In this regard, the main initiatives made related to the following: �� A restructuring of BancoPosta, with the primary aim of strengthening the intermediary’s role in leading product development and distribution, in collaboration with other Group companies, and in managing the sales network so as to ensure greater coordination, increased efficiency and more effective commercial management. In addition, in line with the relevant strategic guidelines, from 1 January 2019, BancoPosta Fondi SGR has become the Poste Italiane Group’s competence centre for the management of financial investments. For this purpose, the company has been assigned responsibility for managing the portfolio of government securities in which the deposits of BancoPosta’s customers are deposited. The portfolio has a value of approximately €53 billion. At the same time, the Investment Management Coordination function was closed.
The digital Web and App channels provides access to online services for 17.6 million retail and business users (15 million at 31 December 2017) and operating as both direct sales and after-sales channels.
Shareholders and investors Shareholders' meetings; Corporate Governance Report; financial relations and periodic presentations; road shows and dedicated meetings; the Company’s corporate website; press releases
Promote systematic and transparent dialogue with national and local authorities, based on a quest for shared solutions that enables responding to communities' social needs, positively affecting the social fabric in the areas in which the Company operates and, at the same time, increasing competitiveness and business continuity.
Monitor the environmental impacts of logistics activities and promote a process of change aimed at safeguarding the environment by adopting lower-impact solutions regarding the provision of postal and logistics services, including: the use of hybrid/electric vehicles, rationalisation of distances travelled, correct waste management, and development of recharging infrastructure for customers' vehicles.
Lack of perception of the overall risk of operations and loss of business opportunities
�� Adoption of energy efficiency solutions for real estate assets and use of renewables
�� Development of occupational health and safety supervision (achievement of 18001 certification, implementation of the "Integrated Management System", etc.)
Regarding environmental issues, as a nationwide actor Poste Italiane Group recognises that creation of value for all its stakeholders and affirmation of its role as the largest Italian company in the services sector, must go hand in hand with the long-term environmental sustainability of its activities. Therefore, Poste Italiane has the responsibility to commit to playing a distinctive role in the creation of sustainable value for the local communities it operates in, of which environmental protection and paying attention to climate change are key dimensions.
Tr an si tio n ris ks 1. Regulatory developments �� Constant preventive monitoring of possible changes to regulations
The Board of Directors and Board of Statutory Auditors are elected and dismissed by the General Meeting of shareholders, which is also responsible for engaging the independent auditor and determining the related fees. The General Meeting also approves the annual financial statements, amendments to the Company’s By-laws and transactions of a non-recurring nature, such as rights issues, mergers and demergers in cases where the law does not grant the relevant authority to the Board of Directors.
Spread This is the risk of a potential fall in the value of the bonds held, following deterioration in the creditworthiness of issuers. This is due to the importance that the impact of the spread on yields on government securities has on the fair value of euro zone government and corporate securities. In the Poste Italiane Group’s case, this risk particularly relates to the spread between Italian and German government securities, which influences the fair value of the Group’s holdings of Italian government securities, the nominal value of these securities at 31 December 2018 amounts to €126 billion (€148 billion in terms of total bond holdings)7. At the end of 2018, the spread on ten-year government bonds was 250 bps. The yield on 10-year Treasury Notes (BTPs), which at the beginning of the year stood at 2%, had risen to 2.74% by the end of the year, with a peak of 3.70% in October 2018. At 31 December 2018, the securities portfolio (BancoPosta RFC’s securities had a nominal value of €51 billion) registered fair value losses of approximately €1.7 billion. However, trading in securities from the beginning of the year resulted in gains of €379 million, in line with the targets for 2018. During 2018, the Group completed forward sales with settlement in 2019 (advance execution with an impact on gains in 2019) and forward purchases of securities providing higher yields than expected in the Strategic Plan, with a resulting positive impact on the portfolio’s profitability. Again, with regard to a widening of the spread, it should be noted that changes in BancoPosta RFC’s fair value reserve are not taken into account when computing capital requirements. An increase in the spread also has an impact on Poste Vita ’s solvency ratio, which at 31 December 2018 is 211%, down from the 279% reported in December 2017. Given the performance of the spread and pressure on the solvency ratio, in 2018, the insurance company examined and implemented measures to support its solvency ratio, including the use of so-called ancillary own funds (AOFs), represented by unfunded capital instruments in the form of unsecured guarantees or commitments that may be included in the computation of own funds. The transaction designed to strengthen the company’s capital position through the use of AOFs was formalised in November 2018 with Poste Italiane’s signature of an unconditional, irrevocable commitment letter with a five-year term. The letter commits the Parent Company, merely at the request of the subsidiary, to subscribe for ordinary shares to be issued in future by Poste Vita, amounting to up to €1,750 million. Following clearance from IVASS, the commitment letter signed by the Parent Company in the subsidiary’s favour can be included in the computation of Tier 2 AOFs, as defined by the Solvency II Directive and the regulatory framework for insurance companies, within the limits represented by the available amount, being approximately €1,000 million at 31 December 2018. This has had a positive impact on the solvency ratio of approximately 24 percentage points
This regards the risk of a downgrade of the ratings assigned to Poste Italiane by the three rating agencies, the latest being: �� Standard & Poors: BBB/Negative
China ended 2018 with average growth of 6.6%, after the 6.8% of 2017. Trend growth was slightly down in the last quarter compared with the previous quarter (6.4% and 6.5%, respectively). Signs of a slowdown are confirmed by the most recent figures for industrial output. Investment was slightly up, on the other hand, probably reflecting the new economic policy designed to boost public investment, above all at local level. The country is responding to trade tariffs with expansionary fiscal policies that have raised household disposable income and thus boosted internal consumption12.
-457.3% (66) 14 (52) Finance income/(costs) and profit/(loss) (8) (55) 47 85.0%
Investments accounted for using the equity method 497 508 (11) -2.2%
Cash and deposits attributable to BancoPosta - - (122) - - (122)
Approximately €50 million was invested in the modernisation of technology infrastructure and in consolidating the Group’s Data Centre infrastructure, whilst over €40 million was invested in new sorting equipment at the Bologna and Milan Peschiera Borromeo sorting centres, the automation of the hubs and in the lean program, which aims to automate Parcels and Mail operations. Approximately €10 million was invested in the rollout of the new “Joint delivery” model, which began in April and involved the reorganisation of 350 delivery centres, and around €7 million in the installation of LED lighting to replace fluorescent lighting in 1,032 buildings.
Around 14% of investment (€75 million) was spent on developing and/or defending the business and related to all the Business Units. The main items of expenditure included the development of letter post services, upgraded applications for the Electronic Postman platform, with the introduction of functions enabling delivery to alternative addresses or delivery points, investment in the start-up of PostePay, fixed and mobile telecommunications offerings, postal savings, retail loan products and development of the offerings marketed by Poste Vita and Poste Assicura.
Investment in the Payments, Mobile and Digital and insurance Services units also focused on the upgrade of systems to comply with the introduction of new regulations, such as Electronic Invoicing and, in the case of the Poste Vita Group, the GDPR (EU/679/2016).
With reference to the sale of the 100% interest in Banca del Mezzogiorno–Mediocredito Centrale SpA (“BdM”) to the Agenzia nazionale per l’attrazione degli investimenti e lo sviluppo d’impresa (Invitalia) in 2017, on 31 October 2018, Invitalia informed Poste Italiane that the Bank of Italy had requested the buyer not to proceed with the reduction of BdM’s capital scheduled for 2018, and preparatory to payment of a €40 million tranche of the related consideration. In line with the terms of the agreement, Poste Italiane and Invitalia, acting in good faith, have concluded an agreement that entails: i) Invitalia’s payment of a sum of €20 million, which took place in February 2019; ii) payment of the remaining €20 million from the dividends to be paid by BdM in 2018, 2019 and 2020, taking into account the supervisory instructions and recommendations from the Bank of Italy. The remaining portion of the price, totalling €30 million, will be paid by June 2022 in accordance with the contract. Impairment losses of €20 million have been recognised on these receivables, following the prudent application of the measurement criteria in IFRS 9.
The current Contratto di Programma (Service Contract) for 2015-2019 was signed by the parties on 15 December 2015 and is effective from 1 January 2016 to 31 December 2019.
The growth of the Internet of Things (IoT) market24 also strengthened in 2018, with revenue expected to rise by up to 11% by 2025.
* The figure includes Postepay and Postamat cards and Credit Cards. ** The figure includes business customers.
Card payments also includes revenue from acquiring services, which doubled compared with 2017, rising from €3.6 million to €7.5 million (an increase of 109%) thanks to growth in the value of transactions due to an increase in prepaid cards.
In response to changes in the competitive scenario in the mobile market, the Group has further enhanced its customer acquisition strategy in 2018, revising price plans, in terms of both line rental and service charges, and launching specific promotions designed to build customer loyalty, stop customers switching and prevent SIM cards from remaining unused in an attempt to safeguard the quality of acquisitions.
On 16 May 2018, the decree implementing Directive (EU) 2016/97 on insurance distribution (the “IDD”) as published, before coming into effect on 1 October 2018. This legislation regulates the distribution of insurance contracts and brings into line the rules governing insurance broking with those applicable to investment services, reforming the various models and systems designed to protect customers. Application of the legislation, which will affect the processes involved in product governance, customer profiling, assessment of whether or not the recommended product meets the customer’s needs and the provision of information is the subject of a specific cross-functional project at Group level. In particular, Class I insurance-based investment products have been included in the “MiFID” consulting service, resulting in changes to the contract governing the provision of investment services, in the product governance process and in the scope of investment services.
On 19 December 2018, the Bank of Italy, in implementing the guidelines issued by the EBA on “Governance arrangements and product oversight for retail banking products”, dated 22 March 2016, published a Directive amending the provisions regarding “Transparency of banking and financial transactions and services. Fairness in dealings between intermediaries and customers” (issued by the Bank of Italy on 29 July 2009, as amended). This Directive sets out the procedures for governing and reviewing banking and financial products, detailing the organisational measures that intermediaries are required to adopt in order to monitor and audit products for retail customers falling within the scope of Title VI of the Consolidated Law on Banking. The new regulations will only apply to products developed and offered on the market from 1 January 2019.
The insurance services market 27. ANIA Newsletter on new Life business (February 2019).
of which multiclass products (Class I portion) 631 184 447 243.5%
The above indicators reflect the particular nature of BancoPosta RFC and the fact that amounts payable to Poste Italiane functions are classified in “Administrative expenses”. These indicators should not, therefore, be considered in absolute terms or in comparison with the market, but only over time.
The principal liabilities are represented by financial liabilities measured at amortised cost, hedging derivatives, tax liabilities, other liabilities and provisions.
The Annual Report, presented to the Board of Statutory Auditors and the Board of Directors, was subsequently submitted to the Bank of Italy. The specific section regarding investment services was, on the other hand, submitted to the CONSOB.
Internal Auditing has also drawn up the Annual (2019) and Multi-year (2019-2021) Audit Plan, based on a risk assessment process designed to ensure adequate coverage of BancoPosta’s Business Process Model, including risks, changing aspects of the business, regulatory issues and BancoPosta RFC’s organisational structures. This Plan has been presented to the Board of Statutory Auditors and submitted for the attention of the Board of Directors.
As in the previous year, in 2018, in terms of economic value, BancoPosta RFC was exposed to falling rates. The entity of the exposure, measured using an internal model, remained below 10% of supervisory capital, thus well within the risk appetite framework for the year.
In terms of operational risk, with regard to real estate funds sold in the period between 2002 and 2005, which have given rise to a number of complaints and disputes, Poste Italiane continues to closely monitor market developments and the related initiatives put in place in order to protect its customers, in order to assess any impact on provisions for risks and charges in the financial statements.
The following tables show the targets set by the company and the SDGs impacted, while the icons in each paragraph heading indicate the types of capital described.
In continuation of the initiatives already undertaken in 2017, such as the signing of the Memorandum of Understanding between Poste Italiane and the Tax Police (Guardia di Finanza), aimed at combating business and financial crime, and the launch of the Open and Transparent Contracts portal, regarding the prevention of criminal infiltration of contracts and the fight against undeclared employment. Several initiatives were implemented in 2018 to promote transparency in all areas and towards all stakeholder categories. In particular, the Board of Directors of Poste Italiane SpA approved the new Code of Ethics, which is applicable to the entire Group and aimed at directors and employees, as well as at all stakeholder categories. The new Code of Ethics has been revised in order to update and expand the fundamental principles that inspire the culture and conduct of directors, supervisory bodies, management, employees and everyone who works - on a permanent or temporary basis - to pursue the Poste Italiane Group’s objectives. Moreover, the general criteria of conduct the Company recognises and adopts in carrying out its activities and in its engagement with stakeholders have been affirmed, with a focus on specific provisions relating to conflict of interest, anti-corruption, anti-money laundering and anti-terrorism, as well as safeguarding health, safety, the environment and privacy.
The Code of Ethics establishes principles and rules of conduct such as legality, impartiality and fairness, respect for and enhancement of people, transparency, thoroughness and confidentiality, as well as quality, diligence and professionalism. The Code also requires the parties concerned to refrain from activities - even on an occasional basis - that may generate a conflict with the Group’s interests or may interfere with the ability to make decisions consistent with the Company’s objectives. To this end, Poste Italiane has set up a system for reporting and managing conflicts of interest. The Company also intends to promote the dissemination of ethical principles and social responsibility among parties located within the Group’s value chain.
In 2018, Poste Italiane entered the Brand Finance Global 500 2019 international ranking, with the best performance in terms of image and reputation among Italian companies, ranking among the small number of brands that boast a triple A rating (“extremely strong”). Of the nine Italian brands that entered the Global 500 2019, Poste Italiane was the best-performing company (up 47%), due in particular to the improved appraisal of the insurance sector, the innovation and dynamism of new payment solutions such as PostePay, and the consequent good growth prospects. The Group soared 88 positions, rising from 370th in the previous edition to its current 282nd place. The brand strength index of Brand Finance, a world leader in brand valuation and strategic consulting, measures image and reputation effectiveness as compared with competitors and analyses the management and direct and indirect investment that affect a brand, the return on image and the financial return with respect to turnover.
In confirmation of the importance Poste Italiane attributes to the social and environmental aspects of its supply chain, some concrete examples of strengthening aspects relating to sustainability may be highlighted.
WE HAVE A RESPONSIBILITY TO PROVIDE OUR PEOPLE WITH THE BEST POSSIBLE DEVELOPMENT OPPORTUNITIES.
Provide continuous training to all Group employees 20 million training hours provided by 2022
In affirming and respecting the rights of people associated with the so-called “social” dimension of corporate sustainability, in addition to promoting the protection of human rights, the Company acknowledges diversity as one of its greatest assets, and therefore commits to promoting it in all its forms and expressions across all levels of the organisation.
In 2018, the Company extended the “Maam Project” to fathers and new parents of children from 0-3 years of age
The attention posed to age management Poste Italiane took part in “Talenti Senza Età” (Talent has no age limit) listening initiative, a survey conducted by Valore D in collaboration with the Catholic University of Milan, designed to investigate on the working conditions of women and men over 50 and to promote coherent development, management and learning policies.
Regarding the training activities carried out to consolidate and transfer skills among employees, Poste Italiane SpA has adopted a specific staff training procedure (“Training Procedure and Operational Training”). The procedure defines the operating mechanisms and organisational ownership regarding training and operational training activities, based on specific criteria designed to guarantee the effectiveness, efficiency and compliance of the expected outcomes, also introducing significant organisational and control measures. On the basis of the guidelines drawn up by the Parent Company, the subsidiaries implement the procedure, adapting it to their size and their organisational and operational context, in order to develop and extend the organisation’s knowledge and capitalise on the Company’s experience.
Payments, Mobile and Digital With particular reference to PostePay, specialised technical training courses were provided on issues relating to cyber security, innovation in technological infrastructure and telecommunications, acquisition of certifications in the Service Management area, development of big data management and processing skills, and new Management Control applications. In October 2018, the Company implemented a Change Management plan. The first phase of the Plan involved setting up training classrooms, with the aim of facilitating mutual knowledge among people from the Payments, Mobile and Digital segment, laying the foundations for sharing of mutual professional experiences and fostering engagement and team spirit. The formats used involved two types of workshop - video-making and storytelling - with the aim of improving interpersonal communication and relational skills, key elements of the integration process.
In addition, once again in 2018 the Group provided awareness -raising activities relating to prevention and appropriate lifestyle issues, combined with the provision of specialist services free of charge or at favourable rates at the Company’s headquarters, all of which are part of the Health Plan project.
Culture and education In order to involve the graduate and undergraduate children of employees, Poste Italiane provided various initiatives, including: Push to Open, a platform for interactively involving students in the choice of their educational/vocational path, with the active participation of parents; Talent Days, a meeting with young people regarding employment ; and annual and summer scholarships for trips abroad, reserved for deserving children of employees, and supported entirely by the Company.
As a natural partner of the Public Sector in the development of services for citizens, the Company also continues to participate in “Work experience champions”, a Ministry of Education, Universities and Research project involving large Italian and multinational companies. The Company has signed a special protocol regarding this matter with the Ministry of Education, Universities and Research, identifying seven work experience paths, grouped into five areas (retail customers and large enterprises marketing, logistics and delivery, management functions, financial education, and customer experience), which enable secondary school students to learn about the postal world and the key business processes.
On 19 June 2018, in line with previous agreements regarding this matter, two agreements were signed which provide for the strengthening of the contractual status of staff formerly employed on fixed-term contracts and temporary staff subsequent to a favourable court decision - not yet final - regarding their re-employment/entry into service, who work for the Company and have not benefited from similar previous agreements; and the recruitment on fixed-term contracts of delivery agency staff who are unemployed or are the beneficiaries of income support as a result of the total or partial insourcing of Poste Italiane’s delivery activities.
�� Stepping up service in the post offices of tourist municipalities: Expansion of post offices’ coverage on the basis of registered tourist flows, by increasing their staff numbers in tourist centres.
Moreover, in order to guide the participating classes along the educational path, the project provides teachers with specific e-learning training tools regarding saving, including a free 25-hours training course about “Il Risparmio Dinamico e Multidimensionale e la Cittadinanza Economica” (Dynamic, multidimensional saving and Economic Citizenship), at the end of which a certificate is issued for the skills acquired. By 2022, more than 130 events are expected to have taken place, including workshop activities, interactive lessons and dialogue sessions regarding the subject. This renewal also provides for new forms of ad hoc involvement aimed at strengthening active learning, such as through the support of entertainers and games to encourage young people to learn.
Certify privacy protection in the Group's areas of business 20% of the Group’s business areas certified by 2022
�� Increase the production and energy efficiency of delivery. The Mail, Parcels and Distribution segment has implemented several actions aimed at affecting production and energy efficiency. For example, SDA SpA is building new structures with a lower energy impact equipped with local generation of photovoltaic power to meet daytime requirements. The mail delivery segment is gradually replacing endothermic vehicles with electric delivery vehicles, installing new, more efficient and less energy-intensive parcel and mail sorting lines, drawing up “good energy-saving practices” and procedures, and providing specific environmental communications to all suppliers.
In line with the Company’s approach to give priority to the efficient use of renewables and the rationalisation of energy consumption from fossil fuels, in 2018 the two main corporate strategies that brought benefits in terms of environmental sustainability were the new “Joint Delivery” model and the plan relating to the green development of the corporate fleet.
In terms of transport strategy, the Group’s strong commitment to improving its environmental performance may be traced back to the introduction in the 2000s of 4-wheel vehicles powered by natural gas, which affected 15% of the fleet, followed by the introduction of the “Free Duck” (electric quadricycles) and the full rent supply of 4-wheel vehicles powered by alternative fuels (cars and vans powered by natural gas, LPG/hybrid cars and electric vans).
In addition, the policy specifies the sectors excluded from the range of potential investments as they violate the basic humanitarian principles defined in the United Nations Conventions (anti-personnel mines, cluster bombs, spent uranium, biological weapons, chemical weapons, invisible fragmentation weapons, blinding laser weapons, incendiary devices and white phosphorus). The Policy also envisages the establishment of structured processes for effectively managing and monitoring the approach adopted through specific principles, activities, roles and instruments.
THE GOALS SET WITHIN THE ENVIRONMENTAL SOCIAL AND GOVERNANCE STRATEGIC PLAN
Percentage of young current account holders (under 35) 44.4 45.9 46.4
**** The emission factors used to convert fuels into CO2e are as follows: Jet fuel for 2016 2.53 kg CO2e/l (source DEFRA 2016), for 2017 2.54 kg CO2e/l (source DEFRA 2017) and for 2018 2.54 kg CO2e/l (source DEFRA 2018).
[GRI 302-1] INTERNAL ENERGY CONSUMPTION RELATING TO REAL ESTATE FACILITIES BY SOURCE
Consumption of fuel from non-renewable sources (GJ) 735,772 715,240 674,802 of which: Consumption of energy from non-renewable sources (GJ) 112,342 106,337 93,603 of which: Thermal energy (district heating) (GJ) 17,531 22,960 20,862
* Includes flights operated by Alitalia on behalf of Poste Italiane.
Corporate Governance 102-18 Governance structure Report on Operations: Management and supervisory bodies
GRI 203: Indirect economic impacts 203-1 Investment in communities Report on Operations: Indicators tables Information not available. The current reporting system did not allow reporting investments in communities for the years 2016-2017. We expect to report this information in the next cycles of disclosure.
Report on Operations: Indicators tables 404-3 Percentage of employees receiving regular performance and career development reviews
GRI 412: Human rights assessment 412-1 Operations that have been subject to human rights reviews or impact assessments
LOSS RATIO is a measure of the technical performance of an insurance company providing Non-life cover and is calculated as the ratio of total losses incurred (including claims expenses) and gross earned premiums.
* Equity for 2018 includes capital of €90 million injected by the Parent Company during the year.
The consolidated and separate financial statements contain sections and notes applicable to both sets of financial statements, providing information on matters common to both the Group and Poste Italiane SpA. The relevant matters specifically regard: �� the basis of presentation used and accounting standards adopted; �� disclosure of the sources and the procedures used in determining fair value; �� financial risk disclosures; �� a summary of the principal proceedings pending and relations with the authorities at 31 December 2018; �� and, in general, certain additional disclosures required by accounting standards, whose presentation in a single section is designed to provide the reader with better information (e.g. the analysis of net debt, key performance indicators for investee companies, etc.).
The principal accounting policies adopted by the Poste Italiane Group are described below.
42. This method is based on the ratio of costs incurred as of a given date divided by the estimated total project cost. The resulting percentage is then applied to estimated total revenue, obtaining the value to be attributed to the contract work completed and accrued revenue at the given date.
Post-employment benefits Post-employment benefits are of two types: �� Defined benefit plans Defined benefit plans include employee termination benefits payable to employees in accordance with article 2120 of the Italian Civil Code. For all companies with at least 50 employees, covered by the reform of supplementary pension provision, from 1 January 2007 vesting employee termination benefits (TFR) must be paid into a supplementary pension fund or into a Treasury Fund set up by INPS. Accordingly, the company’s defined benefit liability is applicable only to the provisions made up to 31 December 200645. In the case of companies with less than 50 employees, to which the reform of supplementary pension provision does not apply, vested employee termination benefits continue to represent a defined benefit liability for the company. Under these plans, given that the amount of the benefit to be paid is only quantifiable following the termination of employment, the related effects on profit or loss or the financial position are recognised on the basis of actuarial calculations in compliance with IAS 19. In particular, the liability to be paid on cessation of employment is calculated using the projected unit credit method and then discounted to recognise the time value of money prior to the liability being settled. The liability recognised in the financial statements is based on calculations performed by independent actuaries.
Total amounts due from the MEF and Public Administration entities 881 969
– €12 million in IRAP to be recovered on the unreported deduction of expenses for disabled personnel in 2003. This receivable, including accrued interest of approximately €3 million at 31 December 2018, was assessed during the year under review, following the ruling handed down by the Regional Tax Tribunal for Lazio, which upheld an earlier appeal brought by the Parent Company, challenging the failure of the tax authorities in Rome to refund the amount claimed. This ruling was not appealed within the statutory deadline and is thereby final.
47. Publisher tariff subsidies were reinstated by Law Decree 244/2016 (the so-called “Mille Proroghe” decree), in effect from 1 January 2017 and converted with amendments into Law 19 of 27 February 2017.
With regard to Poste Italiane SpA alone, impairment tests were carried out on investments. The methods and criteria used to carry out the tests are in line with those described in relation to goodwill and other intangible assets.
Goodwill Goodwill is tested at least annually to assess whether or not it has suffered any impairment to be recognised in profit or loss.
3. Changes to accounting policies 3.1 Basis of preparation 56. This is possible for transactions carried out on organised markets (the “regular way”).
Impairment and stage allocation To calculate impairment, the Poste Italiane Group considers the following: �� determination of the parameters of significant increase in credit risk (SICR); �� estimates of probability of default (PD) and internal ratings of sovereign and banking counterparties (internal ratings are developed for certain residual types of corporate counterparties).
To construct the models the following types of data were extracted and utilised for each country sampled: �� macroeconomic data; �� market data; domestic market indices, global energy/non-energy indices, the Eurostoxx and the S&P 500; �� financial reporting data.
Balance of financial assets at 31 December 2017 (IAS 39) 186,766
Impairment The effects of the application of the new impairment model, which during the transition had a contra-entry in retained earnings, are outlined below: �� €11 million in expected losses in relation to financial instruments recognised at amortised cost; �� €15 million in expected losses in relation to financial instruments recognised at FVTOCI (impairment losses taken on these financial instruments have an offsetting entry in the fair value reserve); �� €13 million in expected losses, including €12 million in additional provisions in relation to trade receivables and €1 million in additional provisions in relation to other receivables and assets.
The new impairment model has been applied to “Cash and cash equivalents” and to “Cash and deposits attributable to BancoPosta” and did not entail a significant increase in provisions related to these items.
Expected credit loss provisions at 31 December 2017 (IAS 39 compliant) 614
Additional impairments recognised at 1 January 2018 on: Trade receivables 12
The effects of first-time adoption have been recognised in the opening balances of retained earnings and the fair value reserve at 1 January 2018. Reconciliations between the balances at 31 December 2017 and those at 1 January 2018 are shown below.
Non-hedging derivatives Fair value through profit or loss Fair value through profit or loss - -
Cash and deposits attributable to BancoPosta Loans and receivables Amortised cost 3,196 3,196
Reclassifications from AFS to FVTOCI i)b (556) - 551 - - 5 556
At 31 December 2018, the fair value of instruments reclassified from the AFS category to the amortised cost category amounts to approximately €13,043 million, whilst the fair value loss that would have been recognised in equity at 31 December 2018, if on transition €15,398 million had not been reclassified from the AFS category to the amortised cost category, would have amounted to approximately €692 million (before the related taxation).
Poste Vita SpA: IVASS Regulation 43 - 2019 In 2018, market volatility and the performance of the spread between Italian and German government securities led to the issue of Law Decree 119/2018, containing urgent tax and financial measures. The legislation permits entities that do not apply international financial reporting standards to measure their current securities on the basis of the value at the time of initial recognition, as presented in its latest approved annual financial statements, rather than at fair value, with the exception of permanent losses. In view of this, on 12 February 2019, IVAS issued Regulation 43, setting out the procedure to be followed by insurance companies wishing to access this option. In preparing its separate financial statements, prepared under local GAAP, the subsidiary, Poste Vita SpA, elected to apply this option in relation to a portion of its current securities, suspending the recognition of impairment losses totalling approximately €450 million. This enabled the subsidiary to report net profit of approximately €580 million, after recognition of the DTA referred to above. In accordance with the Regulation, the company has made established an undistributable revenue reserve of €312 million in its separate financial statements, based on the difference between the value of the securities recognised in the financial statements and the related fair values after the related taxation.
Cash flow generated by/(used in) movements in working capital [b] (305) (214)
Cash and cash equivalents at end of year [tab. A10] 3,195 2,428
Amounts that cannot be drawn on due to court rulings (18) (15)
The fair value of investment property at 31 December 2018 includes €65 million representing the sale price applicable to the Parent Company’s former service accommodation in accordance with Law 560 of 24 December 1993, while the remaining balance reflects price estimates computed internally by the Company64.
The balance of intangible assets under construction includes activities conducted by the Parent Company, primarily regarding the development for software relating to the infrastructure platform (€55 million), for BancoPosta services (€41 million ), for use in providing support to the sales network (€29 million) and for the postal products platform (€13 million).
Risparmio Holding SpA - in liquidazione 1 - - - 1 in joint ventures in associates
Financial assets at fair value through profit or loss 28,703 1,066 29,769 27,857 1,481 29,338
Fair value gains in the period under review, amounting to €9 million, have been recognised in profit or loss in “Revenue from financial activities”.
Financial instruments classified in level 3 are held primarily by Poste Vita SpA and, to a residual extent, by Poste Italiane SpA.
�� Accrued interest on IRES refund, amounting to €47 million, refers to interest accruing up to 31 December 2018 in relation to the tax credit determined by an unreported deduction of IRAP paid on labour costs from IRES and almost entirely attribut-
Financial statements of Poste Italiane SpA 5,459 (2,005) 584 6,880 1,368 5,512 - Undistributed profit (loss) of consolidated companies 4,297 - 1,016 3,281 (12) 3,293 - Investments accounted for using the equity method 3 - (24) 27 - 27 - Balance of FV and CFH reserves of investee companies (25) (41) - 16 (140) 156 - Actuarial gains and losses on employee termination benefits of investees - Fees to be amortised attributable to Poste Vita SpA and Poste Assicura SpA
Technical provisions where investment risk is transferred to policyholders 2,652 3,530
Fair value through profit or loss - - - - - -
Fair value hierarchy In terms of the fair value hierarchy, derivative financial instruments held at 31 December 2018 (€1,859 million) are classified in level 2.
Accrued liabilities and deferred income 10 58 68 11 79 90
Mail and parcel revenue breaks down as follows: TAB. C1.1 - MAIL AND PARCEL REVENUE
A breakdown of the movement in technical provisions and other claims expenses, showing the portion ceded to reinsurers, is as follows: TAB. C4.3 - MOVEMENT IN TECHNICAL PROVISIONS FOR INSURANCE BUSINESS AND OTHER CLAIMS EXPENSES
Impairments refer to the write-off of the goodwill allocated to Postel SpA, which is of a non-recurring nature, as described in more detail in note A3 – Intangible assets.
The nominal tax rate for IRES is 24% from 1 January 2017, whilst the Group’s average statutory rate for IRAP is 5.91%88. Movements in deferred tax assets and liabilities are shown below: TAB. C14.5 - MOVEMENTS IN DEFERRED TAX ASSETS AND LIABILITIES
The Financial Services segment includes the activities of BancoPosta RFC, BancoPosta Fondi SpA SGR and Poste Tributi ScpA in liquidation.
Net intersegment revenue from ordinary activities 4,497 328 1,014 1 (5,840) -
Key management personnel Key management personnel consist of Directors, members of the Board of Statutory Auditors, managers at the first organisational level of the Parent Company and Poste Italiane’s manager responsible for financial reporting. The related remuneration, gross of expenses and social security contributions, of such key management personnel as defined above is as follows: REMUNERATION OF KEY MANAGEMENT PERSONNEL
6. Poste Italiane SpA for the year ended 31 December 2018 6.1 Financial statements
Disposals: Property, plant and equipment, investment property and assets held for sale 2,129 135,315
89. As revised on the issuance of Law Decree 179 of 18 October 2012 converted into law with amendments by Law 221 of 17 December 2012.
Back-office* and Customer Care Fees by professional role based on market benchmarks + recharge of external costs Market prices for similar services
The Regulation approved at the Extraordinary General Meeting of Poste Italiane SpA’s shareholder on 14 April 2011 SpA, and subsequently amended on 31 January 2019, provides that, where necessary, BancoPosta RFC’s equity shall be sufficient to ensure that it is able to comply with supervisory capital requirements and is aligned with the risk profile of its operations.
Furthermore, BancoPosta RFC’s Regulation states that “In view of the absence of non-controlling interests in BancoPosta RFC, on approval of Poste Italiane SpA’s financial statements, the General Meeting shall – on the recommendation of the Board of Directors – vote on the appropriation of the Company’s profit for the year, and in particular: the share attributable to BancoPosta RFC, as indicated in the Separate Report, taking account of specific regulatory aspects and, above all, the need to comply with prudential capital adequacy requirements (…)”.
The balance of intangible assets under construction includes activities primarily regarding the development of software relating to the infrastructure platform (€55 million), BancoPosta services (€41 million), the provision of support to the sales network (€29 million) and the postal products platform (€13 million).
Financial assets at amortised cost 21,507 9,890 31,397 11,675 8,838 20,513
�� Amounts deposited with the MEF, including public customers’ current account deposits, which earn a variable rate of return calculated on a basket of government bonds and money market indices101. Following the introduction of IFRS 9, the deposits have been adjusted to reflect accumulated impairments of approximately €3 million, reflecting the risk of counterparty default (unchanged with respect to 1 January 2018). In 2018, the Company entered into derivatives with the aim of converting the return on the deposits in question into a fixed rate. The transaction was designed to fix the return on the indexed components of the deposits, through a series of forward purchases and spot sales of BTPs, with settlement of the differential between the forward price of the securities and their market value.
The available-for-sale portfolio includes fixed rate instruments amounting to €4,500 million (including €2,000 million acquired in 2018), issued by Cassa depositi e prestiti SpA and guaranteed by the Italian government (at 31 December 2018, their fair value totalled €4,539 million).
Changes in fair value through profit or loss - 9 9
Cash held on deposit with the MEF at 31 December 2018 include approximately €930 million in amounts deposited with the MEF in a so-called buffer account, consisting of customer deposits subject to restrictions on their use and yet to be invested (note – 6.2 – Information on BancoPosta RFC).
On 4 February 2019, the Company launched a buyback programme authorised by the Annual General Meeting of shareholders held on 29 May 2018. At 15 February 2018, Poste Italiane has acquired 5,257,965 own shares for a total amount of €40 million, equal to 0.4026% of the share capital (note 4.2 – Other material events).
Provisions for disputes with third parties 341 36 - (34) (41) 302
basis of expected outcomes. The reduction of € 34 million relates to the reversal of liabilities recognised in the past, whilst a reduction of €41 million regards the value of disputes settled.
Balance at 1 January 1,244 interest component 19 effect of actuarial gains/(losses) (16)
Liabilities for fees to be refunded represent the estimated liability linked to the refund of fees on loan products sold after 1 January 2018, under the terms of which the related fees must be refunded if the customer opts for early cancellation of the agreement.
Industrial patents and intellectual property rights 179 180 * See note A1.
Consorzio Servizi Telef. Mobile ScpA - - - 6 - 23 - - - - -
Net cash flow from/(for) financing activities and shareholder transactions (1,487) (409) 27.5 (501) (328) 65.5
Other related party disclosures Within the scope of the transactions with Monte dei Paschi di Siena Capital Services Banca per le Imprese SpA authorised by the Board of Directors on 20 September 2017, having obtained the consent of the Related and Connected Parties Committee, twelve repurchase agreements and fifteen buy & sell back transactions and seven Interest Rate Swaps for hedging purposes, and twenty-four trades in government securities were carried out in 2018.
Compared with the version presented in the Annual Report for 2017, this note has undergone a number of changes in terms of form and content. In particular: �� IFRS 9 - Financial Instruments has amended IFRS 7 – Financial Instruments: Disclosures, introducing, among other things, a more comprehensive set of disclosures on credit risk. The new disclosures required by IFRS 7 and provided in these notes cannot be applied to comparative information.
This is the risk that the value of a financial instrument fluctuates as a result of movements in exchange rates for currencies other than the functional currency.
The table below shows the sensitivity to foreign exchange risk of the Poste Italiane Group’s most significant positions at 31 December 2018.
Spread risk This is the risk of a potential fall in the value of bonds held, following deterioration in the creditworthiness of issuers. This is due to the importance that the impact of the spread of returns on government securities had on the fair value of euro zone government and corporate securities, reflecting the market’s perception of the credit rating of issuers.
Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2
POSTE ITALIANE GROUP - MOVEMENTS IN PROVISIONS FOR DOUBTFUL DEBTS DUE FROM OTHERS
Financial assets * The gross amount of financial assets includes the financial instruments subject to offsetting and those subject to master netting agreements or similar arrangements, regardless of whether the financial instruments have been offset.
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 2018. The liabilities of Poste Vita SpA and Poste Assicura SpA are reflected in “Flows from Poste Vita group’s policies”.
Impairment of fixed income instruments/receivables purchased/paid in the period - 2,822 2,822
Pricing risk is the risk of incurring losses due to the inadequate premiums charged for the insurance products sold. It may arise due to: �� inappropriate selection of the technical basis; �� incorrect assessment of the options embedded in the product; �� incorrect evaluation of the factors used to calculate the expense loads.
AGCM (the Antitrust Authority) On 9 March 2015, the Authority notified Poste Italiane SpA of an investigation of BancoPosta RFC for alleged violation of articles 20, 21 and 22 of the Consumer Code, regarding the “Libretto Smart” product. On 21 December 2015, the AGCM notified Poste Italiane of its final ruling in which it deemed the Company’s conduct unfair and imposed a fine of €0.54 million, limited to a tenth of the maximum applicable amount taking into account the mitigating circumstance that Poste Italiane had adopted initiatives aimed at allowing customers to benefit from the bonus rate. Poste Italiane lodged an appeal against this ruling before the Lazio Regional Administrative Court, which has adjourned the case until a hearing on the merits. The hearing on the merits, scheduled for 17 October 2018, did not take place and the case was removed from the register. It may be resumed at the Company’s request by 17 April 2019.
Financial assets at fair value through profit or loss (556) (39,140) - (39,696) (2,485)
This section provides additional information on the transfer of financial assets that are not derecognised (continuing involvement).
Item (€m) Balance at 31 December 2018 Balance at 31 December 2017
IFRS 9, the new financial reporting standard adopted with Regulation (EU) 2067/2016 that became mandatorily effective as of 1 January 2018, replaced most of IAS 39, improving disclosures on financial instruments and introducing an accounting model intended to reflect promptly expected losses on financial instruments.
in an ci al a ss et s he ld fo r t ra di ng
P ro pe rt y, pl an t a nd e qu ip m en t 0.
The content of the new financial reporting standard and the main considerations of the Poste Italiane Group are illustrated in note 3 – Changes in accounting policies- of the section – Poste Italiane’s financial statements – of this Annual Report.
Following on from the Board of Directors’ resolution of 25 January 2018 and the subsequent Extraordinary General Meeting of Poste Italiane SpA’s shareholders, on 27 September 2018, Poste Italiane injected €210 million of fresh capital into BancoPosta RFC. The aim of the transaction was to align BancoPosta RFC’s leverage ratio with the target set by the Risk Appetite Framework. At 31 December 2018 the leverage ratio was 3.2%.
140. The acronym SPPI - Solely Payments of Principal and Interest defines financial assets held solely to collect the relevant contractual cash flows, as represented by payments of principal and interest accrued on the principal outstanding at specified dates. The SPPI test is intended to check that the characteristics of the instruments are consistent with this objective.
BancoPosta RFC has no outstanding debt securities and has not issued any such securities since its establishment. Due to banks and customers consist of funding provided by customers and obtained from the interbank market. These financial liabilities are recognised at fair value on the date of receipt of the funds. Fair value is normally the amount received.
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Securities with a nominal value of €5,314 million are encumbered as follows: �� €4,742 million, carried at fair value for €5,179 million (Part B, Other Information, Table 3), and delivered to counterparties in connection with repurchase agreements concluded prior to 31 December 2018; �� €535 million, carried at fair value for €588 million, and delivered to the Bank of Italy to secure an intraday line of credit; �� €37 million carried at fair value for €42 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.
3.3 Financial assets measured at fair value through other comprehensive income: gross amount and total value adjustments
The sub-item “Reverse repurchase agreements” refers to transactions for a total nominal amount of €254 million entered into with Cassa di Compensazione e Garanzia SpA (hereinafter Central Counterparty)145. At 31 December 2018 the fair value of reverse repurchase agreements is €251 million and is shown in Level 2 of the fair value hierarchy.
Financial assets related to “Other finance companies” for an amortised cost of €4,539 million refer to fixed income bonds for a nominal amount of €4,500 million issued by Cassa depositi e prestiti and guaranteed by the Italian State (a nominal amount of €2,500 million at 31 December 2017 which, following the transition to IFRS 9, was reclassified from financial assets measured at fair value through other comprehensive income to financial assets measured at amortised cost).
Section 10 – Tax assets and liabilities – Assets item 100 and liabilities item 60 Current tax assets and liabilities form part of intersegment relations and are shown in “Other assets” (item 120 in Assets) and “Other liabilities” (item 80 in Liabilities), as they are settled with Poste Italiane SpA’s functions outside the ring-fence, within the scope of internal relations with Poste Italiane SpA, as the sole taxable entity.
BancoPosta RFC has uncommitted overnight lines of credit amounting to €1,059 million and overdraft arrangements of €160 million provided by Poste Italiane SpA, both undrawn at 31 December 2018. From 2014, the Bank of Italy has granted BancoPosta RFC access to intraday credit in order to fund intraday interbank transactions. Collateral for this credit facility is provided by securities with a nominal value of €535 million and the facility is unused at 31 December 2018.
Tax liabilities other than those included in item 60 1,236 1,194
“Tax liabilities other than those included in Item 60” primarily include: �� €1,198 million in stamp duty accrued to 31 December 2018 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; �� €2 million in tax withholdings on current account interest earned by customers.
Change due to recognition of revenue for period Balance at 31
As to risks related to services rendered on behalf of social security agencies, as explained in Part B, Assets, Section 4 table 4.2, in February 2018, following a joint review, Poste Italiane and INPS entered into an agreement for the settlement of the Company’s trade receivables and the amount that Poste owed to INPS in connection with certain claims concerning pension payment services rendered on the basis of agreements that were effective until 31 August 2009. At 31 December 2018, all the liabilities provided for in the agreement are reflected in provisions for operational risk.
For the year ended 31 December 2018 For the year ended 31 December 2017
A. Financial assets 1. Financial assets measured at amortised cost 4 (3) 1 - - 2. Financial assets measured at fair value through other comprehensive income 400 (22) 378 638 (14) 624
Starting 1 October 2018, the number of BancoPosta RFC’s staff fell by 1,205 full time equivalent employees (including 20 executives and 215 middle managers) following: (i) the reorganisation and centralisation of the back office and anti-money-laundering activities in the Chief Operating Office function of Poste Italiane outside the ring-fence and (ii) the transfer to PostePay SpA of employees attributable to the the card payments and payment services unit (table 10.2 of this Section).
11.2 Net provisions related to other commitments and other guarantees provided: analysis
bis Reduction in current taxation due to tax credit pursuant to Law 214/2011 (+) - 4. Increase/(decrease) in deferred tax assets (+/-) 1 25 5. Increase/(decrease) in deferred tax liabilities (+/-) - 19. 2 Reconciliation between theoretical tax charge at statutory rate and effective tax charge
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 - 130. Cash flow hedges: 210 (63)
The first five months of the year just ended were characterised by a slight decrease of Italian government bond yields, which resulted in an increase in unrealised capital gains. Starting from the end of May, the trend reversed and BTP yields began to rise, driving unrealised yields below the levels reached at the start of 2018. The BTP-Bund spread ended the year around 250 bps, reflecting an increase on the comparable figure of last year (159 bps. at 31 December 2017).
The investment profile is based on the constant monitoring of habits of current account holders and a use of a leading market operator’s statistical/econometric model of typical postal current account interest rates and maturities, based on a prudent projection of the future volume of deposits. The above-mentioned model is thus the general reference for the investments (the limits of which are determined by specific guidelines approved by the Board of Directors) in order to limit exposure to interest rate and liquidity risks.
Regarding monitoring concentration, limits are applied as required by prudential standards153.
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; 155. The “Market Value” method to measure the risk inherent in derivatives entails summing two components: the current replacement cost, represented by fair value, if positive, and an add-on equal to the product of the nominal value and the probability that the fair value, if positive, increases the value or, if negative, turns positive.
In keeping with IFRS 9, in determining ECL consideration was given also to forward looking elements based on broad-consensus scenarios.
The main types of instrument used by BancoPosta RFC to mitigate credit and counterparty risk are described below: Fixed income securities
Depending on the evaluations, the contracts entered into with customers may require a suitable guarantee. Guarantees are also requested if they are required by rules and regulations and/or implementing rules of specific services.
Net exposure 1. Financial assets measured at amortised cost 2. Financial assets measured at fair value through other comprehensive income 3. Financial assets designated at fair value 4. Other financial assets mandatorily measured at fair value 5. Financial assets held for sale - - - - - - - - * Amount reported for disclosure purposes
Financial assets measured at fair value through other comprehensive income of which: individual provisions of which: collective provisions
1 from AAA to AA- from Aaa to Aa3 from AAA to AA2 from A+ to A- from A1 to A3 from A+ to A3 from BBB+ to BBB- from Baa1 to Baa3 from BBB+ to BBB4 from BB+ to BB- from Ba1 to Ba3 from BB+ to BB5 from B+ to B- from B1 to B3 from B+ to B6 CCC+ and below Caa1 and below CCC+ and below
Large exposures a) Carrying amount (€m) 78,153 b) Weighted amount (€m) 1,464
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. There is a positive correlation between the significance of these effects and the duration of the financial instrument.
Financial assets measured at fair value through profit or loss 2017 effect
Foreign exchange risk relates to losses that could be incurred on foreign currency positions, regardless of portfolio, through fluctuations in foreign exchange rates. BancoPosta RFC is exposed to this risk principally through foreign currency bank accounts, foreign currency cash and its VISA shares.
A. Assets 1. Financial assets measured at fair value through other comprehensive income - hedging: 1.1 Debt securities and interest rates 13,164 - 568 - 353 X
(€m) Debt securities Equity instruments Loans 2.2 Impairments due to credit risk 1 x 2.
3 Reclassification to profit or loss of negative reserve for realised losses 2.4 Transfers to other equity (equity instruments) - - 3. 2 Reversal of impairments due to credit risk (2) - 3. 3 Reclassification to profit or loss of positive reserve for realised gains 3.4 Transfers to other equity (equity instruments) - - -
Provision for doubtful debts owing from external related parties (2) (5) - - - - -
With respect to the EMI’s own products, PostePay SpA is responsible for their conception, development and management, while BancoPosta acts as distributor through the Group’s physical network. Accordingly, starting from 1 October 2018, BancoPosta RFC’s commission income includes also revenue from the distribution of products/services associated with the business unit transferred.
Attestation of the separate financial statements for the year ended 31 December 2018 pursuant to art. 154-bis , paragraph 5 of Legislative Decree 58/1998 and art. 81-ter of CONSOB Regulation 11971 of 14 May 1999 1. The undersigned, Matteo Del Fante, as Chief Executive Officer, and Tiziano Ceccarani, as Manager responsible for Poste Italiane SpA’s financial reporting, having also taken account of the provisions of art.154-bis, paragraphs 3 and 4 of Legislative Decree 58 of 24 February 1998, attest to: - the adequacy with regard to the nature of the Company and - the effective application of the administrative and accounting procedures adopted in preparation of the separate financial statements during the period from 1 January 2018 to 31 December 2018.