General description of the models utilised The Group uses the general impairment model in accordance with risk ratings estimated on the basis of the type of counterparty: � Securities/deposits with Sovereign, Banking and Corporate counterparties: internal risk rating estimation models; � Public Administration and Central Counterparties: risk ratings provided by an external provider and average default rates for the sector.
Significant increase in credit risk Based on the impairment model adopted by the Poste Italiane Group to meet the requirements of the new accounting standard, any significant increase in credit risk associated with the financial instruments held, other than trade receivables, is determined on the basis of a change in the relevant credit rating between the time of the initial investment and the reporting date. This change in notches is compared with a threshold that takes into account the following factors: � the rating of the financial instrument at the time of investment; � the rating of the financial instrument at the reporting date; � the seniority of the position within the portfolio (vintage factor); � an additive factor to mitigate the non-linearity of PD with respect to the rating classes111; � a judgmental factor to be used only in the presence of sudden changes in the creditworthiness not yet reflected by the rating112.
111. The additive factor is built in view of the rating level at the reporting date, where the better the final rating the higher the threshold for the transition to Stage 2. 112. The judgmental factor can summarise significant aspects in determining the significant increase of credit risk, considering such elements as: • an actual or expected significant change of the internal/external credit rating of the financial instrument; • actual or expected negative changes in economic, financial or business conditions that might cause a significant change in the borrower’s ability to honour its obligations, such as an actual or expected increase in interest rates or an actual or expected significant increase in the unemployment rate.
The Poste Italiane Group incorporates forward looking information directly in the PD estimation. In particular, the internal approach adopted allows completion of the input dataset necessary to calculate PD starting from a number of scenario values related to the approach. The objective of the approach is to estimate the unknown variables by using the historical correlation of the available information113.
Exposure to credit risk With regard to the financial assets exposed to this risk and to which the accounting rules governing impairment apply, the following table shows the Poste Italiane Group’s exposure at 31 December 2019, relating to financial assets measured at amortised cost and at fair value through other comprehensive income, for which a general deterioration model was used. The analysis shows the exposure by financial asset class by stages. The amounts refer to the gross carrying amount (amortised cost before ECL), unless otherwise indicated, and do not take into account guarantees or other credit enhancements.
from AAA to AA+ from A+ to BBB- from BB+ to C Not rated
Provision to cover expected losses - - (33) - - - (33)
Total amortised cost at 31 December 2018 13 - 31,264 - 15 - 584 993 32,869
Carrying amount - Fair value at 31 December 2019 2,125 - 136,241 - 1,448 9 - 139,823 2018 effects
Carrying amount - Fair value at 31 December 2018 1,688 - 125,281 36 725 20 - 127,750
The following table shows the counterparty concentration of credit risk by financial asset class. Amounts refer to the gross carrying amount.
The Poste Italiane Group uses instruments to mitigate credit risk and counterparty risk. Specifically: � as regards Poste Italiane SpA, primarily in relation to BancoPosta RFC, the credit and counterparty risks associated with hedging derivatives and repurchase agreements are mitigated by entering into a master netting agreement and requiring collateral in the form of cash or government bonds; � the Poste Vita Group invests in, among other things, corporate bonds that are guaranteed in order to mitigate the overall exposure to credit risk; � in terms of trade receivables, the Poste Italiane Group credit terms are extended for customers, requesting, in certain cases, guarantees or sureties issued by prime banks or insurance companies.
The main types of instrument used to mitigate credit risk are described below: Fixed income instruments Debt instruments held by the Group and secured by guarantees or other risk mitigation instruments are as follows: � bonds issued by CDP SpA guaranteed by the Italian State and subscribed by BancoPosta RFC, amounting to a nominal value of €3,750 million at 31 December 2019. These are recognised as financial assets measured at amortised cost and, in determining the associated expected credit losses, account was taken of the PD of the Italian Republic; � bonds held by the Poste Vita Group, amounting to a nominal value of €3,845 million at 31 December 2019. In these cases, the guarantee covers 100% of the nominal value of the securities. The guarantees securing these financial instruments are as follows: – corporate bonds backed by personal guarantees provided the parent company or another associate, amounting to a nominal value of €3,458 million; – covered bonds backed by mortgages, primarily property mortgages, amounting to a nominal value of €282 million; – bonds guaranteed by sovereign states, amounting to a nominal value of €105 million.
In addition, in order to mitigate counterparty risk and gain easier access to the market, from December 2017, BancoPosta RFC has entered into repurchase agreements with the Central Counterparty, the Cassa di Compensazione e Garanzia.
The calculation of positions in derivatives and repurchase agreements and the related risk mitigation instruments are illustrated in the paragraph Offsetting financial assets and liabilities.
ECL measurement The following tables show, for each class of financial instrument, the reconciliation between the opening and closing balances of the ECL provisions required by IFRS 9.
Impairment of securities / receivables purchased/paid in the period - 1 1
Impairment of securities / receivables held at the beginning of the period - - -
Impairment of securities / receivables purchased/paid in the period - 2 2
Poste Italiane Group - Credit risk - Trade receivables impaired on the basis of the simplified matrix
The provision for doubtful debts includes amounts set aside as part of BancoPosta’s operations to cover the risk of non-recovery of numerous individually immaterial amounts due from current account holders with a debit balance; this provision, which was used during the year for €153 million (of which €121 million related to the elimination of receivables due from current account holders with a debit balance), amounted to €557 million at 31 December 2019.
The provision for doubtful debts for the Public Administration relate to items that may in part not be recoverable as a result of legislation limiting public spending and delays in payment and problems with a number of debtor entities. Credit loss provisions for amounts due from the MEF reflect the absence of funds in the state budget, meaning it is not possible to collect certain amounts receivable, recognised on the basis of legislation or contracts and agreements in effect at the time of recognition.
More detailed information about the provision of €46 million for Interest income receivables on IRES reimbursement is provided in Table A9 - Other receivables and assets.
In particular, the disclosures in question concern the following positions relating to Poste Italiane SpA at 31 December 2019: � derivative assets and liabilities and related collateral, represented both by cash and government securities; � repurchase agreements and reverse repurchase agreements and the related collateral, represented both by cash and government securities.
Flows from Poste Vita Group’s policies 13,000 34,452 108,125 155,577 15,154 35,121 124,600 174,875 Financial liabilities 38,137 16,147 18,408 72,692 28,882 14,057 22,164 65,103 Postal current accounts 18,062 12,438 17,827 48,327 15,973 9,702 20,577 46,252 Borrowings 8,557 3,705 578 12,840 6,303 3,191 10 9,504 Other financial liabilities 11,518 4 3 11,525 6,606 1,164 1,577 9,347 Trade payables 1,627 - - 1,627 1,583 - - 1,583 Other liabilities 2,112 1,510 18 3,640 2,320 1,361 22 3,703 Total 54,876 52,109 126,551 233,536 47,939 50,539 146,786 245,264
The above table shows expected cash outflows at the date of the financial statements, broken down by maturity, while the maturities of postal current account deposits are reported on the basis of the estimates made with a statistic/econometric model. Repayments of principal at nominal value are increased by interest payments calculated, where applicable, on the basis of the yield curve applicable at 31 December 2019. The liabilities of Poste Vita SpA and Poste Assicura SpA are reflected in Flows from Poste Vita Group’s policies.
115. Since 1 October 2018, prepaid cards are the responsibility of PostePay SpA. The liquidity raised through these cards is transferred to BancoPosta, which invests the funds raised in euro area government bonds or bonds guaranteed by the Italian State. As such, for the purposes of specific risk analyses, the rationales related to each model underlying the different types of deposit inflow continue to apply.
In the case of assets, cash inflows are broken down by maturity, shown at nominal value and increased, where applicable, by interest receivable. Held-to-maturity and available-for-sale financial assets include financial instruments held by BancoPosta RFC and the Group’s insurance companies, shown on the basis of expected cash flows, consisting of principal and interest paid at the various payment dates. In order to mitigate liquidity risk in the event of extreme market scenarios, during the year, BancoPosta RFC entered into a contract that provides for the granting by Cassa Depositi e Prestiti of a short-term committed line of credit for repurchase agreements up to a maximum of €5 billion and a 12-month extension period.
Price risk relates to financial assets classified as measured at fair value through other comprehensive income (“FVTOCI”) or measured at fair value through profit or loss (FVTPL), and certain derivative financial instruments where changes in value are recognised in profit or loss.
The sensitivity analysis at 31 December 2019 took into account positions potentially exposed to fluctuations in value. Financial statement balances have been subjected to a stress test, based on actual volatility during the year, considered to be representative of potential market movements. The results of the sensitivity analysis carried out as at 31 December 2019 for the Poste Italiane Group are shown in the following table.
Change in value Effect on liability toward policyholders Profit/(Loss) before tax
+ Vol - Vol + Vol - Vol + Vol - Vol + Vol - Vol 2019 effects
In relation to financial assets measured at fair value through profit or loss, price risk concerns the following: � investments in units of mutual investment funds held by Poste Vita SpA, with a fair value of €34,989 million, including approximately €31,709 million used to cover Class I policies, approximately €3,223 million used to cover Class III policies and a residual amount relating the free capital; � equity instruments held by Poste Vita SpA, totalling €177 million, used to cover Class I policies linked to separately managed accounts and to cover Class III policies; � Visa Incorporated (Series C Convertible Participating Preferred Stock) preference shares held by BancoPosta RFC for a total of €71 million. For the purpose of the sensitivity analysis, the equities are matched with the corresponding amount of the Class A shares, considering the volatility of the shares listed on the NYSE.
In the area of Derivative Financial Instruments, price risk mainly relates to the forward sale contract for 400,000 of Visa Incorporated ordinary shares entered into by the Parent Company during the year.
Lastly, during 2019, shares in MoneyGram and sennder, classified as financial assets measured at fair value through other comprehensive income and not subject to sensitivity in the table above, were acquired by the Parent Company, as described in further detail in the notes above.
At 31 December 2019, cash flow inflation risk relates to inflation-linked government securities not subject to cash flow hedges or fair value hedges. Of the total nominal value, securities totalling €9,638 million are held by Poste Vita SpA and securities totalling €1,875 million by BancoPosta RFC.
The table below shows the sensitivity to foreign exchange risk of the Poste Italiane Group’s most significant positions at 31 December 2019.
2018 effects Financial assets Financial assets at FVTPL - 123 107 8 (8) 8 (8) - - Equity instruments - 58 50 4 (4) 4 (4) - - Other investments - 65 57 4 (4) 4 (4) - - Variability at 31 December 2018 - 123 107 8 (8) 8 (8) - -
The risk in question relates to equities held by the Parent Company and units in certain alternative investment funds in which Poste Vita SpA has invested.
For the purposes of full disclosure, information on Poste Italiane SpA’s exposure to financial risk is reported below if not already covered in the above information regarding the Poste Italiane Group.
Total amortised cost at 31 December 2019 1,532 - 34,294 - 251 - - 507 2,870 39,454 2018 effects
Provision to cover expected losses - - (12) - - - - (12)
Total amortised cost at 31 December 2018 13 - 29,681 - 15 - - 695 993 31,397
Carrying amount - Fair value at 31 December 2018 - - 32,040 - - - - - 32,040
Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3 2019 effects
Carrying amount - Fair value at 31 December 2019 - - 524 - - - - - - 524 2018 effects
Impairment of securities / receivables purchased/paid in the period - 900 900
Impairment of securities / receivables held at the beginning of the period - -
Reversal due to sale / collection - - - - - -
(€m) Balance at 01/01/2019 Net provisions Uses De-merger of the BU SDA SpA Balance at 31/12/2019
Receivables due from the MEF 32 - - - 32 of which attributable to BancoPosta RFC 152 10 (122) - 40
Cash and deposits attributable to BancoPosta 4,303 - - 4,303 3,318 - - 3,318
Financial statements of Poste Italiane at 31 December 2019 7. Risk management
+ Vol 260 days - Vol 260 days 2019 effects 2018 effects
The other principal risks to which the Poste Italiane Group is exposed at 31 December 2019 are described below.
For each type of mapped risk, the related sources of risk (internal losses, external losses, scenario analysis and risk indicators) have been recorded and classified in order to construct complete inputs for the integrated measurement model. Systematic measurement of the mapped risks has enabled the prioritization of mitigation initiatives and the attribution of responsibilities in order to contain any future impact.
Longevity risk is also low. In fact, for most life insurance products the probability of annuitisation is very close to zero, as historical experience shows that policyholders never use the option to annuitise. Pension products, in particular, still account for
a limited share of insurance liabilities. In addition, for these products, the Group may, if certain conditions materialise, change the demographic base and the composition by sex used to calculate the annuity rates.
Pricing risk is the risk of incurring losses due to inadequate premiums charged for the insurance products sold. It may arise due to: � inappropriate selection of the technical basis; � incorrect assessment of the options embedded in the product; � incorrect evaluation of the factors used to calculate the expense loads.
The options embedded in the policies held in the portfolio include: � Surrender option; � Guaranteed minimum return option; � Annuity conversion option.
For nearly all the products in the portfolio there are no surrender penalties: the surrender risk only becomes significant, however, in the event of mass surrenders which, on the basis of historical evidence, have a low probability of occurrence (a surrender rate of approximately 2.75% in 2019).
Poste Assicura SpA is exposed to the following insurance risks: � Underwriting risk: the risk deriving from the conclusion of insurance contracts associated with the events insured, the processes followed when pricing and selecting risks and unfavourable claims trends compared with previous estimates. This risk can be divided into the following categories: – Pricing risk: the risk linked to the company’s pricing of its policies which depends on the assumptions used in order to calculate premiums. If prices are based on inadequate assumptions, the insurer may be exposed to the risk of being unable to meet its contractual obligations to policyholders. These risks include those related to disability-morbidity, or the risk associated with the payment of benefits or claims for illness and/or injury. Pricing risk also includes the risk that the premiums charged are not sufficient to cover the actual costs incurred in the management of the contract and the risk of excessive growth in operations associated with poor selection of risks or the absence of resources sufficient to keep up with the pace of growth.
� Anti-selection risk: this relates to the company’s unwillingness to insure an event not classified as future, uncertain and damaging.
With reference to non-life risks, the Group performs specific analyses including, among other things, stress tests to determine the Company’s solvency also under adverse market conditions.
In particular, with regards to real estate funds sold in the period 2002-2005, which have given rise to a number of complaints and disputes, the Company is closely monitoring performance through to the respective maturities, assessing the potential impact on the provisions for risks and charges accounted for in the financial statements. During the year ended 31 December 2019, the estimate of the liabilities deriving from risks linked to disputes with customers regarding certain financial instruments and investment products, sold in previous years and that have not yet reached maturity, whose performance is not in line with expectations, was prudently revised. It should be noted that, on 16 January 2017, the Board of Directors of Poste Italiane SpA passed a resolution aimed at protecting all customers who, in 2003, purchased units issued by the Invest Real Security real estate fund, and who still held the units at 31 December 2016, the date of the fund’s maturity. All provisions made to cover the cost of this initiative were used in 2017. In addition, with a view to consolidating the Company’s historical customer relationships, based on trust and transparency, on 19 February and 28 June 2018, the Board of Directors of Poste Italiane SpA approved an initiative designed to protect customers who, in 2004, against a different economic and regulatory backdrop compared with today’s, purchased units issued by the Europa Immobiliare 1 fund and who still held the units at 31 December 2017, the date of the fund’s maturity. This initiative, the aim of which was to allow each investor to recover the difference between the amount they invested at the time of subscription, increased by any income distributions or early returns of capital over the life of the fund, and the amount that the investor will receive from the Fund’s “Final Liquidation Distribution”, was launched on 24 September 2018 and came to a conclusion on 7 December 2018. With a resolution of 28 February 2019, the Board of Directors of Poste Italiane defined the launch of a second window for customers who had not yet joined the Initiative. The initiative was launched on 23 May 2019 and was concluded on 13 July 2019.
The Obelisco Real Estate Fund placed by Poste Italiane in December 2005 had an original maturity date at the end of December 2015. This was later extended for an additional 3 years and the fund matured on 31 December 2018. On 16 July 2019, the management company of reference announced that the fund’s final liquidation report had been approved and confirmed that, given that the liquidation proceeds amounted to zero, there would be no distribution of either income or capital.
In this context, the Board of Directors of Poste Italiane, with a resolution of 30 July 2019, defined an initiative called PosteIniziativa Obelisco in favour of customers holding units in the Obelisco Real Estate Fund at 31 December 2018 to recover the initial value invested. The initiative was launched on 30 September 2019 and was concluded on 6 December 2019.
Level 2: this level is comprised of fair values based on inputs other than Level 1 quoted market prices that are either directly or indirectly observable for the asset or liability. Given the nature of Poste Italiane Group’s operations, the observable data used as input to determine the fair value of the various instruments include yield curves and projected inflation rates, exchange rates provided by the European Central Bank, ranges of rate volatility, inflation option premiums, interest rate swap spreads or credit default spreads which represent the creditworthiness of specific counterparties and any liquidity adjustments quoted by primary market counterparties. For the Poste Italiane Group the following categories of financial instrument apply: Financial statements of Poste Italiane at 31 December 2019 8. Determination of fair value
Bonds either quoted on inactive markets or not at all: � Straight Italian and international government and non-government bonds: valuation is based on discounted cash flow techniques involving the computation of the present value of future cash flows, inputting rates from yield curves incorporating spreads reflecting credit risk that are based on spreads determined with reference to quoted and liquid benchmark securities issued by the issuer, or by other companies with similar characteristics to the issuer. Yield curves may be slightly adjusted to reflect liquidity risk relating to the absence of an active market.
� 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: � Straight bonds: these are measured by discounting their future cash flows using as input a yield curve reflecting the spread applicable to the issuer’s credit risk.
� Borrowings: these are measured by discounting their future cash flows using as input a yield curve reflecting the spread applicable to the credit risk.
Unquoted shares: this category includes shares for which no price is observable directly or indirectly in the market. Measurement of these instruments is based on the price of quoted equities of the same issuer as a benchmark. The price inferred in this manner would be adjusted through the application of the discount implicit in the process to align the value of the unquoted shares to the quoted ones.
The following table shows an analysis of financial instruments measured at fair value at 31 December 2019, classified by level in the fair value hierarchy.
Financial statements of Poste Italiane at 31 December 2019 8. Determination of fair value
9. Hedging transactions 116. IAS 39 requires two effectiveness tests: • prospective effectiveness test: attests that the hedging relationship is expected to be highly effective in future periods; • retrospective effectiveness test: attests that the hedging relationship has been effective from inception to the reporting date.
For a hedge to be effective, the prospective effectiveness test must show that the hedge is highly effective in offsetting fair value or cash flow movements attributable to the hedged instrument during the designation period, while the result of the retrospective test must show offset ratios ranging from 80% to 125%. A hedge can be ineffective when the hedging instrument and the hedged item: are in different currencies; have different maturities; use different underlying interest rates; are exposed to different counterparty risks; and when the derivative is not equal to zero at inception.
The Group evaluates the effectiveness of every hedging relationship in offsetting movements in fair value through a retrospective effectiveness test and a prospective effectiveness test116, using the approaches illustrated in the following notes.
The retrospective effectiveness test is run by utilising the “dollar offset approach through the hypothetical derivative117“. With this approach, consideration is given to the hedge ratio of the change in fair value of the actual derivative to the change in fair value of the hypothetical derivative occurred between inception and the valuation date. The hedge is considered effective if the hedge ratio falls in the interval between 80% and 125%. The hypothetical derivative and the actual hedging instrument have a settlement date consistent with the hedge inception (spot or forward start) and differ solely in their spread which is considered, as already indicated, the main source of ineffectiveness118. The partial ineffectiveness of the hedge, equal to the difference between the changes in value of the two derivatives (hypothetical and actual) represents the net effect of the hedge recognised separately in profit or loss.
In the case of the subsidiary Poste Vita, this effect is reversed to policyholders through the shadow accounting mechanism, as it relates to financial instruments included in separate operations.
For the purposes of the prospective effectiveness test, different approaches have been adopted, depending on the characteristics of the hedging instrument. Specifically: � the “Critical terms119” approach for swap spot start, for which it has been determined at inception that the characteristics of the fixed leg make it possible to replicate exactly the fixed cash flows generated by the hedged item; � the “Dollar offset through the hypothetical derivative” approach for forward start swaps and forward sales of the subsidiary Poste Vita, for which the prospective effectiveness test is performed by calculating the hedge ratio between the change in fair value of the hypothetical derivative and the change in fair value of the actual derivative120. The hedge is considered effective if the hedge ratio falls in the interval between 80% and 125%.
120. Calculated by assuming a parallel shift of + / - 100 bps of the yield curves. 121. The notional amount of the forward contract must be set, at the settlement date, as equal to the nominal amount of the instrument in case of purchase, and equal or lower than the nominal amount of the instrument in case of sale. The underlying of the forward contract must coincide with the instrument that must be purchased or sold (in this case it must be an instrument in the portfolio) at the settlement date. The settlement date must be the same as the date on which the cash flow to be hedged is expected, in case of forward purchase, or must be related to the year in which the total return must be stabilised, in case of forward sale.
For the purposes of the prospective effectiveness test, the critical terms approach is applied, considering at inception the consistency between the hedging instrument and the hedged item on the basis of the qualitative characteristics of the contracts121.
123. Calculated by assuming a parallel shift of + / - 100 bps of the yield curves.
The Poste Italiane Group is exposed to the risk of cash flow volatility in relation to the €50 million bond issue of 25 October 2013, which calls for annual variable interest payments.
The effectiveness of the hedges is tested retrospectively and prospectively by using the “Dollar offset through the hypothetical derivative” approach.
Up to 1 year 1 - 5 years Over 5 years Total
Accumulated amount of fair value hedge adjustments on the hedged item in case of discontinuingAssets Liabilities Assets Liabilities
On 30 January 2019, the Board of Directors of the Company resolved to adhere to the facilitated definition pursuant to art. 6 of Law Decree no. 119 of 2018 converted into Law no. 136 of 2018 with a tax charge of €0.367 million, paid on 19 April 2019. On 15 May 2019, the documentation certifying the settlement of the dispute and the relative request for suspension of proceedings was filed at the Registry of the Tax Section of the Court of Cassation.
With reference to Postel, an audit regarding income tax and withholding tax came to an end on 8 October 2015, with delivery of a tax audit report, contesting the right to deduct VAT and the deductibility of IRAP, in relation to the alleged failure to pay social security contributions for employees and/or contractors used by a supplier between 2010 and 2014. In relation to the notices of assessment for the 2010 and 2011 periods, Postel has decided to avail itself of the facilitated definition pursuant to article 11 of the Law Decree 50 of 24 April 2017, while with regard to the other assessment periods, the tax authorities have notified: � with regard to the 2012 tax year, on 25 November 2016, additional IRES, IRAP, VAT and withholding tax of €0.1 million, plus penalties and interest. On 19 January 2017, the company appealed the assessment notice, at the same time paying a provisional amount equal to approximately half of the requested amount. At the hearing held on 13 February 2018, the appeal was upheld and the tax authorities were ordered to pay costs. As notified on 3 October 2018, the tax authorities appealed to the Regional Tax tribunal in Rome. Postel appeared before the Tribunal to argue its case on 30 November 2018. A date for the appeal hearing has yet to be scheduled; � with regard to the 2013 tax year, on 24 July 2017, additional IRES, IRAP, VAT and withholding tax of €0.2 million, plus penalties and interest. Postel filed appeal against the claim on 23 October 2017, at the same time provisionally paying a sum equal to approximately half the tax claimed. The appeal was upheld at the hearing held on 26 September 2019. The judgement may be appealed by the tax authorities by the deadline of 21 April 2020; � With regard to the 2014 tax year, on 19 April 2019, the tax authorities requested the payment of additional VAT, IRES, IRAP and withholdings amounting to a total of approximately €0.25 million, plus penalties and interest. Postel filed appeal against the claim on 10 June 2019, at the same time provisionally paying a sum equal to approximately half the tax claimed. A date for the appeal hearing has yet to be scheduled.
On 19 April 2018, the tax Authorities in Rome (Guardia di Finanza – Nucleo di Polizia economico-finanziaria) entered the offices of SDA Express Courier. The purpose of the inspection was to verify the company’s compliance with the requirements regarding VAT, income tax, IRAP and withholding tax for the years 2014, 2015 and 2016, pursuant to and for the purposes of articles 52 and 63 of Presidential Decree 633/72, art. 33 of Presidential Decree 600/73, art. 2 of Legislative Decree 68/2001 and Law 4/1929. On 29 November 2018, the audit was formally declared at an end. The main finding in final notice of assessment for about €1 million regards the deduction of VAT relating to the adjustment entries issued by the company in connection with discounts granted to customers following an increase in the number of shipments. These discounts become price reductions, originally applied by the company when the shipment is handled, and are therefore classified as rebates or discounts under the related contract. Subsequently, on 5 December 2019, a notice of assessment for the year 2014 alone was notified with a total claim of €0.4 million, which, referring to the Formal Tax Audit Report (PVC), mainly contests the VAT deducted. On 3 February 2020, the Company appealed against this notice and provided for the provisional payment of the fine imposed.
Since 2012, the Istituto Nazionale per la Previdenza Sociale (INPS, the National Institute of Social Security) office at Genoa Ponente has issued Postel some payment orders, for a total amount payable of €21 million at 31 December 2019. 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. Appeals against these requests were brought before the Court of Genoa. In support of the arguments of Postel 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.
Provisions recognised in the financial statements at 31 December 2019 amount to €12.25 million.
European Commission On 13 September 2013, the Court of Justice of the European Union upheld Poste Italiane appeal, overturning the decision of the European Commission of 16 July 2008 on state aid, ordering the EC to pay legal costs. Acting on the European Commission’s Decision, and in accordance with instructions from the Parent Company’s shareholder, in January 2009 Poste Italiane SpA paid €443 million plus interest of €41 million to the MEF. In implementation of the European Court’s (by then definitive) decision, in accordance with art. 1 paragraph 281 of the 2015 Budget Law, (Law 190 of 23 December 2014), on 13 May 2015, the Company collected the amount of €535 million from its then sole shareholder, the MEF. Following the European Court’s decision, however, the European Commission reopened its review and appointed an external expert to determine whether (in accordance with art. 1, paragraph 31 of the 2006 Budget Law - Law 266 of 23 December 2005) the rates of interest earned by the Company on deposits with the MEF during the period from 1 January 2005 to 31 December 2007 were in line with market rates. The external expert has provided the Commission, on a preliminary basis, with an updated version of the analysis originally performed by the Commission. On 2 August 2019, the European Commission ruled that the remuneration of deposits with the MEF for the years 2005-2007 does not constitute State aid within the meaning of European legislation.
On 3 October 2018, Poste Italiane proceeded to pay the fine of €23 million plus interest imposed by the Autorità Garante della Concorrenza e del Mercato (AGCM - the Antitrust Authority) following its ruling, in January 2018, that Poste Italiane had abused its dominant market position in the period from 2014 to 2017, as per art. 102 of the TFEU. This did not constitute acceptance or admission of liability in relation to the alleged misconduct and does not affect the Company’s right to defend its position through the appropriate channels.
On 4 March 2019, the AGCM notified the Company that it was satisfied that the actions taken by Poste Italiane to remedy the earlier issues had been effective and that the Company was in compliance with the regulations, ruling therefore that: (i) no further fine would be imposed; (ii) Poste Italiane can continue to offer competing alternative operators a service equivalent to Posta Time; (iii) Poste Italiane, within 30 days of notice of the ruling, must inform the regulator in writing of the degree to which the Posta Time equivalent service has been extended. On 4 April 2019, Poste Italiane sent the authority a report confirming the actions taken in order to comply. Poste Italiane has challenged the above measure before the Lazio Regional Administrative Court (TAR). The court merit is set for 20 April 2020.
iii. AGCom Resolution 412/14/CONS regarding “Assessment of the net cost of the universal postal service for 2011 and 2012” was published on 31 July 2014. In addition to acknowledging that the cost is unfair, the Resolution quantified the cost of providing the Universal Postal Service in 2011 and 2012, respectively, as €381 million and €327 million for fees originally recognised by Poste Italiane for €357 and €350 million respectively. The Authority has also established that no compensation fund was established for 2012 and on 13 November 2014, Poste Italiane filed an appeal before the Lazio Regional Administrative Court against the above resolution (still pending).
On 20 June 2019, the Bank of Italy requested to ensure that the procedures used in handling complaints regarding Interestbearing Postal Certificates were fit for purpose. The Bank also requested information on the fraudulent use of payment instruments. The Company carried out the appropriate investigations and provided feedback to the Authority on both issues on 30 September 2019, subject to approval, as requested by the Authority, by the Board of Directors and the Board of Statutory Auditors. At the date of preparation of this Report, the Company does not believe it necessary to revisit its approach to handle disputes regarding Interest-bearing Postal Certificates and, as a result, the criteria to estimate the related provisions for risks and charges. The amount set aside, determined on the basis of the historical series of operating losses, represents the best estimate of directors of the charge required to settle the probable liabilities. Any changes to the aforesaid estimate may only be made after the Authority has agreed to changes to the practices currently adopted, taking into account the decisions that will be made by both the Financial Banking Arbitrator (ABF) and the Ordinary Judicial Authority (AGO).
124. This method defines the cost incurred as the difference between the net operating cost incurred by a designated universal service provider when subject to universal service obligations and the net operating cost without such obligations.
On 23 May 2019, the CONSOB requested additional information on the closed-end real estate fund, Obelisco, which matured on 31 December 2018, and any initiatives to be adopted by Poste Italiane in order to protect investors, similar to the action taken with regard to the closed-end real estate funds, IRS and Europa Immobiliare 1. The Company responded on 16 June 2019.
On 10 October 2019, the CONSOB requested, by way of short notice, some clarifications on the report received from the company Sagitta SGR on 5 August regarding the representation of the information relating to the Obelisco real estate fund in the statement of account of the Customer Securities Dossier. The reply was sent by the Company on 17 October 2019.
On 29 October 2019, the CONSOB requested information on the correct fulfilment of transaction reporting obligations. The reply was sent by the Company on 13 December 2019.
Financial statements of Poste Italiane at 31 December 2019 10. Proceedings pending and principal relations with the authorities
11. Material non-recurring events and/or transactions 125. 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.
126. Such transactions are defined as transactions that due to their significance/materiality, the nature of the counterparties, the purpose of the transaction, the manner of determining the transfer price and timing of the transaction may give rise to doubts over the correctness and/or completeness of the disclosures in the financial statements, over a conflict of interest, safeguards for the Company’s financial position and protections for non-controlling shareholders.
A brief summary of the impact of material non-recurring events and transactions125 involving the Poste Italiane Group in 2019, is provided below, as required by CONSOB ruling DEM/6064293 of 28 July 2006: � Income of €88 million relating to the revaluation of the investment in SIA SpA, already held by FSIA Investimenti, following the acquisition of sole control (step up acquisition) and the income deriving from the exercise of purchase options on 7.934% of the shares in SIA SpA held by UniCredit and Intesa Sanpaolo.
� Impairment of €46 million, including €45 million relating to the Parent Company, in respect of interest income on IRES reimbursement, as described in Note A9 - Other receivables and assets.
Other events after the end of the reporting period are described in the above notes and no further significant events have occurred after 31 December 2019.
This note provides information applicable to both the Poste Italiane Group’s consolidated financial statements and Poste Italiane SpA’s separate financial statements, including qualitative and quantitative disclosures on matters required by accounting standards, not specifically dealt with in the previous notes.
The net debt/(funds) of the Poste Italiane Group and Poste Italiane SpA at 31 December 2019 are analysed below.
Cash and deposits attributable to BancoPosta - - (4,303) - - (4,303) -
Total net funds at 31 December 2019 amounts to €5,667 million, up from €5,372 million at 31 December 2018. The change of €295 million during the period primarily reflects a decrease in net working capital, an increase in the fair value of investments classified as FVTOCI, the recognition of financial liabilities required by the adoption, from 1 January 2019, of the new IFRS 16 accounting standard (€1,279 million at 31 December 2019) and the distribution of dividends totalling €774 million.
Balance at 31/12/2018 (€m) Capital outside ring-fence BancoPosta RFC Eliminations Poste Italiane SpA
MEF account held at the Treasury - 3,649 - 3,649 3,649
Total net funds of the Company at 31 December 2019 amounts to €2,608 million, down compared to 31 December 2018 (cash of €3,138 million). The change of €530 million during the year primarily reflects the recognition of financial liabilities resulting from the first-time adoption, from 1 January 2019, of the new accounting standard, IFRS 16 (€1,149 million at 31 December 2019), the payment of dividends totalling €774 million and the increase in the fair value of financial instruments at FVTOCI for €1,462 million. The fair value reserve relating to these instruments, before the related taxation, is positive for €1,348 million.
Industrial net debt for capital outside ring-fence including intersegment transactions 1,254 (634)
Transfers of financial assets that are not derecognised In accordance with IFRS 7 - Financial Instruments: Disclosures, this section provides additional information on the transfer of financial assets that are not derecognised (continuing involvement).
Financial liabilities arising from repos (12,201) (12,194) (12,205) (8,477) (8,473) (8,484)
Financial assets subject to encumbrances This paragraph provides information on the nominal value and carrying amount of financial assets delivered to counterparties as collateral for repurchase agreements and interest rate swaps, and financial assets delivered to the Bank of Italy as collateral for intraday credit granted to the Parent Company and as collateral for SEPA Direct Debits.
Receivables used as collateral provided by CSAs 5,181 5,181 1,332 1,332
Securities used as collateral provided by CSAs and GMRAs 528 527 247 246
Receivables used as collateral provided by CSAs 23 23 30 30
At 31 December 2019, the Parent Company has received financial assets as collateral for repurchase agreements, having a nominal value of €1,085 million and a fair value of €1,165 million.
Belgium 89 107 107 89 92 92 Financial assets at amortised cost - - - - - - Financial assets at FVTOCI 89 107 107 89 92 92 Financial assets at FVTPL - - - - - -
Ireland 10 13 13 10 11 11 Financial assets at amortised cost - - - - - - Financial assets at FVTOCI 10 13 13 10 11 11 Financial assets at FVTPL - - - - - -
USA 1 1 1 1 1 1 Financial assets at amortised cost - - - - - - Financial assets at FVTOCI 1 1 1 1 1 1 Financial assets at FVTPL - - - - - -
Financial assets at amortised cost 17,425 21,118 20,706 16,435 18,333 16,857
Unconsolidated structured entities In order to make investments as consistent as possible with the risk-return profiles of the policies issued, ensuring management flexibility and efficiency, in certain cases Poste Vita SpA has purchased over 50% of the assets managed by certain investment funds. In these cases, tests have been performed in keeping with IFRS to determine the existence of control. The results of the tests on such funds suggest that the company does not exercise any control within the meaning of IFRS 10 – Consolidated Financial Statements. However, these Funds fall within the definition of unconsolidated structured entities: a structured entity is an entity designed in such a way as not to make voting rights the key factor in determining control over it, as in the case where voting rights refer solely to administrative activities and the relevant operations are managed on the basis of contractual arrangements.
Investment in a mix of asset classes (corporate bonds, government bonds and equities)
Investment in "core" and "core plus" real estate assets for office use, located in the Eurozone and euro-denominated
QU0006745081 - Prima Real Estate Europe Fund I Financial assets at FVTPL
Poste Italiane Group The Annual General Meeting of Poste Italiane SpA’s shareholders held on 24 May 2016 approved the information circular for the Long-term Incentive Plan for 2016-2018 (LTIP) – Phantom Stock Plan, prepared in accordance with art. 84-bis of the Regulations for Issuers. The LTIP, set up in line with market practices, aims to link a portion of the variable component of remuneration to the achievement of earnings targets and the creation of sustainable shareholder value over the long term.
Second Cycle 2017-2019 At 31 December 2019, the total number of phantom stocks awarded to the 49 Beneficiaries of the Second Cycle of the Plan amount to 549,561. The cost recognised for 2019 is approximately €3.8 million, whilst the liability recognised in amounts due to staff is approximately €6.2 million.
Third Cycle 2018-2020 At 31 December 2019, the total number of phantom stocks awarded to the 70 Beneficiaries of the Third Cycle of the Plan amount to 649,801. The cost recognised for 2019 is approximately €3.2 million, whilst the liability recognised in amounts due to staff is approximately €4.4 million.
Poste Italiane SpA The effects on profit or loss of the above Long-Term Incentive scheme at 31 December 2019 for Poste Italiane SpA are shown below.
Description of the Plan The ILT Performance Share Plan, as described in the relevant Information Circular, provides for the assignment of Rights to the ordinary shares of Poste Italiane. The number of Rights to be granted to Beneficiaries is subject to the achievement of Performance Targets over a three-year period, following confirmation of achievement of the Hurdle, the Qualifying Conditions and compliance with the Malus Provisions (the latter for BancoPosta Beneficiaries, hereinafter BP Beneficiaries including then General Manager). The Plan covers a medium- to long-term period. In particular, the Plan includes two award cycles, corresponding to the financial years 2019 and 2020, each with a duration of three years. Shares are awarded if performance targets are met or after a Retention Period. The key characteristics of the Plan are described below.
Vesting of the Rights and the therefore the awarding of the Shares 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 Beneficiaries, 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, (CET 1) at the end of the period; � Indicator of short-term liquidity, (LCR) at the end of the period; � RORAC risk-adjusted earnings at the end of the period.
Determination of fair value and effects on profit or loss An independent expert, external to the Group, was appointed to measure the value of the stocks and this was done using Monte Carlo simulations.
127. The objective linked to the relative Total Shareholder Return (rTSR) includes a negative threshold provision: if Poste Italiane’s TSR is negative, despite being higher than the TSR registered by the index, the number of vested Rights (linked to rTSR) is reduced to the minimum threshold of 50%.
Poste Italiane SpA At 31 December 2019, the total number of Rights to receive Shares assigned for the First Cycle of the Performance Share Plan concerns 105 Beneficiaries and was 644,495 units, whose unit fair value at the grant date (28 May 2019 for the General Manager and 7 October 2019 for the BP Beneficiaries and Other Beneficiaries) was €6.19, €8.29 and €8.88, respectively. The cost recognised for 2019 is approximately €1.7 million, equivalent to the equity reserve specifically created for this case. The unit fair value of each right is equal to its nominal value at the grant date (determined on the basis of stock exchange prices), discounted by the expected dividend rate and the risk-free interest rate.
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). These standards provide that a part of the bonuses paid to BancoPosta RFC’s Risk Takers may be awarded in the form of financial instruments over a multi-year timeframe.
With regard to the management incentive schemes adopted for BancoPosta RFC MBO for 2017 and 2018, 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’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-term incentive scheme and the third cycle 2018-2020 of the LTI Phantom Stock Plan; � 40% of the award to be deferred for a 3-year period on a pro-rata basis for the remaining Material Risk Takers.
The new short-term management incentive scheme (MBO 2019), approved by the General Meeting of Poste Italiane SpA’s shareholders on 28 May 2019, provides, where the incentive exceeds a materiality threshold, for the payment of a portion of the bonus accrued in the form of shares in Poste Italiane SpA and the application of deferral mechanisms: � 60% of the incentive over 5 years pro-rata, for the General Manager and the head of the BancoPosta function; � 40% over 5 years pro-rata for the Senior Management Beneficiaries; � 40% over 3 years pro-rata for the Other Beneficiaries.
At 31 December 2019, the number of Rights to receive Shares, deriving from the new short-term MBO 2019 incentive plan, estimated on the basis of the best information available, pending the actual finalisation of the system in order to record the cost of the service received, was 57,335, mainly relating to personnel employed by the Parent Company. The amount recognised in profit and loss in 2019 is €0.5 million.
Severance payments on termination of employment Severance payments to BancoPosta RFC’s Risk Takers on early termination are paid in accordance with the same procedures applied to short-term variable remuneration as regards deferral, payment in financial instruments and verification of the minimum regulatory capital and liquidity requirements for BancoPosta RFC.
Consorzio per i Servizi di Telefonia Mobile ScpA (Rome) 100.00% 120 - 116
Anima Holding SpA (Milan) (a) Associate 221,202 10.04% 2,212,239 975,867 1,236,372 738,458* 102,036
FSIA Investimenti Srl (Milan) (b) Associate 393,166 30.00% 1,391,413 83,518 1,307,895 359,370** 326,802
Uptime SpA - in liquidation (Rome) (e) Subsidiary - 100.00% 771 4,702 (3,931) - (598)
Other SDA Express Courier associate (f) Associates 4 a. Data derived from the latest consolidated interim accounts for the period ended 30 September 2019 approved by the company’s board of directors. b. Figures of the reporting package of the company at 31 December 2019 (including measurement of the SIA Group using the equity method and recognition of the related effects with regard to Purchase Price Allocation). c. Data derived from the accounts for the period ended 30 June 2019, the latest approved by the company. d. Data derived from the accounts for the period ended 31 December 2018, the latest approved by the company. e. Data derived from the accounts for the period ended 31 December 2017, the latest approved by the company. f. The other associates of the SDA Express Courier group are Eurodis and Speedy Express Courier Srl in liquidation. * The amount includes commissions, interest income and other similar income.
Postal savings 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 by BancoPosta Fondi SpA SGR, measured at fair value using information available on the last working day of the year, amount to €9,442 million at 31 December 2019 (€8,119 million at 31 December 2018).
Contracts to purchase property, plant and equipment 95 1 96 -
Sureties and other guarantees issued: by banks/insurance companies in the interests of Group companies in favour of third parties 357 283 by the Group in its own interests in favour of third parties 55 21
Sureties and other guarantees issued: by banks in the interests of Poste Italiane SpA in favour of third parties 275 182 by Poste Italiane SpA in the interests of subsidiaries in favour of third parties 47 59 letters of patronage issued by Poste Italiane SpA in the interests of subsidiaries 55 21
In addition to the above, at 31 December 2019, Poste Italiane SpA holds a further €2 million in assets belonging to Group companies.
128. 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.
At 31 December 2019, the Parent Company has paid a total of €97 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
Total 3,205 * The above amounts do not include incidental expenses and charges.
Auditing services are expensed as incurred and reported in the audited financial statements128. With regard to the Parent Company, the item “Audit” includes additional fees of €60 thousand subject to approval by the Annual General Meeting of shareholders on 16 April 2020.
Part B – Information on the statement of financial position 584
Statement of financial position Liabilities and equity (figures in €) 31 December 2019 31 December 2018 10. Financial liabilities measured at amortised cost 71,537,041,487 64,202,714,720 a) due to banks 7,186,265,048 5,984,821,231 b) due to customers 64,350,776,439 58,217,893,489 c) debt securities in issue - 20.
Statement of profit or loss Items (figures in €) FY 2019 FY 2018 10. Interest and similar income 1,639,759,421 1,555,587,952 of which: interest income calculated using the effective interest method 1,639,759,421 1,555,587,952 20. Interest expense and similar charges (74,238,340) (28,570,167)
60. Net fee and commission income 3,458,831,296 3,721,638,972 70. Dividends and similar income 429,921 445,281 80. Profits/(Losses) on trading (11,070,181) 5,670,610 90. Profits/(Losses) on hedging (4,496,098) (1,777,493)
100. Profits/(Losses) on disposal or repurchase of: 339,308,445 378,997,561 a) financial assets measured at amortised cost (10,460,322) 1,377,576 b) financial assets measured at fair value through other comprehensive income 349,768,767 377,619,985 110. Profits/(Losses) on other financial assets/liabilities measured at fair value through profit or loss 26,531,023 9,199,912 a) financial assets and liabilities designated at fair value - b ) other financial assets mandatorily measured at fair value 26,531,023 9,199,912 120. Net interest and other banking income 5,375,055,487 5,641,192,628 130. Net losses/recoveries due to credit risk on: (9,234,870) (21,388,521)
a) commitment and guarantees given - b ) other net provisions (16,219,668) (72,295,107)
Statement of comprehensive income Items (figures in €) FY 2019 FY 2018 10. Profit/(Loss) for the year 610,685,913 596,808,586
Other components of comprehensive income after taxes not reclassified to profit or loss 20. Equity instruments measured at fair value through other comprehensive income - 30. Financial liabilities designated at fair value through profit or loss (changes in own credit rating) - 40. Hedges of equity instruments measured at fair value through other comprehensive income - 50. Property, plant and equipment - 80. Non-current assets and disposal groups held for sale - 90.
150. Non-current assets and disposal groups held for sale - 160. Share of valuation reserve attributable to equity-accounted investments - 170. Total other components of comprehensive income after taxes 1,068,312,592 (1,472,257,839)
Comprehensive income for 2019 * This item corresponds to the BancoPosta RFC reserve.
1. Cash flow from operations 754,202,690 707,840,222 - profit/(loss) for the year (+/-) 610,685,913 596,808,586 - gains/(losses) on financial assets held for trading and on assets and liabilities measured at fair value through profit or loss (-/+) (12,308,652) (9,638,688)
- gains/(losses) on hedging activities (-/+) 4,496,098 1,777,492 - net losses/recoveries due to credit risk (+/-) 9,234,870 21,388,521 - net losses/recoveries on property, plant and equipment and intangible assets (+/-) - - - net provisions and other expenses/income (+/-) 136,284,751 147,682,241 - unpaid taxes and duties (+) 233,524,282 233,104,452 - net losses/recoveries on discontinued operations after tax (+/-) - 2. Cash flow from/(used for) financial assets (6,387,366,249) (4,480,855,905)
- financial assets held for trading - - - financial assets designated at fair value - - - other financial assets mandatorily measured at fair value 13,911,081 - - financial assets measured at fair value through other comprehensive income (1,038,739,773) 1,253,773,199 - financial assets measured at amortised cost (5,390,775,250) (5,332,798,567)
Net cash flow from / (used for) financing activities (596,808,586) (374,979,647)
Cash and cash equivalents at end of the year 4,313,694,951 3,327,674,415
Accounting standards and interpretations applicable from 1 January 2019 and those soon to be effective
Section 2 – Basis of preparation The Separate Report has been prepared in application of the 6th update of Bank of Italy Circular 262 of 22 December 2005 – “Banks’ Financial Statements: Layouts and Preparation”, 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 2019, has been prepared in euros and consists of the statement of financial position, the statement of profit or loss, 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, statement of profit or loss 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, statement of profit or loss and statement of comprehensive income for the sake of completeness. The cash flow statement has been prepared under the indirect method129. All figures in the notes are stated in millions of euros. Notes and account analysis have not been included for nil balances.
The Separate Report forms an integral part of Poste Italiane SpA’s financial statements and has been prepared on a going concern basis in that BancoPosta RFC’s operations are certain to continue in the foreseeable future.
Section 4 – Other information 4.1 Intersegment relations Balances relating to transactions between BancoPosta RFC and Poste Italiane SpA (Intersegment transactions) are recognised in the statement of financial position at 31 December 2019 as shown below: (€m) 31/12/2019 of which intersegment 31/12/2018 of which intersegment
Financial liabilities held for trading 15 - - 100. Provisions for risks and charges 327 - 511 180. Profit/(Loss) for the year (+/-) 611 - 597 -
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part A – Accounting policies
In line with 2018, the services are charged for in the form of transfer prices. The transfer prices paid, inclusive of commissions and any other form of remuneration due, are determined on the basis of market prices and tariffs for the same or similar services, identified, where possible, following a benchmarking process. When the specifics and/or the particular nature of a service provided by a Poste Italiane function do not allow the use of a comparable market price, a cost-based method is used, again with the support of benchmarking to ensure that the price charged is adequate for the service provided. In this case, an appropriate mark-up, determined with reference to those used by comparable peers, is applied. The prices set in each Operating Guidelines can be reduced in the presence of operating losses of the activities outsourced or in case of penalties due to the failure to achieve pre-established service levels, as measured by specific performance indicators. The Guidelines in force were effective as of 1 October 2018 and will expire on 31 December 2020. The transfer prices so defined are revised every year in connection with the planning and budget process.
For the purposes of oversight of the unbundled accounts, in 2019, the Board of Statutory Auditors conducted the relevant audit activities during 3 meetings, reporting its conclusions in its annual report to shareholders for the year ended 31 December 2019.
Autorità Garante della Concorrenza e del Mercato (AGCM - the Italian Antitrust Authority)
On 8 October 2018, the AGCM notified Poste Italiane, with reference to BancoPosta RFC, of the launch of investigation PS11215 – pursuant to art. 27, paragraph 3 of Legislative Decree 206/05 (the Consumer Code) and art. 6 of the Regulation for Investigations – with an accompanying request for information pursuant to art. 12, paragraph 1 of the above Regulation. The investigation is in response to complaints filed on 24 July 2018 by Altroconsumo and on 8 August 2018 by Centro Tutela Consumatori e Utenti (two consumers’ associations). The Authority is primarily looking into an advertising campaign called Buoni e libretti – Buono a sapersi, promoting Interest-bearing Postal Certificates and Postal Savings Books via TV and press adverts. The investigation relates to the alleged violation of articles 21 and 22, paragraph 1 and 4 letter a) of the Consumer Code, as the effect of taxation was, in the Authority’s view, not clearly indicated.
On 20 June 2019, the Bank of Italy requested to ensure that the procedures used in handling complaints regarding Interestbearing Postal Certificates were fit for purpose. The Bank also requested information on the fraudulent use of payment instruments. Poste Italiane carried out the appropriate investigations and provided feedback to the Authority on both issues on 30 September 2019, subject to approval, as requested by the Authority, by the Board of Directors and the Board of Statutory Auditors. At the date of preparation of this Report, it was not deemed necessary to revisit its approach to handle disputes regarding Interest-bearing Postal Certificates and, as a result, the criteria to estimate the related provisions for risks and charges. The amount set aside, determined on the basis of the historical series of operating losses, represents the best estimate of directors of the charge required to settle the probable liabilities. Any changes to the aforesaid estimate may only be made after the Authority has agreed to changes to the practices currently adopted, taking into account the decisions that will be made by both the Financial Banking Arbitrator (ABF) and the Ordinary Judicial Authority (AGO).
Later, on 18 April 2019, the CONSOB requested further clarification regarding the notes submitted by BancoPosta between September 2018 and February 2019 and the “Report on the conduct of investment services and activities” relating to: (i) concerns regarding compliance with the above legislation; (ii) aspects where there is a need for precise clarification in order assess compliance with industry regulations; (iii) updates on matters for which information on initiatives in progress was previously provided. The above information was provided in a specific response submitted to the regulator on 3 June 2019.
On 23 May 2019, the CONSOB requested additional information on the closed-end real estate fund, Obelisco, which matured on 31 December 2018, and any initiatives to be adopted by Poste Italiane in order to protect investors, similar to the action taken with regard to the closed-end real estate funds, IRS and Europa Immobiliare 1. Poste Italiane responded on 16 June 2019.
On 31 May 2019, the CONSOB requested information on the disclosure made to customers on the cost and expense statement, ex ante (pre-contractual information) and ex post (annual report), which was replied to on 1 July 2019 (for information ex ante) and 22 July 2019 (for information ex post). On 27 June 2019, the CONSOB requested further clarifications regarding the measures adopted to ensure compliance with regulatory provisions with reference to the planned controls in terms of experience and knowledge of the sales network employees. The related reply was sent on 17 July 2019 and contains detailed information on the training course aimed at maintaining and updating knowledge and skills with the related final verification test, assessments carried out on the results of the final verification tests, an illustration of the results achieved by the new resources placed in the role for the year 2018 and 2019, as well as clarifications on the specialist supervision in support of the network.
d) derecognition These financial assets are derecognised when the contractual rights to the cash flows of those financial assets lapse or on the disposal of the financial asset and all risks and rewards relating to the financial asset are substantially transferred.
The effects of the application of amortised cost are recognised in profit and loss in Item 10 - Interest and similar income.
Expected credit losses are calculated in relation to these financial assets, as illustrated in the specific section. These expected losses are recognised in profit and loss in “Item 130 – Net losses/recoveries due to credit risk” with a counter-entry made under the Item 110 – Valuation reserves.
a) recognition Financial assets measured at amortised cost are initially recognised on (i) the settlement date for debt securities and investments and (ii) the date on which the service is rendered for trade receivables. They are initially recognised at fair value which is generally the price paid for debt securities or at the contractual value of the service rendered for all the other receivables. Changes in fair value between the trade date and the settlement date are recognised.
c) measurement and recognition of gains and losses These assets are measured at amortised cost, that is the value assigned to the financial asset on initial recognition, net of any principal reimbursement, plus or minus the cumulative amortisation by using the effective interest rate method on the difference between the initial value and the value at maturity, after deducting any impairment. Any gains or losses are recognised in profit or loss in line Item 10 - Interest and similar income.
b) measurement and recognition of gains and losses Derivatives are initially recognised at fair value on the date the derivative contract is executed. If derivative financial instruments qualify for hedge accounting, gains and losses arising from changes in fair value after initial recognition are accounted for in accordance with the specific policies described below. The relationship between each hedging instrument and the hedged item is documented, as well as the risk management objective, the strategy for undertaking the hedge transaction and the methods used to assess effectiveness. Assessment of whether the hedging derivative is effective takes place both at designation of each derivative instrument as hedging instrument, and during its life.
Amounts accumulated in equity are recycled to profit or loss in the period in which the hedged item affect profit or loss. In particular, in the case of hedges associated with a highly probable forecast transaction (such as forward purchase of fixed income debt securities), the reserve is reclassified to profit or loss in the period or in the periods in which the asset or liability, subsequently accounted for and connected to the aforementioned transaction, will affect profit or loss (for example, an adjustment to the return on the security).
If, during the life of the derivative, the forecast hedged transaction is no longer expected to occur, the related gains and losses accumulated in the cash flow hedge reserve are immediately reclassified in line Item 80 – Profits/(Losses) on trading for the relevant year. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the related gains and losses accumulated in the cash flow hedge reserve at that time remain in equity and are recognised in profit or loss at the same time as the original underlying.
BancoPosta RFC is not a separate legal person and is not either directly or indirectly assessable to taxes. BancoPosta’s share of taxes on Poste Italiane SpA’s overall income is charged to BancoPosta RFC based on the profit or loss presented in this Separate Report adjusted for deferred taxation. In the case of both IRES and IRAP, the computation takes all permanent and temporary changes in BancoPosta’s operations into account. Any items not directly relating to BancoPosta are included in the Poste Italiane computation.
10 – Provisions for risks and charges Provisions for risks and charges are recorded to cover losses that are either probable or certain to be incurred, for which, however, there is an uncertainty as to the amount or as to the date on which they will occur. Provisions for risks and charges are made when the entity has a present (legal or constructive) obligation as a result of a past event, and it is probable that an outflow of resources will be required to settle the obligation. Provisions are measured on the basis of management’s best estimate of the use of resources required to settle the obligation. The value of the liability is discounted at a rate that reflects current market values and takes into account the risks specific to the liability. With regard to the risks for which the occurrence of a liability is only possible, specific information is provided without making any provision. Under the option granted by the relevant accounting standards, limited disclosure is provided when, in rare cases, disclosure of some or all of the information regarding the risks in question could seriously prejudice BancoPosta RFC’s position in a dispute or in ongoing negotiations with third parties.
b) measurement and recognition of gains and losses Due to banks and customers are measured at amortised cost, employing the effective interest rate method. If there is a change in expected cash flows and they can be reliably estimated, the value of borrowings is recalculated to reflect the change in estimated future cash flows and the internal rate of return initially applied.
b) measurement and recognition of gains and losses Financial liabilities held for trading are measured at fair value though profit or loss in “Item 80 - Profits/(Losses) on trading”
Foreign exchange differences realised on the settlement of monetary items or on the translation of monetary and non-monetary items, using exchange rates other than the rate used to translate the item on initial recognition, are recognised in profit or loss in line Item 80 - Profits/(Losses) on trading.
For revenue recognition purposes, so-called variable components of the consideration (discounts, rebates, price concessions, incentives, penalties and other similar) are included to supplement or adjust the transaction price. Among the variable components of the consideration, of particular importance are the penalties (other than those provided for compensation for damages), which IFRS 15 provides to be recorded as a direct decrease in revenues, instead of allocating them to a provision for risks and charges.
In the presence of multiple performance obligations, the total transaction price is allocated to each performance obligation to the extent of the consideration that the entity is entitled to receive for the transfer of the relevant goods and services to the customer. The transaction price will be allocated on the basis of the standalone selling price of the goods and services associated with the performance obligation. The standalone selling price is the price at which an entity would sell the goods and services separately to the customer, under similar circumstances and to similar customers. If the standalone selling price is not observable, it would be estimated considering all the information available (market conditions, information on the customer or the class of customers) and the estimation methods used in similar circumstances.
Impairment Loans and receivables and debt securities classified under “Financial assets measured at amortised cost” and “Financial assets measured at fair value through other comprehensive income” are tested for impairment in accordance with the Expected Credit Losses (ECL) model. The Poste Italiane Group applies the General Deterioration Approach on the basis of varying risk estimate parameters, depending on the counterparty. Specifically: � If on the reporting date the credit risk of a financial instrument has not increased significantly since initial recognition, a 12-month ECL is recognised (stage 1). Interest on the instrument is calculated on the gross carrying amount (amortised cost inclusive of the ECL); � If on the reporting date the credit risk of the financial instrument has increased significantly since initial recognition, a lifetime ECL is recognised (stage 2). Interest on the instrument is calculated on the gross carrying amount (amortised cost inclusive of the ECL); � if the financial instrument is impaired since initial recognition, or shows objective evidence of impairment at the reporting date, impairment will continue to be recognised over the lifetime of the financial instrument (stage 3). Interest is calculated on amortised cost.
For a detailed description of the approaches, reference is made to Part E – Section 1 – Credit risk.
Other long-term employment benefits consist of benefits not payable within twelve months of the end of the reporting period during which the employees provided their services. The net change in the value of any of the components of the liability during the reporting period is recognised in full in profit or loss. Measurement of the other long-term employee benefits liability is recognised in the financial statements on the basis of calculations performed by independent actuaries.
Service costs charged by Poste Italiane SpA’s functions outside the ring-fence are normally recognised in Item 160 b) - Other administrative expenses.
Use of estimates Preparation of the Separate Report requires the application of accounting standards and methods that are at times based on complex subjective judgements and estimates based on historical experience, and assumptions that are considered reasonable and realistic under the circumstances. Use of such estimates and assumptions affects the amounts reported in the financial statements and related disclosures. The actual amounts of items for which the above estimates and assumptions have been applied may differ from those reported in previous financial statements, due to uncertainties regarding the assumptions themselves and the conditions on which estimates are based. Estimates and assumptions are periodically reviewed and the impact of any changes is reflected in the financial statements for the period in which the estimate is revised if the revision only influences the current period, or also in future periods if the revision influences both current and future periods.
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 Part A Section A.4.1.
As further described in Part I - Additional information - Share-based payment arrangements, the valuation of the share-based payment arrangements in place within the Poste Italiane Group at the close of these financial statements was based on the conclusions reached by actuaries external to the Group. The plan terms and conditions link the award of the related options to the occurrence of certain events, such as the achievement of performance targets and performance hurdles and, in certain areas of operation, compliance with certain capital adequacy and liquidity requirements. For these reasons, measurement of the liability, equity reserve and the corresponding economic effects involves the use of estimates based on current knowledge of factors that may change over time, potentially resulting in outcomes that may be significantly different from those taken into account in preparing these financial statements.
A.3 – Information on transfers between financial asset portfolios There have been no transfers between portfolios.
A.4.1 Fair value levels 2 and 3: valuation techniques and inputs used
BancoPosta RFC had adopted the Poste Italiane Group’s fair value policy. This policy sets out the general principles and rules to be applied in determining fair value for the purposes of preparing the financial statements, conducting risk management assessments and supporting the market transactions carried out by the Finance departments of the various Group entities. The principles and rules to be applied in measuring the fair value of financial instruments are unchanged with respect to 31 December 2018 and have been defined in compliance with indications from the various (banking and insurance) regulators and the relevant accounting standards, ensuring consistent application of the valuation techniques adopted at Group level. The methods used have been revised, where necessary, to take into account developments in operational procedures and in market practices during the year.
In compliance with IFRS 13 - Fair Value Measurement, the valuation techniques used are described below.
The assets and liabilities concerned (specifically assets and liabilities measured at fair value and measured at cost or amortised cost, for which fair value is required to be disclosed in the notes) are classified with reference to a hierarchy that reflects the materiality of the sources used for their valuation.
Level 2: this level is comprised of fair values based on inputs other than Level 1 quoted market prices that are either directly or indirectly observable for the asset or liability. Given the nature of BancoPosta RFC’s operations, the observable data used as input to determine the fair value of the various instruments include yield curves and projected inflation rates, exchange rates provided by the European Central Bank, ranges of rate volatility, inflation option premiums, asset swap spreads or credit default spreads which represent the creditworthiness of specific counterparties and any liquidity adjustments quoted by primary market counterparties.
� Fixed income bonds which are measured with the discounted cash flow method, that is by calculating the present value of all future contractual cash flows. The credit spread for the counterparty is incorporated by using yield curves constructed on the basis of the bond prices specific to the issuer.
� Derivative financial instruments: – Plain vanilla interest rate swaps: valued using discounted cash flow techniques, involving the computation of the present value of future differentials between the receiver and payer legs of the swap. The construction of yield curves to estimate future cash flows indexed to market parameters (money market rates and/or inflation) and computation of the present value of future differentials are carried out using techniques commonly used in capital markets.
� Reverse Repos: are valued using discounted cash flow techniques involving the computation of future contractual cash flows. Reverse Repos may also be used for collateral and in such cases fair value need not be adjusted for the counterparty ’s credit risk.
A.4.4 Other information There is no need to provide the additional disclosures required by IFRS 13, paragraphs 51, 93(h) and 96.
Assets/Liabilities not measured at fair value or measured at fair value on a non-recurring basis (€m)
In determining the fair values shown in the table, the following criteria were used: � debt securities measured at amortised cost were recognised applying the same rules as those used in the fair value measurement of financial assets measured at fair value through other comprehensive income; 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: breakdown
BancoPosta RFC entered into transactions to acquire and immediately dispose of debt and equity securities on behalf of certain customers.
2.2 Financial assets held for trading: breakdown by debtor/issuer/ counterparty Nil.
2.3 / 2.4 Financial assets measured at fair value: breakdown by type and by debtor/issuer
There are no financial assets measured at fair value under the fair value option in portfolio.
133. 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.
(€m) Total at 31/12/2019 Total at 31/12/2018 of which: banks - of which: other financial companies 71 50 of which: non-financial companies - b ) Public Administration entities - d ) Other financial companies - of which: insurance companies - e ) Non-financial companies - b ) Public Administration entities - d ) Other financial companies - 8 of which: insurance companies - e ) Non-financial companies - -
Securities with a nominal value of €7,557 million are encumbered as follows: � €6,621 million, carried at fair value for €7,329 million (Part B, Other Information, Table 3), and delivered to counterparties in connection with repurchase agreements concluded prior to 31 December 2019; � €889 million, carried at fair value for €913 million, and delivered to the Bank of Italy to secure an intraday line of credit; � €47 million carried at fair value for €48 million and delivered to the Bank of Italy in relation to the clearing service offered by the central bank for the execution of Sepa Direct Debits.
Fixed income instruments recognised at FVTOCI are adjusted for impairment through the relevant equity reserve, with a matching entry in profit or loss. Accumulated impairments at 31 December 2019 amount to €11 million (€13 million at 31 December 2018).
Section 4 – Financial assets measured at amortised cost – Item 40 4.1 Financial assets measured at amortised cost: breakdown of receivables due from banks by type
“Other loans, Other” includes cash collateral held by counterparties for interest rate swaps (€4,581 million as collateral pursuant to Credit Support Annexes), entered into for cash flow and fair value hedging purposes by BancoPosta RFC, and repurchase agreements (€39 million as collateral pursuant to specific Global Master Repurchase Agreements).
4.2 Financial assets measured at amortised cost: breakdown of loans to customers by type
The sub-item “Reverse repurchase agreements” refers to transactions for a total nominal amount of €1,158 million entered into with Cassa di Compensazione e Garanzia SpA (hereinafter Central Counterparty)134. These transactions are guaranteed by securities for a total notional amount of €1,086 million. At 31 December 2019 the fair value of reverse repurchase agreements is €1,158 million and is shown in Level 2 of the fair value hierarchy.
Receivables arisen from contracts with customers, which fall within the scope of IFRS 15, amount to 782 million (€837 million at 31 December 2018). These are mainly due to financial services, pension payments, interest on postal deposits, and personal loan distribution, net of any loss provisions for €40 million (€152 million at 31 December 2018). Information on the dynamics of total value adjustments is described in Part E, Section 1.
At 31 December 2019 the total fair value of these instruments, inclusive of €177 million in accrued interest, amounts to €24,686 million, of which €20,613 million classified in Level 1 of the fair value hierarchy and €4,073 million classified in Level 2.
Stage 1 and 2 Stage 3 of which: purchased or originated credit impaired assets
4.4 Financial assets measured at amortised cost: gross amount and overall impairment losses/reversals
Section 6 – Adjustments for changes in hedged financial assets portfolio – Item 60 No macro-hedges have been arranged at the reporting date.
Deferred tax assets and liabilities are analysed below: 10.1 Deferred tax assets: breakdown
Deferred tax assets through profit or loss - - - - 24 - 95 18 119 18
Deferred tax assets through equity 286 54 25 5 - - - - 311 59 10.2 Deferred tax liabilities: breakdown
Deferred tax liabilities through equity 496 93 61 12 557 105
(€m) Total at 31/12/2019 Total at 31/12/2018 2.1 Deferred tax assets recognised in the year 11 364 a) relating to previous years - b ) due to changes in accounting policies - 71 2.2 New taxes or tax rate increases - 3. 1 Deferred tax assets derecognised in the year (148) (260)
b) write-downs of non-recoverable items - c ) due to changes in accounting policies - (227)
3.2 Reduction of tax rate - 10. 6 Movements in deferred tax liabilities through equity
a) relating to previous years - b ) due to changes in accounting policies - (686)
2.2 New taxes or tax rate increases - 3. 1 Deferred tax assets derecognised in the year 126 690 b) due to changes in accounting policies - 293 3.2 Reduction of tax rate - 1
Section 11 – Non-current assets held for sale and discontinued operations and associated liabilities – Assets Item 110 and liabilities Item 70 There are no non-current assets held for sale or discontinued operations at the reporting date.
Tax receivables refer mainly to advances paid to the tax authorities, of which: €312 million for stamp duty to be paid virtually in 2020 and €8 million for withholding tax on interest payable to current account holders in 2019, both advances to be recovered from customers.
Amount recognised in profit or loss (145) (31) (176) (197) (37) (234)
changes in current taxation for previous years - (1) (1) - - of which: Current tax assets due from Poste Italiane outside the ring-fence (Item 120 Assets)
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Due to Central Banks - x x x - x x x 2.1 Current accounts and demand deposits 383 x x x 589 x x x 2.4 Obligations to repurchase equity instruments - x x x - x x x
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 €889 million, and the facility is unused at 31 December 2019.
1.2 Financial liabilities measured at amortised cost: breakdown of due to customers by type
At 31 December 2019 “Loans, Repurchase agreements” amount to €5,504 million, reflecting transactions entered into with Central Counterparty in relation to securities with a nominal amount of €5,252 million. These regard €773 million in Long Term Repos and €4,731 million in ordinary loan transactions, with the resulting proceeds invested in Italian fixed income government securities and utilised as funding for incremental deposits used as collateral.
The sub-item “Other payables” primarily consist of domestic postal orders, amounting to €600 million, and postal money orders for €139 million.
B. Derivative instruments 1.2 Connected to the fair value option x - - - x x - - - x 2.2 Connected to the fair value option x - - - x x - - - x
Section 4 – Hedging derivatives – Item 40 4.1 Hedging derivatives by type and fair value level
Section 7 – Liabilities associated with non-current assets held for sale and discontinued operations– Item 70 There are no such liabilities at the reporting date.
Amounts payable to Poste Italiane outside the ring-fence: 441 409 - for services rendered by Poste Italiane SpA 441 322 - contribution of card payments and payment services unit - 73
The sub-item “Tax payables to revenue agency” mainly includes: � €1,357 million in stamp duty accrued to 31 December 2019 on outstanding Interest-bearing Postal Certificates in accordance with the requirements referenced in Part B, Assets, Table 12.1; � €19 million regarding taxes payable to collection agents, the tax authorities and regional authorities for payments made by customers; � €10 million in tax withholdings on current account interest earned by customers.
“Items in process, various” refer, among other things, to domestic and foreign transfers and BancoPosta’s operations for amounts to be credited to customers, mainly in the first few days of 2020.
During 2019, BancoPosta paid the contribution payable of €73 million to PostePay SpA.
Change due to recognition of revenue for period Balance at 31/12/2019
Section 9 – Employee termination benefits – Item 90 Movements in employee termination benefits during the year under review are shown below: 9.1 Employee termination benefits: annual changes
The other decreases are due to transfers to the same or other Group Companies and actuarial gains.
Provisions for disputes with staff regard liabilities that may arise following labour litigation and disputes of various types.
Provisions for operational risks reflect mainly risks for claims by customers in relation to investment products whose performance is not in line with expectations, compensation and adjustments to income for previous years, the liabilities arising from the reconstruction of operating ledger entries at the time of Poste Italiane SpA’s incorporation, risks linked to the distribution of postal saving products created in past years, and probable frauds and estimated risks for charges and expenses to be incurred in connection with seizures effected by BancoPosta as garnishee-defendant.
12.4 Profit reserves: other information At 31 December 2019, undistributed earnings total €1,057 million. Other profit reserves amount to €1,210 million, including the initial reserve of €1,000 million provided to BancoPosta RFC on its creation and €210 million in additional capital contributions by Poste Italiane SpA in 2018.
“Financial assets measured at fair value through other comprehensive income” relate to securities used as collateral in repurchase agreements. “Financial assets measured at amortised cost” relate to securities used as collateral in repurchase agreements and securities provided as collateral to counterparties in interest rate swaps with negative fair value and in repurchase agreements.
Service (€m) Amount 1. Execution of orders on behalf of customers 2. Individual portfolio management 3. Custody and administration of securities 55,720 a) third party securities in custody: associated with depositary bank services (excluding portfolio management) 1. securities issued by the reporting bank b ) other third party securities in custody (excluding portfolio management): other 3,375 1. securities issued by the reporting bank c ) third-party securities deposited with third parties 3,375 d) own securities deposited with third parties 52,345 a) Postal Savings Books 101,832 b) Interest-bearing Postal Certificates 140,909
The tables under review have been compiled in accordance with IFRS 7 - Financial Instruments: Disclosures, which requires specific disclosures whether or not financial instruments have been offset in the financial statements.
FY 2018 1. Financial liabilities measured at amortised cost (60) - - (60) (21)
2. Financial liabilities held for trading - - - - 3. Financial liabilities designated at fair value - - - - of which: interest expense on lease payables - - - - -
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part C – Information on profit and loss
Service/Amounts (€m) FY 2019 FY 2018 c) management and brokerage services: (2) (2)
6. door-to-door marketing of financial instruments, products and services - d ) collection and payment services (331) (136)
The increase in the item is primarily due to the cost of services provided by PostePay SpA, which in 2018 will only be affected from 1 October 2018, the effective date of the contract to outsource the management of service products.
3.1 Dividends and similar income: breakdown During the year, BancoPosta RFC received dividends of €0.4 million on its shares in Visa Incorporated, accounted for in “Financial assets measured at fair value through profit or loss”.
Section 6 – Profits/(losses) on disposal or repurchase – Item 100 6.1 Profits/(Losses) on disposal or repurchase: breakdown
7.1 Net change in value of other financial assets and liabilities measured at fair value through profit or loss: breakdown of financial assets and liabilities measured at fair value Nil.
2. Financial assets in foreign currencies: exchange differences x x x x 2
8.1 Net losses/recoveries due to credit risk related to financial assets measured at amortised cost: breakdown
Write-off Other of which: purchased or originated credit impaired loans - - - - - - of which: purchased or originated credit impaired loans - - - - - - 8. 2 Net losses/recoveries due to credit risk related to financial assets measured at fair value through other comprehensive income: breakdown
FY 2019 FY 2018 * Figures expressed in full time equivalent terms.
Section 11 – Net provisions for risks and charges – Item 170 11.1 Net provisions for credit risk related to commitments to disburse funds and financial guarantees given: breakdown Nil.
11.2 Net provisions related to other commitments and other guarantees given: breakdown Nil.
Section 12 – Net losses/recoveries on property, plant and equipment – Item 180 Nothing to report.
Section 13 – Net losses/recoveries on intangible assets – Item 190 Nothing to report.
Section 18 – Profits/(losses) on disposal of investments – Item 250 Nothing to report.
Section 20 – Profit/(loss) after tax from discontinued operations – Item 290 Nothing to report.
Other components of comprehensive income after taxes reclassified to profit or loss 110. Hedges of foreign investments: - a ) movements in fair value - b ) reclassified to profit or loss - a ) movements in fair value - b ) reclassified to profit or loss - a ) movements in fair value 98 192 b) reclassified to profit or loss (60) 18 of which: result of net positions - 140. Hedges (elements not designated): - a ) movements in fair value - b ) reclassified to profit or loss - 150. Financial assets (other than equity instruments) measured at fair value through other comprehensive income: 1,457 (2,272)
160. Non-current assets and disposal groups held for sale: - a ) movements in fair value - b ) reclassified to profit or loss - 170.
Share of valuation reserve attributable to equity-accounted investments - a ) movements in fair value - b ) reclassified to profit or loss - 180.
Tax expense on other comprehensive income reclassified to profit or loss (427) 589 190. Total other comprehensive income 1,068 (1,473) 200. Comprehensive income (Items 10+190) 1,679 (876)
Introduction BancoPosta’s operations, conducted in accordance with Presidential Decree 144/2001, consist in the management of liquidity generated by postal current account deposits, carried out in the name of BancoPosta but subject to statutory restrictions, and collections and payments on behalf of third parties.
The 2019 financial year was characterised by a reduction in yields on Italian government bonds (the 10-year BTP fell from 2.7% to 1.4%), which brought the BTP-Bund spread to 160 basis points compared to 250 last year.
With reference to BancoPosta RFC, following the positive development in revenue volumes and the change in the market scenario, the Leverage Ratio fell during the year to 3.0% at 31 December 2019, taking into account the increase in capital deriving from the calculation of part of the 2019 profits, no subject to distribution.
� Poste Italiane SpA’s Coordination of Investment Management function, the work of which is regulated by specific operating guidelines, 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. As of 1 January 2019, the coordination and management of investments and risk hedging related to BancoPosta RFC have been assigned by means of a specific mandate to the specialist functions of BancoPosta Fondi SpA SGR, a Poste Italiane Group company; � the BancoPosta’s Risk Management function, responsible for measuring and controlling risk and duly observing the independence of control functions from management.
The above prudential standards have imposed the same obligations on BancoPosta as those applicable to banks in terms of corporate governance, internal controls and risk management, requiring, among other things, achievement of the following objectives: � definition of a Risk Appetite Framework (RAF); � oversight of implementation of the Company’s strategies and policies; � the containment of risks within the limits set by the RAF; � protection of the value of assets and against losses; � identification of material transactions to be subject to prior examination by the risk control function; � application of the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP).
The nature of BancoPosta RFC’s operations, however, results in a considerable concentration of exposure to Republic of Italy risk, as a result of its investments in Government securities and its deposits at the MEF. Credit risk models, explained below, show, however, that for capital requirements this type of investment does not determine capital absorption.
Monitoring credit risk is particularly focused on the following exposures: � euro area government securities or other securities backed by the Italian State for the use of liquidity collected through current accounts from private customers; � deposits at the MEF in which Public Administration account deposits are invested; � any eventual amounts due from the Italian Treasury as a result of depositing funds gathered less payables for advances disbursed; � items in progress: cheque clearing, use of electronic cards, collections; � temporarily overdrawn postal current accounts caused by debiting fees: limited to those which were not classified as impaired since the accounts were in funds in early 2020; � cash collateral for outstanding transactions with banks and customers, in accordance with agreements intended to mitigate counterparty risk (CSA - Credit Support Annexes and GMRA – Global Master Repurchase Agreements); � cash collateral provided to the guarantee fund of the Central Counterparty “Casa di Compensazione e Garanzia” for repurchase agreement transactions; � securities provided as collateral in accordance with agreements intended to mitigate counterparty risk (CSAs and GMRAs); � trade receivables payable by partners in relation to financial/insurance product placement.
Credit risk is controlled through the following: � minimum rating requirements for issuers/counterparties, based on the type of instrument; � concentration limits per issuer/counterparty; � monitoring of changes in the ratings of counterparties.
The limits referred to above have been established by the Guidelines on Poste Italiane SpA’s financial management140 for BancoPosta RFC. Specifically, as regards rating limits, transactions are allowed solely with investment grade counterparties and euro area government issuers with a rating at least equal to that of the Italian Republic.
With reference to the monitoring thresholds of concentration risk, the limits set by prudential regulations are applied141.
The standardised approach142 as defined by EU Regulation 575/2013, is used by BancoPosta to measure credit and counterparty risks. Application of this method entails the use of Standard & Poor’s, Moody’s, Fitch and DBRS for the computation of counterparty credit rating classes.
For financial assets other than trade receivables, BancoPosta RFC applies the General deterioration approach, with models to estimate risk parameters depending on the type of counterparty: � Internal risk parameter estimation models for debt securities and deposits with Sovereign, Banking and Corporate counterparties; � risk ratings provided by an external provider and average default rates for the sector for Public Administration and Central Counterparties.
BancoPosta RFC elected not to adopt the low risk credit exemption and to proceed instead with the staging allocation of the financial instruments concerned.
Based on the impairment models described above, to allocate properly performing exposures in stage 1 or stage 2, the significant increase in exposures other than trade receivables is determined on the basis of the change in notches between the rating at the time of investment and the rating at the reporting date.
In keeping with the accounting standard, in determining ECL consideration was given also to forward looking elements based on broad-consensus scenarios.
This method entails the use of target variables related to the level of external rating produced by the agencies. The target could be directly the rating or, alternatively, the default rate linked to the rating level. The target was constructed on the basis of a rating agency selected as reference, considering both the large number of counterparties rated and the availability of historical data over a time horizon considered adequate.
For trade receivables BancoPosta applies the simplified approach, where no significant increase in credit risk is expected. However, the loss provisions are calculated for an amount equal to lifetime expected credit loss.
Such approach is implemented through the following process: � based on total revenue or the historical credit exposure, a credit threshold is identified beyond which the single receivables or the single exposure is evaluated. The analytical evaluation of the exposures entails an analysis of the borrower’s credit quality and solvency, as determined on the basis of internal and external supporting evidence; � for receivables falling below the threshold set, through the preparation of a matrix with the different impairment percentages determined on the basis of historical losses, or on the historical pattern of collections. In constructing the impairment matrix, receivables are grouped by homogeneous categories, based on their characteristics, to take into account the historical loss experience.
Debt securities secured by guarantees or other credit risk mitigation instruments are bonds issued by CDP SpA guaranteed by the Italian State and subscribed by BancoPosta RFC, amounting to a nominal value of €3,750 million at 31 December 2019. These are recognised as financial assets measured at amortised cost and, in determining the associated expected credit losses, account was taken of the PD of the Italian Republic.
In order to limit the counterparty risk exposure, BancoPosta RFC has concluded standard ISDA master agreements (with attached CSA) and GMRAs which govern the collateralization of derivative transactions and repurchase agreements, respectively.
For all the credit exposures evaluated individually, to calculate loss provisions, guarantees reduce the amount of the exposure at risk.
At 31 December 2019, unsecured trade receivables minus the relevant loss provisions amount to €852 million.
3. Non performing exposure BancoPosta RFC holds a single non-performing financial asset, which relates to items illegally taken away but that are now being recovered. The relevant amount of €13 million has been impaired for €13 million.
A.1 Performing and non performing credit exposures: balance, impairment, developments, dynamics and business distribution
Financial assets measured at fair value through other comprehensive income of which: individual impairment of which: collective impairment
During the year under review, upon completion of a process of analysis and a series of activities undertaken with regard to receivables for current accounts with debtor balance, it was found that it was not possible to recover these amounts, also taking into account the small amount of each receivable, in accordance with the provisions of IFRS 9, a total of €121 million was written off by using the provision for doubtful debts set aside at the time.
A.1.5 Financial assets, commitments to disburse funds and financial guarantees given: transfers between the different credit risk stages (gross and nominal amounts)
A. On-balance sheet exposures c) Non-performing past-due exposures - X - - -
Causes/Categories (€m) Bad loans Unlikely to pay Non-performing past-due - of which: transferred and not derecognised - - -
Total of which: forborne exposures - of which: transferred and not derecognised - - - - - -
C5. Transfers to other categories of non-performing exposure - - - - - - - of which: transferred and not derecognised - - - - - -
A.2 Classification of financial assets, commitments to disburse funds and financial guarantees issued based on external and internal ratings
BancoPosta RFC has no lending policies as it does not grant loans to the public. It also uses internal models only for the measurement of expected losses as required by IFRS 9, but not for the quantification of capital requirements for credit risk.
A. Financial assets measured at amortised cost 869 2,714 35,320 1 139 - 1,987 41,030
C. Financial assets held for sale - - - - - - - of which: purchased or originated credit impaired financial assets
Stage 2 reflects mainly financial assets represented by trade receivables for which loss provisions are measured with the simplified approach.
Collateral (1) Personal guarantees (2) Total (1)+(2)Mortgages Finance leases Securities Other collateral Credit derivatives Unsecured
B. Distribution and concentration of credit exposures B.1 Distribution of on and off-balance sheet credit exposures to customers by economic sector
In compliance with the supervisory standards in force, the table for Large exposures shows information on exposures to customers or groups of connected customers that exceed 10% of total own funds. The exposures are determined with reference to total on-balance sheet risk assets and off-balance sheet transactions, without applying any risk weightings. Based on these criteria, the table includes entities that, despite having a risk weighting of 0%, represent an unweighted exposure in excess of 10% of own funds. Exposures to the Italian state shown in the table represent approximately 84% of the total carrying amount. The remaining exposures regard primary counterparties represented by European Banks and other central counterparties in Italy. However, in view of the fact that it cannot lend to the public, the Bank of Italy has exempted BancoPosta RFC from application of the requirements regarding limits on large exposures. No further exemptions from the remaining obligations have been granted.
A. Financial assets held for trading - - - X - - -
Section 2 – Market risk Market risk relates to: � price risk: the risk that the value of a financial instrument fluctuates as a result of market price movements, deriving from factors specific to the individual instrument or the issuer, and factors that influence all instruments traded on the market; � foreign exchange risk: the risk that the value of a financial instrument fluctuates as a result of movements in exchange rates for currencies other than the functional currency; � fair value interest rate risk: the risk that the value of a financial instrument fluctuates as a result of movements in market interest rates; � spread risk: the risk relates to the potential fall in the value of bonds held, following a deterioration in the creditworthiness of issuers; � cash flow interest rate risk: the risk that the cash flows will fluctuate because of movements in market interest rates; � interest rate risk of future cash flows: the risk that the cash flows will fluctuate because of movements in inflation rates in the market.
2.1 Interest rate and price risks - supervisory trading book At 31 December 2019, there were financial liabilities for trading deriving exclusively from the stipulation of a forward contract for the sale of 400 thousand ordinary shares of Visa Incorporated for the purpose of stabilising their yield. This transaction does not meet the trading intent requirement, as defined by art. 104 of Regulation (EU) no. 575/2013, for classification in the “Regulatory trading book”; this intent is, however, excluded from the Guidelines on Poste Italiane SpA’s financial management for BancoPosta RFC.
Fair value interest rate risk primarily refers to the effects of changes in interest rates on the price of fixed rate financial instruments or variable rate financial instruments converted to fixed rate via cash flow hedges and, to a lesser degree, the effects of changes in interest rates on the fixed components of floating rate financial instruments or fixed rate financial instruments converted to variable rate via fair value hedges. The impact of these effects is directly related to the financial instrument’s duration150.
Interest rate risk is measured internally using the economic value method. This results in a need to develop an amortisation schedule for the funding consistent with its nature and to select a time horizon and confidence levels for the estimates. A maximum time horizon (cut-off point) of 20 years is used for retail customer deposits, 10 years for business customer deposits and Postepay cards151, and 5 years for Public Administration deposits, based on a 99% confidence level. This approach entails the computation of an ALM rate risk through the determination of asset/liability.
Interest rate risk management and mitigation is based on the conclusions of the measurement of risk exposure and compliance - in line with the risk appetite and thresholds and limits established in the RAF - with financial operations guidelines as approved from time to time by the Board of Directors of Poste Italiane SpA.
Spread risk regards commitments in Euro area government securities or guaranteed by the Italian government and classified as financial assets measured at fair value through other comprehensive income. 2019 witnessed an average decrease in the yields on Italian government bonds compared with the previous year and, at 31 December 2019, the spread between ten-year Italian government bonds and German bunds is approximately 160 bps, down on the figure for the previous year (250 bps at 31 December 2018).
In the reporting period, as described above resulted in the portfolio of financial assets measured at fair value through other comprehensive income (notional of around €31 billion), held by BancoPosta RFC, an overall net increase in fair value of approximately €3.7 billion: this change was partly recognised in the profit and loss for a positive amount of approximately €2 billion relating to the change in the fair value of securities hedged against interest rate risk, whilst the positive change in the fair value of unhedged securities and the spread risk component (not hedged) was reflected in equity for approximately €1.7 billion.
This sensitivity analysis takes into account the main positions potentially exposed to the greatest risk of price movements.
Type/ Residual term to maturity (€m) Demand 3 months or less 3 - 6 months
Unspecified maturity 1. On-balance sheet assets 14,724 6,447 1,029 1,833 6,284 11,192 36,236 - 1.1 Debt securities - 5,289 1,029 1,833 6,284 11,192 36,236 1. 2 Due from banks 4,691 - - - - - - - 1.3 Due from customers 10,033 1,158 - - - - - 2. On-balance sheet liabilities 58,601 3,266 586 1,603 6,740 - - - 2.1 Due to customers 58,106 2,310 586 1,074 1,535 - - 2. 2 Due to banks 495 956 - 529 5,205 - - - - current accounts 383 - - - - - - - - other deposits 112 956 - 529 5,205 - - 2. 3 Debt securities - - - - - - - - - with prepayment option - - - - - - - - - other - - - - - - - 2. 4 Other liabilities - - - - - - - - - with prepayment option - - - - - - - - - other - - - - - - - 3. Financial derivatives 3.1 With underlying securities - Options - Other derivatives 3.2 Without underlying securities - Options - Other derivatives 4. Other off-balance sheet transactions
In particular, the risk in question concerns: � In relation to financial assets measured at fair value through other comprehensive income, fixed income Government bonds for €36,799 million, consisting of fixed income bonds for €14,944 million, floating-rate bonds swapped into fixed income bonds through interest rate swaps of cash flow hedges for €2,076 million, inflation-indexed bonds for €2,303 million and fixed income bonds swapped into floating rate instruments through fair value hedge derivatives for €17,476 million (of which €15,555 million with forward starts); � In relation to hedge derivatives, forward sales of government bonds for a notional amount of €1,504 million, classified as cash flow hedges.
Spread risk reflects the impact of the difference between yields on sovereign debt and the fair value of euro area government bonds, where such difference, or spread, reflects the perception of markets regarding issuers’ creditworthiness.
** The VAR indicated for derivative financial instruments refers solely to forward purchases while the VAR related to fixed-income bonds takes into account also forward sales.
Maximum potential loss (VaR - Value at Risk), a statistical estimation with a time horizon of 1 day and a confidence level of 99%, is also computed by BancoPosta RFC to monitor market risk. Risk analysis performed through VAR takes into account the historical variability of the risk (spread) in question, in addition to modelling parallel shifts of the yield curve.
Taking into account both financial assets measured at fair value through other comprehensive income (including the related hedges outstanding) and forward purchases and sales, the combined analysis of spread risk and fair value interest rate risk at 31 December 2019 results in a potential loss of €336 million (VaR at the end of the period). The decrease in VaR at the end of the period, compared with the €402 million at 31 December 2018, primarily reflects the decrease in market volatility.
Due from customers - Deposits at MEF (PA deposits) 7,066 71 (71) 5,930 59 (59)
- Deposits at MEF (private customer deposits) 495 5 (5) 1,306 13 (13)
- Due from Poste Italiane SpA outside the ring-fence 647 6 (6) 843 8 (8)
Due to customers - Due to Poste Italiane SpA outside the ring-fence - - - (14) - -
+ Vol - Vol + Vol - Vol + Vol - Vol 2019 effects
The preference Visa Incorporated shares (Series C Convertible Participating Preferred Stock) held in portfolio were sensitivity tested using similar Class A shares, after adjusting for the volatility of the shares traded on the NYSE. This volatility was mitigated by the partial forward sale of approximately 90% of Visa Incorporated ordinary shares in 2019. The shares’ price risk is also monitored through the computation of VaR.
The VaR sensitivity analyses are shown below: Closing VaR - (3)
Foreign exchange risk relates to losses that could be incurred on foreign currency positions, regardless of portfolio, through fluctuations in foreign exchange rates. In BancoPosta RFC’s case, this risk primarily derives from foreign currency bank accounts, foreign currency cash and VISA shares153.
US Dollar Swiss Franc GB Sterling Japanese Yen Tunisian Dinar Other currencies
Financial assets measured at fair value through profit or loss 2018 effects
A.1 Financial derivatives on debt securities and interest rates - - - -
155. The dollar offset approach is a quantitative method that involves a comparison between movements in the fair value or cash flow of the hedging instrument and the movements in the fair value or cash flow of the hedged instrument attributable to the risk hedged. Depending on the policy selected, this approach can be used: • on a cumulative basis, by observing the performance of the hedge since inception; • on a periodic basis, by comparing the hedge performance with that of the last test. The dollar offset approach can be implemented through a hypothetical derivative, that is by constructing a theoretical derivative to compare the relevant theoretical movements in far value or cash flow with those of the hedged instrument (actual derivative).
For the purposes of the prospective effectiveness test, different approaches have been applied, depending on the characteristics of the hedging swap. Specifically: � the “Critical terms156” approach for swap spot start, for which it has been determined at inception that the characteristics of the fixed leg make it possible to replicate exactly the fixed cash flows generated by the hedged item; � the “Dollar offset through the hypothetical derivative” approach for forward start swaps, for which the prospective effectiveness test is performed by calculating the hedge ratio between the change in fair value of the hypothetical derivative and the change in fair value of the actual derivative157. The hedge is considered effective if the hedge ratio falls in the interval between 80% and 125%.
For the purposes of the prospective effectiveness test, the critical terms approach is applied, considering at inception the consistency between the hedging instrument and the hedged item on the basis of the qualitative characteristics of the contracts 158.
156. The critical terms approach involves a comparison between the critical terms of the hedging instrument with those of the hedged item. The hedging relationship is highly effective when all the critical terms of the two instruments match perfectly and there are no features or options that might invalidate the hedge. Critical terms include, for example: notional amount of the derivative and principal of the underlying, credit risk, timing, currency of the cash flows.
Without netting agreements 1. Positive fair value b) Interest rate swaps c) Cross currency swaps 2. Negative fair value b) Interest rate swaps c) Cross currency swaps
Contracts falling within the scope of netting agreements 1) Debt securities and interest rates 2) Equity instruments and equity indexes 3) Currencies and gold 4) Commodities
2. Financial assets measured at amortised cost - hedging: 1.1 Debt securities and interest rates 15,017 - 2,870 - 1,883 X
B. Liabilities 2. Financial liabilities measured at amortised cost - hedging: 1.1 Debt securities and interest rates - - - - - X
D.2 Cash flow and hedges of net investments in foreign operations
A. Cash flow hedges 1. Assets 1.1 Debt securities and interest rates 54 161 1. 2 Equity instruments and equity indexes - - 2. Liabilities 1.1 Debt securities and interest rates - - -
Cash flow hedge reserve Hedge reserve of net investments in foreign operations
Movements in fair value (effective portion) 98 - - - - - - - - -
Liquidity risk is the risk that an entity may have difficulties in raising sufficient funds, at market conditions, to meet its obligations deriving from financial instruments. Liquidity risk may derive from the inability to sell financial assets quickly at an amount close to fair value or the need to raise funds at off-market rates.
It is policy to minimise liquidity risk through: � diversification of the various forms of short-term and long-term loans 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.
Details on the risk management model are contained in the note on financial risk at the beginning of this Part E.
The liquidity risk resulting from contract terms requiring the provision of additional collateral in the event of a downgrade of Poste Italiane SpA is negligible. Such contracts include those for margin lending of derivatives, which require the threshold 160. Since 1 October 2018, prepaid cards are the responsibility of Postepay SpA. The liquidity raised through these cards is transferred to BancoPosta, which invests the funds raised in euro area government bonds or bonds guaranteed by the Italian State. As such, for the purposes of specific risk analyses, the rationales related to each model underlying the different types of deposit inflow continue to apply.
BancoPosta RFC’s liquidity is assessed, in the form of stress tests, through risk indicators (the Liquidity Coverage Ratio and Net Stable Funding Ratio) defined by the Basel 3 prudential regulations. These indicators aim to assess whether or not the entity has sufficient high-quality liquid assets to overcome situations of acute stress lasting a month, and to verify that assets and liabilities have sustainable maturity profiles assuming a stress scenario lasting one year. Taking into account the capital structure of BancoPosta RFC characterised by the presence of a high amount of EU government securities and deposits mainly made up of retail deposits, these indicators are well above the limits imposed by prudential regulations.
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, but not strategic and reputational risks.
162. With effect from 1 January 2018, EU Regulation no. 2017/2395 came into force, which amends the so-called CRR and introduces, inter alia, transitional provisions to mitigate the impact of the introduction of IFRS 9 on own funds. BancoPosta RFC has availed itself of the possibility, recognised by these regulations, to adopt a “transitional approach” (so-called (phase-in) of recording the effects of adjustments for expected losses over a transitional period of 5 years, sterilising the impact in CET1 by applying decreasing percentages over time.
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 standards162.
In view of the extension of prudential standards to BancoPosta, BancoPosta RFC is now required to establish a system of internal controls in line with the provisions of Bank of Italy Circular 285/2013, which, among other things, requires the definition of a Risk Appetite Framework (RAF) and the containment of risks within the limits set by the RAF163. Compliance with the objective, threshold and limit system established by the RAF influences decisions regarding profit distributions as part of capital management.
BancoPosta RFC Separate report for the year ended 31 December 2019 Notes – Part F – Information on equity
B.3 Valuations reserves for financial assets measured at fair value through other comprehensive income: annual changes
(€m) Debt securities Equity instruments Loans 2.2 Losses due to credit risk 2 x 2.
164. Contributions from non-controlling shareholders to BancoPosta RFC are excluded, as they are not provided for in the special regulations governing the ring-fence.
2. Related party transactions Impact of related party transactions on the financial position at 31 December 2019
Poste Tributi ScpA (in liquidation) - - - - - - - -
The ILT Phantom Stock 2016-2018 Plan provides for the assignment to the Beneficiaries of rights to receive units representing the value of the Poste Italiane share (the so-called Phantom Stock), and the related bonus in cash, 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.
Vesting of the phantom stocks is subject to achievement of the Performance Hurdle, designed to ensure sustainability of the Plan. The Performance Hurdle corresponds with achievement of a certain target for the Group’s cumulative EBIT over a threeyear period at the end of each Performance Period. In addition, vesting, awarding and delivery of the Rights are 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.
An independent expert was appointed to measure the value of the stocks and this was done using Monte Carlo simulations.
The total cost for 3 cycles recognised for 2019 is approximately €0.7 million, whilst the liability recognised in amounts due to staff is approximately €1.2 million.
The allocation of the Shares (both for the up-front and deferred portions) will take place following the verification of the existence of capitalisation and liquidity levels.
The Shares will be awarded by the end of the year following the end of the Performance Period as follows: � 40% up-front; � the remaining 60% in two portions, with deferral periods of 2 and 4 years, respectively.
166. The objective linked to the relative Total Shareholder Return (rTSR) includes a “negative threshold” provision: if Poste Italiane’s TSR is negative, despite being higher than the TSR registered by the index, the number of vested Rights (linked to rTSR) is reduced to the minimum threshold of 50%.
The new short-term management incentive scheme (MBO 2019), approved by the General Meeting of Poste Italiane SpA’s shareholders on 28 May 2019, provides, where the incentive exceeds a materiality threshold, for the payment of a portion of the bonus accrued in the form of shares in Poste Italiane SpA and the application of deferral mechanisms: � 60% of the incentive over 5 years pro-rata for the head of the BancoPosta function; � 40% over 5 years pro-rata for the Senior Management Beneficiaries; � 40% over 3 years pro-rata for the Other Beneficiaries.
At 31 December 2019, the number of Rights to receive Shares, deriving from the new short-term MBO 2019 incentive plan, estimated on the basis of the best information available, pending the actual finalisation of the system in order to record the cost of the service received, was 36,791. The amount recognised in profit and loss in 2019 is €0.3 million.
Furthermore, in accordance with IFRS 8.4, when separate and consolidated financial statements are combined segment information is only required for the consolidated statements.
Attestation of the Consolidated Financial Statements of the Poste Italiane Group at 31 December 2019 pursuant to art. 154-bis, paragraph 5, of Legislative Decree 58/1998 and art. 81-ter of CONSOB Regulation no. 11971 of 14 May 1999 1. The undersigned Matteo Del Fante, as Chief Executive Officer, and Alessandro Del Gobbo, as Manager Responsible for Financial Reporting of Poste Italiane S.p.A., also taking into account the provisions of art. 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of 24 February 1998, attest to: - the adequacy, in relation to the characteristics of the Poste Italiane Group, and - the effective application of the administrative and accounting procedures for the formation of the Consolidated
Financial Statements of the Poste Italiane Group in the period between 1 January 2019 and 31 December 2019.
3. It is also attested that: 3.1 The Consolidated Financial Statements of the Poste Italiane Group for the year ended 31 December 2019: 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.
Statements in the period between 1 January 2019 and 31 December 2019.
3. It is also attested that: 3.1 The Financial Statements for the year ended 31 December 2019: 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.
3.2 The report on operations includes a reliable analysis of the operating and financial performance and the situation of the issuer, together with a description of the main risks and uncertainties.
S.p.A. (hereinafter also the “Company” or “Parent Company”) fulfilled its statutory duties in accordance with the Italian Civil Code and Legislative Decree 39/2010, as amended by
Consolidated Law on Finance), pursuant to Presidential Decree 144/2001 “Regulations governing the services provided by BancoPosta”, and in accordance with the provisions applied to BancoPosta by the relevant authorities. In conducting its duties, the Board also took into account the indications contained in the Corporate Governance Code for Listed
Companies, which the Company formally adopted with the Board of Directors’ resolution of 31 July 2015. The oversight activities required by law were also conducted in accordance with the code of conduct for Boards of Statutory Auditors, drawn up by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti Contabili (national association of chartered accountants) in April 2018.
Annual General Meeting of shareholders held on 28 May 2019, are Mauro Lonardo,
By-laws and the provisions of Bank of Italy Circular 285 of 17 December 2013 for banks, as well as the principles set out in the Corporate Governance Code for Listed Companies and the
The Board of Statutory Auditors verified compliance with the law and the By-laws, periodically receiving information from the Directors on the overall operating performance, the outlook for the Company and on the most significant transactions having an impact on the results of operations and financial position decided on and carried out by the Company and by companies of the Poste Italiane Group (also “Group”) during the year.
During 2019, the Company made certain changes to its Guidelines for the management of transactions with related and connected parties (the “Guidelines”); adopted for the first time in 2015, as part of the listing requirements, these were subject to an initial three-year review
Bank of Italy regulations call for the Board of Statutory Auditors’ involvement when the
“procedures” are drawn up or in the event of material changes or amendments, requiring the
Committee is required to express an opinion prior to the Board of Directors’ resolution; ii) in all cases of transactions of strategic importance, the resolution procedure for transactions of greater importance must apply.
On 25 September 2019, the Board of Statutory Auditors, having analysed the final text of the
Directors. Specifically, taking into consideration the Company’s characteristics - also with regard to BancoPosta RFC - on the basis of the provisions in Bank of Italy Circular 263/2006,
However, this procedure will have to be updated following issuance of the CONSOB
Transactions”; - the “Central Database”, comprising approximately 3,000 persons, is periodically updated and automatically cross-checked against the Sogei database to verify the match between tax data and the correct name of the person concerned; the “Central Database”
The IT system, thanks to migration of the related party transactions DB to a secure platform, allows the direct loading of the transactions through a guided web interface, by the competent company functions. During 2019, the Company also defined development plans for the system, which will be implemented during 2020.
4. Oversight of the financial reporting process. Observations and proposals regarding any qualifications or emphases of matter contained in the Independent Auditor’s report.
On 4 March 2020, the Board of Statutory Auditors held a specific meeting with the Manager responsible for financial reporting to examine the Poste Group’s Internal Control System on
Financial Reporting (SCIIF), during which the Manager responsible for financial reporting stated that the results showed the system to be effective and that significant weaknesses could be ruled out.
The Group Self Assessment performed on the Platform of the Manager responsible for financial reporting allowed 100% coverage of the planned Process Level Controls or PLC
(total of 2,661), all of which are certified. The certifications showed positive results for 99%
Process Key Controls or PKC (1,122), revealed a positive outcome for 91% of the tests completed. The monitoring of the Action Plans showed that 73% of the planned initiatives were actually implemented.
The Board of Statutory Auditors, following examination of some of the main issues in the 2019 financial statements relating to reconciliations of prior-period items (recognition with write-off of overdrawn current accounts for €121 million and reconciliation of postal current accounts for services for €61 million) recommended that: i) in defining the general audit strategy, the Independent Auditor review the risk inherent in certain classes of transactions such as those mentioned above and the specific procedures for monitoring them; ii) a general strengthening of the testing activities be carried out by the Manager responsible for financial reporting, as well as of the verification activities delegated to the internal control function in view of 262/2005; ii) the additional specific procedures by the FTA function on the two areas concerned to be completed by 2020 be carried out.
The Board of Statutory Auditors analysed the methodological framework adopted by the
Italiane’s shareholders to audit the separate and consolidated financial statements for the financial years from 2011 to 2019.
In its audit reports on the financial statements, the Independent Auditor has: ü 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 2019 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; ü 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 required under auditing standard (SA Italia) no. 720B in order to express an opinion of the consistency of the Report on Operations and of the specific information included in the Report on Corporate Governance and the Ownership Structure, referred to in article 123-bis, paragraph 4 of Legislative Decree 58/98, with Poste Italiane’s separate and consolidated financial statements for the year ended 31 December 2019 and on their compliance with the law, as well as issue a statement on material misstatements, if any.
Operations and specific information included in the Report on Corporate Governance
and the Ownership Structure are consistent with Poste Italiane’s separate and consolidated financial statements for the year ended 31 December 2019 and have been prepared in compliance with the law.
The above key matters were the subject of detailed analysis and updating during the periodic meetings that the Board of Statutory Auditors held with the Independent Auditor.
Administration, Finance and Control Department and the Manager responsible for financial reporting extensively discussed the assessment logic adopted, as well as the support provided in terms of the accounting principles applied to the case. The line identified by management for the accounting treatment of the case has been analysed in detail and fully shared by the
The Independent Auditor has not reported any events or circumstances identified during the audit that might cast significant doubt on the entity’s ability to continue as a going concern, nor has it reported any significant deficiencies in the internal control system on financial reporting and/or in the accounting system, or any significant instances of non-compliance, whether effective or assumed, with laws and regulations or the By-laws, that have come to light during its audit.
The Independent Auditor has also today issued its report on the non-financial statement prepared pursuant to article 3, paragraph 10 of Legislative Decree 254/2016 and article 5 of
Group’s Non-financial Statement for the year ended 31 December 2019 has not been prepared, in all material respects, in compliance with articles 3 and 4 of the Decree and with the GRI Standards.
Through a specific meeting with both the Independent Auditor and the function involved in preparing the statement, the Board of Statutory Auditors has overseen compliance with the provisions of Legislative Decree 254/2016, within the scope of the responsibilities assigned to us by law.
With regard to the possible effects of the Covid-19 emergency, in the Report on Operations, the directors note that “With reference to the possible medium-term impact of the spread of the coronavirus (covid-19) in Italy as well, it is not currently possible to make a reasonable estimate”. In view of the Board of Directors’ approval of the draft financial statements on 5
March 2020, and thus prior to the ESMA Recommendation of 11 March 2020, it recommends: (i) verifying below whether situations likely to have a direct and significant impact on fundamentals, prospects or the financial situation may arise and, if so, disclosing them to the market; (ii) providing, in the next periodic report, evidence on the current and potential impacts of COVID-19 on business activities, financial position and economic performance, based on a qualitative and quantitative assessment, to the extent possible.
Sponsorships/Donations, in order to take account of the materiality of the sponsorship in question.
The Board of Statutory Auditors in office, after having examined the documentation produced, requested additional documentation, examined in detail the aspects relating to the costs incurred by Poste for general participation in the events, carefully examined the documentation illustrating the phases of the “Sponsorship and Donations” procedure in force at said date, verifying that all phases of the procedure have been applied and documented with the necessary authorisations, and acquired the “Minutes of the
Revenue), notified by postal service to the complainant. The complaint asked the Board of Statutory Auditors previously in office to investigate the adequacy of the internal control system and the management of inefficiencies, as well as the “alleged misappropriation or error of employees in the performance of their duties, including in the performance of public official duties”. The Board of Statutory Auditors previously in office requested a preliminary internal examination of the definition of “censurable facts”
Auditors of listed companies, non-censurable facts are those which are completely unsuitable in comprising the common interest of shareholders or acts detrimental to the interests of individual shareholders. In any case, the Supervisory Body has begun a preliminary investigation by asking the competent function to prepare an explanatory note on the subject facts of the complaint and has received information on the resolution of the disservice and consequent definition of the case, thanks to prompt activation of the
COO/Retail Customer Assistance/Management Complaints function of Poste for management of the complaint. The Board of Statutory Auditors in office, after having examined the fact reported and the related documentation, considers that the fact reported was a disservice, now resolved, that could only compromise a specific interest of the complaining shareholder.
Briefly, in response to the two complaints received, the Board of Statutory Auditors has conducted careful investigations with the support of the relevant functions, assessing the grounds for the complaints, the adequacy of the actions taken, and monitoring the process of identifying any individual responsibility. As a result of our checks, we have concluded that there are no irregularities to report to the Annual General Meeting.
Annual General Meeting, as required by article 2408 of the Italian Civil Code.
The Board of Statutory Auditors has received the Independent Auditor’s annual declaration confirming its independence, drawn up pursuant to art. 6, paragraph 2.a) of Regulation (EU)
537/2014 and paragraph 17 of ISA Italia 260, which confirms compliance with the ethical principles set forth in articles 9 and 9-bis of Legislative Decree 39/2010, not having identified
situations that could compromise the independence of the Independent Auditor in the period from 1 January 2019 until the date of issue of the declaration (25 March 2020).
Attached to the notes to the Company’s separate financial statements is a section entitled
Independent Auditor, PricewaterhouseCoopers SpA (also “PwC”), and companies within its network for the year under review.
In view of: ü the independence declaration issued by PricewaterhouseCoopers SpA pursuant to art. 6, par. 2.a) of Regulation (EU) 537/2014 and the transparency report prepared by PwC and published on its website pursuant to art. 13 of the above Regulation; ü the engagements assigned to the Independent Auditor and companies within its network by Poste Italiane S.p.A. and Group companies; the Board is not aware of any situations in which the Independent Auditor’s independence has been compromised.
“Guidelines for the assignment of engagements to Poste Italiane’s Independent Auditor”, approved by the Board of Directors on 15 March 2017, the Board of Statutory Auditors has, during 2019 and through to the date of issue of this report, issued favourable opinions on the following additional engagements of the Independent Auditor, or of companies within its network, by the Parent Company and its subsidiaries and recognised on an accruals basis in 2019: Engagement Amount
Annual update of the Euro Medium Term Note Programme of Poste Italiane S.p.A. (Bond listed on the Luxembourg Stock Exchange) - Comfort letter and review of the financial statements in English.
€37,000 for the first Comfort Letter; €30,000, 25,000 and 10,000 respectively for the subsequent Comfort Letters; €20,000 for review of the financial statements in
In view of the approaching expiry of PwC’s nine-year engagement as the Company’s
English; €10,000 for review of the translation of the Half-year report. Added to these fees will be out-of-pocket and administrative expenses, defined in a lump-sum amount of 5%, and VAT.
PostePay: Attestation of the consistency of the data in the Report on the Patrimonio Destinato IMEL (EMI RFC).
In accordance with Bank of Italy Circular 263 of 2006, Title V, chapter 5, section III, par. 2.2 and par. 6.4 of the “Guidelines for the management of transactions with related and connected parties”, the Board issued a prior, reasoned opinion on the fact that, on the whole, the
meetings and all those of Board Committees. Specifically, the Board of Statutory Auditors attended 11 Board of Directors’ meetings, 11 meetings of the Control, Risk and Sustainability
11. and 12. Observations on compliance with correct corporate governance principles and the adequacy of the organisational structure
Company on its organisational arrangements, as well as by dedicating a specific meeting to this issue. Given the complexity of the Company’s and the Group’s organisational structure,
Control Function, certifying that “at the date of this report and for the relevant reporting period, the internal control and risk management system, taken as a whole, is fit for the purpose of mitigating the risks that threaten the successful pursuit of the Company’s objectives”.
The audit results received by the Board of Statutory Auditors, as well as the summary regarding the overall assessment of the SCIGR, showed an overall positive assessment, without prejudice to a number of areas for which there is a need or opportunity for strengthening. Moreover, with regard to a specific area (logistical processes), the internal control system is not yet fully adequate and is characterised by a high degree of instability linked to the ongoing evolution of operational controls which, at present, continue to be essentially managerial in nature.
In addition, the Board of Statutory Auditors has verified, with the support of the Internal
Affairs function, has consolidated the strengthening of both the internal control system and
Poste Italiane’s role in providing guidance, coordination and control, also through a number of important initiatives highlighted below.
In 2019, with a view to strengthening the SCIGR, organisational and procedural controls were consolidated with the introduction of further elements reflecting the social role of the company and its commitment in the area of “Sustainability”, the main initiatives of which include: - the definition of an internal regulatory framework in compliance with the General Data
- presentation to the General Meeting of shareholders, in May 2019, of the Integrated
Report, which adds environmental, social and governance commitments and objectives to the Company’s financial and strategic objectives and which, in line with the strategic plan
Italiane Group to adopt a single administrative-accounting and control model with the migration to a single integrated IT platform; the programme is expected to be completed by 2022 with the integration of all Subsidiaries onto a single IT System; - the update, in October 2019, of the approval and monitoring procedure for investment projects aimed at regulating preparation of the Investment Authorisation (ADI), the economic/financial assessment and the return on investment, including periodic monitoring, identifying the responsibilities of the various parties involved; the main innovations include the definition of new authorisation thresholds, the establishment of the
Investment Committee with advisory functions and the provision of a non-binding opinion for investments by Group companies above the threshold of €1 million; - the launch of the Financial Education and Best Practices project concerning areas of high technological innovation, with the aim of contributing to raising the knowledge and financial education of customers and citizens in general by encouraging the adoption, even by individuals and families, of informed and sustainable financial decisions in line with the opportunities offered by digital evolution; - the launch of a process to optimise and standardise ICT processes at Group level, which involves centralising the IT departments of the various Group companies, in line with the business model adopted, based on strong integration of assets, processes, resources and controls. The first phase of this process, also taking into account the objectives set out in the Strategic Plan in the parcels segment, involved the sale of the SDA Express Courier IT
Transactions with Related and Connected Parties; - on 5 November 2019, it approved the update of the Organisational Model pursuant to
Whistleblowing system, thereby regulating the channels and procedures for reporting and handling irregularities or violations of the regulations (including for the purposes of
Internal Regulation for the Award of Works, Service and Supply Contract Procedures (August 2019); (iii) Sponsorship and donations procedure (September 2019); (iv) Operating
In 2018, following discussions with the Bank of Italy, the Company adopted a centralised approach to risk coordination, control and management and related obligations to prevent money laundering and terrorist financing at Group level, and in 2019, in accordance with the new regulatory provisions on the subject, it updated the Group’s Anti-Money Laundering
This level is determined by the weighted average of the residual risk assessments assigned to each company (BancoPosta, PostePay S.p.A., BancoPosta Fondi SGR S.p.A. and Poste Vita
With a view to strengthening the Governance controls and the continuous evolution of the Group’s Internal Control and Risk Management System, in 2019 the Group Risk Management function in the Corporate Affairs area launched a project aimed at defining an Integrated Compliance Model at Group level with the objective of: (i) consolidating and/or creating operational synergies between the various specialist safeguards for non-compliance risks, (ii) harmonising models and information flows by promoting the integration and rationalisation of risks and controls and (iii) responding to the need to comply with more stringent and not always coordinated regulations. On the basis of the evidence gathered, the risk controls implemented through the definition of measures for the prevention and continuous monitoring of risks, taking into account the further interventions carried out during the year 2019, appear to be suitable overall to contain the residual risk within acceptable levels.
high concentration of government securities, persistently low interest rates, spread risk and the resulting impact on capital gains and on unrealised gains, the Board recommended and oversaw that the Board of Directors constantly monitored the key drivers in the business plan and the relative sensitivity, verifying the necessary controls and assessing the level of residual risk, with a specific focus on a long-term, multi-year basis.
Following risk assessment and gap analysis under 231, the Company carried out a Project for the review of Poste Italiane’s OM 231, focusing on the following main aspects: - implementation of recent external regulatory developments (e.g. the new offence of
System, with reference to the risk areas identified; - correlation matrices have been introduced between sensitive activities and specific control principles.
The proposal to update the OM 231, which was positively evaluated by the Company’s SB, was approved by the Board of Directors at its meeting of 5 November 2019.
In terms of the structure of the document, in line with current best practices, this OM 231 by
Authorities; ü the assessment results recorded during the year by the other corporate control functions provided for by the internal control and risk management system; ü the information acquired during participation by the Board of Statutory Auditors in the meetings of the Board of Directors and Board Committees; ü the exchange of information with the Independent Auditor, the Data Protection
Officer and the Supervisory Board pursuant to 231/2001; ü the main developments of the SCIGR (internal control and risk management system)
and, in particular, the initiatives to strengthen it; ü the compensatory controls and improvement measures implemented and/or in progress in relation to the activities carried out and the findings relating to the SCIGR
ü the compensatory controls and improvement measures implemented and/or underway in relation to the findings relating to the SCIGR highlighted by BancoPosta’s Internal
Internal Auditing function; (v) examining the proposed Audit Plan for 2020, prepared by both
Poste Italiane S.p.A.’s Internal Control function and BancoPosta’s Internal Auditing function; (vi) examining reports prepared by Poste Italiane S.p.A.’s Internal Control function and
BancoPosta’s Internal Auditing function; (vii) obtaining information on inspections and proceedings conducted by Italian government or European Union bodies and authorities, including those of an independent nature, the details of which are provided in the section,
European Parliament and by the Council on 19 July 2002; ü are consistent with the underlying accounting books and records; ü 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.
The Board verified, partly in the course of a specific meeting, the adequacy of the guidelines communicated by the Company to its subsidiaries pursuant to art. 114, paragraph 2 of the
Directors on 22 June 2017 and later revised on 2 October 2018, are in compliance with the amendments to Italian legislation introduced from July 2016, in compliance with Regulation
(EU) 596/2014 of the European Parliament and Council of 16 April 2014 relating to market abuse.
The Corporate Affairs Department is currently reviewing the “Guidelines for Management and Publication of Confidential Information, and Creation and Maintenance of a register of persons with access to Confidential Information”, based on the latest regulatory developments and best practices in the sector. The main new element under evaluation is the provision of the “Relevant Information List” (“RIL”), which represents an additional protection with respect to the Insider Register.
In addition, the Board of Statutory Auditors periodically held meetings with the Boards of
Company’s issue of attestations regarding its binding commitment to provide financial
support in 2020 to SDA Express Courier S.p.A., Poste Air Cargo S.r.l. and, throughout its liquidation, Poste Tributi S.c.p.A. (in liquidation).
16. Oversight of the statutory audit of the annual and consolidated accounts and observations on any key aspects that came to light during meetings with the auditors pursuant to art. 150, paragraph 2 of Legislative Decree 58/1998
Auditors, in accordance with the provisions of art. 150, paragraph 3, of Legislative Decree 58/1998 for the mutual exchange of information, did not reveal any actions or events deemed to be censurable or of an irregular nature that required the formulation of specific reports pursuant to art. 155, paragraph 2 of Legislative Decree 58/1998 (Consolidated Law on
Audit Plan for 2019 (the latter previously presented to us by the Independent Auditor) are an integral part. The Board has already examined the contents of such documents during a meeting. The Auditor did not consider issuing any suggestion letters to management.
The Reports on the audit of the separate and consolidated financial statements illustrate the key aspects that, in the Auditor’s opinion, were most significant in the audit of the individual and consolidated financial statements for the year: (i) the recoverable amount of the Parent
Reports explain in detail the relevant audit procedures adopted, since they have been addressed in the audit and in the preparation of an opinion on the financial statements as a whole. The above key aspects were the subject of detailed analysis and updating during the periodic meetings that the Board of Statutory Auditors held with the Independent Auditor.
In addition, as mentioned above, the Board of Statutory Auditors, together with the
Pursuant to art. 149, paragraph 1, letter c-bis of the Consolidated Law on Finance, the Board oversaw the procedures involved in effective implementation of the rules provided for in the
ü With regard to the activities provided for in the Corporate Governance Code, the Board of Statutory Auditors not only held 35 of its own meetings during the year, but also ensured its participation in the meetings of the Board of Directors and Board
Committees, in addition to general meetings of shareholders, for a total of 68 meetings.
Directors, particularly the item regarding definition of the proposal to the General
Committee. However, following the experience, the Board of Statutory Auditors, considering the need to update the guidelines concerning related party transactions in the near future in view of the forthcoming revision by CONSOB of the “Regulation on related party transactions”, following the consultation launched by the Supervisory
Authority on 31 October 2019, recommends that the process of their detection be strengthened, improving their timeliness by defining the responsibilities of the internal functions more clearly, in terms of both proposing and coordination functions.
ü The Board of Statutory Auditors, within the scope of our responsibilities, and in accordance with the Corporate Governance Code, verified the contents of the above
Regulations and in the Consolidated Law on Finance. The Board, within the scope of our responsibilities and in accordance with the Corporate Governance Code, also verified the contents of the “Remuneration Report” prepared by the Directors. Section I
of the report, which is submitted for express approval by the Annual General Meeting of shareholders, has also been prepared in accordance with the instructions contained in
In 2019 and in February 2020, the Board of Statutory Auditors verified correct application of the criteria and procedures used by the Board of Directors to assess the independence of
Directors; the annual assessment was conducted on the basis of the “Guidelines for assessing the independence of members of Poste Italiane S.p.A.’s Board of Directors”, based on assurances provided by the Directors and information obtained directly from the
Corporate Governance Code. The Board of Directors conducted an assessment of the functionality, size and composition of the Board itself and of Board Committees with the support of a leading consulting firm, reporting on its findings in the “Annual Report on
Pursuant to the Corporate Governance Code, the Board of Statutory Auditors was also consulted by the Control, Risk and Sustainability Committee in 2019 regarding the following: - approval of the MBO plan for the Head of the Internal Auditing function; - definition of the Audit Plan; - assessment of the results described in the Independent Auditor’s letter of recommendations and the section of its report on key audit matters in the financial statements for 2019; - assessment of the correct use of accounting standards and their consistency for the purposes of preparation of the consolidated financial statements; - update of the Group’s Anti-Money Laundering Guidelines; - update of the “Guidelines for the Management of Transactions with Related and
process was carried out with the assistance of a leading consulting firm, which was appointed by the Board of Directors on 12 December 2019.
The results of the self-assessment conducted are submitted to the Board of Directors, which acknowledges them in the Corporate Governance Report.
The Board of Statutory Auditors also acknowledges that, at its meeting of 30 January 2020, it approved the “Regulations for the self-assessment process for the Board of Statutory Auditors of Poste Italiane S.p.A.”, which governs the related process regarding its adequacy in terms of powers, functioning and composition, in accordance with the Bank of Italy’s Supervisory
Provisions on organisation and corporate governance that apply to Poste Italiane S.p.A. in the performance of BancoPosta’s activities, as well as in compliance with the By-laws, with the principles indicated in the Corporate Governance Code for Listed Companies and according to the Code of Conduct for the Board of Statutory Auditors of Listed Companies, recommended by the Consiglio Nazionale dei Dottori Commercialisti e degli Esperti
The Board of Statutory Auditors oversaw BancoPosta RFC in accordance with: - Presidential Decree 144/2001 “Regulations governing the services provided by
April 2011 and amended by the Extraordinary General Meeting of 31 July 2015 and subsequently revised by the Board of Directors’ resolution of 25 January 2018. As required by the above Regulation, the Board of Statutory Auditors examined the specific issues regarding BancoPosta RFC separately, reporting the results in the minutes of the Board meetings; Annual Report 2019 Poste Italiane Group
- the Supervisory Standards issued by the Bank of Italy on 27 May 2014 and, more generally, those in Circular 285 of 17 December 2013, as amended.
Based on the information received from the Manager responsible for financial reporting, the
Paragraph 2 of Bank of Italy Circular 285/2013 - part IV of the Standards for particular intermediaries of BancoPosta - Chapter 1 BancoPosta, section II - requires that, in addition to directly attributable revenues and costs, the charges incurred for the services provided by
Poste Italiane in order to enable BancoPosta to operate should also be allocated to BancoPosta
RFC, and that the allocation of these charges should be based on criteria that reflect the real contribution of the various functions to BancoPosta RFC’s results and to those of the
Supervisory activities of the supervisory body of BancoPosta and Inspections by the
Statutory Auditors, in line with the relevant Supervisory Standards applied to BancoPosta
On 1 January 2019, following the Board of Directors’ resolution of 18 October 2018 and the authorisation issued by the Bank of Italy, the BancoPosta Financial Management mandate to the company BancoPosta Fondi SGR (“BP Fondi SGR”), specialised and regulated intermediary with specific expertise in asset management, set up to act as a competence centre for financial investment management activities, became effective. At the same time, again from 1 January 2019, BP Fondi SGR outsourced its Internal Audit and Risk Management functions to BancoPosta, designed to achieve an overall strengthening of the controls conducted by the control departments involved at Group level. The Board of Statutory
SGR, in order to ensure continuity of control activities in this relevant area. Moreover, the centralisation at Internal Audit guarantees the strengthening of information flows to the Parent
Company’s governance and control bodies, so that any significant deficiencies in the SGR’s control system can be represented in the Financial and Insurance Services Committee chaired by the Head of BancoPosta.
The audit activities carried out by BancoPosta’s Internal Audit during 2019, also taking into account the various strengthening initiatives taken during the year in terms of business, organisation and control mentioned above, confirmed an overall positive and progressively consolidated system of controls for BP Fondi SGR.
The Board of Statutory Auditors, in discussing with the Head of Internal Control the results of the audit activities issued during 2019, noted that the internal control system on BP Fondi
SGR’s Business Continuity Management (BCM) process for banking and financial services was positive overall. During 2019, as part of the organisational, operational and business actions implemented by BP Fondi SGR to implement the Poste Italiane Group’s new mission of competence centre for finance and markets, the subsidiary, in terms of BCM, launched a project to evolve its operations and control system, linked to adaptation of the Business
Continuity Management process to Group standards, with particular reference to impact assessments (BIA) and emergency plans.
(“CBI”) Consortium the activities relating to access to BancoPosta payment accounts by
Bank of Italy, the related “Outsourcing Project” was prepared. The testing phase has given positive results but, at system level, delays have emerged from merchants in adopting the new security protocols. Updates on the subject were provided in the BancoPosta Compliance
Tableau de Bord, which was presented to the Board and the CCRS in November 2019.
The Compliance and Risk Management functions have periodically prepared their respective reports on compliance risk and significant risk exposures for BancoPosta, and on the state of progress of the initiatives undertaken as a result of the commitments given to the Bank of
Statutory Auditors was asked to provide its assessment of specific profiles under Investment
Services and to submit updates on the actions taken by Poste Italiane. The Board, in light of the findings of various meetings held with the Head of the BancoPosta function and the heads of the BancoPosta control functions, after an extensive analysis of the Company’s response note to CONSOB, which also contained the assessments of the BancoPosta Compliance function, carried out a review of the documentation acquired and on 27 May 2019 sent the
The Board is monitoring the audit launched by CONSOB in January 2020, aimed at ascertaining the state of compliance with MIFID 2 regulations, with particular reference to the following profiles: (i) procedural structures defined in terms of Product Governance, (ii)
description of commercial policies and incentive system, (iv) professional training of personnel and (v) 2019 operations. The Board of Statutory Auditors has noted that the audit is part of a “cycle” of inspections of the main players in the market and will last for a few months.
With regard to the Governance mechanisms, during 2019 and up to the current date, the Board of Directors has approved various regulations and guidelines designed to strengthen the nature and effective functionality of the overall system of internal controls over BancoPosta RFC: Reports and Attestations
i) update of the “Guidelines for the definition of the Risk Appetite Framework and the evaluation of Most Significant Transactions”; ii) revision of the “Guidelines for the Management of Transactions with Related and
Connected Parties of Poste Italiane S.p.A.”; iii) update of the “Guidelines on Conflict of Interest”; iv) update of the “Financial Management Guidelines of Poste Italiane”; v) the new “BancoPosta Organisational and Operating Regulations”; vi) the new “Regulation governing BancoPosta RFC’s Contracting out and Outsourcing
Concentration” and issue of the “Guidelines on Analysis and Validation of BancoPosta RFC’s
Risk Management System”; xiv) the “ICT Strategy Paper” - “Vision 2022 IT Strategy”; xv) update of “Volume 1” of the Business Continuity Plan and disclosure on the new target model at Group level.
The Board of Statutory Auditors also received periodic information from BancoPosta’s control functions and periodically reviewed the quarterly Tableau de Bord, as well as an indepth analysis of the results of the overall verification activities carried out in 2019.
In particular, this summary shows that the process of strengthening the organisational structure and governance of BancoPosta RFC continued during 2019, in line with the strategic objectives outlined in the “Deliver 2022” business plan; the following are noted: - gradual consolidation of the controls activated by BancoPosta’s Governance Outsourcing and Business Support function on BancoPosta’s contracting out and outsourcing processes, including through the establishment of operating committees dedicated to the Essential
Operating Functions entrusted and the in-service contract with Poste Pay S.p.A.; - strengthening of corporate policies through approval by the Board of Directors of the new
Legislative Decree 231/01 of Poste; - general reshaping of the organisational model of the marketing functions to consolidate
BancoPosta’s role in steering and monitoring the territorial network; - general overhaul of BancoPosta’s complex delegation and sub-delegation model, in line with the changes made to BancoPosta RFC and the new organisational structure.
The Board of Statutory Auditors has noted that the audit activities carried out by the Internal
Financial Management Guidelines of Poste Italiane), all of which have been implemented.
Company had adopted a centralised model for the coordination, control and management of risk and related requirements for the prevention of money laundering and terrorist financing at
Group level and, subsequently, in November 2019, the updates to the “Group Anti-Money
The model adopted by BancoPosta to combat money laundering risk envisages a Head of
Money Laundering Prevention has access to all the databases used by the Group’s Anti-
Without prejudice to what has already been indicated in paragraph 4 with reference to Group anti-money laundering, the BancoPosta anti-money laundering report was not available as at the date of preparation of this report. However, note that, as described in the annual report prepared by the Group’s relevant anti-money laundering function, despite the “medium to
With reference to the follow-up inspection of the 2015 anti-money laundering and terrorist financing inspection conducted by the Bank of Italy - pursuant to art. 53 of Legislative Decree 231/2007 - during the period October-December 2017 at 14 post offices throughout Italy, the
Board of Statutory Auditors monitored the progress of activities and, during a meeting held
The BancoPosta Internal Audit function, with regard to money laundering risk, highlights the strengthening during 2019 of corporate policies through the approval of the Group and
The BancoPosta Compliance function, in illustrating to the Board in March 2020 a summary of the results of activities, reported on the checks carried out, the results of the checks, any weaknesses identified and the corrective measures to be implemented in 2020 in order to address such weaknesses. The 2019 Plan, originally composed of 96 measures, was supplemented during the year with a further 6 measures in the Investment Services sector, which emerged following in-depth discussions with CONSOB. Approximately 2/3 of the interventions reported an assessment of full adequacy of the level of compliance with the regulatory data, while 1/3 of the interventions reported an assessment of partial adequacy. As at 31 December 2019, the Plan had reached 93% coverage. The Board of Statutory Auditors also took note of the 2020 Plan of Activities, which includes 67 planned actions, 29 of which are mainly focused on evolution of governance, ICT operational processes and information assets enabling the adoption of cloud computing.
HUBs for currency and cheque liquidity management, review of principles for substitute products and application flow to introduce the “arrangement” in the map); iii) continuous support for the verification of compliance of the solutions adopted for the design and implementation of the new consulting platform).
iv) the “Customer disclosure” on measures concerning the sending to customers of the annual report on adequacy, costs and returns, reorganised in terms of information presented.
In 2019, the Compliance function took part in the consolidation of Poste Italiane’s organisational structure (the transfer of the business unit to PostePay S.p.A., the centralisation of back-office activities, including complaints management, within the Chief Operating
Office function, the creation of a Group anti-money laundering function within Corporate
In this context, in September 2019, the “Poste Italiane S.p.A. - BancoPosta RFC Complaints
CCRS. In September 2019, the Board of Statutory Auditors received the new “PostePay -
Provisions on Transparency of banking and financial transactions and services and the
guidelines on the organisation and functioning of the Complaints Offices issued by the same
The Board, in recalling that in the prior year’s report the supervisory body had recommended implementation, in 2019, of all the corrective measures identified in relation to the investment services covered by MIFID 2, to insurance brokerage in connection with the IDD Directive, to banking services and postal savings (above all with regard to efforts to strengthen and improve the management of complaints), to the payment services regulated by the PSD2
Management Guidelines were issued in September 2019, with updates on disallowance of transactions and redemption of postal savings bonds, (iii) the PAD Directive (amendments to pre-contractual and periodic reporting documentation) was implemented; - in the area of payment services (i) the IT, procedural and control measures relating to strong client authentication measures (from 12 September 2019) and open communication standards (questionnaires sent to the Bank of Italy) provided for by the PSD2 Directive have been implemented, (ii) the fraud monitoring process has been strengthened and, since
January 2020, the activities of prevention and monitoring of online fraud on third-party sites have been outsourced to SIA; - in the transversal regulatory area (i) for ICT Compliance, the system of internal controls to govern operational and ICT security risks and the IT and cyber risk analysis methodology has been strengthened, (ii) for Privacy regulations, the evolution of internal processes and procedures has been implemented to integrate the principles of privacy by design/default and the rights of the data subject, as well as privacy impact assessments.
In last year’s Report, the Board had recommended continuing to closely monitor the underlying causes of complaints and fraud, giving priority to completion of the initiatives being implemented in order to comply with EBA guidance on the security of payments in terms of mitigation measures and control mechanisms designed to manage operational and security risks, to monitor and report on frauds linked to the different forms of payment, and the reporting of serious operational or security incidents. In 2019, in line with the entry into force of the obligation deriving from the PSD2 directive, work continued on the introduction, from 14 September, of the “Strong Customer Authentication” process for transactions carried out through Poste Italiane’s sites and Apps. At the same time, starting from January 2020, the fraud prevention and monitoring activities with regard to Poste Italiane payment card operations on third party circuits (not-on-us) were outsourced to the company SIA S.p.A. The extension of the current IT platform for monitoring and fraud prevention of “digital banking”
In addition, in April 2019, the updated document “Business Continuity Plan for Financial
Services and Payment Services Volume 1 - Strategy and Organisation” and the new target model for “Business Continuity Management at Group level” were submitted for review to the
Services and have required an amendment of the crisis management and business continuity model from a Group perspective. In particular, developments in the organisation and scope of financial services (establishment of PostePay, outsourcing of liquidity management to BP
Management Guidelines for Financial and Payment Services, were the reasons behind the update of the “Business Continuity Plan Volume 1 - Strategy and Organisation”, which was approved by the Board of Directors on 10 May 2016.
In view of the above, the Board has monitored the progress of activities for the implementation, from 2018, of the requirements contained in the new European directives regarding investment services (MIFID2), insurance brokerage (IDD) and security of payment services (PSD2).
Lastly, the Risk Management function reported periodically to the Board of Statutory
BancoPosta’s Head of Anti-Money Laundering and, under the Risk Management function, established the BancoPosta Anti-Money Laundering function, which has been involved since the end of 2018 in the preliminary work for preparation of the risk self-assessment analysis and the Annual Anti-Money Laundering Report. Working groups have also been engaged in feasibility studies regarding the creation of specific money laundering controls for certain atrisk products (payment slips, money orders and cash).
As at 31 December 2019, considering the allocation of profits indicated above, all Risk
The losses for operating risks recorded in the income statement for the year are significantly lower than in 2018, mainly due to the overcoming of certain key phenomena such as the issue
of real estate funds, for which provisions have already been made in previous years, and the protection initiatives are completed net of the last phase for the Obelisk Fund; in addition, funds were released for cases no longer considered verifiable.
Regulatory Risk; the new target level of 3% coincides with the regulatory minimum for banks, due to differences in business models, which make this level less relevant for
In conclusion, the Board of Statutory Auditors did not identify any critical situations or facts that would lead to the conclusion that BancoPosta’s internal control and risk management system as a whole is inadequate, although certain situations emerged that required the planning and management of specific corrective action. Finally, the Board of Statutory
Auditors acknowledges Management’s constant reactive and proactive behaviour with regard to the definition and operational implementation of improvement measures and remedies for any weaknesses and shortcomings found.
On the basis of the supervisory activities carried out during the year, the Board of Statutory
We have audited the consolidated financial statements of the Poste Italiane Group (the Group), which comprise the consolidated statement of financial position as of 31 December 2019, consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2019, and of the result of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/05.
Recoverable amount of the “Mail, Parcels and Distribution” business segment of the Parent Company
Note 2.3 to the consolidated financial statements as of 31 December 2019 “Accounting policies adopted – Impairment of assets”
Note C1 to the consolidated financial statements as of 31 December 2019 “Statement of profit or loss – Revenue from letter post, parcels and other”
estimate of the future cash flows expected from the use of the assets included in the CGU within the context of regular corporate operations and considering the Universal Postal Service obligation. Such cash flows were discounted at an appropriate rate and account was taken of the transfer prices by which BancoPosta’s Ringfenced Capital is expected to remunerate the services provided, through the sole and widespread network used by the Group and allocated to the CGU.
Note 2.3 to the consolidated financial statements as of 31 December 2019 “Accounting policies adopted– Insurance contracts”
Note 7 to the consolidated financial statements as of 31 December 2019 “Risk management –Other risks – Insurance risks”
The technical provisions for the insurance business represent the estimate at the reporting date of the obligations in relation to the issuance of premiums towards the holders of insurance policies entered into by the subsidiaries Poste Vita SpA and Poste Assicura SpA (hereinafter also the “Companies”).
and the related supporting documentation obtained; • performance of procedures aimed at verifying the agreement of the management information with the accounting information used by the Companies, for the purpose of estimating the technical provisions; • critical analysis of the methods, hypotheses and assumptions adopted by the Companies for estimating the insurance technical provisions; • comparison of the methods and assumptions mentioned above with the sector regulations and with valuation best practices, as well as verification of whether the criteria adopted in prior years have continued to be applied; • obtainment and analysis of the documentation prepared by Poste Vita SpA to measure the ability of future cash flows, deriving from the assets in the investment portfolio, to cover obligations towards the policyholders as at 31 December 2019 and, therefore, to verify the adequacy of the measurement of the technical provisions recognised in the consolidated financial statements of the Poste Italiane Group at such date (the socalled: “Liability Adequacy Test”).
Note 8.1 to the consolidated financial statements as of 31 December 2019 “Determination of fair value”
Note 15 to the consolidated financial statements as of 31 December 2019 “Other information – Use of estimates – Fair value of unquoted financial instruments”
Financial assets classified in levels 2 and 3 of the fair value hierarchy were recognised for an amount of approximately Euro 40,186 million and Euro 3,871 million respectively in the financial statements as of 31 December 2019; moreover, financial liabilities classified in levels 2 and 3 of the fair value hierarchy were recognised for an amount of approximately Euro 5,575 million and Euro 15 million respectively.
Level 2 of the fair value hierarchy comprises the measurement of financial instruments based on inputs other than quoted prices in organised and regulated markets (“level 1”), and directly and indirectly observable in the market with reference to the same instruments. On the contrary, level 3 of the fair value hierarchy includes the measurement of financial instruments based also on inputs that are not directly or indirectly observable in the market.
Responsibilities of the Directors and the Board of Statutory Auditors for the Consolidated Financial Statements
The directors are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No.38/05 and, in the terms prescribed by law, for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
The directors are responsible for assessing the Group’s ability to continue as a going concern and, in preparing the consolidated financial statements, for the appropriate application of the going concern basis of accounting, and for disclosing matters related to going concern. In preparing the consolidated financial statements, the directors use the going concern basis of accounting unless they either intend to liquidate Poste Italiane SpA or to cease operations, or have no realistic alternative but to do so.
We communicated with those charged with governance, identified at an appropriate level as required by ISA Italia regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identified during our audit.
We declare that we did not provide any prohibited non-audit services referred to in article 5, paragraph 1, of Regulation (EU) No. 537/2014 and that we remained independent of the Company in conducting the statutory audit.
We confirm that the opinion on the consolidated financial statements expressed in this report is consistent with the additional report to the board of statutory auditors, in its capacity as the audit committee, prepared pursuant to article 11 of the aforementioned Regulation.
The directors of Poste Italiane SpA are responsible for preparing a report on operations and a report on the corporate governance and ownership structure of the Poste Italiane Group as of 31 December 2019, including their consistency with the relevant consolidated financial statements and their compliance with the law.
We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to express an opinion on the consistency of the report on operations and of the specific information included in the report on corporate governance and ownership structure referred to in article 123-bis, paragraph 4, of Legislative Decree No. 58/98, with the consolidated financial statements of the Poste Italiane Group as of 31 December 2019 and on their compliance with the law, as well as to issue a statement on material misstatements, if any.
In our opinion, the report on operations and the specific information included in the report on corporate governance and ownership structure mentioned above are consistent with the consolidated financial statements of the Poste Italiane Group as of 31 December 2019 and are prepared in compliance with the law.
With reference to the statement referred to in article 14, paragraph 2, letter e), of Legislative Decree No. 39/2010, issued on the basis of our knowledge and understanding of the Company and the environment in which it operates obtained in the course of the audit, we have nothing to report.
Statement in accordance with article 4 of Consob’s Regulation implementing Legislative Decree No. 254 of 30 December 2016
We have audited the financial statements of Poste Italiane SpA (the Company), which comprise the statement of financial position as of 31 December 2019, the statement of profit or loss, statement of comprehensive income, statement of changes in equity, statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the financial statements give a true and fair view of the financial position of the Company as of 31 December 2019, and of the result of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/2005.
Note 2.3 to the financial statements as of 31 December 2019 “Accounting policies adopted – Impairment of assets”
Note 2.5 to the financial statements as of 31 December 2019 “Use of estimates”, paragraphs “Impairment test of goodwill, cash generating units and equity investments” and “Impairment test of the CGU Mail, Parcels and Distribution”
The persistent decline of the postal market in which Poste Italiane operates, makes the ability to forecast future cash flows and the related prospective operating results of the “Mail, Parcels and Distribution” business segment significantly complex. Within this context, based on the Business Plan of the Poste Italiane Group for the period 2018 – 2022 (the “Business Plan”) and on the 2020 Budget approved by the Board of Directors on 5 March 2020 (the “Budget”), the Cash Generating Unit (“CGU”) represented by the “Mail, Parcels and Distribution” business segment was subject to an impairment test, in compliance with IAS36 “Impairment of assets”. Such test was aimed at verifying that the book value of the assets allocated to the CGU, which also includes properties used as post offices and sorting centres, can be recovered through their use in operations. In this regard, the “value in use” of the CGU was calculated, which represented the estimate of the future cash flows expected from the use of the assets included in the CGU within the context of regular corporate operations and considering the Universal Postal Service obligation. Such cash flows were discounted at an appropriate rate and account was taken of the transfer prices by which BancoPosta’s Ring-fenced Capital is expected to remunerate the services provided, through the sole and widespread network used by the Company
As part of our audit activities, also supported by experts within the PwC network, we carried out the following main activities in order to address this key audit matter: • in-depth technical analysis of the principal hypotheses and assumptions of the Business Plan and of the Budget with reference to the “Mail, Parcels and Distribution” business segment, also through discussions with management of Poste Italiane SpA; analysis of the final results compared with the forecasts, verification of the events after the end of the reporting period and reading of the minutes of the corporate governance bodies’ meetings; • update of our understanding of the method to identify the CGU “Mail, Parcels and Distribution” and to determine the related recoverable amount in compliance with IAS36 “Impairment of assets” and valuation best practices, verifying that the criteria adopted in prior years have continued to be applied; • obtainment and critical analysis of the impairment test prepared by Poste Italiane SpA based on the aforementioned method, as well as verification of the consistency between the cash flows considered in the abovementioned test with the related book values and data in the Business Plan and in the Budget; • verification of the logical and mathematical correctness of the determination of the cash flows in the context of the impairment test mentioned above, as well as of the overall reasonableness of the calculation of the weighted average cost of capital (“WACC”) and the consistency of the assumptions related to the “terminal value”, that is the value that represents the ability of the company to generate cash flows, estimated beyond the explicit forecast period 2018 – 2022 in the Business Plan; • verification of the sensitivity analyses
Therefore, as part of our audit for the financial year 2019, we focused on the determination of the recoverable amount of the “Mail, Parcels and Distribution” business segment, as well as of the reasonableness of the most significant underlying assumptions and hypotheses.
prepared by Poste Italiane SpA vis-à-vis any change in key assumptions, comparing the reasonableness of the related results with those deriving from the sensitivity analyses performed by us independently; • verification of disclosures provided in the financial statements as of 31 December 2019.
Note B6 to the financial statements as of 31 December 2019 “Financial liabilities attributable to BancoPosta – Derivative financial instruments”
Note 8.1 to the financial statements as of 31 December 2019 “Determination of fair value”
As part of our audit activities, also supported by experts within the PwC network, we carried out the following main activities in order to address this key audit matter: • update of the analyses of the design and the effectiveness of the internal control system and the specific corporate guidelines governing IT systems and applications used by the Company for the calculation of the fair value under levels 2 and 3; • verification, on a sample basis, of the reasonableness of the input assumptions and parameters underlying the valuation techniques used to determine level 2 and level 3 fair value of the financial instruments; • autonomous recalculation of the fair value for a sample of instruments and comparison with the values determined by the Company; • requests for confirmation and for information from external banks and financial counterparties about the financial instrument transactions carried out in 2019; • verification of disclosures provided in the financial statements as of 31 December 2019, in compliance with IFRS7 “Financial instruments: disclosures”.
indirectly observable in the market, with reference to the same instruments. On the contrary, level 3 of the fair value hierarchy includes the measurement of financial instruments based also on inputs that are not directly or indirectly observable in the market.
As part of our audit activity, we paid particular attention to the analysis of the measurement techniques and methods of the financial instruments that are unquoted on regulated markets and measured at fair value in the financial statements as of 31 December 2019. In particular, the use of estimates mainly concerns specific types of structured securities and derivatives classified in levels 2 and 3 of the fair value hierarchy in compliance with IFRS 9 “Financial instruments” and IFRS13 “Fair value measurement”.
The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, as well as with the regulations issued to implement article 9 of Legislative Decree No. 38/2005 and, in the terms prescribed by law, for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
The directors are responsible for assessing the Company’s ability to continue as a going concern and, in preparing the financial statements, for the appropriate application of the going concern basis of accounting, and for disclosing matters related to going concern. In preparing the financial statements, the directors use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
The board of statutory auditors is responsible for overseeing, in the terms prescribed by law, the Company’s financial reporting process.
We confirm that the opinion on the financial statements expressed in this report is consistent with the additional report to the board of statutory auditors, in its capacity as the audit committee, prepared pursuant to article 11 of the aforementioned Regulation.
We have performed the procedures required under auditing standard (SA Italia) No. 720B in order to express an opinion on the consistency of the report on operations and of the specific information included in the report on corporate governance and ownership structure referred to in article 123-bis, paragraph 4, of Legislative Decree No. 58/1998, with the financial statements of Poste Italiane SpA as of 31 December 2019 and on their compliance with the law, as well as to issue a statement on material misstatements, if any.
In our opinion, the report on operations and the specific information included in the report on corporate governance and ownership structure mentioned above are consistent with the financial statements of Poste Italiane SpA as of 31 December 2019 and are prepared in compliance with the law.