Classification and Measurement IFRS 9 requires Business Models to reflect the manner in which given sets of financial instruments are managed in a coherent manner, so as to achieve pre-established business objectives. The Business Models identified must be consistent with the provisions of IFRS 9, thus: �� Hold to Collect (“HTC”): where the financial asset is held to collect contractual cash flows, in the form of principal and interest, with rare sales and/or limited volumes; �� Hold to Collect & Sell (“HTC&S”): where the financial asset is held to collect contractual cash flows, in the form of principal and interest, and well as proceeds from its sale; Poste Italiane Financial statements for the year ended 31 December 2017 2. Basis of preparation and significant accounting policies
Impairment and Stage Allocation The Group companies apply the general impairment approach on the basis of models to estimate risk according to the type of counterparty: �� Instruments issued by sovereigns and banks: internal models to estimate risk; �� Other corporate instruments: risk ratings are supplied by an external provider.
For trade payables, on the basis of past collection experience, the peculiar nature of the Group’s activities and customers, and also considering the age of receivables, it has been deemed appropriate to set a period longer than the 90 days provided for by IFRS 9.
The Group did not avail itself of the low credit risk exemption.
Hedge Accounting For hedge accounting transactions, the Poste Italiane Group used the option made available by IFRS 9 and maintained the accounting treatments provided for by IAS 39. Accordingly, no effects of any type are expected.
52. Forward-looking information is included directly in the probability-of-default estimates. To safeguard the objectivity of the model’s estimates, forward-looking factors were introduced only in the cases where information is available which might have an impact on counterparties’ actual risk. This takes place through constant monitoring of market indicators (CDS spreads, bond spreads, etc.), ECAI ratings, macroeconomic forecasts. In the presence of significant phenomena that might undermine the proper measurement of PD, the amount is changed by using, where necessary, correlation matrices for the model variables.
Other decisions made The Poste Italiane Group chose to apply IFRS 9 as of its effective date, that is 1 January 2018, without early adoption, and opted for the “simplified” transition method, whereby the cumulative effect of the change in accounting standard is recognised as of 1 January 2018, without restating the comparative year-earlier accounts.
Preliminary effects as of 1 January 2018 As noted above, the Poste Italiane Group will apply the new accounting standard IFRS 9 from 1 January 2018, without any restatement of the comparative year-earlier accounts. Information on the preliminary effects of application of IFRS 9 from 1 January 2018 are shown below. Checks on the data presented below are still in progress. All the effects are shown before the related taxation.
Following application of IFRS 9 in the manner described above, and assuming a positive outcome to the checks being conducted, the Group’s securities portfolio at 1 January 2018 will consist of the following: �� Hold to Collect: €28.4 billion
Expected Credit Loss (“ECL”) As a result of the new rules introduced by IFRS 9 and the business models adopted by the Poste Italiane Group, the ECL at 1 January 2018 amounts to a total of €81 million and regards: �� €11 million on financial instruments classified as HTC.
Below, the main preliminary conclusions of the assessments made are outlined: �� it was necessary to change the initial equity amount, pursuant to IFRS 15, only for PosteMobile SpA, in the presence of contracts that were not completed at the transition date and contracts made up of several performance obligations, for which revenue recognition policies were revised (involving, in particular, the consequences of the different allocation of revenues for certain services, such as fees for changes in price plans, bundled offers, etc.); �� penalties in favour of customers were found (in case of failure to achieve pre-established service levels) and clauses involving the return of fees collected for the placement of mortgages and loans repaid early (which to date have been treated as provisions), with such fees to be deducted directly from revenue as of 1 January 2018; �� as of the transition date, the effects of the above resulted in a decrease in revenue reserves of approximately €1.5 million, before the related effects on taxation. A review is still under way for the reported amounts.
IFRS 16 - Leases In 2017, the Group started a preliminary assessment of the effects of IFRS 16, via a survey of the lease contracts Poste Italiane SpA has entered into as lessee. Based on the available evidence (in terms of nature of assets, minimum payments, reasonably predictable payment dates and other contractual terms and conditions of relevance for the application of IFRS 16) and certain simplifying assumptions, an initial simulation was conducted to determine the impact of the transition on the Parent Company’s financial condition, operating performance and key performance indicators.
In early 2018, work is continuing on: �� a full map of lease contracts within the Poste Italiane Group and the identification of those in scope; �� identification of the relevant procedures and policies, which are likely to be changed to accommodate the adoption of the new accounting standard; �� a survey of the IT systems currently available for the database, administrative and accounting management of the contracts, with the indication of any application limits and identification of the optimal IT strategy.
Having obtained the consent of the Related and Connected Parties Committee and receipt of clearance from the relevant antitrust authorities and authorisation from the Bank of Italy, and fulfilment of the conditions precedent set out in the preliminary agreement dated 16 September 2016, on 15 February 2017 Poste Italiane SpA and FSI Investimenti SpA (a company 77.1% owned by CDP Equity SpA) entered into an agreement for the purchase of an interest in FSIA Investimenti Srl, a wholly owned subsidiary of FSI Investimenti. In particular, Poste Italiane SpA has acquired a 30% interest in FSIA Investimenti Srl and, as a result, holds an indirect interest of 14.85% in SIA SpA, which is 49.5% owned by FSIA Investimenti Srl. At the same time as completing the acquisition of an interest in FSIA Investimenti Srl, Poste Italiane SpA also signed a “deed of pledge”, in which it declared that it was bound by, to the extent and in the exercise of its investment in the acquired company, the obligations provided for in a loan agreement entered into by FSIA Investimenti Srl with a number of banks on 28 May 2014.
The transaction consideration amounted to €278.3 million, 80% of which was paid on completion. This amount was then subject to payment of an upward adjustment of €0.55 million based on the value of SIA’s net debt at 31 December 2016.
At the same time as the transaction completed, the shareholders’ agreement between Poste Italiane and CDP Equity, covering the governance and ownership structures of FSIA Investimenti Srl and SIA SpA, over which the parties will exercise joint control, became effective.
Fair value adjustments: - Property, plant and equipment - - Deferred tax liabilities (30.4)
� Poste Italiane and Anima Holding: new binding agreement to strengthen partnership in asset management
On 21 December 2017, Poste Italiane SpA and Anima Holding SpA signed a Memorandum of Understanding with the aim of strengthening their partnership in the asset management sector.
i. The partial spin-off of management of the assets underlying Poste Vita SpA’s Class I insurance products (totalling over €70 billion), previously attributed to BancoPosta Fondi SpA SGR, to Anima SpA SGR. As a result of the spin-off, Poste Italiane SpA will receive newly issued shares in Anima SpA SGR that will at the same time be acquired by Anima Holding SpA in return for a cash payment of €120 million.
ii. Amendment and expansion of the partnership agreements between the Poste Italiane Group and Anima Holding SpA, dating back to July 2015, by virtue of which Anima Holding SpA has been delegated to manage the retail funds established by BancoPosta Fondi SpA SGR and the assets underlying Poste Vita SpA’s Class III insurance products; this amendment extends the partnership, which will have a duration of 15 years.
The fact that Poste Italiane SpA has retained control of BancoPosta Fondi SpA SGR has modified the original plan for the subsidiary’s ownership structure, as reflected, moreover, in the Poste Italiane Group’s consolidated financial statements from the year ended 31 December 2016 until 30 September 201753
�� On 30 January 2017, the deed governing the partial demerger of assets belonging Postecom SpA to Postel SpA, and the ensuing deed regarding the merger of Postecom SpA with and into Poste Italiane SpA, were executed. The assets transferred to Postel SpA included the investments previously held by Postecom SpA in Consorzio PosteMotori (22.63%) and in the joint-stock consortium, PatentiViaPoste ScpA (17.21%). The transaction was effective for legal, accounting and tax purposes from 1 April 2017.
�� On 20 September 2017, Poste Italiane SpA’s Board of Directors authorised SDA Express Courier SpA to subscribe for new shares in Uptime SpA, amounting to the minimum required by law of €50 thousand. As a result of this transaction, Uptime SpA is 100% owned by SDA Express Courier.
�� Finally, the following corporate actions are in progress at 31 December 2017.
54. At 31 December 2016, the sale of BdM-MCC SpA met the requirements for application of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations. This resulted in the reclassification of the subsidiary’s assets and liabilities to “Non-current assets and disposal groups held for sale” and “Liabilities related to assets held for sale”.
�� During the last quarter of 2017, Poste Italiane SpA sold its holding of 756,280 Class B Mastercard Incorporated shares in a series of transactions, following their conversion into Class A shares. The consideration received was €91 million, more or less equal to the non-recurring gain recognised in consolidated profit or loss.
�� On 30 November 2017, agreement was reached with the labour unions over the renewed National Collective Labour Agreement for Poste Italiane’s non-managerial personnel for the three-year period 2016-2018, the effects of which will be taken into account when preparing the financial statements for the year ended 31 December 2017.
Cash and deposits attributable to BancoPosta [A9] 3,196 - 2,494 -
Non-current assets and disposal groups held for sale [A11] - - 2,720 49
Liabilities related to assets held for sale [A11] - - 2,060 130
Revenue from Payments, Mobile & Digital [C2] 586 64 570 84 of which, non-recurring income 91 121
Revenue from Insurance Services after movements in technical provisions and other claims expenses [C4] 1,456 15 1,242 15
Net change in technical provisions for insurance business and other claim expenses (22,335) - (21,958) -
Operating profit/(loss) 1,123 1,041 of which, non-recurring costs 82 of which, non-recurring income 3 -
Income tax for the year [C12] 378 - 434 of which, non-recurring expense/(income) (9) 14
PROFIT FOR THE YEAR 689 622 of which, attributable to owners of the Parent 689 622 of which, attributable to non-controlling interests - -
Increase/(decrease) in fair value during the year [tab. B4] (57) (15)
Taxation of items recognised directly in, or transferred from, equity to be reclassified in the Statement of profit or loss for the year 287 627
After-tax increase/(decrease) in reserves related to group of assets and liabilites held for sale [tab. B4] 2 -
Actuarial gains/(losses) on provisions for employee termination benefits [tab. B7] (1) (51)
Share of after-tax comprehensive income/(loss) of investees accounted for using equity method - -
Amount due from MEF following cancellation of EC Decision of 16 July 2008
Use of provisions for risks and charges [tab. B6] (617) (448)
Net cash generated by/(used for) financial assets attributable to financial activities held for trading
Net cash generated by/(used for) financial assets at fair value through profit or loss attributable to insurance activities
Net cash generated by/(used for) available-for-sale financial assets attributable to insurance activities
Net cash flow from /(for) operating activities [e]=[a+b+c+d] (709) 2,258 - of which related party transactions 241 3,648
Capital expenditure of €241 million in 2017, including €7 million in capitalised costs for self-constructed assets, consists of: �� €32 million relating to extraordinary maintenance of post offices and local head offices around the country (€23 million) and mail sorting offices (€5 million); �� €66 million relating to plant, with the most significant expenditure made by the Parent Company, of which €26 million for plant and equipment related to buildings, €12 million for the installation of ATMs, €10 million for the purchase of equipment for use in sorting letters and processing parcels and
�� €7 million for the purchase of telecommunications infrastructure; �� €33 million to upgrade plant and the structure of properties held under lease; �� €70 million relating to “Other assets”, of which €45 million for the purchase of new computer hardware for post offices and head offices and the consolidation of storage systems; �� €31 million relating to assets under construction, of which €26 million incurred by the Parent Company and including €17 million regards the restyling of post offices and €5 million the renovation of primary distribution centres.
Reclassifications from assets under construction, totalling €42 million, relate primarily to the acquisition cost of assets that became available and ready for use during the year. In particular, these assets regard the completion of the process of restyling leased and owned properties.
A3 - Intangible assets (€516 million) The following table shows movements in intangible assets in 2017: tab. A3 - Movements in intangible assets
Investment in “Intangible assets” during 2017 amounts to €225 million, of which €17 million relates to internally developed software. Development costs, other than those incurred directly to produce identifiable software used, or intended for use, within the Group, are not capitalised.
The increase in industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights total €119 million, before amortisation for the period, and relate primarily to the purchase and entry into service of new software programmes and the acquisition of software licences. The balance includes €10 million representing the carrying amount of the IT platform used in development of the Full MVNO (Mobile Virtual Network Operator) project and held under finance lease arrangements by PosteMobile SpA. The platform is amortised over 10 years.
The balance of intangible assets under construction includes activities conducted by the Parent Company, primarily regarding the development for software relating to the infrastructure platform (€44 million), for BancoPosta services (€30 million ), for use in providing support to the sales network (€18 million), for the postal products platform (€12 million).
Goodwill has been tested for impairment in accordance with the relevant accounting standards. Based on the information available and the impairment tests conducted, there has been no need to recognise impairment losses on the goodwill accounted for at 31 December 2017.
A4 - Investments accounted for using the equity method (€508 million)
The movement in investments primarily regards: �� the net increase in the carrying amount of the investment in Anima Holding SpA (an associate), amounting to approximately €2.3 million, reflecting the combined effect of a reduction of €7.7 million, following the payment of dividends for 2016, and an increase of €10 million, including €9.5 million representing the share of profit booked by the investee between 30 September 2016 and 30 September 2017 (the latest data available).
A list of subsidiaries, joint ventures and associates accounted for using the equity method is provided in Additional information – Information on investments (note 11), together with key data.
Financial assets by operating segment break down as follows: �� Financial Services, relate primarily to the financial assets of BancoPosta RFC and the company, BancoPosta Fondi SpA SGR; �� Insurance Services, includes the financial assets of Poste Vita SpA and its subsidiary, Poste Assicura SpA; �� Postal and Business Services, representing all the other financial assets held by the Parent Company (different from those held by BancoPosta) and the other financial assets held by companies that provide postal and business services.
�� Other financial receivables, relating to guarantee deposits of €1,179 million, including €1,110 million provided to counterparties in asset swap transactions (with collateral provided by specific Credit Support Annexes) and €69 million provided to counterparties in repurchase agreements on fixed income securities (with collateral contemplated by specific Global Master Repurchase Agreements).
Investments in securities relate to investments in Italian government securities with a nominal value of €48,460 million held primarily by BancoPosta RFC, with the remaining balance held by BancoPosta Fondi SpA SGR.
At 31 December 2017, the fair value58 of the held-to-maturity portfolio, accounted for at amortised cost, is €14,384 million (including €152 million in accrued interest).
Fair value gains in the year under review, amounting to €11 million, have been recognised in the relevant equity reserve.
Finally, during the last quarter of 2017, Poste Italiane SpA sold its holding of 756,280 Class B Mastercard Incorporated shares in a series of transactions, following their conversion into Class A shares. The transaction generated a gain of €91 million, recognised as a non-recurring realised gain and accounted for in “Revenue from financial activities”.
Forward purchases Forward sales Asset swap Asset swap Forward purchases Forward sales
Of which: * Increases / (decreases) refer to the nominal value of new transactions and changes in the fair value of the overall portfolio during the period. ** Gains and losses through profit or loss refer to any ineffective components of hedges, recognised in other income and other expenses from financial and insurance activities. *** Transactions settled include forward transactions settled, accrued differentials and the settlement of asset swaps linked to securities sold.
Fair value hedges recorded an increase in the fair value of the effective portion of €446 million, whilst the hedged securities (tab. A5.2.1) recorded a fair value loss of €496 million, with the difference of €50 million due to paid differentials.
In the year under review, the Parent Company carried out the following transactions: �� the settlement of forward purchases, totalling €400 million; �� the conclusion of forward sales with a nominal value of €1,408 million; �� new asset swaps used as cash flow hedges with a nominal value of €50 million euro; �� the unwinding of asset swaps, used as cash flow hedges for securities sold, with a nominal value of €330 million; �� new asset swaps used as fair value hedges with a nominal value of €5,205 million; �� the unwinding of asset swaps, used as fair value hedges for securities sold, with a nominal value of €1,600 million.
Available-for-sale financial assets Movements in available-for-sale financial assets are as follows: tab. A5.4 - Movements in available-for-sale financial assets
(€m) Nominal value Fair value Fair value Fair value Fair value
Effects of sales on profit or loss 209 (16) 1 194
Recl. to non-current assets and disposal groups held for sale - - - -
These financial instruments recorded net fair value losses of €990 million deriving from the measurement of securities held by Poste Vita SpA, of which €988 million was transferred to policyholders, with a contra-entry made in technical provisions in accordance with the shadow accounting method and a portion of €2 million reflected in a matching negative movement in the related equity reserve.
Fixed income instruments relate primarily to investments held by Poste Vita SpA, totalling €94,475 million (nominal value of €87,670 million) issued by European governments and European blue-chip companies. These instruments are mainly intended to cover separately managed accounts, where gains and losses are transferred in full to policyholders and recognised in technical provisions using the shadow accounting method. These fixed income instruments comprise bonds issued by CDP SpA, with a fair value of €1,244 million (a nominal value of €1,123 million).
Other investments relate to units of mutual investment funds, totalling €1,352 million, of which €834 million relates to equity funds, €356 million to mutual property funds and the remaining €162 million primarily to bond funds. These units are subscribed for entirely by Poste Vita SpA and allocated to the insurance company’s separately managed accounts.
In view of recent events regarding the assets in which the fund has invested, and information from the management company on 21 July 2017 relating to the value of the fund’s units at 30 June 2017, during the year the Group recognised a further impairment loss equal to 50% of its investment, with the sole exception of the amount invested in the Atlante II fund (now called the “Italian Recovery Fund”). Impairment losses recognised in 2017 total €105 million. Of this amount, €93 million, allocated to separately managed accounts, has been deducted from deferred liabilities due to policyholders, whilst the €12 million relating to the insurance company’s free capital has been recognised in finance costs. The total impairment loss recognised at 31 December 2017 thus amounts to €211 million, with the total finance costs recognised on the investment of Poste Vita’s free capital in 2016 and 2017 totalling a cumulative amount of €24 million.
Financial instruments at fair value through profit or loss tab. A5.5 - Movements in financial instruments at fair value through profit or loss
Effects of sales on profit or loss (75) 4 (11) 1 (81)
�� Structured bonds, amounting to €546 million relating solely to the private placement of bonds issued by CDP SpA (nominal amount of €500 million) acquired to cover the contractual obligations arising on Class III insurance policies. The overall reduction is primarily due to redemption of an index-linked policy, totalling €446 million.
Derivative financial instruments At 31 December 2017, outstanding instruments primarily regard warrants executed by Poste Vita SpA to cover contractual obligations deriving from Class III policies with a fair value of €184 million and a notional amount of €2,149 million. The reduction in value in 2017 reflects an increase in fair value of €39 million, gains on sales of €40 million and redemptions of €128 million. Details of the Group’s warrants are as follows.
Due from the purchasers of service accommodation 5 2 7 7 - 7
Other receivables regard the remaining amount due from Invitalia SpA as a result of the sale of Banca del MezzogiornoMedioCreditoCentrale SpA on 7 August 2017.
Available-for-sale financial assets tab. A5.8 - Movements in available-for-sale financial assets
Fair value gains and losses through profit or loss (10) - - (10)
Effects of sales on profit or loss - 4 - 4
Fixed income instruments regard BTPs with a total nominal value of €500 million. Of these, instruments with a value of €375 million have been hedged using asset swaps designated as fair value hedges.
Other investments consist of equity instruments (as defined by art. 2346, paragraph 6 of the Italian Civil Code) resulting from the conversion of Contingent Convertible Notes60 held by Poste Italiane SpA, whose value at 31 December 2017 is zero. As described in greater detail in note 3.2 – Other material events, during the year under review, the Company recognised a non-recurring impairment loss equal to the value of the Notes, amounting to €82 million, including interest recognised at 31 December 2016. The loss was accounted for in finance costs.
Derivative financial instruments tab. A5.9 - Movements in derivative financial instruments
Of which: * Transactions settled include forward transactions settled, accrued differentials and the settlement of asset swaps linked to securities sold.
At 31 December 2017, derivative financial instruments include: �� nine asset swaps used as fair value hedges in 2010 to protect the value of BTPs with a nominal value of €375 million against movements in interest rates. These instruments have enabled the 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 (note B.8 – Financial liabilities). With this transaction, the Company took on the obligation to pay a fixed rate of 4.035% and sold the variable rate of the bond which, at 31 December 2017, is 1.843%.
60. These are Contingent Convertible Notes with an original value of €75 million, a twenty-year term to maturity and issued by Midco SpA, which in turn owns 51% of the airline Alitalia SAI SpA. The Notes were subscribed for by Poste Italiane SpA on 23 December 2014, in connection with the strategic transaction that resulted in Etihad Airways’ acquisition of an equity interest in Alitalia SAI, without giving rise to any involvement on the part of Poste Italiane in the management of the issuer or its subsidiary. Interest and principal payments were provided for in the relevant terms and conditions if, and to the extent that, there was available liquidity. The loan was convertible, on the fulfilment of certain negative pledge conditions, into an equity instrument (as defined by art. 2346, paragraph 6 of the Italian Civil Code), carrying the same rights associated with the Notes. From 1 January 2015 to 31 December 2016, the Notes paid a nominal rate of interest of 7% per annum.
Available-for-sale financial assets 129,465 5,418 922 135,805 122,497 4,958 788 128,243
At 31 December 2016, non-current assets and disposal groups held for sale included financial instruments at fair value held by BdM-MCC SpA and BancoPosta Fondi SGR SpA.
Transfers between levels 1 and 2, relating entirely to the Poste Vita insurance group, are shown below: Net transfers between Level 1 and 2 at 31 December 2017
(Net transfers between Levels 1 and 2) (687) 687 352 (352)
Movements in fair value through profit or loss - 10 - 10
tab. A7 - Trade receivables Balance at 31 December 2017 Balance at 31 December 2016
Unfranked mail delivered and other value added services 20 254 274 24 274 298
Specifically: �� Amounts due from ministries and Public Administration entities refer mainly to the following services: • Integrated Notification and mailroom services, amounting to €253 million rendered to central government entities as well as local government authorities; • Unfranked mail services provided on credit, totalling €88 million, to central government entities as well as local government authorities; • Reimbursement of the costs associated with the management of property, vehicles and security incurred on behalf of the Ministry for Economic Development, totalling €75 million, of which €2 million relates to the amount accrued during the year (see note 2.562 for information on this item); • Compensation for the discounts applied to publishers during the year under review, due from the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office – Publishing department), amounting to €43 million; • The payment of pensions and vouchers on behalf of INPS (the National Institute of Social Security), totalling €66 million.
62. See “Revenue and receivables due from the State”, item (vi), showing overall amounts due from the Ministry for Economic Development (€77 million), including amounts due for postal and other residual services, amounting to €2 million.
�� Receivables from overseas counterparties relate to postal services carried out by the Parent Company for overseas postal operators.
�� The remuneration of current account deposits refers entirely to amounts accruing in 2017 and almost entirely relates to the deposit of funds deriving from accounts opened by Public Administration entities and attributable to BancoPosta RFC.
Provisions for doubtful debts due from the MEF reflect the lack of funding of the state budget, which make it difficult to collect certain receivables recognised on the basis of laws, contracts and agreements in force at the time of recognition. The provisions are unchanged over the year.
Provisions for doubtful debts due from others - (72) (72) - (60) (60)
Interest accrued on IRAP refund [C12.1] - 3 3 - - -
Specifically: �� substitute tax paid refers mainly to: • €1,858 million on non-current receivables paid in advance by Poste Vita SpA for the financial years 2012-2017, relating to withholding and substitute tax paid on capital gains on life policies63; • €1,064 million charged to holders of Interest-bearing Postal Certificates and Class III and V insurance policies for stamp duty at 31 December 201764. This amount is balanced by a matching entry in “Other taxes payable” until expiration or early settlement of the Interest-bearing Postal Certificates or the insurance policies, i.e. the date on which the tax is payable to the tax authorities (tab. B10.3); • €325 million relating to advances paid in relation to stamp duty to be paid in virtual form in 2018 and charged to customers and to be recovered from customers by Poste Italiane; • €143 million relating to stamp duty charged to Postal Savings Books, which Poste Italiane SpA pays in virtual form as required by law.
63. Of the total amount, €489 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).
�� Amounts due from staff under fixed-term contract settlements consist of salaries to be recovered following the agreements of 13 January 2006, 10 July 2008, 27 July 2010, 18 May 2012, 21 March 2013 and 30 July 2015 between Poste Italiane SpA and the trade unions, regarding the re-employment by court order of staff previously employed on fixed-term contracts. This item refers to receivables with a present value of €188 million from staff, from INPS and pension funds recoverable in the form of variable instalments, the last of which is due in 2040. With regard to amounts receivable from INPS (formerly IPOST), of which approximately €42 million is due, the same considerations described in the above note A7 apply.
�� Accrued interest on IRES refund, amounting to €47 million, refers to interest accruing up to 31 December 2017 in relation to the tax credit determined by an unreported deduction of IRAP paid on labour costs from IRES and almost entirely attributable to the Parent Company. Recovery of the amount in question has resulted in a dispute, the outcome of which is subject to uncertainty. With regard to the remaining overall tax credit, amounting to €55 million (i.e. including current tax assets and related interest), information is provided in note 2.5– Use of estimates.
Movements in the related provisions for doubtful debts are as follows: tab. A8.1 - Movements in Provisions for doubtful debts due from others
A11 - Non-current assets and disposal groups held for sale and liabilities related to assets held for sale (-€0.3 million)
Net liabilities held for sale at 31 December 2017 amount to €0.3 million. Following completion of the sale of BdM-MCC SpA on 7 August 2017, all the related items at that date were derecognised in 2017, whilst, given that the requirements of IFRS 5 were no longer met, almost all the assets and liabilities of BancoPosta Fondi SpA SGR were reclassified to the relevant items in the statement of financial position. The balance of the item in question regards remaining assets and liabilities attributable to BancoPosta Fondi SpA SGR, relating to the business unit (represented by management of the assets underlying Class I insurance products) due to be spun off as part of the agreement with Anima Holding, described in note 3.1, which continues to be classified in the items provided for in IFRS 5.
Movements in the related liabilities are as follows: tab. A11.2 - Liabilities related to assets held for sale
Non-current provisions for risks and charges 1 - - - (1) -
Employee termination benefits and pension plans 8 - - (8) - -
B1 - Share capital (€7,550 million) The share capital of Poste Italiane SpA consists 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.
The following table shows a reconciliation of the Parent Company’s equity and profit/(loss) for the year with the consolidated amounts: tab. B1 - Reconciliation of equity
Financial statements of Poste Italiane SpA 5,512 (1,265) 617 6,160 (2,111) 625 7,646 - Undistributed profit (loss) of consolidated companies - Investments accounted for using the equity method - Balance of FV and CFH reserves of investee companies - Actuarial gains and losses on employee termination benefits of investee companies - Fees to be amortised attributable to Poste Vita SpA and Poste Assicura SpA
- Effects of contributions and transfers of business units between Group companies - Effects of intercompany transactions (including dividends)
Tax effect of changes in fair value - - 93 16 - - 109
Transfers to profit or loss - - (676) (4) - - (680)
Technical provisions where investment risk is transferred to policyholders 3,530 6,900
Provisions for early retirement incentives 342 446 - - (342) - 446
65. This initiative is described in “Risk management – Reputational risk”.
�� 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 (€87 million) and decreased as a result of past liabilities that failed to materialise (€28 million) and settled disputes (€122 million).
�� Provisions for expired and statute barred Postal Certificates have been made to cover the cost of redeeming certificates relating to specific issues, even if expired66.
66. Provisions for expired and statute barred Postal Certificates were made in 1998 to cover the cost of redeeming certificates relating to specific issues, the value of which was recognised in revenue in profit or loss in the years in which the certificates became invalid. The provisions were made in response to the Parent Company’s decision to redeem such certificates even if expired and statute barred. At 31 December 2017, the provisions represent the present value of total liabilities, based on a nominal value of €21 million, expected to be progressively settled by 2043.
B7 - Employee termination benefits (€1,274 million) The following movements in employee termination benefits took place in 2017: tab. B7 - Movements in provisions for employee termination benefits
The main actuarial assumptions applied in calculating provisions for employee termination benefits, are as follows: tab. B7.1 - Economic and financial assumptions
Actuarial gains and losses are generated by the following factors: tab. B7.3 - Actuarial gains and losses
Payables deriving from postal current accounts Payables deriving from postal current accounts represent BancoPosta’s direct deposits, and include interest accrued at 31 December 2017, which was settled with customers in January 2018.
�� Subordinated bonds69 with a nominal value of €750 million and accounted for at their amortised cost of € 760million, 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 value70 of this liability at 31 December 2017 is €782 million.
Borrowings from financial institutions tab. B8.1 - Borrowings from financial institutions
EIB fixed rate loan maturing 11 April 2018 - 200 200 200 - 200
EIB fixed rate loan maturing 23 March 2019 200 - 200 200 - 200
Outstanding liabilities for repurchase agreements at 31 December 2017 amount to €4,842 million and relate to contracts with a total nominal value of €4,407 million, entered into by the Parent Company with major financial institutions. These liabilities consist of: �� €3,903 million relating to Long Term Repos entered into with primary counterparties, with the resulting resources invested in Italian fixed income government securities of a matching nominal amount; �� €939 million relating to BancoPosta’s ordinary borrowing operations via repurchase agreement transactions with primary financial institutions as funding for incremental deposits used as collateral.
The fair value73 of the two fixed rate EIB loans of €400 million obtained by the Parent Company amounts to €402 million.
68. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2. 69. The bondholders rank below customers holding the company’s insurance policies.
70. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1. 71. 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.
At 31 December 2017, the following credit facilities are available: �� committed lines of €1,173 million (including lines with a value of €1 billion extinguished on 2 February 2018); �� uncommitted lines of credit of €1,059 million, of which €9 thousand has been used in the form of medium/long-term borrowings; �� overdraft facilities of €166.8 million, of which €0.8 million has been used; �� unsecured guarantee facilities with a value of €639.2 million (with €505.2 million available to the Parent Company), of which guarantees with a value of €281.9 million have been used in favour of third parties.
Finally, the Bank of Italy has granted BancoPosta RFC access to intraday credit in order to fund intraday interbank transactions. Collateral for this credit facility is provided by securities with a nominal value of €490 million, and the facility is unused at 31 December 2017.
MEF account held at the Treasury tab. B8.2 - MEF account, held at the Treasury
Balance of cash flows for advances - 3,375 3,375 - 2,239 2,239
Ministry of Justice - Orders for payment - - - - - -
Other amounts payable to third parties - 68 68 - 66 66
Amounts payable for guarantee deposits regard amounts received by the Parent Company in relation to asset swaps (collateral provided by specific Credit Support Annexes).
Other includes €56 million relating to the outstanding amount payable to FSI Investimenti SpA for the acquisition of the investment in FSIA Investimenti Srl on 15 February 2017.
B9 - Trade payables (€1,332 million) tab. B9 - Trade payables
Amounts due to the MEF - - - - 21 21
Other amounts due to joint ventures - 1 1 - - -
Amounts due to staff tab. B10.1 - Amounts due to staff
At 31 December 2017, certain liabilities, which at 31 December 2016 were included in provisions for personnel expenses, were determinable with reasonable certainty and, as such, were recognised as payables.
Withholding tax on postal current accounts - 1 1 - 3 3
�� Tax due on insurance provisions relates to Poste Vita SpA and is described in note A8.
�� Withholding tax on employees’ and consultants’ salaries relates to amounts paid to the tax authorities by Group companies in January and February 2018 as withholding agents.
Amounts due to the MEF Amounts due to the MEF, which at 31 December 2016 amounted to €21 million, were settled during 2017.
Sundry payables attributable to BancoPosta 75 8 83 75 7 82
Sundry payables attributable to BancoPosta’s operations primarily relate to prior year balances currently being verified.
Accrued expenses and deferred income from trading transactions tab. B10.5 - Accrued liabilities and deferred income
Deferred income comprises: �� €27 million in fees on Postemat and Postepay Evolution cards collected in advance by the Parent Company; �� €22 million in prepaid telephone traffic sold as of 31 December 2017 sold by PosteMobile SpA and not yet used by customers; �� €7 million in grants approved by the competent public authorities in favour of the Parent Company, where the matching costs have yet to be incurred.
Mail and parcel revenue breaks down as follows: tab. C1.1 - Mail and parcel revenue
Universal Service compensation relates to amounts paid by the MEF to cover the costs of fulfilling the USO. Compensation for services rendered during the year, amounting to €262 million, was recognised on the basis of the new Contratto di Programma (Service Contract) for 2015-2019, which took effect on 1 January 2016. Approximately €108 million in further compensation for previous years was recognised in 201674.
75. Law Decree 244/2016 (the so-called “Mille Proroghe” decree), converted with amendments into Law 19 of 27 February 2017, has extended the provision of subsidies for postal services introduced by the Interministerial Decree of 21 October 2010, aimed at publishing houses and non-profit organisations entered in the Register of Communications Providers (ROC), and has also restored the government subsidies introduced by Law 46 of 27 February 2004. The Decree also confirmed the subsidised tariffs for promotional mailshots by non-profit organisations.
C2 – Revenue from payment services, mobile and digital (€586 million)
This item breaks down as follows: tab. C2 - Revenue from payments, mobile & digital
This item breaks down as follows: tab. C3 - Revenue from financial servicesi
Interest expense on asset swaps of available-for-sale financial assets (49) (33)
Realised gains on other investments in 2017 regard the gain generated by the sale of shares in Mastercard Incorporated, as described in note A5 – Financial assets.
C4 – Revenue from Insurance Services after movements in technical provisions and other claims expenses (€1,456 million)
Movement in technical provisions for insurance business and other claim expenses (22,335) (21,958)
Income from financial assets at fair value through profit or loss 1,246 1,256
Total movement in technical provisions for insurance business and other claims expenses: life 22,326 21,938
Total movement in technical provisions for insurance business and other claims expenses: non-life 29 40
C5 - Costs of goods and services (€2,370 million) tab. C5 - Cost of goods and services
Real estate leases relate almost entirely to the buildings from which the Group operates (post offices, Delivery Logistics Centres and Sorting Centres). Under the relevant lease agreements, rents are increased annually on the basis of the price index published by the Istituto Nazionale di Statistica (ISTAT, the Italian Office for National Statistics). Lease terms are generally six years, renewable for a further six. Renewal is assured from the clause stating that the lessor "waives the option of refusing renewal on expiry of the first term", by which the lessor, once the agreement has been signed, cannot refuse to renew the lease, except in cases of force majeure. The Parent Company has the right to withdraw from the contract at any time, giving six months’ notice, in accordance with the standard lease contract.
Change in inventories of work in progress, semifinished and finished goods and goods for resale [tab. A6] 2 -
Portion of interest expense on own liquidity (finance costs) (1) (1)
C7 - Personnel expenses (€6,093 million) Personnel expenses include the cost of staff seconded to other organisations. The recovery of such expenses, determined by the relevant chargebacks, is posted to “Other operating income”. Personnel expenses break down as follows: tab. C7 - Personnel expenses
Net provisions (reversals) for disputes with staff [tab. B6] (25) 3
The following table shows the Group’s average and year-end headcount for 2017: tab. C7.1 - Number of employees Average Year end
Taking account of staff on flexible contracts, the total average number of full-time equivalent staff in 2017 is 138,040 (141,246 in 2016).
Industrial patents and intellectual property rights,concessions, lincenses, trademarks and similar rights 215 232
C9 - Capitalised costs and expenses (€24 million) Capitalised costs and expenses break down as follows: tab. C9 - Increases relating to assets under construction
Net provisions and losses on doubtful debts (uses of provisions) 55 22
Provisions (reversal of provisions) for sundry receivables [tab. A8.1] 12 4
for non-recurring charges [tab. B6] 170 86 for other risks and charges [tab. B6] 20 22
Municipal property tax, urban waste tax and other taxes and duties 69 75
C11 – Finance income (€115 million) and costs (€188 million) Income from and costs incurred on financial instruments relate to assets other than those in which deposits collected by BancoPosta and the financial and insurance businesses are invested.
Income from financial assets at fair value through profit or loss 3 -
For the purposes of reconciliation with the statement of cash flows, in 2017 finance income after realised gains, dividends received and foreign exchange gains amounts to €94 million (€99 million in 2016).
Finance costs on financial liabilities 51 52 on borrowings from financial institutions 1 2 on derivative financial instruments 1 1
Finance costs on provisions for employee termination benefits and pension plans [tab. B7] 21 24
C12 - Income tax expense (€378 million) This item breaks down as follows: tab. C12 - Income tax expense
For the year ended 31 December 2017 For the year ended 31 December 2016
Net provisions for risks and charges and bad debts 15 1.42% 19 1.79%
Item (€m) Balance at 31 December 2017 Balance at 31 December 2016
The nominal tax rate for IRES is 24% from 1 January 2017, whilst the Group’s average statutory rate for IRAP is 6.33%76. Movements in deferred tax assets and liabilities are shown below: tab. C12.5 - Movements in deferred tax assets and liabilities
Income/(expenses) recognised in profit or loss (1) - - 5 21 - (14) 11
The decrease in deferred tax liabilities related to financial assets and liabilities is due mainly to movements in the fair value reserve, as described in note B4 - Reserves.
�� The recent renegotiation of the agreements between Poste Italiane SpA and Anima Holding SpA, with the aim of strengthening their partnership in the asset management sector, has altered the scenario on which the agreements were based through to the end of the reporting period. In particular, the new agreement envisages the partial spin-off of management of the assets underlying Poste Vita SpA’s Class I insurance products (totalling over €70 billion), previously attributed to BancoPosta Fondi SpA SGR, in place of the transfer of the entire investment in the asset management company.
�� As a result, in the Poste Italiane Group’s consolidated financial statements for the year ended 31 December 2017, BancoPosta Fondi SpA SGR’s assets and liabilities, previously presented in assets and liabilities held for sale, in accordance with IFRS 5, have been reclassified to the respective items under assets and liabilities (with the exception of items closely related to the activities included in the spin-off). At the same time, the assets and results of operations of the company, previously allocated to the Insurance Services segment, have been reallocated to the Financial Services segment. This last segment also includes the investment in Anima Holding SpA, previously allocated to the Insurance Services segment.
The following results, which are shown separately in accordance with the management view and with applicable accounting standards, should be read in light of the integration of the services offered by the distribution network within the businesses allocated to all four identified operating segments, also considering the obligation to carry out the Universal Postal Service.
Net revenue from ordinary activities 8,128 914 5,970 1,457 (5,840) 10,629
Non-current assets and disposal groups held for sale - - - - - -
Non-current assets and disposal groups held for sale - - 2,727 - (7) 2,720
Investments accounted for using equity method 212 - 6 - - 218
Other related parties external to the Group 227 6 - - - 18 61
Impact of related party transactions on profit or loss for the year ended 31 December 2017 Year Ended December 2017
Impact of related party transactions on profit or loss for the year ended 31 December 2016 Year Ended 31 December 2016
�� Amounts received from the MEF relate primarily to payment for carrying out the USO, the management of postal current accounts, as payment for delegated services, integrated e-mail services, the franking of mail on credit, collection services, and for the integrated notification and reporting service for processing tax returns. The costs incurred primarily regard the transmission of data relating to the payment of tax returns. Following the creation of the Agenzia delle Entrate e delle riscossioni, a publicly owned entity subject to management and oversight by the MEF, and the consequent winding up of the principal companies in the Equitalia group, certain fees received for provision of the integrated notification and reporting service and for the franking of mail on credit, as well as the cost incurred for the transmission of data relating to the payment of tax returns, which were attributable to relations with the Equitalia group at 31 December 2016, are now shown as attributable to relations with the MEF.
�� Amounts received from the Enel Group primarily relate to payment for bulk mail shipments, unfranked mail, franking of mail on credit and postage paid mailing services, as well as collection and accounting for electric utility payments. The costs incurred primarily relate to the supply of gas and electricity.
�� Amounts received from the Eni Group relate primarily to payment for mail shipments and collection and accounting for utility payments. The costs incurred relate to the supply of gas and of fuel for motorcycles and vehicles.
Poste Italiane Financial statements for the year ended 31 December 2017 4. Poste Italiane Group for the year ended 31 December 2017
Non-current assets and disposal groups held for sale - - n.a. 2,720 49 1.8
Revenue from Mail, Parcel & other 3,631 513 14.1 3,822 549 14.4
Revenue from Payments, Mobile & Digital 586 64 10.9 570 84 14.7
Revenue frome Insurance Services after movements in technical provisions and other claims expenses
Cost of goods and services 2,370 195 8.2 2,442 192 7.9
No loans were granted to key management personnel during the year and, at 31 December 2017, Group companies do not report receivables in respect of loans granted to key management personnel.
Other related party disclosures At a meeting on 20 September 2017, Poste Italiane’s Board of Directors, having obtained the consent of the Related and Connected Parties Committee, authorised the spot and forward purchase and sale of securities issued and/or guaranteed by the Italian government and the execution of repurchase agreements and reverse repos and of hedging derivatives by BancoPosta RFC, with Monte Paschi Capital Services Banca per le Imprese SpA acting as counterparty. This company qualifies as a related party of Poste Italiane as it is also controlled by the Ministry of the Economy and Finance through Banca Monte dei Paschi di Siena SpA.
5. Poste Italiane SpA FOR THE YEAR ENDED 31 DECEMBER 2017
Assets (€) Note 2017 of which, related party transactions of which, related party transactions
Liabilities and equity Note Capital outside the ring-fence BancoPosta RFC Adjustments Total
for the year ended 31 December of which, related party transactions 2016 of which, related party transactions
Other income from financial activities [C2] 645,722,411 - 598,784,197 of which non-recurring income of which non-recurring income
Operating profit/(loss) 779,635,299 799,558,973 of which non-recurring costs of which non-recurring income
Income tax for the year [C10] 55,926,464 - 153,645,906 of which, non-recurring expense/(income)
Total comprehensive income for the year - - - (1,613,166,625) (26,727,196) - 593,110,121 (1,046,783,700)
Amount due from MEF following cancellation of EC Decision of 16 July 2008 of which attributable to BancoPosta RFC - - 1,000,000,000 888,943,631 (17,371,417) - 1,514,595,531 3,386,167,745
of which attributable to BancoPosta RFC - - 1,000,000,000 179,388,940 (62,049,661) - 1,641,581,460 2,758,920,739
Use of provisions for risks and charges [tab. B4] (607,140) (435,652)
Cash generated by/(used in) movements in working capital [b] 147,613 286,191
(Income)/Expenses and other non-cash components attributable to financial activities (1,404,203) (1,041,371)
Cash and cash equivalents at end of year [tab. A10] 2,038,504 2,715,199
Amounts that cannot be drawn on due to court rulings (14,782) (12,457)
Unrestricted net cash and cash equivalents at end of year 1,968,216 1,632,212
77. As revised on the issuance of Law Decree 179 of 18 October 2012 converted into law with amendments by Law 221 of 17 December 2012.
As required by art. 2, paragraphs 17-octies et seq. of Law 10 of 26 February 2011, converting Law Decree 225 of 29 December 2010, in order to identify ring-fenced capital for the purposes of applying the Bank of Italy’s prudential requirements to BancoPosta’s operations and for the protection of creditors, at the General Meeting held on 14 April 2011 Poste Italiane SpA’s shareholder approved the creation of ring-fenced capital to be used exclusively in relation to BancoPosta’s operations (BancoPosta Ring-fenced Capital or BancoPosta RFC), as governed by Presidential Decree 144 of 14 March 2001, and established the assets and contractual rights to be included in the ring-fence as well as By-laws governing its organisation, management and control. BancoPosta RFC was provided originally with an initial reserve of €1 billion through the attribution of Poste Italiane SpA’s retained earnings. The resolution of 14 April 2011 became effective on 2 May 2011, the date on which it was filed with the Companies’ Register.
Nature of assets and contractual rights and authorisation BancoPosta’s assets, contractual rights and authorisations pursuant to notarial deed were conferred on BancoPosta RFC exclusively by Poste Italiane SpA without third-party contributions. BancoPosta’s operations consist of those listed in Presidential Decree 144 of 14 March 2001, as amended77 namely: �� the collection of all forms of savings deposit from the public in accordance with art. 11, para. 1 of Legislative Decree 385/1993 of 1 September 1993 - Consolidated Banking Law (Testo Unico Bancario, or TUB) - and all related and consequent activities; �� the collection of savings through postal securities and deposits; �� payment services, including the issuance, administration and sale of prepaid cards and other payment instruments pursuant to art. 1, para. 2, letter f) numbers 4) and 5), TUB; �� foreign currency exchange services; �� promotion and arrangement of loans issued by approved banks and financial brokers; �� investment and related services pursuant to art. 12, Presidential Decree 144/2001; �� debt collection services; �� professional gold trading, on own behalf or on behalf of third parties, in accordance with the requirements of Law 7 of 17 January 2000.
All of the assets and rights arising out of various contracts, agreements and legal transactions related to the above activities have also been conferred on BancoPosta RFC78.
“postepay”), acquiring services and money transfers (e.g., post office money orders); c. Investment services contracts (e.g., brokerage, distribution and investment advisory services) and related services (e.g., securities custody); d. Agreements with Cassa Depositi e Prestiti SpA in connection with collection of savings through postal securities and deposits; e. Agreements with approved banks and brokers for the promotion and lending to the public (e.g. mortgages, personal loans); f. Agreements with approved banks and brokers for acquiring and payment services; g. Agreements with approved brokers to promote and place financial instruments, bankassurrance and insurance products (e.g., share, bond and mutual fund subscriptions, life and non-life insurance); h. Other agreements relating to Bancoposta services; i. Contracts and related legal arrangements with Bancoposta employees belonging to a separate cost centre; j. Contracts with suppliers to the Bancoposta costs centre and related legal arrangements; k. Shares and investments in companies, consortia, payment/credit card issuers or money transfer service companies; l. Euro area government securities and securities guaranteed by the Italian government, held pursuant to art. 1, paragraph 1097 of Law 296 of 27 December 2006, as amended, and the related valuation reserves, including hedging derivatives; m. Accounts payable (e.g., postal current accounts) and receivable in connection with the above points; n. Intersegment accounts payable and receivable respectively to and from Poste Italiane; o. Deferred tax assets and liabilities relating to Bancoposta; p. Post office and bank account cash balances associated with Bancoposta operations; q. “Buffer” account at the Treasury, Ministry of the Economy and Finance; r. Cash deposits at the Treasury, Ministry of the Economy and Finance relating to Public Administration balances held in post offices; s. Cash and cash equivalent in connection with Bancoposta operations; t. Litigation relating to Bancoposta and associated settlements; u. Provisions in connection with BancoPosta RFC’s contractual and legal obligations.
79. In addition, following the amendment of art. 1, paragraph 1097 of Law 296 of 27 December 2006, introduced by art. 1, paragraph 285 of the 2015 Stability Law (Law 190 of 23 December 2014), it became possible for BancoPosta RFC to invest up to 50% of its deposits in securities guaranteed by the Italian government.
The services provided by Poste Italiane to BancoPosta are subdivided into three macro areas in accordance with their nature: �� Commercial activities, represented by the sale of BancoPosta products and services to all customer segments.
�� Support services, meaning the coordination and management of investments, IT systems, customer care and postal services.
81. Bank of Italy Circular 285 of 17 December 2013, part four, chapter 1 – BancoPosta.
Investment Governance Fees by professional role based on market benchmarks + recharge of external costs
The interest paid on the intersegment accounts between BancoPosta RFC and the Poste Italiane functions outside the ringfence, used for settlements between the two entities, is the same rate paid by the MEF on the relevant Buffer account, at the Euro OverNight Index Average (EONIA) rate.
Item in supplementary statement Valuation reserves Reserves Net profit for period
Cumulative actuarial gains/ (losses) on defined benefit plans (2) (2) - -
Intersegment relations between BancoPosta RFC and the Poste Italiane functions outside the ring-fence are disclosed exclusively in BancoPosta RFC’s Separate Report, where they are shown in detail and in full, together with the income and expenses that generated them.
A1 - Property, plant and equipment (€1,912 million) Movements in property, plant and equipment are as follows: tab. A1 - Movements in property, plant and equipment
Purchases of €209 million primarily relate to: �� €30 million relating to extraordinary maintenance of post offices and local head offices around the country (€23 million) and mail sorting offices (€5 million); �� €60 million relating to plant, of which €26 million for plant and equipment related to buildings, €12 million for the installation of ATMs, €10 million for the purchase of equipment for use in sorting letters and processing parcels, €7 million for the purchase of telecommunications infrastructure and €5 million for the installation and extraordinary maintenance of video surveillance systems; �� €33 million invested in the upgrade of plant (€20 million) and the structure (€13 million) of properties held under lease; �� €51 million relating to “Other assets”, including €45, million for the purchase of new computer hardware for post offices and head offices and the consolidation of storage systems; �� €26 million relating to assets under construction, of which €17 million regards the restyling of post offices and €5 million the renovation of primary distribution centres.
Reversals of impairment losses are due to revised estimates relating to buildings (property used in operations) and sorting centres, and reflect prudent consideration of the effects on the relevant values in use that might arise as a result of reduced utilisation or future removal from the production cycle (note 2.5 – Use of estimates).
The fair value of investment property at 31 December includes approximately €67 million representing the sale price applicable to the Company’s former service accommodation in accordance with Law 560 of 24 December 1993, while the remaining balance reflects price estimates computed internally by the Company84.
A3 - Intangible assets (€385 million) The following table shows movements in intangible assets: tab. A3 - Movements in intangible assets
The increase in industrial patents and intellectual property rights, totalling €95 million, before amortisation for the year, relates primarily to the purchase and entry into service of new software programs following the purchase of software licences.
The balance of intangible assets under construction includes activities primarily regarding the development of software relating to the infrastructure platform (€44 million), BancoPosta services (€30 million), the provision of support to the sales network (€18 million) and the postal products platform (€12 million).
During the year the Company effected reclassifications from “Intangible assets under construction” to “Industrial patents, intellectual property, rights, concessions, licences, trademarks and similar rights”, amounting to €70 million, reflecting the completion and commissioning of software and the upgrade of existing software.
The following movements occurred in 2017: �� Subscription for new shares issued by Indabox Srl and establishment of an extraordinary reserve of €0.8 million, as approved by the extraordinary general meeting of the investee company’s shareholders on 2 February 2017.
�� The acquisition, on 15 February 2017, from FSI Investimenti SpA (a company 77.1% owned by CDP Equity SpA) of a 30% interest in FSIA Investimenti Srl, a company with a 49.5% interest in SIA SpA, a leading provider of e-money, payment and network services85. 80% of the transaction consideration of €278.3 million was paid on completion, before receipt of an upward adjustment of €0.55 million based on the value of SIA’s net debt at 31 December 2016.
Finally, on 6 March 2018, agreements between Poste Italiane SpA, Anima Holding SpA and BancoPosta Fondi SGR SpA were finalised with the aim of strengthening their partnership in the asset management sector, in accordance with the terms and conditions announced on 21 December 2017. As a result of the agreements, as described in greater detail in note 3.1 – Principal corporate actions, Poste Italiane SpA will continue to hold a 100% interest in the subsidiary, BancoPosta Fondi SpA SGR, the carrying amount of which, at the date of preparation of these financial statements, has thus been reclassified to “Non-current assets held for sale and discontinued operations” (note A11).
The impairment tests required by the related accounting standards have been conducted in order to identify any evidence of impairment. Based on the available projections and the results of the impairment tests carried out86, impairment losses totalling €21 million (tab. C8) have been recognised on the following investments. In particular: �� in the case of EGI SpA, an impairment loss of €6 million was recognised, based on the value of equity adjusted for unrealised after-tax gains on the property it owns as the best approximation of value in use, prudently deemed to be a valid indicator of the company’s recoverable value; �� the investments in Mistral Air Srl and SDA Express Courier SpA have been written off (€13 million), in addition to provisions being made for risks and charges (€25 million) to reflect the losses incurred by the companies at 31 December 2017, which Poste Italiane intends to cover; �� the investment in Poste Tributi ScpA, whose liquidation was approved by the extraordinary general meeting of the company’s shareholders held on 30 December 2016 and published in the Companies’ Register on 24 January 2017, has been written off (€2 million) and provisions for risks and charges have been made (€2 million) to take account of the estimated net costs and charges of the liquidation.
(2) These amounts have been calculated under IFRS and, therefore, may not be consistent with those included in the investee company’s annual financial statements prepared in accordance with the Civil Code and Italian GAAP and, in the case of Conio Inc., in accordance with US GAAP.
Amounts deposited with the MEF - 6,011 6,011 - 6,189 6,189
Receivables include: �� Amounts deposited with the MEF, including public customers’ current account deposits, which earn a variable rate of return calculated on a basket of government bonds and money market indices87.
Investments in securities These regard investments in fixed income euro area government securities, consisting of bonds issued by the Italian government and securities guaranteed by the Italian government, having a nominal value of €48,430 million. Movements are as follows: tab. A5.2 - Movements in investment securities
Changes in fair value through equity - - (323) - - (323)
Changes in fair value through profit or loss - - (496) - - (496)
Effect of sales on profit or loss - - 506 - - 506
Sales and settlement of accrued income - (174) (4,090) (5,388) - - (4,090) (5,562)
Certain securities are encumbered as they have been delivered to counterparties for use as collateral in connection with loans and hedging transactions, as described in note 11 – Additional information.
Investments in equity instruments Equity instruments include: �� €37 million, reflecting the fair value of 32,059 Visa Incorporated preference shares (Series C Convertible Participating Preferred Stock) received for the sale of the Visa Europe Ltd. share to Visa Incorporated on 21 June 2016; these shares are convertible at the rate of 13.89389 ordinary shares for each C share, minus a suitable illiquidity discount, considering the staggered conversion between the fourth and the twelfth year after the closing; �� €4 million, reflecting the fair value of 11,144 Class C shares of Visa Incorporated. These shares are not traded on an organised exchange, but are convertible into Class A shares (at the rate of four ordinary shares for each Class C share), which are listed on the New York Stock Exchange, if disposal is desired.
88. In terms of the fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1. 89. Until the assigned shares are fully converted into ordinary shares, the share exchange ratio may be reduced if Visa Europe Ltd. incurs liabilities that, as of the reporting date, were considered as merely contingent.
Fair value hedges recorded an increase in the fair value of the effective portion of €446 million, whilst the hedged securities (tab. A5.2) recorded a fair value loss of €496 million, with the difference of €50 million due to paid differentials.
In the year under review, the Company carried out the following transactions: �� the settlement of forward purchases outstanding at 31 December 2016, totalling €400 million; �� the conclusion of forward sales with a nominal value of €1,408 million; �� new asset swaps used as cash flow hedges with a nominal value of €50 million euro; �� the unwinding of asset swaps, used as cash flow hedges for securities sold, with a nominal value of €330 million; �� new asset swaps used as fair value hedges with a nominal value of €5,205 million; �� the unwinding of asset swaps, used as fair value hedges for securities sold, with a nominal value of €1,600 million.
Fair value hierarchy of BancoPosta’s financial assets The following table shows the classification of BancoPosta’s financial assets measured at fair value by level in the fair value hierarchy: tab. A5.4 - Fair value hierarchy
Financial instruments at fair value through profit or loss - - - - - - - -
Changes in level 3 primarily regard changes in the fair value of the Visa Incorporated preference shares.
The non-current portion relates to an irredeemable subordinated loan, issued to Poste Vita SpA in order to bring the subsidiary ’s capitalisation into line with expected growth in earned premiums, in compliance with the specific regulations governing the insurance sector.
Available-for-sale financial assets tab. A6.3 - Movements in available-for-sale financial assets
Equity instruments, which are unchanged with respect to the previous year, include the investment in CAI SpA (formerly Alitalia CAI SpA), which was acquired for €75 million in 2013 and written off in 2014, and the historical cost of €4.5 million for a 15% equity interest in Innovazione e Progetti ScpA, which is in liquidation.
Fixed income instruments entirely regard BTPs. Of these, instruments with a value of €375 million have been hedged using asset swaps designated as fair value hedges.
(€m) Cash Flow hedges Fair value hedges Fair value through profit or loss Total of which: (*) Transactions settled include forward transactions settled, accrued differentials and the settlement of asset swaps linked to securities sold.
Total financial asset at fair value 551 - 5 556 569 - 5 574
Ministries and Public Administration entities - 642 642 - 619 619
Amounts due for other BancoPosta services - 87 87 - 113 113 of which attributable to BancoPosta RFC
Specifically: �� Amounts due from Ministries and Public Administration entities refer mainly to the following services: • Integrated Notification and mailroom services rendered to central and local government bodies, amounting to €253 million; • Unfranked mail services provided on credit to central and local government bodies, totalling €88 million; • Reimbursement of the costs associated with the management of property, vehicles and security incurred on behalf of the Ministry for Economic Development, totalling €75 million, of which €2 million relates to the amount accrued during the year (see note 2.591 for information on this item); • Compensation for the discounts applied to publishers during the year under review, due from the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office – Publishing department), amounting to €43 million; �� The payment of pensions and vouchers on behalf of INPS (the National Institute of Social Security), totalling €66 million. In order to settle the amount due, INPS has expressed a willingness to offset receivables due to the Company with liabilities that, in Poste Italiane’s opinion, are not subject to the same degree of certainty, liquidity or enforceability, and which the Company has recognised according to the procedures and to the extent required by the relevant accounting standards. Whilst waiting for the counterparty to acknowledge its obligations, the Company has instructed its legal counsel to take the necessary steps to recover the amount due, reserving the right to take action to enforce its claims once it has exhausted all the possible options to resolve the dispute.
Receivables from overseas counterparties primarily relates to postal services carried out by the Company for overseas postal operators.
91. See “Revenue and receivables due from the State”, item (vi), showing overall amounts due from the Ministry for Economic Development (€77 million), including amounts due for postal and other residual services, amounting to €2 million.
Receivables for overdrawn current accounts are amounts due for temporarily overdrawn current accounts largely due to recurring BancoPosta bank charges, including accumulated sums in the process of being recovered, which have largely been written down.
Other trade receivables primarily include €82 million generated by parcel post operations, €45 million for Posta Time services, €26 million related to Posta Target services, €20 million related to the Notification of Legal Process service, €14 million for Advice and Billing Mail services and €14 million for telegraphic services.
Movements in provisions for doubtful debts are as follows: tab. A7.2 - Movements in provisions for doubtful debts
Provisions for doubtful debts relating to private customers include the amount set aside attributable to BancoPosta’s operations, mainly to cover numerous individually immaterial amounts due from overdrawn current account holders.
Specifically: �� Universal Service compensation includes the following: tab. A7.4.1 - Universal Service compensation receivable
�� Payments for delegated services relate to fees accrued solely in the year under review for treasury services performed by Bancoposta on behalf of the state in accordance with a special agreement with the MEF, renewed on 16 November 2017 for the three-year period 2017-2019.
These provisions, which are unchanged with respect to the beginning of the period, reflect the lack of funding of the state budget, a situation that does not permit the collection of certain receivables recognised on the basis of laws, contracts and agreements in force at the time of recognition.
A8 - Other receivables and assets (€2,042 million) This item breaks down as follows: tab. A8 - Other receivables and assets
Amounts restricted by court rulings - 75 75 - 71 71
Provisions for doubtful debts due from others - (67) (67) - (59) (59)
Interest accrued on IRAP refund [C10] - 3 3 - - of which attributable to BancoPosta RFC
Specifically: �� Substitute tax paid, attributable to BancoPosta RFC, primarily regards: • €1,040 million charged to holder of Interest bearing Postal Certificates for stamp duty at 31 December 201792. This amount is balanced by a matching entry in “Other taxes payable” until expiration or early extinguishment of the Interest bearing Postal Certificates, i.e. the date on which the tax is payable to the tax authorities (tab. B9.3); • €325 million relating to stamp duty to be paid in virtual form in 2018 and to be recovered from customers; • €143 million relating to stamp duty to be charged to Postal Savings Book holders, which the Company pays in virtual form as required by law; • €23 million due from the tax authorities in the form of refundable stamp duty paid in virtual form in 2017; • €11 million in withholding tax on interest paid to current account holders for 2017, which is to be recovered from customers; �� Amounts due from staff under fixed-term contract settlements consist of salaries to be recovered following the agreements of 13 January 2006, 10 July 2008, 27 July 2010, 18 May 2012, 21 March 2013 and 30 July 2015 between Poste Italiane SpA and the trade unions, regarding the re-employment by court order of staff previously employed on fixed-term contracts. This item refers to receivables with a present value of €188 million from staff, from INPS and pension funds recoverable in the form of variable instalments, the last of which is due in 2040. With regard to amounts receivable from INPS (formerly IPOST), of which approximately €42 million is due, the same considerations described in the above note A7 apply. A breakdown of the receivables by individual agreement is provided below: tab A8.1 - Receivables from fixed-term contract settlements
Receivables due from staff under agreement of 2006 3 1 4 4 4 2 6 6 due from staff under agreement of 2008 29 13 42 45 38 13 51 56 due from staff under agreement of 2010 32 7 39 48 35 7 42 54 due from staff under agreement of 2012 25 7 32 40 30 7 37 46 due from staff under agreement of 2013 3 1 4 5 4 1 5 6 due from staff under agreement of 2015 4 1 5 5 5 1 6 7 due from INPS (former IPOST) - 42 42 42 - 42 42 42
�� Amounts that cannot be drawn on due to court rulings include €62 million in amounts seized and not assigned to creditors in the process of recovery, and €13 million in amounts stolen from the Company in December 2007 as a result of an attempted fraud and that have remained on deposit with an overseas bank. The latter sum may only be recovered once the legal formalities are completed. The risks associated with collection of these items are taken into account in the provisions for doubtful debts due from others.
�� Accrued interest on IRES refund, amounting to €46 million, refers to interest accruing up to 31 December 2017 in relation to the tax credit determined by an unreported deduction of IRAP paid on labour costs from IRES. Recovery of the amount in question has resulted in a dispute, the outcome of which is subject to uncertainty. With regard to the remaining overall tax credit, amounting to €50 million (i.e. including current tax assets and related interest), information is provided in note 2.5 – Use of estimates.
�� Accrued interest on IRAP refund, amounting to €3 million, regards interest accruing up to 31 December 2017 on IRAP to be recovered on the unreported deduction of expenses for disabled personnel in 2003, described in note C10.
�� Movements in the related provisions for doubtful debts are as follows: tab. A8.2 - Movements in provisions for doubtful debts due from others
A9 - Cash and deposits attributable to BancoPosta (€3,196 million) Details of this item are as follows: tab. A9 - Cash and deposits attributable to BancoPosta
Cash at post offices, relating exclusively to BancoPosta RFC, regards cash deposits on postal current accounts, postal savings products (Interest bearing Postal Certificates and Postal Savings Books) or advances obtained from the Italian Treasury to fund post office operations. This cash may only be used in settlement of these obligations. Cash and cash equivalents in hand are held at post offices (€813 million) and companies that provide cash transportation services whilst awaiting transfer to the Italian Treasury (€1,986 million). Bank deposits relate to BancoPosta RFC‘s operations and include amounts deposited in an account with the Bank of Italy to be used in interbank settlements, totalling €396 million.
The reduction of this amount to zero (€384 million at 31 December 2016) reflects: �� completion, on 7 August 2017, following issue of the relevant consents by the Ministry for Economic Development, the European Central Bank and the Bank of Italy, of the sale of the 100% interest in Banca del Mezzogiorno–MedioCreditoCentrale SpA to Invitalia SpA, Agenzia Nazionale per l’Attrazione degli Investimenti e lo Sviluppo d’Impresa. This transaction generated a net gain of €14 million, recognised as non-recurring income and accounting for in “Other operating income”. Under the related contract of sale, €158 million of the total consideration of €387 million93 was collected during the year under review, with the balance accounted for in “Other financial receivables”, after the effect of discounting to present value. €159 million was collected in early 2018, with the remainder to be collected in tranches, the last of which after five years (€30 million); �� reclassification to the relevant item in assets (note A4) of the carrying amount of the investment in BancoPosta Fondi SpA SGR, as this asset no longer meets the requirements of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations.
At 31 December 2017, all the shares in issue are fully subscribed and paid up. No preference shares have been issued and the Company does not hold treasury shares.
In accordance with the resolution adopted by shareholders at the Annual General Meeting held on 27 April 2017, on 21 June 2017, the Company paid dividends of €509 million (a dividend of €0.39 per share).
Cash flow hedge reserve Merger surplus Total of which attributable to BancoPosta RFC - 1,000 889 (17) - 1,872
Tax effect of changes in fair value - - 92 16 - 108
Tax effect of transfers to profit or loss - - 173 2 - 175
of which attributable to BancoPosta RFC - 1,000 179 (62) - 1,117
B4 - Provisions for risks and charges (€1,538 million) Movements in provisions for risks and charges are as follows: tab. B4 - Movements in provisions for risks and charges
Balance at 31 December 2016 Provisions Finance costs Released to profit or loss Uses
Provisions for disputes with staff (1) 118 13 - (33) (23) 75
Provisions for early retirement incentives 342 440 - - (342) 440
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, adjustments and outstanding income for previous years, risks linked to disputes with customers regarding certain investment products whose performance is not in line with expectations, or to the erroneous application of statute barring and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee -defendant. Provisions for the year, totalling €178 million, primarily reflect a revised estimate of probable liabilities linked to third-party financial products sold in the early 2000s, including €35 million relating to the voluntary action taken to protect customers, approved by Poste Italiane’s Board of Directors on 19 February 2018, in relation to customers who had invested in the Europa Immobiliare 1 fund (which reached maturity on 31 December 201794), and the revision of other liabilities due to adjustments and revised estimates of income for previous years. Uses, amounting to €95 million include €48 million relating to the settlement of amounts due to customers who had invested in the IRS real estate fund, following the decision to take extraordinary measures by Poste Italiane’s Board of Directors on 16 January 2017.
94. This initiative is described in “Risk management – Reputational risk”.
�� Provisions for early retirement incentives reflect the estimated costs to be incurred as a result of the Company’s bonding commitment to pay early retirement incentives on a voluntary basis, under the current redundancy scheme agreed with the labour unions for a determinate number of employees who will leave the Company by 31 December 2019.
B5 - Employee termination benefits (€1,244 million) Movements in employee termination benefits are as follows: tab. B5 - Movements in provisions for employee termination benefits
Payables deriving from postal current accounts - 47,252 47,252 - 45,416 45,416
Payables deriving from postal current accounts These payables include net amounts accrued at 31 December 2017 and settled with customers in January 2018. The balance includes amounts due to Poste Italiane Group companies, totalling €677 million, with €539 million deposited in postal current accounts by Poste Vita SpA.
Balance of cash flows from management of postal savings - (84) (84) - (4) (4)
The balance of cash flows for advances represents the net amount payable as a result of advances from the MEF to meet the cash requirements of BancoPosta. These break down as follows: tab. B6.1.1 - Balance of cash flows for advances
The balance of cash flows from the management of postal savings, amounting to a positive €84 million represents the balance of withdrawals less deposits during the last two days of the year and cleared early in the following year. The balance at 31 December 2017 consists of €43 million payable to Cassa Depositi e Prestiti, less €127 million receivable from the MEF for Interest-bearing Postal Certificates issued on its behalf.
Amounts payable due to thefts from post offices regard the Company’s liability to the MEF on behalf of the Italian Treasury for losses resulting from theft and fraud. This liability derives from cash withdrawals from the Treasury to make up for the losses resulting from these criminal acts, in order to ensure that post offices can continue to operate.
Other amounts payable to third parties - 67 67 - 66 66
Amounts payable for guarantee deposits refer to amounts received from counterparties in relation to Asset Swaps (with collateral provided by specific Credit Support Annexes).
Financial liabilities due to subsidiaries - 46 46 - 38 38
98. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 1. 99. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Poste Italiane Financial statements for the year ended 31 December 2017 5. Poste Italiane SpA for the year ended 31 December 2017
At 31 December 2017, the committed and uncommitted lines have not been used. Unsecured guarantees with a value of €172 million have been used on behalf of Poste Italiane SpA and with a value €59 million, on behalf of Group companies. No collateral has been provided to secure the lines of credit obtained.
The uncommitted lines of credit and overdraft facilities are also available for overnight transactions entered into by BancoPosta RFC.
From 2014, the Bank of Italy has granted BancoPosta RFC access to intraday credit in order to fund intraday interbank transactions. Collateral for this credit facility is provided by securities with a nominal value of €490 million, and the facility is unused at 31 December 2017.
100. In terms of fair value hierarchy, which reflects the relevance of the sources used to measure assets, this amount qualifies for level 2.
Other financial liabilities This item includes €56 million relating to the outstanding amount payable to FSI Investimenti SpA for the acquisition of the investment in FSIA Investimenti Srl on 15 February 2017 (note A4).
B8 - Trade payables (€1,211 million) tab. B8 - Trade payables
Other services 16 11 of which attributable to BancoPosta RFC - -
Other amounts due to staff - 191 191 - 82 82 of which attributable to BancoPosta RFC - 14 14 - 14 14
Other tax liabilities Other tax liabilities break down as follows: tab. B9.3 - Other tax liabilities
Withholding tax on employees' and consultants' salaries - 93 93 - 108 108
Withholding tax on postal current accounts - 1 1 - 3 3 of which attributable to BancoPosta RFC 1,040 9 1,049 861 11 872
Specifically: �� Withholding tax on employees’ and consultants’ salaries relates to amounts paid to the tax authorities by the Company in January and February 2018 as the withholding agent.
�� Stamp duty represents the accrued amount payable to the tax authorities at 31 December 2017 on Interest-bearing Postal Certificates outstanding, in compliance with the legislation referred to in note A8 – Other receivables and assets.
Direct subsidiaries of which attributable to BancoPosta RFC - - - - - -
Sundry payables attributable to BancoPosta 75 8 83 75 7 82 of which attributable to BancoPosta RFC 75 8 83 75 8 83
In particular: �� sundry payables attributable to BancoPosta’s operations primarily relate to transactions effected in previous years in the process of settlement; �� guarantee deposits primarily relate to amounts collected from customers as a guarantee of payment for services (postage -paid mailing services, the use of post office boxes, lease contracts, telegraphic service contracts, etc.).
This item breaks down as follows: tab. B9.6 - Accrued expenses and deferred income
Total of which attributable to BancoPosta RFC - 27 27 - 21 21
Deferred income outside the ring-fence primarily regards: �� €7 million in grants approved by the competent public authorities in favour of the Company, whose matching costs have not been incurred yet; �� €4 million relating to advance collection of the rental on a thirty-year lease of a pneumatic postal structure in Rome.
Deferred income attributable to BancoPosta RFC (€27 million) regards fees on Postemat and Postepay Evolution cards collected in advance.
Automated franking by third parties and at post offices 731 790
�� Publisher tariff subsidies102 relate to the amount receivable by the Company from the Presidenza del Consiglio dei Ministri - Dipartimento dell’Editoria (Cabinet Office - Publishing department) as compensation for the discounts applied to publishers and non-profit organisations when sending mail. The compensation is determined on the basis of the tariffs set in the decree issued by the Ministry for Economic Development, in agreement with the Ministry of the Economy and Finance, on 21 October 2010 and Law Decree 63 of 18 May 2012, as converted into Law 103 of 16 July 2012. In this regard, provision has been made in the state budget for 2017 to cover the discounts applied by the Company in the period under review, but the subsidies are subject to the approval of the European Commission.
BancoPosta Services This revenue breaks down as follows: tab. C1.2 - Revenue from BancoPosta services
102. Law Decree 244/2016 (the so-called “Mille Proroghe” decree), converted with amendments into Law 19 of 27 February 2017, has extended the provision of subsidies for postal services introduced by the Interministerial Decree of 21 October 2010, aimed at publishing houses and non-profit organisations entered in the Register of Communications Providers (ROC), and has also restored the government subsidies introduced by Law 46 of 27 February 2004. The Decree also confirmed the subsidised tariffs for promotional mailshots by non-profit organisations.
Income from investments in securities derives from the investment of deposits paid into postal current accounts held by private customers. The total includes the impact of the interest rate hedge described in note A5.
�� Income from delegated services primarily regards amounts received by the Company for the payment of pensions and vouchers issued by INPS (€42 million), and for the provision of treasury services on the basis of the agreement with the MEF (€57 million).
�� Other products and services mainly reflect fees deriving from the processing of tax payment forms (F24) (€58 million).
(1) For the purposes of reconciliation with the statement of cash flows, in 2017 this item amounts to €16 million, after losses of €1 million. In 2016, this item, after losses of €2 million, amounted to a loss of €1 million.
Raw, ancillary and consumable materials and goods for resale 96 98
C6 – Personnel expenses (€5,877 million) Personnel expenses include the cost of staff seconded to other organisations. The recovery of such expenses, determined by the relevant chargebacks, is posted to other operating income. Personnel expenses break down as follows: tab. C6 - Personnel expenses
Provisions for employee termination benefits: supplementary pension funds and INPS 248 254
Furthermore, taking account of staff on flexible contracts, the average number of full-time equivalent staff in 2017 is di 134,190 (in 2016: 136,928).
C8 - Other operating costs (€459 million) tab. C8 - Other operating costs
Provisions (reversal of provisions) for receivables due from MEF [tab. A7.5] - (7)
Provisions (reversal of provisions) for sundry receivables [tab. A8.2] 8 4
Net provisions for risks and charges made/(released) 259 71 for disputes with third parties [tab. B4] 50 (30)
Impairment losses on investments in subsidiaries are described in note A4.
Finance costs on financial liabilities 29 30 on financial institutions borrowings 1 2 on derivative financial instruments 1 1
Finance costs on provisions for employee termination benefits [tab. B5] 20 23
Adjustments for change in IRES tax rate introduced by 2016 Stability Law - - 14 1.83%
tab. C10.2 - Reconciliation between the theoretical IRAP tax rate and the effective IRAP tax rate
prepayments for the current year 305 29 334 balance payable for the previous year 68 - 68
Current tax assets/(liabilities) for the year ended 31 December 2017 primarily regard: �� the tax asset of €59 million reflects payments of IRES and IRAP on account, refundable IRAP from the previous year and IRES withholding tax incurred, after provisions for IRES and IRAP for the year; �� the IRAP refund of €9 million to be recovered on the unreported deduction of expenses for disabled personnel in 2003. This receivable, which is of a non-recurring nature, was assessed during the first half under review, following the ruling handed down by the Regional Tax Tribunal for Lazio, which has upheld an earlier appeal brought by the Company (see the description provided in note 2.5 – Use of estimates). At 31 December 2017, accrued interest of €3 million has also been recognised on this sum (also of a non-recurring nature). Given the nature of this income, it has been accounted for in finance income (tab. C9.1), with the related receivable recognised in “Other receivables and assets” (tab. A8); �� the remaining IRES credit of €4 million to be recovered on unreported IRAP deduction, following submission of a claim pursuant to article 6 of Law Decree 185 of 29 November 2008 and article 2 of Law Decree 201 of 6 December 2011, which provided for a partial deductibility of IRAP from IRES (reference should be made to the information on accrued interest in note A8).
The following table shows movements in deferred tax assets and liabilities, broken down according to the events that generated such movements: tab. C10.6 - Movements in deferred tax assets
The decrease in deferred tax liabilities related to financial assets and liabilities is due mainly to movements in the fair value reserve, as described in note B2.
At 31 December 2017, deferred tax assets and liabilities recognised directly in equity are as follows: tab. C10.8 - Deferred tax assets and liabilities recognised in equity
Impact of related party transactions on the financial position and profit or loss The impact of related party transactions on the financial position and profit or loss is shown below.
Provisions for doubtful debts from external related parties - - (42) (11) - - - - -
Ministry of the Economy and Finance 6,189 1 327 21 1,310 2,429 - 108 21
At 31 December 2017, total provisions for risks and charges made to cover probable liabilities arising from transactions with related parties external to the Company and primarily attributable to trading relations amount to €11 million (€6 million at 31 December 2016).
The nature of the Company’s principal transactions with related parties external to the Group is summarised below.
�� Amounts received from CDP SpA primarily relate to payment for the collection of postal savings deposits.
�� Amounts received from the Monte dei Paschi di Siena group primarily regard payment for mail shipments.
Financial assets attributable to BancoPosta 60,048 8,496 14.1 58,052 7,698 13.3
Cost of goods and services 1,666 614 36.9 1,704 655 38.4
The remuneration paid to members of the Company’s Supervisory Board amounts to approximately €76 thousand in 2017. In determining the re, the amounts paid to managers of Poste Italiane who are members of the Supervisory Board is not taken into account, as this remuneration is passed on to the employer.
No loans were granted to key management personnel during the year and, at 31 December 2017, the Company does not report receivables in respect of loans granted to key management personnel.
At a meeting on 13 December 2017, Poste Italiane’s Board of Directors, having obtained the consent of the Related and Connected Parties Committee, authorised signature of the agreement with Cassa Depositi e Prestiti governing the collection and distribution of Postal Savings products, by BancoPosta on behalf of Cassa Depositi e Prestiti, for the three-year period 2018-2020.
Introduction Compared with the version presented until the end of the last annual reporting period, this note has undergone a number of changes in terms of form and content.
To help in reading the note and enable comparison with the past, a brief summary of the changes made is provided below: �� The note on “Risk management” is included only once, in an area of the document providing information on matters common to both the Group and Poste Italiane SpA. It deals with both financial risk (as defined by IFRS 7) and other types of risk that the Group’s deems it appropriate or necessary to disclose in this note.
Financial risk Information on financial risk management at 31 December 2017 is provided below, in accordance with the requirements of IFRS 7 – Financial Instruments: Disclosures.
Within the above context, balanced financial management and monitoring of the main risk/return profiles are carried out and ensured by dedicated organisational structures that operate separately and independently. In addition, specific processes are in place governing the assumption and management of and control over financial risks, including the progressive introduction of appropriate information systems.
104. See in particular the provisions laid down in Part I – Section IV – Chapter 3. 105. The RAF consists of a framework that defines, in keeping with the maximum acceptable risk, the business model and strategic plan, the risk appetite, risk tolerance thresholds, risk limits, and risk management policies, together with the processes needed to define and implement them.
�� an Investment Committee established at the Group’s insurance company, Poste Vita SpA, which, based on analyses by the relevant functions, provides advice to senior management on the development, implementation and oversight of investment strategy; �� appropriate functions established within the Parent Company and the subsidiaries providing financial and insurance services (BancoPosta Fondi SGR SpA and Poste Vita SpA) that perform Risk Measurement and Control activities, ensuring the organisational separation of risk assessment from risk management activities. The results of these activities are examined by the relevant advisory Committees, which are responsible for carrying out an integrated assessment of the main risk profiles; �� BancoPosta RFC’s Cross-functional Committee, set up under the BancoPosta RFC Regulation, which provides advice, makes recommendations and coordinates BancoPosta’s operations with those of other Poste Italiane functions. The Committee is chaired by the Parent Company’s CEO. Other permanent members are the Head of BancoPosta and the heads of the functions within Poste Italiane SpA primarily involved with BancoPosta.
The sensitivity analysis conducted at 31 December 2017 relates to the principal positions potentially exposed to fluctuations in value. Financial statement balances have been subjected to a stress test, based on actual volatility during the year, considered to be representative of potential market movements. The results of the sensitivity analysis carried out as at 31 December 2017 for the Poste Italiane Group are shown in the following table.
Financial asset at fair value through profit or loss 14,786 586 (586) 586 (586) - - - -
In relation to financial assets recognised at fair value through profit or loss, price risk concerns investments held by Poste Vita SpA, totalling €22,452 million, of which €21,364 million used to cover Class I policies and €1,088 million used to cover Class III policies.
+ Vol - Vol + Vol - Vol + Vol - Vol 2017 effects
Foreign exchange risk This is the risk that the value of a financial instrument fluctuates as a result of movements in exchange rates for currencies other than the functional currency.
Available-for-sale financial assets 96 80 6 (6) - - 6 (6)
The table below shows the sensitivity analysis for the fair value interest rate risk at 31 December 2017 for the Poste Italiane Group’s positions.
Financial assets at FV through profit or loss 6,481 6,886 (251) 244 (248) 241 (3) 3 - -
Nominal Fair value +100 bps -100 bps +100 bps -100 bps +100 bps -100 bps +100 bps -100 bps 2016 effects
Available-for-sale financial assets 500 551 (4) 4 - - (4) 4
Nominal Fair Value +100 bps -100 bps +100 bps -100 bps +100 bps -100 bps 2016 effects
Available-for-sale financial assets 32,178 37,159 (1,099) 1,031 - - (1,099) 1,031
Available-for-sale financial assets 500 562 (5) 6 - - (5) 6
On average, 2017 witnessed an increase in the yields on Italian government bonds, whilst, at 31 December 2017, the spread between ten-year Italian government bonds and German bunds is approximately 159 bps, demonstrating a trend in line with the previous year (161 bps at 31 December 2016). The related impact on the Group’s portfolio in the period under review is as follows: i. a net reduction in the fair value of BancoPosta RFC’s available-for-sale portfolio (a nominal value of approximately €36 billion) of approximately €0.8 billion. The decrease in the fair value of instruments hedged against interest rate risk, amounting to approximately €0.5 billion, was offset by an increase in the fair value of the related derivatives, whilst the reduction in the fair value of unhedged instruments and of the component subject to spread risk (unhedged) was reflected in consolidated equity (approximately €0.3 billion); ii. a net reduction in the fair value of the Poste Vita insurance group’s available-for-sale portfolio (a nominal value of approximately €88 billion) of approximately €1 billion, almost entirely passed on to policyholders and recognised in specific technical provisions under the shadow accounting mechanism (the impact on the specific fair value reserve amounts to approximately €2 million).
The sensitivity to the spread has been calculated by applying a shift of +/- 100 bps to the risk factor that affects the different
types of bonds held represented by the yield curve of Italian government bonds.
The table below shows the results of the analysis of sensitivity to country risk of the most significant positions in the portfolios of both the Parent Company and the Poste Vita group at 31 December 2017.
Poste Italiane SpA - Effect of credit spread on fair value
Available-for-sale financial assets 35,738 39,099 (3,877) 4,606 - - (3,877) 4,606
Available-for-sale financial assets 500 551 (16) 17 - - (16) 17
Financial assets at FV through profit or loss 6,481 6,886 4 2016 effects
Financial assets at FV through profit or loss 9,879 10,117 8
Credit risk This is the risk of default of one of the counterparties to which there is an exposure.
In 2017, the ratings revised by the main agencies did not result in changes in the weighted average rating of the exposures of the Parent Company, Poste Italiane SpA, which, for investments other than Italian government bonds, was A3 at 31 December 2017, equivalent to the Group’s average rating at the same date.
The Poste Italiane Group’s financial assets xposed to credit risk at 31 December 2017 are shown in the table below. The ratings reported in the table have been assigned by Moody’s.
Held-to-maturity financial assets - 12,912 - 12,912 - 12,683 - 12,683
Available-for-sale financial assets 1,935 131,974 481 134,390 2,777 122,634 687 126,098
With regard to financial assets, as required by Communication DEM/11070007 of 28 July 2011, implementing Document 2011/266 published by the European Securities and Markets Authority (ESMA) and later amendments, the Group’s exposure to sovereign debt108 at 31 December 2017 is shown in the table below.
108. “Sovereign debt” includes bonds issued by, and loans provided to, central and local governments and government bodies.
Financial assets at FV through profit or loss 2,148 2,152 2,152 5,445 5,451 5,451
Non-current assets and disposal groups held for sale - - - 749 793 793
Financial assets at FV through profit or loss - - - - - -
Due from subsidiaries, associates and joint ventures - - 3 of which past due 467 433
In relation to “Revenue and receivables due from the state”, the nature of the Group’s customers, the structure of revenue and the method of collection limit the risk of default on trade receivables. However, as explained in note 2.5, in the case of certain of the Parent Company’s activities, regulated by statute and specific agreements or contracts involving particularly complex renewal processes, prompt and full payment of the amounts due is dependent on availability of the necessary funds in the state budget or in the budgets of the related public sector entities.
All receivables are subject to specific monitoring and reporting procedures to support credit collection activities.
The Poste Italiane Group’s other receivables and assets exposed to the risk in question at 31 December 2017 are shown in the table below.
Receivables due from staff under fixed-term contract settlements 179 (9) 203 (7)
Poste Italiane SpA - Credit risk on financial assets attributable to BancoPosta
Balance at 31 December 2017 Balance at 31 December 2016 from Aaa to Aa3 from A1 to Baa3 from Ba1 to Not rated
Held-to-maturity financial assets - 12,913 - 12,913 - 12,683 - 12,683
Available-for-sale financial assets - 39,099 - 39,099 - 37,159 - 37,159
Fair value through profit or loss - - - - - - - -
Poste Italiane SpA - Credit risk on other receivables and assets
Due from tax authorities - tax withholdings 1,576 - 1,388 -
Accrued income and prepaid expenses from trading transactions 6 - 6 -
Interest accrued on IRAP refund 3 - - of which past due 46 46
In order to minimise this risk, the Poste Italiane Group applies a financial policy based on diversification of the various forms of short-term and long-term borrowings and counterparties; availability of relevant lines of credit in terms of amounts and the number of banks; gradual and consistent distribution of the maturities of medium/long-term borrowings; use of dedicated analytical models to monitor the maturities of assets and liabilities.
The following tables compare the Poste Italiane Group’s liabilities and assets at 31 December 2017, in terms of liquidity risk.
Flows from Poste Vita group’s policies 12,913 37,877 110,200 160,990 13,174 39,603 84,851 137,628
Financial liabilities attributable to BancoPosta 23,683 13,371 23,173 60,227 21,923 13,540 21,455 56,918
Position Change in value Effect on liability toward policyholders Pre-tax profit
Poste Italiane Financial Statements for the year ended 31 December 2017 6. Risk management
For the purposes of complete disclosure, Poste Italiane SpA’s exposure to the risk in question is shown in the following table.
Nominal +100 bps -100 bps +100 bps -100 bps 2017 effects
Financial liabilities due to subsidiaries (46) - - - 2016 effects
Other Risks The other principal risks to which the Poste Italiane Group is exposed at 31 December 2017 are described below.
Operational risk Operational risk refers to the risk of losses resulting from inadequate or failed internal processes, people and systems, or from external events. This category of risk includes losses resulting from fraud, human error, business disruption, systems failures, breach of contracts and natural disasters. Operational risk includes legal risk.
At 31 December 2017, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. In particular: Event Type Number of types
Nevertheless, at 31 December 2017, the mortality risk is limited for the Group, considering the features of the products offered. The only area where this risk is somewhat significant is term life insurance, for which actual death rates are compared from time to time with those projected on the basis of the demographics adopted for pricing purposes; to date, the former have always turned out to be much lower than the latter. Moreover, mortality risk is mitigated through reinsurance and by setting limits on both the capital and the age of the policyholder when policies are sold.
• Provisioning risk: referring to the risk that technical provisions are not sufficient to meet obligations to policyholders. This insufficiency may be due to incorrect estimates by the company and/or changes in the general environment.
The main element of reputational risk to which the Group is, by its nature, exposed is linked to market performance and primarily associated with the placement of postal savings products and investment products issued by third-party entities (bonds, certificates and real estate funds) or by Group companies (insurance policies issued by the subsidiary, Poste Vita SpA, and mutual funds managed by BancoPosta Fondi SpA SGR).
Litigation In 2011, as part of a criminal investigation of third parties, the Tax Office in Rome, acting on behalf of local judicial authorities, seized accounting and administrative documents from Postel SpA related to e-procurement transactions carried out in 2010 and, to a lesser extent, in 2011; as a precautionary measure, e-procurement operations were suspended in 2011.
In 2009, the Regional Tax Office for Large Taxpayers (Agenzia delle Entrate - Direzione Regionale del Lazio - Ufficio Grandi Contribuenti) notified Poste Vita SpA of an alleged violation of the VAT regulations in the 2004 tax year, resulting in fines of approximately €2.3 million for the alleged failure to pay VAT on invoices for service commissions. Poste Vita SpA appealed the above findings before the Provincial Tax Tribunal of Rome. In December 2010 and September 2011, the tax authorities sent notices of two further small fines for the same violation in fiscal years 2005 and 2006. These fines have also been appealed. The Provincial Tax Tribunal of Rome found in the company’s favour, ruling that the tax authorities’ allegations are without grounds. The tax authorities have challenged such rulings, filing a series of appeals. The Regional Tax Tribunal of Rome rejected both appeals and confirmed the lack of grounds for the claims against Poste Vita. With regard to the disputes relating to 2004 and 2006, on 23 October 2015, the State Attorney’s Office challenged these decisions and summoned the company to appear before the Court of Cassation. The counterclaims filed by Poste Vita before the Court of Cassation were served to the tax authorities on 3 December 2015 and subsequently entered in the Cassation’s registry on 17 December 2015. On the other hand, with regard to the dispute relating to 2005, the appeal before the Court of Cassation was notified to the company in November 2017. The counterclaim filed by Poste Vita was served to the tax authorities on 13 December 2017, and subsequently entered in the Cassation’s registry on 29 December 2017. The likely outcome of this tax dispute continues to be taken into account in determining provisions for risks and charges.
As part of activities relating to so-called “Help with Tax” (tutoraggio fiscale) initiative conducted by the Regional Tax Office for Lazio (Agenzia delle Entrate - Direzione Regionale del Lazio), in September 2016, Poste Vita SpA received a request for documentation pursuant to art. 32 of Presidential Decree 600/1973. This was followed, on 22 November 2016, by a raid on the company’s premises, conducted in accordance with art. 52 of Presidential Decree 633/1972 and art. 33 of Presidential Decree 600/73, with the aim of verifying, for the tax years 2012 and 2013, the correct computation of outstanding claims provisions and the related tax treatment for the purposes of IRES and IRAP. On 30 November 2016, the company was notified of a tax assessment notice containing one violation in relation to IRES and IRAP, regarding the alleged non-deductibility of the cost of certain “lapsed” claims that have yet to be paid and that were, therefore, still included in the provisions at 31 December 2012 and 31 December 2013. The tax authorities’ findings, relating to approximately 340 policies, amounting to a total of approximately €2.1 million for 2012 and approximately €0.2 million for 2013, solely regards the timing of recognition of the relevant costs. The inspectors’ opinion is based on the assumption that the company, with regard to lapsed policies, should have included the provisions for claims no longer payable to beneficiaries in taxable income, and then applied a matching reduction in taxable income in future years, when payment of the policies took place. This, according to the tax authorities, because the company’s decision to honour the policies, giving rise therefore to the possibility of deducting the related costs, can only be considered irrevocable and final when effective payment of the policy takes place. The company has so far acknowledged the inspectors’ findings and, on 23 December 2016, filed a tax settlement proposal in accordance with art. 6, paragraph 1 of Legislative Decree 218 of 19 June 1997. The purposes of this was to enter into discussions with the offices responsible for issuing the notices of assessment, with the aim of obtaining a reduction in the tax to be paid and the related penalties. Following discussions, during which the company was able to demonstrate that claims on around 55% of the lapsed policies attributable to 2012 and approximately 88% of those attributable to 2013 had already been paid by 31 December 2015, amounting to a total of approximately €1.3 million. The tax authorities thus proposed to only recover IRES and IRAP in relation to the additional tax due for 2012 and 2013 on policies that, at 31 December 2015, were still included in outstanding claims provisions (amounting to approximately €0.357 million), to reduce the related penalties by a third as a result of the tax settlement and to reduce them by a further 50% with reference to the policies already paid in recognition of the company’s good faith (approximately €0.153 million), in addition to interest charged at 3.5% per annum in accordance with the relevant tax legislation (approximately €0.105 million). As the irregularity merely regarded a question of timing, the additional IRES and IRAP payable will be recovered in the years in which the disputed amounts are paid to beneficiaries, with the company actually only incurring the penalties and interest. Following the board of directors’ approval of the tax authorities’ proposal on 21 March 2017, the company accepted the proposal on 27 March 2017 by paying the sums due.
On 25 November 2014, a tax audit relating to Postel SpA, regarding direct taxes and VAT for the tax years from 2009 to 2012 and previously undertaken by the tax authorities, came to an end with delivery of a tax audit report in which the right to deduct VAT from purchases, applied by the company in 2010 and 2011, was contested. Then, on 8 October 2015, an audit regarding income tax and withholding tax, regarding Postel SpA’s alleged failure to pay social security contributions for employees and/ or contractors used by a supplier between 2010 and 2014, came to an end with delivery of a tax audit report, contesting the right to deduct VAT and the deductibility of IRAP.
With regard to the assessment notices for 2010 and 2011, the company has elected to take up the settlement concession introduced by art. 11 of Law Decree 50 of 24 April 2017, which involves payment of the outstanding tax and interest on the arrears accruing up to the 60th day after notification of the assessment, except for penalties and overdue interest. The amounts
Social security disputes since 2012, the Istituto Nazionale per la Previdenza Sociale (INPS, the National Institute of Social Security) office at Genoa Ponente has issued Postel SpA and Postelprint SpA (regarding which an agreement relating to a merger with Postel SpA was signed on 27 April 2015, effective for accounting and tax purposes from 1 January 2015) a number of notices of adjustment, some of which have resulted in payment orders, for a total amount payable of €18.2 million at 31 December 2017. According to INPS, this amount represents social security contributions funding income support, extraordinary income support, unemployment benefit and family benefits not covered by the contributions paid to IPOST and which, according to INPS, the two companies have failed to pay. The companies immediately challenged the grounds for the payment orders, initially through administrative channels before the Administrative Committee for Employee Pensions, and then in the form of legal action before the Court of Genoa. In a memo issued on 20 October 2016, the Ministry of Labour stated that the social security contributions system applicable to Poste Italiane also applies to all the other Group companies, with the sole exception of those that provide air transport, banking and express delivery services.
Finally, on 15 February 2018, as part of a judgement pending before the Court of Genoa against a payment order regarding management personnel, INPS has submitted to Postel a brief defending its claim, based on which the company should pay family benefit contributions at a rate, also in this case, of 4.40%, rather than the 0.68% requested in the various payments orders notified to Postel and regularly appealed by the company. The company will appeal the order and challenge INPS’s claims.
On 4 June 2015, the AGCM launched an investigation pursuant to art.8, paragraph 2 quater of Law 287/90, aimed at ascertaining whether actions taken by Poste Italiane were designed to prevent H3G SpA (now Wind tre SpA) from accessing the post office network. Requests to participate in the investigation from Fastweb SpA and Vodafone Omnitel BV, as well as PosteMobile, were accepted. With the ruling adopted at a meeting held on 16 December 2015, the Authority deemed that Poste Italiane had failed, when requested, to offer a competitor of 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. In the same ruling, the Authority also ruled that Poste Italiane should desist from such conduct in the future. The Authority did not impose a fine.
Finally, on 28 March 2018, Poste Italiane, PosteMobile and WindTre SpA reached an agreement whereby, without any recognition and in order to restore peaceful business relations, the parties abandoned the dispute in question. By signing the agreement, Poste Italiane undertook to pay WindTre SpA a total of €1.5 million to cover the operating, general and staff costs incurred, also in relation to disputes, including but not limited to the collection and processing of information and corporate data by WindTre’s offices, legal fees and legal aid expenses, charges relating to technical consultancy services, etc..
On 8 June 2016, the AGCM notified Poste Italiane of the launch of investigation pursuant to art. 14 of Law 287/90, aimed at determining whether behaviour towards Nexive SpA, in multi-item ordinary mail delivery markets, constitutes an abuse of its dominant market position as per art. 102 of the TFEU.
Following transposition into Italian law of the third European postal services directive (Directive 2008/6/CE), the so-called “net avoided cost” method has been applied in quantifying the cost of the universal service110. In this regard: iii. On 29 July 2014, the board of AGCom issued Resolution 412/14/CONS, approving the measure defining the method of calculating and quantifying the net cost of the universal postal service for 2011 and 2012. In confirming that the cost of the universal service for 2011 and 2012 is, in certain respects, unfair and thus merits compensation, the resolution quantified the cost for 2011 and 2012, respectively, as €381 million and €327 million, compared to sums recorded originally by Poste Italiane SpA for approximately €357 million and €350 million. On 13 November 2014, Poste Italiane SpA challenged this resolution by filing an appeal before the Regional Administrative Court (TAR). The case is still pending.
v. On 27 October 2017, AGCom announced the launch of the process for assessing the net cost of the universal postal service for 2015 and 2016.
In addition, on 28 September 2017, the Bank of Italy began an inspection pursuant to art. 53 of Legislative Decree 231/2007, again with regard to BancoPosta’s operations. The inspection related to money laundering prevention at a sample of post offices. The process, ended on 11 December 2017, having the nature of a follow-up to the inspection conducted in 2015, aimed to assess the progress made in implementing the compliance initiatives communicated to the Bank.
With regard to the violations notified by IVASS to Poste Vita SpA, three injunctions settling a total of seven proceedings have been notified. Two related to violations of art. 183, paragraph 1.a) of the Codice delle Assicurazioni Private (Private Insurance Code or CAP), as a result of the payment of claims beyond the 30-day term provided for in the related contracts, and one to the failure to comply with article 16 of IVASS Regulation 35/2010, regarding the obligations regarding the deadline for responding to requests for information. Four further proceedings launched by IVASS, almost all regarding violations of art. 183, paragraph 1.a) of the CAP, are pending.
Commissione di Vigilanza sui Fondi Pensione (the pensions regulator) On 4 October 2016, the pensions regulator launched an inspection focusing on the PostaPrevidenza Valore individual pension plan. The inspection at the offices of Poste Vita came to an end on 23 March 2017. On 14 July 2017, the regulator notified the company that the inspection had been completed on 30 June 2017. The company has yet to receive any feedback from the regulator regarding the inspectors’ findings.
Garante per la protezione dei dati personali (the Data Protection Authority) On 15 January 2014, at the end of an investigation launched in 2009, the Authority imposed a fine of €0.34 million on Postel SpA, which the company accounted for in its financial statements for 2013. The company appealed the Authority’s ruling before the Civil Court of Rome, requesting an injunction suspending its implementation, which was accepted by the judge with a ruling on 16 June 2014. On 21 January 2016, the designated judge reduced the fine by €0.1 million, rejecting the other preliminary exceptions raised on the merits. As a result of this decision, the relevant liabilities recognised in the financial statements for the year ended 31 December 2016 were adjusted accordingly. On 21 March 2017, Equitalia Servizi di riscossione SpA notified the company of a payment order in which, in addition to requesting payment of a fine of €0.24 million, as reduced by the judgement handed won by the Court of Rome, it also applied, among other things, an additional amount of €0.12 million. The company has appealed the order before the Court of Rome, requesting an injunction suspending its execution. With regard to this payment order, on 15 June 2017, Equitalia Servizi di Riscossione SpA proceeded to seize sums due to Postel from INPS in accordance with articles 72-bis and 48-bis of Presidential Decree 602/73. In response, the company filed a further request with the Authority asking for execution of the order to be delayed whilst awaiting the decision of the court regarding the application for injunctive relief. The hearing is scheduled for 18 April 2018. In accordance with and for the purposes of the writ of seizure, INPS, as the garnishee defendant, has paid the sum of €0.386 million to Equitalia Servizi di Riscossione.
A brief summary of the impact of material non-recurring events and transactions111 involving the Poste Italiane Group in 2017, is provided below, as required by CONSOB ruling DEM/6064293 of 28 July 2006: �� income of €91 million from the sale of 756,280 Class B Mastercard Incorporated shares in a series of transactions, following their conversion into Class A shares (see note A5); �� a total loss of €82 million on the Convertible Contingent Notes issued by Midco SpA and recognised in finance costs (see note 3 Material events during the year); �� income of €9 million in IRAP to be recovered on the unreported deduction of expenses for disabled personnel in 2003. This amount was assessed following the ruling handed down by the Regional Tax Tribunal for Lazio, which upheld an earlier appeal brought by the Parent Company (see note 2.5 – Use of estimates). Accrued interest of €3 million on this sum was assessed and is also of a non-recurring nature. This amount has been classified in finance income; �� with regard to the Parent Company’s separate financial statements, income of €14 million recognised in “Other operating income”, following the sale of the 100% interest in Banca del Mezzogiorno–MedioCreditoCentrale SpA to Invitalia SpA (see note 5.2-A11 Non-current assets held for sale and discontinued operations).
Under the definition provided by the CONSOB ruling of 28 July 2006, the Poste Italiane Group did not conduct any exceptional and/or unusual transactions112 in 2017.
111. Events and transactions are defined as such when their occurrence is non-recurring, being transactions or events that do not recur frequently in the ordinary course of business.
112. Such transactions are defined as transactions that due to their significance/materiality, the nature of the counterparties, the purpose of the transaction, the manner of determining the transfer price and timing of the transaction may give rise to doubts over the correctness and/or completeness of the disclosures in the financial statements, over a conflict of interest, safeguards for the Company’s financial position and protections for non-controlling shareholders.
Poste Italiane Financial statements for the year ended 31 December 2017 8. Material non-recurring events and/or transactions
The following events have taken place in early 2018: �� On 25 January 2018, Poste Italiane SpA’s Board of Directors approved the Company’s transfer of free reserves of €210 million to BancoPosta RFC in order to restore the leverage ratio to the target level set out in the Risk Appetite Framework113. For this purpose, at the same time, the Chief Executive Officer of Poste Italiane SpA was given the authority to carry out any activities and to negotiate and sign any deeds or documents necessary or appropriate. It was also decided to submit the proposal to strengthen BancoPosta RFC’s capital for approval by an Extraordinary General Meeting of Poste Italiane SpA’s shareholders.
�� On 25 January 2018, Poste Italiane SpA announced its intention to participate in the rights issue to be carried out by Anima Holding SpA. At the end of the previous year, Anima Holding SpA’s board of directors was authorised by an extraordinary general meeting of the company’s shareholders to proceed with a capital increase of up to €300 million. Poste Italiane SpA, which at the reporting date holds an interest of approximately 10.04% in Anima Holding SpA, will therefore subscribe for the new shares. The offer period is between 26 March 2018 and 12 April 2018 and the cost of the new shares to be subscribed by Poste Italiane SpA amounts to up to €32 million.
�� On 13 February 2018, the merger of PosteTutela SpA with and into Poste Italiane SpA was completed. The transaction will be effective for legal purposes from 1 March 2018, whilst it will be effective for accounting and tax purposes from 1 January 2018.
Financial assets at fair value through profit or loss - - - (29,338) - (29,338) (555)
Poste Italiane Financial statements for the year ended 31 December 2017 11. Additional information
Financial assets at fair value through profit or loss - - - (24,903) - (24,903) (551)
Technical provisions attributable to reinsurers - - - (66) - (66) -
Cash and deposits attributable to BancoPosta - - (2,494) - - (2,494) -
At 31 December 2017, the Group has net funds of €5,567 million. The increase during the year reflects the reduction in the fair value of available-for-sale financial assets (€991 million). The fair value reserve for available-for-sale financial assets, before tax, amounts to €521 million (€1,512 million at 31 December 2016).
An analysis of the net funds of the Mail, Parcels and Distribution segment at 31 December 2017, in accordance with ESMA recommendation 319/2013, is provided below: Annual Report Poste Italiane Group | 2017
Cash and deposits attributable to BancoPosta - (3,196) - (3,196) -
Cash and deposits attributable to BancoPosta - (2,494) - (2,494) -
At 31 December 2017, the Company has net funds of €3,273 million. The increase during the year reflects the reduction in the fair value of available-for-sale financial assets (€979 million). The fair value reserve for available-for-sale financial assets, before tax, amounts to €262 million (€1,241 million at 31 December 2016).
Industrial net debt for capital outside ring-fence including intersegment transactions (1,010) (887)
In accordance with IFRS 7 – Financial Instruments: Disclosures, this section provides details of financial assets and liabilities that are subject to master netting agreements or similar arrangements, regardless of whether the financial instruments have been offset in keeping with paragraph 42 of IAS 32114.
* The gross amount of financial assets and liabilities includes the financial instruments subject to offsetting and those subject to master netting agreements or similar arrangements, regardless of whether the financial instruments have been offset.
At 31 December 2017, these assets concern reverse repurchase agreements entered into with primary financial intermediaries and entirely attributable to the Parent Company.
Financial liabilities arising from repos - - - - - -
Receivables used as collateral provided by CSAs 1,110 1,110 1,391 1,391
Receivables used as collateral provided by GMRAs 69 69 44 44
Receivables used as collateral provided by CSAs 40 40 50 50
Investment in real estate assets, real property rights, including those resulting from property lease arrangements, participating interests in property companies and the professional management and development of the fund's assets
Investment in real estate assets and real property rights, including those resulting from property leasetranslational arrangements and concessions and in investments in unquoted property companies
Nature of the risk The company’s investments in the funds in question are reported at fair value (mainly level 2 of the fair value hierarchy), on the basis of the NAV reported from time to time by the fund manager. These investments were made in connection with Class I policies and, as such, any changes in fair value are passed on to the policyholder under the shadow accounting mechanism.
All Beneficiaries must be measured against an indicator of shareholder value creation, based on the Total Shareholder Return, used to measure performance based on the value created for Poste Italiane’s shareholders compared with other FTSE MIBlisted companies.
Vesting of the Phantom Stocks is subject to achievement of the Performance Hurdle, designed to ensure sustainability of the Plan at Group level. The Performance Hurdle corresponds with achievement of a certain target for the Group’s cumulative EBIT over a three-year period at the end of each Performance Period. In addition, in the case of the General Manager (and Chief Executive Officer) and BancoPosta RFC’s Risk Takers, vesting of the Phantom Stocks is also subject to achievement of Qualifying Conditions, designed to ensure the stability of BancoPosta RFC’s capital and liquidity position, as follows: Indicator of capital adequacy, based on CET 1 at the end of the period; Indicator of short-term liquidity, based on LCR at the end of the period; Indicator of risk-adjusted earnings, based on RORAC at the end of the period; this indicator has been introduced from the 2017-2019 cycle and only for the General Manager (and Chief Executive Officer).
For personnel belonging to the Poste Vita insurance group, vesting of the Phantom Stocks, in addition to achievement of the Performance Hurdle (Group’s cumulative EBIT over a three-year period), is subject to achievement of the specific Qualifying Condition, namely the Solvency II ratio at the end of the period.
The Phantom Stocks will be awarded by the end of the year following the end of the Performance Period, and immediately converted into cash. In the case of the General Manager, BancoPostaRFC’s Risk Takers and the Poste Vita group’s personnel, they are subject to a one-year retention period, before they can be converted into cash, following confirmation that the Qualifying Conditions for each plan have been met.
Poste Italiane SpA The effects on profit or loss of the First and Second Cycles if the above Long-Term Incentive scheme at 31 December 2017 for Poste Italiane SpA are shown below.
Short-term incentive schemes: MBO On 27 May 2014, the Bank of Italy issued specific Supervisory Standards for BancoPosta (Part IV, Chapter I, “BancoPosta” including in Circular 285 of 17 December 2013 “Prudential supervisory standards for banks”) which, in taking into account BancoPosta’s specific organisational and operational aspects, has extended application of the prudential standards for banks to include BancoPosta. This includes the standards relating to remuneration and incentive policies (Part I, Title IV, Chapter 2 “Remuneration and incentive policies and practices” in the above Circular 285/2013). These standards provide that a part of the bonuses paid to BancoPosta RFC’s Material Risk Takers may be awarded in the form of financial instruments over a multi-year timeframe. As a result, with regard to the management incentive schemes adopted for BancoPosta RFC, where the incentive is above a certain materiality threshold, the MBO management incentive scheme envisages the award of 50% of the incentive in the form of phantom stocks, representing the value of Poste Italiane SpA’s shares, and application of the following deferral mechanisms: �� 60% of the award to be deferred for a 5-year period on a pro-rata basis, in the case of Material Risk Takers who are beneficiaries of both the short- and long-term incentive schemes; �� 40% of the award to be deferred for a 3-year period on a pro-rata basis for the remaining Material Risk Takers.
The award of phantom stocks is subject to meeting the Performance Hurdle (Group earnings: EBIT) and certain Qualifying Conditions, as follows: �� Capital adequacy: CET 1, risk tolerance level approved in the Risk Appetite Framework (RAF); �� Short-term liquidity: LCR, risk tolerance level approved in the Risk Appetite Framework (RAF).
At 31 December 2017, the number of phantom stocks has been estimated on the basis of the best available information, with the aim of recognising the related service cost. An independent expert, external to the Group, was appointed to measure the value of the stocks, based on best market practices. The cost recognised for 2017 amounts to approximately €0.6 million, equivalent to the liability recognised in amounts due to staff.
The total number of phantom stocks awarded following early termination of employment in 2017 amounted to 276,744. The cost recognised in profit or loss amounts to approximately €1.5 million, equivalent to the liability recognised in amounts due to staff.
FSIA Investimenti Srl (Milano) (c) Joint venture 286,136 30.00% 1,011,722 59,792 951,930 - 24,816
Uptime SpA - in liquidation (Rome) (e) Subsidiary - 100.00% 4,104 4,339 (235) 5,791 (413)
Postal savings deposits the following table provides a breakdown of postal savings deposits collected by the Parent Company in the name of and on behalf of Cassa Depositi e Prestiti, by category. The amounts are inclusive of accrued, unpaid interest.
Assets under management assets under management by BancoPosta Fondi SpA SGR, measured at fair value using information available on the last working day of the year, amount to €7,984 million at 31 December 2017 (€7,269 million at 31 December 2016).
At 31 December 2017, EGI SpA has given commitments to purchase electricity, with a total value of €10.7 million, on regulated forward markets in 2018. At 31 December 2017, the corresponding market value is €12.4 million.
Future commitments attributable to the Group and Poste Italiane SpA related to property leases, which may generally be terminated with six months’ notice, break down by due date as follows: Commitments for property leases - Poste Italiane Group
Instalments falling due: within 1 year of the reporting date 138 139 between 2 and 5 years after the reporting date 320 311 more than 5 years after the reporting date 65 52
Third-party assets Third-party assets held by Group companies are shown below. This type of asset refers solely to the Parent Company, Poste Italiane SpA.
In addition to the above, at 31 December 2017, Poste Italiane SpA holds a further €3 million in assets belonging to Group companies.
Assets in the process of allocation at 31 December 2017, the Parent Company had paid a total of €107 million in claims on behalf of the Ministry of Justice, for which, under the agreement between Poste Italiane SpA and the MEF, it has already been reimbursed by the Treasury, whilst awaiting acknowledgement of the relevant account receivable from the Ministry of Justice.
Disclosure of fees paid to independent auditors pursuant to art.149 Duodecies of the CONSOB’s regulations for issuers 115. Any audit or attestation services relating to accounts prior to the reporting date are recognised on an accruals basis, following engagement of the auditor, in the year in which the services are rendered, applying the percentage of completion method.
The following table shows fees payable to the Parent Company’s auditors, PricewaterhouseCoopers SpA, and companies within its network for 2017, presented in accordance with art. 149 duodecies of the CONSOB’s Regulations for Issuers: Disclosure of fees paid to Independent Auditors
Auditing services are expensed as incurred and reported in the audited financial statements115. With regard to the Parent Company, the item “Audit” includes additional fees of €130 thousand subject to approval by the Annual General Meeting of shareholders on 29 May 2018.
Detailed table of contents BANCOPOSTA RFC SEPARATE REPORT FOR THE YEAR ENDED 31 DECEMBER 2017
Part B – Information on the Statement of financial position 446
Financial liabilities held for trading - 50. Financial liabilities designated at fair value - 70. Adjustments for changes in hedged financial liabilities portfolio (+/-) - 90. Liabilities associated with non-current assets held for sale and discontinued operations - 120. Provisions for risks and charges: 543,375,786 462,396,773 a) post-employment benefits - 200.
for the year ended 31 December 2017 for the year ended 31 December 2016 10. Interest and similar income 1,525,963,155 1,542,998,078 20. Interest and similar expense (78,167,651) (73,840,796)
40. Fee and commission income 3,628,959,602 3,602,704,357 50. Fee and commission expense (64,607,340) (66,084,130)
60. Net fee and commission income 3,564,352,262 3,536,620,227 70. Dividends and similar income 597,839 690,388 80. Profits/(Losses) on trading 2,342,123 3,133,641 90. Fair value adjustments in hedge accounting 1,897,984 (910,193)
100. Profits/(Losses) on disposal or repurchase of: 623,613,722 587,484,549 a) loans and advances - b ) available-for-sale financial assets 623,613,722 593,952,484 c) held-to-maturity financial assets - 110.
Profits/(Losses) on financial assets/liabilities designated at fair value - 120. Net interest and other banking income 5,640,599,434 5,596,175,894 130. Net losses/recoveries on impairment of: (14,583,719) (6,363,522)
110. Non-current assets held for sale - 120. Share of valuation reserve attributable to equity-accounted investments - 130. Total other components of comprehensive income after taxes (753,949,913) (1,637,295,997)
(€) for the year ended 31 December 2017 for the year ended 31 December 2016
- financial assets held for trading - - - financial assets designated at fair value - - - available-for-sale financial assets (2,764,116,693) (5,467,991,805)
3. Cash flow from/(used for) financial liabilities 2,847,080,414 5,041,164,367 - due to banks: on demand 638,071,027 101,623,433 - due to banks: other (487,038,484) 437,934,922 - debt securities in issue - - - financial liabilities held for trading - - - financial liabilities designated at fair value - -
Net cash flow from / (used for) investing activities (281,852,938) 179,456,838
Net cash flow from / (used for) financing activities (458,276,740) (586,969,571)
NET CASH FLOW GENERATED / (USED) DURING THE YEAR 706,343,270 (657,875,842)
Cash and cash equivalents at beginning of the year 2,510,820,434 3,168,696,276
Cash and cash equivalents at end of the year 3,217,163,704 2,510,820,434
Information on the assessment of the qualitative effects and the choices made is provided in the above note 2.7. Preliminary information about the main effects on BancoPosta RFC’s assets and liabilities at 1 January 2018, resulting from adoption of the new accounting standard, is provided below. Checks on the data presented below are still in progress. All the effects are shown before the related taxation.
As a result of the new rules introduced by IFRS 9 governing the approach to calculating impairments (Expected Credit Losses - ECLs) and the expected loss models adopted, the ECLs at 1 January 2018, recognised in revenue reserves, amount to €25 million and include: �� €8 million on securities classified as “Financial assets measured at amortised cost”; �� €14 million on securities classified as “Financial assets measured at fair value through other comprehensive income”; �� €3 million on other financial assets measured at amortised cost (other than securities).
As a result of the above, the expected effects on BancoPosta RFC’s equity at 1 January 2018 are as follows (before the related taxation): �� An increase of approximately €1.9 billion in the fair value reserve; �� A reduction of approximately €8 million in revenue reserves, of which: • a reduction of €25 million resulting from the new method of determining ECLs; • an increase of €16 million, resulting from the reclassification to “Financial assets measured at fair value through profit or loss” of equity instruments classified in “Available-for-sale financial assets” at 31 December 2017.
Section 2 – Basis of preparation The Separate Report has been prepared in application of Bank of Italy Circular 262 of 22 December 2005 – “Banks’ Financial Statements: Layouts and Preparation”, as amended, applicable at the date of preparation of this Report, and of art. 2447 septies, paragraph 2, of the Italian Civil Code. On 27 May 2014, the Bank of Italy issued specific Supervisory Standards for BancoPosta RFC (Circular 285/2013, Part Four, Section 1) which, in taking into account the entity’s specific organisational and operational aspects, has established prudential requirements that are substantially in line with those applicable to banks. The Standards also govern the requirements regarding capital adequacy and risk containment. The Separate Report relates to the year ended 31 December 2017, has been prepared in euros and consists of the statement of financial position, the income statement, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and the explanatory notes. The statement of financial position, income statement and statement of comprehensive income consists of numbered line items and lettered line sub-items. Nil balances have also been presented in the statement of financial position, income statement and statement of comprehensive income for the sake of completeness. The statement of cash flows has been prepared using the indirect method116. All figures in the notes are stated in millions of euros. Notes and account analysis have not been included for nil balances.
�� On 25 January 2018, Poste Italiane SpA’s Board of Directors approved the separation and transfer of certain assets, contractual rights and authorisations from BancoPosta RFC to a new ring-fenced e-money and payment services unit to be set up within PosteMobile SpA, as well as the separation of the contractual rights and authorisations relating to back-office and anti-money laundering activities. These corporate actions were subject to approval by Extraordinary General Meeting, following prior receipt of all the consents needed to comply with existing statutory and regulatory requirements. Submission to the Bank of Italy of a request for authorisation to remove the ring-fence from the assets, contractual rights and authorisations that make up the e-money and payment services unit was also approved.
�� On 19 February 2018, Poste Italiane SpA’s Board of Directors approved an initiative designed to protect customers who had invested in the Europa Immobiliare 1 fund, granting the Chief Executive Officer the authority and the powers to take all the preparatory and consequent steps to implement the initiative.
Liabilities and equity 120. Provisions for risks and charges 543 - 462 200. Profit/(Loss) for the year (+/-) 585 - 568 -
On 9 March 2015, the Authority notified Poste Italiane SpA of an investigation of BancoPosta RFC for alleged violation of articles 20, 21 and 22 of the Consumer Code, regarding the “Libretto Smart” product. On 21 December 2015, the AGCM notified Poste Italiane of its final ruling, in which it deemed the Company’s conduct unfair and imposed a fine of €0.54 million, limited to a tenth of the maximum applicable amount, taking into account the mitigating circumstance that Poste Italiane had adopted initiatives aimed at allowing customers to benefit from the bonus rate. Poste Italiane lodged an appeal against this ruling before the Lazio Regional Administrative Court, which adjourned the case to a hearing on the merits.
In addition, on 28 September 2017, the Bank of Italy began an inspection pursuant to art. 53 of Legislative Decree 231/2007, again with regard to BancoPosta’s operations. The inspection related to money laundering prevention at a sample of post offices. The inspection, which was concluded on 11 December 2017, had the nature of a follow-up to the inspection conducted in 2015, aimed to assess the progress made in implementing the compliance initiatives communicated to the Bank.
In accordance with the roll-out plan launched in October 2016, in 2017, Poste Italiane completed the process of releasing the software for the new “guided consultancy” service, which was gradually implemented throughout Poste Italiane’s post office network during the year. In parallel, during the second half of 2017, further work was carried out in order to comply with the requirements of MiFID2, which came into effect from 3 January 2018. The changes made to procedures and IT systems, together with the further initiatives planned for 2018 with a view to consolidating the related processes, were the subject of a specific report to the CONSOB.
d) Derecognition Financial assets are derecognised when the contractual rights to the cash flows of those financial assets lapse or when the financial asset is sold and all risks and rewards relating to the financial asset are substantially transferred.
c) Measurement Available-for-sale financial assets are recognised at fair value and any resulting fair value gains or losses are recognised in an equity reserve. This reserve is only recycled to profit or loss when the financial asset is effectively disposed of (or settled) or, in the event of accumulated losses, when there is evidence that the impairment recognised in equity cannot be recovered. Solely in the case of debt securities, if the fair value subsequently increases as the objective result of an event that took place after the impairment loss was recognised in profit or loss, the value of the financial instrument is reinstated and the reversal recognised in profit or loss. The recognition of returns on debt securities under the amortised cost method 118 takes place through profit or loss, as do the effects of movements in exchange rates, whilst movements in exchange rates relating to available-for-sale equity instruments are recognised in a specific equity reserve.
b) Classification Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and maturities that BancoPosta RFC has a positive intention and ability to hold to maturity.
c) Measurement and recognition of gains and losses Held-to-maturity financial assets are measured at amortised cost using the effective interest rate method adjusted for any impairments. Any gains or losses are recognised in profit or loss in line item 10 - Interest and similar income. In the event that there is objective evidence of an impairment, the impairment loss recognised as the amount that would equate the carrying amount to the present value of the projected cash flows. Any impairment loss is then recognised in profit or loss. If, subsequently, the reasons giving rise to the impairment cease to exist, the impairments are reversed to reinstate the amortised cost that would have been the carrying amount if there had been no impairment.
b) Measurement and recognition of gains and losses Receivables, loans and advances are carried at amortised cost determined using the effective interest rate method adjusted for any impairment. Impairments are recognised as described in the note on held-to-maturity financial assets.
a) Recognition and classification Derivative hedges are initially recognised on conclusion of the relevant contract. There are two types of hedge: �� Fair value hedges: A hedge of the exposure to a change in fair value of a recognised asset or liability or of an unrecognised firm commitment attributable to a particular risk, and that could have an impact on profit or loss.
�� Cash flow hedges 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 (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 affect profit or loss.
11 – Current and deferred taxation Current income tax expense (IRES and IRAP) is based on the best estimate of taxable profit for the period and the related regulations, applying the rates in force. Deferred tax assets and liabilities are calculated on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts, using tax rates that are expected to apply when the related deferred tax assets are realised or the deferred tax liabilities are settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Current and deferred taxes are recognised in profit or loss, with the exception of taxes charged or credited directly to equity, in which case the tax effect is recognised directly in equity.
13 – Due to banks, due to customers and debt securities in issue a) Recognition and classification BancoPosta RFC has no outstanding debt securities and has not issued any such securities since its establishment. Due to banks and customers consist of funding provided by customers and obtained from the interbank market. These financial liabilities are recognised at fair value on the date of receipt of the funds. Fair value is normally the amount received.
c) Derecognition Financial liabilities are derecognised when repaid or in the event that BancoPosta RFC transfers all liabilities and charges associated with the relevant instrument.
d) recognition of gains and losses Gains and losses arising from movements in the fair value of financial liabilities held for trading are recognised in profit or loss in line “Item 80– Profits/(Losses) on trading”.
119. Where, following entry into effect of the new legislation, the employee has not exercised any option regarding the investment of vested employee termination benefits, BancoPosta RFC has remained liable to pay the benefits until 30 June 2007, or until the date, between 1 January 2007 and 30 June 2007, on which the employee exercised a specific option. Where no option was exercised, from 1 July 2007 vested employee termination benefits have been paid into a supplementary pension fund.
Other long-term employment benefits consist of benefits not payable within twelve months of the end of the reporting period during which the employees provided their services. The net change in the value of the liability during the reporting period is recognised in full in profit or loss. Measurement of the other long-term employee benefits liability is recognised in the financial statements also on the basis of calculations performed by independent actuaries.
Classification of the costs for services provided by Poste Italiane SpA
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. Further details on the techniques used to measure the fair value of unquoted financial instruments are contained in Section A.4.1 of Part A.
As more fully described in Part I – Share-based payment arrangements, measurement of the fair value of the “Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan”, the “Long-term Incentive Plan for 2017-2019 (LTIP) –Phantom Stock Plan” (both approved by Poste Italiane SpA’s shareholders on 24 May 2016) and the short-term incentive plan (MBO) for BancoPosta RFC’s material risk takers (approved by Poste Italiane SpA’s shareholders on 27 April 2017), was based on the conclusions of independent actuaries. The Plan terms and conditions require the occurrence of certain future events, such as the achievement of performance targets, performance hurdles and of certain indicators of capital adequacy and short-term liquidity. For these reasons, measurement of the related liabilities requires the application of estimates based on current information about factors that may change over time, thereby resulting in outcomes that may be different from those taken into account during preparation of this Separate Report.
Level 1: this level is comprised of fair values determined with reference to (unadjusted) prices quoted in active markets for identical assets or liabilities to which the entity has access on the measurement date. For BancoPosta RFC, the financial instruments included in this category consist of bonds issued by the Italian government, the valuation of which is based on the bid prices, according to a hierarchy of sources where the MTS (the wholesale electronic market for government securities) ranks first, MILA (Milan Stock Exchange) second, for bonds intended for retail customers, and the CBBT (Composite Bloomberg Bond Trader) third120. Level 1 bond price quotations incorporate a credit risk component.
120. For technical reasons, at 31 December 2017, the measurement of bonds issued by EU governments was based on this latter source.
• 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 BancoPosta RFC’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.
• Bond forwards: valuation is based on the present value of the differential between the forward price of the underlying instrument as of the measurement date and the settlement price.
• Currency forwards: valuation is based on the differential between the reciprocal currency registered at the measurement date and the reciprocal currency fixed at the trade date.
�� Financial liabilities either quoted on inactive markets or not at all, consisting of repurchase agreements used to raise finance 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.
Level 3: this category includes the fair value measurement of assets and liabilities using both Level 2 inputs and inputs that cannot be observed. In BancoPosta RFC’s case, this category includes equity instruments for which no price is observable directly or indirectly in the market. The measurement of these instruments is based on the quoted price of equity instruments issued by the same issuer, to which a discount is applied, calculated using internal valuation techniques, representing the cost implicit in the process of aligning the value of the unquoted shares to be measured with that of the quoted ones.
A.4.2 Measurement processes and sensitivities The processes used in recurring and non-recurring fair value measurements of instruments classified in Level 3 are described in paragraphs A.4.1 and A.4.5, respectively, of Part A.
A.4.4 Other information There is no need to provide the additional disclosures required by IFRS 13, paragraphs 51, 93(i) and 96.
A.4.5.2 Movements during the year in assets measured at fair value on a recurring basis (Level 3)
Movements during the period in question include the change in the fair value of the Series C Visa Incorporated Convertible Participating Preferred Stock.
In determining the fair values shown in the table, the following criteria were used: �� debt securities classified in the held-to-maturity category were measured applying the same rules as those used in the fair value measurement of available-for-sale investments; these instruments are shown in Level 1 of the fair value hierarchy; �� the fair value of repurchase agreements was measured using the discounted cash flow techniques described in paragraph A.4.1; these financial instruments are shown in Level 2 of the fair value hierarchy; �� the carrying amount of other financial assets and liabilities represents a reasonable approximation of fair value and is shown in the column corresponding to Level 3 in the fair value hierarchy.
Section 1 – Cash and cash equivalents – item 10 1.1 Cash and cash equivalents: analysis
Section 2 – Financial assets held for trading – item 20 2.1 Financial assets held for trading: analysis
121. 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.
Balance at 31 December 2016 a) Governments and Central Banks 36,614 35,650 b) Other public entities - a ) Governments and Central Banks - b ) Other public entities - -
Securities issued by other issuers with a fair value of €2,485 million regard fixed rate securities with a nominal value of €2,500 million (including €1,000 million acquired in 2017), issued by Cassa Depositi e Prestiti SpA and guaranteed by the Italian government.
Micro-cash flow hedged financial assets 1,400 1,758 b) Foreign exchange risk - -
Disposals of equity instruments completed during the year regard the sale of the Class B Mastercard Incorporated shares described below table 4.1 in this section.
Section 5 – Held-to-maturity financial assets – item 50 5.1 Held-to-maturity financial assets: analysis
123. The rate applied in overnight lending and calculated as the weighted average of overnight rates for transactions on the interbank market reported to the ECB by a panel of banks operating in the euro zone (the biggest banks in all the euro zone countries).
Deferred tax assets through profit or loss - - - - 24 - 97 19 121 19
Deferred tax assets through profit or loss - - - - 21 - 78 15 99 15
Deferred tax assets through equity 148 28 26 5 - - - - 174 33
Deferred tax liabilities through equity 424 84 19 3 443 87 13.3 Movements in deferred tax assets through profit or loss
a) transformation into tax credit pursuant to Law 214/2011 - 13. 4 Movements in deferred tax liabilities through profit or loss
b) write-downs of non-recoverable items - c ) due to changes in accounting policies - 3. 2 Reduction of tax rate - -
Balance at 2.1 Deferred tax liabilities recognised in the year (34) (19)
a) relating to previous years - b ) due to changes in accounting policies - 2. 2 New taxes or tax rate increases - (3)
3.1 Deferred tax liabilities derecognised in the year 256 459 b) due to changes in accounting policies - 3. 2 Reduction of tax rate - -
Items in process 298 203 - items in transit between local branches 8 8
Current account cheques being settled, drawn on other banks 130 100
Current tax assets receivable from Poste Italiane SpA outside the ring-fence 22 29
Tax assets primarily relate to payments on account, €325 million of which for virtual stamp duty payable in 2018, €23 million due from the tax authorities in virtual stamp duty paid in 2017 and €11 million for withholding tax on interest paid to current account holders for 2017.
“Other items” include: �� €1,040 million in stamp duty accrued to 31 December 2017124 payable by holders of outstanding Interest-bearing Postal Certificates. An equal amount has been recognised in “Other liabilities” as tax payables (Part B, Liabilities, Table 10.1) until expiration or early extinguishment of Interest-bearing Postal Certificates, which is the date on which the tax must be paid to the authorities; �� €143 million relating to stamp duty charged to Postal Savings Books, which BancoPosta RFC pays in virtual form as required by law; �� amounts in the process of recovery, totalling €19 million, which are not available since the related amounts have been seized and have not yet been assigned to creditors of Poste Italiane SpA’s functions outside the ring-fence. Any losses on realisation of collateral are for the account of Poste Italiane SpA’s functions outside the ring-fence.
124. Introduced by article 19 of Law Decree 201/2011 converted with amendments by Law 214/2011 in the manner provided for by the MEF Decree of 24 May 2012: Manner of implementing paragraphs 1 to 3 of article 19 of Decree Law 201 of 6 December 2011 having regard to stamp duty on current accounts and financial products (Official Gazette 127 of 1 June 2012).
“Other payables” include €82 million in guarantee deposits received from counterparties in relation to asset swaps (with collateral provided by specific Credit Support Annexes), in relation to BancoPosta RFC’s cash flow hedges and fair value hedges.
“Current accounts and demand deposits” include €242 million in postal current accounts held by Poste Italiane SpA outside the ring-fence.
“Loans, Other” refers to the following: �� the net amount of €3,483 million deposited in the MEF account held at the Treasury, which breaks down as follows: • the balance of cash flows for advances, amounting to €3,375 million, represents the net amount payable as a result of advances from the MEF to meet the cash requirements of BancoPosta; • the balance of cash flows from the management of postal savings, amounting to a positive €84 million, represents the balance of withdrawals less deposits during the last two days of the year and cleared early in the following year. The balance at 31 December 2017 consists of €43 million payable to Cassa Depositi e Prestiti, less €127 million receivable from the MEF for Interest-bearing Postal Certificates issued on its behalf; • amounts payable due to thefts from post offices regard the liability to the MEF on behalf of the Italian Treasury for losses resulting from theft and fraud, totalling €157 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; • amounts payable for operational risks (€35 million) regard the portion of advances obtained to fund operations, in relation to which asset under recovery is certain or probable; �� €14 million relating to an amount due to Poste Italiane SpA’s functions outside the ring-fence in connection with the creation of BancoPosta RFC.
“Other payables” primarily consist of €2,831 million in prepaid PostePay card balances payable to customers, domestic postal orders, amounting to €676 million, and guarantee deposits of €18 million received from counterparties in relation to asset swaps.
Section 3 – Debt securities in issue – item 30 BancoPosta RFC has no debt securities in issue.
Section 4 – Financial liabilities held for trading – item 40 BancoPosta RFC held no financial instruments in the trading book at either 31 December 2017 or 31 December 2016.
Section 5 – Financial liabilities designated at fair value – item 50 no financial liabilities are held in portfolio designated at fair value through profit or loss (the “fair value option”).
Section 9 – Liabilities associated with non-current assets held for sale and discontinued operations– item 90 There are no such liabilities at the reporting date.
Section 10 – Other liabilities – item 100 10.1 Other liabilities: analysis
“Items in process, other” includes, among other things, domestic and international bank transfers, totalling €58 million, and unpaid postal cheques of €47 million.
“Amounts due to suppliers” include approximately €1 million for services purchased from external suppliers and settled via Poste Italiane’s functions outside the ring-fence.
Section 11 – Employee termination benefits – item 110 Movements in employee termination benefits during the year under review are shown below: 11.1 Employee termination benefits: movements during the year
Other decreases were caused by transfers to certain Group companies and actuarial gains.
Annual rate of increase of employee termination benefits 2.625% 2.625% 2.625%
The average length of service for participants corresponds to an annual rate of 0.14%
Section 12 – Provisions for risks and charges – item 120 12.1 Provisions for risks and charges: analysis
The composition of “Other provisions” is provided in Table 12.4, below.
Provisions for disputes with third parties regard 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 compensation payable to customers.
Provisions for non-recurring charges relate to operational risks attributable to BancoPosta RFC. They regard, among other things, the liabilities arising from the reconstruction of operating ledger entries at the time of Poste Italiane SpA’s incorpora-
At 31 December 2017, undistributed earnings total €1,059 million. Other revenue reserves include the initial reserve of €1 billion provided to BancoPosta RFC on its creation.
“Held-to-maturity financial assets”, carried at amortised cost, relate to securities used as collateral in repurchase agreements and securities provided as collateral to counterparties in asset swaps registering fair value losses and for repos.
Service (€m) Amount 1. Execution of orders on behalf of customers 3. Custody and administration of securities 51,992 a) third party securities in custody: related to depository bank operations (excluding portfolio management) 1. securities issued by the reporting bank b ) third party securities in custody (excluding portfolio management): other 3,562 1. securities issued by the reporting bank c ) third-party securities deposited with third parties 3,562 d) own securities deposited with third parties 48,430 a) Postal Savings Books 108,551 b) Interest-bearing Postal Certificates 128,661
5. Financial assets offset in the financial statements or subject to master netting agreements or similar arrangements
For the year ended 31 December 2016 1. Financial assets held for trading - - - - 2. Available-for-sale financial assets 992 - - 992 974 3. Held-to-maturity financial assets 500 - - 500 541 6. Financial assets designated at fair value - - - - -
The sub-item, “Other assets, Other transactions” includes €6 million in interest income accruing during the year on reverse repos and €1 million in interest for the year receivable from Poste Italiane SpA’s functions outside the ring-fence.
For the year ended 31 December 2016 c) Management, brokerage and advisory services: 2,309 2,285 4. Securities custody and administration 5 6 7. Order receipt and transmission 3 4 9. Arrangement of third-party services: 2,258 2,245 d) Collection and payment services 1,069 1,070 h) Multilateral trading services - i ) Current account maintenance and management 240 237
“Management, brokerage and advisory services” include, within the context of the distribution of other products, fees receivable in return for the collection of postal savings deposits, totalling €1,566 million. This service relates to the provision and redemption of Interest-bearing Postal Certificates and payments into and withdrawals from Postal Savings Books, carried out on behalf of Cassa Depositi e Prestiti under the Agreement of 4 December 2014, originally intended to cover the five-year period 2014-2018. On 14 December 2017, the new Agreement for the three-year period 2018-2020 was signed.
For the year ended 31 December 2016 c) Management and brokerage services: (2) (2)
6. Door-to-door marketing of financial instruments, products and services - d ) Collection and payment services (61) (63)
1. Financial assets held for trading - 4 - (1) 3 2. Financial liabilities held for trading - - - - 3. Financial assets and liabilities: foreign exchange differences x x x x (1)
Section 5 – Fair value adjustments in hedge accounting – item 90 5.1 Fair value adjustments in hedge accounting: analysis
A. Income on: A.1 Fair value hedge derivatives 525 84 A.2 Hedged financial assets (fair value) 27 940 A.3 Hedged financial liabilities (fair value) - - A.4 Cash flow hedge derivatives - - A.5 Foreign currency assets and liabilities - -
Gross hedging cost (B) (550) (1,025) C. Net hedging income (A – B) 2 (1)
Financial assets 1. Due from banks - - - - - - 2. Due from customers - - - - - - 3. Available-for-sale financial assets 638 (14) 624 594 - 594 3.4 Loans - - - - - - 4. Held-to-maturity financial assets - - - - - - Total assets 638 (14) 624 594 - 594 Financial liabilities 2. Due to customers - - - - - - 3. Debt securities in issue - - - - - - Total liabilities - - - - (7) (7)
For the year ended 31 December 2016 a) wages and salaries (64) (68)
d) social security costs - e ) provision for employee termination benefits - f ) provisions for post- employment benefits - g ) payments to external supplementary pension funds: (1) (1)
Provisions for risks and charges for the year, totalling €179 million, primarily reflect a revised estimate of probable liabilities linked to third-party financial products placed in the early 2000s, including €35 million relating to the voluntary action taken to protect customers, approved by Poste Italiane’s Board of Directors on 19 February 2018, in relation to customers who had invested in the Europa Immobiliare 1 fund (which reached maturity on 31 December 2017126), and the revision of other liabilities due to adjustments and outstanding income for previous years. Reversals, amounting to €8 million, relate to liabilities recognised in the past that have failed to materialise.
126. This initiative is described in section 6 - Risk management – Reputational risk – in the section – Poste Italiane financial statements – of this Annual Report.
Section 13 – Other operating income/(expenses) – item 190 13.1 Other operating expenses: analysis
For the year ended 31 December 2016 1. Burglaries and theft (5) (8)
For the year ended 31 December 2016 1. Statute barred money orders - -
Section 14 – Profits/(Losses) on investments – item 210 Not applicable.
Section 16 – Impairment of goodwill – item 230 Not applicable.
Section 18 – Taxes on income from continuing operations – item 260 18.1 Taxes on income from continuing operations: analysis
IRES % rate IRES % rate Income before tax 770 803 Theoretical tax charge 185 24.0% 221 27.5% Effect of increases/(decreases) on theoretical tax charge
The IRES tax rate has fallen from the 24.5% of 2016 to 19.3% in 2017, primarily due to art. 1, paragraph 61 of Law 208/2015, which reduced the nominal IRES rate from 27.5%, in the previous tax year, to 24%. Another reason for the reduction in the tax rate is the realisation of a gain on the sale of the Mastercard Incorporated shares which, as a result of the “participation exemption”, was almost totally exempted from tax (only 5% was taxable).
IRAP % rate IRAP % rate Income before tax 770 803 Theoretical tax charge 35 4.6% 37 4.6% Effect of increases/(decreases) on theoretical tax charge
Non-recurring (income)/expense for taxes charged to profit or loss - 0.0% - 0.0% Provisions for risks and charges - 0.0% - 0.0%
Section 19 – Income/(Loss) after tax from discontinued operations – item 280 Not applicable.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Notes - Part C
Tax on income Net amount 10. Profit/(Loss) for the year X X 585
Other components of comprehensive income not reclassified to profit or loss 50. Non-current assets held for sale - - 60. Share of valuation reserve attributable to equity-accounted investments - - -
Other components of comprehensive income reclassified to profit or loss a) changes in fair value - - b ) reversal to profit or loss - - a ) changes in carrying amounts - - b ) reversal to profit or loss - - a ) changes in fair value (57) 16 (41)
Share of valuation reserve attributable to equity-accounted investments: - - a ) changes in fair value - - b ) reversal to profit or loss - - 130.
Following the positive performance of current account deposits in 2017, from June onwards, the process of monitoring the risk profile indicated that there had been a decline in the leverage ratio to below the threshold set in the Risk Appetite Framework (RAF). The leverage ratio at 31 December 2017 stands at approximately 3.11% (3% being the minimum level required by the regulations). in order to restore the leverage ratio to the target level set out in the RAF (3.15%), on 25 January 2018, Poste Italiane SpA’s Board of Directors approved the recapitalisation of BancoPosta by transferring free reserves of €210 million. The relevant functions will continue to keep a close eye on the leverage ratio throughout 2018 to ensure, over time, that it continues to meet the related targets, thresholds and limits established in the RAF.
�� the Financial and Insurance Services Committee, established on 19 March 2018 to replace the previous Finance, Savings and Investment Committee, with the aim of overseeing the process of developing the products and services distributed by BancoPosta, in order to take a uniform, integrated view of the entire offering and to monitor the performance of the financial investments in which private customer deposits are invested; �� Poste Italiane SpA’s Coordination of Investment Management function, the work of which is regulated by specific operating guidelines, and which oversees investment strategy and the hedging of capital market risks in respect of the liquidity deriving from BancoPosta current account deposits, in accordance with the guidelines established by the various corporate bodies; �� the BancoPosta’s Risk Management function, responsible for measuring and controlling risk and duly observing the independence of control functions from management. The results of these activities are examined by Poste Italiane SpA’s Financial Risk Committee.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Notes - Part E
The standard method130, as defined by EU Regulation 575/2013, is used by BancoPosta to measure credit and counterparty risks. The method entails the use of Standard & Poor’s, Moody’s and Fitch for the computation of counterparty credit rating classes.
In order to limit the counterparty risk exposure, partly for the purposes of prudential supervisory standards, BancoPosta RFC has concluded standard ISDA master agreements and special agreements for the mitigation of risk for repo transactions (GMRAs) and OTC derivatives (CSAs). More specifically, the agreements provide for the netting of asset and liability positions and the posting of cash and/or government securities as collateral.
In addition, in order to mitigate counterparty risk and gain readier access to the market, from December 2017, BancoPosta RFC has begun to enter into repurchase agreements with the Central Clearing House, the Cassa Compensazione e Garanzia.
130. The standard method entails risk weightings in accordance with the nature of the exposure and the identity of the counterparty and the counterparty’s external credit rating.
131. The “Market Value” method to measure the risk inherent in derivatives entails summing two components: the current replacement cost, represented by fair value, if positive, and an add-on equal to the product of the nominal value and the probability that the fair value, if positive, increases the value or, if negative, turns positive.
132. The full CRM method entails reducing risk exposure by the value of the guarantee. Specific rules are applied to take into account market price volatility of the guaranteed asset as well as the collateral received.
“Off-balance sheet exposures, Performing” relates to the counterparty risk associated with derivatives registering fair value gains after the effect of netting agreements, securities provided as collateral under counterparty risk mitigation agreements and for Repo financing with Securities Financing Transactions (SFT)133 margins.
“Off-balance sheet exposures, Performing” relates to the counterparty risk associated with derivatives registering fair value gains after the effect of netting agreements and Repo financing with Securities Financing Transactions (SFT) margins.
A.1.7/ A.1.8 On-balance sheet credit exposure to customers: changes in gross nonperforming exposures and in total adjustments
1. Guaranteed on-balance sheet credit exposures: 2. Guaranteed off-balance sheet credit exposures: Annual Report Poste Italiane Group | 2017
B.1 Distribution of on and off-balance sheet credit exposures to customers by economic sector and carrying amount
Key A = Full recognition of financial assets sold to third parties (carrying amount) B = Partial recognition of financial assets sold to third parties (carrying amount) C = Partial recognition of financial assets sold to third parties (gross amount)
2.1 Interest rate and price risks - supervisory trading book There were no supervisory trading book assets or liabilities at 31 December 2017. Poste Italiane SpA’s “Guidelines for financial transactions” for BancoPosta RFC prohibit the acquisition of assets and liabilities with the intention to trade, as defined by article 104 of EU Regulation 575/2013 in relation to classification of the “supervisory trading book”.
Spread risk regards bonds issued or guaranteed by the Italian government and classified as available-for-sale financial assets. On average, 2017 witnessed an increase in the yields on Italian government bonds, whilst, at 31 December 2017, the spread between ten-year Italian government bonds and German bunds is approximately 159 bps, demonstrating a trend in line with the previous year (161 bps at 31 December 2016).
Over the period under review, the above situation resulted in a net reduction in the fair value of BancoPosta RFC’s available -for-sale portfolio (a nominal value of approximately €36 billion) of approximately €0.8 billion. The decrease in the fair value of instruments hedged against interest rate risk, amounting to approximately €0.5 billion, was offset by an increase in the fair value of the related derivatives, whilst the reduction in the fair value of unhedged instruments and of the component subject to spread risk (unhedged) was reflected in consolidated equity (approximately €0.3 billion.
In order to stabilise revenue and limit exposure to interest rate and spread risk, BancoPosta RFC enters as a seller into cash flow hedges of a forecast transaction with the aim of crystallising gains when market movements are favourable.
Asset - Liability / Residual term to maturity (€m) Demand 3 months or less
2. Banking book: internal models and other methods of sensitivity analysis
BancoPosta’s available-for-sale financial assets portfolio at 31 December 2017 had a duration of 5.34 (31 December 2016: 5.79). The sensitivity analysis is shown in the table.
+100 bps -100 bps +100 bps -100 bps +100 bps -100 bps 2017 effect
Financial liabilities held for trading - - - - - - - 2016 effect
In addition, if considered as a whole, financial assets and liabilities are subject to maximum potential losses of €336 million.
The decrease in VaR at the end of the period, compared with 31 December 2016, primarily reflects the reduction in market volatility.
Due from customers - Due from customers (Poste Italiane SpA outside the ring-fence) 732 7 (7) 629 6 (6)
Cash flow interest rate risk at 31 December 2017 was primarily inherent in the placement of Public Administration deposits with the MEF.
+ Vol - Vol + Vol - Vol + Vol - Vol 2017 effect
Notes on the related equity instruments (shares) are contained in Part B, Assets, Table 4.1.
Foreign exchange risk is measured using the Bank of Italy prudential methodology currently recommended for banks (see EU Regulation 575/2013). Furthermore, sensitivity stress tests are regularly conducted for the most important exposures with reference to hypothetical levels of exchange rate volatility for each currency position. Movements in exchange rates equal to the volatility for the period are assumed to emulate market fluctuations.
A.7 OTC financial derivatives - banking book: notional amount, gross negative and positive fair value by counterparty - contracts not falling within the scope of netting agreements
Other public entities Banks Finance companies Insurance companies Non-finance companies Other entities 1) Debt securities and interest rates 2) Equity instruments and stock indices 3) Currencies and gold 4) Other
A.9 Residual terms to maturity of OTC financial derivatives: notional amounts
It is policy to minimise liquidity risk through: �� diversification of the various forms of short-term and long-term borrowings and counterparties; �� gradual and consistent distribution of the maturities of medium/long-term borrowings; �� use of dedicated analytical models to monitor the maturities of assets and liabilities; �� the availability of the interbank markets as a source of repurchase agreement finance, with collateral in the form of securities held in portfolio, due to the fact that such assets consist of financial instruments deemed to be highly liquid assets by current standards.
In terms of BancoPosta RFC’s specific operations, liquidity risk regards the investment of current account deposits in bonds issued or guaranteed by the Italian government, prepaid cards and the margins on derivative transactions. The potential risk derives from a mismatch between the maturities of investments in securities and those of liabilities, represented by current accounts where the funds are available on demand, thus compromising the ability to meet its obligations to current account holders. This potential mismatch between assets and liabilities is monitored via comparison of loan and deposit maturities, using the statistical model of the performance of current account deposits, in accordance with the various likely maturity schedules and assuming the progressive total withdrawal of deposits over a period of 20 years for retail customers, 10 years for business customers and PostePay cards and 5 years for Public Administration customers. BancoPosta RFC closely monitors the behaviour of deposits taken in order to assure the model’s validity.
In addition to postal deposits, BancoPosta also funds itself through: �� LTROs, amounting to an outstanding €3.9 billion; �� short-term deposits created through repurchase agreements as funding for incremental deposits used as collateral for asset swaps and Repos (collateral provided, respectively, under CSAs and GMRAs).
amount134 to be reduced to zero in the event that Poste Italiane SpA’s rating is downgraded to below “BBB-“. The threshold amounts relating to margin lending contracts included in repurchase agreements are equal to zero, meaning that these transactions are not subject to liquidity risk.
134. The threshold amount is the amount of collateral that is not required to be provided under the contract; it therefore represents the residual counterparty risk to be borne by a counterparty.
Qualitative information At 31 December 2017, the risk map prepared in accordance with the aforementioned framework shows the type of operational risks BancoPosta RFC’s products are exposed to. These are as follows: Operational risk
135. A definition of the RAF is provided in the “Introduction” to Part E.
A. Qualitative information The prudential regulations applicable to banks and investment firms from 1 January 2014 are contained in Bank of Italy Circular 285/2013, the purpose of which was to implement EU Regulation 575/2013 (the so-called Capital Requirements Regulation, or “CRR”) and Directive 2013/36/EU (the so-called Capital Requirements Directive, or “CRD IV”), containing the reforms required in order to introduce the “Basel 3” regulations. In the third revision of the above Circular, the Bank of Italy has extended the prudential requirements applicable to banks to BancoPosta, taking into account the specific nature of the entity. As a result, BancoPosta RFC is required to comply with Pillar 1 capital requirements (credit, counterparty, market and operational risks) and those regarding Pillar 2 internal capital adequacy (Pillar 1 and interest rate risks), for the purposes of the ICAAP process. The relevant definition of capital in both cases is provided by the above supervisory standards.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Notes - Part F
(€m) Debt securities Equity instruments UCIs Loans 2.2 Reversal to income statement of negative reserve: 31 - - 3. 3 Reversal to income statement of positive reserve on disposal (451) (69) - -
CET1 consists of elements that enable the entity to absorb any losses and continue operating as a going concern, thanks to its particular nature, such as the level of subordination, unredeemability and the absence of any obligation to pay dividends.
BancoPosta’s CET1 consists of: �� other reserves, being revenue reserves, amounting to €1 billion originating from the creation of the ring-fence, and any further amounts attributed by Poste Italiane SpA that meet the requirements for inclusion in own funds136; �� undistributed earnings, being BancoPosta RFC’s profits appropriated on approval of Poste Italiane SpA’s financial statements.
136. Contributions from non-controlling shareholders to BancoPosta RFC are excluded, as they are not provided for in the special regulations governing the ring-fence.
M. Tier 2 - T2 before investments to be deducted and adjustments for the transitional regime - of which T2 instruments subject to transitional requirements - -
Profit for the year has not been computed in accordance with article 26 of EU Regulation 575/2013.
A. Qualitative information Based on prudential standards, BancoPosta is required to comply with the following minimum capital ratios: �� Total capital ratio (the ratio of total own funds to total risk weighted assets - RWA137), equal to 10.5% (8% being the minimum requirement and 2.5% being the capital conservation buffer138); �� Common Equity Tier 1 ratio (the ratio of CET1 to total RWA): equal to 7.0% (4.5% being the minimum requirement and 2.5% being the capital conservation buffer); �� Tier 1 ratio (the ratio of T1 and total RWA): equal to 8.5% (6.0% being the minimum requirement and 2.5% being the capital conservation buffer).
In calculating Pillar 1 capital requirements for operational risk, BancoPosta applied the simplified approach (BIA – Basic Indicator Approach) provided for by EU Regulation 575/2013. This consists of applying a percentage of 15% to the average of the relevant indicator for the last three years141 as at the end of the reporting period.
139. See the previous description in Part E – Section 1, Credit risk. 140. The estimated risk exposure for derivative financial instruments is based on the “Market value” method, whilst the exposure deriving from repurchase agreements is estimated using the Credit Risk Mitigation (CRM) techniques, the “Full Method”. Further information is provided in Part E – Section 1, Credit risk. 141. BancoPosta RFC calculates the relevant indicator as the sum of the following income statement items (in accordance with IAS): net interest income (items 10-20); net fee and commission income (items 40-50); the portion of “other operating income” not generated by extraordinary or non-recurring items (a portion of the positive component of item 190); net profits on the trading book (items 80, 90, 100b, 100c, 110); dividends (item 70).
Weighted amounts/Requirements at 31 December 2017 at 31 December 2016 at 31 December 2017 at 31 December 2016
The table shows BancoPosta’s position regarding compliance with the Pillar 1 capital requirements governed by the CRR.
Impact of related party transactions on the financial position at 31 December 2017
Provision for doubtful debts owing from external related parties - (8) - - - - -
Other related parties external to the Group - - - - - - 2
Other related party disclosures At a meeting on 20 September 2017, Poste Italiane SpA’s Board of Directors, having obtained the consent of the Related and Connected Parties Committee, authorised the spot and forward purchase and sale of securities issued and/or guaranteed by the Italian government and the execution of repurchase agreements and reverse repos and of hedging derivatives by BancoPosta RFC, with Monte Paschi Capital Services Banca per le Imprese SpA acting as counterparty. This company qualifies as a related party of Poste Italiane as it is also controlled by the Ministry of the Economy and Finance through Banca Monte dei Paschi di Siena SpA.
Following conclusion of the agreement, from October 2017, 5 repurchase agreements and 23 buy & sell back transactions, which expired during the period, have been entered into, in addition to 2 Interest rate Swaps for hedging purposes and 2 forward sales of securities.
As described in the above information circular for the “Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan”, prepared in accordance with art 84-bis of the Regulations for Issuers, the Phantom Stock Plan for the period 2016-2018 entails the award to Beneficiaries of phantom stocks granting them the right to receive stock representing the value of Poste Italiane’s shares and the related cash bonus at the end of a vesting period. The number of phantom stocks awarded to each Beneficiary is dependent on achieving the Performance Hurdle and meeting the Qualifying Conditions and the related Performance Targets over a three-year period. The Plan covers a medium- to long-term period. In particular, the plan includes three award cycles, corresponding to the financial years 2016, 2017 and 2018, each with a duration of three years.
BancoPosta RFC Separate Report for the year ended 31 December 2017 Notes - Part L
Italiane Group’s consolidated financial statements during the period from 1 January 2017 to 31 December 2017.
3. We also attest that: 3.1 the Poste Italiane Group’s consolidated financial statements for the year ended 31 December 2017: a) have been prepared in compliance with the International Financial Reporting Standards endorsed by the European Union through EC Regulation 1606/2002, issued by the European Parliament and by the Council on 19 July 2002; b) are consistent with the underlying accounting books and records; c) give a true and fair view of the financial position and results of operations of the issuer and the companies included in the scope of consolidation.
Attestation of the separate financial statements for the year ended 31 December 2017 pursuant to art. 154-bis, paragraph 5 of Legislative Decree 58/1998 and art. 81ter of CONSOB Regulation 11971 of 14 May 1999 1. The undersigned, Matteo Del Fante, as Chief Executive Officer, and Luciano Loiodice, as Manager responsible for Poste Italiane SpA’s financial reporting, having also taken account of the provisions of art.154-bis, paragraphs 3 and 4 of Legislative Decree 58 of 24 February 1998, attest to: - the adequacy with regard to the nature of the Company and - the effective application of the administrative and accounting procedures adopted in preparation of the separate financial statements during the period from 1 January 2017 to 31 December 2017.
3. We also attest that: 3.1 the separate financial statements for the year ended 31 December 2017: a) have been prepared in compliance with the International Financial Reporting Standards endorsed by the European Union through EC Regulation 1606/2002, issued by the European Parliament and by the Council on 19 July 2002; b) are consistent with the underlying accounting books and records; c) give a true and fair view of the financial position and results of operations of the issuer.
During the year ended 31 December 2017, Board of Statutory Auditors of Poste Italiane SpA
(hereinafter also the “Company” or the “Parent Company”) fulfilled its statutory duties in accordance with the Italian Civil Code and Legislative Decree 39/2010, as amended by
Board - and with the Company’s management, as well as through ongoing contact with the
PricewaterhouseCoopers SpA, who are responsible for auditing the separate and consolidated financial statements.
On the above basis, the following information is provided in accordance with the provisions of CONSOB announcement DEM/1025564/2001, following the numerical order established thereby, as amended by announcement DEM/3021582 of 4 April 2003 and then by announcement DEM/6031329 of 7 April 2006.
1. The most significant transactions having an impact on the results of operations and financial position and their compliance with the law and the By-laws.
In this regard, the Board declares that: ✓ based on the assessments conducted, we are not aware of exceptional or unusual transactions with Group companies, third parties or other related parties; ✓ the procedures applied by the Company in conducting related party transactions comply with the principles contained in CONSOB Regulation 17221 of 12 March 2010; ✓ infra-group or related party transactions did not give rise to critical issues; ✓ with regard to transactions conducted by relevant persons and by persons closely associated with them (provisions relating to “Internal Dealing”), the Board verified
that the Company has adopted specific internal regulations and procedures for such disclosures following the revised interpretation provided by ESMA and the changes introduced by CONSOB Resolution 19925 of 22 March 2017.
Directors have provided adequate disclosure on intra-group and related party transactions in the Report on Operations and the notes to the separate and consolidated financial statements. Considering the very high number of related parties, the Board welcomes the fact that: - a register of Related and Connected Parties (the “Single Database”) has been created using a secure IT platform and includes approximately 2,600 persons; - during 2017, the “Single Database” was integrated with other databases within the Company and, specifically, with the SAP database for the purchasing cycle and, as regards the sales cycle, with the IR system used by the Business and
Public Administration market function; - as of the preparation of the final accounts for 2018, the responsible persons indicated by Company functions access the Single database directly from the
Law as the “Committee responsible for internal and statutory auditing”, oversaw the financial reporting process.
The administrative and accounting procedures adopted in preparation of the separate and consolidated financial statements, and of any other financial communication, have been drawn up under the responsibility of the Manager responsible for financial reporting who, together with the Chief Executive Officer, has attested to their adequacy with regard to the nature of Poste Italiane and to their effective application.
Meeting of Poste Italiane’s shareholder to audit the separate and consolidated financial statements for the financial years from 2011 to 2019.
The Independent Auditor issued its reports on the separate and consolidated financial statements for the year ended 31 December 2017, prepared pursuant to art. 14 of
Legislative Decree 39/2010 and art. 10 of Regulation (EU) 537/2014, on 20 April 2018.
Independent Auditor. In its reports on the financial statements, the Independent Auditor has: ✓ issued an opinion stating that Poste Italiane’ separate and consolidated financial statements provide a true and fair view of the financial position of the Company and the
Group at 31 December 2017 and of the results of operations and cash flows for the year then ended, in accordance with the International Financial Reporting Standards as adopted by the European Union and with the regulations issued in implementation of article 9 of Legislative Decree 38/05; ✓ stated that, as required by art. 14, paragraph 2.e) of Legislative Decree 39/10 and article 123-bis, paragraph 4 of Legislative Decree 58/98, it has performed the audit procedures