Formation of net banking income

Net banking income rose 6,3% to 280,9 million Euro (264,2 million Euro in the previous year) thanks to the positive contribution from all core segments. The Trade Receivables segment made an outstanding contribution to consolidated net banking income, i.e. 55,4% of the total (49,1% at 31 December 2013), up 19,9% from the previous year.

The other segments made the following contributions: DRL (Distressed Retail Loans) segment 10,7% (9,2% at 31 December 2013), Tax Receivables 3,9% (3,5% at 31 December 2013), Governance and Services 30,0% (38,2% at 31 December 2013).

The +19,9% rise in the Trade Receivables segment (155,6 million Euro compared to 129,7 million Euro in the prior year) was mainly due to the higher number of financed companies (+13,1%, over 4.200 SMEs), with a turnover of 8,3 billion Euro compared to 5,7 billion Euro in 2013 (+45,8%), and to the performance of the Pharma business area, which collected 22,2 million Euro in interest on arrears (compared to 7,8 million Euro in 2013) as it managed to bring various situations to a successful conclusion. A result achieved amid an acceleration in payments from Italy's Public Administration, with the Bank collecting 649,6 million Euro (compared to 586,1 million in 2013, +10,8%) and posting a turnover of 848,5 million Euro,+51,1% from 561,5 million Euro in the previous year.

Starting from 2014, interest on arrears includes a portion (one million Euro in the period) of the interest accruing from the estimated collection date on receivables from the Health Service: the Bank, based on historical data and available information, estimates that at least 20% can be recovered.

At 31 December 2014 the Bank accrued, but did not recognise, interest on arrears – calculated from the invoice’s original maturity date – related to already collected receivables (totalling approximately 49,1 million Euro) as well as non-collected receivables (approximately 39,0 million Euro) due from the Public Administration.

Net banking income in the DRL segment, which deals with acquiring and managing non-performing loans, totalled 30,0 million Euro, compared with 24,4 million Euro in 2013 (+23,2%). To strike a balance between the operations of the business units and the interests of the various stakeholders, in late 2014 the Bank sold a portfolio of bills of exchange with a par value of 219 million Euro and a Book Value of 48,1 million Euro, adding 3,6 million Euro to net banking income. It should be noted that the trend in net banking income is not representative of the DRL segment's operating performance since, as far as bad loans in the DRL segment are concerned, it does not account for the economic impact of the changes in expected cash flows, which are recognised under impairment losses/reversals on receivables according to the Bank's current interpretation of IAS/IFRS. On the other hand, from the operating viewpoint, the DRL segment's operating performance shall be recognised accounting for this item, too.

The Tax Receivables segment posted 11,0 million Euro (9,3 million Euro in 2013, +18,5%). The two figures cannot be compared on a like-for-like basis: the result at 31 December 2013 included the double impact of the revision of estimated cash flows, higher than expected, and debt collection time, shorter than expected, with a 5,2 million Euro non-recurring positive contribution to net banking income. A non-recurring item, amounting to 1,2 million Euro, was recognised also during this year. It refers to the collection of a loan previously written off by the former Fast Finance. Net of these non-recurring items, net banking income more than doubled from the previous year, rising from 4,1 million Euro in 2013 to 9,8 million Euro in 2014.

The Governance and Services segment was down to 84,3 million Euro, compared to 100,8 million Euro at 31 December 2013. The performance reflects the lower margins in terms of interest income on the securities portfolio (103,9 million Euro compared to 126,3 million Euro in 2013) and lower retail funding costs.

In the fourth quarter, net banking income stood at 70,2 million Euro, up from 70,1 million Euro in the prior-year period (+0,2%). Trade Receivables contributed 39,5 million Euro (+1,3% vs. 39,0 million Euro); the DRL segment brought in 10,0 million Euro (+100,8% vs. 5,0 million Euro), also as a result of the mentioned sale of the portfolio of bills of exchange; Tax Receivables registered 2,9 million Euro (+68,7% vs. 1,7 million Euro); and the Governance and Services segment contributed 17,8 million Euro, compared to 24,4 million Euro in the prior-year period (-27,1%).

Net interest income went from 206,7 million Euro at 31 December 2013 to 218,5 million Euro at 31 December 2014 (+5,7%).

Net commission income totalled 58,4 million Euro and is essentially in line with the amount at 31 December 2013 (+2,1%).

Commission income, totalling 64,8 million Euro compared to 63,3 million Euro at 31 December 2013, 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 6,5 million Euro compared to 6,2 million Euro at 31 December 2013, came primarily from approved banks’ brokering, the work of other credit brokers, and commissions paid to correspondent banks and factors. At 31 December 2014, the item included also commissions paid on bonds guaranteed by the Italian Government.

Net profit from trading, amounting to 302 thousand Euro at 31 December 2014 – compared to 193 thousand Euro in 2013 – is the result of exchange differences arising as a physiological consequence from the mismatch between drawdowns by customers and the Treasury Department’s funding operations in foreign currency.

The 3,6 million Euro profit from the disposal of receivables refers to the result of the mentioned sale of a portfolio of bills of exchange.

The profit from the disposal of financial assets of 231 thousand Euro is due to the sale of a non-controlling interest in a bank for 519 thousand Euro, reclassifying the Valuation reserve made in previous years to profit or loss.

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.

Net impairment losses on receivables stood at 31,3 million Euro, compared to 44,5 million Euro at 31 December 2013 (-29,7%). The period saw a decrease in new impaired loans, thanks to constantly improving lending standards and increasingly efficient credit management and monitoring processes.

The decrease in net impairment losses, due also to the significant effect of the collection of loans that had been previously written off and the change in the valuation of receivables in light of improved collection estimates, resulted in a remarkable improvement in the ratio of credit risk cost to the Group's overall average loan balance over the last 12 months, down to 145 bp from 244 bp at 31 December 2013. The bad-loan ratio of the trade receivables segment at 31 December 2014 was down to 1,3% from 2,6% in the previous year. The gross bad-loan coverage ratio of the trade receivables segment was 86,4%, up from 78,4% at 31 December 2013.

In the fourth quarter, net impairment losses amounted to 1,6 million Euro (-83,6% compared to the fourth quarter of 2013): 3,0 million Euro related to the trade receivables segment, while the DRL segment posted 1,2 million Euro in net reversals.

In light of the above trends, the Group's net profit from financial activities totalled 249,6 million Euro, compared to 219,6 million Euro at 31 December 2013, up 13,7%.

The net profit from financial activities in the Trade Receivables segment soared 50,7% to 122,5 million Euro from 81,3 million Euro at 31 December 2013, due to rising net banking income and falling impairment losses on loans and receivables; the DRL segment posted 31,5 million Euro, compared to 27,8 million Euro at 31 December 2013 (+13,1%). As for the mentioned sale of part of the DRL portfolio, it concerned over 26.700 receivables from bills of exchange, with a Book Value of 48,1 million Euro and sold for 51,7 million Euro. Throughout 2014, this portfolio contributed 12,0 million Euro to the Bank's net interest income. This sale must be put into the perspective of a strategic vision concerning the Bank's presence, with a focus on creating value for all stakeholders – originators, households, and shareholders. Creating value depends on the length of time and the rate of return: striking the right balance in managing the various portfolios allows to maximise the achievement of shared goals.

Net profit from financial activities in the Tax Receivables area rose 16,3% to 11,3 million Euro from 9,7 million Euro at 31 December 2013, whereas the Governance and Services segment was down 16,3%, from 100,8 million Euro in 2013 to 84,3 million Euro.

The DRL segment’s performance was influenced by both the mentioned positive impact of the sale of part of the NPL portfolio and the new credit collection system, involving a higher use of settlement plans (expression of willingness) instead of bills of exchange. It should be noted that a total 122,2 million Euro were raised using the above-mentioned instruments in 2014, while in the prior year bills of exchange – the only available instalment option – brought in 79,0 million Euro. Collections made in 2014 amounted to 32,6 million, compared to 28,8 million in the prior year. In particular, settlement plans agreed with the debtors (generating an increase in debtors’ underwriting) impact the income statement about one quarter after the date they are signed, due to the conservative approach adopted by the Bank. They are recognised at amortised cost only once the customer has paid an amount at least equal to three monthly instalments.

In the fourth quarter, net profit from financial activities totalled 68,5 million Euro (+14,1% compared to 60,0 million Euro in the prior-year period). Trade receivables contributed 36,5 million Euro (+34,6% compared to 27,1 million Euro in the fourth quarter of 2013); the DRL segment added 11,2 million Euro (+64,1% compare to 6,8 million Euro in the prior-year period); tax receivables registered 3,0 million Euro (+78,2% compared to 1,7 million Euro in the fourth quarter of 2013); and the Governance and Services segment contributed 17,8 million Euro, compared to 24,4 million Euro at 31 December 2013 (-27,1%).

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.

At 31 December 2014, operating costs were up 37,1%, from 76,3 million Euro in 2013 to 104,7 million Euro. The increase was mostly due to the DRL segment and consulting expenses for new development projects. Specifically, a sizeable portion of the costs incurred by the DRL segment can be attributed to commissions paid to debt collection agents and companies, also in relation to the sale of the portfolio of bills of exchange and the collection of information on customers. Furthermore, stamp duty costs relating to retail funding increased from 0,15% in 2013 to 0,20% in 2014.

Personnel expenses, totalling 42,6 million Euro at 31 December 2014, rose 14,7% compared to 2013; this increase is essentially the result of the higher number of Group's employees, amounting to 618 at the end of the period (compared to 548 at 31 December 2013).

Other administrative expenses at 31 December 2014 reached 59,3 million Euro, compared to 39,0 million Euro in 2013 (+52,0%).

This increase was essentially attributable to the reasons already mentioned with reference to operating costs.

Please note that part of the expenses included in this item (in particular legal expenses and indirect taxes) is charged back to customers and the relevant revenue is recognised under other operating income. Net of this component, other administrative expenses totalled 55,8 million Euro, compared to 35,0 million Euro at 31 December 2013 (+59,2%).

Net impairment losses on intangible assets largely refer to IT devices and at 31 December 2014 stood at 1,8 million Euro, down +2,9% from 2013.

Net impairment losses on property, plant and equipment and investment property totalled 1,4 million Euro, compared to 1,2 million Euro at 31 December 2013 (+15,1%).

Other net operating income totalled 2,0 million Euro (-31,8% compared to 2013) 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 stood at 144,9 million Euro, compared to 143,3 million Euro at 31 December 2013, up 1,2%.

The corresponding figure for the fourth quarter was 33,5 million Euro (38,6 million Euro in the prior-year period).

Income tax expense amounted to 49,1 million Euro, down 16,0% from the prior year (58,4 million Euro). The Group's tax rate fell from 40,8% at 31 December 2013 to 33,8% at 31 December 2014, largely due to the negative one-off impact of the changes introduced by the 2014 Budget Law (Law 147 of 27/12/2013) on the previous year.

Profit for the year totalled 95,9 million Euro, compared to 84,4 million Euro in 2013 (+13,0%).

The corresponding figure for the fourth quarter was 21,7 million Euro, compared to 17,7 million Euro in the prior-year period (+22,3%), also as a result of the mentioned effects on income tax expense.

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