BANCA IFIS S.P.A. PRESS RELEASE - PRELIMINARY 2015 FINANCIAL RESULTS
Banca IFIS in 2015: net profit hits 162 million euro (+69%), excellent credit quality
Market cap more than doubled, capital adequacy ratios are over 15%
The CEO Giovanni Bossi: "Financial robustness, good liquidity and strong growth in all core sectors: this is our formula for economic excellence."
Table of Contents
Financial Year 2015
1 January-31 December
- Net banking income: 408,0 million Euro (+43,6%);
- Net profit from financial activities: 373,7 million Euro (+49,7%);
- Profit for the period: 162,0 million Euro (+68,9%);
- Bad loans ratio in the Trade Receivables segment: 1,1%;
- Cost of credit quality for trade receivables: 90 bps;
- Common Equity Tier 1 (CET1): 14,68% (13,89% at 31 December 2014);
- Total Own Funds Capital Ratio: 15,37% (14,21% at 31 December 2014);
- Hiring further up: 177 new resources added (+41,6%).
4th quarter 2015
1 October - 31 December
- Net banking income: 76,8 million Euro (+5,1%);
- Net profit from financial activities: 68,7 million Euro (+0,3%);
- Profit for the period: 13,2 million Euro (-39,3%).
Comment on operations
Mestre (Venice), 19 January 2016 - The Board of Directors of Banca IFIS met today under the chairmanship of Sebastien von Fürstenberg and approved the document concerning the preliminary 2015 results.
"2015 was a very good, in some ways extraordinary, year," stated Giovanni Bossi, CEO of Banca IFIS. "Profits reached a level of excellence, growth was strong and credit quality continues to be one of the strengths of Banca IFIS, together with financial robustness and good liquidity". Bossi stressed: "These results do not come about by chance. They are the result of a vision that started many years ago, and which has seen the bank develop its activity in a way that is drastically different from the habits of the banking system. This action will expand still further to seek internal growth, and not only, with respect and safeguard towards all of our stakeholders."
Operating performance
Consolidated Income Statement analysis
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.
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%). 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 multi-utilities business but had no economic impact on the current year.
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 101,1% (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 expected 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, concluded 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.
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 to 12,9 million Euro; tax receivables contributed 8,8 million Euro, +207,5% from 2,9 million Euro; 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 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.
The remainder of "Net impairment losses" referred to the impairment of three unlisted equity instruments, for a total of 9,0 million Euro.
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 stood 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%).
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. 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 approximately 4,0 million Euro in costs related to the portfolios disposed of. The relevant gain is included in net banking 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.
The cost/income ratio stood at 31,4% at 31 December 2015 (41,7% net of non-recurring items ), compared to 36,8% at 31 December 2014.
Pre-tax profit for the 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.
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).
Consolidated Statement of Financial Position analysis
The Group's assets, amounting to 6.957,7 million Euro at 31 December 2015 (8.309,3 million Euro at 31 December 2014), mainly consist of loans to customers and available for sale financial assets.
Total loans to customers totalled 3.437,1 million Euro, up 22,1% from 2.814,3 million Euro at the end of 2014. Specifically, trade receivables rose 393,1 million Euro to 2.848,1 at 31 December 2015 (+16,0%). Receivables due from Italy's Public Administration at 31 December 2015 accounted for 32,1% of total receivables in the segment, compared to 27,1% at 31 December 2014, while receivables due from the private sector accounted for 67,9% (compared to 72,9% at 31 December 2014). DRL receivables rose to 354,4 million Euro (+161,7%) from 135,4 million Euro at the end 2014, reaching a nominal 8,2 billion Euro. This increase was made possible by the several acquisitions of portfolios completed during the year (nominal 4,1 billion Euro). Tax receivables totalled 130,7 million Euro, compared to 119,5 million Euro in 2014 (+9,4 %). As for the Governance and Services segment, loans to customers amounted to 104,0 million Euro (-0,4%) and largely referred to margin lending with Cassa Compensazione e Garanzia (CCG) related to repurchase agreements in government bonds on the MTS platform.
With regard to activities in support of SMEs, the loans duration was confirmed as short-term, in line with the Group's strategy to support working capital. On average, it takes 3 months to collect receivables due from private sectors entities and nearly 4 months for those due from the Public Administration.
Total net non-performing exposures, also due to the recent acquisitions in the DRL segment, amounted to 483,0 million Euro at 31 December 2015, compared to 248,1 million Euro at the end of 2014 (+94,7%).
Net non-performing exposures in the trade receivables segment, which actually determine the Bank's overall credit quality, rose 14,3% from 112,6 million Euro at the end of 2014 to 128,7 million Euro. Non-performing exposures amounted to 22,4% (25,7% in December 2014) as a proportion of the Group's equity.
Here below is the breakdown of the Group's net non-performing exposures in the trade receivables segment alone:
- At the end of the year, net bad loans amounted to 30,9 million Euro, compared to 33,0 million Euro in 2014 (-6,4%); the segment's net bad-loan ratio edged down to 1,1% from 1,3% at 31 December 2014. Net bad loans amounted to 5,4% as a proportion of equity, compared to 7,5% at 31 December 2014.
- The balance of net unlikely to pay at the end of 2015 was 39,6 million Euro, -9, 7% from 43,8 at the end of 2014. The decline was largely attributable to the improved coverage ratio, rising from 24,5% at 31 December 2014 to 32,1% at 31 December 2015, thanks to the Bank's rigorous assessment policy.
- At 31 December 2015, net non-performing past due loans totalled 58,2 million Euro, compared to 35,8 million Euro in December 2014 (+62,6%), mainly as a result of the inclusion in this category of some individually significant positions. Changes in non-performing past due exposures are a normal part of the Bank's business model. Net non-performing past due exposures referred for 1,2 million Euro (3,9 million Euro at the end of 2014) to receivables due from the Public Administration purchased outright as part of financing operations.
Available for sale (AFS) financial assets include debt and equity securities and stood at 3.221,5 million Euro at 31 December 2015, compared to 243,3 million Euro at the end of 2014. This was largely attributable to the reclassification of the government bond portfolio from HTM to AFS following the rebalancing completed in April 2015. The relevant valuation reserve, net of taxes, was positive to the tune of 11,7 million Euro at 31 December 2015 (6,0 million Euro at 31 December 2014).
At 31 December 2015, receivables due from banks totalled 95,4 million Euro, compared to 274,9 million Euro at 31 December 2014 (-65,3%). This item includes some securities not listed on an active market with banking counterparties, totalling 5,0 million Euro (-54,6% compared to 31 December 2014), and treasury loans with other lenders, amounting to 90,3 million Euro (-65,8% compared to 31 December 2014), largely related to maintaining excess liquidity in the system.
Funding, net of the rendimax savings account and the contomax current account, shall be analysed in a comprehensive manner based on market trends; it consists of wholesale funding through repurchase agreements (largely classified under payables due to customers, as they are carried out with counterparties formally other than banks), refinancing transactions on the Eurosystem, and short-term treasury transactions with other lenders. Total funding, which amounted to 6.150,5 million Euro at 31 December 2015, down 20,6% from 31 December 2014, is represented for 89,2% by Payables due to customers (compared to 70,8% at 31 December 2014) and for 10,8% by Payables due to banks (compared to 29,2% at 31 December 2014).
Payables due to customers at 31 December 2015 totalled 5.487,5 million Euro (in line with the prior year). The item included the repurchase agreements with underlying government bonds and Cassa di Compensazione e Garanzia as counterparty, amounting to 2.279,0 million Euro (compared to 2.082,9 million Euro at the end of 2014). Retail funding totalled 3.113,3 million Euro at 31 December 2015, including 3.048,4 from rendimax and 64,9 million Euro from contomax, compared to 3.314,2 million Euro at 31 December 2014 (-6,1%), also as a result of the newly introduced 3-, 4- and 5-year maturities for rendimax. The Bank still bears proportional stamp duty costs on rendimax and contomax, which amount to 0,20%.
Payables due to banks, amounting to 663,0 million Euro (2.259,0 million Euro at 31 December 2014, -70,7%), mainly consisted of funding from repurchase agreements with underlying government bonds (384,2 million Euro) and refinancing operations on the Eurosystem for 119,8 million Euro (-94,6% from 2.226,9 million Euro at 31 December 2014). The latter amount referred entirely to the TLTRO loan received in December 2014 at a fixed 0,15% rate and maturing on 26 September 2018. The remainder of payables due to banks consists of interbank deposits. The significant decrease in Payables due to banks compared to the end of the previous year was due to the fact that the Bank carried out less refinancing operations on the Eurosystem, rather using the MTS platform and dealing with Cassa di Compensazione e Garanzia as counterparty. The Bank turns to the ECB or the MTS platform exclusively based on which is more convenient in light of interest rate trends.
At 31 December 2015, consolidated Equity was 573,5 million Euro, compared to 437,8 million Euro at 31 December 2014 (+31,0%). The change was mainly attributable to the 162,0 million Euro profit for the year 2015; the 5,7 million Euro increase in the AFS valuation reserve; and 35,0 million Euro in dividends distributed for the year 2014.
As for capital adequacy ratios, the Total Own Funds Capital Ratio was 15,37% (14,21% at 31 December 2014) and the Common Equity Tier 1 (CET1) 14,68% (13,89% at 31 December 2014). These indicators take into account the hypothesis of distribution of a dividend equal to 0.76 Euro per share. On February 2, 2016, the Board of Directors will officialize the dividend's proposal to the Shareholders' Meeting.
Supervisory authorities have informed the Bank of its new minimum capital requirements, which are the following: Common Equity Tier 1 (CET1) 7%; Tier 1 Ratio 8,5%; Total Own Funds Capital Ratio 10,5%. In light of the Bank's capital adequacy ratios at 31 December 2015, its position is especially robust.
Outlook
The outlook for Europe's economy remains uncertain and characterised by especially modest increases in production, although these have somewhat risen compared to 2015. Italy should grow between 1% and 2% in 2016: it would be a positive signal amid the uncertainty. The robust GDP growth rates registered in other historical periods now appear to be a thing of the past, in Europe as well as maybe all industrialised countries. This is due to several factors, of which only some are economic. This situation has led some experts to argue that advanced economies may be facing a "secular stagnation", with extremely long periods of weak growth, low or no returns on risk-free investments, and low or zero inflation.
Against this backdrop, there are several factors of global instability and risk: the concerns over a slowdown in China, which would negatively affect other countries; the challenges facing Emerging Markets, which are grappling with extremely low oil and commodity prices as well as unfavourable exchange rate movements; the instability in the Middle East, which does not want to lose its share of oil output. This is pushing prices down even further, and thus government budgets in oil-producing countries into deficit, forcing them to sell assets to bolster their balance sheets. Seen from a different perspective, the slump in commodity prices, and especially oil, represents an extraordinary opportunity for a country such as Italy, which is essentially a processor of raw materials.
In the reference European markets, the cost of money is still at record lows due to the ECB's monetary policy and extremely limited price increases. The low or zero inflation rate is the result of the trend in commodity prices and, more generally, the relatively modest use of the factors of production. The market expects monetary policy measures - not welcomed by everyone in Europe - to bring inflation near the central bank's target rates, even though price increases of just below 2% appear a distant prospect. A positive collateral effect of the ECB's monetary policy is the weak euro, which represents a boon for exporters in other currencies, and especially US dollars; an indirect barrier protecting domestic producers from imports denominated in foreign currencies; and a way to "import inflation" or mitigate the deflationary effect of the commodity slump.
It does not appear possible to steadily and sustainably grow our way out of the crisis without restarting the flow of credit to the real economy. Against this backdrop, Banca IFIS's ability to provide support to small- and medium-sized businesses - also thanks to strengthening capital adequacy ratios and increasing liquidity - continues representing a competitive advantage, enabling it to acquire new customers and loans. The market is still characterised by the limited and selective, albeit rising, supply of credit, and the demand for appropriate solutions - especially for companies that are small in size and have less measurable or low credit standing.
In 2015, the Bank overhauled its distribution network, increasing its headcount and reimagining it to better meet the needs of tomorrow. This is expected to generate results in terms of additional growth in the number of companies served, loans, and overall profitability in the second half of 2016.
The market scenarios for lending to businesses are influenced by the abundant liquidity, which is exerting downward pressure on interest rates for new loans. It is hard for banks to pass on this decrease to funding rates, because of the yield curve, which remains near zero, and the European Central Bank's monetary policy. Therefore, margins are declining across the board, and especially on loans to customers with a higher credit standing. Thus, the Bank will increasingly focus on smaller entities: given the need to pay close attention during the lending process to mitigate risks, using factoring, the profitability of this segment appears less compromised, if at all.
Banca IFIS launched other initiatives to promote customer loyalty on the one hand, and on the other, to boost volumes and profits in absolute terms. An example are the operations with multi-utilities selling receivables due from Italy's local administrations. These initiatives will start contributing to results during 2016The Bank will continue expanding its presence in the international markets where it operates; in the pharmaceutical industry and pharmacy segments; and in the sector of receivables due from Italy's Public Administration.
Banca IFIS looks forward to continued strong performance by all business areas in 2016.
The Bank can play an increasingly important role in the Distressed Retail Loans segment, providing solutions in demand at lenders and financial institutions across Italy to manage non-performing loans. We will continue monitoring and bidding for the portfolios of receivables due from households that originators are expected to place on the market. Banca IFIS is making progress in managing NPLs in terms of organisational and operating solutions, which allows to expect increasing collection rates. As in 2015, considering the abundant liquidity of the market; the Bank's ability to turn the quality of the portfolios into a strength in dealings with debtors; and the opportunity to scale up operating volumes, benefiting the bank and the debtors involved in its initiatives, Banca IFIS will consider trading in the secondary market. Specifically, it may sell already processed portfolios with the goal of freeing up resources, using them to further expand the business, or buy portfolios that other players already started processing.
As for tax receivables, the Bank is consolidating its leadership in this segment, given the good medium-term profitability of these investments.
The Governance and Services sector registered a slight increase in funding costs, attributable to both the bank's policy to extend maturities as well as the planned and achieved increase in funding, following the recent introduction of 3-, 4- and 5-year maturities.
As for government bonds in the portfolio, based on the evidence and the current monetary policy, the Bank believes it will continue refinancing said portfolio at negative interest rates, at least for the next few quarters. Against this backdrop, and considering the current dynamics in terms of potential margins from investments in government bonds, the Bank deems its position as appropriate. As in the final quarter of 2015, Banca IFIS will look at potential opportunities in the event market conditions turn favourable.
Finally, the Bank will continue considering further opportunities in the segments it operates in as well as new related markets or those potentially interesting in light of its growth strategies.
In light of the above, the Group can reasonably expect to remain profitable also in 2016.
Significant subsequent events
There were no other significant events after the reporting date and up to the approval of these preliminary results at 31 December 2015 by the Board of Directors on 19 January 2016.
Declaration of the Corporate Accounting Reporting Officer
Pursuant to Article 154 bis, Paragraph 2 of the Consolidated Law on Finance, the Corporate Accounting Reporting Officer, Emanuel Nalli, declares that the accounting information contained in this press release corresponds to the company's accounting records, books and entries.
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The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Banca IFIS S.p.A. via Globenewswire
