Income statements items

Formation of net banking income

Net banking income amounted to 408,0 million Euro, +43,6% compared to 284,1 million Euro in the prior year. The increase was attributable to the surge in the DRL segment (+69,3%)—which deals with acquiring and managing portfolios of non-performing exposures in the unsecured segment—and the Tax Receivables segment (+84,8%), the positive contribution from trade receivables, and some non-recurring transactions concerning the DRL and Governance and Services segments.

NET BANKING INCOME
(in thousands of Euro)
YEAR CHANGE
  2015 2014 ABSOLUTE %
Net interest income (1) 208.626 221.675 (13.049) (5,9)%
Total net commission income 58.783 58.352 431 0,7%
Dividends and similar income (78) 302 (380) (125,8)%
Net result from trading 14.948 3.581 11.367 317,4%
Profit from sale or buyback of receivables 125.679 231 125.448 54.306,5%
Net banking income (1) 407.958 284.141 123.817 43,6%

(1) The data for 2014 were restated as described in the Notes, Part A, Section 2.

The net banking income of the trade receivables segment, amounting to 158,7 million Euro (+2,0% compared to 155,6 million Euro in 2014), mainly refers to the Credi Impresa Futuro and Pharma business areas.

Credi Impresa Futuro's margin was essentially in line with 2014 (+1,1%).

As for the net banking income of the Pharma business area, it was up 2,6% from last year. This result continues reflecting the decrease in purchase commissions charged to the seller and classified as interest income, deriving from the more “aggressive” market approach adopted by the business area starting from 2014. Specifically, said approach involves acquiring portfolios of receivables at or slightly below par. The profitability of this new approach is based on the interest for late payments accrued on assets that present particularly low risks. Currently, the Bank conservatively recognises the interest for late payments below the nominal rate of interest on arrears. It is reviewing this accounting method in accordance with the reference legal framework to better represent the actual profitability of the Pharma business area.

The DRL segment substantially increased its net banking income to 56,3 million Euro, compared to 33,2 million Euro in the prior-year period (+69,3%). This outstanding performance was the result of the robust trend in bills of exchange and expressions of willingness—rising 100,1% overall (244,5 million Euro, compared to 122,2 million Euro at 31 December 2014)—the acceleration in the Legal Factory's judicial collection operations, and some non-recurring factors: first, the gains from the sale of three portfolios in the fourth quarter of 2015, partially offset by the negative impact of the update to the cash flow simulation model, for a net benefit of 6,5 million Euro; second, the net banking income reported at 31 December 2015 includes the economic impact of the change in the estimated cash flows referring to the positions classified as bad loans that had been previously recognised among impairment losses on receivables (3,2 million Euro at 31 December 2014). The reported percentage changes account for this reclassification also for the data referring to 2014.

Net banking income in the Tax Receivables segment amounted to 20,3 million Euro (+84,8% compared to 11,0 million Euro at 31 December 2014), thanks to the positive trend in cash flows, with actual debt collection times lower than expected, as well as a transaction that in the fourth quarter generated a 5,2 million Euro profit.

As for the Governance and Services segment, net banking income stood at 172,7 million Euro, compared to 84,3 million Euro at 31 December 2014 (+104,7%). This was attributable to the gain from the already mentioned rebalancing of the government bond portfolio, completed in April 2015 (124 million Euro), which was partially offset by the decline in the margins generated by the “new” portfolio. The segment improved its profitability thanks to lower retail funding costs—the result of a planned reduction in funding and interest rates. This trend is expected to accelerate slightly because of the recent introduction of new 3-, 4- and 5-year maturities.

The segment generated 10,1 billion Euro in turnover (+21,8% from December 2014), with 4.487 corporate customers (up 5% compared to the prior-year period) and 2,8 billion Euro in outstanding loans (+16,0% from December 2014). This significant increase was partly attributable to the agreement entered into with a leading market player at the end of 2015, which allowed the Bank to enter the business of multi-utilities selling receivables due from Italy's local administrations. However, this had no economic impact on the current year.

In the fourth quarter, net banking income stood at 76,8 million Euro, up from 73,1 million Euro in the prior-year period (+5,1%). Trade receivables contributed 39,7 million Euro (vs. 39,5 million Euro, +0,5%); the DRL segment contributed 22,4 million Euro (15,9 million Euro net of the previously mentioned non-recurring components), +73,6% from 12,9 million Euro; tax receivables contributed 8,8 million Euro, +207,5% from 2,9 million Euro in 2014; and the Governance and Services segment contributed 5,8 million Euro, compared to 17,8 million Euro in the same period last year (-67,2%).

Net interest income went from 221,7 million Euro at 31 December 2014 to 208,6 million Euro at 31 December 2015 (-5,9%).

Net commission income totalled 58,8 million Euro and was essentially in line with the amount at 31 December 2014 (+0,7%).

Commission income, totalling 63,2 million Euro (compared to 64,8 million Euro at 31 December 2014), came primarily from factoring commissions on the turnover generated by individual customers (with or without recourse, in a flat or monthly scheme) as well as from other fees usually charged to customers for services.

Commission expense, totalling 4,4 million Euro (compared to 6,5 million Euro at 31 December 2014), came primarily from approved banks’ brokering, the work of other credit brokers, and commissions paid to correspondent banks and factors. The amount at 31 December 2014 included the commissions paid on bonds guaranteed by the Italian Governments, which were settled in October 2014.

Net profit from trading, amounting to -78 thousand Euro at 31 December 2015 (compared to 302 thousand Euro in the prior-year period), is the result of exchange differences arising as a physiological consequence from the mismatch between the customers’ drawdowns and the Treasury Department’s funding operations in foreign currency.

Formation of net profit from financial activities

The table below shows the formation of net profit from financial activities for the period starting from the previously mentioned net banking income, compared with the previous year.

FORMATION OF NET PROFIT FROM FINANCIAL ACTIVITIES
(in thousands of Euro)
YEAR CHANGE
  2015 2014 ABSOLUTE %
 Net banking income (1) 407.958 284.141 123.817 43,6%
Net impairment losses on: (34.250) (34.510) 260 (0,8)%
Receivables (1) (25.273) (34.510) 9.237 (26,8)%
Available for sale financial assets (8.977) - (8.977) n.a.
Net profit from financial activities 373.708 249.631 124.077 49,7%

(1) The data for 2014 were restated as described in the Notes, Part A, Section 2.

Net impairment losses totalled 34,3 million Euro. They referred for 25,3 million Euro to loans to customers (compared to 34,5 million Euro at 31 December 2014, -26,8%), and for 9,0 million Euro to impairment losses on available for sale financial assets. Net impairment losses on receivables referred for 21,2 million Euro to the Trade Receivables segment (33,0 million Euro in 2014) and 3,6 million to the DRL segment (1,8 million Euro in 2014, net of the mentioned reclassification to net interest income of the economic impact of the change in cash flows). As for impairment losses on trade receivables, the consistently downward trend is attributable to the monitoring of how the counterparty's risk profile evolves. All along, the Bank has maintained a rigorous and consistent policy for assessing borrowers' creditworthiness. The decrease in impairment losses resulted in a significant improvement in the ratio of credit risk cost concerning trade receivables to the relevant average loan balance over the last 12 months, which was down to 90 bps from 173 bps at 31 December 2014. Concerning impairment losses on receivables in the DRL segment, the increase was attributable in part to increasingly rigorous procedural standards, and in part to the write-off of positions as part of ordinary operations.

The bad-loan ratio in the trade receivables segment stood at 1,1%, down from 1,3% at 31 December 2014.

The bad-loan coverage ratio of the trade receivables segment was 87,9%, up from 86,4% at 31 December 2014.

Net impairment losses on available for sale financial assets, totalling 9,0 million Euro at 31 December 2015 (0 in the prior year), referred to impairment losses recognised on unlisted equity instruments that were found to be impaired.

The Group's net profit from financial activities totalled 373,7 million Euro, compared to 249,6 million Euro at 31 December 2014 (+49,7%).

The net profit from financial activities in the Trade Receivables segment rose 12,1% to 137,4 million Euro, compared to 122,6 million Euro in 2014; the DRL segment posted 52,7 million Euro, compared to 31,5 million in 2014 (+67,4%); the Tax Receivables area generated 19,9 million Euro, compared to 11,3 million in 2014, up 76,8%; Finally, the net profit from financial activities of the Governance and Services sector stood at 163,7 million Euro, up 94,1% from 2014.

In the fourth quarter, net profit from financial activities was in line with the prior-year period at 68,7 million Euro (68,5 million Euro in 2014). Trade receivables contributed 33,2 million Euro (-9,0%, 36,5 million Euro in the fourth quarter of 2014). The decline was attributable to rising impairment losses on receivables, affected by some significant positions measured on an individual basis. The DRL sector contributed 21,8 million Euro (+94,8%, 11,2 million Euro in the prior-year period); tax receivables contributed 8,5 million Euro (+183,1%, 3,0 million Euro in the fourth quarter of 2014); the Governance and Services sector contributed 5,1 million Euro, compared to 17,8 million Euro in 2014 (-71,3%).

Formation of profit for the year

The table below shows the formation of the Group’s profit for the year starting from the previously mentioned net profit from financial activities, compared with the previous year.

FORMATION OF PROFIT FOR THE YEAR
(in thousands of Euro)
YEAR CHANGE
  2015 2014 ABSOLUTE %
Net profit from financial activities 373.708 249.631 124.077 49,7%
Operating costs (128.119) (104.688) (23.431) 22,4%
Pre-tax profit from continuing operations 245.589 144.943 100.646 69,4%
Income tax expense (83.623) (49.067) (34.556) 70,4%
Profit for the year 161.966 95.876 66.090 68,9%

At 31 December 2015, operating costs were up 22,4% overall, from 104,7 million Euro in 2014 to 128,1 million Euro, also because of the non-recurring components reported below.

The cost/income ratio stood at 31,4% at 31 December 2015, compared to 36,8% at 31 December 2014. The figure at 31 December 2015 was influenced by some non-recurring items, namely the gains on the sale of securities, the gains on the sale of receivables in the DRL segment as well as the costs associated with the portfolios disposed of, the negative impact of the update to the cash flow simulation model, and the costs for the contribution to the Italian Bank Resolution Fund. Net of such items, the cost/income ratio was 41,7%.

OPERATING COSTS
(in thousands of Euro)
YEAR CHANGE
  2015 2014 ABSOLUTE %
Personnel expenses 48.342 42.553 5.789 13,6%
Other administrative expenses 78.828 59.319 19.509 32,9%
Allocation to provisions for risks and charges 229 1.613 (1.384) (85,8)%
Net impairment losses on tangible and intangible assets 3.746 3.239 507 15,7%
Other operating income( expenses) (3.026) (2.036) (990) 48,6%
Total operating costs 128.119 104.688 23.431 22,4%

At 48,3 million Euro, personnel expenses rose 13,6% (42,6 million Euro in 2014) due to new hiring: 177 new staff were added in 2015, up 41,6% from 2014. The increase is consistent with the goal to strengthen some areas and services supporting the business—especially in the DRL sector–and the scenario in which the Group operates. At 31 December 2015, the Group's employees numbered 724.

Other administrative expenses totalled 78,8 million Euro, up 32,9% from 59,3 million Euro at 31 December 2014, largely because of higher business volumes in the DRL segment. The relevant costs for collecting debts and gathering information on clients (15,4 and 5,3 million Euro, respectively) are included in this item of the income statement. In addition, the DRL segment's expenses comprised 3,7 million Euro in debt collection costs referring to bills of exchange involved in one of the sales completed at the end of December. These had been previously recognised as accrued income. There was also an increase in the expenses related to the new organisation of business processes and the internal control system. A significant portion of the costs (10,6 million Euro) referred to the contribution to the Italian Bank Resolution Fund (Directive 59/201/EU Single Resolution Fund) and the participation in the new funding mechanism for Italy's Interbank Deposit Protection Fund (FITD, Fondo Interbancario di Tutela dei Depositi) introduced by the Deposit Guarantee Schemes Directive (DGSD) 2014/49/EU. Said costs included the 6,5 million Euro extraordinary contribution to the Italian banking system's rescue of Banca Marche, Banca Popolare dell’Etruria e del Lazio, CariChieti, and Cassa di Risparmio di Ferrara; 2,2 million Euro in recurring contributions to the Resolution Fund; and 2 million Euro as annual contribution to the FITD for the year 2015.

OTHER ADMINISTRATIVE EXPENSES
(in thousands of Euro)
YEAR CHANGE
  2015 2014 ABSOLUTE %
Expenses for professional services 31.044 26.155 4.889 18,7%
Legal and consulting services 13.948 9.349 4.599 49,2%
Auditing 226 256 (30) (11,7)%
Outsourced services 16.870 16.550 320 1,9%
Direct and indirect taxes 8.748 10.924 (2.176) (19,9)%
Expenses for purchasing non-professional goods and services 39.036 22.240 16.796 75,5%
Customer information 6.793 4.340 2.453 56,5%
Property expenses 4.585 3.525 1.060 30,1%
Postage of documents 3.632 2.183 1.449 66,4%
Software assistance and hire 3.267 2.979 288 9,7%
Car fleet management and maintenance 2.264 2.293 (29) (1,3)%
Advertising and inserts 2.150 1.967 183 9,3%
Telephone and data transmission expenses 1.441 1.394 47 3,4%
Business trips and transfers 1.120 889 231 26,0%
Other sundry expenses 13.784 2.670 11.114 416,3%
Total administrative expenses 78.828 59.319 19.509 32,9%
Expense recovery (2.998) (3.563) 565 (15,9)%
Total net other administrative expenses 75.830 55.756 20.074 36,0%

Net allocations to provisions for risks and charges amounted to 229 thousand Euro (compared to 1,6 million Euro at 31 December 2014). The amount at 31 December 2015 was the result of 197 thousand Euro in provisions related to the ongoing tax dispute, 733 thousand Euro in provisions concerning Trade Receivables, and 701 thousand Euro in reversals of provisions.

Net impairment losses on intangible assets largely refer to IT devices and at 31 December 2014 stood at 2,1 million Euro, +13,7% from 2014.

Net impairment losses on property, plant and equipment and investment property totalled 1,7 million Euro, compared to 1,4 million Euro at 31 December 2014 (+18,2%).

Other net operating income totalled 3,0 million Euro (+48,6% compared to 31 December 2014) and refers mainly to revenue from the recovery of expenses charged to third parties. The relevant cost item is included in other administrative expenses, namely under legal expenses and indirect taxes.

Pre-tax profit for the year totalled 245,6 million Euro, compared to 144,9 million Euro at 31 December 2014.

Income tax expense amounted to 83,6 million Euro, compared to 49,1 million Euro at 31 December 2014. The Group's tax rate edged up to 34,0% at 31 December 2015 from 33,9% at 31 December 2014. The 2015 tax rate was influenced by the new option to deduct all costs for employees hired on open-ended contracts from the IRAP tax base. This was partially offset by the inability to deduct impairment losses on AFS securities from the IRES tax base.

Profit for the period totalled 162,0 million Euro, compared to 95,9 million Euro in 2014 (up 68,9%).

The corresponding figure for the fourth quarter was 13,2 million Euro (21,7 million Euro in the prior-year period).

In the absence of profit attributable to non-controlling interests, these results refer entirely to the Group.

(in thousands of Euro) YEAR 2015 YEAR 2014
  EQUITY OF WHICH PROFIT FOR THE YEAR EQUITY OF WHICH PROFIT FOR THE YEAR
Parent company balance 567.509 160.743 433.160 94.396
Difference compared to the carrying amounts of the companies consolidated line by line 5.958 1.223 4.690 1.480
- IFIS Finance Sp. Zo.o. 5.958 1.223 4.690 1.480
Group consolidated balance 573.467 161.966 437.850 95.876