Withholding tax on employees' and consultants' salaries – 113 113 – 113 113
Withholding tax on postal current accounts – 3 3 – 7 7
The items in question were reviewed by a joint working group created with the MEF – Department of Treasury and General Accounting Department and included in the letter dated 7 August 2015.
Deferred income comprises: • €21 million in prepaid telephone traffic sold as of 31 December 2016 sold by PosteMobile SpA and not yet used by customers; • €21 million in fees on Postemat and Postepay Evolution cards collected in advance by the Parent Company; • €8 million in grants approved by the competent public authorities in favour of the Parent 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.
Automated franking by third parties and at post offices 789 827
In detail: • Unfranked mail relates to revenue from the mailing of correspondence by large customers from the post office network, including those conducted using the Bulk Mail formula.
• Express parcel and express courier services relate to services provided mainly by the subsidiary, SDA Express Courier SpA.
• Stamps relates to the sale of stamps through post offices and authorised outlets, and sales of stamps used for franking on credit.
• Postage-paid mailing services relate to revenue from the delivery of publications and mail-order goods on behalf of publishers.
• Universal Service compensation relates to amounts paid by the MEF to cover the costs of fulfilling the USO. Compensation for services rendered during the year, amounting to €262 million, was recognised on the basis of the new Contratto di Programma (Service Contract) for 2015-2019, which took effect on 1 January 2016. The remaining amount due of €371 million reflects revenue previously written down in provisions for doubtful debts due from the MEF, after the Ministry made new provision to honour previous contractual obligations. In this regard, reference is made to note 2.4 – Use of estimates and A7.4 – Due from the MEF.
• Income from the investment of postal current account deposits breaks down as follows: TAB. C1.3 – INCOME FROM INVESTMENT OF POSTAL CURRENT ACCOUNT DEPOSITS
• Revenue from current account services primarily relates to charges on current accounts, fees on amounts collected and on statements of account sent to customers, annual fees on debit cards and related transactions.
• Revenue from the distribution of loan products relate to commissions received by the Parent Company on the placement of personal loans and mortgages on behalf of third parties.
• Interest on loans and fees for the management of public funds are entirely attributable to BdM-MCC SpA.
• Other products and services mainly reflect fees deriving from the processing of tax payment forms (F24).
This item amounts to €69 million, reflecting €60 million in commissions received from BancoPosta Fondi SGR SpA for the management of mutual funds and €9 million in revenue generated by Poste Welfare Servizi Srl.
This item, amounting to €223 million, reflects revenue generated by PosteMobile SpA, primarily from the provisions of mobile telecommunications.
Details of this item are as follows: TAB. C2 – INSURANCE PREMIUM REVENUE
Details of this item are as follows: TAB. C3 – OTHER INCOME FROM FINANCIAL AND INSURANCE ACTIVITIES
Income from available-for-sale financial assets includes gains of €477 million realised by the Financial Services segment in 2016, with €473 million attributable to BancoPosta RFC, and gains of €319 million realised by the Insurance Services segment. In addition, following the sale of the equity interest in Visa Europe Ltd, Poste Italiane received proceeds corresponding to a total fair value of €121 million (recognised as a non-recurring realised gain).
The following table provides a breakdown of the cost of goods and services: TAB. C5 – COST OF GOODS AND SERVICES
Raw, ancillary and consumable materials and goods for resale 146 175
Change in inventories of raw, ancillary and consumable materials [tab. A6] 1 4
Compared to the previous year, interest paid to customers decreased, mainly as a result of a fall in the interest rates paid on certain postal current accounts.
This item breaks down as follows: TAB. C6 – MOVEMENTS IN TECHNICAL PROVISIONS FOR INSURANCE BUSINESS AND OTHER CLAIMS EXPENSES
Movement in technical provisions where investment risk is transferred to policyholders (319) (1,285)
Claim expenses and movement in other provisions – Non-life 30 27
The table below provides a breakdown of this item: TAB. C7 – OTHER EXPENSES FROM FINANCIAL AND INSURANCE ACTIVITIES
Provisions for employee termination benefits: current service cost [tab. B7] 1 1
Provisions for employee termination benefits: supplementary pension funds and INPS 265 269
Cost savings refer mainly to changes in estimates made in previous years.
The following table shows the Group’s average and year-end headcount for 2016: TAB. C8.1 – NUMBER OF EMPLOYEES
Industrial patents and intellectual property rights,concessions, lincenses, trademarks and similar rights 232 212
Other operating costs break down as follows: TAB. C11 – OTHER OPERATING COSTS
Net provisions for risks and charges made/(released) 80 89 for disputes with third parties [tab. B6] (28) 41 for non-recurring charges [tab. B6] 86 46 for other risks and charges [tab. B6] 22 2
Municipal property tax, urban waste tax and other taxes and duties 75 68
(1) For the purposes of reconciliation with the statement of cash flows, in 2016 finance income after realised gains, dividends received and foreign exchange gains amounts to €99 million (€127 million in 2015).
Finance costs on financial liabilities 52 59 on borrowings from financial institutions 2 8 on derivative financial instruments 1 1
Realised losses on financial instruments at fair value through profit or loss – 6
Finance costs on provisions for employee termination benefits and pension plans [tab. B7] 24 28
This item breaks down as follows: TAB. C13 – INCOME TAX EXPENSE
Adjustments for change in IRES tax rate introduced by 2016 Stability Law 14 1.35% 23 2.49%
Net provisions for risks and charges and bad debts 2 0.22% (12) –1.32%
Realignment of tax bases and carrying amounts and taxation for previous years (3) –0.33% (1) –0.10%
Non-recurring income/(expenses) for deferred taxes recycled to profit or loss – 0.00% (24) –2.54%
Current tax assets include €9 million relate to the remaining IRES refund to be received on the 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. This legislation provided for the partial deduction of IRAP paid on personnel expenses from IRES (to this end, reference should be made to the relevant interest receivable in section A8).
The nominal tax rate for IRES is 27.5% for 2016 and 24% from 1 January 2017, whilst the Group’s average statutory rate for IRAP is 5.96%(72). Movements in deferred tax assets and liabilities are shown below: TAB. C13.5 – MOVEMENTS IN DEFERRED TAX ASSETS AND LIABILITIES
(72) The nominal IRAP rate is 3.90% for most taxpayers, 4.65% for banks and other financial entities and 5.90% for insurance companies (+/–0.92%, representing regional increases and cuts and + 0.15% representing an increase for regions that showed a healthcare deficit).
Non-recurring income/(expenses) recognised in profit or loss – – – 24 – – – – – 24
Income/(expenses) recognised in profit or loss due to adjustment to IRES rate (6) (2) – (3) (14) – – – (6) (31)
Income/(expenses) recognised in equity due to adjustment to IRES rate – – (4) – – – – (4) (1) (9)
Income/(expenses) recognised in equity – – 176 – – – – (4) (2) 170
Recl. to disposal groups and liabilities held for sale – – (2) (6) (2) (1) (1) – – (12)
Income/(expenses) recognised in profit or loss – – 39 – – (11) 28
Non-recurring income/(expenses) recognised in profit or loss – – – – – 7 7
Income/(expenses) recognised in profit or loss due to adjustment to IRES rate – – (5) – – (2) (7)
Income/(expenses) recognised in profit or loss – – 20 – – 1 21
Recl. to disposal groups and liabilities held for sale – – (1) – – – (1)
The decrease in deferred tax liabilities related to financial assets and liabilities is due mainly to movements in the fair value reserve, as described in section B4.
Movements in deferred tax assets and liabilities recognised directly in equity during the year are as follows: TAB. C13.8 – INCOME/(EXPENSE) RECOGNISED IN EQUITY
The identified operating segments are Postal and Business Services, Financial Services and Insurance Services and Asset Management, with the remaining activities allocated to the Other Services segment(73).
The following results, which are shown separately in accordance with management’s views and with applicable accounting standards, should be read in light of the integration of the services offered by the sales force within the postal, financial and insurance businesses, also considering the obligation to carry out the Universal Postal Service.
Profit/(Loss) on investments accounted for using the equity method (4) – 10 – – 6
Kipoint SpA – – – – – 1 – – –
Other SDA group associates – 2 – – – – – – –
Other related parties external to the Group 65 6 – – – 18 61 7 –
Provision for doubtful debts owing from external related parties – (42) (10) – – – – – –
Other SDA group associates – 2 – – – – –
Other related parties external to the Group 8 1 1 – – – 45 43 2 –
At 31 December 2016, net provisions for risks and charges used to cover probable liabilities arising from transactions with related parties external to the Group attributable to trading relations amount to €6 million (€9 million al 31 December 2015).
IMPACT OF RELATED PARTY TRANSACTIONS ON PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2015
Kipoint SpA – – – – – – 1 – – –
Other related parties external to the Group 17 3 2 – – 1 14 40 3 1
• Amounts received from the Enel Group primarily relate to payment for bulk mail shipments, unfranked mail, franking of mail on credit and postage paid mailing services, as well as collection and accounting for electric utility payments. The costs incurred primarily relate to the supply of gas and electricity.
• Amounts received from the Equitalia Group primarily relate to payment for the integrated notification service and for unfranked mail. The costs incurred primarily relate to electronic transmission of tax collection data.
• 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 gas and of fuel for motorcycles and vehicles.
• Purchases from the Leonardo Group primarily relate to the supply, by Leonardo SpA, of equipment, maintenance and technical assistance for mechanised sorting equipment, and systems and IT assistance regarding the creation of document storage facilities, specialist consulting services and software maintenance, and the supply of software licences and of hardware.
Non-current assets and disposal groups held for sale 2,720 49 1.8 – – –
Liabilities related to assets held for sale 2,060 130 6.3 – – –
Other income from financial and insurance activities 4,421 80 1.8 3,657 104 2.8
Cost of goods and services 2,476 193 7.8 2,590 173 6.7
Cash flow from/(for) financing activities and shareholder transactions (964) (286) 29.7 (436) (139) 31.9
Key management personnel consist of Directors, members of the Board of Statutory Auditors, managers at the first organisational level of the Parent Company and Poste Italiane’s manager responsible for financial reporting. The related remuneration, gross of expenses and social security contributions, of such key management personnel as defined above is as follows: REMUNERATION OF KEY MANAGEMENT PERSONNEL
The remuneration paid to members of the Parent Company’s Supervisory Board who, since 24 May 2016 are no longer the same as the members of the Board of Statutory Auditors, amounts to approximately €51 thousand for the period from the date they took up office to 31 December 2016. In determining the remuneration, the amounts paid to managers of Poste Italiane who are members of the Supervisory Board is not taken into account, as this remuneration is passed on to the employer.
No loans were granted to key management personnel during the year and, at 31 December 2016, Group companies do not report receivables in respect of loans granted to key management personnel.
The Parent Company and its subsidiaries that apply the National Collective Labour Contract are members of the Fondoposte Pension Fund, the national supplementary pension fund for non-managerial staff. As indicated in article 14, paragraph 1 of Fondoposte’s By-laws, the representation of members among the various officers and boards (the General Meeting of delegates, the Board of Directors, Chairman and Deputy Chairman, Board of Statutory Auditors) is shared equally between the workers and the companies that are members of the Fund. The Fund’s Board of Directors takes decisions including: • the general criteria for the allocation of risk in terms of investments and investment policies; • the choice of fund manager and custodian bank.
At 31 December 2016, the Poste Italiane Group’s net debt/(funds) is as follows: NET FUNDS/(DEBT) AT 31 DECEMBER 2016
Borrowings from financial institutions (402) (5,381) – – – (5,783) –
MEF account, held at the Treasury – (2,429) – – – (2,429) (2,429)
Technical provisions for insurance business – – (113,678) – – (113,678) –
MEF account, held at the Treasury – – – – – – –
At 31 December 2016, the reduction in net funds reflects the decrease in the fair value reserve for available-for-sale financial assets (€2,265 million before tax) and the negative impact of reclassification of the financial assets and liabilities (a net total of €595 million) of BdM-MCC SpA and BancoPosta Fondi SpA SGR to the specific items resulting from application of IFRS 5. The fair value reserve for available-for-sale financial assets, before tax, amounts to €1,512 million (€3,775 million at 31 December 2015).
The table below breaks down the fair value of financial assets and liabilities by level in the fair value hierarchy: FAIR VALUE HIERARCHY
Available-for-sale financial assets 122,497 4,958 788 128,243 112,267 5,123 479 117,869
Non-current assets and disposal groups held for sale 793 123 – 916 – – – –
Financial liabilities at fair value – – – – – – – –
From Level 1 to Level 2 From Level 2 to Level 1
Other movements (including accruals at the end of the period) – – – –
Movements in fair value through profit or loss – – – –
Movements in Level 3 of the hierarchy within the scope of Poste Vita SpA’s operations regard new investments, redemptions of unlisted closed-end funds, changes in fair value during the year and the impairment loss on the investment in the alternative investment fund, “Atlante”, described in section A5.5 (a net movement attributable to the company of approximately €568 million). This category includes funds that invest primarily in unlisted instruments, whose fair value measurement is based on the latest available NAV (Net Asset Value) as announced by the fund manager. This NAV is adjusted according to the capital calls and reimbursements announced by the managers which occurred between the latest NAV date and the measurement date. These financial instruments primarily consist of investments in private equity funds and, to a lesser extent, real estate funds associated entirely with Class I products related to separately managed accounts.
In accordance with IFRS 7 – Financial Instruments: Disclosures, this section provides details of financial assets and liabilities that are subject to master netting agreements or similar arrangements, regardless of whether the financial instruments have been offset in keeping with paragraph 42 of IAS 32(74).
(74) Paragraph 42 of IAS 32 provides that “A financial asset and a financial liability can be offset and the net amount presented in the statement of financial position when, and only when, an entity: (a) currently has a legally enforceable right to set off the recognised amounts; and
(b) intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.”
(*) The gross amount of financial assets and liabilities includes the financial instruments subject to offsetting and those subject to master netting agreements or similar arrangements, regardless of whether the financial instruments have been offset.
Financial liabilities arising from repos [B8] (5,379) (5,381) (5,419) (4,885) (4,895) (4,949)
Loans used as collateral for transactions promoted by the ECB – – 614 614
Receivables used as collateral provided by CSAs 1,441 1,441 909 909
Securities used as collateral for transactions promoted by the ECB – – 563 588
Securities used as collateral for other financing transactions – – 5 5
For 2016, following the reclassifications carried out in application of IFRS 5, financial assets used as collateral by BdMMCC SpA for transactions entered into with the ECB and Cassa Depositi e Prestiti are not shown in the table.
For 2016, following the reclassifications carried out in application of IFRS 5, commitments and guarantees attributable to BdM-MCC SpA and BancoPosta Fondi SGR SpA are not shown in the following tables.
Assets under management by BancoPosta Fondi SpA SGR, measured at fair value using information available on the last working day of the year, amount to €7,269 million at 31 December 2016 (€5,734 million at 31 December 2015).
The increase in purchase commitments relating to the lease of fleet vehicles is due to the Parent Company’s renewal of the related contract during the year.
At 31 December 2016, EGI SpA has given commitments to purchase electricity, with a total value of €11.3 million, on regulated forward markets in 2017. At 31 December 2016, the corresponding market value is €12.9 million.
At 31 December 2016, the Parent Company had paid a total of €96 million in claims on behalf of the Ministry of Justice, for which, under the agreement between Poste Italiane SpA and the MEF, it has already been reimbursed by the Treasury, whilst awaiting acknowledgement of the relevant account receivable from the Ministry of Justice.
(*) The above amounts do not include incidental expenses and charges.
(**) The amounts shown do not include fees for auditing services performed in respect of funds managed by BancoPosta Fondi SGR SpA and payable by investors, amounting to €103 thousand.
The purpose of Poste Vita’s investment in the funds is to diversify its portfolio of financial instruments intended to cover Class I products (Separately Managed Accounts), with the objective of mitigating the concentration of investments in Italian government. Details are provided below.
Name Nature of entity Activity of the Fund % investment NAV
Investment in "core" and "core plus" real estate assets for retail use, located in the Eurozone and euro -denominated
The company’s investments in the funds in question are reported at fair value (mainly level 2 of the fair value hierarchy), on the basis of the NAV reported from time to time by the fund manager. These investments were made in connection with Class I policies (Separately Managed Accounts) and, as such, any changes in fair value are passed on to the policyholder under the shadow accounting mechanism.
Financial assets FVPL 1,304 135 1,169 Analytical VaR 99.5% over 1-year
Financial assets FVPL 1,294 168 1,126 Analytical VaR 99.5% over 1-year
Financial assets FVPL 938 105 833 Historical VaR 99.5% over a 1-year
Available-for-sale financial assets 250 68 182 VaR 99.5% over a 1-year time horizon
Financial assets FVPL – 0 – Analytical VaR 99.5% annualised * Maximum loss is estimated without considering the ability of liabilities to offset losses, thus representing a more prudential estimate.
The phantom stocks are awarded if the performance targets are achieved, and converted at the same time into a cash bonus based on the market value of the shares in the thirty stock exchange trading days prior to the grant date for the phantom stocks or at the end of a retention period (as specified below). The key characteristics of the Plan are described below.
The beneficiaries of the Plan are: Poste Italiane’s Chief Executive Officer, in his role as General Manager, certain managers within the Poste Italiane Group, including key management personnel, Material Risk Takers who work for BancoPosta RFC and personnel belonging to the Poste Vita insurance group.
The Performance Targets, to which receipt of the cash bonus is subject, are as follows: • for the General Manager and other beneficiaries of the Plan employed by Poste Italiane, other than BancoPosta personnel, an indicator of earnings based on the Group’s cumulative EBIT over a three-year period, used to account for the continuity and sustainability of earnings over the long term; • for Beneficiaries included among BancoPosta RFC’s Risk Takers, the three-year RORAC (Return On Risk Adjusted Capital), used for the LTIP with the aim of taking into account the continuity and sustainability of the long-term performance after appropriately adjusting for risk; • for Beneficiaries included among personnel belonging to the Poste Vita insurance group, the RORAC registered by the Poste Vita insurance group over a three-year period, used for the LTIP with the aim of taking into account the continuity and sustainability of the long-term performance after appropriately adjusting for risk.
For personnel belonging to the Poste Vita insurance group, vesting of the Phantom Stocks, in addition to achievement of the Performance Hurdle (Group’s cumulative EBIT over a three-year period), is subject to achievement of specific Qualifying Conditions, namely the Solvency II ratio at the end of the period.
The total number of Phantom stocks awarded to the 55 Beneficiaries of the First Cycle of the Plan amounted to 706,643 units. The fair value of each stock at 31 December 2016 was estimated to be €5.435 with regard to the plan for the Chief Executive Officer and General Manager, BancoPosta RFC personnel and Poste Vita’s personnel, and €5.721 relating to the plan for the remaining Poste Italiane personnel. An independent expert, external to the Group, was appointed to measure the value of the stocks and this was based on best market practices. The cost recognised for 2016 is approximately €1.3 million, equivalent to the liability recognised in personnel expenses.
Details of this item are as follows: LIST OF INVESTMENTS CONSOLIDATED ON A LINE-BY-LINE BASIS
Banca del Mezzogiorno – MedioCredito Centrale SpA (Rome) 100.00% 364,509 29,146 425,042
Address Software Srl (Rome) Subsidiary 218 51.00% 1,130 704 426 1,169 36
Equam SpA (Roma) Joint venture – 64.00% 50 5,713 (5,663) – (5,713)
Risparmio Holding SpA (Roma) Joint venture – 80.00% 40 4,922 (4,882) – (4,932)
(a) Data derived from the consolidated accounts for the period ended 30 September 2016, the latest approved by the company.
(c) Data derived from the accounts for the period ended 31 December 2015, the latest approved by the company.
(d) Data derived from the accounts for the period ended 31 December 2015, the latest approved by the company; Group companies do not hold any equity interests in Programma Dinamico SpA.
During 2016, BancoPosta RFC’s leverage ratio (the ratio of its Common Equity Tier1 and total assets) declined as a result of the significant increase in activity, linked to the positive performance of deposits and the related investments. At 31 December 2016, the ratio is just below the limit of 3%, fixed by Poste Italiane SpA’s Board of Directors. As a result, at the date on which it will approve these consolidated financial statements, the Board of Directors proposes to strengthen BancoPosta RFC’s capital position in order to restore the ratio to the target level set out in the Risk Appetite Framework.
• 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.
The impact of financial risk on investment performance can be absorbed in full or in part by the insurance provisions based on the level and structure of the guaranteed minimum returns and the profit-sharing mechanisms of the “separate portfolio” for the policyholder. The company determines the sustainability of minimum returns through periodic analyses using an internal financial-actuarial (Asset-Liability Management) model which simulates, for each separate portfolio, the change in value of the financial assets and the expected returns under a “central scenario” (based on current financial and commercial assumptions) and under stress and other scenarios based on different sets of assumptions. This model makes it possible to manage the risks assumed by Poste Vita SpA on a quantitative basis, thereby fostering reduced earnings volatility and optimal allocation of financial resources.
Poste Assicura SpA’s investment policies are designed to preserve the Company’s financial strength, as outlined in the framework resolution approved by the Board of Directors on 29 September 2016. Regular analyses of the macroeconomic context and market trends for the different asset classes, with the relevant effects on asset-liability management, are conducted. For the non-life business, such analyses do not consider guaranteed minimum returns but, rather, focus on the management of liquidity in order to meet claims.
(76) See in particular the provisions laid down in Part I – Section IV – Chapter 3. (77) 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.
Against this backdrop, Poste Italiane SpA’s Board of Directors has adopted regulations containing integrated guidelines for Poste Italiane SpA’s Internal Control and Risk Management System (Guidelines for Internal Control and Risk Management System or “SCIGR”).
Market risk relates to: • price risk: the risk that the value of a financial instrument fluctuates as a result of market price movements, deriving from factors specific to the individual instrument or the issuer, and factors that influence all instruments traded on the market; • foreign exchange risk: the risk that the value of a financial instrument fluctuates as a result of movements in exchange rates for currencies other than the functional currency; • fair value interest rate risk: the risk that the value of a financial instrument fluctuates as a result of movements in market interest rates.
Spread risk became a major component of market risk in 2011-2012. Spread risk is the risk of a potential fall in the value of bonds held, following deterioration in the creditworthiness of issuers. This is due to the importance that the impact of the spread of returns on government securities had on the fair value of euro zone government securities, reflecting the market’s perception of the credit rating of sovereign issuers.
Liquidity risk is the risk that an entity may have difficulties in raising sufficient funds, at market conditions, to meet its obligations deriving from financial instruments. Liquidity risk may, for example, derive from the inability to sell financial assets quickly at an amount close to fair value or the need to raise funds on excessively onerous terms or, in extreme cases, the inability to borrow on the market.
Price risk relates to financial assets that the Group has classified as “Available-for-sale” (AFS) or “Held for trading” and certain derivative financial instruments where changes in value are recognised in profit or loss.
Fair value through profit or loss (liabilities) – – – – – – – – –
At 31 December 2016, equity instruments include: • equities held by BancoPosta RFC, totalling €104 million, primarily consisting of Class B Mastercard Incorporated shares, totalling €74 million, Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock), totalling €27 million. For the purposes of the sensitivity analysis, are matched with the corresponding amount of the Class A shares, considering the volatility of the shares listed on the NYSE; • equities held by Poste Vita SpA in Class I separately managed portfolios, totalling €16 million.
Lastly, in relation to derivative financial instruments, the price risk relates to warrants held by Poste Vita SpA to cover the benefits associated with the Class III policies.
At 31 December 2016, this item primarily refers to equity instruments held by Poste Italiane SpA (denominated in US dollars and Special Drawing Rights) and by Poste Vita SpA (denominated in US dollars).
Available-for-sale financial assets 77 71 9 (9) – – 9 (9)
The risk in question regards equities held by the Parent Company and a private equity fund held by Poste Vita SpA.
Foreign exchange risk refers to the net receivable/(payable) position in SDRs, a synthetic currency resulting from the weighted average of the exchange rates of four major currencies (the euro, US dollar, British pound and Japanese yen) and used worldwide to settle debts and credits among postal operators.
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.
The table below shows the sensitivity analysis for the fair value interest rate risk at 31 December 2016 for the Poste Italiane Group’s positions.
Available-for-sale financial assets 101,896 116,437 (6,272) 6,290 (4,822) 4,822 – – (1,450) 1,468
Derivative financial instruments – – – – – – – – – –
Cash flow hedges – – – – – – – – – –
Available-for-sale financial assets exposed to the risk in question regard primarily fixed rate instruments held almost exclusively by the Parent Company and by Poste Vita SpA. They include: • fixed income government bonds held by Poste Vita SpA, totalling €72,941 million (of which €8,775 million in inflation-indexed bonds); of this amount, €69,802 million is used to cover Class I and V policies linked to separately managed funds, €3,139 million relates to the Company’s free capital; • €35,650 million in fixed income government bonds held by BancoPosta RFC, which consist of: fixed rate bonds amounting to €12,324 million; variable rate bonds converted into fixed rate bonds via cash flow swaps amounting to €1,758 million; variable rate bonds amounting to €2,776 million (of which €2,605 million in inflation-linked instruments and €171 million CCTeus, which are variable rate Italian treasury certificates indexed to Euribor) and fixed or variable rate bonds converted to variable rate positions via fair value hedges amounting to €18,792 million (of which €16,087 million in forward starts); • €15,258 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; • €1,509 million in fixed rate bonds issued by CDP, and guaranteed by the Italian government, held by BancoPosta RFC.
At 31 December 2016, following the reclassifications carried out in application of IFRS 5, fixed income government bonds held by BdM-MCC SpA and BancoPosta Fondi SGR SpA are not shown in the above table.
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 €9,566 million. These consist of investments with a fair value of €5,451 million, relating to coupon stripped(78) BTPs covering obligations associated with Class III insurance products, investments with a fair value of €4,115 million, relating to corporate bonds covering Class I and V contractual obligations, and investments with a fair value of €551 million, relating to bonds issued by CDP SpA to cover Class I policies.
The sensitivity to the spread has been calculated by applying a shift of +/– 100 bps to the risk factor that affects the different types of bonds held represented by the yield curve of Italian government bonds.
POSTE ITALIANE SPA – EFFECT OF CREDIT SPREAD ON FAIR VALUE
Available-for-sale financial assets 32,678 37,721 (3,636) 4,314 – – (3,636) 4,314
Fair value though profit or loss – – – – – – – –
Available-for-sale financial assets 26,928 32,985 (3,058) 3,622 – – (3,058) 3,622
POSTE VITA GROUP – EFFECT OF CREDIT SPREAD ON FAIR VALUE
Financial assets at FV through profit or loss 9,879 10,117 (364) 364 (363) 363 (1) 1 – –
Financial assets at FV through profit or loss 8,042 8,128 (298) 298 (298) 298 – – – –
Financial assets at FV through profit or loss 8,042 8,128 15
In 2016, the ratings revised by the main agencies did not result in changes in the weighted average rating of the Group’s exposures, which, for investments other than Italian government bonds, was A2 at 31 December 2016, an improvement on the rating of A3 assigned at 31 December 2015.
Due from subsidiaries, associates and joint ventures 3 – 2 –
The Poste Italiane Group’s other receivables and assets exposed to the risk in question at 31 December 2016 are shown in the table below.
Due from tax authorities – tax withholdings 3,110 – 2,667 –
Amount due from MEF following cancellation of EC Decision of 16 July 2008 6 – – –
Lastly, with regard to financial assets, as required by Communication DEM/11070007 of 28 July 2011, implementing Document 2011/266 published by the European Securities and Markets Authority (ESMA) and later amendments, Poste Italiane SpA’s exposure to sovereign debt(80) at 31 December 2016 is shown in the table below, which provides details of the nominal value, carrying amount and fair value of each type of portfolio.
In order to minimise the risk of experiencing difficulties in raising sufficient funds, at market conditions, to meet its obligations, Poste Italiane Group applies a financial policy based on: • diversification of the various forms of short-term and long-term borrowings and counterparties; • availability of relevant lines of credit in terms of amounts and the number of banks; • gradual and consistent distribution of the maturities of medium/long-term borrowings; • use of dedicated analytical models to monitor the maturities of assets and liabilities.
Deposits with the MEF 6,214 – – 6,214 5,899 – – 5,899
Held-to-maturity financial assets 1,399 6,389 7,837 15,625 1,864 6,544 7,689 16,097
Financial assets at FV through profit or loss 4,483 4,987 22,294 31,764 1,017 8,103 14,992 24,112
Cash and cash equivalent 3,902 – – 3,902 3,142 – – 3,142
In terms of BancoPosta RFC’s specific operations, the liquidity risk regards current account deposits, the related investment of the deposits in Eurozone government securities and the margins on derivative transactions. The potential risk derives from a mismatch between the maturities of investments in securities and those of liabilities, represented by current accounts where the funds are available on demand, thus compromising the Parent Company’s ability to meet its obligations to current account holders. This potential mismatch between assets and liabilities is monitored via comparison of the maturity schedule for assets with the statistical model of the performance of current account deposits, in accordance with the various likely maturity schedules and assuming the progressive total withdrawal of deposits over a period of twenty years for retail customers, ten years for business customers and PostePay cards and five years for Public Administration customers.
As to the policies sold by Poste Vita SpA, in order to analyse its liquidity risk profile, the company performs Asset/ liability management (ALM) analysis to manage assets effectively in relation to its obligations to policyholders, and also develops projections of the effects deriving from financial market shocks (asset dynamics) and of the behaviour of policyholders (liability dynamics).
Specifically, with respect to financial assets, the cash flow interest rate risk primarily relates to: • investment by the Parent Company of the funds deriving from the current account deposits of Public Administration entities in the following: deposits with the MEF, with a nominal value of €6,189 million; • fixed and variable rate government bonds with a total nominal value of €170 million, as well as fixed rate bonds swapped into variable rate through fair value hedges, with a total nominal amount of €2,340 million; and an inflation-linked bond issued by the Italian Republic, with a nominal value of €100 million, which has been hedged against changes in its fair value; • a portion of the securities portfolio held by the Poste Vita group, with a nominal value of €13,245 million.
• receivables of €1,485 million, reflecting collateral posted to secure liabilities arising in relation to derivative financial instruments.
In relation to cash and cash equivalents, cash flow interest rate risk primarily regards amounts deposited by the Parent Company with the MEF and held in the so-called buffer account, in addition to the bank deposits of the subsidiary, Poste Vita SpA.
The table below analyses the sensitivity of future cash flows for the Poste Italiane Group’s financial assets at 31 December 2016.
Nominal Fair value +100bps –100bps +100bps –100bps +100bps –100bps 2016 effects
Available-for-sale financial assets 8,138 9,458 31 (30) 28 (28) 3 (2)
To protect against this form of risk, BancoPosta RFC has formalised a methodological and organisational framework to identify, measure and manage the operating risk related to its products/processes.
At 31 December 2016, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. In particular: Event type Number of types
Longevity risk is also low. In fact, for most life insurance products the probability of annuitisation is very close to zero, as historical experience shows that policyholders never use the option to annuitise. Pension products, in particular, still account for a limited share of insurance liabilities (about 4%). In addition, for these products, the Group may, if certain conditions materialise, change the demographic base and the composition by sex used to calculate the annuity rates.
Pricing risk is the risk of incurring losses due to the inadequate premiums charged for the insurance products sold. It may arise due to: • inappropriate selection of the technical basis; • incorrect assessment of the options embedded in the product; • incorrect evaluation of the factors used to calculate the expense loads.
The options embedded in the policies held in the portfolio include: • Surrender option; • Guaranteed minimum return option; • Annuity conversion option.
The Group’s business is by its nature exposed to elements of reputational risk, linked to market performance and primarily associated with the placement of investment products issued by third-party entities (bonds, certificates and real estate funds) or by Group companies (insurance policies issued by the subsidiary, Poste Vita SpA, and mutual funds managed by BancoPosta Fondi SpA SGR).
In particular, with regard to real estate funds sold in the period 2002-2005, which have given rise to a number of complaints and disputes, the Company is closely monitoring performance through to the respective maturities. In this regard, on 16 January 2017, Poste Italiane’s Board of Directors passed a resolution aimed at consolidating its historical customer relationships, based on trust and transparency. This will involve taking steps to protect all the customers who, in 2003, purchased units issued by the Invest Real Security real estate fund, against a different economic and regulatory backdrop compared with today’s, and still held the units at 31 December 2016, the date of the Fund’s maturity. The aim was to allow each investor to recover the difference between the amount they invested at the time of subscription, increased by any income distributions or early returns of capital over the life of the Fund, and the amount that the investor will receive from the Fund’s “Interim Liquidation Distribution” (the “Difference”). To anyone having reached the age of 80 at 31 December 2016, Poste Italiane has committed to pay, from its own resources, the Difference in the form of an amount to be credited to a current account or a postal savings book; other customers will be offered the option of taking out a Class I life insurance policy in which to invest the proceeds received from the Fund. To ensure that the value of the policy, which has a duration of 5 years, reaches the amount representing the Difference on maturity, Poste Italiane has committed to topping up the amount invested from its own resources. The estimated liabilities resulting from this initiative have been recognised in “Provisions for risks and charges” (note B6).
With the regard to the transaction’s impact on jobs, on 16 March 2016, an Ordinary General Meeting of Uptime SpA’s shareholders determined, with the vote of the majority shareholder (Gepin) alone, to terminate operations and windup the company. The shareholder, SDA, abstained. Following the start of the process that will make all 93 employees redundant, on 31 May 2016, Poste Italiane and labour unions representing most of the workers involved reached agreement on the redeployment of the workers involved. This envisages, among other things, that Poste Italiane will hire all former Uptime employees who have failed to find alternative employment by 31 December 2016 on permanent parttime contracts. In the second half of February 2017, following the outplacements provided for in the above agreement, the process of finding positions at Poste Italiane for personnel who have failed to find alternative employment began. As regards Gepin, efforts are being made, in collaboration with the Ministry for Economic Development, to find solutions for the company’s personnel.
(81) This company (71.43% owned by Gepin Contact SpA, 28.57% owned by SDA Express Courier SpA) did not take part in the tender as it did not meet the elevant requirements.
Upon conclusion of a general tax audit relating to the 2008 tax year, on 22 December 2011 BdM-MCC SpA received an official tax audit report contesting the deductibility of €19.6 million in costs, relating to agreements effected in 2008 to settle disputes with the Parmalat Group. The report further claims that BdM-MCC underreported its taxable income by €16.2 million, relating to the sale of non-performing loans to a company in the Unicredit Group, to which BdM-MCC belonged at the time. The appeal against the notice of assessment against the second of the two alleged violations was upheld by the Provincial Tax Tribunal on 2 October 2014, with the ruling confirmed on appeal on 10 May 2016. On 13 January 2017, the tax authorities again filed an appeal against the ruling. In this regard, as in previous years, the bank has not deemed it necessary to make any provision for risks and charges, given that any potential liabilities, obligations or responsibility are attributable to the previous owner of the bank.
Notes to the financial statements – Proceedings pending and relations with the authorities 2011, the tax authorities sent notices of two further small fines for the same violation in fiscal years 2005 and 2006. These fines have also been appealed. With regard to the dispute over VAT for 2004 and 2006, the Provincial Tax Tribunal of Rome has found in the company’s favour, ruling that the tax authorities’ allegations are without grounds. The tax authorities have challenged such rulings by filing an appeal. The Regional Tax Tribunal of Rome rejected both appeals and confirmed the lack of grounds of the claims against Poste Vita. On 23 October 2015, the State Attorney’s Office challenged these decisions and summoned the company to appear before the Court of Cassation. The counterclaims filed by Poste Vita before the Court of Cassation were served to the tax authorities on 3 December 2015 and subsequently entered in the Cassation’s registry on 17 December 2015. The litigation is currently pending before the Court of Cassation. Regarding, on the other hand, the disputes relating to 2005, with a ruling filed on 24 December 2015, the Provincial Tax Tribunal of Rome found in favour of the company. This ruling was then appealed by the tax authorities, as notified to the company on 26 June 2016. The company entered an appearance before the court on 27 July 2016 and the hearing before the Regional Tax Tribunal of Rome was held on 17 January 2017. The ruling has yet to be filed. The likely outcome of this tax dispute continues to be taken into account in determining provisions for risks and charges.
As part of activities relating to so-called “Help with Tax” (tutoraggio fiscale) initiative conducted by the Regional Tax Office for Lazio (Agenzia delle Entrate – Direzione Regionale del Lazio), in September 2016, Poste Vita SpA received a request for documentation pursuant to art. 32 of Presidential Decree 600/1973. This was followed, on 22 November 2016, by a raid on the company’s premises, conducted in accordance with art. 52 of Presidential Decree 633/1972 and art. 33 of Presidential Decree 600/73, with the aim of verifying, for the tax years 2012 and 2013, the correct computation of outstanding claims provisions and the related tax treatment for the purposes of IRES and IRAP. On 30 November 2016, the company was notified of a tax assessment notice containing one violation in relation to IRES and IRAP, regarding the alleged non-deductibility of the cost of certain “lapsed” claims that have yet to be paid and that were, therefore, still included in the provisions at 31 December 2012 and 31 December 2013. The tax authorities’ findings, relating to approximately 340 policies, amounting to a total of approximately €2.1 million for 2012 and approximately €0.2 million for 2013, solely regards the timing of recognition of the relevant costs. The inspectors’ opinion is based on the assumption that the company, with regard to lapsed policies, should have included the provisions for claims no longer payable to beneficiaries in taxable income, and then applied a matching reduction in taxable income in future years, when payment of the policies took place. This, according to the tax authorities, because the company’s decision to honour the policies, giving rise therefore to the possibility of deducting the related costs, can only be considered irrevocable and final when effective payment of the policy takes place. The company has so far acknowledged the inspectors’ findings and, on 23 December 2016, filed a tax settlement proposal in accordance with art. 6, paragraph 1 of Legislative Decree 218 of 19 June 1997, which is to date still awaiting a response.
On 22 July 2014, the Nucleo Polizia Tributaria Roma (Tax Police) commenced a tax audit relating to Postel SpA regarding direct taxes and VAT for the tax years from 2009 to 2012 included. This audit came to an end on 25 November 2014, with delivery of a tax audit report in which the right to deduct VAT from purchases, applied by the company in 2010 and 2011, is contested. On 21 December 2015, the tax authorities served a tax assessment notice to the Company, for fiscal year 2010, whereby the company was ordered to pay €5.6 million plus fines and interest. Considering that the tax assessment notice contains a number of key aspects warranting a radical review of the assessment, and considering the remarks made under article 12, paragraph 7, of Law 212 of 27 July 2000, Postel SpA filed a tax settlement proposal, which was rejected. On 18 May 2016, the company appealed the assessment notice, whilst at the same time making a provisional payment of approximately €2.35 million. A date for the appeal hearing has yet to be fixed. The likely outcome of this dispute continues to be taken into account in determining provisions for risks and charges.
In addition, on 6 July 2015, the Nucleo Polizia Tributaria Roma (Tax Police) carried out an inspection at Postel SpA regarding income tax, IRAP and withholding tax, pursuant to and in accordance with articles 32 and 33 of Presidential Decree 600 of 29 September 1973, article 35 of Law 4 of 7 January 1929, and art. 2 of Legislative Decree 68 of 19 March 2001. In particular, the inspection regarded the company’s alleged failure to pay social security contributions for employees and/or contractors used by a supplier. The inspection was concluded on 8 October 2015 with delivery of a tax audit report, contesting the right to deduct VAT and the deductibility of IRAP applied by the company in the tax years 2010 and 2014. On 4 December 2015, the company filed a brief pursuant to article 12, paragraph 7, of Law 212/2000. On 21 December 2015, the tax authorities served the company with a tax assessment notice for 2010 where, in taking the view that the service contracts with the supplier were instead employment contracts, it requested the company to pay VAT, IRES and IRAP totalling €0.2 million, plus penalties and interest. Considering that the tax assessment notice contains a number of key aspects warranting a radical review of the assessment, and considering the remarks made under article 12, paragraph 7, of Law 212 of 27 July 2000, on 27 January 2016, Postel SpA filed a tax settlement proposal, which was rejected. On 18 May 2016, the company appealed the assessment notice. A date for the appeal hearing has yet to be fixed. The lack of any basis for the inspectors’ claims suggests that, at present, it might be reasonably assumed that the matter will be closed in a positive manner.
Finally, on 25 November 2016, the tax authorities notified Postel SpA of a tax assessment notice relating to IRES, IRAP, VAT and withholding tax for 2012, based on the findings set out in the tax audit report of 8 October 2015. The assessment notice requires the company to pay additional VAT, IRES, IRAP and withholding tax amounting to €0.12 million, plus penalties and interest. On 19 January 2017, the company appealed the assessment notice, whilst at the same time making a provisional payment of approximately €0.05 million. A date for the appeal hearing has yet to be fixed. The lack of any basis for the inspectors’ claims suggests that, at present, it might be reasonably assumed that the matter will be closed in a positive manner.
Since 2012, the Istituto Nazionale per la Previdenza Sociale (INPS, the National Institute of Social Security) office at Genoa Ponente has issued Postel SpA and Postelprint SpA (regarding which an agreement relating to a merger with Postel SpA was signed on 27 April 2015, effective for accounting and tax purposes from 1 January 2015) a number of notices of adjustment, some of which have resulted in payment orders, for a total amount payable of €14.8 million at 31 December 2016. According to INPS, this amount represents social security contributions that the two companies failed to pay. The companies immediately challenged the grounds for the payment orders, initially through administrative channels before the Administrative Committee for Employee Pensions, and then in the form of legal action before the Court of Genoa. The Court awarded an injunction suspending the payment orders and adjourned the discussion until the related hearings. In a brief filed on 24 May 2014 with regard to one of the pending actions, INPS has for the first time clarified the nature of its claim for unpaid contributions, arguing that the two companies, whilst correctly paying pension contributions to IPOST (a fact that cannot be contested in the light of the authentic interpretation provided by art 7, paragraph 9 sexies of Law Decree 101/2013), should have paid non-pension contributions to INPS, on the assumption that IPOST represents a supplementary pension scheme and not an alternative to the general regime, and that its sole purpose is to provide old age, invalidity and survivors’ pensions. According to this interpretation, Postel SpA is required to insure their employees with INPS in order to provide other forms of cover (income support, extraordinary income support, unemployment benefit and family benefits) not provided by IPOST. In part based on the opinion of its legal counsel, the company maintains that is has correctly applied the relevant legislation and that INPS’s claims are without grounds. The correctness of the company’s conduct would appear to be confirmed by Ministry of Labour which, in response to a request for clarification from Poste Italiane regarding the correct interpretation of the related legislation, on 20 October 2016 stated that the social security contributions system applicable to Poste Italiane also applies to all the other Group companies, with the sole exception of those that provide air transport, banking and express delivery services.
On 13 September 2013, the Court of Justice of the European Union upheld Poste Italiane SpA’s appeal, overturning the decision of the European Commission of 16 July 2008 on state aid, ordering the EC to pay legal costs. Acting on the European Commission’s Decision, and in accordance with instructions from the Parent Company’s shareholder, in November 2008 Poste Italiane SpA made available €443 million plus interest of €41 million to the MEF, which collected the sum in January 2009. In implementation of the European Court’s (by then definitive) decision, in accordance with art.1 paragraph 281 of the 2015 Budget Law, (Law 190 of 23 December 2014), on 13 May 2015, the Company collected the amount of €535 million from its then sole shareholder, the MEF (Note B2). Following the European Court’s decision, however, the European Commission reopened its review and appointed an external expert to determine whether (in accordance with art. 1, paragraph 31 of the 2006 Budget Law – Law 266 of 23 December 2005) the rates of interest earned by the Company on deposits with the MEF during the period from 1 January 2005 to 31 December 2007 were in line with market rates. The external expert has provided the Commission, on a preliminary basis, with an
In particular, the AGCM intends to ascertain whether Poste Italiane refuses to offer Nexive, in geographical areas where the company does not have a presence with its own distribution networks, the Posta Time service, namely the
Poste Italiane Group Annual Report 2016 service that Poste Italiane offers to end customers in those areas, only making available its Bulk Mail service, for which it charges higher rates than for its Posta Time service. Moreover, according to the Antitrust Authority, Poste Italiane operates a policy of applying loyalty-building discounts on its Posta Time product for the benefit of end customers. The proceedings will conclude on 31 October 2017. On 9 September 2016, Poste Italiane submitted a set of commitments designed to settle the Authority’s competition concerns and, given the AGCM’s rejection on 4 October 2016, is taking steps to defend its position as the proceedings continue.
Law Decree 201 of 6 December 2011, converted into Law 214 of 22 December 2011, transferred responsibility for regulation and supervision of the postal sector from the Ministry for Economic Development to the Italian Communications Authority (AGCom).
Responsibility for providing the Universal Service was assigned to Poste Italiane SpA by Legislative Decree 261/1999 (art. 23, paragraph 2), as amended by Legislative decree 58 of 31 March 2011, which provided that the Company should be the provider for fifteen years from the date of entry into effect of the decree. Every five years, the Ministry for Economic Development assesses, on the basis of a survey conducted by the regulator (AGCom), whether or not provision of the service meets the criteria set out in the decree and if there have been improvements to the efficiency of provision. Following the five-yearly assessment conducted by AGCom, the Ministry for Economic Development issued a Decree on 25 August 2016, confirming that Poste Italiane’s provision of the universal service in the period from 30 April 2011 to 30 April 2016 had fulfilled the related requirements.
(ii) On 23 September 2014, the Authority began the process covering the analysis and applicability of the method for allocating and assessing the net cost of the Universal Postal Service for 2013, and, on 24 July 2015, confirmed that such process would be extended to include the 2014 financial year. On 29 July 2016, AGCom published a resolution launching a public consultation on the draft ruling concerning assessment of the net cost of providing the universal postal service in these years, in which the cost of universal provision was estimated to be €345 million for 2013 and €365 million for 2014, compared with revenue of €343 and €277 million, respectively, recognised in Poste Italiane’s statement of profit or loss for services rendered in those years. The Company submitted its observations to the public consultation on 27 September 2016. The process has yet to be concluded.
With regard to access to the postal network, On 1 July 2016, AGCom published a press release on its website, announcing the start of a review of Poste Italiane’s network access obligations, as set out in art. 6 of Resolution 728/13/ CONS. The start of this review had been provided for in Resolution 396/15/CONS, approving the new tariffs and quality targets for the universal service, in response to changed conditions in the postal market. On 1 September 2016, Poste Italiane submitted an initial document in which it explains its views on the issue and requests removal of the above obligation, which it deems to be unjustified. Subsequently, on 27 September, Poste Italiane sent the regulator the results of a study on this matter, accompanied by certain additional information of relevance to the review.
Notes to the financial statements – Proceedings pending and relations with the authorities
On 23 December 2016, AGCom launched a public consultation on its outline proposals for changes to the provisions regarding access to Poste Italiane’s postal network and infrastructure. In its analysis, the regulator recognises that there is a significant and growing level of both competition in the postal market and of replicability of Poste Italiane’s network, focusing the consultation on the following issues: the possibility of reducing the scope of Poste Italiane’s network access obligations (restricting them to the level of sorting centres); the regulation of certain aspects linked to access to postal infrastructure (post offices for managing undelivered registered mail, information on postcodes, the database of addresses, modular mailboxes and post boxes), the possibility of assessing the issue of the replicability of Poste Italiane’s offerings by price testing. Poste Italiane submitted its contribution to the debate to AGCom on 6 February 2017, stating that: it agreed with the regulator’s analysis of market competition; it is opposed to the imposition of obligations regarding access to infrastructure, as this would not be justified by “market failures”; it wished to have all existing network access obligations removed (and not only revised), partly in view of the outcome of the market survey; whilst there are a number of issues surrounding the introduction of a “price test” for its commercial offerings, it was willing to engage in discussion. Poste Italiane explained its position in a hearing held at AGCom’s offices on 21 February 2017.
On 8 July 2016, the UIF sent Poste Vita a notice of assessment and violation, alleging the company’s failure to promptly report suspect transactions (regarding transactions relating to a single policy) pursuant to art. 41 of Legislative Decree 231/2007. The violation in question (punishable, in accordance with art. 57, paragraph 4 of Legislative Decree 231/2007, with a fine amounting to between 1% and 40% of the value of the transactions) may result in a fine of up to €0.4 million. Poste Vita sent the Ministry of the Economy and Finance a defence memorandum and requested a hearing. On 27 July 2016, the Bank of Italy requested the company to take corrective action to resolve a number of issues emerging during the checks carried out, and asking the company to report back. The company informed the Bank that it was taking the necessary steps, after which it would report on the initiatives and corrective action undertaken. This report was submitted on 20 December 2016, with a description of the steps being taken in order to implement the UIF’s recommendations.
On 18 July 2016, following an inspection at Banca del Mezzoggiorno – MedioCredito Centrale, completed on 20 April 2016, the Bank of Italy notified the findings of the audit, which identified certain aspects of the Bank’s organisation and activities that require corrective action, expressing a partly unfavourable opinion. The inspection did not give rise to any imposition of fines on the bank or its representatives. In line with the relevant regulations, on 5 August 2016, the bank submitted its comments on the findings and its observations to the Bank of Italy, as well the overall plan for compliance initiatives, which have already been partially implemented.
On 10 February 2017, the Bank of Italy announced an inspection of Poste Italiane SpA, pursuant to art. 54 of Legislative Decree 385 of 1 September 1993, with the aim of assessing its governance, control and operational and IT risk management systems.
IVASS – Istituto per la Vigilanza sulle Assicurazioni (the insurance regulator)
On 15 January 2014, at the end of an investigation launched in 2009, the Authority imposed a fine of €0.34 million on Postel SpA, which the company accounted for in its financial statements for 2013. The company appealed the Authority’s ruling before the Civil Court of Rome, requesting an injunction suspending its implementation, which was accepted by the judge with a ruling on 16 June 2014. On 21 January 2016, the designated judge reduced the fine by
Poste Italiane Group for the year ended 31 December 2016 €0.1 million, rejecting the other preliminary exceptions raised on the merits. As a result of this decision, the relevant liabilities recognised in these financial statements have been adjusted accordingly.
A brief summary of the impact of material non-recurring events and transactions, involving the Poste Italiane Group in 2016, is provided below, as required by CONSOB ruling DEM/6064293 of 28 July 2006. In this regard, events and transactions are defined as such when their occurrence is non-recurring, being transactions or events that do not recur frequently in the ordinary course of business: • the sale of the share in Visa Europe Ltd to Visa Incorporated, resulting in the Parent Company’s recognition of a non-recurring realised gain at a total fair value of €121 million (further details are provided in section A5); • an agreement to transfer the entire shareholding in BdM-MCC SpA, resulting in recognition of an impairment of €37 million in order to bring the value of the net assets into line with the estimated realisable value, less costs to sell (further details are provided in section A11); • the 2016 Stability Law, which has reduced the IRES rate from 27.5% to 24% with effect from 1 January 2017. Non-recurring charges of €14 million were recognised in the period under review, following a reassessment of deferred tax assets due to the occurrence of temporary taxable differences that differed from those estimated in 2015.
Under the definition provided by the CONSOB ruling of 28 July 2006, the Poste Italiane Group did not conduct any exceptional and/or unusual transactions in 2016.
Events after the end of the reporting period are described in the above notes and there are no other significant events occurring after 31 December 2016.
Cash and deposits attributable to BancoPosta [A9] 2,494,150,897 – 3,160,654,030 –
Cash and deposits attributable to BancoPosta [A9] – 3,160,654,030 – 3,160,654,030
Operating profit/(loss) 799,558,973 613,876,972 of which non-recurring income – – 4,021,772 –
Increase/(decrease) in fair value during the year [tab. B3] (1,637,143,892) 1,531,496,129
Increase/(decrease) in fair value during the year [tab. B3] (15,406,658) 12,721,107
Taxation of items recognised directly in, or transferred from, equity not to be reclassified in the Statement of profit or loss for the year 16,332,193 (29,541,350)
Total comprehensive income for the year – – – 931,179,814 (39,034,781) 499,986,288 1,392,131,321
Total comprehensive income for the year – – – (1,613,166,625) (26,727,196) 593,110,121(*) (1,046,783,700)
Cash generated by operating activities before movements in working capital [a] 1,188,948 882,599
(Income)/Expenses and other non-cash components attributable to financial activities (1,041,371) (926,509)
Amounts that cannot be drawn on due to court rulings (12,457) (11,228)
Unrestricted net cash and cash equivalents at end of year 1,632,212 1,291,185
Information on BancoPosta RFC As required by art. 2, paragraphs 17-octies et seq. of Law 10 of 26 February 2011, converting Law Decree 225 of 29 December 2010, in order to identify ring-fenced capital for the purposes of applying the Bank of Italy’s prudential requirements to BancoPosta’s operations and for the protection of creditors, at the General Meeting held on 14 April 2011 Poste Italiane SpA’s shareholder approved the creation of ring-fenced capital to be used exclusively in relation to BancoPosta’s operations (BancoPosta Ring-fenced Capital or BancoPosta RFC), as governed by Presidential Decree 144 of 14 March 2001, and established the assets and contractual rights to be included in the ring-fence as well as By-laws governing its organisation, management and control. BancoPosta RFC was provided originally with an initial reserve of €1 billion through the attribution of Poste Italiane SpA’s retained earnings. The resolution of 14 April 2011 became effective on 2 May 2011, the date on which it was filed with the Companies’ Register.
Nature of assets and contractual rights and authorisation BancoPosta’s assets, contractual rights and authorisations pursuant to notarial deed were conferred on BancoPosta RFC exclusively by Poste Italiane SpA without third-party contributions. BancoPosta’s operations consist of those listed in Presidential Decree 144 of 14 March 2001, as amended(83), namely: • the collection of all forms of savings deposit from the public in accordance with art. 11, para. 1 of Legislative Decree 385/1993 of 1 September 1993 – Consolidated Banking Law (Testo Unico Bancario, or TUB) – and all related and consequent activities; • the collection of savings through postal securities and deposits; • payment services, including the issuance, administration and sale of prepaid cards and other payment instruments pursuant to art. 1, para. 2, letter f) numbers 4) and 5), TUB; • foreign currency exchange services; • promotion and arrangement of loans issued by approved banks and financial brokers; • investment and related services pursuant to art. 12, Presidential Decree 144/2001; • debt collection services; • professional gold trading, on own behalf or on behalf of third parties, in accordance with the requirements of Law 7 of 17 January 2000.
All of the assets and rights arising out of various contracts, agreements and legal transactions related to the above activities have also been conferred on BancoPosta RFC(84).
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. In compliance with the 2007 Budget Law, from 2007 the Company is required to invest the funds raised from deposits paid into postal current accounts by private customers in euro area government securities(85). Funds deposited by Public Administration entities are, instead, deposited with the Ministry of the Economy and Finance and earn a variable rate of return linked to a basket of government securities and money market indices, in accordance with a specific agreement with the MEF regarding treasury services, signed on 27 March 2015 and covering the two-year period 2015-2016. In addition, under the agreement with the MEF, renewed on 11 June 2014 for the three-year period 2014-2016, a percentage of the funds deriving from private customer deposits may be placed in a special “Buffer” account at the MEF, with the objective of ensuring flexibility with regard to investments in view of daily movements in amounts payable to current account holders. These deposits are remunerated at a variable rate calculated on the basis of the Euro OverNight Index Average (EONIA)(86) rate. Both the agreements with the MEF, having expired on 31 December 2016, are in the process of being renewed.
(84) All assets, contractual rights and authorisations were conferred on BancoPosta as required to engage in the following types of operation: a. Contracts for the collection of savings from the public, both in the form of deposits (e.g., postal current accounts) and the related services (e.g., issuance of postal cheques, payment of bills by payment slip and direct debits) and in other forms; b. Contracts for the provision of payment services including the issuance, management and sale of payment cards, including prepaid cards (e.g., “postamat”, “postepay”), acquiring services and money transfers (e.g., post office money orders); c. Investment services contracts (e.g., brokerage, distribution and investment advisory services) and related services (e.g., securities custody); d. Agreements with Cassa Depositi e Prestiti SpA in connection with collection of savings through postal securities and deposits; e. Agreements with approved banks and brokers for the promotion and lending to the public (e.g. mortgages, personal loans); f. Agreements with approved banks and brokers for acquiring and payment services; g. Agreements with approved brokers to promote and place financial instruments, bankassurrance and insurance products (e.g., share, bond and mutual fund subscriptions, life and non-life insurance); h. Other agreements relating to BancoPosta services; i. Contracts and related legal arrangements with BancoPosta employees belonging to a separate cost centre; j. Contracts with suppliers to the BancoPosta costs centre and related legal arrangements; k. Shares and investments in companies, consortia, payment/credit card issuers or money transfer service companies; l. Euro area government securities and securities guaranteed by the Italian government, held pursuant to art. 1, paragraph 1097 of Law 296 of 27 December 2006, as amended, and the related valuation reserves, including hedging derivatives; m. Accounts payable (e.g., postal current accounts) and receivable in connection with the above points; n. Intersegment accounts payable and receivable respectively to and from Poste Italiane; o. Deferred tax assets and liabilities relating to BancoPosta; p. Post office and bank account cash balances associated with BancoPosta operations; q. “Buffer” account at the Treasury, Ministry of the Economy and Finance; r. Cash deposits at the Treasury, Ministry of the Economy and Finance relating to Public Administration balances held in post offices; s. Cash and cash equivalent in connection with BancoPosta operations; t. Litigation relating to BancoPosta and associated settlements; u. Provisions in connection with BancoPosta RFC’s contractual and legal obligations.
(85) In addition, following the amendment of art. 1, paragraph 1097 of Law 296 of 27 December 2006, introduced by art. 1, paragraph 285 of the 2015
Stability Law (Law 190 of 23 December 2014), it became possible for BancoPosta RFC to invest up to 50% of its deposits in securities guaranteed by the Italian government.
(86) The rate applied in overnight lending and calculated as the weighted average of overnight rates for transactions on the interbank market reported to ECB by a panel of banks operating in the euro zone (the biggest banks in all the euro zone countries).
Cost and revenue allocation Given the fact that Poste Italiane is a single legal entity, the Company’s general accounting system maintains its uniform characteristics and capabilities. In this context, the general principles governing administrative and accounting aspects of BancoPosta RFC are as follows: • identification of transactions in Poste Italiane SpA’s general ledgers relating to BancoPosta’s ring-fenced operations which are then extracted for recording in BancoPosta’s separate ledgers; • allocation to BancoPosta of all relevant revenues and costs. In particular the services rendered by the different functions of Poste Italiane SpA to BancoPosta RFC, are exclusively recorded as payables in BancoPosta’s separate books, in special intersegment accounts only, and subsequently settled; • settlement of all incoming and outgoing third party payments by Poste Italiane SpA’s Chief Financial Office; • allocation of income taxes based on BancoPosta’s separate income statement after adjusting for deferred taxation; • reconciliation of BancoPosta’s separate books to Poste Italiane’s general ledger; • the activities-or services-carried out by the various departments within Poste Italiane SpA on behalf of BancoPosta RFC are indicated in specific General Guidelines governing the process of contracting out BancoPosta’s corporate functions to Poste Italiane (the “General Guidelines”) approved by Poste Italiane SpA’s Board of Directors on 27 May 2015. In implementation of BancoPosta RFC’s Regulation, these General Guidelines identify the services in question and determine the manner in which they are remunerated.
The general policies and instructions contained in the General Guidelines in relation to transfer pricing are detailed in separate Operating Guidelines, jointly developed by BancoPosta and the Issuer’s other functions. The Operating Guidelines establish, among other things, levels of service and the related transfer prices, and become effective, in accordance with the General Guidelines, following an authorisation process involving the relevant functions, the Chief Executive Officer and, when provided for, the Issuer’s Board of Directors.
(87) Bank of Italy Circular 285 of 17 December 2013, part four, chapter 1 – BancoPosta.
Real Estate Market prices with reference to floor space and maintenance costs
In this regard, the new Operating Guidelines drawn up in 2016, relating to key operating functions and control functions, have been submitted to the Bank of Italy, as required by the Supervisory Standards, and the 60-day term for the Bank to notify its prohibition on implementation has expired.
Separate Report BancoPosta RFC’s Separate Report is prepared in application of Bank of Italy Circular 262 of 22 December 2005 – Banks’ Financial Statements: Layouts and Preparation, as amended. The application of these regulations, whilst in compliance with the same accounting standards adopted by Poste Italiane SpA, requires the use of a different basis of presentation for certain components of profit or loss and the statement of financial position compared with the basis of presentation adopted for the statutory financial statements.
In this regard, the following table shows a reconciliation of the components of BancoPosta RFC’s equity, as shown in the Company’s statement of financial position and in the Separate Report(88).
(Impairments)/Reversal of impairments – 10 4 – – – – 14
At 31 December 2016, property, plant and equipment includes assets located on land held under concession or subconcession, which are to be handed over free of charge at the end of the concession term, with a carrying amount of €67 million.
Extraordinary transactions, totalling €29 million, regard the partial demerger of the fixed line telecommunications business (“Rete Fissa TLC”) of the subsidiary, PosteMobile SpA, and the corresponding acquisition of the related infrastructure (€1 million), technology assets already in use (€20 million) and technology assets not yet operational (€8 million).
Investment property primarily regards former service accommodation owned by Poste Italiane SpA pursuant to Law 560 of 24 December 1993, and residential accommodation previously used by post office directors. None of the property included in this item is attributable to BancoPosta RFC. Movements in investment property are as follows: TAB. A2 – MOVEMENTS IN INVESTMENT PROPERTY
(90) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, service accommodation qualifies for level 3, while the other investment property qualifies for level 2.
The following table shows movements in intangible assets: TAB. A3 – MOVEMENTS IN INTANGIBLE ASSETS
Investment in “Intangible assets” during 2016 amounts to €181 million, including €4 million in internal software development costs and the related expenses. Research and development costs, other than those incurred directly to produce identifiable software used, or intended for use, within the Company, are not capitalised.
Extraordinary transactions, totalling €9 million, regard the partial demerger of the fixed line telecommunications business (“Rete Fissa TLC”) of the subsidiary, PosteMobile SpA, and the corresponding acquisition of software applications already in use (€4 million) and applications tested but not yet in use (€5 million).
Movements in investments in subsidiaries and associates are as follows: TAB. A4.1 MOVEMENTS IN INVESTMENTS MOVEMENTS IN INVESTMENTS IN THE YEAR ENDED 31 DECEMBER 2016
BancoPosta Fondi SpA SGR 12 – – – (12) – – –
Mistral Air Srl – – – – – – – –
Poste Tributi ScpA 2 – – – – – – 2
SDA Express Courier SpA – 38 – – – – (29) 9 in associates
Anima Holding SpA 211 – – – – – – 211
Banca del MezzogiornoMedioCredito Centrale SpA 372 – – – – – – 372
Anima Holding SpA – – 211 – – – – 211
• The acquisition, on 7 November 2016, of a 100% interest in Indabox Srl at a price of €0.65 million. This company operates in the e-commerce market with a platform designed to facilitate transactions.
• The merger of PosteShop SpA with and into the subsidiary, Postel SpA, on 22 April 2016, with effect for legal, tax and accounting purposes from 1 May 2016.
• The memorandum of association of Risparmio Holding SpA, which is owned by Poste Italiane (80%) and CDP (20%), was signed on 7 October 2016. The business purpose of the new company is to arrange for the acquisition of equity investments, loans to companies or entities in which it holds equity, and trading in securities, either directly and/or via its participating interest in a company specifically incorporated for this purpose. For this purpose, Equam SpA (a company 80% owned by Risparmio Holding SpA and 20% owned by Anima Holding SpA) was established on 17 October 2016.
The following transactions took place in early 2017: • On 13 January 2017, the board of directors of Risparmio Holding SpA voted to ask shareholders to make nonrefundable contributions to enable the company to meet its commitments in 2016. Poste Italiane’s resulting liability, amounting to approximately €4 million, has been included in “Other provisions for risks and charges”(92).
• On 2 February 2017, an extraordinary general meeting of Indabox Srl’s shareholders approved the issue of new shares and the creation of an extraordinary reserve amounting to €0.8 million. The above sum was paid in full by Poste Italiane SpA.
The impairment tests required by the related accounting standards have been conducted in order to identify any evidence of impairment. The tests carried out at 31 December 2016 were based on projections contained in the five-year business plans for the relevant cash generating units (companies or their subsidiaries) or the latest available projections. Data from the last year of the plan have been used to project cash flows for subsequent years over an indefinite time, and the resulting value was then discounted using the Discounted Cash Flow (DCF) method. For the determination of value in use, NOPLAT (Net operating profit less adjusted taxes) was capitalised using an appropriate growth rate and discounted using the related WACC (Weighted average cost of capital). In testing investments in subsidiaries, an assumed growth rate of 1.2% was used at 31 December 2016 (1.34% at 31 December 2015), whilst the WACCs, based on best market practices for the relevant sectors, were in a range of between 6.16% and 6.97%. The cost of equity (Ke) is 7.42% for banking activities and 7.47% for asset management activities.
The following table shows a list of investments in subsidiaries, joint ventures, associates and those held for sale at 31 December 2016: TAB. A4.2 – LIST OF INVESTMENTS
Consorzio per i Servizi di Telefonia Mobile ScpA(2) 51.00 120 – 120 61 61 –
(1) Consortium fund in the case of consortia. The registered offices of all the companies are located in Rome, with the exception of Anima Holding SpA, whose registered office is in Milan.
(3) Figures taken from the company’s latest approved financial statements at 31 December 2015.
Note Balance at 31 December 2016 Balance at 31 December 2015
The operations in question regard the financial services provided by the Company pursuant to Presidential Decree 144/2001, which from 2 May 2011 are attributable to the ring-fenced capital, and which relate to the management of postal current accounts deposits, carried out in the name of BancoPosta but subject to statutory restrictions on the investment of the liquidity in compliance with the applicable legislation, and the management of collections and payments on behalf of third parties (see “Information on BancoPosta RFC”).
Receivables of €7,915 million include: • Amounts deposited with the MEF, totalling €6,189 million, including public customers’ current account deposits, which earn a variable rate of return calculated on a basket of government bonds and money market indices(93).
• Other financial receivables of €1,726 million break down as follows: TAB. A5.1.1 – OTHER FINANCIAL RECEIVABLES
Guarantee deposits, totalling €1,435 million relate to €1,391 million provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes) and €44 million provided to counterparties in repurchase agreements on fixed income securities (with collateral contemplated by specific a Global Master Repurchase Agreements).
Items to be debited to customers, amounting to €116 million, primarily regard: withdrawals from BancoPosta ATMs, the use of debit cards issued by BancoPosta, cheques and other collection items settled in the clearing house, etc..
Other receivables include €8 million arising from Poste Italiane’s sale of the Visa Europe Ltd. share to Visa Incorporated, payable after three years from 21 June 2016, when the transaction was consummated (the transaction is described after tab. A5.2).
(93) The rate in question is calculated as follows: 50% is based on the return on 6-month BOTs, with the remaining 50% based on the monthly average Rendistato index. The latter represents the average yield on government securities with maturity greater than 1 year, approximating the return on 7-year BTPs.
Transfers to equity – – – (385) – – – (385)
Effect of sales on profit or loss – – – 385 – 1 – 386
Accrued income for current year – 187 – 302 – – – 489
Sales and settlement of accrued income – (208) (2,945) (3,724) (3,977) (4,213) (6,922) (8,145)
Changes in fair value through equity – – – (1,643) – – – (1,643)
Changes in cash flow hedge transactions(*) – – – 3 – – – 3
Sales and settlement of accrued income – (191) (1,950) (2,843) – (1) (1,950) (3,035)
Equity instruments include: • €74 million, reflecting the fair value of 756,280 Class B shares of Mastercard Incorporated. These shares are not traded on an organised exchange but are convertible into an equal number of Class A shares, which are listed on the New York Stock Exchange, if disposal is desired; • €27 million, reflecting the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) received for the sale of the Visa Europe Ltd. share to Visa Incorporated on 21 June 2016. In exchange for the share in Visa Europe Ltd.(95), Poste Italiane received a consideration of €121 million (a sum recognised as non-recurring income and entered as “Other income from financial and insurance activities”), consisting of: – €88 million in cash; – €25 million, representing the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock), convertible at the rate of 13.952(96) ordinary shares for each C share, minus a suitable illiquidity discount, considering the staggered conversion between the fourth and the twelfth year after the closing; – €8 million payable by Visa Incorporated after three years from the closing of the transaction; – €3 million, reflecting the fair value of 11,144 class C shares of Visa Incorporated. These shares are not traded on an organised exchange, but are convertible into Class A shares (at the rate of four ordinary shares for each C share), which are listed on the New York Stock Exchange, if disposal is desired.
Fair value gains in the year under review, amounting to €9 million, have been recognised in the relevant equity reserve (section B3).
(96) Until the assigned shares are fully converted into ordinary shares, the share exchange ratio may be reduced if Visa Europe Ltd. incurs liabilities that, as of the reporting date, were considered as merely contingent.
Gains/(Losses) through profit or loss(**) – – – – – (1) – – – – – (1)
(**) Gains and losses through profit or loss refer to any ineffective components of hedges, recognised in other income and other expenses from financial and insurance activities.
The fair value hedges in place, which are held to limit the price volatility of certain available-for-sale fixed rate instruments, saw their effective portion record a decrease in fair value of €885 million (of which €69 million attributable to financial instruments purchased during the period under review), whilst the hedged securities (tab. A5.2) recorded a fair value gain of €856 million, with the difference of €29 million due to paid differentials.
At 31 December 2016, financial assets outside the ring-fence are as follows: TAB. A6 – FINANCIAL ASSETS
This item includes: • an irredeemable subordinated loan of €250 million, 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; • a loan of €200 million issued to Banca del Mezzogiorno-MedioCredito Centrale SpA in 2016 and repayable in a lump sum on 11 February 2018, designed to support the subsidiary’s business; • Contingent Convertible Notes(97) with a value of €82 million (a total nominal value of €75 million), subscribed on 23 December 2014 by Poste Italiane SpA, in connection with the strategic transaction that resulted in Etihad Airways’ acquisition of an equity interest in Alitalia SAI SpA(98). The Notes were issued by Midco SpA, which in turn owns 51% of Alitalia SAI. The Contingent Convertible Notes, with a twenty-year term to maturity starting 1 January 2015, carry a nominal rate of interest of 7% per annum. Interest and principal payments will be made by Midco SpA if, and to the extent that, there is available liquidity. Based on the latest available business plan of the Alitalia Group, prepared at the end of 2014, a reasonable estimate of the effective interest rate payable on the Notes amounts to approximately 4.6%. At the date of preparation of these financial statements, based on the best information available to us, there is no indication of the need to recognise an impairment of the Contingent Convertible Notes. This conclusion has also been reached on the basis of the terms and conditions applicable to the loan and the Alitalia Group’s above-mentioned business plan, in addition to the latest financial statements for the year ended 31 December 2015, approved by Midco SpA on 4 July 2016 (showing equity of €323 million and valuing the investment in Alitalia at €403 million), and despite the presence of indicators of impairment (such as press reports on the liquidity position, solvency and exposure to financial, business and reputational risks of the Group to which the debtor belongs). However, whilst continuing to monitor the information provided by the above Midco SpA under the terms of the existing contract, we cannot exclude that future developments regarding the agreement in place between the airline, its shareholders and its banks, as well as the risks to which the industry may be exposed, could influence a future assessment of the recoverability of the loan. The impact of such developments will be taken into account in accordance with the relevant accounting standards.
(98) This is the so-called “Nuova Alitalia”, the company to which all the aviation assets and activities of Alitalia Compagnia Aerea Italiana SpA, now CAI SpA, have been transferred. The company owns 100% of Midco SpA.
This item (€180 million) regards a line of credit of up to €100 million granted to Banca del Mezzogiorno–MedioCredito Centrale SpA, expiring by the end of 2017, and overdrafts on intercompany current accounts granted to subsidiaries, paying interest on an arm’s length basis.
Movements in available-for-sale financial assets are as follows: TAB. A6.3 – MOVEMENTS IN AVAILABLE-FOR-SALE FINANCIAL ASSETS
Changes in fair value through equity – – 4 – – 4
Effects of sales on profit or loss – – – – – –
Accrued income for current year – – 6 – – 6
Changes in fair value through equity – – (4) – 1 (3)
Accrued income for current year – – 5 – – 5
This item relates to units of equity mutual investment funds with a fair value of €7 million.
(€m) Year ended 31 December 2016 Year ended 31 December 2015
Total of which: Derivative assets – – – – – – – –
(*) Increases/(decreases) refer to the nominal value of new transactions and changes in the fair value of the overall portfolio during the year.
At 31 December 2016, outstanding derivative financial instruments report fair value(99) losses of €51 million and include: • nine asset swaps used as fair value hedges in 2010 to protect the value of BTPs with a nominal value of €375 million against movements in interest rates. These instruments have enabled the Company to sell the fixed rate on the BTPs of 3.75% and purchase a variable rate; • a swap contract entered into in 2013 to hedge the cash flows of a €50 million bond issued on 25 October 2013 (section B.7). 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 2016, is 1.339%.
Total of which attributable to BancoPosta RFC – 743 743 – 795 795
(99) The fair value of these derivative instruments is based on the present value of expected cash flows deriving from the differentials to be exchanged.
Ministries and Public Administration entities – 619 619 – 605 605
Amounts due for other BancoPosta services – 113 113 – 109 109 of which attributable to BancoPosta RFC – 545 545 – 587 587
• Amounts due from Cassa Depositi e Prestiti refer to fees for BancoPosta’s deposit-taking activities during 2016.
• Receivables from overseas counterparties primarily relates to postal services carried out by the Company for overseas postal operators.
• 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.
• Amounts due for other BancoPosta services refer to amounts due on insurance and banking services, personal loans, overdrafts and mortgages sold on behalf of third parties, totalling €92 million.
• Other trade receivables primarily include €47 million generated by parcel post operations, €38 million for Posta Time services, €33 million related to Posta Target services, €19 million related to the Notification of Legal Process service, €18 million for telegraphic services and €15 million for Advice and Billing Mail services.
Poste Assicura SpA 7 5 of which attributable to BancoPosta RFC 162 165
This item relates to trade receivables due from the Ministry of the Economy and Finance: TAB. A7.4 – RECEIVABLES DUE FROM THE MEF
Specifically: • Universal Service compensation includes the following: TAB. A7.4.1 – UNIVERSAL SERVICE COMPENSATION RECEIVABLE
– With reference to the services rendered in 2012, AGCom has recognised a net cost incurred by the Company of €327 million, compared with compensation of €350 million calculated by the Company. 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).
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. On 29 July 2016, AGCom published Resolution 166/16/ CONS, launching a public consultation on the draft ruling concerning assessment of the net cost of the universal postal service in 2013 and 2014, in which the cost of universal provision was estimated to be €345 million for 2013 and €365 million for 2014, compared with revenue of €343 and €277 million, respectively, recognised in the Company’s statement of profit or loss for services rendered in those years. The Company submitted its observations to the public consultation on 27 September 2016.
• The remuneration of current account deposits refers entirely to amounts accruing in 2016 and almost entirely relates to the deposit of funds deriving from accounts opened by Public Administration entities and attributable to BancoPosta RFC.
December 2016 of which attributable to BancoPosta RFC – – – – – – – – –
Provisions for doubtful debts due from the MEF reflect the lack of funding in the state budget, which makes it difficult to collect certain receivables recognised on the basis of legislation, contracts and agreements in force at the time of recognition. The release of provisions and previously deferred revenue recognised in 2016, totalling €116 million, reflects new provision in the state budget for 2017.
Accrued income and prepaid expenses from trading transactions and other assets – 6 6 – 6 6
Interest accrued on IRES refund [C10] – 46 46 – 46 46 of which attributable to BancoPosta RFC 861 601 1,462 716 565 1,281
Specifically: • Substitute tax paid, attributable to BancoPosta RFC, primarily regards: – €861 million charged to holder of Interest bearing Postal Certificates for stamp duty at 31 December 2016(100). 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); – €329 million relating to stamp duty to be paid in virtual form in 2017 and to be recovered from customers; – €154 million relating to stamp duty to be charged to Postal Savings Book holders, which the Company pays in virtual form as required by law; – €16 million in withholding tax on interest paid to current account holders for 2016, which is to be recovered from customers; – €5 million in refundable stamp duty paid in virtual form in 2016.
(100) 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).
Details of the individual agreements are provided below: TAB. A8.1 – RECEIVABLES FROM FIXED-TERM CONTRACT SETTLEMENTS
• Amounts due from subsidiaries regard €56 million due to Poste Italiane SpA, as the consolidating entity in the tax consolidation arrangement (note 2.3 – Summary of significant accounting standards and policies), from the subsidiary, Poste Vita SpA.
• Accrued interest on IRES refund, amounting to €46 million, refers to interest accruing up to 31 December 2016 in relation to the tax credit determined by an unreported deduction of IRAP paid on labour costs from IRES. Recovery of the amount in question has been disputed and, on 24 November 2016, the Provincial Tax Tribunal for Rome upheld Poste Italiane’s appeal, ordering the tax authorities in Rome to refund the amounts claimed. With regard to the remaining overall tax credit, amounting to €50 million (i.e. including current tax assets and related interest), described in note 2.4 – Use of estimates, there is uncertainty over the time necessary to collect the amount due.
• Movements in the related provisions for doubtful debts are as follows: TAB. A8.2 – MOVEMENTS IN PROVISIONS FOR DOUBTFUL DEBTS DUE FROM OTHERS
Public Administration entities for sundry services 13 – – 13 – (1) 12
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 (€753 million) and companies that provide cash transportation services whilst awaiting transfer to the Italian Treasury (€1,516 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 €223 million.
Details of this item are as follows: TAB. A10 – CASH AND CASH EQUIVALENTS
Cash and cash equivalents in hand 10 9 of which attributable to BancoPosta RFC 1,321 401
At 31 December 2016, cash deposited with the MEF – held in the so-called buffer account – include approximately €1,071 million in customers’ deposits subject to investment restrictions but not yet invested (see “Information on BancoPosta RFC”).
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.
In accordance with the resolution adopted by shareholders at the Annual General Meeting held on 24 May 2016, on 22 June 2016, the Company paid dividends of €444 million (a dividend per share of €0.34).
(101) Deferred tax assets of approximately €2 million on this amount have already been used; the overall impact on equity thus amounts to approximately €4 million. Absent further recognition of claims by the MEF, in line with the past, at 31 December 2016, the component of the Company’s equity relating to the residual receivable of approximately €39 million is shown with a nil balance.
Tax effect of changes in fair value – – (454) (4) (458)
Adjustments for change in IRES tax rate introduced by 2016 Stability Law – – 114 – 114
of which attributable to BancoPosta RFC – 1,000 2,500 8 3,508
Increases/(decreases) in fair value during the year – – (1,637) (16) (1,653)
Tax effect of changes in fair value – – 466 4 470
Tax effect of transfers to profit or loss – – 136 7 143
of which attributable to BancoPosta RFC – 1,000 889 (17) 1,872
Information on the BancoPosta RFC reserve is provided in the section “Information on BancoPosta RFC”.
Movements in provisions for risks and charges are as follows: TAB. B4 – MOVEMENTS IN PROVISIONS FOR RISKS AND CHARGES MOVEMENTS IN PROVISIONS FOR RISKS AND CHARGES IN THE YEAR ENDED 31 DECEMBER 2016
Provisions for disputes with third parties 357 42 – (72) (18) 309
Provisions for disputes with staff(1) 139 22 – (12) (31) 118
(1) Net provisions for personnel expenses total €4 million. Service costs (legal assistance) total €6 million. (2) Net provisions of €15 million are recognised in “Other operating costs” and of €4 million in “Finance costs”.
MOVEMENTS IN PROVISIONS FOR RISKS AND CHARGES IN THE YEAR ENDED 31 DECEMBER 2015
Provisions for disputes with third parties 346 57 1 (22) (25) 357
Provisions for disputes with staff(1) 181 15 – (21) (36) 139
Provisions for expired and statute barred postal savings certificates 13 – – – – 13 of which attributable to BancoPosta RFC 358 71 1 (7) (39) 384
(1) Net releases for personnel expenses total €12 million. Service costs (legal assistance) total €7 million, whilst other releases total €1 million.
• Provisions for disputes with third parties regard the present value of expected liabilities deriving from different types of legal and out-of-court disputes with suppliers and third parties, the related legal expenses, and penalties and indemnities payable to customers. Provisions for the year of €42 million reflect the estimated value of new liabilities measured on the basis of expected outcomes. The reduction of €72 million relates to the reversal of liabilities recognised in the past, whilst a reduction of €18 million regards the value of disputes settled.
• Provisions for disputes with staff regard liabilities that may arise following labour litigation and disputes of various types. Net provisions of €10 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. Uses of €31 million regard amounts used to cover the cost of settling disputes.
• 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 €146 million to reflect the estimated value of new liabilities and decreased as a result of past contingent liabilities that failed to materialise (€27 million) and settled disputes (€48 million).
• Provisions for restructuring charges reflect the estimated costs to be incurred by the Company for early retirement incentives, under the current redundancy scheme for employees leaving the Company by 31 December 2018. Use of €316 million was made during the year under review.
• Provisions for expired and statute barred Postal Certificates held by BancoPosta have been made to cover the cost of redeeming certificates relating to specific issues, the value of which was recognised in revenue in profit or loss in the years in which the certificates became invalid. The provisions were made in 1998, in response to the Company’s decision to redeem such certificates even if expired and statute barred. At 31 December 2016, the provisions represent the present value of total liabilities, based on a nominal value of €21 million, expected to be progressively settled by 2043.
• Provisions for taxation contributions have been made to cover potential future tax liabilities.
Movements in employee termination benefits are as follows: TAB. B5 – MOVEMENTS IN PROVISIONS FOR EMPLOYEE TERMINATION BENEFITS
The main actuarial assumptions applied in calculating provisions for employee termination benefits are as follows: TAB. B5.1 – ECONOMIC AND FINANCIAL ASSUMPTIONS
The sensitivity of employee termination benefits to changes in the principal actuarial assumptions is analysed below: TAB. B5.4 – SENSITIVITY ANALYSIS
At 31 December 2016, the fair value(102) of the above borrowings amounts to €5,419 million.
(102) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Balance of cash flows for advances – 2,239 2,239 – (1,693) (1,693)
Balance of cash flows from management of postal savings – (4) (4) – 170 170
Amounts payable for operational risks – 35 35 – 34 34
MEF postal current accounts and other payables – 671 671 – 672 672
Movements in derivative financial instruments during 2016 are described in section A5.
Domestic and international money transfers – 599 599 – 532 532
Payables for items in process – 117 117 – 60 60
• Amounts payable for guarantee deposits, totalling €32 million, include €29 million received in relation to Asset swaps (collateral provided by specific Credit Support Annexes) and €3 million received from counterparties in relation to repurchase agreements covering fixed-income securities (collateral under specific Global Master Repurchase Agreements).
Financial liabilities break down as follows: TAB. B7 – FINANCIAL LIABILITIES
Amounts due to Cassa Depositi e Prestiti for loans – – – – 1 1
Financial liabilities due to subsidiaries – 38 38 – 72 72
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 clauses(103).
EIB fixed rate loan maturing 11 April 2018 200 – 200 200 – 200
EIB fixed rate loan maturing 23 March 2019 200 – 200 200 – 200
A number of debts relating to repurchase agreements outstanding at 31 December 2015 matured in 2016.
At 31 December 2016, these instruments have a fair value of €51 million (€51 at 31 December 2015). Movements in derivative financial instruments during 2016 are described in section A6.
(106) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
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
Other trade payables 12 10 of which attributable to BancoPosta RFC 87 65
(1) The amount due to overseas counterparties regards fees payable to overseas postal operators and companies in return for postal and telegraphic services received.
Other services 11 16 of which attributable to BancoPosta RFC – –
Amounts due to the MEF – 21 21 – 21 21
These items primarily regard accrued amounts that have yet to be paid at 31 December 2016. The following table shows a breakdown: TAB. B9.1 – AMOUNTS DUE TO STAFF
Total of which attributable to BancoPosta RFC – 7 7 – 6 6
• Amounts payable to pension funds relate to sums due to FondoPoste and other pension funds following the decision by certain of the Company’s employees to join supplementary funds.
This item includes: • €12 million, reflecting payables arising from pension payments made by the MEF to former Poste Italiane SpA employees between 1 January 1994 and 31 July 1994; • €9 million, relating to the return of the extraordinary contribution, pursuant to article 2 Law 778/85, previously received by the Company from the MEF to cover shortfalls of the pension fund of the former Postal and Telecommunications Administration.
The items in question were reviewed by a joint working group created with the MEF – Department of Treasury and General Accounting Department, resulting in the letter dated 7 August 2015.
This item breaks down as follows: TAB. B9.6 – ACCRUED EXPENSES AND DEFERRED INCOME
Deferred income outside the ring-fence primarily regards: • €8 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.
Revenue from Postal Services breaks down as follows: TAB. C1.1 – REVENUE FROM POSTAL SERVICES
Automated franking by third parties and at post offices 790 827
In particular: • Unfranked mail relates to revenue from the mailing of correspondence by large customers from the post office network, including those conducted using the Bulk Mail formula.
• Revenue from telegrams primarily relates to the telegram service provided by phone or at post offices, and amounting to €16 million and €7 million, respectively.
This revenue breaks down as follows: TAB. C1.2 – REVENUE FROM BANCOPOSTA SERVICES
Interest income on asset swaps of available-for-sale financial assets (33) 4 interest on repurchase agreements 7 –
• Other revenue from current account services primarily relates to charges on current accounts (€210 million), fees on amounts collected and on statements of account sent to customers (€115 million), annual fees on debit cards (€26 million) and related transactions (€48 million).
• 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 (€45 million), and for the provision of treasury services on the basis of the agreement with the MEF (€57 million).
• Other products and services mainly reflect fees deriving from the processing of tax payment forms (F24) (€73 million).
Realised gains on other equity instruments refer to the gain on disposal of the equity interest in Visa Europe Ltd., as described in section A5.
This item regards the following: TAB. C3 – OTHER OPERATING INCOME
Under the relevant lease agreements, tenants usually have the right to break off the lease with six months’ notice. Given the resulting lack of certainty, the expected revenue flows from these leases are not referred to in these notes. No significant extraordinary maintenance costs were transferred to tenants via increases in rents.
This item breaks down as follows: TAB. C4 – COST OF GOODS AND SERVICES
Raw, ancillary and consumable materials and goods for resale 98 107
This item breaks down as follows: TAB. C4.3 – RAW, ANCILLARY AND CONSUMABLE MATERIALS AND GOODS FOR RESALE
Other expenses relating to BancoPosta RFC’s operations consist of the following: TAB. C5 – OTHER EXPENSES FROM FINANCIAL ACTIVITIES
Personnel expenses include the cost of staff seconded to other organisations. The recovery of such expenses, determined by the relevant chargebacks, is posted to other operating income. Personnel expenses break down as follows: TAB. C6 – PERSONNEL EXPENSES
Net provisions (reversals) for disputes with staff [tab. B4] 4 (12)
Net provisions for disputes with staff and provisions to restructuring charges are described in section B4.
The following table shows the Company’s average and year-end headcounts by category: TAB. C6.1 – WORKFORCE
Net provisions for risks and charges made/(released) 71 82 for disputes with third parties [tab. B4] (30) 35 for non-recurring charges incurred by BancoPosta [tab. B4] 86 45 for other risks and charges [tab. B4] 15 2
Impairment losses on investments in subsidiaries are described in section A4.
Income from financial assets at fair value through profit or loss – 1
Finance costs on provisions for employee termination benefits [tab. B5] 23 27
Net provisions for risks and charges and bad debts 26 3.36% 10 1.72%
Adjustments for change in IRES tax rate introduced by 2016 Stability Law 14 1.83% 20 3.36%
Non-recurring income/(expenses) for deferred taxes recycled to profit or loss – – 7 1.11%
Net provisions for risks and charges and bad debts 1 0.15% (14) –2.31%
The table below shows movements in current tax expense for the period under review: TAB. C10.3 – MOVEMENTS IN CURRENT TAX ASSETS/(LIABILITIES)
Collection of IRES refund claimed – – – (518) – (518)
Provisions to profit or loss (129) (29) (158) (112) (27) (139)
Current tax assets/(liabilities) for the year ended 31 December 2016 primarily regard: • €72 million in provisions for IRES and IRAP for the year after payments on account for IRES, IRAP tax credits from previous years and IRES withholding tax incurred; • 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 section A8).
Details of this item at 31 December 2016 are shown in the following table: TAB. C10.4 – DEFERRED TAXES
Non-recurring income/(expense) recognised in profit or loss due to adjustment to IRES rate (14) (20)
Income/(Expenses) recognised in profit or loss 1 – (19) 16 – 3 1
Income/(expenses) recognised in equity – (76) – – – – (76)
Income/(Expenses) recognised in profit or loss 1 – (6) 18 – 3 16
Non-recurring income/(expenses) recognised in profit or loss – – 7 7
Income/(expenses) recognised in equity due to adjustment to IRES rate (118) – – (118)
The decrease in deferred tax liabilities related to financial assets and liabilities is due mainly to movements in the fair value reserve, as described in section B3.
At 31 December 2016, deferred tax assets and liabilities recognised directly in equity are as follows: TAB. C10.8 – DEFERRED TAX ASSETS AND LIABILITIES RECOGNISED IN EQUITY
Impact of related party transactions on the financial position and profit or loss
BancoPosta Fondi SpA SGR – – 16 – – 12 4 – –
BancoPosta Fondi SpA SGR – – 12 – – 3 2 – –
Ministry of the Economy and Finance 7,186 3 537 13 391 – – 102 21
Provisions for doubtful debts from external related parties – – (156) (9) – – – – –
Consorzio PosteMotori 40 – – – – – – – –
Consorzio Servizi Telef. Mobile ScpA – – – – – 47 – – –
Mistral Air Srl – 1 – – – – – – –
Poste Tributi ScpA 5 – – – – – – 5 –
Poste Assicura SpA 21 – – – – – – – –
Anima Group – – 8 – – – – – –
Poste Tributi ScpA 4 – – – – – – 4 –
Italia Logistica Srl – – – – – – – – –
Poste Assicura SpA 16 – – – – – – – –
• Amounts received from CDP SpA primarily relate to payment for the collection of postal savings deposits.
• 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.
• Purchases from the Leonardo Group primarily relate to the supply, by Leonardo SpA (formerly Selex ES SpA), of equipment, maintenance and technical assistance for mechanised sorting equipment, and systems and IT assistance regarding the creation of document storage facilities, specialist consulting services and software maintenance, and the supply of software licences and of hardware.
Financial assets attributable to BancoPosta 58,052 7,698 13.3 54,622 8,686 15.9
Provisions for risks and charges 1,408 60 4.3 1,298 60 4.6
Cost of goods and services 1,734 657 37.9 1,819 704 38.7
Net cash flow from/(for) investing activities (240) 112 n,a, (518) (28) 5.4
Key management personnel consist of Directors, members of the Board of Statutory Auditors and the Supervisory Board, managers at the first organisational level of the Company and Poste Italiane’s manager responsible for financial reporting. The related remuneration, gross of expenses and social security contributions, is as follows: REMUNERATION OF KEY MANAGEMENT PERSONNEL
The first loans were granted in accordance with the above agreement in early 2017.
An analysis of the Company’s net debt/(funds) at 31 December 2016 is provided below, showing the portion attributable to capital outside the ring-fence and BancoPosta RFC: NET DEBT/(FUNDS)
Cash and deposits attributable to BancoPosta – 2,494 – 2,494 –
Loans from Cassa Depositi e Prestiti (1) – – (1) (1)
The fair value measurement techniques used by the Company are described in note 2.5 – Determination of fair value. This section provides information regarding determination of the fair value of the financial assets and liabilities recognised at their fair value. The additional information related to financial assets and liabilities recognised at their amortised cost is provided in the respective notes.
Financial instruments at fair value through profit or loss – – – – – – – –
Total financial assets at fair value 35,849 2,147 32 38,028 31,223 2,166 116 33,505
Total financial liabilities at fair value – (2,356) – (2,356) – (1,598) – (1,598)
There were no transfers of financial instruments measured at fair value between Level 1 and Level 2 of the hierarchy on a recurring basis in 2016.
In accordance with IFRS 7 – Financial Instruments: Disclosures, this section provides details of financial assets and liabilities that are subject to master netting agreements or similar arrangements, regardless of whether the financial instruments have been offset in keeping with paragraph 42 of IAS 32(107).
(107) Paragraph 42 of IAS 32 provides that “A financial asset and a financial liability can be offset and the net amount presented in the statement of financial position when, and only when, an entity: (a) currently has a legally enforceable right to set off the recognised amounts; and
Financial liabilities arising from repos (5,379) (5,381) (5,419) (4,885) (4,895) (4,949)
Financial liabilities arising from repos – – – (510) (510) (510)
Receivables used as collateral provided by CSAs 50 50 52 52
The increase in purchase commitments relating to the lease of fleet vehicles is due to the Company’s renewal of the related contract during the year.
Lease rentals due: within 1 year of the reporting date 146 7 150 8 between 2 and 5 years after the reporting date 316 5 338 11 more than 5 years after the reporting date 53 1 51 –
Sureties and other guarantees issued: by banks in the interests of Poste Italiane SpA in favour of third parties 212 162 by Poste Italiane SpA in the interests of subsidiaries in favour of third parties 59 54 letters of patronage issued by Poste Italiane SpA in the interests of subsidiaries 1 1
At 31 December 2016, the Company has paid a total of €96 million in claims on behalf of the Ministry of Justice, for which, under the agreement between Poste Italiane SpA and the MEF, it has already been reimbursed by the Treasury, whilst awaiting acknowledgement of the relevant account receivable from the Ministry of Justice.
Disclosure of fees paid to the independent auditors in accordance with art. 149 duodecies of the “CONSOB Regulations for Issuers”
The following table shows fees, classified in accordance with art. 149 duodecies of the “CONSOB Regulations for Issuers”, payable to the Company’s auditors, PricewaterhouseCoopers SpA, and companies within its network for 2016: DISCLOSURE OF FEES PAID TO INDEPENDENT AUDITORS
(**) The amounts shown do not include fees for auditing services performed in respect of funds managed by BancoPostaFondi SGR SpA and payable by investors, amounting to €103 thousand.
Auditing services are expensed as incurred and reported in the audited financial statements.
The Annual General Meeting of Poste Italiane SpA’s shareholders held on 24 May 2016 approved the information circular for the “Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan”, prepared in accordance with art 84-bis of the Regulations for Issuers. The LTIP, set up in line with market practices, aims to link a portion of the variable component of remuneration to the achievement of earnings targets and the creation of sustainable shareholder value over the long term.
Vesting of the Phantom Stocks is subject to achievement of the Performance Hurdle, designed to ensure sustainability of the Plan at the level of the Poste Italiane Group. The Performance Hurdle corresponds with achievement of a certain target for the Group’s cumulative EBIT over a three-year period at the end of each Performance Period. In addition, in the case of the General Manager (and Chief Executive Officer) and BancoPosta RFC’s Risk Takers, vesting of the Phantom Stocks is also subject to achievement of Qualifying Conditions, designed to ensure the stability of BancoPosta RFC’s capital and liquidity position, as follows: • Indicator of capital adequacy, based on CET 1 at the end of the period; • Indicator of short-term liquidity, based on LCR at the end of the period.
Responsibility for coordinating and managing the investment strategy and the hedging of capital market risks has been assigned to the Company’s Coordination of Investment Management function, which aims to ensure a uniform approach across the Group’s various financial entities. Treasury management for the Company and on a centralised basis, definition of the capital structure for Poste Italiane SpA, and the assessment of funding transactions and extraordinary and subsidised transactions is, on the other hand, the responsibility of Administration, Finance and Control.
Management of the Company’s financial transactions and of the associated risks relates mainly to the operations of BancoPosta RFC, asset financing and investment of the Company’s liquidity.
BancoPosta RFC’s operations consist in the active management of liquidity generated by postal current account deposits, carried out in the name of BancoPosta but subject to statutory restrictions, and collections and payments on behalf of third parties. The funds deposited by private account holders in postal current accounts are invested in euro zone government securities(108), whilst deposits by Public Administration entities are deposited with the MEF. The investment profile is based on the constant monitoring of habits of current account holders and a use of a leading market operator’s statistical/econometric model that forecasts the interest rates and maturities typical of postal current accounts. Accordingly, the portfolio composition aims to replicate the financial structure of current accounts by private customers. The company has also an asset-liability model in place to match the maturities of deposits and loans. The above mentioned model is thus the general reference for the investments, in order to limit exposure to interest rate risk and liquidity risks. The prudential requirements introduced by the third revision of the Bank of Italy Circular 285/2013 require BancoPosta to apply the same regulations applicable to banks in terms of its controls, establishing that its operations are to be conducted in accordance with the Consolidated Law on Banking (TUB) and the Consolidated Law on Finance (TUF). BancoPosta RFC is, therefore, required to establish a system of internal controls in line with the provisions of Circular 285(109), which, among other things, requires definition of a Risk Appetite Framework (RAF(110)), 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.
At 31 December 2016, the ratio is just below the limit of 3%, fixed by Poste Italiane SpA’s Board of Directors. As a result, at the date on which it will approve these financial statements, the Board of Directors proposes to strengthen BancoPosta RFC’s capital position in order to restore the ratio to the target level set out in the Risk Appetite Framework.
From an organisational viewpoint, the model consists of: • the Risk and Control 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; • the Finance, Savings and Investment Committee, which is responsible for establishing policies governing management of the savings of retail customers, as well as strategies to be applied in managing financial assets. In view of the matters dealt with, the Committee is divided into three sections: – Finance, with the role of defining and overseeing the financial strategy; – Savings, with responsibility for establishing guidelines to be applied in the development of savings products; – Financial investment strategies, with the role of ensuring effective governance and the greatest possible alignment with strategic decisions regarding the allocation and management of financial assets.
• appropriate functions established within the Poste Italiane SpA that perform Risk Measurement and Control activities, ensuring the organisational separation of risk assessment from risk management activities. The results of these activities are examined by the relevant advisory Committees, which are responsible for carrying out an integrated assessment of the main risk profiles; • BancoPosta RFC’s Cross-functional Committee, set up under the BancoPosta RFC Regulation, which provides advice, makes recommendations and coordinates BancoPosta’s operations with those of other Poste Italiane functions. The Committee is chaired by Poste Italiane SpA’s CEO and General Manager. Other permanent members are the Head of BancoPosta and the heads of the functions within the Company involved with BancoPosta.
Cash flow interest rate risk refers to the uncertainty related to the generation of future cash flows, due to interest rate fluctuations. Such risk may arise from the mismatch – in terms of interest rate, interest rate resets and maturities – of financial assets and liabilities until their contractual maturity and/or expected maturity (banking book), with effects in terms of interest spreads and, as such, an impact on future results.
The following sensitivity analysis relates to the principal positions potentially exposed to fluctuations in value. Financial statement balances at 31 December 2016 have been subjected, where applicable, to a stress test, based on one-year historical volatility, considered to be representative of potential market movements.
The principal financial assets subject to price risk and the results of the analysis carried out as at 31 December 2016 for the Company are shown in the following table.
At 31 December 2016, equity instruments include: • equities held by BancoPosta RFC, consisting of Class B Mastercard Incorporated shares, totalling €74 million, Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock), totalling €27 million, and Class C VISA Incorporated shares, amounting to €3 million. For the purposes of the sensitivity analysis, the shares held in the portfolio are matched with the corresponding amount of the Class A shares, considering the volatility of the shares listed on the NYSE; • units of mutual investment funds, amounting to €7 million, held outside the ring-fence as “Other investments”.
Available-for-sale financial assets 110 104 9 (9) – – 9 (9)
This primarily refers to the effects of changes in interest rates on the price of fixed rate financial instruments or variable rate financial instruments converted to fixed rate via cash flow hedges and, to a lesser degree, the effects of change in interest rates on the fixed components of floating rate financial instruments or fixed rate financial instruments converted to variable rate via fair value hedges. The impact of these effects is directly related to the financial instrument duration.
The table below shows the sensitivity analysis for the fair value interest rate risk at 31 December 2016 for the Company’s positions.
Available-for-sale financial assets 26,428 32,415 (1,283) 1,308 – – (1,283) 1,308
Available-for-sale financial assets 500 569 (2) 2 – – (2) 2
The sensitivity to the spread has been calculated by applying a shift of +/- 100 bps to the risk factor that affects the different types of bonds held represented by the yield curve of Italian government bonds.
The table below shows the results of the analysis of sensitivity to country risk of the most significant positions in the Company’s portfolios at 31 December 2016.
Available-for-sale financial assets 500 562 (21) 22 – – (21) 22
Available-for-sale financial assets 26,428 32,415 (3,036) 3,599 – – (3,036) 3,599
Available-for-sale financial assets 500 569 (22) 23 – – (22) 23
The table below shows the VaR analysis performed on the Company’s portfolio at 31 December 2016, solely with reference to spread risk.
In addition, taken as whole, BancoPosta RFC’s financial assets and liabilities are subject to potential maximum losses of €468 million.
The changes that have occurred with respect to 31 December 2015 depend on the higher volatility of risk factors in 2016.
Credit risk refers to all financial instruments, except shares and units of mutual funds. Overall, this risk is managed as follows: • minimum rating requirements for issuers/counterparties, based on the type of instrument; • the monitoring of concentrations per issuer/counterparty; • monitoring of changes in the ratings of counterparties.
The Company’s financial assets exposed to credit risk at 31 December 2016 are shown in the table below. The ratings reported in the table have been assigned by Moody’s.
Available-for-sale financial assets – 562 – 562 – 569 – 569
The entire process of managing trade receivables is conducted in accordance with the Company’s “Trade Receivable Policy”, approved on 30 July 2012. The policy provides guidelines for managing trade receivables throughout customer relationships, from measurement, when entering into new contracts and in contract renewals, the sustainability of credit risk associated with the proposed contract and the customer’s creditworthiness, through to settlement and credit recovery. The policy is accompanied by specific operational procedures that, partly in accordance with Legislative Decree 231/2001, provide detailed guidance for the monitoring of outstanding receivables and the conduct of efforts at amicable recovery and of legal action.
The Company’s exposure to credit risk for the various categories of trade receivable at 31 December 2016 is shown in the table below.
The Company’s other receivables and assets exposed to the risk in question at 31 December 2016 are shown in the table below.
Accrued income and prepaid expenses from trading transactions 6 – 6 –
Lastly, with regard to financial assets, as required by Communication DEM/11070007 of 28 July 2011, implementing Document 2011/266 published by the European Securities and Markets Authority (ESMA) and later amendments, Poste Italiane SpA’s exposure to sovereign debt(112) at 31 December 2016 is shown in the table below, which provides details of the nominal value, carrying amount and fair value of each type of portfolio.
Cash and deposits attributable to BancoPosta 2,494 – – 2,494 3,161 – – 3,161
Assets, broken down by maturity, are shown above at nominal value and increased, where applicable, by interest receivable. Investments in fixed income securities are shown on the basis of expected cash flows, which consist of principal and interest paid at the various payment dates.
In terms of BancoPosta RFC’s specific operations, the liquidity risk regards current account deposits, the related investment of the deposits in Eurozone government securities and the margins on derivative transactions. The potential risk derives from a mismatch between the maturities of investments in securities and those of liabilities, represented by current accounts where the funds are available on demand, thus compromising the Company’s ability to meet its obligations to current account holders. This potential mismatch between assets and liabilities is monitored via comparison of the maturity schedule for assets with the statistical model of the performance of current account deposits, in accordance with the various likely maturity schedules and assuming the progressive total withdrawal of deposits over a period of twenty years for retail customers, ten years for business customers and PostePay cards and five years for Public Administration customers.
In relation to cash and cash equivalents, cash flow interest rate risk primarily regards amounts deposited with the MEF and held in the so-called buffer account (€1,310 million).
At 31 December 2016, cash flow inflation rate risk regards inflation-linked government securities not subject to cash flow hedges held by BancoPosta RFC for a nominal amount of €2,120 million and a fair value of €2,605 million. A sensitivity analysis showed negligible effects.
At 31 December 2016, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. In particular: EVENT TYPE
The main element of exposure to this risk is the fact that the Company’s business is by its nature exposed to elements of reputational risk, linked to market performance and primarily associated with the placement of investment products issued by third-party entities (bonds, certificates and real estate funds) or by Group companies (insurance policies issued by the subsidiary, Poste Vita SpA, and mutual funds managed by BancoPosta Fondi SpA SGR).
In this regard, in order to optimise the risk-return profile of the products offered to its customers, the Company has adopted competitive selection policies and procedures for third-party issuers, entailing the selection of domestic and foreign issuers consisting solely of banks and other financial companies with investment grade ratings. In addition, in order to protect and safeguard the Company’s excellent reputation and public confidence in its operations and to protect its commercial interests from potential dissatisfaction among savers, significant monitoring activity is carried out to keep track of the performance of individual products and of changes in the risks to which customers are exposed; this involves conducting careful assessments based on the contractual nature of the products in question in terms of how they meet the needs of the various customers.
In particular, with regard to real estate funds sold in the period 2002-2005, which have given rise to a number of complaints and disputes, the Company is closely monitoring performance through to the respective maturities. In this regard, on 16 January 2017, Poste Italiane’s Board of Directors passed a resolution aimed at consolidating its historical customer relationships, based on trust and transparency. This will involve taking steps to protect all the customers who, in 2003, purchased units issued by the Invest Real Security real estate fund, against a different economic and regulatory backdrop compared with today’s, and still held the units at 31 December 2016, the date of the Fund’s maturity. The aim was to allow each investor to recover the difference between the amount they invested at the time of subscription, increased by any income distributions or early returns of capital over the life of the Fund, and the amount that the investor will receive from the Fund’s “Interim Liquidation Distribution” (the “Difference”). To anyone having reached the age of 80 at 31 December 2016, Poste Italiane has committed to pay, from its own resources, the Difference in the form of an amount to be credited to a current account or a postal savings book; other customers will be offered the option of taking out a Class I life insurance policy in which to invest the proceeds received from the Fund. To ensure that the value of the policy, which has a duration of 5 years, reaches the amount representing the Difference on maturity, Poste Italiane has committed to topping up the amount invested from its own resources. The estimated liabilities resulting from this initiative have been recognised in “Provisions for risks and charges” (section B.4).
A call for tenders was launched in 2015 to select a Customer Service provider for the Group. On completion of the tender process, the companies to which SDA Express Courier had outsourced the services until the end of 2015 – Uptime SpA and Gepin Contact SpA (the other shareholder in Uptime SpA) – were not awarded the contract and, on 30 December 2015, SDA terminated its relationships with these companies, as provided for in the relevant contracts with effect from 1 July 2016.
Finally, on 21 December 2016, Poste Italiane and SDA were served a writ of summons by Gepin and Uptime, containing joint and several claims for approximately €66.4 million, as compensation for the damages incurred by Uptime as a result of the alleged unjustified termination of the above contract, and for approximately €16.2 million, as compensation for the damages incurred by Gepin as a result of the alleged reduction in the value of its investment. These claims will also be opposed in court.
Proceedings pending and relations with the authorities are the same, where referring to Poste Italiane SpA, as those reported on in the specific section of the consolidated financial statements.
Part B – Information on the Statement of financial position 391
10. Cash and cash equivalents 2,510,820,434 3,168,696,276 20. Financial assets held for trading – –
70. Adjustments for changes in hedged financial liabilities portfolio (+/–) – –
90. Liabilities associated with non-current assets held for sale and discontinued operations – –
120. Provisions for risks and charges: 462,396,773 384,292,349 a) post-employment benefits – –
220. Profits/(Losses) on fair value measurement of property, plant and equipment and intangible assets – –
250. Income/(Loss) before tax from continuing operations 802,520,847 857,841,412 260. Taxes on income from continuing operations (234,244,107) (270,871,841)
270. Income/(Loss) after tax from continuing operations 568,276,740 586,969,571 280. Income/(Loss) after tax from discontinued operations – –
100. Available-for-sale financial assets (1,611,038,479) 926,865,737 110. Non-current assets held for sale – –
120. Share of valuation reserve attributable to equity-accounted investments – –
130. Total other components of comprehensive income after taxes (1,637,295,997) 887,980,380
Movements in reserves – – – 3,150 – – – – – 3,150
Equity-related transactions – – – – – – – – – –
Issuance of new shares – – – – – – – – – –
Payment of extraordinary dividends – – – – – – – – – –
Stock options – – – – – – – – – –
3. Cash flow from/(used for) financial liabilities 5,041,164,367 2,359,509,304 – due to banks: on demand 101,623,433 (3,119,823) – due to banks: other 437,934,922 (288,643,679) – due to customers 4,904,804,958 2,901,878,024 – debt securities in issue – – – financial liabilities held for trading – – – financial liabilities designated at fair value – – – other liabilities (403,198,946) (250,605,218)
Net cash flow from/(used for) operating activities (250,363,109) (615,800,607) B. INVESTING ACTIVITIES
– issuance/purchase of own shares – – – issuance/purchase of equity instruments – – – dividends and other payments (586,969,571) (289,664,565)
The Separate Report has been prepared in application of Bank of Italy Circular 262 of 22 December 2005 – “Banks’ Financial Statements: Layouts and Preparation”, as amended, and of art. 2447 septies, paragraph 2, of the Italian Civil Code. On 27 May 2014, the Bank of Italy issued specific Supervisory Standards for BancoPosta RFC (Circular 285/2013, Part Four, Section 1) which, in taking into account the entity’s specific organisational and operational aspects, has established prudential requirements that are substantially in line with those applicable to banks. The Standards also govern the requirements regarding capital adequacy and risk containment. The Separate Report relates to the year ended 31 December 2016, has been prepared in euros and consists of the statement of financial position, the income statement, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and the explanatory notes. The statement of financial position, income statement and statement of comprehensive income consists of numbered line items and lettered line sub-items. Nil balances have also been presented in the statement of financial position, income statement and statement of comprehensive income for the sake of completeness. The statement of cash flows has been prepared using the indirect method(113). All figures in the notes are stated in millions of euros. Notes and account analysis have not been included for nil balances.
No material events occurred after the end of the reporting period for this Separate Report for the year ended 31 December 2016.
(113) 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.
Balances relating to transactions between BancoPosta RFC and Poste Italiane SpA (“Intersegment transactions”) are recognised in the statement of financial position at 31 December 2016 as shown below: (€m) At 31 December of which intersegment
Liabilities and equity 120. Provisions for risks and charges 462 – 384 –
In line with 2015, the services are charged for in the form of transfer prices. The transfer prices paid, inclusive of commissions and any other form of remuneration due, are determined on the basis of market prices and tariffs for the same or similar services, identified, where possible, following a benchmarking process. When the specifics and/or the particular nature of a service provided by a Poste Italiane function do not allow the use of a comparable market price,
On 9 March 2015, the Authority notified Poste Italiane SpA of an investigation of BancoPosta RFC for alleged violation of articles 20, 21 and 22 of the Consumer Code, regarding the “Libretto Smart” product. Specifically, the Authority claimed that, in advertising campaigns in February 2015, emphasis was placed on returns offered by Libretto Smart without providing details of the offer the advertised returns were associated with. On 12 June 2015, the Authority notified its rejection of the proposed set of commitments and its intention to ascertain whether any violation had occurred. On 3 July 2015, the Authority notified its intention to extend the investigation to include Cassa Depositi e Prestiti SpA. On 21 December 2015, the AGCM notified Poste Italiane of its final ruling, in which it deemed the Company’s conduct unfair and imposed a fine of €0.54 million, limited to a tenth of the maximum applicable amount, taking into account the mitigating circumstance that Poste Italiane had adopted initiatives aimed at allowing customers to benefit from the bonus rate. Poste Italiane lodged an appeal against this ruling before the Lazio Regional Administrative Court (RG 2288/16) on 24 February 2016. At the hearing held on 23 March 2016, the court adjourned the case until a hearing on the merits. In addition, on 7 March 2016, the AGCM, as part of a compliance audit, sent a request for information on the nature of the Libretto Smart product from 1 July 2015 and on the related “Supersmart” offering. Poste Italiane replied to the Authority on 22 March 2016, and on 24 June 2016 AGCM informed Poste Italiane that insufficient evidence is currently available to conduct an investigation.
The new “guided consultancy” platform has introduced standardised procedures designed to aid in identifying the best investment solution for the customer, keeping a systematic record of manager-customer relations. In this regard, as set out in the information provided to the CONSOB in December 2016, the platform is to be gradually rolled out in all post offices according to a programme that will be completed at the end of 2017. Priority is being given to the “MiFID offices with consulting rooms” (approximately 3,900, covering 83% of the target customers), which will migrate to the new platform in the first half of 2017.
This category includes debt and equity instruments acquired primarily to obtain a short-term profit as the result of changes in their prices and the positive value of derivative contracts unless designated as hedging instruments.
Financial assets held for trading are recognised at fair value with any changes in fair value recognised in profit or loss in line “Item 80 – Profits/(Losses) on trading”. Derivatives are accounted for either as assets or liabilities depending on whether their fair value is positive or negative.
Available-for-sale financial assets are initially recognised on the settlement date at fair value which is generally the price paid. Any changes in fair value occurring between the trade and settlement dates are recognised in the Separate Report. If, exceptionally, recognition is the result of the reclassification of Held-to-maturity assets, recognition is at fair value at the time of the reclassification. Any difference in the initial amount at which debt securities are recognised and the amount of repayments is amortised over the term of the security.
Available-for-sale financial assets are non-derivative financial instruments that are either designated in this category or not attributable to any of the other categories described in paragraphs 1, 3 and 4.
Available-for-sale financial assets are derecognised when the contractual rights to the cash flows of those financial assets cease or on the disposal of the financial asset and substantially all risks and rewards relating to the financial asset are transferred. Any securities received as part of a transaction entailing subsequent re-sale and the delivery of securities as part of a transaction entailing their subsequent repurchase are not either recognised or derecognised.
Held-to-maturity financial assets are derecognised when the contractual rights to the cash flows of those financial assets lapse or on the disposal of the financial asset and all risks and rewards relating to the financial asset are substantially transferred. Any securities received as part of a transaction entailing subsequent re-sale and the delivery of securities as part of a transaction entailing their subsequent repurchase are not either recognised or derecognised.
Derivative hedges are initially recognised on conclusion of the relevant contract. There are two types of hedge: • Fair value hedges: 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.
• Cash flow hedges: A hedge of the exposure to the variability of cash flows attributable to a particular risk associated with an asset or liability or with a highly probable forecast transaction, and that could have an impact on profit or loss.
Derivatives are initially recognised at fair value on the date the derivative contract is executed. If derivative financial instruments qualify for hedge accounting, gains and losses arising from changes in fair value after initial recognition are accounted for in accordance with the specific policies described below. The relationship between each hedging instrument and the hedged item is documented, as well as the risk management objective, the strategy for undertaking the hedge transaction and the methods used to assess effectiveness. Assessment of whether the hedging derivative is effective takes place both at inception of the hedge and throughout the term of the hedge.
When the hedge is related to recognised assets or liabilities, or an unrecognised firm commitment, changes in the fair values of both the hedging instrument and the hedged item are recognised in profit or loss. Any difference represents the ineffective portion of the hedge and is accounted for as a loss or gain, recognised separately in line “Item 90 - Fair value adjustments in hedge accounting”.
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 are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 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. BancoPosta RFC is not a separate legal person and is not either directly or indirectly assessable to taxes. BancoPosta’s share of taxes on Poste Italiane SpA’s overall income is charged to BancoPosta RFC based on the profit or loss presented in this Separate Report adjusted for deferred taxation. In the case of both IRES and IRAP, the computation takes all permanent and temporary changes in BancoPosta’s operations into account. Any items not directly relating to BancoPosta are included in the Poste Italiane computation.
Financial liabilities held for trading consist either of derivatives which do not qualify for classification as hedging instruments in accordance with accounting standards or originally obtained as a hedge which was subsequently discontinued. Financial liabilities held for trading are recognised on the derivative contract date.
Foreign currency items are translated at each reporting date as shown below: • monetary items at closing exchange rates; • non-monetary items are recognised at their historical cost translated at the transaction date spot rate; • non-monetary items designated at fair value at closing exchange rates.
Related parties within the Poste Italiane Group are Poste Italiane SpA’s functions outside the ring-fence and Poste Italiane SpA’s direct and indirect subsidiaries and associates.
The undiscounted value of short-term employee benefits to be paid to employees in consideration of employment services provided over the relevant period, is accrued as personnel expenses.
Preparation of the Separate Report requires the application of accounting standards and methods that are at times based on complex subjective judgments and estimates based on historical experience, and assumptions that are considered reasonable and realistic under the circumstances. Use of such estimates and assumptions affects the amounts reported in the financial statements, with reference to the statement of financial position, the income statement, the statement of comprehensive income, the statement of cash flows and the notes. The actual amounts of items for which the above estimates and assumptions have been applied may differ from those reported in previous financial statements, due to uncertainties regarding the assumptions themselves and the conditions on which estimates are based. Estimates and assumptions are periodically reviewed and the impact of any changes is reflected in the financial statements for the period in which the estimate is revised if the revision only influences the current period, or also in future periods if the revision influences both current and future periods.
This section provides a description of accounting treatments that require the use of subjective estimates and for which a change in the conditions underlying the assumptions used could have a material impact on BancoPosta RFC’s Separate Report.
The recognition of deferred tax assets is based on the expectation of taxable income in future years. Assessments of expected taxable income depend on factors which may change over time, impacting on the valuation of the deferred tax assets in the Separate Report.
Determination of the amounts to be provided 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 when preparing this Separate Report.
In compliance with IFRS 13 – Fair Value Measurement, as endorsed by EU Regulation 1255/2012 of 11 December 2012, the valuation techniques used are described below.
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 BancoPosta RFC, the financial instruments included in this category consist of bonds issued by the Italian government, the valuation of which is based on the bid prices quoted on the MTS (wholesale electronic market for government securities). Level 1 bond price quotations incorporate a credit risk component.
For BancoPosta RFC, these include the following types of financial instrument: • Straight Italian and international government and non-government bonds, quoted on inactive markets or not at all: valuation is based on discounted cash flow techniques involving the computation of the present value of future cash flows, inputting rates from yield curves incorporating spreads reflecting credit risk that are based on spreads determined with reference to quoted and liquid benchmark securities issued by the issuer, or by other companies with similar characteristics to the issuer. Yield curves may be slightly adjusted to reflect liquidity risk relating to the absence of an active market.
• Derivative financial instruments: – Plain vanilla interest rate swaps: valuation is based on 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.
Sensitivity analysis of recurring fair value measurements classified in Level 3 of the hierarchy is conducted for the “Series C Visa Incorporated Convertible Preferred Stock”. Measurement of these financial instruments is in fact subject to change following alterations that may occur in the discount factor applied in determining fair value, in order to take into account the illiquid nature of the shares. This discount factor, estimated using an internal valuation technique, is above all influenced by the annual volatility of the underlying shares. Applying the maximum volatility according to the technique used, the potential reduction in fair value could reach approximately 34%.
There were no occurrences during the year resulting in a requirement to transfer financial assets and liabilities measured at fair value on a recurring basis between the various levels of the fair value hierarchy.
There is no need to provide the additional disclosures required by IFRS 13, paragraphs 51, 93 (i) and 96.
1. Financial assets held for trading – – – – – –
2. Financial assets designated at fair value – – – – – –
3. Available-for-sale financial assets 35,280 1,956 27 30,648 1,838 111 5. Property, plant and equipment – – – – – –
1. Financial liabilities held for trading – – – – – –
Movements during the period in question include the sale of the investment in Visa Europe Ltd. (at 31 December 2015, accounted for at a fair value of €111 million), as described in Part B, Section 4 of Assets and the recognition of the Series C Visa Inc. Convertible Preferred Stock received as partial payment.
4. Property, plant and equipment held for investment purposes – – – – – – – –
4. Liabilities associated with noncurrent assets held for sale and discontinued operations – – – – – – – –
Balance at 31 December 2015 b) Central bank deposits 223 216
“Cash” is comprised of cash at post office counters and companies that provide cash transportation services, consisting of cash deposits on postal current accounts, postal savings products (Interest-bearing Postal Certificates and Postal Savings Books) or advances obtained from the Treasury to fund post office operations. This cash may only be used in settlement of these obligations. Cash includes banknotes totalling €9 million.
BancoPosta RFC also entered into transactions to acquire and immediately dispose of debt securities and equities on behalf of certain customers.
Equity instruments comprise: • €74 million, reflecting the fair value of 756,280 Class B shares of Mastercard Incorporated. These shares are not traded on an organised exchange but are convertible into an equal number of Class A shares, which are listed on the New York Stock Exchange, if disposal is desired; • €27 million, reflecting the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) received for the sale of the Visa Europe Ltd. share to Visa Incorporated on 21 June 2016. In exchange for the share in Visa Europe Ltd.(116), Poste Italiane received a consideration of €121 million (a sum recognised as non-recurring income and entered in the income statement as “Profits/(Losses) on disposal or repurchase – Item 100”), consisting of: – €88 million in cash; – €25 million, representing the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock), convertible at the rate of 13.952(117) ordinary shares for each C share, minus a suitable illiquidity discount, considering the staggered conversion between the fourth and the twelfth year after the closing; – €8 million payable by Visa Incorporated after three years from the closing of the transaction; • €3 million, reflecting the fair value of 11,144 class C shares of Visa Incorporated. These shares are not traded on an organised exchange, but are immediately convertible into Class A shares (at the rate of four ordinary shares for each C share), which are listed on the New York Stock Exchange, if disposal is desired.
Securities issued by other issuers with a fair value of €1,509 million regard two fixed rate securities with a nominal value of €750 million each. The securities pay six-monthly interest, have terms to maturity of 4 and 5 years, respectively, were issued by Cassa Depositi e Prestiti and are guaranteed by the Italian government.
There was a net reduction of €787 million in the fair value of debt securities, for which a fair value hedge was not arranged, during the period under review, with a loss of €1,643 million recognised in a separate equity reserve, and a net gain of €856 million on the hedged portion recognised in profit or loss (Part C, Table 5.1).
“Other loans, Other” includes cash collateral held by counterparties for asset swaps (€1,182 million as collateral pursuant to Credit Support Annexes), entered into for cash flow and fair value hedging purposes by BancoPosta RFC, and repurchase agreements (€44 million as collateral pursuant to specific Global Master Repurchase Agreements).
8. Structured securities – – – x x x – – – x x x 9. Other debt securities – – – x x x – – – x x x
“Other transactions” primarily consist of: • €6,198 million, €9 million of which being accrued interest, in public customers’ current account deposits deposited with the MEF, which earn a variable rate of return, calculated on a basket of government securities(118); • €1,309 million, €1 million of which being accrued interest, in deposits at the MEF (the “Buffer account”), remunerated at the EONIA rate(119); • €364 million in fees receivable from Cassa Depositi e Prestiti during the year in connection with postal savings, which under the agreement signed on 4 December 2014 are invoiced on a quarterly basis; • €209 million in guarantee deposits provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes) entered into for cash flow and fair value hedging purposes by BancoPosta RFC; • €632 million in amounts receivable from Poste Italiane SpA’s functions outside the ring-fence, €629 million of which relates to Poste Italiane SpA’s Finance function’s intersegment financial account, used for the processing of payments to and from third parties.
Section 8 – Hedging derivatives – Item 80 8.1 Hedging derivatives by type of hedge and fair value level
B. Credit derivatives – – – – – – – –
1) Fair Value – – – – – – – –
2) Cash flow – – – – – – – –
1. Financial liabilities – – – x – x – x x
Total liabilities – – – – – – – – –
Current tax assets and liabilities form part of intersegment relations and are shown in “Other assets” (item 150 in Assets) and “Other liabilities” (item 100 in Liabilities), as they are settled with Poste Italiane SpA’s functions outside the ringfence, within the scope of internal relations with Poste Italiane SpA, as the sole taxable entity.
Deferred tax assets through profit or loss – – – – 21 – 78 15 99 15
Deferred tax assets through equity 3 – 24 5 – – – – 27 5 13.2 Deferred tax liabilities: analysis
Balance at 31 December 2015 2.1 Deferred tax assets recognised in the year 29 6 a) relating to previous years – –
a) transformation into tax credit pursuant to Law 214/2011 – –
3.2 Reduction of tax rate – 117 3.3 Other decreases – –
Tax assets other than those included in item 130 357 326
Current account cheques being settled, drawn on other banks 100 85
“Items in process, other” includes: • customer postal cheques of €2 million in collection from banks; • uses of debit cards issued by BancoPosta to be debited to customer accounts, totalling €14 million; • €40 million in withdrawals from BancoPosta ATMs yet to be debited to customer accounts or awaiting settlement; • amounts due from commercial partners for providing PostePay top-ups, totalling €29 million, and processing payments slips, totalling €24 million, to be credited to beneficiaries; • unsettled debit card payments made at post offices, totalling €37 million; • account maintenance and custody fees of €6 million to be debited to customers.
Collection of IRES refund claimed – – – (12) – (12)
of which: Current tax assets receivable from Poste Italiane SpA outside the ring-fence (item 150 Assets) 28 1 29 – – –
“Other items” include: • €861 million in stamp duty accrued to 31 December 2016 payable by holders of outstanding Interest-bearing Postal Certificates(120). An equal amount has been recognised in “Other liabilities” as tax payables (Part B, Liabilities, Table 10.1) until expiration or early extinguishment of Interest-bearing Postal Certificates, which is the date on which the tax must be paid to the authorities; • €154 million relating to stamp duty charged to Postal Savings Books, which BancoPosta RFC pays in virtual form as required by law; • amounts in the process of recovery, totalling €18 million, which are not available since the related amounts have been seized and have not yet been assigned to creditors of Poste Italiane SpA’s functions outside the ring-fence. Any losses on realisation of collateral are for the account of Poste Italiane SpA’s functions outside the ring-fence.
2.1 Current accounts and demand deposits 385 283 2.2 Time deposits – –
BancoPosta RFC has uncommitted overnight lines of credit amounting to €1,118 million and overdraft arrangements of €81 million provided by Poste Italiane SpA, both undrawn at 31 December 2016. From 2014, the Bank of Italy has granted BancoPosta RFC access to intraday credit in order to fund intraday interbank transactions. Collateral for this credit facility is provided by securities with a nominal value of €464 million and the facility is unused at 31 December 2016.
Balance at 31 December 2015 1. Current accounts and demand deposits 45,097 43,093 3.1 Repurchase agreements – –
BancoPosta RFC held no financial instruments in the trading book at either 31 December 2016 or 31 December 2015.
Section 6 – Hedging derivatives – Item 60 6.1 Hedging derivatives by type and fair value level
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 3) Net foreign investments – – – – – – – –
1) Fair value – – – – – – – –
Section 7 – Adjustments for changes in hedged financial liabilities portfolio – Item 70
Movements in employee termination benefits during the year under review are shown below: 11.1 Employee termination benefits: movements during the year
“Other increases” were the result of transfers from Poste Italiane SpA or other Group companies and actuarial losses recognised as a contra-entry in equity (Part D). The current service cost is not applicable to the employee termination benefits attributable to BancoPosta RFC, since this cost is recognised in personnel expenses, as the contributions are paid over to pension funds or other social security institutions.
Measurement of the liability entails actuarial computations for which the following assumptions were used in 2016 and 2015: Key economic and financial assumptions
At 31 December 2016 At 30 June 2016 At 31 December 2015
“B.1 Provisions for the year” includes personnel expenses of €10 million. Other decreases relate to transfers to the income statement during the year as a result of the derecognition of prior year liabilities, including a part of the provisions for personnel expenses.
Provisions for non-recurring charges relate to operational risks attributable to BancoPosta RFC. They regard, among other things, the liabilities arising from the reconstruction of operating ledger entries at the time of Poste Italiane SpA’s incorporation, liabilities deriving from the provision of delegated services for social security agencies, fraud, violations of administrative regulations, compensation and adjustments to income for previous years, risks linked to disputes with customers regarding certain investment products whose performance is not in line expectations, risks linked to customer complaints relating to the erroneous application of statute barring and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee-defendant.
At 31 December 2016, undistributed earnings total €949 million. Other revenue reserves include the initial reserve of €1 billion provided to BancoPosta RFC on its creation.
Balance at 31 December 2015 1) Financial guarantees issued – –
Irrevocable commitments to disburse funds where disbursement is certain regard forward purchases of securities with a nominal value of €400 million, for which the settlement price is shown.
3. Available-for-sale financial assets 206 544 4. Held-to-maturity financial assets 5,404 4,474 5. Due from banks – –
c) third-party securities deposited with third parties 5,262 d) own securities deposited with third parties 44,570 a) Postal Savings Books 118,930 b) Interest-bearing Postal Certificates 120,219
December 2015 1. Financial assets held for trading – – – – 1 2. Available-for-sale financial assets 974 – – 974 930 3. Held-to-maturity financial assets 541 – – 541 573 4. Due from banks – – – – –
5. Financial liabilities held for trading – – – – –
Section 2 – Fees and commissions – Items 40 and 50 2.1 Fee and commission income: analysis
“Management, brokerage and advisory services” include, within the context of the distribution of other products, fees receivable in return for the collection of postal savings deposits, totalling €1,577 million. This service relates to the provision and redemption of Interest-bearing Postal Certificates and payments into and withdrawals from Postal
Savings Books, carried out on behalf of Cassa Depositi e Prestiti under the Agreement of 4 December 2014, covering the five-year period 2014-2018. In 2016, a number of conditions provided for in the Agreement of 4 December 2014 covering the five-year period 2014-2018 were confirmed, requiring the parties to renegotiate existing agreements in good faith. Whilst awaiting the agreement of new terms and conditions, BancoPosta RFC has recognised revenue from the services rendered in 2016 on the basis of the Agreement of 4 December 2014. Any impact of a new agreement on the operating results, not as yet foreseeable, will be taken into account, on an accruals basis, once such an impact can be reasonably assessed.
C. Financial assets designated at fair value – – – –
2. Financial liabilities held for trading – – – – –
3. Financial assets and liabilities: foreign exchange differences x x x x –
– on equity instruments and share indices – – – – –
– on foreign exchange and gold x x x x –
Section 5 – Fair value adjustments in hedge accounting – Item 90 5.1 Fair value adjustments in hedge accounting: analysis
3. Available-for-sale financial assets 594 – 594 426 – 426 4. Held-to-maturity financial assets – – – – – –
Section 8 – Net losses/recoveries on impairment – Item 130 8.1 Net losses/recoveries on impairment of loans and advances: analysis
A. Due from banks – – – – – – – – –
5) Recovery of employment costs of staff seconded to other companies – –
Section 10 – Net provisions for risks and charges – Item 160 10.1 Net provisions for risks and charges: analysis
Adjustments for change in IRES tax rate introduced by 2016 Stability Law 3 0.4% 8 0.9%
Non-recurring (income)/expense for taxes charged to profit or loss – 0.0% 3 0.3%
Gross amount Tax on income Net amount 10. Profit/(Loss) for the year X X 568
120. Share of valuation reserve attributable to equityaccounted investments: – – –
BancoPosta’s operations, conducted in accordance with Presidential Decree 144/2001, consist in the management of liquidity generated by postal current account deposits, carried out in the name of BancoPosta but subject to statutory restrictions, and collections and payments on behalf of third parties.
Despite the ECB’s Quantitative Easing, the overall climate of market uncertainty drove the yields on Italian government bonds upwards in 2016, resulting in a reduction in unrealised gains on the securities accounted for in the financial statements, some of which were, in any event, recognised as realised gains in profit or loss.
During 2016, BancoPosta RFC’s leverage ratio (the ratio of its Common Equity Tier1 and total assets) declined as a result of the significant increase in activity, linked to the positive performance of deposits and the related investments. At 31 December 2016, the ratio is just below the limit of 3% fixed by Poste Italiane SpA’s Board of Directors. As a result, at the date on which it will approve these financial statements, the Board of Directors proposes to strengthen BancoPosta RFC’s capital position in order to restore the ratio to the target level set out in the Risk Appetite Framework.
The investment profile is based, among other things, on the constant monitoring of habits of current account holders and a use of a leading market operator’s statistical/econometric model of typical postal current account interest rates and maturities, based on a prudent projection of the future volume of deposits. The above mentioned model is thus the general reference for the investments (the limits of which are determined by specific guidelines approved by the Board of Directors) in order to limit exposure to interest rate risk and liquidity risks.
Balanced financial management and monitoring of the main risk/return profiles are carried out and ensured by dedicated organisational structures, both within and without the BancoPosta ring-fence, that operate separately and independently. In addition, specific processes are in place governing the assumption and management of and control over financial risks. In this regard, Poste Italiane SpA’s Board of Directors has adopted regulations containing integrated guidelines for Poste Italiane SpA’s Internal Control and Risk Management System (Guidelines for Internal Control and Risk Management System or “SCIGR”). These guidelines provide a detailed, organic and efficient view of BancoPosta RFC’s internal control and risk management system. From an organisational viewpoint, the model consists of: • the Audit and Risk Committee, which, with regard to BancoPosta’s operations, provides support to the Board of Directors in relation to risks and the internal control system, with particular reference to all the activities deemed instrumental and necessary to enable the Board of Directors to correctly and effectively determine the risk appetite framework and risk management policies; • the Cross-functional Committee, set up under the BancoPosta RFC Regulation and chaired by Poste Italiane SpA’s CEO and General Manager. Other permanent members are the Head of BancoPosta and the heads of the functions within Poste Italiane SpA primarily involved with Bancoposta. The Committee provides advice, makes recommendations and coordinates BancoPosta’s operations with those of other Poste Italiane functions; • the Finance, Savings and Investment Committee, which is responsible for establishing policies governing management of the savings of retail customers, as well as strategies to be applied in managing financial assets. In view of the matters dealt with, the Committee is divided into three sections: – Finance, with the role of defining and overseeing the financial strategy; – Savings, with the role of establishing guidelines to be applied in the development of savings products; (123) From 1 April 2015, the match between BancoPosta’s private customer deposits and the related investments, verified on a quarterly basis, is assessed with reference to the amortised cost computed on the basis of the outright price of the instruments in portfolio. Prior to this, the match was assessed with reference to the nominal value of the instruments in portfolio.
(124) Amendment of art. 1, paragraph 1097 of Law 296 of 27 December 2006, introduced by art. 1, paragraph 285 of the 2015 Stability Law (Law 190 of 23 December 2014).
– Financial investment strategies, with the role of ensuring effective governance and the greatest possible alignment with strategic decisions regarding the allocation and management of financial assets; • Poste Italiane SpA’s Coordination of Investment Management function, the work of which is regulated by specific operating guidelines, and which oversees investment strategy and the hedging of capital market risks in respect of the liquidity deriving from BancoPosta current account deposits, in accordance with the guidelines established by the various corporate bodies.
• BancoPosta’s Risk Management unit, responsible for measuring and controlling risk and duly observing the independence of control functions from management. The results of these activities are examined by Poste Italiane SpA’s Financial Risk Committee.
The above prudential standards have imposed the same obligations on Bancoposta as those applicable to banks in terms of corporate governance, internal controls and risk management, requiring, among other things, achievement of the following objectives: • definition of a Risk Appetite Framework (RAF); • oversight of implementation of the Company’s strategies and policies; • the containment of risks within the limits set by the RAF; • protection of the value of assets and against losses; • identification of material transactions to be subject to prior examination by the risk control function.
The nature of BancoPosta RFC’s operations, however, results in a considerable concentration of exposure to Republic of Italy risk as a result of its deposits at the MEF and its investments in Government securities. Credit risk models, explained below, show, however, that for capital requirements this type of investment does not determine capital absorption.
Monitoring credit risk is particularly focused on the following exposures: • euro area government securities (or those guaranteed by the government) in which private customer account deposits are invested; • deposits at the MEF in which Public Administration account deposits are invested; • any eventual amounts due from the Italian Treasury as a result of depositing funds gathered less payables for advances disbursed; • items in process: cheque clearing, use of electronic cards, collections; • temporarily overdrawn post office current accounts caused by debiting fees: limited to those which were not classified as impaired since the accounts were in funds in early 2017; • cash collateral for outstanding transactions with banks and customers, in accordance with agreements intended to mitigate counterparty risk (CSA – Credit Support Annexes and GMRA – Global Master Repurchase Agreements); • securities provided as collateral in accordance with agreements intended to mitigate counterparty risk (CSAs and GMRAs); • trade receivables payable for financial/insurance product arrangement.
Credit risk is controlled through the following: • minimum rating requirements for issuers/counterparties, based on the type of instrument; • concentration limits per issuer/counterparty; • monitoring of changes in the ratings of counterparties.
(125) According to the prudential requirements, weighted risk exposure must at all times be below 25% of own funds. Exposures are normally equal to an asset’s nominal value adjusting for any credit risk mitigation. Lower risk borrowers are assigned lower risk weightings.
(126) The standard method entails risk weightings in accordance with the nature of the exposure and the identity of the counterparty and the counterparty ’s external credit rating.
There were no impaired financial assets on BancoPosta RFC’s books at 31 December 2016.
Total 1. Available-for-sale financial assets – – – – 37,159 37,159 2. Held-to-maturity financial assets – – – – 12,683 12,683 5. Financial assets designated at fair value – – – – – –
Net exposure 1. Available-for-sale financial assets – – – 37,159 – 37,159 37,159 2. Held-to-maturity financial assets – – – 12,683 – 12,683 12,683 5. Financial assets designated at fair value – – – X X – –
6. Financial assets held for sale – – – – – – –
Net exposure Net exposure 1. Financial assets held for trading – – –
b) Unlikely to pay – – – – X – X –
d) Performing past-due exposures X X X X – X – –
“Off-balance sheet exposures, Performing” relates to the counterparty risk associated with derivatives registering fair value gains after the effect of netting agreements, securities provided as collateral under counterparty risk mitigation agreements and for Repo financing with Securities Financing Transactions (SFT)(129) margins.
A.1.4/ A.1.5 On-balance sheet credit exposure to banks: changes in gross non-performing exposures and in total adjustments
A.1.6 On and off-balance sheet credit exposure to customers: gross and net amounts and pastdue categories
B. Off-balance sheet exposures a) Non-performing – – – – X – X –
A.1.7/ A.1.8 On-balance sheet credit exposure to customers: changes in gross non-performing exposures and in total adjustments
C. Guarantees issued – – – – – – – –
D. Commitments to disburse funds – – – – – – – –
1. Guaranteed on-balance sheet credit exposures: 1.1 guaranteed in full – – – – – – – – – – – – – – –
2. Guaranteed off-balance sheet credit exposures: 2.1 guaranteed in full – – – – – – – – – – – – – – –
2.2 partially guaranteed – – – – – – – – – – – – – –
A.1 Doubtful loans – – X – – X – – X – – X – – X – – X
- of which: forborne exposures – – X – – X – – X – – X – – X – – X
A.3 Non-performing exposures – – X – – X – – X – – X – – X – – X
- of which: forborne exposures – X – – X – – X – – X – – X – – X –
A.2 Unlikely to pay – – – – – – – – – –
B.4 Performing exposures 416 – – – – – – – – –
A.1 Doubtful loans – – – – – – – – – –
A.3 Non-performing past-due exposures – – – – – – – – – –
B.1 Doubtful loans – – – – – – – – – –
A.3 Non-performing past-due exposures – – – – – – – –
In the case of BancoPosta RFC, this category only regards Italian government securities provided as collateral for repurchase agreements. BancoPosta uses these transactions to access the interbank market to raise funds, with the aim of funding the purchase of government securities and the deposits necessary for margin lending.
At 31 December 2. Equity instruments – – – – – – – – – X X X X X X X X X – –
of which non-performing: – – – – – – – – – – – – – – – – – – – X
of which non-performing: – – – – – – – – – – – – – – – – – – X –
a) asset fully recognised – – – – – – –
BancoPosta RFC monitors market risk, including fair value interest rate and spread risks, inherent in available-for-sale financial assets and derivative financial instruments through the computation of Value at Risk (VaR) over a time horizon of 1 day at a 99% confidence level.
Spread risk regards bonds issued or guaranteed by the Italian government and classified as available-for-sale financial assets. The progressive deterioration in the market perception of Italy’s sovereign credit rating in 2016, despite the Quantitative Easing carried out by the ECB, has had a negative influence on the price of Italian government bonds. Indeed, the spreads between ten-year Italian government bonds and German bunds is approximately 161 bps at 31 December 2016 (97 bps at 31 December 2015).
Over the period under review, the fall in Italian government bond prices, linked to movements in the spread and the reduction in risk-free interest rates to close to all-time lows, resulted in a net reduction in the fair value of BancoPosta RFC’s available-for-sale portfolio (a nominal value of approximately €32 billion) of approximately €0.8 billion. The increase in the fair value of instruments hedged against interest rate risk, amounting to approximately €0.8 billion, was offset by a reduction in the fair value of the related derivatives, whilst the reduction in the fair value of unhedged instruments and of the component subject to spread risk (unhedged) was reflected in consolidated equity (approximately €1.6 billion); Price risk
Quantitative information 1. Banking book: distribution of residual terms to maturity of financial assets and liabilities by repricing date
– current accounts 45,097 – – – – – – –
+ short positions – 416 – – – – – –
1.1 Debt securities – – – – – – – –
– with prepayment option – – – – – – – –
1.3 Due from customers – – – – – – – –
2.1 Due to customers – – – – – – – –
– other deposits – – – – – – – –
2.4 Other liabilities – – – – – – – –
+ long positions – – – – – – – –
The sensitivity of exposures to fair value interest rate risk was tested by assuming a parallel shift of the market yield curve of +/– 100 bps.
BancoPosta’s available-for-sale financial assets portfolio at 31 December 2016 had a duration of 5.79 (31 December 2015: 5.89). The sensitivity analysis is shown in the table.
The value of the portfolio of bonds issued or guaranteed by the Italian government is much more sensitive to the credit risk associated with the Italian Republic than to changes in so-called risk-free interest rates. This is due, in part, to the fact that changes in credit spreads also affect the value of variable rate bonds and, especially, to the fact that, unlike pure interest rate risk, no hedging policy is in place to protect against credit spread risk. This means that, in the event of increases in interest rates attributable to pure rate component, unrealised losses on fixed rate bonds are offset by an increase in the value of hedging IRSs (a fair value hedge strategy). If, on the other hand, interest rates rise as a result of a wider credit spread for the Italian Republic, losses on bonds issued or guaranteed by the Italian government are not offset by movements in the opposite direction of other exposures.
Fair Value Changes in value Net interest and other banking income
Financial liabilities held for trading – – – – – – – –
Liability – Hedging derivatives – – – – – – – –
In addition, if considered as a whole, financial assets and liabilities are subject to maximum potential losses of €468 million.
Maximum potential loss (VaR – Value at Risk), a statistical estimation with a time horizon of 1 day and a confidence level of 99%, is also computed by BancoPosta RFC to monitor market risk. Risk analysis performed through VaR takes into account the historical variability of the risk (spread) in question, in addition to modelling parallel shifts of the yield curve.
In order to jointly monitor spread and fair value interest rate risks, the following table shows the results of the VaR analysis conducted with reference to available-for-sale financial assets and derivative financial instruments, taking into account the variability of both risk factors: Closing VaR (434) (332)
Taking into account both available-for-sale financial assets (including the related hedges outstanding) and forward purchases (registering both fair value gains and losses), the combined analysis of spread risk and fair value interest rate risk at 31 December 2016 results in a potential loss of €440 million (VaR at the end of the period).
Due to customers (Poste Italiane SpA outside the ring-fence) (14) – – (14) – –
Cash flow inflation rate risk at 31 December 2016 relates to government inflation indexed bonds which were not hedged through the arrangement of cash flow hedges or fair value hedges entered into by BancoPosta RFC, having a nominal value of €2,120 million and a fair value of €2,605 million. The effects of sensitivity analysis are immaterial.
+ Vol – Vol + Vol – Vol + Vol – Vol 2016 effect
Foreign exchange risk is measured using the Bank of Italy prudential methodology currently recommended for banks (see EU Regulation 575/2013). Furthermore, sensitivity stress tests are regularly conducted for the most important exposures with reference to hypothetical levels of exchange rate volatility for each currency position. Movements in exchange rate equal to the volatility for the period are assumed to emulate market fluctuations.
Equity reserves before taxes days days days days days days 2016 Effect
A.5 / A.6 OTC financial derivatives – supervisory trading book: notional amount, gross negative and positive fair value by counterparty – contracts falling and not falling within the scope of netting agreements
A.8 OTC financial derivatives – banking book: notional amount, gross negative and positive fair value by counterparty – contracts falling within the scope of netting agreements
Other entities 1) Debt securities and interest rates 2) Equity instruments and stock indices - notional amount – – – – – – –
- negative fair value – – – – – – –
4) Other - notional amount – – – – – – –
1 year or less 1 – 5 years over 5 years Total
A.1 Financial derivatives on debt securities and interest rates – – – –
A.2 Financial derivatives on equity instruments and stock indices – – – –
A.3 Financial derivatives on exchange rates and gold – – – –
3) Cross product agreements - positive fair value – – – – – – –
In terms of BancoPosta RFC’s specific operations, liquidity risk regards the investment of current account deposits in bonds issued or guaranteed by the Italian government and the margins on derivative transactions. The potential risk derives from a mismatch between the maturities of investments in securities and those of liabilities, represented by current accounts where the funds are available on demand, thus compromising the ability to meet its obligations to current account holders. This potential mismatch between assets and liabilities is monitored via comparison of loan and deposit maturities, using the statistical model of the performance of current account deposits, in accordance with the various likely maturity schedules and assuming the progressive total withdrawal of deposits over a period of 20 years for retail customers, 10 years for business customers and PostePay cards and 5 years for Public Administration customers. BancoPosta RFC closely monitors the behaviour of deposits taken in order to assure the model’s validity.
In addition to postal deposits, BancoPosta also funds itself through: • LTROs, amounting to an outstanding €3.9 billion; • short-term deposits created through repurchase agreements as funding for incremental deposits used as collateral for asset swaps and Repos (collateral provided, respectively, under CSAs and GMRAs).
(130) The threshold amount is the amount of collateral that is not required to be provided under the contract; it therefore represents the residual counterparty risk to be borne by a counterparty.
A.2 Other debt securities – – – – – 5 – 1,500 – –
B.1 Deposits and current accounts 45,482 – – – – – – – – –
– Long positions – – – – – – – – 400 –
– Short positions – – – – 416 – – – – –
– Long positions – – – – – – – – – –
Demand 1 – 7 days 15 days – 1 month 6 months – 1 year > 5 years
A.1 Government securities – – – – – – – – – –
– Banks – – – – – – – – – –
At 31 December 2016, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. These are as follows: Operational risk
In view of the extension of prudential standards to BancoPosta, BancoPosta RFC is now required to establish a system of internal controls in line with the provisions of Bank of Italy Circular 285/2013, which, among other things, requires the definition of a Risk Appetite Framework (RAF) and the containment of risks within the limits set by the RAF(131). Compliance with the metrics established by the RAF influences decisions regarding profit distributions as part of capital management.
2.2 Reversal to income statement of negative reserve: – – – –
C. CET1 before investments to be deducted and adjustments for the transitional regime (A+/– B) 1,949 1,949
F. Total Common Equity Tier 1 – CET1 (C – D +/– E) 1,949 1,949
L. Total Additional Tier 1 – AT1 (G – H +/– I) – –
P. Total Tier2 – T2 (M – N +/– O) – –
In calculating both the capital requirements regarding credit and counterparty risk and the Credit Valuation Adjustment (CVA), the standardised approach provided for by EU Regulation 575/2013 is used. In the case of BancoPosta RFC, credit risk derives primarily from exposures in the form of cash deposits and securities pledged as collateral (under counterparty risk mitigation agreements, such as CSAs and GMRAs), and trade receivables due from partners as a result of the distribution of financial and insurance products(135). Exposures resulting from the investment of funds raised from deposits paid into accounts by private and Public Administration customers (bonds issued or guaranteed by the Italian government and amounts deposited with the MEF) and any eventual amounts due from the Italian Treasury as a result of depositing funds gathered, less payables for advances disbursed, do not, for the purposes of credit risk, result in the absorption of capital, as these exposures have a zero weighting. Counterparty risk derives from exposures resulting from cash flow and fair value hedges and repurchase agreements(136). Market risks solely regard foreign exchange risk which, in BancoPosta RFC’s case, principally derives from foreign currency bank accounts, foreign currency holdings and the MasterCard and VISA shareholdings. In calculating the capital requirements regarding foreign exchange risk, the standardised approach provided for by EU Regulation 575/2013 is applied. In calculating Pillar 1 capital requirements for operational risk, BancoPosta applied the simplified approach (BIA – Basic Indicator Approach) provided for by EU Regulation 575/2013. This consists of applying a percentage of 15% to the average of the relevant indicator for the last three years(137) as at the end of the reporting period.
(133) Risk weighted assets, or RWA, are calculated by applying a risk weighting to the assets exposed to credit, counterparty, market and operational risks.
(134) The capital conservation buffer is designed to ensure a minimum level of regulatory capital under adverse markets conditions by enabling the build-up of high-quality capital outside periods of market stress. A transitional regime will reduce this buffer from 1 January 2017, with the aim of applying equal treatment to Italian banks with respect to other intermediaries operating in the euro zone. The new minimum ratios are: 1.250% from 1 January 2017 to 31 December 2017; 1.875% from 1 January 2018 to 31 December 2018; 2.500% from 1 January 2019.
Weighted amounts/ Requirements at 31 December at 31 December at 31 December at 31 December
The principal risk is operational, which absorbs approximately 85% of total prudential requirements. Credit risk amounts to €118 million, whilst the remaining amount absorbed regards counterparty risk (€9 million). Market risk solely regards foreign exchange risk, which absorbs less than 1% of total capital requirements.
Key management personnel consist of Directors of Poste Italiane SpA and first-line managers, whose compensation before social security and welfare charges and contributions are disclosed in table 4.4.5 in the notes on Poste Italiane’s financial statements and have been charged to BancoPosta RFC as part of the services provided by Poste Italiane functions outside the ring-fence (see Part C, Table 9.5). The charges are calculated in accordance with specific operating guidelines (Part A, paragraph A.1, Section 4).
Impact of related party transactions on the financial position at 31 December 2016
SDA Express Courier SpA – – – – – 4 –
Cassa Depositi e Prestiti Group 1,500 397 – – – – –
Other related parties external to the Group – – – – – – 10
Impact of related party transactions on profit or loss for the year ended 31 December 2016
BancoPosta Fondi SpA SGR – – 29 – – – – –
Poste Vita SpA – – 448 – – – – –
Cassa Depositi e Prestiti Group 9 – 1,577 – – – (8) –
BancoPosta RFC Separate Report for the year ended 31 December 2016
BancoPosta Fondi SpA SGR – – 22 – – – – –
Poste Vita SpA – – 412 – – – – –
Ministry of the Economy and Finance 34 (1) 130 – – (1) – –
Other related parties external to the Group – – 3 – – – (1) –
On 11 October 2016, Poste Italiane’s Board of Directors, having obtained the consent of the Related and Connected Parties Committee, authorised the execution of short-term repurchase agreements with Cassa Depositi e Prestiti with a total nominal amount of up to, but no more than, €2.5 billion. Whilst meeting CONSOB’s definition of greater significance, the transaction is ordinary in nature and, therefore, again according to the same CONSOB regulations, is exempted from the decision-making procedures for such transactions.
Vesting of the Phantom Stocks is subject to achievement of the Performance Hurdle, designed to ensure sustainability of the Plan. The Performance Hurdle corresponds with achievement of a certain target for the Group’s cumulative EBIT over a three-year period at the end of each Performance Period. In addition, vesting of the Phantom Stocks is also subject to achievement of Qualifying Conditions, designed to ensure the stability of BancoPosta RFC’s capital and liquidity position, as follows: • Indicator of capital adequacy, based on CET 1 at the end of the period; • Indicator of short-term liquidity, based on LCR at the end of the period.
The Phantom Stocks will be awarded by the end of the year following the end of the Performance Period, and are subject to a one-year retention period before they can be converted into cash, following confirmation that the Qualifying Conditions have been met.
Part L – Operating segments The economic flows and performance of the operations are reported internally on a regular basis to executives without identifying segments. BancoPosta RFC’s results are consequently evaluated by senior management as one business division.
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Poste Italiane SpA Registered office: Viale Europa, 190 00144 Rome – Italy www.posteitaliane.it/en