributable to BancoPosta RFC 1,198 544 1,742 1,040 607 1,647
Specifically: �� Substitute tax paid, attributable to BancoPosta RFC, primarily regards: – €1,198 million charged to holder of Interest-bearing Postal Certificates for stamp duty at 31 December 2018109; This amount is balanced by a matching entry in “Other taxes payable” until expiration or early extinguishment of the Interest-bearing Postal Certificates, i.e. the date on which the tax is payable to the tax authorities (tab. B9.3); – €303 million relating to stamp duty to be paid in virtual form in 2019 and to be recovered from customers; – €127 million relating to stamp duty to be charged to Postal Savings Book holders, which the Company pays in virtual form as required by law; – €10 million in withholding tax on interest paid to current account holders for 2018, which is to be recovered from customers; Poste Italiane Financial Statements for the year ended 31 December 2018 6. Poste Italiane SpA for the year ended 31 December 2018
Receivables due from staff under agreement of 2006 due from staff under agreement of 2008 due from staff under agreement of 2010 due from staff under agreement of 2012 due from staff under agreement of 2013 due from staff under agreement of 2015 due from staff under agreement of 2018 due from INPS (former IPOST) - 42 42 42 - 42 42 42
�� Amounts that cannot be drawn on due to court rulings include €65 million in amounts seized and not assigned to creditors in the process of recovery, and €13 million in amounts stolen from the Company in December 2007 as a result of an attempted fraud and that have remained on deposit with an overseas bank. The latter sum may only be recovered once the legal formalities are completed. The risks associated with collection of these items are taken into account in the provisions for doubtful debts due from others.
�� Accrued interest on IRES refund, amounting to €46 million, refers to interest accruing up to 31 December 2018 in relation to the tax credit determined by an unreported deduction of IRAP paid on labour costs from IRES. Recovery of the amount in question has resulted in a dispute, the outcome of which is subject to uncertainty. With regard to the remaining overall tax credit, amounting to €50 million (i.e. including current tax assets and related interest), information is provided in note 2.5– Use of estimates.
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.
A10 - Cash and cash equivalents (€2,127 million) Details of this item are as follows: TAB. A10 - CASH AND CASH EQUIVALENTS
Bank deposits and amounts held at the Italian Treasury 810 1,648
Bank deposits and amounts held at the Italian Treasury include €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 Company (note A7). In addition, bank deposits and amounts held at the Italian Treasury include €18 million whose use is restricted by court orders related to different disputes.
B1 - Share capital (€1,306 million) Poste Italiane SpA’s share capital consists of 1,306,110,000 no-par value ordinary shares, of which Cassa depositi e prestiti SpA (CDP) holds 35% and the Ministry of the Economy and Finance holds 29.3%, while the remaining shares are held by institutional and retail investors.
At 31 December 2018, all the shares in issue are fully subscribed and paid up. No preference shares have been issued and the Company does not hold treasury shares.
Merger surplus Total of which attributable to BancoPosta RFC - 1,000 179 (62) - 1,117
Increases/(decreases) in fair value during the year - - (1,897) 191 - (1,706)
Tax effect of changes in fair value - - 541 (55) - 486
Increase/(Decrease) for expected credit loss - - (1) - - (1)
Injection of fresh capital into BancoPosta RFC - 210 - - - 210 of which attributable to BancoPosta RFC - 1,210 (71) 88 - 1,227
Details are as follows: �� the fair value reserve regards changes in the fair value of available-for-sale financial assets. The decrease of €1,897 million during 2018 reflects: – a net decrease of €1,886 million in financial assets measured at fair value through other comprehensive income and attributable to BancoPosta RFC; – a net decrease of €11 million in financial assets measured at fair value through other comprehensive income held outside the ring-fence.
�� the cash flow hedge reserve represents changes in the fair value of the effective portion of cash flow hedges outstanding. In 2018, the fair value gain of €191 million reflects a net gain of €192 million on derivative financial instruments attributable to BancoPosta RFC and a net loss of €1 million on the value of financial instruments held outside the ring-fence.
Finally, with regard to BancoPosta RFC reserve, following on from the Board of Directors’ resolution of 25 January 2018 and the subsequent Extraordinary General Meeting of Poste Italiane SpA’s shareholders, on 27 September 2018, Poste Italiane injected €210 million of fresh capital of into BancoPosta RFC (note 6.2 – Information on BancoPosta RFC).
B3 - Availability and distributability of reserves The following table shows the availability and distributability of Poste Italiane SpA’s reserves. Retained earnings include the profit for 2018 of €584 million.
B4 - Provisions for risks and charges (€1,431 million) Movements in provisions for risks and charges are as follows: TAB. B4 - MOVEMENTS IN PROVISIONS FOR RISKS AND CHARGES
Provisions for expired and statute barred postal savings certificates 15 - - (15) - of which attributable to BancoPosta RFC 544 116 - (36) (113) 511
�� Provisions for disputes with third parties regard the present value of expected liabilities deriving from different types of legal and out-of-court disputes with suppliers and third parties, the related legal expenses, and penalties and indemnities payable to customers. Provisions for the year of €36 million reflect the estimated value of new liabilities measured on the
�� Provisions for early retirement incentives reflect the estimated costs to be incurred as a result of the Company’s bonding 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. The €440 million in provisions made at 31 December 2017 were used in full during the year.
�� Provisions for expired and statute barred Postal Certificates have been made to cover the cost of redeeming certificates relating to specific issues, even after the certificates have become invalid110. These provisions were released to profit or loss during the year, given that the obligation previously assumed by the Company has expired.
�� Provisions for taxation have been made to cover estimated tax liabilities.
B5 - Employee termination benefits (€1,158 million) Movements in employee termination benefits are as follows: 110. Provisions for expired and statute barred Postal Certificates were made in 1998 to cover the cost of redeeming certificates relating to specific issues, the value of which was recognised in revenue in profit or loss in the years in which the certificates became invalid. The provisions were made in response to the Company’s decision to redeem such certificates even if expired.
The interest component is recognised in finance costs. The current service cost, which from 2007 is paid to pension funds or third-party social security agencies and is no longer included in the employee termination benefits managed by the Company, is recognised in personnel expenses. Net uses of provisions for employee termination benefits amount to €86 million, €4 million to substitute tax and €1 million to transfers from a number of Group companies.
111. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
MEF account, held at the Treasury - 3,649 3,649 - 3,483 3,483 * In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
At 31 December 2018, outstanding liabilities of €8,473 million relate to repurchase agreements entered into by the 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.
Balance of cash flows for advances - 3,546 3,546 - 3,375 3,375
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. B6.1.1 - BALANCE OF CASH FLOWS FOR ADVANCES
Amounts payable due to thefts from post offices of €157 million regard the Company’s liability to the MEF on behalf of the Italian Treasury for losses resulting from theft and fraud. This liability derives from cash withdrawals from the Treasury to make up for the losses resulting from these criminal acts, in order to ensure that post offices can continue to operate.
Derivative financial instruments Movements in derivative financial instruments during 2018 are described in note A5.
Amounts to be credited to customers - 235 235 - 118 118
Tax collection and road tax* - 19 19 - 145 145
The reduction compared with 31 December 2017 primarily reflects the contribution of the card payments and payment services unit to PostePay SpA from 1 October 2018 (note 6.2 – Information BancoPosta RFC).
Amounts payable for guarantee deposits include €56 million received from counterparties in repurchase agreements on fixed income instruments (collateral provided by specific Global Master Repurchase Agreements) and €14 million received from counterparties in interest rate swaps (collateral provided by specific Credit Support Annexes).
Financial liabilities due to subsidiaries - 112 112 - 46 46 * In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Borrowings Other than the guarantees described in the following notes, borrowings are unsecured and are not subject to financial covenants, which would require the Company to comply with financial ratios or maintain a certain minimum rating. Financial institutions borrowings are subject to standard negative pledge clauses112.
This item regards bonds recognised at an amortised cost of €50 million issued by Poste Italiane under the EMTN – Euro Medium Term Note programme of €2 billion listed by the Company in 2013 on the Luxembourg Stock Exchange. These bonds were issued through a private placement on 25 October 2013; The term to maturity of the loan is ten years and the interest rate is 3.5% for the first two years and variable thereafter (EUR Constant Maturity Swap rate plus 0.955%, with a cap of 6% and a floor of 0%). The interest rate risk exposure was hedged as described in note A6 – Financial assets; the fair value113 of this borrowing at 31 December 2018 is €50 million.
A five-year bond issue with a nominal value of €750 million, issued by the Company on 18 June 2013, matured and was repaid in June 2018.
113. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
EIB fixed rate loan maturing 23 March 2019 - 200 200 200 - 200
At 31 December 2018, the following credit facilities are available: �� committed lines of €1,923 million; �� uncommitted lines of credit of €1,724 million, including €959 million in lines of credit, €160 million in overdraft facilities and €605 million in the form of personal guarantee facilities.
Derivative financial instruments Movements in derivative financial instruments during 2018, are described in note A6 – Financial assets.
Financial liabilities due to subsidiaries These liabilities relate to intercompany current accounts paying interest at market rates and break down as follows: TAB. B7.2 - FINANCIAL LIABILITIES DUE TO SUBSIDIARIES
Changes in liabilities arising from financing activities The following disclosures are provided in accordance with IAS 7, following the amendments introduced by EU Regulation 1990/2017 of 6 November 2017.
Liabilities for fees to be refunded - - - - 26 26
Postage-paid mailing services 7 7 of which attributable to BancoPosta RFC - -
Other amounts due to subsidiaries 6 204 210 7 30 37
Accrued expenses and deferred income from trading transactions of which attributable to BancoPosta RFC 1,274 39 1,313 1,115 65 1,180
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.
Total of which attributable to BancoPosta RFC - 3 3 - 7 7
Withholding tax on employees' and consultants' salaries - 102 102 - 94 94
Withholding tax on postal current accounts - 3 3 - 1 1 of which attributable to BancoPosta RFC 1,198 19 1,217 1,040 9 1,049
Specifically: �� Withholding tax on employees’ and consultants’ salaries relates to amounts paid to the tax authorities by the Company in January and February 2019 as the withholding agent.
�� 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, in compliance with the legislation referred to in note A8 – Other receivables and assets.
Sundry payables attributable to BancoPosta 75 6 81 75 8 83 of which attributable to BancoPosta RFC 75 6 81 75 8 83
Deferred income regards components of income recognised on the basis of accounting standards other than IFRS15 and includes: �� €7 million in grants approved by the competent public authorities in favour of the Company, whose matching costs have not been incurred yet; �� €4 million relating to advance collection of the rental on a thirty-year lease of a pneumatic postal structure in Rome.
Postal Services 2,892 2,879 of which Revenue from contracts with customers 2,892 recognised at a point in time 562 recognised over time 2,330
Other sales of goods and services 108 75 of which Revenue from contracts with customers 108 recognised at a point in time 28 recognised over time 80
Universal Service compensation relates to amounts paid by the MEF to cover the costs of fulfilling the USO. Annual compensation, amounting to €262 million, is established in the Contratto di Programma (Service Contract) for 2015-2019, which took effect on 1 January 2016
In particular: �� Fees for the collection of postal savings deposits relate to remuneration for the provision and redemption of Interestbearing Postal Certificates and payments into and withdrawals from Postal Savings Books. This service is provided by Poste Italiane SpA on behalf of Cassa depositi e prestiti under the Agreement of 14 December 2017 to cover the three-year period 2018-2020.
�� Income from the investment of postal current account deposits breaks down as follows: TAB. C1.2.1 - INCOME FROM INVESTMENT OF POSTAL CURRENT ACCOUNTS DEPOSITS
�� Revenue from current account services primarily relates to charges on current accounts (€211 million), fees on amounts collected and on statements of account sent to customers (€112 million), annual fees on debit cards (€24 million) and related transactions (€45 million).
�� Revenue from insurance brokerage derives from fees receivable from the subsidiaries, Poste Vita and Poste Assicura, in return for the sale of insurance policies.
�� Revenue from the distribution of loan products relate to commissions received by the Company on the placement of personal loans and mortgages on behalf of third parties.
�� Income from delegated services primarily regards amounts received by the Company for the payment of pensions and vouchers issued by INPS (€40 million), and for the provision of treasury services on the basis of the agreement with the MEF (€57 million).
�� Income from the distribution of payment products and services regards fees received in return for distributing and promoting the products issued by the subsidiary, PostePay SpA.
For the purposes of reconciliation with the statement of cash flows, in 2018 this item amounts to €115 million, after losses of €2 million. In 2017, this item, after losses of €1 million, amounted to €16 million.
Gains on the sale of investments are non-recurring and regard the sale of shares in Anima SGR to Anima Holding SpA (note 4.1).
Raw, ancillary and consumable materials and goods for resale 94 96
TAB. C4.3 - RAW, ANCILLARY AND CONSUMABLE MATERIALS AND GOODS FOR RESALE
The following table shows the Company’s average and year-end headcounts by category: TAB. C6.1 - WORKFORCE
Furthermore, taking account of staff on flexible contracts, the average number of full-time equivalent staff in 2018 is di 130,867 (in 2017: 134,190).
Net provisions for risks and charges made/(released) 72 259 for disputes with third parties [tab. B4] 2 50 for non-recurring charges incurred by BancoPosta [tab. B4] 79 170 for expired and statute barred postal savings certificates [tab. B4] (15) for other risks and charges [tab. B4] 6 39
C9 - Impairment losses/(reversals of impairment losses) on debt instruments, receivables and other assets (€22 million)
Net provisions and losses on receivables and other assets (uses of provisions) 21 30
Provisions (reversal of provisions) for receivables due from customers 8 22
Foreign exchange gains* 4 11 * For the purposes of reconciliation with the statement of cash flows, in 2018 finance income after foreign exchange gains and dividends from associates amounts to €23 million (€24 million in 2017).
** Finance income on discounted receivables regards interest on amounts due from staff and INPS under the fixed-term contract settlements of 2006, 2008, 2010, 2012, 2013 and 2015.
Item (€m) Note For the year ended 31 December 2018 For the year ended 31 December 2017
Finance costs on financial liabilities 15 29 on financial institutions borrowings 1 1 on derivative financial instruments 1 1
C11 - Impairment losses/(reversals of impairment losses) on financial assets (€20 million) The impairment losses on financial assets described in note A6 are as follows: TAB. C11 - IMPAIRMENT LOSSES/(REVERSALS OF IMPAIRMENT LOSSES) ON FINANCIAL ASSETS
The tax rate for 2018 is 20.3% and consists of: TAB. C12.1 - RECONCILIATION BETWEEN THE THEORETICAL IRES TAX RATE AND THE EFFECTIVE IRES TAX RATE
TAB. C12.2 - RECONCILIATION BETWEEN THE THEORETICAL IRAP TAX RATE AND THE EFFECTIVE IRAP TAX RATE
Current tax assets/(liabilities) for the year ended 31 December 2018 primarily regard: �� a tax asset of €38 million relating to all the companies participating in the tax consolidation arrangement and reflecting payments of IRES and IRAP on account and refundable IRAP from the previous year, after provisions for IRES and IRAP for the year; �� the substitute tax of €32 million paid by the Parent Company in order to obtain 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 (as described in more detail in note A4 – Investments accounted for using the equity method ). By paying this substitute tax, the Parent Company can 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; �� the IRAP refund of €9 million to be recovered on the unreported deduction of expenses for disabled personnel in 2003, identified in 2017 following the ruling handed down by the Regional Tax Tribunal for Lazio, which has upheld an earlier appeal brought by the Company (see the description provided in note 2.5 – Use of estimates). Accrued interest on this refund, totalling approximately €3 million, is recognised in “Other receivables and assets” (tab. A8); �� the remaining IRES credit of €4 million to be recovered on unreported IRAP deduction, following submission of a claim pursuant to article 6 of Law Decree 185 of 29 November 2008 and article 2 of Law Decree 201 of 6 December 2011, which provided for a partial deductibility of IRAP from IRES (reference should be made to the information on accrued interest in note A8).
Deferred tax assets and liabilities Details of this item at 31 December 2018 are shown in the following table: TAB. C12.4 - DEFERRED TAXES
Balance at 31 December 487 * Extraordinary transactions primarily regard the balance of deferred tax assets transferred to PostePay SpA following the contribution of the card payments and payment services business unit on 1 October 2018.
Income/(Expenses) recognised in profit or loss - - 3 22 - - 3 28
Income/(expenses) recognised in equity - 60 - - (1) - - 59
First-time adoption of IFRS 9 - (156) 2 - - - - (154)
Income/(expenses) recognised in equity - 260 - - (5) - - 255
Monte dei Paschi di Siena Group 44 - 3 - - 337 - - -
Monte dei Paschi di Siena Group 17 - - - - - - - - - -
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 primarily attributable to trading relations amount to €2 million (€11 million at 31 December 2017).
�� Amounts received from the Eni Group relate primarily to payment for mail shipments and collection and accounting for utility payments. The costs incurred relate to the supply of fuel for motorcycles and vehicles and the supply of gas.
�� 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 SGR (note A4).
Impact of related party transactions and positions The impact of related party transactions on the financial position, profit or loss and cash flows is shown in the following table: IMPACT OF RELATED PARTY TRANSACTIONS
Financial assets attributable to BancoPosta 63,863 10,684 16.7 60,048 8,496 14.1
Financial liabilities attributable to BancoPosta 66,759 8,923 13.4 61,853 4,191 6.8
Revenue from sales and services 84,719 3,221 3.8 8,060 2,844 35.3
Net cash flow from/(for) investing activities (399) 130 n.a. (180) 183 n.a.
The remuneration paid to members of the Company’s Supervisory Board amounts to approximately €58 thousand in 2018. In determining the re, 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.
Moreover, in connection with the process that resulted in the establishment of the electronic money institution, the Related and Connected Parties Committee issued a favourable opinion to the Board of Directors on two contracts with PostePay SpA that qualify as material under the Bank of Italy’s regulations. These regard the contract governing the outsourcing of BancoPosta’s activities to the electronic money institution and the agreement on the promotion and placement of the EMI’s products by BancoPosta. Both were approved by the Board of Directors and took effect on 1 October 2018.
is, therefore, required to establish a system of internal controls in line with the provisions of Circular 285116, which, among other things, requires definition of a Risk Appetite Framework (RAF117), the containment of risks within the limits set by the RAF, protection of the value of assets and against losses, and identification of material transactions to be subject to prior examination by the risk control function. Following the positive performance of current account deposits in 2018, from March onwards, the process of monitoring the risk profile indicated that there had been a decline in the leverage ratio to below the threshold set in the Risk Appetite Framework (RAF). On 27 September 2018, Poste Italiane injected €210 million of fresh capital of into BancoPosta RFC, in execution of the Board of Directors’ resolution of 25 January 2018 that approved the recapitalisation of BancoPosta, and this helped to restore the leverage ratio. The Leverage ratio at 31 December 2018 stands at approximately 3.2% (3% being the minimum level required by the regulations). Operations not covered by BancoPosta RFC, primarily relating to management of the Parent Company’s own liquidity, are carried out in accordance with investment guidelines approved by the Board of Directors, which require the Company to invest in instruments such as government securities, high-quality corporate or bank bonds and term bank deposits. Liquidity is also deposited in postal current accounts, subject to the same requirements applied to the investment of deposits by private current account holders.
�� Financial instruments held by the insurance company, Poste Vita SpA, primarily relate to investments designed to cover its contractual obligations to policyholders on traditional life policies and index-linked and unit-linked policies. Other investments in financial instruments regard investment of the insurance company’s free capital. Traditional Life policies, classified under Class I and V, primarily include products whose benefits are revaluated based on the return generated through the management of pools of financial assets, which are separately identifiable in accounting terms only, within the company’s assets (so-called separately managed accounts). In the case of policies sold in previous years, the company has guaranteed a minimum return payable at maturity on such products (at 31 December 2018, this minimum return on existing policies ranged between 0% and 1.5%). Gains and losses resulting from measurement are attributed in full to policyholders and accounted for in specific technical provisions under the shadow accounting method. The calculation technique used by the Group in applying this method is based on the prospective yield on each separately managed account, considering a hypothetical realisation of unrealised gains and losses over a period of time that matches the assets and liabilities held in the portfolio (see note 2.3 in relation to “Insurance contracts”). The impact of financial risk on investment performance can be absorbed in full or in part by the insurance provisions based on the level and structure of the guaranteed minimum returns (new policies do not offer a guaranteed minimum return) and the profit-sharing mechanisms of the “separate portfolio” for the policyholder. The company determines the sustainability of minimum returns through periodic analyses using an internal financial-actuarial (Asset-Liability Management) model which simulates, for each separate portfolio, the change in value of the financial assets and the expected returns under a “central scenario” (based on current financial and commercial assumptions) and under stress and other scenarios based on different sets of assumptions. This model makes it possible to manage the risks assumed by Poste Vita SpA on a quantitative basis, thereby fostering reduced earnings volatility and optimal allocation of financial resources. Index-linked and unit-linked products, relating to Class III insurance products, regard policies where the premium is invested in Italian government securities, warrants and mutual investment funds. In the case of index-linked policies issued, the company assumes sole liability for solvency risk associated with the instruments in which premiums are invested, providing a guaranteed minimum return only when called for by contract (new policies do not offer a guaranteed minimum return). The company continuously monitors changes in the risk profile of individual products, focusing especially on the risk linked to the insolvency of issuers.
116. See in particular the provisions laid down in Part I – Section IV – Chapter 3. 117. The RAF consists of a framework that defines, in keeping with the maximum acceptable risk, the business model and strategic plan, the risk appetite, risk tolerance thresholds, risk limits, and risk management policies, together with the processes needed to define and implement them.
From an organisational viewpoint, the management of financial risk involves the following bodies and functions: �� the Audit, Risk and Sustainability Committee, established in 2015, whose role, based on adequate research activity, is to act in an advisory capacity and make recommendations to support the Board of Directors in assessing and making decisions regarding Poste Italiane SpA’s internal control and risk management system and, from February 2018, issues relating to Poste Italiane SpA’s sustainability.
+ Vol 260gg - Vol 260gg + Vol 260gg - Vol 260gg + Vol 260gg - Vol 260gg 2018 effects 2017 effects
The following interest rate sensitivity analysis was based on changes in fair value with a parallel shift in the forward yield curve of +/- 100 bps. The measures of sensitivity shown in the following analysis provide a reference point which is useful in assessing potential changes in fair value in the event of greater movements in interest rates.
Position Change in value Effect on liability toward policyholders Pre-tax profit Equity reserves before taxation
In terms of financial assets recognised at fair value through other comprehensive income, the risk in question primarily regards: �� fixed income government bonds held by Poste Vita SpA, totalling €79,137 million; of this amount, €77,296 million is used to cover Class I and V policies linked to separately managed funds, €1,841 million relates to the company’s free capital; �� €32,040 million in fixed income government bonds held by BancoPosta RFC, which consist of: fixed rate bonds amounting to €15,006 million; variable rate bonds converted into fixed rate bonds via cash flow swaps amounting to €1,823 million; inflation-linked securities amounting to €2,047 million and fixed or variable rate bonds converted to variable rate positions via fair value hedges amounting to €13,164 million (of which €11,163 million in forward starts); �� €15,316 million in other, non-government bonds held by Poste Vita SpA, used mainly to meet obligations towards policyholders in relation to separately managed Class I and V policies, including bonds issued by CDP SpA, totalling €1,632 million, mainly to cover Class I policies.
Within the context of financial assets at fair value through profit or loss, fair value interest rate risk concerns a portion of the fixed rate investments of Poste Vita SpA, totalling €2,207 million (consisting of investments with a fair value of €825 million, relating to coupon stripped118 BTPs and zero coupon bonds primarily covering obligations associated with Class III insurance products, investments with a fair value of €747 million, relating to corporate bonds primarily covering Class I, III and V and to a lesser extent investments of the company’s free capital), to “Other investments”, represented by mutual funds amounting to €614 million and bonds issued by CDP SpA with a fair value of €21 million.
Within the context of derivative financial instruments, the risk in question primarily concerns forward sales of government bonds with a nominal value of €1,340 million and forward purchase contracts for government bonds with a nominal value of €1,545 million, classified as cash flow hedges and entered into during the first half by BancoPosta RFC.
2018 witnessed an average increase in the yields on Italian government bonds compared with the previous year and, at 31 December 2018, the spread between ten-year Italian government bonds and German bunds is approximately 250 bps, up on the figure for the previous year (159 bps at 31 December 2017).
118. Coupon stripping consists in detaching the interest payment coupons from a note or bond. Coupon stripping transforms each government security into a series of zero-coupon bonds. Each component may be traded separately.
119. Duration is the indicator used to estimate the percentage change in price of in response to a shift in market returns. 120. The Coherent Duration of assets and liabilities is defined as changes in the value of assets and liabilities, in proportion to the total amount of assets exposed to interest rate risk, following parallel shocks raising and lowering interest rates by 10 basis points.
The performance of the Group’s portfolio in the period under review is as follows: i. a net reduction of approximately €1.6 billion in the fair value of Poste Italiane SpA’s financial assets at fair value through other comprehensive income (a nominal value of approximately €31 billion): the increase in the fair value of securities hedged against interest rate risk of approximately €0.3 billion was offset by the reduction in the fair value of the matching derivatives, whilst the reduction in the fair value of unhedged instruments and of the component subject to spread risk (unhedged) was reflected in consolidated equity (approximately €1.9 billion); ii. a net reduction of approximately €5 billion in the fair value of the Poste Vita group’s financial assets at fair value through other comprehensive income (a nominal value of the fixed income instruments of approximately €93 billion), almost entirely passed on to policyholders and recognised in specific technical provisions under the shadow accounting mechanism (the impact on the specific fair value reserve amounts to approximately €48 million).
The table below shows the results of the analysis of sensitivity to spread risk of the most significant positions in the portfolios of both the Parent Company and the Poste Vita group at 31 December 2018.
For the purposes of full disclosure, a movement in the spread would have no accounting effect on financial assets measured at amortised cost, but would only impact unrealised gains and losses. In other words, fixed income instruments measured at amortised cost attributable entirely to BancoPosta, which at 31 December 2018 amount to €22,872 million (a nominal value of €20,935 million) and have a fair value of €21,189 million, would be reduced in fair value by approximately €2 billion following an increase in the spread of 100 bps, with the change not reflected in the accounts.
Notional Fair Value +100bps -100bps +100bps -100bps +100bps -100bps +100bps -100bps 2018 effects
For the purposes of full disclosure, following an increase in the spread of 100 bps, the Poste Vita group’s fixed income instruments measured at amortised cost, which at 31 December 2018 amount to €1,467 million (a nominal value of €1,520 million) and have a fair value of €1,578 million, would be reduced in fair value by approximately €99 million, with the change not reflected in the accounts.
Credit risk This is the risk of default of one of the counterparties to which there is an exposure, with the exception of equities and units of mutual funds.
Principles, processes involved in measuring and managing guarantees and other credit risk mitigation instruments
The Poste Italiane Group uses instruments to mitigate credit risk and counterparty risk. In particular: �� as regards Poste Italiane SpA, primarily in relation to BancoPosta RFC, the credit and counterparty risks associated with hedging derivatives and repurchase agreements are mitigated by entering into a master netting agreement and requiring collateral in the form of cash or government bonds; �� the Poste Vita group invests in, among other things, corporate bonds that are guaranteed in order to mitigate the overall exposure to credit risk; �� in terms of trade receivables, the Poste Italiane Group credit terms are extended for customers, requesting, in certain cases, guarantees or sureties issued by prime banks or insurance companies.
At 31 December 2018, the Group does not hold financial assets secured by guarantees or other risk mitigation instruments for which no loss provisions have been made (except for the temporary use of liquidity in repurchase agreements).