Document prepared for the Annual General Meeting of shareholders to be held on 27 April 2017.
DIRECTORS’ REPORT ON OPERATIONS FOR THE YEAR ENDED 31 DECEMBER 2016 10 1. Management and supervisory bodies 12 2. Mission and key aspects of strategy 16 3. Group organisational structure 17 4. Performance indicators 27 5. Group operating results 29 6. Human resources 54 7. Risk management 60 10. Principal relations with the authorities 65 11. Financial review for Poste Italiane SpA 72 12. BancoPosta RFC management review 77 13. Other information 84 14. Proposed shareholder resolutions 86
Total revenue 33,112 30,739 of which: from Postal and Business Services 3,822 3,882 from Financial Services 5,294 5,155 from Insurance Services 23,772 21,459 from Other Services 224 243
at 31 December (€m) at 31 December 2016 at 31 December 2015
Number of PosteMobile SIM cards (average for the period in '000) 3,643 3,471
(3) These amounts include both private customer deposits (including the investment of liquidity by Group companies and amounts payable to financial institutions under repurchase agreements), and deposits by the Public Administration.
(1) In order to fulfil the undertakings given by the Company and the Ministry of the Economy and Finance at the time of the Company’s privatisation, the Ordinary General Meeting held on 24 May 2016 elected additional members of the Board of Directors, increasing the number of Directors from seven to nine and electing Giovanni Azzone and Mimi Kung as the new members of the Board.
(2) The Board of Statutory Auditors was elected by the Ordinary General Meeing of 24 May 2016 to serve for a period of three years and will remain in office until the General Meeting’s approval of the financial statements for the year ended 31 December 2018. On 30 January 2017, the Alternate Auditor, Andrea Bonechi, resigned from his position with immediate.
(3) At its meeting of 17 May 2016, the Board of Directors voted to assign supervisory responsibilities to two separate bodies: the Board of Statutory Auditors, which has maintained its existing responsibilities, and the Supervisory Board. As a result, the Board of Directors appointed the new Supervisory Board with effect from 24 May 2016. The Supervisory Board will remain in office for three years.
(6) This Committee was established by the Board of Directors on 15 September 2016, with effect from 1 October 2016.
Magistrate appointed by the Italian Court of Auditors to audit Poste Italiane Francesco Petronio
Umberto Carlo Maria Nicodano (Chairman) Chiara Palmieri Filippo Passerini Roberto Rao
The Board of Statutory Auditors met 22 times during the year. It held a further 2 meetings exclusively in its role as Supervisory Board. Since its establishment, the Supervisory Board has met on 7 occasions. The audit firm, PricewaterhouseCoopers SpA, has been appointed to audit the Company’s accounts for the period 2011-2019. The appointment was made in conformity with Legislative Decree 39/2010 (”Implementation of Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts”). With regard to the governance system adopted by BancoPosta RFC, the rules governing the organisation, management and control of BancoPosta’s operations are contained in the specific BancoPosta RFC Regulation approved by the Extraordinary General Meeting of 14 April 2011 and amended by the Extraordinary General Meeting of 31 July 2015. As a result of the new Supervisory Standards applicable to BancoPosta RFC, issued by the Bank of Italy on 27 May 2014, Poste Italiane, in providing financial services to the public, is comparable – for the purposes of application of corporate governance regulations – to a major bank in terms of size and operational complexity.
Further information regarding the corporate governance structure is provided in Poste Italiane’s “Report on Corporate Governance and the Ownership Structure”, published in the “Governance” section of the Company’s website.
Poste Italiane aims to be a driving force for inclusive development in Italy, helping citizens, businesses and the Public Administration through the transition to a digital economy by offering high-quality, simple, transparent and reliable services.
In the Postal and Business Services segment, we are proceeding with implementation of the new delivery model, requiring changes to processes and the offering, so as to ensure that it is sustainable over the medium to long term. In addition, the process of simplifying and expanding the Parcels offering has been completed, in part with a view driving growth in the e-commerce sector, which is strategic for the Group.
In the Insurance Services and Asset Management segment the Group’s strategy in 2016 focused on maintaining its position as a preferred and trusted provider to the public. This includes further development of our offering, with particular attention focused on protection and non-life products, and on the alliance with Anima Holding.
Letters Express Delvery. Logistics and Parcels, Philately and the activities carried out by the Parent Company for the other operating segments. This segment also icludes the following companies: EGI
The provision of current accounts and payment services, �nancial products and loan products arranged by third parties.
During 2016, the allocation of certain companies to the related operating segments altered. Specifically, BancoPosta Fondi SpA SGR, which was previously allocated to the Financial Services segment, now forms part of the Insurance Services and Asset Management segment, whilst Poste Tributi ScpA in liquidation, which was previously allocated to the Postal and Business Services segment, has been transferred to the Financial Services segment. Therefore, the relevant comparative amounts for 2015 have been accordingly reclassified in this Annual Report. In addition, the following corporate actions took place during the year: • The deed for the merger of PosteShop SpA with and into Postel SpA was executed on 22 April 2016. The merger was effective for legal, accounting and tax purposes from 1 May 2016.
• On 7 October 2016 and 17 October 2016, respectively, the memoranda of association of Risparmio Holding SpA, which is owned by Poste Italiane (80%) and CDP (20%), and of Equam SpA, 80% owned by Risparmio Holding SpA and 20% by Anima Holding SpA, were signed. The companies were incorporated to participate in the competitive tender process launched by Unicredit SpA in relation to the sale of its asset management activities provided by the group of companies headed by Pioneer Global Asset Management SpA. On 10 November 2016 – on behalf of and in the interests of its shareholders – Equam SpA submitted a binding offer of purchase to Unicredit, which on 5 December 2016 announced the launch of exclusive negotiations with the French company, Amundi.
• On 10 November 2016, Poste Italiane SpA and Anima Holding signed a framework agreement whereby Poste Italiane will transfer its interest in BancoPosta Fondi SpA SGR to Anima Holding during 2017. Following this transaction, which confirms its growth strategy in the asset management sector, Poste Italiane will increase its investment in Anima Holding SpA from 10.32% to up to 24.9%. In accordance with the terms and commitments assumed as at 31 December 2016, the transaction involves an exchange of equity instruments, after which Poste Italiane will have increased its investment in Anima Holding SpA without, however, assuming, under the existing conditions at the date of preparation of these financial statements, control thereof(1).
• On 30 January 2017, the demerger and merger regarding the restructuring of Postecom SPA was executed, which breaks down into two phases: (i) the partial demerger of Postecom’s interests in PatentiVIaPoste ScpA and Consorzio Poste Motori and the transfer of the interests to Postel; (ii) the merger of Postecom with and into Poste Italiane.
• Following negotiations that took place during the last quarter of 2016, on 8 February 2017 an agreement was reached to transfer the entire shareholding in Banca del Mezzogiorno-Medio Credito Centrale, with a total value of €390 million, from Poste Italiane to Agenzia Nazionale per l’Attrazione degli Investimenti e lo Sviluppo d’Impresa SpA (Invitalia). With this transaction, Poste Italiane continues its implementation of the Business Plan, focused on three key areas of business – mail and logistics, payments and financial services, and savings and insurance – on which the Group has decided to concentrate investment and allocation of capital in order to pursue important innovation and growth objectives. The transaction is expected to be completed during 2017, subject to approval from the Ministry of Economic Development, the Bank of Italy and the European Central Bank. This is a related party transaction (as Poste Italiane and Invitalia are subject to the common control of the Ministry of the Economy and Finance), and, pursuant to the applicable legislation and regulations, was approved by the Board of Directors of Poste Italiane, with the consent of its Related Parties and Associated Entities Committee.
Postal and business services Postal and Business Services include the letter post, express delivery, logistics, parcels and philately activities carried out by Poste Italiane SpA and certain subsidiaries, in addition to the activities conducted by various units of the Parent Company for BancoPosta RFC and the other segments in which the Group operates. Legislative Decree 58/2011 provides that Poste Italiane SpA is the universal postal service provider for fifteen years from 30 April 2011. The efficiency of provision of the service is verified every five years by the Ministry for Economic Development, based on an assessment performed by the regulator (AGCom – the Italian Communications Authority). Letter post includes Poste Italiane SpA’s traditional postal services, direct marketing and innovative services for paper-based as well as electronic communications in addition to e-Government services. Postel SpA provides communications services to businesses and Public Sector entities, offering a full range of services including mass printing and enveloping, electronic document management, direct marketing and commercial printing. The Express Delivery and Parcels business relates to express delivery products offered on the deregulated market by Poste Italiane SpA to retail and SME customers, and by SDA Express Courier SpA to business customers. SDA also provides its customers with integrated solutions for distribution, logistics and catalogue sales. The provision of standard parcel services falls under the Universal Service obligation (USO).
(2) Postel SpA, SDA Express Courier SpA, Consorzio Logistica Pacchi ScpA and Mistral Air Srl report to the Mail, Logistics and Communication function.
(*) The geographical distribution of Offices at 31 December 2016 is as follows: Piedmont, Valle d’Aosta and Liguria; Lombardy; Veneto, Trentino Alto Adige and Friuli Venezia Giulia; Emilia Romagna and Marche; Tuscany and Umbria; Lazio, Abruzzo, Molise and Sardinia; Campania and Calabria; Puglia and Basilicata; Sicily.
The initiatives implemented in 2016 regard consolidation of the organisational structure of the Mail, Logistics and Communication function, rationalisation initiatives provided for in the Business Plan and the labour union agreements of 25 September 2015 and 24 February 2016, and new operating procedures for mail processing and delivery. In particular, rationalisation initiatives were implemented via new alternate-day delivery models in defined areas and the related efficiency improvements regarding the number of delivery zones. In December 2016, restructuring initiatives were completed at 51% of the total number of distribution centres. These initiatives regarded approximately 4,500 municipalities and 462 distribution centres. Moreover, as part of the rationalisation of sorting activities, automatic walk-sequencing is being activated at sorting centres using existing and latest-generation sorting equipment. Regarding the process to modernise the operating fleet (cars and vans), the gradual introduction of new vehicles equipped with modern Black Box(4) devices was launched. These devices electronically send data to the services centre of the leasing company that supplies Company vehicles. The new palmtop device used by postmen and women was also trialled at three distribution centres in the provinces of Rome, Padua and Bari.
The BancoPosta(5) function is responsible for creating, designing and managing the Group’s financial product and service offerings, as well as checking the compliance of insurance, savings and investment products sold as an intermediary. In 2016, these activities were also carried out via coordination of the operations of Banca del Mezzogiorno – MedioCredito Centrale SpA and without affecting the operational autonomy of this company in compliance with the relevant legal and regulatory requirements. In addition, the function is responsible for processing the related products and services, partly through the coordination of local operating centres, including: • three Unified Service Automation Centres, where the payment slips for bills paid at post offices are processed; • two Centres for the processing of cleared cheques; • two Multi-service Centres located in Turin and Ancona, which carry out certain back-office processes (fraud analysis and management, credit checks, the management of payment orders for legal and other expenses, as well as postal savings products).
Additional information Just over a year after it started operating, in 2016, the not-for-profit organisation, Fondazione Poste Insieme Onlus, a Poste Italiane foundation established in April 2015 to promote social solidarity and inclusion policies, achieved important objectives in the various phases of its initiatives in support of local areas, families and the non-profit sector, with 44 new projects approved and the setting up of a corporate volunteering network in which 1,200 staff participate. Projects throughout Italy in 2016 regarded assistance and work placement for female victims of violence, home and residential assistance for people with illnesses, support for active aging and maintenance of autonomy, actions to combat new forms of extreme poverty, and activities relating to vocational training and enhancement of the talent and creativity of disadvantaged and disabled young people. The foundation engages in various forms of funding (total investment has already topped €2.5 million), characterised by innovative ongoing involvement and assessment methods, followed by monitoring of the foundation’s social impact in accordance with the SROI (Social Return on Investment) international standard. Thanks to operational synergies with the Poste Italiane Group’s corporate social responsibility function, Poste Insieme intends to combine its funding activities with an original form of corporate volunteering outside working hours. This is a first in Italy and is set to expand further during 2017.
Distribution channels and multichannel strategy The Group has an integrated, multichannel distribution network, which serves the country’s entire population via a physical network of post offices and staff on the ground and a virtual infrastructure with state-of-the-art multimedia channels. The customer contact channels are managed by two Poste Italiane business functions dedicated to the sale of products and services and specialised by type of customer: Private Customer and Business and Public Sector. The Private Customer function manages the commercial front end and back office activities (pre- and post-sales support) for the Private Customer and SME segments, as well as overseeing the development of philately products, their distribution and marketing.
The organisation of the commercial network and related operational support processes breaks down into three levels: • Multiregional Area Offices; • Branch Offices; • post offices, classified with respect to their business operations, into central, reporting, standard and basic.
(7) The rationalisation of the post office network, aimed at reducing universal service provision costs, is being carried out in accordance with the criteria laid down by the Ministerial Decree of 7 October 2008 and AGCom Resolution 342/14/CONS.
In 2016, the “Poste Risponde” Contact Centre handled around 21 million contacts, including 89% for the captive market. Alongside the usual customer relationship management and commercial network support services, the centre launched new initiatives designed to support the Group’s businesses. These included the launch of the New Front-End Assistance (NFEA) application, which enables operators to improve customer management by optimising the time needed to deal with requests. Assistance was boosted via an increase in the number of dedicated financial and insurance services staff, and in March the Contact Centre also began managing all the notifications and information and assistance requests deriving from the PosteItaliane and Postepay fan pages. All Contact Centre sites were also equipped with the multichannel telephone bar, which enables joint management of customer contacts regardless of the channel selected (chat, email, telephone).
(9) The Specialist Business Finance Consultants and the Business Sales Force are dedicated to small and medium enterprises (manufacturing, services, etc.). The Specialist Business Finance Consultants are geared towards customers who traditionally carry out transactions at post offices, especially professionals and artisans.
Poste Italiane’s Business and Public Sector function is responsible for commercial operations and sales of Group products and services regarding large companies and Central and Local Government. Adoption of the business and organisational model introduced in 2015 continued during the year. This is based on approaches that differ in terms of the characteristics of the sectors in which customers operate, and the actual and potential value of the various identified targets.
Specifically, the model provides for: • central management dedicated to commercial coordination of the top business sales force, in order to guarantee adequate oversight of high value customers; • central management dedicated to commercial management of central government; • dedicated pre- and post-sales functions, at central and local level; • development of indirect channels and prospective customers via a dedicated organisational function; • five Area Offices (Lombardy and Northwest, Northeast, North-Central, Central, South) each responsible for commercial operations in their own area via management of the local sales force and implementation of marketing initiatives defined on the basis of a specialisation by customer segment model.
(***) BancoPosta’s Internal Auditing function reports directly to the Board of Directors and the Board of Auditors.
In line with the transformation process launched by the Group, the main organisational initiatives implemented at Poste Italiane SpA during the year regarded: • the appointment of two Deputy General Managers who have been assigned, in addition to significant organisational responsibilities, the role of implementing a series of initiatives across the Group that will be key to achieving the strategic objectives set out in the Plan. The Human Resources, External Relations and Services function has been created, coordinated by one of the two Deputy General Managers, to which responsibility for Human Resources and Organisation, Property, Security and Safety, Communication and Government Relations has been allocated; • the centralisation of the Administration, Finance and Control function, under the responsibility of the Chief Financial Officer, of central and local administrative and accounting functions as part of the plan to progressively centralise administrative services and the accounting cycle within the Group; • the redefinition of the procurement model, in order to maximise savings and, at the same time, achieve greater flexibility in procurement processes that serve business requirements. The new model aims to focus the Corporate Procurement function on the provision of guidance and coordination, as well as assigning it responsibility for purchases common to several functions/Group companies. The model also envisages the operational decentralisation of procurement activities for specific product categories to the BancoPosta and Mail, Logistics and Communication business functions; • the launch of Customer Operations and Financial Back Office Integration projects regarding the integration, rationalisation and simplification of customer care processes and of the financial services back office, as part of which staff formerly dedicated to customer care activities within the individual business functions were centralised within the Private Customer segment; • the strengthening of areas of responsibility in the Security & Safety function, particularly regarding information security issues, via enhancement of security information sharing and prevention activities and response to potential IT threats.
In keeping with the guidelines published by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415), which, as announced by the CONSOB(11), have, from 3 July 2016, replaced the Committee of European Securities Regulators’ Recommendation CESR/05-178b, in addition to the financial disclosures required by IFRS, Poste Italiane has included a number of indicators in this report that have been derived from them. These provide management with a further tool for measuring the performances of the Parent Company and its subsidiaries. In particular, in addition to the operating segment disclosures required by IFRS 8, management has proceeded to reclassify the income statement for the Financial Services and Insurance Services and Asset Management segments solely for the purpose of integrating and enhancing its assessment of the operating performance of the specific segments in which the Group operates.
Gross ROE (Return On Equity) – the ratio of pre-tax profit to the average value of equity at the beginning and end of the reporting period. The performance of this indicator reflects, among other things, the change in the fair value reserves for financial assets classified as available-for-sale. In order to facilitate comparison of the Group’s profitability, pre-tax profit has been used in calculating this indicator, rather than net profit for the period, given the different forms of taxation to which the Group’s operating segments are subject.
WORKING CAPITAL – the sum of inventories, trade receivables and other receivables and assets, current tax assets, trade payables and other liabilities, and current tax liabilities.
INDUSTRIAL NET FUNDS/(DEBT), before adjusting for intersegment transactions: this is the sum of net debt attributable to the sum of net funds/(debt) for the Postal and Business Services and Other Services segments before adjusting for intersegment transactions.
In Europe, growth remained moderate, but there was gradual consolidation thanks to improved internal demand, which offset softening demand for exports. Inflation also began to slowly rise in the second half, driven by a recovery in oil prices. The European Central Bank (ECB) confirmed its expansionary monetary policy in December, extending the duration of its asset purchase programme to at least the end of 2017, in order to ensure a return of inflation of around 2%. In Italy, after picking up in the first quarter, economic growth fell away to below the European average. The principal driving force for the Italian economy is private investment (in part thanks to tax breaks) and consumer spending. In fact, the improving labour market and low consumer inflation have helped to protect consumers’ purchasing power. It should be noted that, over the year, average consumer price inflation was negative for the first time in many years.
Uncertainty in the Italian political scenario, following the outcome of the referendum at the beginning of December, contributed to a widening spread between 10-year Treasury Notes (BTPs) and German Bunds in the last part of the year (161 basis points at 31 December 2016), whilst in previous months, thanks to the ECB’s expansionary monetary policies, the average spread had been lower. Early 2017 has been marked by political uncertainty, amplified by the upcoming round of general elections around Europe, and discussion of electoral reform, causing a high degree of volatility and a further widening of the BTP-Bund spread (182 basis points at 1 March 2017).
The Financial Services segment recorded an operating profit of €813 million (€907 million in 2015), after benefitting from non-recurring income generated by the sale of the Group’s investment in Visa Europe Ltd.(12), which took place as part of Visa Inc.’s acquisition of this company, and returns on BancoPosta RFC’s investments. In contrast, as described below, the result also reflects other provisions for risks and charges, made to cover the estimated cost of voluntary action taken to protect customers who purchased units issued by the Invest Real Security real estate fund.
Revenue from sales and services and insurance premium revenue 28,627 27,007 1,620 6.0%
Other income from financial and insurance activities 4,421 3,657 764 20.9%
Other expenses from financial and insurance activities 539 689 (150) –21.8%
Other expenses from financial and insurance activities are down from €689 million in 2015 to €539 million in 2016, reflecting the impact of movements in the fair value of financial instruments held by the subsidiary, PosteVita and by BancoPosta RFC.
Income from fixed-term and temporary contract agreements – (11) 11 n/s n/s: not significant
Postal services market In 2016, the postal services market registered what is by now a long-standing decline in traditional letter post volumes and revenue, accompanied by progressive volume and revenue growth in the parcel services market, driven by the expansion of e-commerce.
In Italy, the approach adopted by the regulator (the Autorità per le Garanzie nelle Comunicazioni or AGCom) to provision of the Universal Service has allowed Poste Italiane to proceed with its planned transformation of the postal service, necessary in order to continue to effectively meet the changing needs of citizens in the digital age.
This reflects an increase in intersegment revenue (up €209 million on 2015), which is regulated by specific internal operating guidelines governing the fees payable for services provided to the Financial Service segment. This made up for the reduction in volumes and revenue generated by the external market (down €60 million compared with 2015) primarily attributable to the decline in traditional letter post. The increase in intersegment revenue from distribution services also reflects the results generated by active management of BancoPosta’s investment portfolio and the above gain on the sale of the investment in Visa Europe.
The performance of the Group’s Letter Post services reflects a reduction in volumes and revenue, with declines of 10.9% (431 million fewer items) and 1.9% (€55 million), respectively, compared with 2015. This essentially due to the structural decline in traditional postal services, in part reflecting the progressive shift away from paper-based communication towards digital forms (letter post replaced by e-mail, electronic billing, etc.).
The decline in Unrecorded Mail (65 million fewer items, down 4.2% on 2015) generated a corresponding reduction in revenue of €86 million (down 8.4%), reflecting, as previously mentioned, the general decline in market volumes as a result of e-substitution. Despite a 2.9% reduction in volumes, revenue from Recorded Mail remained broadly stable, decreasing from €971 million in 2015 to €965 million in 2016. This reflects price increases for Registered Mail introduced from 1 December 2015.
Direct Marketing and Unaddressed Mail volumes and revenue are down 17% and 8.3%, respectively, reflecting the Group’s decision to exit the unaddressed mail market and customers rationalising their mail spend. Other revenue includes, among other things, services for publishers, which fell as a result of the continuing decline in the number of subscribers for printed publications and the increase in digital subscriptions.
The compensation partially covering the cost of the Universal Service for 2016, as provided for in the new Contratto di Programma (Service Contract) for 2015-2019, in effect from 1 January 2016, amounts to €262 million. Total revenue attributable to this item, however, amounts to €371 million, reflecting the release of provisions for bad debts made in previous years, following the MEF’s decision to make provision for the payment of amounts due under previous contractual obligations.
The Express Delivery, Logistics and Parcels segment saw growth in the volume of items transported and in revenue, registering increases of 12.8% (11 million more items handled) and 6.4% (up €39 million), respectively, compared with 2015. This good performance is essentially due to growth in the National Express Delivery segment, which registered a rise of 9 million in the number of items handled and a €46 million increase in revenue (volumes up 13.4% and revenue up 11.6%, compared with 2015), due to the good performance posted by e-commerce in the B2C segment. The International Express Delivery segment also performed well (volumes up 11.8%, and revenue up 10.4%) thanks to a similar increase in international shipments linked to e-commerce.
The Contratto di Programma (Service Contract) regulates relations between the Ministry for Economic Development and Poste Italiane SpA in connection with the Universal Postal Service. The current Contratto di Programma (Service Contract) for 2015-2019 was signed by the parties on 15 December 2015 and is effective from 1 January 2016 to 31 December 2019. The Contratto di Programma (Service Contract) for 2015-2019 was formally submitted to the European Commission for the usual assessments relating to European regulations regarding state aid. The European Commission has approved government compensation for the period 2012-2015 and 2016-2019, payable to Poste Italiane for provision of the Universal Postal Service, deeming it to be compatible with European Union regulations regarding state aid(13).
In accordance with art. 23, paragraph 2 of Legislative Decree 261/1999, as amended, every five years – from the entry into effect of Legislative Decree 58/2011, which provided that Poste Italiane SpA should be the Universal Service provider for a period of fifteen years – the Ministry for Economic Development assesses, on the basis of a survey conducted by the regulator (the Autorità per le Garanzie nelle Comunicazioni or AGCom), whether or not provision of the service meets the criteria set out in the decree (continuity of service provision, profitability, etc.) and if there have been improvements to the efficiency of provision.
As regards the contribution required by art. 2, paragraph 14 of Legislative Decree 261/99, relating to the years 2015 and 2016, whilst awaiting the Ministry’s issue of the decree determining the contribution, on 10 March 2016, the Ministry for Economic Development issued an Interministerial Decree regulating payment of the contribution payable for 2016. In May 2016, Poste Italiane paid the amount due in accordance with the indications provided by AGCom in Resolution 145/16/CONS of 19 April 2016. A further Interministerial Decree of 10 March 2016 redefined the contributions due to the Ministry for Economic Development, for 2016 and 2017, for the procedure involved in the issue of the various authorisations (the individual licence and general authorisation) and the controls and checks made to ensure that the related requirements continue to be met. Poste Italiane has paid the amounts due for both years.
Renewal of the fleet of vehicles was also carried out, resulting in the replacement of approximately 17 thousand vehicles located at Network Centres and used for the transport and delivery of postal products.
(14) PosteID is the Digitale ID solution that can be used to access enabled Poste Italiane and all the services covered by the Public System for Digital Identity Management (SPID) displaying the “SPID” logo. The SPID allows access to any online service provided by the Public Administration from a computer, tablet or smartphone.
In 2015, calls for tenders were launched to find a suitable provider to manage the entire service. On completion of the tender process, the companies to which SDA Express Courier had outsourced the services until the end of 2015 – Uptime SpA, a joint venture (28.57% owned by SDA and 71.43% owned by Gepin) and Gepin Contact 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. 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.
Strictly in terms of employment law, in recent months, a number of former employees of Uptime/Gepin have filed a claim for wrongful dismissal, despite the agreements reached and the negotiations in progress. From a civil law standpoint, Gepin and Uptime SpA have brought a number of legal actions. Gepin has filed a claim for damages from SDA, amounting to €15.5 million, due to the alleged unjustified nature of termination of the above contracts, and has obtained an injunctive order for payment of approximately €3.7 million for uncontracted services that were in any event not provided. SDA has challenged the claims in court. At the first hearing, the court turned down the plaintiff’s request for provisional execution of the injunction, postponing any decision until a later hearing. Finally, on 21 December 2016, Poste Italiane and SDA were served a writ of summons by Gepin and Uptime, containing joint and several claims for approximately €66.4 million, as compensation for the damages incurred by Uptime SpA as a result of the alleged unjustified termination of the above contract, and for approximately €16.2 million, as compensation for the damages incurred by Gepin as a result of the alleged reduction in the value of its investment. These claims will also be opposed in court.
Postal service quality With regard to the audit of quality targets for 2014, published by the regulator on 22 December 2015, AGCom has identified a slight shortfall (0.1%) with respect to the national regulatory target for extra-regional Priority Mail and 1.1% shortfall with respect to the target for the Abruzzo region. The latter shortfall resulted in the regulator’s application of a penalty of €50,000, confirmed in resolution 5/16/CONS of 14 January 2016. Poste Italiane paid the above fine on 7 March 2016.
On 31 March 2016, the results for registered, bulk and priority mail (for the period October-December 2015) and ordinary parcel post(16) in the second half of 2015 were submitted to AGCom. All the results were in line with the relevant regulatory targets.
(16) Law 190/2014 (the 2015 Stability Law), which came into effect on 1 January 2015, has reintroduced ordinary mail as a basic non-bulk mail service and defined priority mail as a non-bulk express mail service, and has reset universal service delivery targets (within four working days of postage) for all universal postal products, except for priority mail (delivery within one working day).
With regard to the figures for priority mail in 2015, on 18 December 2015, the regulator informed Poste Italiane that the performance was not monitored from 1 October 2015. From this date, therefore, the monitoring of priority mail (named Posta1) quality targets is based on the Company’s own monitoring systems.
In Resolution 608/16/CONS dated 6 December 2016, published on 10 January 2017, and following a tender procedure launched with Determination 132/16/SAG of 21 July 2016, the regulator announced the specialist, independent body chosen to monitor the quality of universal postal service provision in the three-year period from 1 December 2016 to 30 November 2019.
On 29 May 2015, in response to certain press reports, Italy’s Data Protection Authority asked Poste Italiane to provide information regarding alleged processing of the personal data of persons operating at companies (in particular IZI SpA) appointed to monitor postal service quality standards. According to the Authority, the data was processed without providing the parties concerned with the relevant privacy notices and without obtaining their consent to use of the data. Poste Italiane has met all of the Authority’s requests, providing a full and documented response and setting out details of the resulting internal audit carried out, the disciplinary proceedings regarding the staff involved and the organisational and procedural steps taken or in the process of being implemented. The Authority was also informed of the outcome of the final audit. In the light of this, on 23 March 2016, the Authority, in view of the provisions of Authority regulation 1/2007 (art. 11, paragraph 1, letter d), announced that, at that time, there were no grounds for applying restrictions or prohibitions. From the findings of the internal audit, it appears, however, that certain members of staff interfered with quality control systems in violation of the Company’s policy. It is currently impossible to ascertain whether this behaviour may have influenced determination of the service quality indicators recorded, and the possibility that the impact of such events may give rise to legal proceedings and fines cannot be ruled out. In response to the above findings, 246 reprimands have been notified and there have been 15 dismissals and 156 disciplinary measures without dismissal relating to managerial and non-managerial staff. A technical committee was set up to manage these proceedings in order to verify the findings regarding the contested audits, taking into account the defence arguments put forward by the parties concerned and any other evidence that may emerge. All these measures also refer to the Company’s right to take action to protect its rights and interests with respect to findings that may yet emerge and damages the Company may suffer for any reason or cause whatsoever. For the sake of completeness – and again with regard to the disciplinary measures taken – following completion of the audit carried out in the meantime, an in-depth investigation was conducted by the above technical committee. This identified specific evidence of wrongdoing by the personnel involved. As a result, disciplinary action was taken against a further 988 people from early May 2016 onwards. On completion of the related procedures, which were carried out with the aid of the above technical committee, there were a total of 976 disciplinary measures without dismissal relating to managerial and non-managerial staff. This marks the end of any possible disciplinary action, given that there are no further irregularities to be penalised.
Finally, in 2016, AGCom requested the Company to provide information on events and on the internal audit activities conducted. Poste Italiane cooperated fully by promptly responding to the regulator’s request, providing details of the results of the audit and the initiatives undertaken.
Postacelere Express Delivery 1 day 90.0% 87.4% 1 day 90.0% 84.6%
Financial market trends As mentioned in the section on the “Macroeconomic environment”, against a backdrop marked by uncertainty over the direction of the global economy, in part reflecting geopolitical tensions, the European Central Bank’s Executive Board, at its meeting of 8 December 2016, extended its Expanded Asset Purchase Programme, (APP) until the end of 2017. In the financial markets, expectations of an expansion of government spending and higher inflation in the United States, following the election of the new President, resulted in a shift away from bonds to equities. The US equity markets rose, with the S&P500 registered an annual increase of 9.4% at the end of December, whilst European bourses (the
Dow Jones Euro Stoxx) lost 3% over the same period, reflecting a different approach to monetary policy. The worst performer was the Italian stock market (down 10% over the year), with the banking sector weighing heavily (down 39%) as a result of the large volume of non-performing loans. In the exchange markets, after a decline in the US dollar, the trend reversed in the last quarter of the year, reflecting the Federal Reserve’s decision to raise interest rates and expectations surrounding the new administration (the euro/USD exchange rate at 31 December 2016 was 1.05, compared with 1.11 at 30 June 2016 and 1.09 in December 2015). In the UK, following the result of the Brexit referendum, the value of sterling fell significantly against all other major currencies, including the euro (the average GBP/euro exchange rate in the second half of 2016 was 0.86, compared with a rate of around 0.78 in the first half of the year).
Net income from banking activities is up €188 million from the €5,491 million of 2015 to €5,679 million in 2016, after impairment losses on loans of €6 million, including the impairment of overdrawn current accounts held by BancoPosta’s customers. Operating expenses are up 6.2% on the same period of the previous year, due primarily to an increase in intersegment costs paid for the services provided by the distribution network to the Financial Services segment (regulated by specific internal operating guidelines), and to an increase in net provisions for risks and charges, due to the voluntary initiative designed to protect customers who had invested in real estate funds marketed by Poste Italiane between 2002 and
Directors’ report on operations for the year ended 31 December 2016 2005 (further information is provided in the section of the Report on Operations containing the BancoPosta RFC Management Review – Risk management system). This item also includes the impairment of €37 million recognised in order to bring the value of BdM-MCC’s net assets into line with their estimated realisable value. This impairment was rendered necessary by the agreement to transfer Poste Italiane’s entire interest in BdM-MCC to Invitalia. The agreement was finalised on 8 February 2017 and the transfer will take place in 2017.
(4) Includes fees on prepaid cards, debit cards and acquiring services.
(17) Average deposits are up from €45.2 billion in 2015 to €49.6 billion in 2016 (including Group companies’ investments and amounts payable to financial institutions under repurchase agreements).
Insurance market Whilst the final official data for Italy is not yet available, the estimated figure for gross premium revenue in the life insurance market, in 2016, is approximately €103 billion, down 10% on the figure for 2015. This primarily reflects a significant reduction in sales of Class III policies (down 28% on 2015), and a reduction of over €2 billion (3%) in Class I policies, which as a proportion of total premium revenue have, however, increased from 68% in 2015 to 74% in 2016. In terms of new business for individual and collective policies sold by Italian and non-EU-registered insurers, including additional single premiums, premium revenue was approximately €87 billion, marking a reduction of around 12% compared with the previous year. New business for individual policies alone amount to €84.2 billion, down almost 13% on 2015. Analysing the composition and performance of new business, Class I continued to be the best-selling form of insurance in 2016, despite registering a 4.5% reduction in new business to €61.3 billion compared with 2015. This Class accounts for over 70% of new life business. In contrast, new business for Class III individual policies, which are exclusively of the unit-linked type, is down 30% compared with 2015 to €21 billion. Class V policies also declined, with premium revenue of €2.3 billion (€3 billion in 2015) accounting for just 3% of total new business. New business in terms of Class VI products amounts to €729 million, marking a slight increase of around 4% on the previous year. The contribution from new inflows into individual pension plans was also positive, with inflows of €1.5 billion registering and improvement of 10.7% on 2015. Direct premiums in the non-life insurance market amounted to approximately €25.5 billion in the third quarter of 2016, down 1.6% on the same period of the previous year (source: ANIA). The overall reduction is due to a fall in vehicle insurance premiums (third-party land vehicle and land vehicle hull policies), which are down 4.2%, whilst other non-life premium revenue recorded a slight increase of 1.1%. In detail, third-party land vehicle premiums amount to €10.5 billion (down 5.9% on the third quarter of 2015), whilst land vehicle hull premiums amount to €2.0 billion (up 5.5% on the same period of 2015). As noted above, the other classes registered slight growth, with the related premium revenue totalling approximately €13.0 billion. In terms of volumes and growth rate, the best-performing classes were medical, with premiums of €1.7 billion up 8.3%, and accident, with premiums of €2.3 billion up 0.5% on the same period of the previous year.
Net financial income from assets related to traditional products 3,274 2,352 922 39.2%
Net change in technical provisions for insurance business and other claims expenses 21,958 19,683 2,275 11.6%
Net change in technical provisions for insurance business 14,507 11,660 2,847 24.4%
Operating expenses of €151 million are up 19.8% compared with the €126 million of 2015. This reflects increases in the quality and size of the Group’s workforce, needed in order to respond to the continuous growth in size and business volumes, and its investment in ongoing functional/infrastructural improvements to key business support systems. However, operating expenses continue to be far lower than the industry average at 0.8% of premium revenue and 0.1% of provisions.
Operating review In keeping with the strategic objectives pursued in previous years, in 2016 the Poste Vita insurance group primarily focused its efforts on: • strengthening its leadership in the life insurance market and consolidating its competitive position; • boosting its position in the welfare segment, investing in health insurance products, thanks in part to the subsidiary, Poste Welfare Servizi Srl.
In a market environment marked by low interest rates and high volatility, and in accordance with the strategic guidelines set out in the business plan, in 2016 the group aimed to progressively rebalance its offering towards products without guarantees (“multi-line” and “unit-linked” products), but providing a moderate risk-return profile, in line with the type of customer served by the group, whilst potentially providing more attractive returns on investment. In addition, the group continued with its commitment to developing new instruments and training network staff (in relation to pre-sales, sales and post-sales procedures) with the aim of improving and consolidating long-term customer relationships. As previously noted, total premium revenue amounts to €19.9 billion (€18.2 billion in 2015), including approximately €19.1 billion from sales of Class I and V investment and savings products (traditional separately managed accounts), compared with €18.1 billion in 2015. Premium revenue from Class III policies (multi-line products and unit-linked products launched in April) amounts to approximately €722 million, compared with €342 million in the previous year. Sales of regular premium products also performed well (Multiutile Ricorrente, Long Term Care, Posta Futuro Da Grande), with over 117 thousand policies sold in 2016, as did sales of the PostaPrevidenzaValore product which, with over 96 thousand policies sold during the year and a total number of members amounting to 874 thousand, has enabled Poste Vita to consolidate its role in the pensions market. Sales of pure risk policies (term life insurance) also performed well. These are sold in stand-alone versions (not bundled together with products of a financial nature), with over 23 thousand new policies sold during 2016, whilst over 90 thousand were new policies, again of a pure risk nature, sold bundled together with financial obligations deriving from mortgages and loans sold through Poste Italiane’s network.
In December 2016, the process of winding up Programma Dinamico SpA began. This securitisation vehicle was set up in 2001 in accordance with Law 130 of 30 April 1999, and operated until 2012 in connection with six securitisation transactions backing various Class III Index-linked products issued by Poste Vita. In particular, the structured securities issued by the vehicle were used as assets to cover the policies themselves, in compliance with the regulations applicable at that time. As a result, as the policies have now all expired, the vehicle has been placed in liquidation.
In April 2016, Poste Vita decided to invest approximately €260 million in an alternative investment fund called “Atlante”, and, on 27 July 2016, invested approximately a further €200 million in the alternative investment fund named “Atlante 2”. Both funds, which are managed by Quaestio Capital Management, are closed-end funds restricted to institutional investors, investing in financial instruments issued by banks looking to strengthen their capital and non-performing loans held by various Italian banks. At 31 December 2016, the Atlante fund has called up €211.0 million, including €186.6 million allocated to the separately managed account, PostaValorePiù, and €24.4 million allocated to the company’s free capital, whilst the subscribed capital of the Atlante 2 fund, allocated entirely to the separately managed account, PostaValorePiù, has yet to be called up. For the purposes of transparent disclosure of the fund’s performances, on 31 January 2017, the management company announced the results of a valuation of the Atlante fund, revealing a potential impairment loss with respect to the initial value of the investment of approximately 24%. The management company also noted that, “as stated by the appraiser, the valuation is subject to significant uncertainty due to the limited availability of objective data and to use of a method of calculation based exclusively on equity market multiples, despite the fact that the companies are unquoted, and to the fact that the sector is currently embarking on a radical process of restructuring and consolidation”.
(20) Operators that use telecommunications networks can exploit the convergence between telecommunications and TV to offer triple play bundles (fixed line, broadband and pay-TV) and quadruple play bundles (fixed line, mobile, broadband and pay-TV).
At 31 December 2016, PosteMobile’s customer base totals 3.65 million lines, up 1.3% on 31 December 2015. Good performances were registered both by voice services, with over 5.3 billion minutes used during the period (up 0.2% on 2015), and above all by data services provided over PosteMobile’s network, with an increase to 6.7 thousand terabytes (up 76% on 2015). In 2016, PosteMobile further strengthened its position in the mobile payment services market, registering total transactions of in excess of €1 billion, up 89% on the figure for 2015. This growth was made possible by the role played by the PosteMobile and BancoPosta apps. Thanks to ongoing updates of the functions and user experiences offered, the PosteMobile APP continues to be one of the most popular and widely used apps in the segment. With over 2 million downloads and an average customer rating in stores of 4.2 (on a scale of 1-5), it is one of the leading mobile wallet services in the Italian mobile market. The value of transactions has exceeded €520 million, marking a further 6% improvement on the performance registered in the previous year. There was an increase in the number of customers to almost 2 million (SIM PosteMobile SIMs or the SIMs of other operators), able to carry out financial transactions simply and securely through mobile digital channels. The BancoPosta APP, made available to all Poste Italiane customers from July 2015, regardless of their mobile operator, also achieved positive results, with over 600 thousand customers enabled to use its payment services and transactions amounting to over €518 million during the year.
Non-current assets and disposal groups held for sale and liabilities related to assets held for sale(1) 660 – 660 n/s
(1) Non-current assets and disposal groups amount to €2,720 million and regard BdM-MCC SpA, totalling €2,665 million, and BancoPosta Fondi SpA SGR, totalling €55 million. Liabilities related to assets held for sale amount to €2,060 million and regard BdM-MCC SpA, totalling €2,049 million, and BancoPosta Fondi SpA SGR, totalling € 11 million.
There was further investment in the modernisation and renovation of buildings, in keeping with Poste Italiane’s property development strategy, with the main focus on property used in operations. In particular, work continued on planned renovation and non-routine maintenance work, with the aim of upgrading and improving property used in operations in order to meet workplace needs and those related to the services provided, as well as initiatives designed to improve staff health and safety. Furthermore, around 2,386 non-routine maintenance works (heating and air-conditioning units, electrical and fire prevention equipment, etc.) were carried out during 2016, as well as work on restoring normal service at post offices where criminal acts had taken place. Working capital amounts to €1,183 million at 31 December 2016, down €118 million compared with the end of 2015. The reduction essentially reflects the reclassification, in application of IFRS 5, of current and non-current receivables and payables attributable to BdM-MCC and BancoPosta Fondi, amounting to a net amount of €96 million at 31 December 2016, to “Non-current assets and disposal groups held for sale and Liabilities related to assets held for sale”. The reduction in net deferred tax liabilities, after offsetting against deferred tax assets, amounts to €607 million. This is largely due to the net positive effect on taxation (an increase in deferred tax assets and/or a reduction in deferred tax liabilities) of increased fair value losses on investments in available-for-sale financial assets. The net balance of “Non-current assets and disposal groups held for sale and Liabilities related to assets held for sale” amounts to €660 million, with €616 million attributable to BdM-MCC and €44 million to BancoPosta Fondi. In addition to the above financial assets and liabilities (totalling €595 million), this also includes the impairment of €37 million recognised in order to bring the value of the net assets into line with the estimated realisable value, less costs to sell.
Technical provisions for claims attributable to reinsurers – – 66 – – 66
Cash and deposits attributable to BancoPosta – 2,494 – – – 2,494
Technical provisions for claims attributable to reinsurers – – 58 – – 58
Total net funds at 31 December 2016 amount to €6,225 million, down on the figure for 31 December 2015 (when net funds amounted to €8,659 million). This primarily reflects the component linked to fair value measurement of available-for-sale financial assets, totalling approximately €2,265 million, before tax, largely attributable to BancoPosta RFC’s investments and, to a lesser extent, to the subsidiary, Poste Vita. The reduction in net funds also reflects the reclassification of financial assets and liabilities attributable to BdM-MCC SpA and BancoPosta Fondi SpA SGR, totalling €595 million net, to the specific items, “Non-current assets and disposal groups held for sale and Liabilities related to assets held for sale”, in application of IFRS 5.
Industrial net funds/(debt) including intersegment transactions 893 307 of which: - Postal and Business Services 845 269
Cash generated by/(used for) assets and liabilities attributable to financial activities 864 (835)
Cash and cash equivalents at end of period 3,902 3,142 of which: Cash subject to investment restrictions 780 1
Headcount The workforce employed by the Group breaks down as follows: Number of employees(*)
Training In 2016 a total of 3 million training hours were provided, corresponding to around 1.3 million participations(22) and approximately 420,000 person days of training.
Classroom courses in hours for the year ended 31 December 2016 for the year ended 31 December 2015
Classroom training accounted for 66% of the total number of hours and online training the remaining 34%. Classroom training represented 27% of total participation and online training 73%.
As in the previous year, management training predominated in 2016, in terms of both initiatives and the number of staff involved, resulting in 92,000 training hours, provided to approximately 2,000 staff (senior managers and middle managers responsible for organisational roles). In particular, training courses continued regarding the exploration of macroeconomic and geopolitical scenarios, and ethical issues, and the transfer of marketing management expertise, aimed at creating the right conditions for systematic consolidation of a market- and customer-centred culture.
For younger staff members – middle managers and graduates – training courses aimed to support participants in interpreting new market scenarios, drawing inspiration and impetus from them in order to adopt innovative strategies and working solutions, develop professional skills, strengthen motivation and engagement, and practise coming up with simple solutions against a backdrop of organisational complexity.
The performance appraisal process, which was completed with the feedback phase in June 2016, was extended to include postmen and women (approximately 34,000 staff) for the first time. Over 123,000 appraisals were carried out (30,000 more than in 2015), while the number of appraisers (approximately 8,200) was in line with previous years. In July 2016 a complete redesign of the process was launched, which will be implemented during 2017.
Compensation Regarding incentive policies, the new “Poste Italiane Group Commercial and Operating Incentive Scheme Guidelines” were issued, which describe the contributions made by the various corporate functions involved in the process, in line with the relevant regulatory requirements. Payments were authorised and made to executives and other staff members as part of the salary review process, with the aim of rewarding merit and the complexity of roles, with particular attention given to critical areas for the business.
Private Customer – Administration, Finance and Control On 8 March 2016, the minutes of a meeting with the labour unions were signed which, as well as changes to sales formats present within post offices (consulting rooms and corners), also define various organisational solutions for the management of middle managers not performing appropriate roles or who are to be retrained in the Private Customer segment. The agreement has identified three specific projects (Strengthening the Presence in Local Philately Markets, Strengthening the Oversight of Operating Processes and Branch Professionals). Moreover, in November and December 2016, the Company presented the organisational projects for the Private Customer and Administration, Finance and Control functions to the labour unions, regarding: restructuring of local operational management; development of customer services; organisational development of Administration and Control of Private Customer Area Offices; review of the Administrative Services management model relating to the Administration, Finance and Control function. The minutes of 21 December 2016 provide details of how to manage the impact of these projects on employment.
Nationwide voluntary mobility On 12 April 2016, an agreement was signed that regulates the management of voluntary transfers for staff wishing to work in regions other than those to which they have been assigned. The agreement, which is valid for a twoyear period (2016 and 2017), confirms the framework of the previous agreement, and boosts social protection for the relevant staff. Indeed, as already provided for members of staff suffering from “serious illnesses”, as expressly set out in art. 41 of the National Collective Labour Contract, or who have cohabiting children or a spouse/cohabiting partner affected by the same disease, it has also been made easier for employees undergoing lifesaving treatments, or who have children with conditions classified as “chronic and incapacitating” by the Ministry of Health, to obtain a transfer.
National Collective Labour Contract for non-managerial Poste Italiane staff Negotiations with the labour unions began in May 2016 regarding renewal of the National Collective Labour Contract, which are still in progress. Moreover, a proposal was presented to the labour unions regarding establishment of a Health Fund to provide supplementary insurance cover.
New company fleet equipped with a “black box” system Regarding delivery of the new company fleet equipped with a “black box(23)” system, the Company entered into negotiations with the labour unions, which ended on 20 July 2016 with the signing of a statement of non-agreement. In line with the relevant legislation (art. 4 Workers’ Statute – “Audio-visual equipment”), on 25 July 2016, Poste Italiane filed an application with the Ministry of Labour in order to obtain authorisation to use the above system and the related data. On 7 October 2016, the Ministry issued a measure that authorised possible use of data recorded by this system for organisational and production purposes, and in relation to protection of corporate assets and occupational safety. Therefore, in compliance with the new regulations and the above-mentioned ministerial authorisation, a notice regarding procedures for using and monitoring the devices that comprise the black box system was prepared and sent to all staff concerned.
(23) The black box is a satellite device mounted on a vehicle that monitors and registers all data regarding the vehicle.
Poste Italiane has adopted a Group Risk Management model (also “GRM”) to form part of its Internal Control and Risk Management System (also “SCIGR”), in line with the requirements of the Corporate Governance Code for listed companies and the relevant best practices. The GRM model aims to provide an organic, overall view of the Group’s principal risk exposures, greater consistency across the methods and tools used to support risk management and reinforced awareness, at all levels, of the fact that the adequate assessment and management of risks can play a part in achieving strategic objectives. The GRM model involves an integrated risk management process, implemented according to a continuous and dynamic approach. It exploits the existing risk management systems applicable to each segment (financial, insurance, postal and logistics) and business process, bringing them into line with the specific methods and tools envisaged by the model, so as to help in developing risk management behaviours and expertise throughout the Group’s operations. Risk monitoring took place during 2016, with particular emphasis placed on the major risks identified during previous assessment cycles, in line with developments in the internal and external environments and the Group’s strategy. The GRM model has adopted a Risk Model to support the process of identifying and describing risks. The Model allows the identified risks to be classified in uniform categories applied throughout the Group, in line with the relevant best practices and, where applicable, specific regulatory requirements. The Risk Model provides a continuous point of reference for the management, control and integrated reporting of risks. As a result, it is periodically revised to reflect the Group’s operations and in response to the results of assessment activities. The Risk Model has established five categories of risk: strategic, regulatory and compliance, insurance, operational and financial, as described below.
Strategic risk The risk of a deterioration in profit or capital resulting from changes in the operating environment, poor business decisions, the substandard execution of decisions or the failure to adequately respond to changes in the competitive environment.
Regulatory and compliance risk The current or future risk linked to the failure to comply with statutory or regulatory requirements imposed by legislation, industry regulations or internal rules.
Insurance risk This category of risk regards technical risks resulting from insurance operations (non-life technical, health technical and life technical) and is dealt with in Poste Italiane’s financial statements for the year ended 31 December 2016 (Notes to the consolidated financial statements of the Poste Italiane Group – Risk management; Notes to the financial statements of Poste Italiane SpA – Risk management) which, together with the Report on Operations, form a further section of the Annual Report.
Risk of attacks/external event risk One of Poste Italiane’s areas of focus is post office security, in order to protect its staff and the Company’s assets, and deal with the risks deriving from fraud or external criminal attacks. The need to transport cash exposes Poste Italiane to the risk of criminal acts (theft and/or robbery) which, if they were to occur, could have a negative impact on the Company’s image, its operations and the Group’s future prospects, operating results and financial position. Work on boosting active security measures in post offices continued in 2016, including the implementation, integration and replacement of alarm and video surveillance systems, using technologically advanced equipment. Passive security was also strengthened via the installation of anti-theft devices. Great attention is also paid to combating the risks deriving from potential fraud inside and outside the Company, including online identity theft, phishing, malware, IP addresses identified as malicious and other data.
Risks connected to health and safety regulations Having revised its model for managing workplace health and safety, Poste Italiane identified 5 new operating units: 4 that coincide with the business functions (Mail, Logistics and Communication, BancoPosta, Private Customer and Business Sales and Public Administration) and 1 that includes the remaining staff functions. All the units are now dealt with as a uniform whole by the Security and Safety function. During 2016, the information campaign called “delivery awareness raising” continued, which involved many post offices and distribution centres with a view to taking further action to reduce accidents. Finally, further mandatory training in occupational safety was provided, in continuation of the training courses run in previous years. Training courses for emergency team staff were also updated, and spread across several sites to facilitate greater participation in the courses.
Information security In recent years, Poste Italiane has designed an integrated Information Security Governance model for the Group. The model sets out the related roles, responsibilities and activities in order to provide strategic guidance for the monitoring of the Group’s data security infrastructure. Security has, in fact, been given significant attention in 2016, through the conduct of specific Information Security risk analysis and assessments, resulting in the definition of the security requirements needed to ensure an adequate degree of protection for the data handled by the Group’s information systems. These activities regarded the development of solutions to protect technology infrastructure, an increase in the operational efficiency and level of security of the processes and systems used to control users’ access to the information system, the implementation of solutions designed to protect the Group’s data network, the implementation of security measures designed to protect applications, new anti-spam measures, and appropriate measures and controls relating to cyber security, with particular attention to the services provided to customers using digital channels. In this latter regard, Poste Italiane is the first Italian organisation to have a fully operational and internationally accredited CERT (Computer Emergency Response Team), bringing together and coordinating the Group’s prevention and emergency response activities.
Financial risk The risk environment is defined on the basis of the framework established by IFRS 7 – “Financial Instruments: Disclosures”, which distinguishes between four main types of risk (a non-exhaustive classification): • market risk; • credit risk; • liquidity risk; • cash flow interest rate risk.
In the Postal and Business Services segment, 2017 will see the Group continue with the restructuring process embarked on in recent years, taking advantage, on the one hand, of the new regulatory framework and, on the other, the efficiency improvements achieved thanks to implementation of the new delivery model. The process of revisiting the organisation of logistics and operations will continue, as will development of the business through the use of new automation technologies in support of operational processes. The aim is to maintain our leadership in the postal services market and improve efficiency, quality and competitiveness in the express delivery and parcels market. This will involve industrial partnerships with leading players in e-Commerce, in order to exploit the growth of the B2C market, and repositioning the subsidiary, SDA, as a provider of B2B services. The Financial Services segment will continue to act on its strategic objectives, with particular attention to its position in the transaction banking market, to consolidating its digital banking services, and to the management of Postal Savings, where it will continue, in 2017, with talks on the terms and conditions for the new Agreement governing the provision of intermediation services on behalf of Cassa Depositi e Prestiti SpA. In addition, as described in the section, “Group organisational structure”, on 8 February 2017 Poste Italiane reached agreement with Invitalia for the sale of its entire shareholding in Banca del Mezzogiorno. Under the terms of the agreement, the date of signature marks the start of an interim period for which the agreement provides indications as to how the company is to be managed, with regard, above all, to the development of lending activities. In the Insurance Services business, in addition to consolidating its leadership in the life market by increasing its customer base, the Group is committed to developing a new “integrated” offering of Savings, Protection and Services, partly by strengthening Poste Vita’s and Poste Welfare Servizi’s offerings and operating models (Pensions, Health and Care), taking advantage of the Poste Italiane Group’s assets and role in society. On the other hand, in the Asset Management business will continue to consolidate its offering of Class I products, with the aim of capitalising on PosteVita’s leadership position. The segment will continue to expand its presence in the market for funds and Class III policies, in line with the strategies in its business plan and in compliance with the regulations in force, guaranteeing transparency and close attention to the needs of customers in a period of zero interest rates. Furthermore, as mentioned in in the section, “Group organisation structure”, talks will continue in 2017 with a view to increasing the Group’s interest in Anima Holding. Despite operating in a radically different competitive environment, following the merger of Wind and H3G and the market entry of the new operator, Iliad, PosteMobile will proceed with its strategy of consolidating its core business and expanding in markets that are complementary and integrated with those served by the Poste Italiane Group. The digital channel represents a further vehicle for growth, alongside the traditional physical distribution channel represented by post offices, which will continue the process of evolving an increasingly complete offering of simple, effective products designed to meet the changing needs of Poste Italiane’s customers.
Autorità per le Garanzie nelle Comunicazioni (AGCom – the Italian Communications Authority)
Specifically, Resolution 395/15/CONS provides for implementation of alternate day delivery, which once fully implemented will affect around 23.2% of the Italian population, in three phases. The phase launched in October 2015 covered 256 municipalities in the Lombardy, Piedmont, Friuli Venezia Giulia and Veneto regions. The second, launched in April 2016, will be gradually rolled out in 2,400 municipalities in 14 Italian regions. Finally, pursuant to the above Resolution, the third phase of the new delivery model will not be implemented before February 2017 and will progressively involve approximately 2,500 municipalities belonging to 18 regions. In addition, in accordance with the above Resolution, Poste Italiane has agreed a new formula for the distribution of printed publications with the regulator. This will cover delivery of publications to subscribers in the areas in which the alternate day delivery model is being implemented. Legal challenges to Resolution 395/15/CONS have been lodged with the Lazio Regional Administrative Court by the Italian Federation of Newspaper Publishers (FIEG), Avvenire, the consumers association, Codacons, and finally the Piedmont branch of the National Confederation of Local Authorities (ANCI), together with 41 Piedmont municipalities. The latter challenge was suspended on 29 April 2016, as the Regional Administrative Court, in declaring that the grounds submitted by the plaintiff were without basis and upholding the legality of the aforementioned resolution, had referred the challenge to the European Court of Justice for a preliminary ruling on the compatibility of Italian legislation with the European postal directive. On 16 September 2016, Poste Italiane submitted its observations to the Court of justice. On 8 March 2017, the Piedmont branch of ANCI and the 41 Piedmont municipalities withdrew their challenge before Lazio Regional Administrative Court. In this regard, the Attorney General’s office will shortly file a request for an adjournment of the hearing before the Court of Justice scheduled for 22 March 2017 whilst waiting for Lazio Regional Administrative Court to announce a stay of proceedings in the main case. On 13 March 2017, FIEG and Avvenire notified their decision to withdraw their challenge. The decision on the challenge brought by Codacons has, on the other hand, been put off to a later date.
AICAI (the Italian Association of International Air Couriers) and Confetra (the General Italian Confederation of Transport and Logistics Companies) have challenged AGCom Resolution 129/15/Cons (“Regulations regarding the requirements to be met in order to offer postal services to the public”, by which AGCom has establishes the conditions applicable to the issue of individual licences and general authorisation by the Ministry for Economic Development) and the related acts before the Regional Administrative Court, claiming that application of the obligations provided for in these regulations to their members is unlawful. In the challenge, AICAI argues, among other things, in favour of the exclusion of express couriers from any obligation to contribute to the universal service compensation fund. In two separate rulings dated 27 January 2016, Lazio Regional Administrative Court referred the matter to the European Court of Justice, requesting a ruling on the compatibility of Italian legislation with the European postal directive, including express couriers’ contribution to the universal service compensation fund. On 27 September, Poste Italiane, as a party to the Italian proceedings initiated by AICAI, filed a brief with the European Court defending the legality of application of the obligations provided for in the relevant legislation to express couriers and haulage companies to the extent that these companies provide postal services. Obervations were also submiited by the European Commission, the Italian government, Confetra and AICAI.
Regarding the right to direct access to the universal postal network, Poste Italiane’s appeal against Resolution 728/13/ CONS, which established an obligation for the Company to provide access to postal services, at the request of third parties, under fair and reasonable conditions to be freely negotiated with the parties, is still pending. Pending the appeal, Poste Italiane received two requests for access to the universal postal network, in February and October 2014. Neither of the two negotiations has reached a conclusion. Regarding the first request, in October 2014 the operator seeking access involved the regulator, which asked the parties to go ahead with negotiations. In January 2015, the operator informally notified Poste Italiane that it had reiterated the request for intervention to the regulator, owing to the persistent stalemate in the negotiations, following which the regulator has so far taken no action regarding the request for intervention. Furthermore, on 1 July 2016, AGCom published a press release on its website, announcing the start of a procedure entailing a review of the network access obligations set out in art. 6 of Resolution 728/13/CONS(24). In September 2016, Poste Italiane submitted a document in which it explains its views on the issue and requests removal of the above obligation, which it deems to be unjustified. Subsequently, the Company also sent the regulator the results of a study conducted by Copenhagen Economics, accompanied by certain additional information relevant to the procedure. With Resolution 651/16/CONS, published 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. The Company explained its position in a hearing held at AGCom’s offices on 21 February 2017.
Following a dispute brought by the operator GPS (Globe Postal Services) and a prior public consultation, AGCom adopted Resolution 621/15/CONS regarding regulations governing the return of items of mail entrusted to other postal operators that finish up in Poste Italiane’s network. Under this ruling, Poste Italiane is obliged to revise the “Contract terms and conditions regarding the return of items of mail entrusted by senders to other postal operators that finish up in Poste Italiane’s network”, including three distinct return procedures(25) and, on this basis, a reformulation of the rates charged, taking into account, among other things, the principle of cost orientation (avoidable cost) and applying discounts for certain volumes. Poste Italiane proceeded to amend its Contract Terms and Conditions and informed all contracted operators, as well as GPS, about the new Contract Terms and Conditions. Given the financial impact this ruling may have on Poste Italiane – especially the possibility of only being able to recover additional costs with the new rates – the Company appealed the ruling before the Lazio Regional Administrative Court. On 22 September 2016, the Regional Administrative Court published its judgment, partially upholding the arguments supporting Poste Italiane’s appeal. In particular, the Regional Administrative Court has upheld the appeal insofar as it relates to the principle under which the additional costs alone may be recovered, establishing Poste Italiane’s right to recover the full cost of the service through the prices charged. Following the above judgment, Poste Italiane proposed a number of changes to the Contract Terms and Conditions to AGCom. The regulator, however, asked the Company to wait for a new resolution on the issue before publishing new Contract Terms and Conditions. Despite this, both AGCom and Nexive (as well as GPS, which has submitted a cross appeal on the appeal brought by AGCom) have appealed to the Council of State. In particular, AGCom has requested an injunction halting implementation of the Regional Administrative Court ruling. The Council of State, not dealing with the request for an injunction, has scheduled the hearing on the merits for 4 May 2017.
(24) The start of this procedure 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.
(25) 1) Pick up at sorting centres to which items are returned and/or referred; 2) pick up at one or more collection centres; 3) delivery by Poste Italiane to an address specified by other operators.
GPS has challenged certain communications sent to it by AGCom before the Lazio Regional Administrative Court. The communications were aimed at obliging the operator to agree to Poste Italiane’s new Contract Terms and Conditions (deemed by AGCom to be in line with the resolution). GPS has also contested AGCom’s prohibition against use of the term “stamp” to indicate the “stickers” used by GPS. Poste Italiane has entered an appearance before the court. On this latter matter, in Resolution 412/16/CONS of 16 September 2016, the regulator served formal notice on GPS to cease, within 15 days of notification of the resolution, use of the terms “stamp” and “franked”, and the corresponding English terms, including the word “stamp”, on any products offered to the public and in any information documents distributed to customers in whatever form. The request for a precautionary injunction filed by GPS has been upheld by the Lazio Regional Administrative Court in ruling 6880/16, published on 4 November 2016, in view of the “serious harm to the company’s finances and organisation”. The hearing on the merits is due to be held on 5 April 2017.
With regard to the delivery of legal process, the various investigations launched by AGCom into alleged violations of the Company’s obligations relating to the notification of legal process, as provided for in Law 890 of 29 November 1982, came to an end in 2016 with the imposition of fines (resolutions 161/16/CONS, 188/16/CONS, 251/16/CONS, 338/16/ CONS, 339/16/CONS and 413/16/CONS). The Company has challenged the above rulings before Lazio Regional Administrative Court. In Resolution 366/16/CONS, dated 2 August 2016, AGCom gave Poste Italiane a formal warning in relation to compliance with the provisions of Law 890/1982, ordering the Company to submit a plan showing the organisational measures it intends to adopt in order to ensure the proper provision of the service. On 5 August 2016, the Company sent the regulator the document containing “Proposed changes to the handling and delivery of legal process”, which had already been sent on 10 December 2015. The document sets out a series of proposals aimed at improving both the operational processes involved in the handling of legal process and the reporting of initiatives and corrective measures already implemented to the regulator. The Company challenged Resolution 366/16/CONS before Lazio Regional Administrative Court on 31 October 2016. Following this, on 9 November 2016, a hearing on the matter was held at the regulator’s offices, during which the Company accurately described the initiatives undertaken and those in the process of being implemented. In a memorandum dated 8 February 2017, AGCom issued a positive assessment of the projects presented by Poste Italiane, adjudging them to meet the requirements of Resolution 366/16/CONS. Regarding obligations relating to the management of post offices, the regulator notified its decision to halt four proceedings (184/16/CONS, 187/16/CONS, 414/16/CONS and 434/16/CONS) and set aside two resolutions imposing fines (Resolution 186/16/CONS – challenged by the Company before Lazio Regional Administrative Court on 5 September 2016 – and Resolution 57/17/CONS). AGCom has issued Resolution 5/17/CONS halting proceeding 10/16/DSP, relating to the same issue resolved by Resolution 143/16/CONS, having excluded the possibility that the regulator can use the specialist independent body to assess whether or not the reporting requirements imposed on the Universal Service provider are being met.
On 4 June 2015, the AGCM launched an investigation (SP/157) pursuant to art.8, paragraph 2 quater of Law 287/90, aimed at ascertaining whether actions taken by Poste Italiane were designed to prevent H3G SpA from accessing the post office network. Requests to participate in the investigation from Fastweb SpA and Vodafone Omnitel BV, as well as PosteMobile, were accepted. With the ruling adopted at a meeting held on 16 December 2015, the Authority deemed that Poste Italiane – at variance with the provisions of art. 8, paragraph 2 quater of Law 287/90 – failed, when requested, to offer a competitor of its subsidiary, PosteMobile, equal access to goods and services that are exclusively available from Poste Italiane, as they form part of the activities carried out within the scope of the Universal Postal Service. The Authority issued a warning to Poste Italiane that it should desist from such conduct in the future, but did not impose any fine. Following the above ruling from the AGCM, on 23 December 2015, H3G also submitted a writ of summons to the Court of Rome, citing Poste Italiane and PosteMobile and requesting that the latter be ordered to pay compensation for damages incurred, arising from the violations referred to in the above ruling, amounting to approximately €375.8 million, as well as court fees. At the hearing held on 22 June 2016, after full discussion, the investigating judge upheld the procedural objection raised by Poste Italiane, regarding the lack of authority of H3G’s legal representative to institute legal proceedings, and adjourned the case to a hearing on 1 December 2016, setting a deadline for the submission of depositions, pursuant to art. 183 of the Code of Civil Procedure. Following completion of the investigation, and submission of the depositions pursuant to art. 183 of the Code of Civil Procedure, the settlement hearing has been scheduled for 29 March 2017. Poste Italiane lodged an appeal against the AGCM’s ruling on 25 February 2016, with PosteMobile also lodging an appeal against the final ruling before Lazio Regional Administrative Court on 19 February 2016. On 28 September 2016, Lazio Regional Administrative Court published its ruling, rejecting the appeals lodged by Poste and Poste Mobile, whilst confirming the principle, backed by Poste Italiane and expressly approved by the AGCM, under which the obligation established by art. 8, paragraph 2-quater of Law 287/90 regards equality of treatment. As a result, H3G’s request was unlawful, as it aimed to limit access to certain areas of Poste Italiane’s network and was not interested in obtaining treatment equal to that applied by Poste Italiane to its subsidiary, Poste Mobile(26). Having assessed the implications of the Lazio Regional Administrative Court ruling, PosteMobile and Poste Italiane decided not to appeal and the ruling thereby became final. Partly taking into account the percentage of uncertainty attaching to any judgment and impeding any quantification, it is now possible to state that the risk of an adverse outcome for Poste Italiane in the above dispute has been significantly reduced.
(26) In fact, in its ruling of 14 September 2016, the AGCM clarified that, at that time, there were no grounds to justify action pursuant to Law 287/90, as art. 8, paragraph 2-quater of Law 287/90 does not establish a generic obligation to grant access to the network on ad hoc terms, but an obligation to grant access on equivalent terms to those applied to subsidiaries.
On 13 March 2017, the AGCM notified Poste Italiane of the launch of investigation pursuant to art. 27, paragraph 3 of the Consumer Code, with the aim of assessing whether or not the unilateral changes to the Bancopostaclick contract and to the fees applicable to the Postamat payment card constitute unfair commercial practices. Above all, the Authority intends to investigate whether Poste Italiane has failed to provide accurate information regarding the free nature of the Postamat card for Bancopostaclick current account customers, wrongfully inducing account holders to accept the additional cost of the Postamat card, not granting them the right to withdraw from the part of the contract relating to the Postamat card alone and providing for withdrawal from the current account package as a whole.
On 28 September 2015, the Italian National Anti-Corruption Authority (ANAC) notified Poste Italiane that it was launching an investigation to verify the administrative procedures carried out regarding upgrade and restyling work at the Sesto Fiorentino sorting centre (FI). The Authority asked Poste Italiane to submit an explanatory report on the contract, together with the related documentation. On 17 November 2015, the person responsible for the procedure sent the documented report to ANAC and asked to testify before the Authority. The hearing was held on 27 January 2016, when the Company provided clarification and details regarding the contract in question. A further hearing was held on 8 February 2017 and the Authority’s conclusions are awaited.
CONSOB The process of preparing for the introduction of the new “guided consultancy” service provided for in the Plan submitted to the CONSOB, following the inspection completed in 2014, has been completed. In line with the related plan submitted to the CONSOB on 1 June 2016, the new IT platform for the “guided consultancy” service was rolled out in 5 “pilot” post offices on 17 October. The platform was then implemented in a further 100 offices during the last quarter of 2016. 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.
IVASS – Istituto per la Vigilanza sulle Assicurazioni (the insurance regulator) Following the inspection that took place between 1 April and 14 July 2014, for the purposes of assessing the governance, management and control of investments and financial risk, and compliance with anti-money laundering regulations, on 17 September 2014, IVASS notified Poste Vita SpA of its recommendations and the start of an administrative procedure regarding the alleged violation of four provisions concerning anti-money laundering regulations. On 12 May 2016, the Authority notified the company of the ruling in which two of the four violations challenged were upheld. Poste Vita paid the fine of €70,000 and, based on the findings of an analysis and assessment carried out, the company’s Board of Directors decided not to challenge the ruling. Between September 2015 and September 2016, IVASS notified Poste Vita of eight alleged violations of art. 183, paragraph 1.a) of the Codice delle Assicurazioni Private (Private Insurance Code or CAP), as a result of delays in the payment of claims. Having ascertained that four of the above violations had been committed, IVASS notified Poste Vita that it was imposing the relevant fines for three of the violations in August 2016 and for a further violation in January 2017. No fine is to be imposed for one of the remaining violations, whilst the other proceedings are still pending.
Data Protection Authority From 29 September to 1 October 2015, the Nucleo Polizia Tributaria Roma (Tax Police), in implementation of Data Protection Authority order 21876/97157, as per the Data Protection Code, inspected PosteMobile’s premises. After the inspection, on 3 November 2015, the Tax Police notified PosteMobile of one alleged violation relating to the retention of data for the purposes of identifying and combatting crimes (documentation of traffic data, namely internet access) beyond the maximum periods laid down in art. 132 of the Data Protection Code, with the imposition of a fine (ranging from a minimum of €10,000 to a maximum of €50,000). Deeming the allegation to be groundless, on 2 December 2015, pursuant to art. 18 of Law 689 of 24 November 1981, PosteMobile submitted its defensive brief to the Authority asserting that data retention for the purposes of identifying and combatting crimes was extended beyond the maximum periods provided for by the Data Protection Code in good
Directors’ report on operations for the year ended 31 December 2016 faith and in line with the interpretative and applicatory practices of the Anti-terrorism Decree 43 of 17 April 2015, which all telecommunications operators comply with. On 2 February 2016, the company confirmed to the Authority that it had completed cancellation of the traffic data relating to communications prior to 21 April 2015, being up to the entry into effect of the legislation converting the Anti-terrorism Decree into law. Poste Mobile has requested a halt to the procedure, taking into account the unique and isolated nature of the violation within a general context of full compliance with existing data protection legislation, as confirmed by the findings of the investigation. In terms of legislation, with regard to operators’ legal requirements pursuant to art. 96 of the Electronic Communications Code, the so-called “Mille Proroghe” decree published in the Official Bulletin of 26 February 2016, which, in art. 4-quater, has amended article 4-bis of Law Decree 7 of 18 February 2015, converted with amendments into Law 43 of 17 April 2015, has come into force. As regards PosteMobile’s obligations, the new legislation has altered the period of time in which the operator must store phone and internet data for the purposes of surveillance and combatting crime, with particular regard to terrorism. Any data held at the date of entry into force of the legislation and transmitted after this date must be stored until 30 June 2017.
Operating results of Poste Italiane SpA RECLASSIFIED STATEMENT OF PROFIT OR LOSS
for the year ended 31 December (€m) 2016 2015 Increase/ (decrease)
Amounts recovered from staff due to disputes (9) (6) (3) 50.0%
With regard to fixed-term contracts, the Company employed 7,036 people on fixed-term contracts in 2016 (7,277 in 2015), equal to 6,953 FTEs (7,144 FTEs in 2015). As a result of specific measures establishing quotas limiting the use of such contracts (the so-called “clausole di contingentamento”), the following should be noted: the permanent workforce at 1 January 2016(27) was 138,236 (141,459 at 1 January 2015), equal to 133,392 FTEs (135,797 at 1 January 2015); the number of people on fixed-term contracts as defined by art. 2, paragraph 1-bis of Legislative Decree 368/01(28) – the so-called “causale finanziaria” – amounted to zero; the number of people on fixed-term contracts as defined by art. 1, paragraph 1 of Legislative Decree 368/01, as amended by Law Decree 34/14(29) – the so-called “Jobs Act” – amounted to 12,111, equal to 11,941 FTEs(30). Other operating costs are up 12.4% (€28 million) on the previous year, reflecting the release, in 2015, of provisions made in previous years, linked to the procedures and timing involved in the collection of amounts receivable from the Ministry of the Economy and Finance.
(30) The number of fixed-term contracts – expressed in terms of both headcount and FTEs – includes, for 2016, both contracts and renewals during the year in question (7,036, equal to 6,953 FTEs) and contracts and renewals still in force at 1 January 2016 (5,075, equal to 4,988 FTEs), although executed before this date.
Working capital: Trade receivables and other receivables and assets 4,027 3,840 187 4.9%
Non-current assets held for sale 384 – 384 n/s n/s: not significant
Equity amounts to €6,160 million at 31 December 2016, marking a reduction of €1,486 million due primarily to the following: movements in the fair value reserves net of tax (€1,613 million), as a result of positive and/or negative movements in the value of investments in securities held by BancoPosta RFC; the payment of dividends totalling €444 million, as approved by the Annual General Meeting of 24 May 2016 (€0.34 per share, paid to shareholders on 22 June 2016). The above reductions in equity were partially offset by profit for the year of €625 million.
Industrial net funds/(debt) outside the ring-fence after adjusting for intersegment transactions 887 317
Cash and cash equivalents at end of period 2,715 1,520 of which: Cash subject to investment restrictions 1,071 217
Operating activities generated a cash inflow of €2,422 million as a result of, among other things, profit for the year (€625 million). The cash generated was primarily used to finance capital expenditure which, after disposals, resulted in an outflow of €380 million, and to pay off short-term borrowings of approximately €546 million. Cash and cash equivalents is up €1,195 million, after the payment of dividends of €444 million.
Corporate governance at BancoPosta RFC With regard to BancoPosta RFC’s governance, the rules governing the organisation, management and control of BancoPosta’s operations are contained in the specific BancoPosta RFC Regulation approved by the Extraordinary General Meeting of 14 April 2011 and recently amended by the Extraordinary General Meeting of 31 July 2015. Following the issue by the Bank of Italy on 27 May 2014 of an update to the prudential supervisory regulations for banks, the corporate governance regulations for banks are applied to BancoPosta (Part One, Title IV, Chapter I “Corporate governance” of Circular no. 285). Further information regarding the corporate governance structure is provided in Poste Italiane’s “Report on Corporate Governance and the Ownership Structure”, approved by the Board of Directors and published in the “Governance” section of the Company’s website.
The risk assessment techniques, methods, controls and periodic audit findings are shared amongst the above control functions to promote synergies and take advantage of the specific expertise available. In compliance with the regulatory requirements contained in the Bank of Italy’s Supervisory Standards and the CONSOB regulation governing the controls to which BancoPosta is subject, in early 2017 BancoPosta’s Internal Auditing function prepared its Annual Report for 2016, the purpose of which is to provide information to the various corporate bodies on the completeness, adequacy, functionality and reliability of the overall system of controls, with specific regard to information systems and the control processes, procedures and mechanisms applied in the oversight of BancoPosta’s activities. The Report was prepared on the basis of the findings of the audit activities carried out by the function and set out in the Audit Plan for 2016. The Annual Report for 2016, presented to the Board of Statutory Auditors and the Board of Directors, will subsequently be submitted to the Bank of Italy. The specific section regarding investment services will, on the other hand, be submitted to the CONSOB. The audits were in part performed with reference to the findings of Poste Italiane’s Internal Auditing function, which is responsible, in accordance with the specific operating guidelines in the “General Guidelines governing the process of contracting out BancoPosta’s corporate functions to Poste Italiane”, for the IT audit and the audit of the local units and distribution channels within Poste Italiane’s network that are responsible for BancoPosta’s processes and services. Internal Auditing has also drawn up the Annual (2017) and Multi-year (2017 – 2019) Audit Plan, based on a risk assessment process designed to ensure adequate coverage of BancoPosta’s Business Process Model, including operational and financial risks, changing aspects of the business, regulatory issues and BancoPosta RFC’s organisational structures. This Plan has been presented to the Board of Statutory Auditors and submitted for the attention of the Board of Directors.
and transparency – to protect all the customers who purchased units issued by the Invest Real Security real estate fund and who still held the related units at 31 December 2016.
Details of the various areas of risk and the methods used for their measurement and prevention are provided in Poste Italiane SpA’s financial statements for the year ended 31 December 2016.
Key performance indicators(*) for the year ended 31 December 2016 2015
Operating expenses / Net interest and other banking income(4) 84% 83%
(*) The key income ratios normally used reflect the unique nature of BancoPosta RFC and the fact that payments to Poste Italiane in reimbursement of costs are classified as “administrative expenses”. The absolute amounts of the ratios are, consequently, irrelevant and should not be used for market comparisons but for analyses over time.
BancoPosta RFC’s performance during the year resulted in profit for the year of €568 million, a reduction of €19 million (3.2%) compared with 2015. This was primarily due to an increase in administrative expenses, generated by an increase in transfer payments for the intersegment services provided by the distribution network to the Financial Services segment (up 4.7%) and an increase in net provisions for risks (up 58.3% on 2015), only partially offset by an improvement in net interest and other banking income (up 3.5%).
Net interest and other banking income amounts to €5,596 million (€5,409 million in 2015) and, in addition to the interest margin and net fee and commission income, includes the net profit from the sale of financial assets/liabilities, totalling €587 million (€426 million in 2015). This result benefitted from non-recurring income of €121 million resulting from the sale of the share in Visa Europe following Visa Inc.’s acquisition of this company. Net operating expenses of €4,692 million are up 4.7% on the previous year (€4,480 million in 2015), primarily due, as mentioned above, to the increase in “Other administrative expenses”, which are up from €4,348 million in 2015 to €4,555 million in 2016. These expenses include €4,457 million (€4,251 million in the previous year) in transfer payments to other Poste Italiane functions in accordance with the “General Guidelines governing the process of contracting out BancoPosta’s corporate functions to Poste Italiane” and the related operating guidelines for 2016. In particular, the cost of the services provided by the distribution network amounts to €4,092 million, up €194 million compared with the previous year (€3,898 million in 2015). Personnel expenses of €98 million (€95 million in 2015) are for BancoPosta employees shown in the following table. In carrying out its activities, BancoPosta RFC is, however, the recipient of services provided by other Poste Italiane functions, particularly post office and Contact Centre personnel. Net other operating expenses of €39 million (€37 million in 2015) primarily relate to operating losses resulting from withdrawals that customers claim not to have made.
Permanent workforce 2016 2015 for the year ended 31 December Average number of employees(*)
Provisions for risks and charges 462 384 of which: Profit for the year 568 587
environment, the strategy aimed at managing the duration of the portfolio, so as to protect against the exposure of securities to changes in fair value resulting from potential rises in interest rates, continued during the year. Equity instruments of €104 million are down 43% (€78 million), essentially due to the sale of the ordinary share in Visa Europe, completed on 21 June 2016, to Visa Incorporated. The carrying amount of the share at 31 December 2015 was €111 million. Poste Italiane received a consideration equal to a fair value of €121 million (a sum recognised as non-recurring income and entered as “Other income from financial activities”). Payment was received as follows: €88 million in cash; €25 million in Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock), convertible into ordinary shares in several tranches between the fourth and the twelfth year after the closing, based on a conversion rate and a discount rate that take into account the illiquidity of the shares; and €8 million payable by Visa Incorporated after three years from the closing of the transaction. Held-to-maturity financial assets, consisting of fixed payment or fixed maturity debt securities, amount to €12,683 million, marking a reduction of €203 million compared with 31 December 2015. This is primarily due to the redemption of matured securities, totalling €1,300 million, and the purchase of new securities with a nominal value of €1,080 million. Amounts due from customers are down from the €9,023 million of 31 December 2015 to €9,004 million at 31 December 2016. They include €7,499 million (€6,246 million at 31 December 2015) in amounts deposited by private and Public Administration customers and held at the MEF, which, under a specific agreement with the MEF, earn variable rates of return calculated, respectively, on the basis of the Euro OverNight Index Average (EONIA) rate and a basket of government securities and money market indices.
The amount due to customers is up from €45,469 million at the end of December 2015 to €50,374 million at 31 December 2016. This regards current account deposits of €45,098 million (€43,093 million at 31 December 2015), other forms of deposit of €2,833 million (€1,977 million at 31 December 2015), primarily including Postepay and Postepay Evolution accounts, totalling €2,141 million (€1,438 million at 31 December 2015), and amounts due to the MEF in relation to advances from the State Treasury, totalling €2,429 million, which at 31 December 2015 had a credit balance and was, therefore, shown in “Amounts due from customers”. The debit balance with the MEF in relation to advances from the State Treasury is the result of Legislative Decree 244/2016 (the so-called “Mille Proroghe” decree), which has altered the timing of pension payments, with the payment of pensions for January 2017 being postponed by one bank working day. Compared with 31 December 2015, therefore, deposit of the amount required to pay the pensions for January 2017 by the paying entity, INPS, took place on the first working day of the month of payment, rather than on the last working day in December 2016. The increase in direct deposits is due to general market conditions, marked by low interest rates and a lack of attractive alternative forms of cash investment. Other liabilities of €2,179 million (€2,282 million at 31 December 2015) primarily regard tax liabilities in the form of tax withholdings, items in progress that will be settled after the end of the reporting period and amounts payable to other Poste Italiane functions. In this regard, it should be noted that, in carrying out its activities, BancoPosta RFC makes use of real estate assets (e.g., use and management of office space for BancoPosta’s operations) and technology assets (e.g., the design and implementation of new services, the development and maintenance of operations and business software) owned by Poste Italiane SpA. The provision of these services is regulated by operating guidelines and remunerated through the payment by BancoPosta RFC of transfer prices to Poste Italiane.
BancoPosta RFC’s equity at 31 December 2016 amounts to €3,386 million (€5,042 million at the end of 2015). In addition to the initial reserve of €1 billion, it includes retained earnings of €949 million, the fair value reserve of €869 million, after reflecting fair value losses on investments in available-for-sale financial assets, and profit for the year of €568 million.
• expanding the distribution of consumer credit products and consolidating digital banking activities as part of Poste Italiane’s wider multi-channel strategy.
In addition, in view of ongoing volatility in the international and national financial markets, the strategy of actively managing the securities portfolio, with the aim of stabilising the overall return, in terms of interest income and capital gains, will continue.
Related party transactions Information on transactions between BancoPosta and its related parties is provided in Poste Italiane’s financial statements (5. BancoPosta RFC’s Separate Report for the year ended 31 December 2016, Part H of the notes).
Intersegment transactions Intersegment transactions between BancoPosta and Poste Italiane functions outside the ring-fence are set out in Poste Italiane’s financial statements (5. BancoPosta RFC’s Separate Report for the year ended 31 December 2016, Part A of the notes).
The environment The Poste Italiane Group is committed to environmental protection which, within the scope of its green strategy, it considers to be a vital element in its path to growth. For this reason, all the business activities carried out entail implementation of environmental sustainability actions and policies inspired by principles of saving, recovery and recycling, innovation and security. Over two-thirds of Poste Italiane’s polluting emissions are attributable to the energy used to supply its properties. For this reason, the plan to optimise energy use, by encouraging staff to adopt a virtuous approach to energy, continued during 2016. This included information campaigns focusing on the need to save energy (for example, on the careful use of “heat pumps”), and the introduction of technical initiatives designed to reduce waste, including the installation and activation of energy management devices for monitoring energy consumption, enabling, for example, the analysis of consumption on Saturdays and Sundays, measurement at the sites where energy consumption is highest and the correct setting of temperatures and time-settings for cooling and heating systems. In addition, over 20,000 human presence sensors have been installed. Fleet management is also a key component of the Group’s green strategy, which has seen deployment of a growing number of low environmental impact vehicles. In this regard, around 4,000 alternative fuel vehicles were used for road transport in 2016 (2,750 in 2015), including 1,000 electric-powered vehicles and 3,000 vehicles powered by natural gas and LPG. Moreover, thanks to renewal of the entire four-wheel fleet, Poste Italiane now has vehicles in lower pollution, fuel consumption and specific emissions categories with respect to those previously in use. As part of the Mobility Management project, which aims to support the adoption of sustainable mobility solutions in urban areas, special agreements enabling the Group’s employees to purchase annual season tickets for local public transport in certain Italian cities, at reduced rates and in instalments, continued, as did initiatives designed to convey the importance of new, equitable and sustainable lifestyles to employees who use private vehicles to commute to work on a daily basis, with the main aim of making a significant contribution to reducing CO2 emissions into the air. Consequently, a new car-sharing was launched in Rome and Milan, accessible via the Company’s intranet or the internet, which enables use of only one private vehicle by a group of employees for their daily commuting. Furthermore, to encourage staff to walk and cycle to work, company changing rooms were installed at the Mestre (VE) site, in addition those already available at the Rome headquarters. In this connection, the Group continued to participate in international programmes aimed at reducing greenhouse gas emissions, such as the Environmental Measurement and Monitoring System (EMMS) run by the International Post Corporation (IPC), the Greenhouse Gas Reduction Programme set up by Posteurop, and the new OSCAR (Online Solution for Carbon Analysis and Reporting) programme, launched in July by the UPU (Universal Postal Union) with the aim of reporting and monitoring the CO2 emissions of postal operators. Thanks to the Group’s growing commitment to such issues, the Poste Italiane Group has this year been included in the so-called “silver class” under the EMMS programme. This is reward for postal operators who have succeeded in achieving significant qualitative results (e.g., energy efficient operating systems, policies and procedures) accompanied by concomitant cuts in CO2 emissions. On a scale of 0 to 100, the Group scored over 80.
With the aim of ensuring the transparency and substantial and procedural correctness of transactions with related parties and connected persons, Poste Italiane has adopted “Guidelines for the management of transactions with related and connected parties”, approved by Poste Italiane SpA’s Board of Directors in July 2015. The Guidelines have been drawn up in compliance with the principles established by the CONSOB in the Regulation adopted with Resolution 17221 of 12 March 2010 and Announcement DEM/10078683 of 24 September 2010. The Guidelines apply the regulations contained in Bank of Italy Circular 263/2006, “New prudential supervisory standards for banks”, Title V, Chapter 5, “Risk assets and conflicts of interest with connected parties” and Bank of Italy Circular 285/2013 (“Supervisory Standards”), applicable to Poste Italiane with reference to transactions entered into by BancoPosta with persons connected with Poste Italiane. The scope of application of the Guidelines differs depending on the applicable regulations. This means that the CONSOB’s requirements apply to Poste Italiane (in carrying out both its postal activities and those of BancoPosta and in the conduct of transactions with Poste Italiane’s related parties through subsidiaries), whilst the standards issued by the Bank of Italy apply solely to BancoPosta’s transactions with Poste Italiane’s connected parties. The updated version of the Guidelines is published on Poste Italiane’s website at: The document is also available in the section dedicated to BancoPosta at: 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. The first loans were granted in accordance with the above agreement in early 2017.
Statement of reconciliation of profit and equity The statement of reconciliation of the Parent Company’s profit/(loss) for the period and equity with the consolidated amounts at 31 December 2016, compared with the statement at 31 December 2015, is included in Poste Italiane’s financial statements for the year ended 31 December 2016 (Notes to the Poste Italiane Group’s financial statements – Equity).
Exceptional and/or unusual transactions Disclosures regarding exceptional and/or unusual transactions in 2016 are provided in Poste Italiane’s financial statements for the year ended 31 December 2016 (Notes to the Poste Italiane Group’s financial statements – Exceptional and/ or unusual transactions; Notes to Poste Italiane SpA’s financial statements – Exceptional and/or unusual transactions)
• appropriate Poste Italiane SpA’s profit for 2016, amounting to €625,341,360 euro, as follows: b.1) €509,382,900 to pay shareholders a dividend of €0.39 per share, payable to the holders of each of the 1,306,110,000 ordinary shares in issue at the ex dividend date of 19 June 2017; b.2) €115,958,460 to “Retained earnings”, including the €110,000,000 referred to in point a.1, in relation to BancoPosta RFC.
• to pay the above dividend of €0.39 per ordinary share for 2016 – before any applicable taxation – from 21 June 2017, with an ex dividend date of 19 June 2017 and a record date (defined in accordance with art. 83-terdecies of Legislative Decree 58 of 24 February 1998 and art. 2.6.6, paragraph 2 of the Regulations for the Markets organised and managed by Borsa Italiana SpA), of 20 June 2017.
Permanent workforce – average 15 15 – n/s n/s: not significant
(*) The figures shown have been prepared in accordance with IFRS and therefore may not coincide with those in the financial statements prepared under Italian GAAP and in accordance with the Italian Civil Code.
(*) The partial demerger of the company’s fixed line telecommunications business to Poste Italiane was executed on 27 April 2016 and the transaction was effective for legal, accounting and tax purposes from 1 May 2016.
Poste Italiane SpA (the “Parent Company”) is the company formed following conversion of the former Public Administration entity, “Poste Italiane”, under Resolution 244 of 18 December 1997. Its registered office is at Viale Europa 190, Rome (Italy).
The Poste Italiane Group (the “Group”) provides a universal postal service in Italy as well as integrated communication, logistics, financial and insurance products and services throughout the country via its national network of approximately 13,000 post offices. The Group assesses and reports on the performance of its business on the basis of four operating segments: Postal and Business Services, Financial Services, Insurance and Asset Management Services, and Other Services. Postal and Business Services include mail, express delivery, logistics, parcels and philately, in addition to the activities performed by the various structures of Poste Italiane SpA in favour of the other sectors in which the Group operates. Financial Services primarily regard the activities of BancoPosta (as listed in art. 2 of Presidential Decree 144 of 14 March 2001), which are managed as a segregated portfolio within Poste Italiane SpA; these include the collection of all forms of savings deposits from the public, the provision of payment services, foreign currency exchange, the promotion and arrangement of loans issued by banks and other authorised financial institutions, and the provision of investment services. Insurance and Asset Management Services include the insurance services provided by the subsidiary, Poste Vita SpA, which operates in ministerial life assurance Classes I, III e V, and by its subsidiary, Poste Assicura SpA, which operates in non-life insurance, and asset management services, in 2016 provided by the subsidiary, BancoPosta Fondi SGR SpA, which is to be transferred to the associate, Anima Holding SpA (further details are provided in the section, “Basis of consolidation and corporate actions”). Other Services include the activities carried out by PosteMobile SpA and Consorzio per i servizi di telefonia Mobile ScpA.
The Group’s consolidated financial statements consist of the statement of financial position, the statement of profit or loss, the statement of comprehensive income(32), the statement of changes in equity, the statement of cash flows and the notes to the financial statements. All amounts in the consolidated financial statements and the notes are shown in millions of euros, unless otherwise stated.
(32) The statement of comprehensive income shows “Profit/(loss) for the year” and “Other comprehensive income” recognised directly in equity. The latter includes, but is not limited to, actuarial gains/(losses) from defined benefit plans (employee termination benefits and pensions plans), unrealised gains/(losses) on available-for-sale financial assets and the effective portion of cash flow hedges. This Statement includes items that will be reclassified to profit or loss and items that will not.
2.1 Compliance with IAS/IFRSs The annual accounts are prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), and endorsed by the European Union (“EU”) in EC Regulation 1606/2002 of 19 July 2002, and in accordance with Legislative Decree 38 of 28 February 2005, which introduced regulations governing the adoption of IFRS in Italian law.
2.2 Basis of preparation The accounting policies described below reflect the fact that the Group and Poste Italiane SpA will remain fully operational in the foreseeable future, in accordance with the going concern assumption, and are consistent with those applied in the preparation of the annuals accounts for the previous year. Amendments to accounting standards applicable from the accounting period under review have not had an impact on these financial statements (note 2.6).
(33) Current assets include assets (such as inventories and trade receivables) that are sold, consumed or realised as part of the normal operating cycle even when they are not expected to be realised within twelve months after the reporting period (IAS 1 (Revised), paragraph 68).
(34) Under the indirect method, net cash from operating activities is determined by adjusting profit/(loss) for the year to reflect the impact of noncash 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.
With regard to the interpretation and application of newly published, or revised, international accounting standards, and to certain aspects of taxation(36), where the related interpretations are based on examples of best practice or caselaw that cannot yet be regarded as exhaustive, the financial statements been prepared on the basis of the relevant best practices. Any future changes or updated interpretations will be reflected in subsequent reporting periods, in accordance with the specific procedures provided for by the related standards.
(36) The tax authorities have issued regular official interpretations only in respect of certain of the tax-related effects of the measures contained in Legislative Decree 38 of 28 February 2005, Law 244 of 24 December 2007 (the 2008 Budget Law) and the Ministerial Decree of 1 April 2009, implementing the 2008 Budget Law, which introduced numerous changes to IRES and IRAP. The MEF Decree issued on 8 June 2011 contains instructions regarding the coordinated application of EU-endorsed international accounting standards coming into effect between 1 January 2009 and 31 December 2010, in addition to regulations governing determination of the tax bases for IRES and IRAP.
Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable assets and liabilities of the company or business acquired, at the date of acquisition. Goodwill attributable to investments accounted for using the equity method is included in the carrying amount of the equity investment. Goodwill is not amortised on a systematic basis, but is tested periodically for impairment. This test is performed with reference to the cash generating unit (“CGU”) to which the goodwill is attributable. An impairment loss is recognised in profit or loss for the amount by which the net carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the cash generating unit’s fair value less costs to sell and value in use(37), calculated as the present value of the future cash flows expected to be derived from the cash generating unit and from its disposal at the end of its useful life. Impairment losses on goodwill cannot be subsequently reversed.
(37) Value in use is determined based on the method described below in “Impairment of assets”.
Impairment of assets At the end of each reporting period, property, plant, equipment and intangible assets with finite lives are analysed to assess whether there is any indication that an asset may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the impairment loss to be recognised in profit or loss. The recoverable amount is the higher of an asset’s fair value less costs to sell, and its value in use, represented by the present value of the future cash flows expected to be derived from the asset.
In Poste Italiane SpA’s separate financial statements, investments in subsidiaries and associates are accounted for at cost (including any directly attributable incidental expenses), after adjustment for any impairments. Investments in subsidiaries and associates are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any impairment is recognised in profit or loss as an impairment loss. When an impairment no longer exists, the carrying amount of the asset is reinstated and the reversal recognised in profit or loss. The reversal must not exceed the carrying amount that would have been determined had no impairment loss been recognised.
Financial Instruments Financial instruments include financial assets and liabilities that are classified on initial recognition at fair value based on the business purpose for which they were acquired. The purchase and sale of financial instruments are recognised by category, either on the date on which the Group commits to purchase or sell the asset (trade date or transaction date), or, in the case of the insurance transactions and BancoPosta’s operations, at the settlement date(38). For BancoPosta operations, the settlement date almost always coincides with the transaction date. Any changes in fair value between the transaction date and the settlement date are recognised in the financial statements.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, and primarily regard amounts due from customers, including trade receivables. They are included in current assets, except for those with maturities greater than twelve months after the end of the reporting period, which are classified as non-current assets. These assets are carried at amortised cost(39) using the effective interest rate method. If there is objective evidence of impairment, the asset is written down to the present value of the estimated future cash flows, with such impairment loss being recognised in profit or loss. If in subsequent periods the conditions which led to the impairment no longer exist, the carrying amount of the asset is reinstated on the basis of the value that would have resulted from application of the amortised cost method. The estimation procedure adopted in determining provisions for doubtful debts, or operating revenue to be so allocated, primarily reflects the identification and measurement of elements resulting in specific reductions in the value of individually significant assets. Financial assets with similar risk profiles are subsequently measured collectively, taking account, among other things, of the age of the receivable, the nature of the counterparty, past experience of losses and collections on similar positions and information on the related markets.
Derivative instruments Derivatives are initially recognised at fair value on the date the derivative contract is executed and if they do not qualify for hedge accounting treatment, gains and losses arising from changes in fair value are accounted for in profit or loss for the period.
If, on the other hand, 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 effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges after initial recognition is recognised in a specific equity reserve, with movements in the reserve accounted for in “Other comprehensive income” (the “Cash flow hedge reserve”). A hedging transaction is generally considered highly effective if, both at inception of the hedge and on an ongoing basis, changes in the expected future cash flows of the hedged item are substantially offset by changes in the fair value of the hedging instrument. Amounts accumulated in equity are recycled to profit or loss in the period in which the hedged item affects profit or loss.
If, during the life of the derivative, the forecast hedged transaction is no longer expected to occur, the related gains and losses accumulated in the cash flow hedge reserve are immediately reclassified to profit or loss for the period. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the related gains and losses accumulated in the cash flow hedge reserve at that time remain in equity and are recognised in profit or loss at the same time as the original underlying.
(41) 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.
Own use exemption The standards establishing the principles for the recognition and measurement of financial instruments are also applied to derivative contracts to buy or sell non-financial items that are settled net in cash or in another financial instrument, with the exception of contracts entered into, and that continue to be held, for the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements (the own use exemption).
Income tax expense Current income tax expense (IRES and IRAP) is based on the best estimate of taxable profit for the period and the related regulations, applying the rates in force. Deferred tax assets and liabilities are calculated on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts, using tax rates that are expected to apply when the related deferred tax assets are realised or the deferred tax liabilities are settled. Deferred tax assets and liabilities are not recognised if the temporary differences derive from investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary difference is controlled by the Group or it is probable that the temporary difference will not reverse in the foreseeable future (IAS 12.39 and 12.40). In accordance with IAS 12, deferred tax liabilities are not recognised on goodwill deriving from a business combination. 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. Current and deferred tax assets and liabilities are offset when they are applied by the same tax authority to the same taxpaying entity, which has the legally exercisable right to offset the amounts recognised, and the entity has the intention of exercising this right. As a result, tax liabilities accruing in interim periods that are shorter than the tax year are not offset against related assets deriving from withholding tax or advances paid. The Group’s tax expense and related accounting treatment reflect the effects of the election to adopt a tax consolidation arrangement, in accordance with relevant legislation, by Poste Italiane SpA, together with the subsidiaries Poste Vita SpA, SDA Express Courier SpA, Mistral Air Srl. and, from 1 January 2016, Postel SpA. The tax consolidation arrangement is governed by Group regulations based on the principles of neutrality and equality of treatment, which are intended to ensure that the companies included in the tax consolidation are in no way penalised as a result. Following adoption of the tax consolidation arrangement, the Parent Company’s tax expense is determined at consolidated level on the basis of the tax expense or tax losses for the period for each company included in the consolidation, taking account of any withholding tax or advances paid. Poste Italiane SpA posts its IRES tax expense to income taxes for the period, after adjustments to take account of the positive or negative impact of tax consolidation adjustments. Should the reductions or increases in tax expense deriving from such adjustments be attributable to the companies included in the tax consolidation, Poste Italiane SpA attributes such reductions or increases in tax expense to the companies in question. From 2013, following the adoption of new tax consolidation rules, the economic benefits deriving from the offset of tax losses transferred to the consolidating entity by the companies participating in the tax consolidation arrangement are recognised in full by Poste Italiane SpA. Other taxes not related to income are included in “Other operating costs”.
(42) These are properties held by EGI SpA and not accounted for in “Investment property” as they were purchased for sale or subsequently reclassified as held for sale.
Cash and cash equivalents Cash and cash equivalents refer to cash in hand, deposits held at call with banks, amounts that at 31 December 2016 the Parent Company has temporarily deposited with the MEF and other highly liquid short-term investments with original maturities of ninety days or less. Current account overdrafts are accounted for in current liabilities.
When it is highly probable that the carrying amount of a non-current asset, or a disposal group, will be recovered, in its present condition, principally through a sale transaction or other form of disposal, rather than through continuing use, and the transaction likely to take place in the short term, the asset or disposal group is classified as held for sale or as a discontinuing operation in the statement of financial position. The transaction is deemed to be highly probable, when the Parent Company’s Board of Directors, or, when so authorised, the board of directors of a subsidiary, has committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan has been initiated. Sale transactions include exchanges of non-current assets for other non-current assets when the exchange has commercial substance.
Reserves include capital and revenue reserves. They include, the BancoPosta ring fenced capital reserve (hereafter “BancoPosta RFC”), representing the dedicated assets attributed to BancoPosta RFC, the Parent Company’s legal reserve, the fair value reserve, relating to items recognised at fair value through equity, and the cash flow hedge reserve, reflecting the effective portion of hedging instruments outstanding at the end of the reporting period.
Insurance contracts The following policies and classification and measurement criteria refer specifically to the operations of the Poste Italiane Group’s insurance companies. Insurance contracts are classified and measured as insurance contracts or finance contracts, based on their prevalent features. Contracts issued by Poste Vita SpA primarily relate to life assurance. In 2010 Poste Assicura SpA began operating in the non-life sector. The Group applies the following bases for classification and measurement of these contracts.
Contracts classified as insurance contracts in accordance with IFRS 4 include Class I and Class V life insurance policies, Class III policies that qualify as insurance contracts and non-life policies. These products are accounted for as follows: • insurance premiums are accounted for when the policies are written, recognised as income and classified in revenue; they include annual or single premiums accruing during the period and deriving from insurance contracts outstanding at the end of the reporting period, net of cancellations; • technical provisions are made in respect of earned premiums to cover obligations to policyholders; such provisions are calculated on an analytical basis for each contract using the prospective method, based on actuarial assumptions appropriate to cover all outstanding obligations. An increase in technical provisions and the cost of claims are recognised as expenses in profit or loss, whilst a reduction in technical provisions, compared with the previous period, is recognised in income.
In the case of contracts for separately managed accounts with discretionary participation features(45) (as defined in Appendix A of IFRS 4), IFRS 4 makes reference to national GAAP. The contracts are classified as “financial”, but accounted for as “insurance” as follows: • premiums, a changes in technical provisions and the cost of claims are recognised in the same way as the insurance contracts described above; • unrealised gains and losses attributable to policyholders are assigned to them and recognised in technical provisions (deferred liabilities payable to policyholders) under the shadow accounting method (IFRS 4.30).
(45) A contractual right of investors to receive returns on the separately managed account.
Provisions for risks and charges Provisions for risks and charges are recorded to cover losses that are either probable or certain to be incurred, for which, however, there is an uncertainty as to the amount or as to the date on which they will occur. Provisions for risks and charges are made when the Group has a present (legal or constructive) obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation. Provisions are measured on the basis of management’s best estimate of the use of resources required to settle the obligation. The value of the liability is discounted at a rate that reflects current market values and takes into account the risks specific to the liability. In those rare cases, in which disclosure of some or all of the information regarding the risks in question could seriously prejudice the Group’s position in a dispute or in ongoing negotiations with third parties, the Group exercises the option granted by the relevant accounting standards to provide limited disclosure.
In the case of companies with less than 50 employees, to which the reform of supplementary pension provision does not apply, vested employee termination benefits continue to represent a defined benefit liability for the company.
Defined benefit plans also include supplementary pension plans guaranteeing members and their surviving spouses pensions in addition to those managed by INPS to the extent of and in accordance with the conditions provided for in specific regulations covered by the collective labour contract and legislation. The initial recognition and subsequent measurement of such plans are consistent with the valuation of the TFR described above. Measurement of the liability recognised in the financial statements is based on calculations performed by independent actuaries.
TFR falls within the scope of defined contribution plans provided the benefits vested subsequent to 1 January 2007 and were paid into a Supplementary Pension Fund or a Treasury Fund at INPS. Contributions to defined contribution plans are recognised in profit or loss when incurred, based on their nominal value.
The return on the current account deposits held by the MEF is determined using the effective interest method and is recognised as revenue from financial services. The same classification is applied to income from euro area government securities, in which deposits paid into accounts by private customers are invested. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred to the buyer.
(47) Diluted earnings per share are calculated by taking into account the potentially dilutive effect of all instruments which can be converted into ordinary shares issued by the Parent Company. The calculation is based on the ratio of profit attributable to the Parent Company, adjusted to take account of any costs or income deriving from the conversion, net of any tax effect, and the weighted average number of shares outstanding, assuming conversion of all convertible securities.
The complex process associated with the determination of receivables, which has not been completed yet, may result in changes in the results for the years after that ended 31 December 2016 to reflect variations in estimates, due to future regulatory enactments or following the finalisation of expired agreements to be renewed.
Amount due from MEF following cancellation of EC Decision of 16 July 2008 (v) 45 45
Receivables due from Ministries and Public Administration entities: Ministry for Econ. Dev. (vii) 75 72
Other trade receivables due from Public Administration entities (viii) 557 557
(ii) Receivables related to electoral tariff subsidies, totalling €83 million, a sum acknowledged in the MEF Letter, fully funded in the state budget for 2017 and for prior years, and awaiting approval by the European Commission.
(iv) Receivables in the amount of €6 million, for the distribution of Euroconverters and acknowledged in the MEF letter, for which provision has been made in the state budget for 2017.
(v) Receivables of €45 million following cancellation of the EC Decision of 16 July 2008 and the interest due as a result of the sentence of the European Court of 30 September 2013, the impact of which on the Parent Company’s equity was deferred or adjusted. This amount was acknowledged in the MEF letter up to €6 million and provision has been made in the state budget for 2017.
working group has been set up with the debtor to agree on the amount of the services to be billed, partly on the basis of the results of the expert appraisal conducted as part of the above legal action.
(viii) Regarding receivables outstanding with central and local government entities, totalling €557 million, certain items are still overdue, mainly because no provision was made in the relevant budgets or in connection with contracts or agreements. To this end, steps continue to be taken to renew the expired agreements and to make the necessary provisions.
At 31 December 2016, provisions for doubtful debts reflect receivables for which no provision had been made in the state budget and other past due sums.
Provisions for risks and charges The Group makes provisions for probable liabilities deriving from disputes with staff, suppliers, and third parties and, in general, for liabilities deriving from present obligations. These provisions cover the liabilities that could result from legal action of varying nature, the impact on profit or loss of seizures incurred and not yet definitively assigned, and amounts expected to be refundable to customers where the final amount payable has yet to be determined. Determination of the provisions involves the use of estimates based on current knowledge of factors that may change over time, potentially resulting in outcomes that may be significantly different from those taken into account in preparing these financial statements.
Impairment tests and cash generating units Goodwill and other non-current assets are tested for impairment in accordance with the applicable accounting standards. In particular, two cash generating units (CGUs) are identified for the Parent Company – BancoPosta RFC and the remaining Postal and Business Services segment – and goodwill has been allocated to both of these. Each of the other Group companies is considered a separate CGU. Details of goodwill are provided in table A3.2.
The impairment tests at 31 December 2016 were performed on the basis of the five-year business plans of the units concerned or the latest available projections. Data from the last year of the plan have been used to project cash flows for subsequent years over an indefinite time, and the resulting value was then discounted using the Discounted Cash Flow (DCF) method. For the determination of value in use, NOPLAT (net operating profit less adjusted taxes) was capitalised using an appropriate growth rate and discounted using the related WACC (Weighted Average Cost of Capital)(48).
The cost of equity (Ke) is 7.42% for banking activities and 7.47% for asset management activities.
In the case of assets to be handed over, located on land held under concession or sub-concession, on expiry of the concession term, or whilst awaiting confirmation of renewal, any additional depreciation of assets takes into account the probable residual duration of the right to use the assets to provide public services, to be estimated on the basis of the framework agreements entered into with the Public Administration entity, the status of negotiations with the grantors and past experience.
Fair value of unquoted financial instruments The fair value of financial instruments that are not traded on an active market is based on prices quoted by external dealers or on internal valuation techniques which estimate the transaction price on the measurement date in an arm’s length exchange motivated by normal business considerations. The valuation models are primarily based on market variables, considering where possible, the prices in recent transactions and quoted market prices for substantially similar instruments, and of any related credit risk (see section 2.5 – Determination of fair value).
2.5 Determination of fair value The Poste Italiane Group has adopted a fair value policy, setting out the general principles and rules to be applied in determining fair value for the purposes of preparing the financial statements, conducting risk management assessments and supporting the market transactions carried out by the Finance departments of the various Group entities. The principles and rules to be applied in measuring the fair value of financial instruments are unchanged with respect to 31 December 2015 and have been defined in compliance with indications from the various (banking and insurance) regulators and the relevant accounting standards, ensuring consistent application of the valuation techniques adopted at Group level. The methods used have been revised, where necessary, to take into account developments in operational procedures and in market practices during the year.
In compliance with IFRS 13 – Fair Value Measurement, the following section provides information regarding the techniques used to measure the fair value of financial instruments within the Poste Italiane Group.
Quoted investment funds: measurement is based on the daily closing market price as provided by Bloomberg or the fund manager. Level 1 bond price quotations incorporate a credit risk component. Exchange rates published by the European Central Bank are used in determining the value of financial instruments denominated in currencies other than the euro.
For the Poste Italiane Group these include the following types of financial instruments: Bonds either quoted on inactive markets or not at all: • Straight Italian and international government and non-government bonds: valued using discounted cash flow techniques involving the computation of the present value of future cash flows, inputting rates from yield curves incorporating spreads reflecting credit risk that are based on spreads determined with reference to quoted and liquid benchmark securities issued by the issuer, or by other companies with similar characteristics to the issuer. Yield curves may be slightly adjusted to reflect liquidity risk relating to the absence of an active market.
• Structured bonds: measurement is based on a building blocks approach, where the structured bond is broken down into its basic components: the bond component and the option component. The bond component is measured by discounting cash flows to present value in line with the approach applicable to straight bonds, as defined above. The option component – which considering the features of the bonds included in the portfolio of the Poste Italiane Group relates to interest rate risk – is measured in accordance with a standard closed form expression as with classical option valuation models with underlyings exposed to such risks. In the case of structured bonds used to hedge index-linked policies (before ISVAP regulation no. 32), measurement is based on the bid price provided by the financial counterparties with which buyback agreements have been struck.
Derivative financial instruments: • Interest rate swaps: Plain vanilla interest rate swaps: valued using discounted cash flow techniques, involving the computation of the present value of future differentials between the receiver and payer legs of the swap. The construction of yield curves to estimate future cash flows indexed to market parameters (money market rates and/or inflation) and computation of the present value of future differentials are carried out using techniques commonly used in capital markets.
Interest rate swaps with an embedded option: valuation is based on a building block approach, entailing decomposition of a structured position into its basic components: the linear and option components. The linear component is measure using the discounted cash flow techniques described for plain vanilla interest rate swaps above. Using the derivatives held in Poste Italiane’s portfolio as an example, the option component is derived from interest rate or inflation rate risks and is valued using a closed form expression, as with classical option valuation models with underlyings exposed to such risks.
• Warrants: considering the features of the securities held, measurement is based on the local volatility model. In particular, considering that buyback agreements have been entered into with the counterparties that structured these warrants, and that such counterparties use valuation models consistent with those used by the Group, these instruments are measured on the basis of the bid price quoted by the counterparties.
Fixed rate and variable rate instruments: measurement is based on the discounted cash flow approach. The counterparty’s credit spread is considered through: • use of the Italian government yield curve or the credit default swap (CDS) of the Italian Republic, in the case of Italian government agencies; • use of quoted CDS yield curves or, if not available, the adoption of “synthetic” CDS yield curves represented by the counterparty’s rating, as constructed starting from the input data observable on the market; • use do yield curves based on the specific issuer’s quoted bond prices.
Financial liabilities either quoted on inactive markets or not at all: • Straight bonds: these are measured by discounting their future cash flows using as input a yield curve reflecting the spread applicable to the issuer’s credit risk; • Structured bonds: measurement is based on a building blocks approach, where the structured product is broken down into its basic components: the bond component and the option component. The bond component is measured by discounting cash flows to present value in line with the approach applicable to straight bonds, as defined above. The option component – which considering the features of the bonds included in the portfolio of the Poste Italiane Group relates to interest rate risk – is measured in accordance with a standard closed form expression as with classical option valuation models with underlyings exposed to such risks.
• Borrowings: these are measured by discounting their future cash flows using as input a yield curve reflecting the spread applicable to the credit risk.
• Repurchase agreements: are valued using discounted cash flow techniques involving the computation of future contractual cash flows. Repos may also be used for collateral and in such cases fair value need not be adjusted for the counterparty’ credit risk.
Investment property (former service accommodation): The value of this investment property is determined on the basis of the applicable law (Law 560 of 24 December 1993), which sets the selling price in case of sale to the tenant or the minimum selling price in case the property is sold through a public auction.
Unquoted equity instruments: this category includes shares for which no price is observable directly or indirectly in the market. Measurement of these instruments is based on the price of quoted equities of the same issuer as a benchmark. The price inferred in this manner would be adjusted through the application of the discount implicit in the process to align the value of the unquoted shares to the quoted ones.
2.6 New accounting standards and interpretations and those soon to be effective 2.6.1 Accounting standards and interpretations applicable from 1 January 2016
Annual Improvement Cycle to IFRSs 2010-2012 adopted with Regulaton (EU) n. 28/2015 in connection with the annual projects to improve and revise international accounting standards.
• IAS 19 – Employee benefits – Defined Benefit Plans: Employee Contributions adopted with Regulation (EU) no. 29/2015. The amendment clarifies the application of IAS 19 to defined benefit plans in connection with contributions linked to service by the employee or a third party. These contributions reduce the entity’s service cost in providing benefits and, to the extent that they are commensurate with the service provided by the employee in a given period, can be deducted fully from the cost for the period, instead of being allocated over the employee’s years of remaining service.
• IFRS 11 – Joint Arrangements amended by Regulation (EU) no. 2173/2015. The amendment provides that when an entity acquires an interest in a joint operation in which the activity of the joint operation constitutes a business it will apply all the principles contained in IFRS 3. This applies to the acquisition of both the initial interest and additional interests. On the other hand, an interest held prior to the coming into effect of the amendment is not remeasured, in the event that the acquisition of an additional interest allows the entity to retain joint control (i.e. the additional interest acquired does not give the entity a controlling interest).
• IAS 1 – Presentation of Financial Statements as amended by Regulation (EU) no. 2406/2015. The amendments aim to improve the effectiveness of disclosure and to encourage companies to apply professional judgment in determining the information to be disclosed in their financial statements when applying IAS 1. In particular, the amendments clarify the guidelines contained in IAS 1 on the materiality, the aggregation of items, the presentation of subtotals, the structure of the financial statements and the disclosure on the accounting policies adopted. Amendments concern also the information required for the section on the other comprehensive income. Specifically, the share of other comprehensive income pertaining to associates and joint ventures accounted for with the equity method, indicating which of those amounts will or will not be recycled subsequently to profit and loss.
• IAS 27 – Presentation of Financial Statements as amended by Regulation (EU) no. 2441/2015. Regarding entities that prepare separate financial statements, the amendment permits such entities to adopt the equity method to account for investments in subsidiaries, associates and joint ventures. This option is in addition to those permitted by the pre-existing version of IAS 27 (cost method and in accordance with IAS 39).
2.6.2 Accounting standards and interpretation soon to be effective The following are applicable from 1 January 2018: • IFRS 15 – Revenue from Contracts with Customers, adopted with Regulation (EU) no. 1905/2016.
Finally, the new standard requires each individual performance obligation assumed by the seller should be accounted for separately, rather than within the context of a contract and/or transaction.
The purpose of the new accounting standard, which will replace a large part of IAS 39 – Financial Instruments: Recognition and Measurement from 1 January 2018, is to improve disclosures on financial instruments with the aim of addressing the concerns that arose during the financial crisis. The standard also introduces an accounting model that aims to the timely recognition of expected impairment losses on financial assets. The changes introduced by the standard can be summarised within the following three categories: i) Classification and measurement of financial assets, based on the business model, determined by senior management, in which the financial asset is held and the related purposes, and on the expected contractual cash flow characteristics. The new standard envisages three different categories of financial asset (in place of the four envisaged by the existing IAS 39): Amortised cost; financial assets held to collect the contractual cash flows, represented exclusively by repayments of principal and interest; Fair value through other comprehensive income (FVTOCI); financial assets held to collect the contractual cash flows, represented exclusively by repayments of principal and interest, and flows resulting from the sale of the assets; Fair value through profit or loss (FVTPL); a residual category within which financial assets not falling within the previous categories are classified.
The new standard establishes the accounting treatment for leases and will replace the existing approach required by IAS 17 – Leases and interpretations IFRIC 4 – Determining whether an Arrangement contains a Lease, SIC 15 – Operating Leases - Incentives and SIC 27 – Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard introduces a treatment based on right-of-use assets, providing a single lessee accounting model for both operating and finance leases.
• Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate/Joint Venture.
The Poste Italiane Group has opted to apply IFRS 15 from its effective date (1 January 2018, as required by EU Regulation 1905/2016, which published the standard). The Group has not opted for early application.
Mobile service revenue: based on the results of the analysis in progress, the Group expects to apply a different revenue recognition model due to changes in the allocation of bundle discounts.
Generally, at this stage in the assessment, no significant effects have been identified.
After conducting a preliminary assessment of the main areas of impact, in 2017 the Poste Italiane Group has initiated a project designed to closely examine the various areas affected by the standard, to evaluate its qualitative and quantitative impact, and to identify and implement the applications and organisational changes necessary in order to ensure consistent, organic and effective adoption within the Group as a whole and across all the companies that belong to it.
In particular, whilst classification of the portfolio has yet to be completed applying the new standard, it is possible that the significant presence of government securities (primarily issued by the Italian government) may result in recognition of a 12-month expected loss (stage 1). If confirmed, this expected credit loss, which is not currently quantifiable, will have an impact on the Group’s equity on first.-time application and potential effects on profit or loss in the subsequent years.
In addition, in view of their nature and historical uncertainty surrounding the timing of collection, the new standard is also expected to have an impact on the classification of receivables due from the Public Administration over the various “stages” envisaged by the standard. This is expected to result in the recognition of expected losses, determined in line with the classifications adopted.
Non-current assets and disposal groups held for sale [A11] 2,720 49 – –
Other income from financial and insurance activities [C3] 4,421 80 3,657 104 of which, non-recurring income 121 –
Other expenses from financial and insurance activities [C7] 539 – 689 –
PROFIT FOR THE YEAR 622 552 of which, attributable to owners of the Parent 622 552 of which, attributable to non-controlling interests – –
Increase/(decrease) in fair value during the year [tab. B4] (1,673) 1,591
Taxation of items recognised directly in, or transferred from, equity to be reclassified in the Statement of profit or loss for the year 627 (179)
Actuarial gains/(losses) on provisions for employee termination benefits and pension plans [tab. B7] (51) 81
Taxation of items recognised directly in, or transferred from, equity not to be reclassified in the Statement of profit or loss for the year 18 (30)
Share of after-tax comprehensive income/(loss) of investees accounted for using equity method – –
Total comprehensive income for the year – – – 926 (39) – – 603 1,490 – 1,490
Changes due to share-based payments – – – – – – – 1 1 – 1
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER
Movements in working capital: (Increase)/decrease in Inventories [tab. A6] (3) 5
Net cash generated by/(used for) financial assets attributable to financial activities held for trading – 1
(Increase)/decrease in cash and deposits attributable to BancoPosta [tab. A9] 667 (288)
Cash generated by/(used for) assets and liabilities attributable to financial activities [c] 864 (835)
Net cash generated by/(used for) available-for-sale financial assets attributable to insurance activities [tab. A5,5] (6,453) (4,914)
Cash generated by/(used for) assets and liabilities attributable to insurance activities [d] 38 166
Receivable authorised by 2015 Stability Law in implementation of Sentence of the European Court – 535
Cash and cash equivalents at end of year [tab. A10] 3,902 3,142
Amounts that cannot be drawn on due to court rulings (12) (11)
Basis of consolidation The Poste Italiane Group’s consolidated financial statements include the financial statements of Poste Italiane SpA and of the companies over which the Parent Company directly or indirectly exercises control, as defined by IFRS 10, from the date on which control is obtained until the date on which control is no longer held by the Group. The Group controls an entity when it simultaneously: • has power over the investee; • is exposed, or has rights to, variable returns from its involvement with the investee; • has the ability to influence those returns through its power over the investee.
The consolidated financial statements have been specifically prepared at 31 December 2016, after appropriate adjustment, where necessary, to align accounting policies with those of the Parent Company.
The following table shows the number of subsidiaries by method of consolidation and measurement: Subsidiaries and joint ventures 31 December 2016
A list of companies consolidated on a line-by-line basis and using the equity method is provided in section D5, together with key data.
Principal corporate actions completed or initiated during the year The following corporate actions were either completed or initiated during 2016: • The deed for the merger of PosteShop SpA with and into Postel SpA was executed on 22 April 2016. The agreement was recorded with the Companies Register on 29 April 2016 and the merger was effective for legal, accounting, and tax 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.
• On 7 November 2016, Poste Italiane SpA acquired 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.
Disposal groups Information about further corporate actions in the process of being carried out is provided below in accordance with the requirements of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations.
• BancoPosta Fondi SpA SGR: on 10 November 2016, Poste Italiane SpA, Cassa Depositi e Prestiti and Anima Holding SpA signed a Framework Agreement for a joint project involving the creation of a leading asset management company. Under the agreement, Poste Italiane and Anima Holding have committed, at the earliest opportunity, to complete the transfer of Poste Italiane’s 100% interest in the subsidiary, BancoPosta Fondi SpA SGR, to Anima Holding. Following this transaction, Poste Italiane will increase its investment in Anima Holding SpA from 10.32% to up to 24.9%. In accordance with the terms and commitments assumed as at 31 December 2016, the transaction involves an exchange of equity instruments, after which Poste Italiane will have increased its investment in Anima Holding SpA without, however, assuming, under the existing conditions at the date of preparation of these financial statements, control thereof(52). Completion of the transaction is subject to receipt of the related clearance and consents required by law and the applicable regulations. Any future developments affecting the alliance and/or the manner in which the transaction will be executed will be disclosed in accordance with the relevant accounting standards.
• BdM-MCC SpA: In line with the Group’s strategic guidelines and following negotiations during the last quarter of 2016, resulting in a proposal from the buyer on 10 January 2017, on 8 February 2017 the boards of directors of Poste Italiane SpA and Agenzia Nazionale per l’Attrazione degli Investimenti e lo Sviluppo d’Impresa SpA (Invitalia) approved the transfer of Poste Italiane’s 100% interest in Banca del Mezzogiorno–MedioCreditoCentrale SpA (BdM-MCC SpA) to Invitalia at a total price of €390 million. Approximately €360 million of this amount will be collected in instalments during 2017, with €30 million to be collected after five years. The transaction, which requires the approval of the Bank of Italy, the Ministry for Economic Development and the European Central Bank, is expected to complete in the first half of 2017.
Recl. to non-current assets and disposal groups held for sale (4)
The fair value of investment property at 31 December 2016 includes €65 million representing the sale price applicable to the Parent Company’s former service accommodation in accordance with Law 560 of 24 December 1993, while the remaining balance reflects price estimates computed internally by the Company(53).
(53) 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.
Recl. to non-current assets and disposal groups held for sale (3) – (1) (2) (5) (8)
Recl. to non-current assets and disposal groups held for sale (3)
Investment in “Intangible assets” during 2016 amounts to €230 million, of which €20 million relates to internally developed software. Development costs, other than those incurred directly to produce identifiable software used, or intended for use, within the Group, are not capitalised.
Financial assets by operating segment break down as follows: • Financial Services, relate primarily to the financial assets of BancoPosta RFC ; • Insurance Services, includes the financial assets of Poste Vita SpA and its subsidiary, Poste Assicura SpA; • Postal and Business Services, representing all the other financial assets of the Group.
The financial assets of BdM-MCC SpA and BancoPosta Fondi SGR SpA, at 31 December 2015 presented within the Financial Services and Insurance Services segments, respectively, are presented in section A11 at 31 December 2016, following application of IFRS 5, as described in more detail above.
MEF account, held at the Treasury – – – – 1,331 1,331
At 31 December 2016, Loans do not include the loans and financing provided by BdM-MCC SpA (amounting to €1,489 million at 31 December 2015), which have been reclassified, following application of IFRS 5, to “Non-current assets and disposal groups held for sale”.
Receivables of €7,915 million reflect: • Amounts deposited with the MEF, totalling €6,189 million, including public customers’ current account deposits of BancoPosta RFC, which earn a variable rate of return, calculated on a basket of government bonds and money market indices(54).
• At 31 December 2016, the Company’s MEF account at the Treasury has a debit balance and, as a result, movements during 2016 are described in section B8.
• Other financial receivables of €1,726 million break down as follows: TAB. A5.1.2 – OTHER FINANCIAL RECEIVABLES
Items awaiting settlement with the banking system, totalling €147 million, primarily consist of: bank cheques deposited in accounts, primarily through ATMs located at post offices.
(54) 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.
The following table shows a breakdown of investments in securities and equity instruments: TAB. A5.2 – INVESTMENTS IN SECURITIES AND EQUITY INSTRUMENTS
Investments in securities relate to investments in Italian government securities with a nominal value of €44,570 million, held by BancoPosta RFC.
Sales, redemptions and settlement of accrued income (1,404) (8,738) (5,863) (16,005)
Effect of sales on profit or loss – 471 – 471
Sales, redemptions and settlement of accrued income (1,491) (6,005) (316) (7,812)
(55) In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1.
Certain securities are encumbered as they have been delivered to counterparties for use as collateral in connection with loans and hedging transactions. These are described in section D2.
Investments in equity instruments are attributable to BancoPosta RFC and primarily 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.(56), 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(57) 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.
(56) On 21 December 2015, Visa Europe informed its Principal Members that each of them would receive a consideration for the purchase, and subsequent merger with and into the US-registered Visa Incorporated, of Visa Europe Ltd (in which Poste Italiane held an equity interest assigned to it when the company was incorporated).
(57) 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.
(58) At 31 December 2015, this item, totalling €450 million, included €122 million relating to the fair value of fair value hedges entered into by BdM-MCC SpA, the carrying amount of which at 31 December 2016 has been reclassified in application of IFRS 5, as described above.
The following table shows movements in the derivative instruments attributable to BancoPosta RFC: TAB. A5.3 – MOVEMENTS IN DERIVATIVE FINANCIAL INSTRUMENTS
(***) Transactions settled include forward transactions settled, accrued differentials and the settlement of asset swaps linked to securities sold.
During the year under review, the effective portion of interest rate hedging instruments recorded an overall fair value loss of €13 million reflected in the cash flow hedge reserve.
Effects of sales on profit or loss 328 – 1 329
Sales, redemptions and settlement of accrued income (20,061) (49) (12) (20,122)
Recl. to non-current assets and disposal groups held for sale (44) – – (44)
The Group recorded fair value losses of €684 million in relation to its available-for-sale financial assets in 2016, as follows: • net losses of €682 million deriving from the measurement of securities held by Poste Vita SpA, of which €648 million was transferred to policyholders, with a contra-entry made in technical provisions in accordance with the shadow accounting method; • net losses on the securities held by Poste Assicura SpA, totalling €2 million.
Fixed income instruments relate primarily to investments held by Poste Vita SpA, totalling €88,199 million (nominal value of €80,356 million) issued by European governments and European blue-chip companies. These instruments are mainly intended to cover separately managed accounts where, under the shadow method of accounting applied. These fixed income instruments comprise bonds issued by CDP SpA, with a fair value of €1,320 million (a nominal value of €1,164 million).
Other investments relate to units of mutual investment funds, totalling €2,013 million, of which €892 million consists of equity funds and €805 million of bond funds subscribed to entirely by Poste Vita SpA and allocated to the insurance company’s separately managed accounts. The remaining balance is represented by the fair value of units of property funds, totalling €316 million.
• structured bonds, amounting to €992 million and relating to investments whose returns are linked to particular market indices; such financial instruments include bonds issued by CDP SpA with a fair value of €551 million (nominal amount of €500 million) associated with Class I policies.
Loans include Contingent Convertible Notes(59) 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(60). 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.
(59) This is a loan convertible, on the fulfilment of certain negative pledge conditions, into an equity instrument pursuant to art. 2346 paragraph 6 of the Italian Civil Code, carrying the same rights associated with the loan.
(60) 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.
Effects of sales on profit or loss – – – –
Fair value gains and losses through profit or loss (3) – – (3)
Movements in derivative assets and liabilities are as follows: TAB. A5.10 – MOVEMENTS IN DERIVATIVE FINANCIAL INSTRUMENTS
At 31 December 2016, the derivative financial instruments held by the Parent Company, with fair value losses of €51 million, included: • nine asset swaps used as fair value hedges in 2010 to protect the value of BTPs with a nominal value of €375 million against movements in interest rates. These instruments have enabled the Parent Company to sell the fixed rate on the BTPs of 3.75% and purchase a variable rate; • a swap contract entered into in 2013 to hedge the cash flows of a €50 million bond issued on 25 October 2013 (section B.8). 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%.
At 31 December 2016, net inventories break down as follows: TAB. A6 – INVENTORIES
Work in progress, semi-finished and finished goods and goods for resale 12 – 12
Subsidiaries, associates and joint ventures – 3 3 – 2 2
Ministries and Public Administration entities – 633 633 49 632 681
Amounts due for other BancoPosta services – 113 113 – 109 109
– Reimbursement of the costs associated with the management of property, vehicles and security incurred on behalf of the Ministry for Economic Development, totalling €74 million, of which €3 million relates to the amount accrued during the year.
In order to settle the amount due, INPS has expressed a willingness to offset receivables due to the Company with liabilities that, in Poste Italiane’s opinion, are not subject to the same degree of certainty, liquidity or enforceability, and which the Company has recognised according to the procedures and to the extent required by the relevant
• Receivables arising from unfranked mail delivered and other value added services refer to bulk mail services and other added value services.
• Amounts due for other BancoPosta services refer to amounts due on financial services, personal loans, overdrafts and mortgages sold on behalf of third parties, totalling €92 million.
Movements in provisions for doubtful debts are as follows: TAB. A7.2 – MOVEMENTS IN PROVISIONS FOR DOUBTFUL DEBTS
Provisions for doubtful debts relating to Public Administration entities regard amounts that may be partially unrecoverable as a result of legislation restricting government spending, delays in payment and problems at debtor entities.
This item relates to trade receivables due to the Parent Company from the Ministry of the Economy and Finance.
– The outstanding balance of the compensation for 2014 has been provided for in the state budget for 2017. €14 million was collected in 2016.
• Receivables arising from electoral subsidies refer to compensation for previous years. Funds have been earmarked in the state budgets for 2017 and previous years, but they are still being reviewed by the European Commission.
Movements in provisions for doubtful debts due from the MEF are as follows: TAB. A7.4 – MOVEMENTS IN PROVISIONS FOR DOUBTFUL DEBTS DUE FROM THE MEF
Amounts due from social security agencies and pension funds (excl. fixed-term contract settlements) – 89 89 – 77 77
Provisions for doubtful debts due from others – (60) (60) – (59) (59)
Interest accrued on IRES refund [C12,1] – 47 47 – 47 47
Movements in the related provisions for doubtful debts are as follows: TAB. A8.1 – MOVEMENTS IN PROVISIONS FOR DOUBTFUL DEBTS DUE FROM OTHERS
Receivables relating to fixed-term contract settlements 6 1 – 7 – – 7
(62) Of the total amount, €443 million, assessed on the basis of provisions at 31 December 2016, has yet to be paid and is accounted for in “Other taxes payable” (tab. B10.3).
(63) 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).
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.
Bank deposits and amounts held at the Italian Treasury 2,581 2,741
The balance of cash at 31 December 2016 includes approximately €1,608 million the use of which is restricted, including €780 million in cash deposited with the MEF and held in the so-called buffer account in relation to customers’ deposits subject to investment restrictions, €799 million in liquidity covering technical provisions for the insurance business, €12 million whose use is restricted by court orders related to different disputes and €17 million resulting from the collection of cash on delivery and amounts subject to other restrictions.
Net assets held for sale, after eliminating intercompany items, amount to €660 million. This regards amounts relating to BdM-MCC SpA, totalling €616 million, and BancoPosta Fondi SpA SGR, totalling €44 million, which, as a result of decisions taken by the Group’s management, meet the requirements of IFRS 5 for classification in these items.
Non-current assets and disposal groups held for sale amount to €2,720 million, and regard BdM-MCC SpA (€2,665 million) and BancoPosta Fondi SpA SGR (€55 million).
Movements in this item are as follows: TAB. A11.2 – LIABILITIES RELATED TO ASSETS HELD FOR SALE
The share capital of Poste Italiane SpA of 1,306,110,000 no-par value ordinary shares, of which CDP holds 35% and the MEF 29.3%, while the remaining shares are held by institutional and retail investors.
– Undistributed profit (loss) of consolidated companies 2,736 – 425 2,311 – 424 1,887
– Investments accounted for using the equity method 10 1 6 3 – 3 –
– Balance of FV and CFH reserves of investee companies 163 (35) – 198 (4) – 202
– Actuarial gains and losses on employee termination benefits of investee companies (5) (1) – (4) 2 – (6)
– Effects of intercompany transactions (including dividends) (1,068) – (430) (638) – (392) (246)
– Amortisation until1 January 2004/Impairment of goodwill (139) – – (139) – (12) (127)
– Impairments of disposal groups held for sale (37) – (37) – – – –
Regarding shareholder transactions, following the ruling of the General Court of the European Union dated 13 September 2013, Poste Italiane SpA has a residual claim on the MEF of €45 million, relating to the return of sums paid in the past to the MEF out of retained earnings. At 31 December 2016, the sum of €6 million, previously recognised in the MEF’s letter of 7 August 2015, has been earmarked in the state budget for 2017 and has, therefore, been recognised in “Other receivables and assets”(64).
The calculation of basic and diluted earnings per share (EPS) is based on the Group’s profit for the year. The denominator used in the calculation of both basic and diluted EPS is represented by the number of the Parent Company’s shares in issue, given that no financial instruments with potentially dilutive effects have been issued at 31 December 2016 or at 31 December 2015. As a result, at 31 December 2016, earnings per share is €0.476 (€0.423 at 31 December 2015).
Increases/(decreases) in fair value during the period – – 1,591 13 – – 1,604
Tax effect of changes in fair value – – (473) (4) – – (477)
Transfers to profit or loss – – (467) (71) – – (538)
Adjustments for change in IRES tax rate introduced by 2016 Stability Law 124 – – 124
Investees accounted for using equity method – share of OCI (net of tax) – – – – – – –
Gains/(Losses) recognised in equity – – 926 (39) – – 887
Attribution of profit for 2014 – – – – – – –
Increases/(decreases) in fair value during the period – – (1,673) (15) – – (1,688)
Tax effect of changes in fair value – – 477 4 – – 481
Tax effect of transfers to profit or loss – – 140 6 – – 146
Reserves related to disposal groups and liabilities held for sale – – 1 – (1) – –
Attribution of profit for 2015 – – – – – – –
Details are as follows: • the fair value reserve regards changes in the fair value of available-for-sale financial assets which, during 2016, showed gains totalling €1,673 million as follows: – a net decrease of €1,634 million in available-for-sale financial assets attributable to the Group’s Financial Services segment, due to the combined effect of a loss on securities of €1,643 million and a gain on equity instruments of €9 million; – a net decrease of €36 million in available-for-sale financial assets attributable to the Group’s Insurance Services segment; – a net decrease of €3 million in available-for-sale financial assets attributable to the Group’s Postal and Business Services segment.
These provisions refer to the contractual obligations of the subsidiaries, Poste Vita SpA and Poste Assicura SpA, in respect of their policyholders, inclusive of deferred liabilities resulting from application of the shadow accounting method, as follows: TAB. B5 – TECHNICAL PROVISIONS FOR INSURANCE BUSINESS
Other provisions 9,360 9,790 for operating costs 79 79 for deferred liabilities to policyholders 9,281 9,711
The provisions for deferred liabilities due to policyholders include portions of gains and losses attributable to policyholders under the shadow accounting method. In particular, the value of the provisions reflects the attribution to policyholders, in accordance with the relevant accounting standards (to which reference is made for more details), of unrealised profits and losses on available-for-sale financial assets at 31 December 2016 and, to a lesser extent, on financial instruments at fair value through profit or loss.
Provisions for non-recurring charges 295 96 – (10) (17) – 364
Provisions for disputes with third parties 399 54 – (82) (22) – 349
Other provisions for risks and charges (2) 76 27 – (1) (6) (2) 94
(1) Net accruals for Personnel expenses amount to €3 million. Service costs (legal assistance) total €6 million.
(2) Net provisions of €22 million and €4 million are recognised in “Other operating costs” and “Profit/(Loss) on investments accounted for using the equity method”, respectively.
MOVEMENTS IN PROVISIONS FOR RISKS AND CHARGES FOR THE YEAR ENDED 2015
Provisions for non-recurring charges 278 50 – (4) (29) – 295
Provisions for taxation/social security contributions 24 3 – (3) – – 24
Specifically: • Provisions for non-recurring charges relate to operational risks arising from BancoPosta’s operations. They primarily regard the liabilities arising from the reconstruction of operating ledger entries at the time of the Company’s incorporation, liabilities deriving from the provision of delegated services for social security agencies, fraud, violations of administrative regulations, compensation and adjustments 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 garnisheedefendant. Provisions for the year, totalling €96 million, include €47 million to reflect a revised assessment of the liabilities relating to the estimated cost of the voluntary action taken to protect customers who purchased units issued by the Invest Real Security real estate fund (described in more detail in the section Risk management – Reputational risk). The remaining provisions reflect a revised estimate of other liabilities, primarily linked to risks related to investment instruments sold to customers in the past and whose performances have failed to meet expectations, fraud and risks related to delegated services. Uses, amounting to €17 million, relate to settlement of disputes and payment of other liabilities during the period. Releases to profit or loss, amounting to €10 million, relate to liabilities recognised in the past that have failed to materialise.
• 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 €54 million reflect the estimated value of new liabilities measured on the basis of expected outcomes. The reduction of €82 million relates to the reversal of liabilities recognised in the past, whilst a reduction of €22 million regards the value of disputes settled.
• Provisions for personnel expenses are made to cover expected liabilities arising in relation to the cost of labour, with are certain or likely to occur but whose estimated amount is subject to change. They have increased by the estimated amount of new liabilities (€152 million) and decreased as a result of past liabilities that failed to materialise (€28 million) and settled disputes (€56 million).
• Provisions for restructuring charges reflect the estimated costs to be incurred by the Parent 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 taxation/social security contributions have been made to cover potential future tax and social security liabilities.
The following movements in employee termination benefits took place in 2016: TAB. B7 – MOVEMENTS IN PROVISIONS FOR EMPLOYEE TERMINATION BENEFITS AND PENSION PLANS
Change in scope of consolidation – – – 1 – 1
Financial liabilities break down as follows at 31 December 2016: TAB. B8 – FINANCIAL LIABILITIES
Other than the guarantees described in the following notes, borrowings are unsecured and are not subject to financial covenants, which would require Group companies to comply with financial ratios or maintain a certain minimum rating.
Subordinated bonds(67) with a nominal value of €750 million and accounted for at their amortised cost of €759 million, issued at a below par price of 99.597 by Poste Vita SpA on 30 May 2014 and listed on the Luxembourg Stock Exchange. The bonds have a five-year term to maturity and pay annual coupon interest of 2.875%. The fair value(68) of this liability at 31 December 2016 is €784 million.
This item breaks down as follows: TAB. B8.1 – BORROWINGS FROM FINANCIAL INSTITUTIONS
EIB variable rate loan maturing in 2017 – – – – 1 1
(67) The bondholders rank below customers holding the company’s insurance policies. (68) In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1. (69) A commitment given to creditors by which a borrower undertakes not to give senior security to other lenders ranking pari passu with existing creditors, unless the same degree of protection is also offered to them.
Industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights 2 – 2
Industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights 1 1 – 2
• The balance of cash flows for advances, amounting to €2,239 million, represents the net amount payable as a result of advances from the MEF to meet the cash requirements of BancoPosta. These break down as follows: TAB. B8.4.1 – BALANCE OF CASH FLOWS FOR ADVANCES
As a result of Legislative Decree 244/2016 (the so-called “Mille Proroghe” decree), the timing of pension payments was changed and the payment of pensions for January 2017 was postponed by one bank working day. Compared with 31 December 2015, therefore, deposit of the amount required to pay the pensions for January 2017 by the paying entity, INPS, took place on the first working day of the month of payment, rather than on the last working day in December 2016.
• Amounts payable due to thefts from post offices regard the Parent Company’s liability to the MEF on behalf of the Italian Treasury for losses resulting from theft and fraud, totalling €159 million. This liability derives from cash withdrawals from the Treasury to make up for the losses resulting from these criminal acts, in order to ensure that post offices can continue to operate.
During 2016, Poste Italiane SpA suffered totalling €8 million, made repayments to the Italian Treasury for thefts that took place up to 31 December 2015, amounting to €3 million, and in the first half of 2016, totalling €4 million.
No collateral has been provided to secure the lines of credit obtained.
Moreover, 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.
Other financial liabilities have a fair value that approximates to their carrying amount and refer mainly to BancoPosta RFC.
Specifically: • Amounts due on prepaid cards relate to the electronic top-up of Postepay cards. The increase was due mainly to the Postepay Evolution product.
• Amounts to be credited to customers relate to payments of bills by payment slip in the process of being credited to beneficiaries’ accounts, premiums collected and payments to be made on behalf of Poste Vita SpA and Poste Assicura, amounts to be paid for BancoPosta promotions, etc.
Prepayments and advances from customers relate to amounts received from customers as prepayment for the following services to be rendered: TAB. B9.2 – PREPAYMENTS AND ADVANCES FROM CUSTOMERS
Details of these items are as follows: TAB. B10 – OTHER LIABILITIES
At 31 December 2016, incentives that at 31 December 2015 were included in provisions for restructuring were determinable with reasonable certainty and, as such, were recognised as payables.
Specifically: • Amounts due to the Istituto Nazionale per la Previdenza Sociale (INPS, the National Institute of Social Security) primarily relate to amounts due on salaries paid and accrued at 31 December 2016. This item also includes provisions for employee termination benefits still to be paid.
• Amounts due to the Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro (INAIL, the National Occupational Injury Compensation Authority) relate to injury compensation paid to employees of the Parent Company for injuries occurring up to 31 December 1998.
Tax due on insurance provisions – 443 443 – 385 385