ANNUAL REPORT 2007
TRANSLATION FROM THE ITALIAN ORIGINAL WHICH REMAINS THE DEFINITIVE VERSIONShare Capital: 31,213,652 Euro fully paid in Bank License No.: 3205
Tax Identification No.: 02505630109 VAT No.: 02992620274
Enrolment No. in the Board of Banks: 5508
REGISTERED OFFICE AND HEADQUARTERS
Via Terraglio, 63 – 30174 Mestre, Venice, Italy Internet Address: www.bancaifis.it
BRANCHES
Via Astagno, 3 – 60122, Ancona Via C. Rosalba, 47/z – 70124, Bari
Viale A. Costa, 62 – 40026, Imola, Bologna Via Malta 7c – Torre Kennedy, 25124, Brescia Viale Bonaria, 62 – 09125, Cagliari (Ca) Via Europa, 163 – 50126, Florence
Via Volta, 16 – 20093, Cologno Monzese, Milan Via G. Porzio, 4 – Centro Dir. Isola E7 – 80143, Naples
Via Monti Iblei 55 – 90146, Palermo Via De Paoli, 28/D – 33170, Pordenone Viale B. Croce, 93 – 00144, Rome Piazza C.L.N. 255– 10121, Turin Via Gatta 11 – 30174, Mestre, Venice REPRESENTATIVE OFFICES
Boulevard Burebista, 3 – Bucharest (Romania) Bajza U., 50 – Budapest (Hungary)
BOARD OF DIRECTORS
President Sebastien Egon Fürstenberg
Vice President Alessandro Csillaghy
C.E.O. Giovanni Bossi (1)
Directors Leopoldo Conti
Roberto Cravero
Andrea Martin
Riccardo Preve
Marina Salamon
General Manager Alberto Staccione
BOARD OF STATUTORY AUDITORS
President Mauro Rovida
Standing Auditors Erasmo Santesso
Dario Stevanato
Alternate Auditors Luca Giacometti
Francesca Rapetti
AUDITING FIRM KPMG S.p.A
Member of Factors Chain International
CONTENTS
Banca IFIS Group’s consolidated annual report for the year
ending 31 December 2007
Board of Directors’ report on management of the group 6
Consolidated financial statements 43
Statement of changes in Equity 46
Consolidated financial accounts 48
Notes to the consolidated financial statements 49
Declaration by the ‘Manager responsible for preparing corporate financial documents’ 170 Board of Statutory Auditors’ report on the consolidated financial statements 171 External auditing company’s report on the consolidated financial statements 174
Banca IFIS’s Statutory annual report for the year
ending 31 December 2007
Board of Directors’ report on management 176
Financial statements 196
Statement of changes in Equity 199
Financial accounts 201
Notes to the financial statements 202
Attachments to the financial statements: 326
1. Financial statements for the controlled company, Immobiliare Marocco S.p.A. 327 2. Financial statements for the controlled company, IFIS Finance Sp.Z.o.o. 331
3. Statement of important shareholdings 336
4. Statement of compensation for accounts auditing and services other than
auditing for the financial year 338
Declaration by the ‘Manager responsible for preparing corporate financial documents’ 340
THE BANCA IFIS GROUP
CONSOLIDATED ANNUAL REPORT
2007
BOARD OF DIRECTORS’ REPORT ON MANAGEMENT
OF THE GROUP
RESULTS AND OPERATING TREND
The Banca IFIS Group closed its 25th business year with strong growth both in profit levels and in dimensional and structural expansion. Profit, increasing for the 9th year running, has exceeded 19 million Euro. Business volumes have increased to over 3 billion Euro, with total loan commitments reaching 1,235 million Euro.
These results have been achieved as a consequence of lending financial and management support to enterprises and clients. The bank does not carry out activities that involve market risks or speculative derivative operations.
Such impressive results, together with forecasts for further rapid growth, have allowed, or rather required, reinforcement in relationships with customers and in management, which has led to the bank employing well over 200 direct resources.
The Banca IFIS Group, aware of the difficulties existing not only in the credit sector but also in Italian and European economic development in general, has taken on an ever-increasing role in lending support to enterprises, aiming to continue increasing its market share whilst decisively expanding its operational perimeters and further increasing its profitability levels.
Financing Small and Medium Enterprises through Factoring
The Banca IFIS Group (from hereon in Banca IFIS) provides financing and management assistance to Italian and foreign small and medium enterprises through factoring. Together with advanced instruments of credit assessment and monitoring, factoring represents an excellent response to SMEs’ need for financial services, above all in the light of the new rules for capital consumption for banks (the Basel 2 Accord).
In carrying out its activity, Banca IFIS purchases the accounts receivable of its client’s enterprise and manages the collection of these receivables; in addition, it gives financing against the receivables purchased for amounts that, in some cases, reach the entire counter value of the receivables assigned by the client. Banca IFIS can also take on the risk of bad debts on these receivables caused by the debtor’s failure to pay owing to insolvency.
Financing for the bank’s activity is guaranteed, aside from its own means, by short-medium term funding instruments which are usually at sight, in prudent correlation with the average duration of loan commitments.
Small and medium enterprises find Banca IFIS’s factoring to be a valid instrument for managing and financing working capital, especially where their economic or financial circumstances would normally make it difficult to obtain a traditional bank loan at the desired conditions. However, Banca IFIS’s factoring service has developed to the favour of all Italian and international enterprises, from the smallest of companies to the medium and large category.
The accounts receivable assigned by the client are the result of the client’s enterprise’s activity; they are usually of high quality and are short to very short term (30-150 days). Banca IFIS’s purchase of receivables is usually continuous and debtors are regularly notified that they must settle their commitment exclusively with the bank.
The typical client is an enterprise with a turnover not normally exceeding 100 million Euro (but Banca IFIS does have clients with a turnover of between 1 million and 1 billion Euro) who, through their industrial or commercial activity, generate accounts receivable with another enterprise. Both the enterprises (the client’s and the debtor’s) are subject to in-depth and continuous risk assessment.
In general, Banca IFIS’s financing goes beyond the typical limits regarding the client’s credit standing. This is due to the fact that such financing is also based on the client’s debtors’ credit ratings.
Banca IFIS’s business has developed in a segment heavily influenced by economic trends. Indeed, economic trends are frequently amplified for SMEs if compared to the target markets of general banks. A further difficulty is that the accentuated dynamics characterising the activities of Italian enterprises leads to an increasing need for information that allows the bank to make a knowledgeable decision when assessing whether to assume a risk or otherwise.
Banca IFIS continues to distance itself from activities such as client savings management, operations in favour of subjects other than enterprises and those connected and the assumption of risks that are not the short-term risks that usually characterise traditional factoring operations. The assumption of risks in foreign currency, securities, derivative instruments and, more
The results that Banca IFIS has achieved, therefore, are exclusively thanks to the factoring activity, i.e. the funding of working capital and the management of enterprises’ accounts receivable and activities connected to it.
* * *
Over 2007, Banca IFIS continued the strategy of increasing its number of clients and further developing relationships with existing clients, through focusing on products with a higher service component and more added value, hence improving client loyalty.
The 2007 accounting year was an extremely difficult one for the banking sector in terms of market scenarios. The turbulence originally recorded in August continued to have effect throughout the whole of the Autumn season, overwhelming multinational credit institutions and creating uncertain forecasts for the medium-term future of liquidity markets.
The last few months of 2007 also saw the prospect of a global deceleration in economic growth set in, making it possible to hypothesise the start of a recession of unknown duration and consequential effects on the market.
Banca IFIS has continued, despite this difficult context, to provide the financial support and services to enterprises that characterize its business model, improving its market penetration, both on domestic and international fronts.
These market conditions have made the granting of credit to enterprises ever more selective and more onerous for the borrowers who resort to financing from banks in terms of spread. Such a phenomenon, far from ending, will presumably keep on characterizing the credit market, especially for SMEs, throughout the entire 2008 year.
Banca IFIS, aware of its position and the active role that it is able to exercise to its clients’ benefit, did not consider it necessary to modify its strategy as a result of such turbulence. Lending financial support to SMEs remains Banca IFIS’s core business and it is working towards the rationalisation of returns from doing business with clients in accordance with the new market expectations and prospective changes as far as concerns counterparty risks.
Such new market conditions also allow more room for operators attentive to asset-based lending and historically specialised in factoring activities that maximise efficiency in the face of higher credit spread, such as that expected in the future in Italian and European economies.
The drive for new clients continued with renewed vigour, together with the introduction of new services for existing clients (although still based on lending working capital support to Italian and international small medium enterprises through factoring).
The preliminary activity of extending the range of products and services offered, even beyond supporting working capital, continued and such products will be offered to enterprises as from the first part of 2008. This will allow an ever more developed sales network to offer the client many different and compatible products of financial support.
The results of actions taken in terms of: - strengthening the sales network;
- risk analysis and risk management of counterparties; - increasing the client base and contextual risk spreading; - the presence of the bank in domestic and international markets;
- increasing operational parameters, volumes of business managed and income and profitability; are presently being realised and will continue to play an important part in Banca IFIS’s near future.
Expansion and strengthening activities in certain organisational and control areas have been carried out by Banca IFIS for some time now. This is also being achieved through the employment of new resources and the adoption of new and more efficient procedures, ideal for supporting the bank’s domestic and international growth over the next few accounting years. Over the course of 2007, but in particular in the second Half, the bank began once again to produce impressive growth rates: the volume of receivables purchased in 2007 equalled 3,164 million Euro, an increase of 28.4% when compared to 2006.
54 in the branches and 24 at Headquarters. Furthermore, the distribution of leasing, part of a product expansion drive, developed through agreements with a leading operator specialised in the creation of such products, is due to be kicked off.
Profit and Net Equity
Group profit reached 19,534 thousand Euro (a growth of 30.1% over 2006). This result must be interpreted taking into consideration the dynamics of the year in which, during the first part, the increase generated by internal expansion in Banca IFIS’s activities was contrasted by market pressure for better financial conditions; and, during the second part, confirmed growth was accompanied by clients’ willingness to accept higher financial conditions as a result of the well-known credit crisis which hit the credit world in the second Half 2007. ROE, equal to 19.5%, increased when compared to the 16.6% recorded in 31 December 2006.
Group net equity as at 31 December 2007 equalled 133,995 thousand Euro, a growth of 23.7% from the 108,318 thousand Euro of last year.
It is important to state that by 2011, should the convertible bond loan (maturing 16 July 2009) be totally converted, the outstanding warrants (exercise period between 1 August 2007 and 31 July 2008) be totally exercised and the stock options existing today be totally exercised, net equity will increase by 74 million Euro, in addition to the part of profit that will not be allocated and the variations in reserves due to accounting according to the international accounting standards. Net profit per share, calculated considering the weighted average of the ordinary shares outstanding, equalled 0.68 Euro (68 cents), an increase with respect to the 0.52 Euro (52 cents) of 2006. Net equity per share as at 31 December 2007 came to 4.32 Euro, compared to 3.80 Euro in 2006.
With regards to share prices on the Italian ‘Telematic Stock Market’ as at 31 December 2007, a price/earnings ratio of 13.2 and a price/book value of 2.08 were achieved. Such figures are in line with those of the bank context to which Banca IFIS belongs without, however, taking into account the high growth rates of the bank and the forecasted continued expansion in the mid-term.
Group Area The composition of the group as at 31 December 2007 is composed of the parent company, Banca IFIS S.p.A., and the 100% controlled companies, Immobiliare Marocco S.p.A. - an instrumental subsidiary - and IFIS Finance Sp.Z.o.o.- a factoring company located in Poland.
Operating Revenue
Net operating revenue increased considerably compared to the previous accounting year, climbing from 39,423 thousand Euro to 51,248 thousand Euro (+30%).
The earning margin registered an increase of 30.3%, from 41,211 thousand Euro to 53,718 thousand Euro.
It is worth mentioning that the increasing or decreasing client tendency towards products with a significant service component, income from which being classified under factoring commission only (that is, without specific indication of the financing cost necessary to support the client), has brought about differing growth in the individual components making up the earning margin. The effect on the profit and loss account of such movement makes a comparison between the components senseless.
Still, in detail, the interest margin reached 20,146 thousand Euro, against 14,749 thousand Euro at the end of 2006 (+36.6%).
Net commissions also climbed by 28.2%, from 24,190 thousand Euro to 31,023 thousand Euro, thanks to development in factoring activities and business volumes and the ability to offer a high quality service to clients.
Making up the earning margin are profit from the sale of available for sale assets, equal to 2,585 thousand Euro, which refers to the selling, over the year, of listed shares, held in the available-for-sale portfolio, together with losses from the available-for-sale of financial liabilities, for 100 thousand Euro, for the buyback of treasury bonds. Net value adjustments for write-downs on loans equalled 2,470 thousand Euro, an increase of 38.1% when compared to 1,788 thousand Euro in 2006. Such adjustments bring the ratio between bad debts on loans over total loan commitments to 0.8%, a fall from 0.9% from last year. Banca IFIS has, in fact, continued to be rigorous in its assessment of asset quality, booking write-downs to the profit and loss account in a timely manner as soon as presuppositions to do so arise.
Net Profit Total operating costs stood at 22,566 thousand Euro, an increase of 42.7% compared to 15,811 thousand Euro in 2006. This increase appears completely in line with reinforcements in the bank’s structure and forecasts. Specifically, personnel expenses rose from 9,479 thousand Euro in 2006 to 13,531 thousand Euro in 2007 (+42.7%) and other administrative expenses increased from 6,173 thousand Euro in 2006 to 7,033 thousand Euro in 2007 (+13.9%).
Value adjustments on intangible and tangible fixed assets also rose from 1,160 thousand Euro in 2006 to 1,538 thousand Euro in 2007 (+32.6%). Other net operating expenses amounted to 464 thousand Euro as at 31 December 2007, against net operating income for 1,001 thousand Euro at the end of 2006. This item includes, amongst others, the effect of settling the dispute with Parmalat S.p.A. as per agreements reached during the year, described in more detail under the “other information” section of the present report.
The cost/income ratio for 2007 equalled 42%, a growth from 38.4% as at 31 December 2006 due to both strengthening the bank and organisational and control structures and to booking the above-mentioned settlement with Parmalat to operating expenses. Net of the latter, the cost/income ratio would have stood at 40%.
Pre-tax profit for current operations, equal to 28,682 thousand Euro, increased by 21.5% from the 23,612 thousand Euro of the previous accounting year.
After tax on income for 9,148 thousand Euro (8,600 thousand in 2006, +6.4%) and in the absence of any profit deriving from third parties, net profit totalled 19,534 thousand Euro, a growth of 30.1% compared to 15,012 thousand Euro in 2006.
The parent company and the effects of consolidation
The parent company, Banca IFIS, closed its yearly balance sheet as at 31 December 2007 with a net profit of 18,995 thousand Euro, drawn up in compliance with the IFRS International Accounting Standards.
The instrumental subsidiary, Immobiliare Marocco S.p.A., made a net profit of 157 thousand Euro, redetermined according to IAS/IFRS standards for consolidation purposes; this profit refers mainly to the net result between expenses incurred for the restructuring and restoration of one of the buildings owned by this subsidiary and the renting of the completed part to the parent company. The Polish controlled company, IFIS Finance Sp.Z.o.o. recorded a net profit of 382 thousand Euro, redetermined according to IAS principles for consolidation purposes.
The reconciliation between parent company profit and net equity and those consolidated is shown in the table set out later in this report.
Commitments The credit to the SME market over 2007 experienced profound change. In the first Half, the trend characterising past years continued with a moderate gap between supply and demand owing to the modest willingness of traditional banks and credit institutes to granting SMEs the quantative and qualitative financing necessary for them to carry out their operations with maximum efficiency. In the second Half, the situation from the offer side slowed down as a consequence of the well-known credit crisis that hit global financial markets.
In this scenario, adhering completely to predetermined strategies, Banca IFIS still succeeded in improving its position, in terms of both the size and the quality of loan commitments, achieving a growth in due from clients of 17.9%, reaching a total of 923 million Euro, compared to 783 million Euro in 2006.
The quality of receivables also improved, giving a ratio of bad debts on loans over total loan commitments at the end of December 2007 equal to 0.8% (0.9% at the end of 2006).
In order to optimise treasury management, particularly towards the end of the year, short-term operations with other banking counterparties for 312 million Euro were effected. In 2006, such operations amounted to 267 million Euro (+16.8%).
Funding Over 2007, Banca IFIS successfully continued to diversify its funding, both in terms of duration and in terms of technical form, with the aim of increasing availability and lengthening banking counterparts’ commitments to maintaining deposits.
With this aim, at the end of December 2007, Banca IFIS underwrote a syndicated loan
(“Mandated Arranger” Intesa Sanpaolo S.p.A., Natixis e Raiffeisen Zentralbank) on the
international money market, for 171 million Euro with 18 month maturity and a spread of 55 basis points over the reference Euribor. Such syndicated loan confirms international credit institutes’ positive opinion of Banca IFIS’s operational model, even in the face of strong turbulence on liquidity markets.
At year-end, total funding reached 1,104 million Euro, an increase of 14.8% compared to 962 million Euro for the year ending 31 December 2006. In detail, 1,010 million Euro were the result of transactions with banking counterparts, of which 475 million Euro were regulated on e-MID,
145 million Euro from net funding obtained through the revolving securitization of performing receivables, 58 million Euro from client deposits and 36 million from the issue of a convertible bond in July 2004. The latter, issued for a total of 50 million Euro, is booked under liabilities, net of the buybacks on such which are considered, according to IFRS, as settlement of debt even though such instruments, acquired with the aim of investing liquid resources, are destined to be resold, which is treated as the issue of a new debt.
The tension on the money market that characterised the second Half 2007 and that will presumably continue to have an effect on the funding operations of operators in this sector in the near future, has not had an effect on Banca IFIS’s operations. As can be seen, the difficulty in obtaining resources on the interbanking market has been particularly evident for those financial institutes that create their liquidity through wholesale banking as apposed to retail banking to families and enterprises.
The bank’s position in terms of Asset Liability Management has allowed Banca IFIS to face market trends with serenity. Specifically, the bank’s usual counterparties have appreciated the strong correlation between the bank’s commitments and the underlying commercial operations and the short horizon of the same. The financial position of the bank has always been in excess of requirements and is expected to remain so.
Fitch’s BBB- investment rating, confirmed at the beginning of 2007, allows the quality of deposits and funding to be maintained.
The structure At the end of 2007, the group had a total of 215 employees, of which 212 in the parent company, Banca IFIS, and 3 in the controlled Polish company, IFIS Finance Sp.Z.o.o..
The structure of the group is made up of 13 Branches (Ancona, Bari, Brescia, Cagliari, Florence, Imola, Cologno Monzese, Naples, Palermo, Pordenone, Rome, Turin and Venice-Mestre) and two representative offices (Bucharest and Budapest), together with the controlled company in Poland.
MAIN GROUP FIGURES KEY FIGURES
CONSOLIDATED BALANCE SHEET (in thousands of Euro)
ACCOUNTING YEAR VARIATION
31/12/2007 31/12/2006 ABSOLUTE %
Due from banks 312,091 267,294 44,797 16.8%
Due from clients 923,061 782,977 140,084 17.9%
Intangible and tangible fixed assets 34,668 31,031 3,637 11.7%
Other asset items 5,584 11,343 (5,759) (50.8)%
Total assets 1,275,404 1,092,645 182,759 16.7%
Due to banks 1,010,365 836,393 173,972 20.8%
Due to clients 57,776 82,560 (24,784) (30.0)%
Outstanding securities 36,134 42,693 (6,559) (15.4)%
Net equity 133,995 108,318 25,677 23.7%
Other liability items 37,134 22,681 14,453 63.7%
Total liabilities 1,275,404 1,092,645 182,759 16.7%
CONSOLIDATED PROFIT AND LOSS ACCOUNT (in thousands of Euro)
ACCOUNTING YEAR VARIATION
31/12/2007 31/12/2006 ABSOLUTE %
Earning margin 53,718 41,211 12,507 30.3%
Net adjustments on write-downs on
receivables (2,470) (1,788) (682) 38.1%
Operating revenue 51,248 39,423 11,825 30.0%
Operating costs (22,566) (15,811) (6,755) 42.7%
Gross ordinary profit from current operations 28,682 23,612 5,070 21.5%
ECONOMIC-FINANCIAL INDEXES AND OTHER FIGURES
ACCOUNTING YEAR VARIATION 31/12/2007 31/12/2006 Profitability indexes ROE (1) 19.5% 16.6% 2.9% ROA 2.2% 2.2% --- Cost/income ratio 42.0% 38.4% 3.6% Risk indexes
Net bad debts on loans/Due from clients 0.8% 0.9% (0.1)%
Net bad debts on loans/Net equity 5.5% 6.4% (0.9)%
Solvency ratios
Tier 1 capital/Risk weighted assets 12.6% 13.4% (0.7)%
Regulatory capital/Risk weighted assets 12.6% 13.6% (0.9)%
Figures per employee (2) (3)
Earning margin/Number of employees 249.9 271.1 21.2
Total assets/Number of employees 5.932.1 7.188.5 1.256.4
Personnel cost/Number of employees 62.9 62.4 0.5
(1) Net profit compared with the weighted average of capital, share premiums and reserves excluding the valuation reserves. (2) Number of employees-end of fiscal year.
RECLASSIFIED CONSOLIDATED BALANCE SHEET (in thousands of Euro)
ACCOUNTING YEAR VARIATION
ASSETS
31/12/2007 31/12/2006 ABSOLUTE %
Receivables due:
- from clients 923,061 782,977 140,084 17.9%
- from banks 312,091 267,294 44,797 16.8%
Financial assets held for trading 62 --- 62 100.0%
Financial assets available for sale 1,216 6,288 (5,072) (80.7)%
Assets:
- tangible 32,741 29,324 3,417 11.7%
- intangible 1,927 1,707 220 12.9%
Other asset items 4,306 5,055 (749) (14.8)%
Total assets 1,275,404 1,092,645 182,759 16.7%
ACCOUNTING YEAR VARIATION LIABILITIES 31/12/2007 31/12/2006 ABSOLUTE % Payables due: - to clients 57,776 82,560 (24,784) (30.0)% - to banks 1,010,365 836,393 173,972 20.8% Outstanding securities 36,134 42,693 (6,559) (15.4)% Retirement/severance allowance 1,100 1,433 (333) (23.2)% Tax liabilities 2,418 2,452 (34) (1.4)%
Other liability items 33,616 18,796 14,820 78.8%
Net equity:
Capital, share premiums and reserves 114,461 93,306 21,155 22.7%
Net profit 19,534 15,012 4,522 30.1%
RECLASSIFIED CONSOLIDATED PROFIT AND LOSS ACCOUNT (in thousands of Euro)
ACCOUNTING YEAR VARIATION
31/12/2007 31/12/2006 ABSOLUTE %
Interest margin 20,146 14,749 5,397 36.6%
Net commission 31,023 24,190 6,833 28.2%
Dividends and similar 46 7 39 n.s.
Net trading result 18 (35) 53 n.s.
Profit from sale of available for sale assets 2,585 2,300 285 12.4% Losses from buybacks of financial liabilities (100) --- (100) 100.0%
Earning margin 53,718 41,211 12,507 30.3%
Net adjustment for write-downs on loans (2,470) (1,788) (682) 38.1%
Operating revenue 51,248 39,423 11,825 30.0%
Personnel expenses (13,531) (9,479) (4,052) 42.7%
Other administrative expenses (7,033) (6,173) (860) 13.9%
Net value adjustments on tangible and intangible
fixed assets (1,538) (1,160) (378) 32.6%
Other operating income/expenses (464) 1,001 (1,465) (146.4)%
Operating costs (22,566) (15,811) (6,755) 42.7%
Gross profit 28,682 23,612 5,070 21.5%
Income tax (9,148) (8,600) (548) 6.4%
RECLASSIFIED CONSOLIDATED BALANCE SHEET- QUARTERLY EVOLUTION (in thousands of Euro)
ACCOUNTING YEAR 2007
ASSETS 31/12 30/09 30/06 31/03
Receivables due:
- from clients 923,061 845,336 814,035 772,126
- from banks 312,091 136,739 107,842 67,104
Financial assets held for trading 62 --- --- ---
Financial assets available for sale 1,216 1,116 4,256 5,938
Assets:
- tangible 32,741 31,763 31,151 30,056
- intangible 1,927 1,836 1,863 1,821
Other asset items 4,306 5,057 4,156 5,282
Total assets 1,275,404 1,021,847 963,303 882,327 ACCOUNTING YEAR 2007 LIABILITIES 31/12 30/09 30/06 31/03 Payables due: - to clients 57,776 42,928 25,792 28,729 - to banks 1,010,365 794,286 757,597 667,590 Outstanding securities 36,134 42,121 43,737 43,209 Retirement/severance allowance 1,100 972 1,121 1,537
Other liability items 36,034 32,855 29,931 30,033
Net equity:
Capital, share premiums and reserves 114,461 94,794 96,879 107,724
Net profit 19,534 13,891 8,246 3,505
RECLASSIFIED CONSOLIDATED PROFIT AND LOSS ACCOUNT: QUARTERLY EVOLUTION (in thousands of Euro)
ACCOUNTING YEAR 2007
4th Q. 3rd Q. 2nd Q. 1st Q.
Interest margin 7,075 5,068 4,193 3,810
Net commission 8,810 8,429 7,148 6,636
Dividends and similar income --- 1 45 ---
Net trading result 51 (5) (49) 21
Profit from sale of available for sale assets --- 1,515 1,070 ---
Loss for buyback of financial liabilities (100) --- --- ---
Earning margin 15,836 15,008 12,407 10,467
Net adjustment on write-downs on loans (717) (1,290) (254) (209)
Operating revenue 15,119 13,718 12,153 10,258
Personnel expenses (4,103) (3,023) (3,380) (3,025)
Other administrative expenses (2,111) (1,591) (1,878) (1,453)
Net value adjustments on tangible and intangible
fixed assets (445) (379) (370) (344)
Other operating income (expenses) 193 (953) 194 102
Operating costs (6,466) (5,946) (5,434) (4,720)
Gross profit 8,653 7,772 6,719 5,538
Income tax (3,010) (2,127) (1,978) (2,033)
MARKET TRENDS AND GROUP ACTIVITY
The macro-economic scenario
The Italian economy slowed down in 2007, in line with expectations and in particular due to the deceleration recorded in the fourth Quarter. A strong rift within the Euro area continues, which has been growing in a more accentuated manner over the last few years and as such, the Italian economy within the European scenario has been progressively losing significance.
Italian GDP recorded an increase of 1.5%, against an increase in Europe as a whole (Euro zone) of 2.7%. Once again, GDP growth in countries outside the European Union was greater. The United States grew by 2.2% despite the extreme slow down and signs confirming the risk of recession which became particularly evident during the second part of the year; Japan grew by 2.1% and, in emerging countries, China had a GDP of +11.5%, India +9%, Russia +7.6% and Brazil +4.6%. Asian productions, in particular, are rapidly freeing themselves of their under-developed past, becoming ever more avant-garde in terms of technology, commerce and finance.
The world economy overall slowed down moderately, passing from 4.8% of growth in 2006 to 4.4% in 2007 and a further deceleration is expected in 2008.
The value of the Euro against the Dollar and other currencies was very important. This element did not help exportation of European products but did allow the taking of provisions at contained costs, in particular raw materials and energy. The price of oil touched 100 US dollars a barrel which posed serious problems as far as concerns the sustainability of Italian consumption which is more or less totally dependent from an energy point of view. At the same time, the realignment of the Euro Dollar exchange has substantially neutralised the rapid increase in the cost of raw materials.
2007 will become known in financial history as the “year of subprime mortgages” and great difficulty for banks and financial operators in liquidity markets.
The phenomenon is a consequence of the rapid deterioration in the value of financial assets of an unclear nature and of risk profiles poorly perceived by investors. Such phenomenon involved securitised assets relative to mortgages of low credit quality, cash flows from credit cards and low rating loans. The perception of the slow down in the real underlying markets (in particular the USA property market), led to it becoming impossible, in the month of August, for some operators to respect their financial commitments, forcing them to declare insolvency. The race to sell such assets happened in a few days, also as a result of the financial leverage that operators almost always applied in order to improve the profitability of products. The outcome was substantially the impossibility to sell assets with formal, high level ratings; defaults on hedge funds and huge and sometimes even incalculable losses in some commercial and investment banks. Interbanking liquidity channels immediately ran dry due to banks’ lack of trust in other banks’ assets. For smaller operators and non-banking financial institutions, access to money markets became progressively more and more prohibitive.
Central banks immediately intervened with the aim of injecting liquidity in a timely manner, hoping to avoid a systemic crisis.
In the middle of the year, the importance of the first losses recorded by the bigger financial operators in the USA became evident, progressively increasing with time, and even spreading to some European institutions. For now, losses have been estimated at between 400 and 600 billion dollars, even if some institutions have valued overall losses to be well over 1,000 billion dollars and up to 3,000 billion dollars. Mark to market valuations of non-liquid assets, as are some assets resulting from complex securitisation operations, do not simplify the prospects of those operators involved but rather risk increasing losses over 2008.
In this scenario, new to all operators, the interest rates proposed by central banks have remained contained: the European Central Bank maintained levels at 4%, while the FED has reduced its rates, more than once, to a level well below that of Europe. However, the effective availability of interbank funds on the market for the average operator has been decidedly modest.
Following the events in the second Half 2007, the market once again began to show aversion to risk when compared to a period in which excess liquidity had led financial institutions to underestimate the impact of risks on the sustainability of the value of assets. The assumption of risk has now returned to being a significant element to consider in the cost of the finance.
The scenario for 2008 appears to be worsening still. In Italy, a marginal growth in GDP of between 0.5% and 0.6% is expected. This is not enough to resolve the country’s crisis but will, rather, lead Italy in the direction of decline, despite an average expected growth of 1.5% in Europe and an expected growth margin of little over 1% in the USA, even in the face of some risks of recession.
The strategic context
Banca IFIS Group’s core business is the financial support and management of small and medium Italian and international enterprises through the purchase of accounts receivable generated by the client’s business. The use of factoring contracts is considered an ideal instrument to improve the quality of credit and, in cases of default on payment by the financed party, the recovery rate on commitments.
Banca IFIS has been carrying out this activity since 1983, perfecting its different methods and operational instruments along the way.
Traditional approaches to factoring of a recourse, domestic nature, without any guarantees against bad debts being granted to the assigning client, are slowly being replaced by a new way of factoring. This new way sees the bank as a protagonist between the assigning client and the debtors and involves assessing the risk, the counterparty and the operation as a whole, taking on, in certain cases, an ever-growing element of risk sharing regarding bad debts. The role of the factor is highly specialised and requires a high level of competence and professionalism, together with an innovative approach to credit risks.
Room for growth in factoring activities is potentially unlimited, also considering the increased attention to the intrinsic quality of credit requested by credit institutions.
In Italy, but also throughout industrialised and developing countries, the utilisation of assets such as commercial credit in order to obtain liquidity represents a must. In some cases, prompt payment of trade credit allows SMEs to develop their potential to the max, obtaining the financial resources that otherwise the banking system, in the form of credit in current accounts, would have been unlikely to grant.
In an international credit context that is moving towards ever more sophisticated approaches set out by the Basel Committee, factoring can make the difference for enterprises that are unable to systematically and continuously access mid-long term debt capital or risk capital.
The objective of the Banca IFIS Group is to increase its presence in favour of domestic, European and international enterprises, providing the financial and management support that the credit system does not wish to guarantee with traditional instruments of credit, following assessments on the quality of credit.
The Factoring market in 2007
In 2007, the factoring market recorded a significant recovery. The turnover (total receivables purchased) recorded a change of about +2.3% in 2007, standing at 114.7 billion Euro. This data is calculated based on a sample of 32 Assifact members.
The market appears largely in the hands of general bank operators, with a significant reduction in the industrial group component. The top five operators make up approximately 70% of total turnover. Many other operators, amongst which some specialists, follow with a market share of between 0.03% and 4.3%. On an international level, however, factoring is still growing strongly. The members of Factors Chain International show growth rates for 2007 of +14.5% compared to 2006, up to a total turnover of 1,299 billion Euro.
It would be opportune to point out that the factoring market is made up of operators following extremely different approaches, the only point in common being the factoring contract. Differences in the market lie in the average size of operations, the clients, the debtors, the type of operation put in place, the approach towards forming other business relations, the service activities put in place in favour of the group, banking or industrial, or the absence of these services, the availability or not of financial resources, the cost of such, capital consumption approaches, and even the legal form of the enterprises. The operators themselves are also different, ranging from financial institutions, industrial intermediaries, and specialised banks to general banks.
All these elements render comparisons between the operators in the market difficult, in that the operators are often conditioned by the decisions of the group to which they are part or by other elements. Despite the apparent strong concentration of this sector, the operators present in the factoring market in Italy have made different choices, and research into new products or markets
bank groups and is often characterised by high turnover rates with less significant financial returns. Other operators have reached a level of specialisation in non-recourse guarantees, often requested by the banking group of which they are part. Others still belong to industrial groups instead, and extend their activities to suppliers of their own industrial group. It is important to mention that the factoring market is also characterised by wide reaching osmosis with other forms of financing net working capital, offered by commercial banks.
Group position and plans
As far as concern activities in 2007, the differences between the operators active in the factoring market have led to many types of product and service but, generally, the different approaches fall into one of two models. A third model, which is effectively a combination of the other two, also exists:
• The first model is the offer of factoring and financing services (tending towards non-recourse)
to excellent quality assignors for whom the short term credit risk regarding the assigning debtor is particularly limited, and/or to assignors with a well-distributed receivables portfolio, apportioned according to a statistical approach based on global and market flows, maximisation of volumes and distribution of the portfolio. Remuneration for these types of transactions is in line with the underlying risk level;
• The second model involves credit management and financing of SMEs, based on a prompt and analytical assessment of both the assignor and the debtor risk. This approach requires the specific, and in some cases simultaneous, analysis of three elements: the assigned debtor, the type of receivables to be purchased and the assignor. The credit risk of the debtor, where assumed, is assessed based on specific analysis of this debtor and is remunerated based on the inherent risk of the transaction in order to always guarantee an adequate risk/yield ratio. The remuneration requested by the factor against such activity (both for recourse and non-recourse) is significantly higher than that of the analytical dimensional approach or statistical insurance approach;
• The third model is a combination of the two above.
Banca IFIS belongs to the second category of operators. The bank aims at a well-defined market segment, composed of small and medium assignors usually with debtors of a higher credit standing. Thus, this market is represented by average quality assignors, including those with little or no access to credit for the amount and quality desired from the traditional banking market. This is a particularly vast segment in Italy and Europe; a segment characterised by the relative absence of large bank operators and orientation towards larger assignors with better credit standings.
Banca IFIS’s development plans have been attentively appraised by the Board of Directors under an evolutionary perspective, taking into consideration changes in the market during 2007 which have led to reduced competitive pressure (pressure which has never reached alarm levels) and, above all, keeping in mind the severity of the crisis on the money markets and financial markets in general.
If 2006 and the first Half 2007 were characterized by the rewriting of the organizational model and the reorganisation of organizational and control structures, in the second Half 2007, the bank acted on the necessity to appraise the appropriateness of the interbank funding and deposits model in a markedly dynamic context, whilst also revising pricing policies in the face of new market challenges. The result of such an evaluation served not only to confirm that the business model is fit and apt but also that - in management’s belief – it can generate the ability to operate at maximum profitability in a context of heightened sensitivity to credit risk and changes in the willingness of enterprises to pay adequate charges for such credit.
In this context, in 2007, Banca IFIS took actions to increase its ability in customer relations, its territorial presence and its sales network by employing young and motivated new resources. Banca IFIS did not have to wait long for the market’s response to such actions, as the figures of the Annual report 2007 and the bank’s growth rates clearly show. Based on the market and thanks to
Industrial plan 2008 -2010
The essence of the Industrial plan 2008-2010 involves integrating, to the advantage of client enterprises and entrepreneurs, new relationship-based activities to the historical transactional-based activities of product and Bank-factor. Such a change is to be made without abandoning the activity of supporting working capital but rather integrating it with other activities that are better geared to maintaining relationships with the client long-term. This change is very important and does not, at present, require the creation of new products but only the distribution of products already created by third parties through specific ad hoc agreements to the favour of enterprises and entrepreneurs. The four main supporting pillars to the strategies of the industrial plan 2008 – 2010 can be summarised as follows:
1) Internal growth 2) Internationalisation 3) Distribution of new products
4) Diversification in funding and deposits
As far as concerns internal growth, the guidelines defined by the strategic plan are represented by the attainment of potential clients through strengthening the sales network and through the diffusion of better knowledge of the factoring product; by opening new branches - light structures with break-even within one year of start-up – which will reach 14 at the beginning of 2008 and are expected to reach 28 at the end of 2010; through the selection and in-house training of junior sales staff throughout Italy; through agreements with banks - co-operative credit banks and local banks - throughout the territory, paying these banks a part of the factoring commission received; by paying attention to small enterprises with high growth potential, less attended to by traditional banks but more profitable, weaker but with the credit risk always being transferred to the stronger assigned debtor.
The strategy of internationalisation involves the management and financing of working capital in European enterprises through Banca IFIS’s own sales network and through excellent knowledge of the global credit market. The internationalisation strategy will continue developing along two main channels: the first one, direct, consists of opening a new factor in Romania within 2008 and replicating the model applied in Poland there; by starting up operations in the Paris branch within 2008; and by possible acquisitions of small and medium sized operators in central European countries and/or adequately suited companies. The second channel, indirect, revolves around expanding existing commercial relationships and the actual membership of Banca IFIS S.p.A. in Factors Chain International - an Italian interlocutor by excellence.
The third pillar to the strategies of the three-year plan 2008-2010 involves the distribution of new products to the clientele. Such choice is based on the strong demand by enterprises for further products. To such an end, in the month of March 2008, an agreement for the distribution of leasing was signed with Centro Leasing Banca S.p.A.. This new approach should significantly increase client retention, an essential factor for a product expert, hence allowing Banca IFIS to maintain relationships with the client in the long term, thanks to the multiplicity of the products offered. Further areas of potential distributive interest are insurance products (already in a start-up phase as a corollary to the distribution of product leasing); medium/long term financing (through distribution agreements with experts) and services for enterprises and entrepreneurs (through support to the active cycle).
The fourth pillar of Banca IFIS’s Industrial Plan 2008-2010 is the diversification of funding and deposits through: the reinforcement of bilateral relationships with Italian and European banks, thanks to their positive opinion of Banca IFIS’s business model; direct access to the Eurosystem and the preparation of an EMTN program in expectancy of an improvement in liquidity conditions; the negotiation of further short or medium term syndicated loans in line with market conditions (given the modest importance of the higher costs of such form of financing in a context where client margins are more important than the containment of funding costs); the start up of retail funding programmes, also online, and lastly the enlargement of the credit securitisation programme to 300/400 million Euro with operational and cost optimisation.
RISK MANAGEMENT
MAIN CAPITAL AGGREGATES
The group is involved almost exclusively in the factoring industry. In detail, as far as concern financial activities such as subprime mortgages and derivatives, the trends of which have negatively affected the recent results of some credit institutions, it is important to state that Banca IFIS has no direct or indirect exposure to subprime mortgages; nor is it exposed to investments in financial products having such mortgages as an underlying activity or referring to them; neither is it in anyway exposed to the granting of guarantees connected to such products.
Furthermore, Banca IFIS S.p.A. does not carry out any investment activities or trading of securities on behalf of third parties and that carried out on its own behalf is limited to hedging instruments against market risk. This is as the group’s financial risk profile originated as a banking portfolio due to the fact that the group does not habitually carry out trading activities on financial instruments.
Funding for its activity, aside from its own, comes from the interbanking market, from the securitisation of performing receivables, from the issue of a convertible bond loan and, lastly, from direct client deposits.
MAIN CAPITAL AGGREGATES
(in thousands of Euro)
PERIOD ABSOLUTE VARIATION
BETWEEN
31/12/2007 30/06/2007 31/12/2006
12/07-06/07 06/07-12/06
Due from clients 923,061 814,035 782,977 109,026 31,058
Due from banks 312,091 107,842 267,294 204,249 (159,452)
Other financial assets 1,278 4,256 6,288 (2,978) (2,032)
Tangible and intangible assets 34,668 33,014 31,031 1,654 1,983
Total net assets 1,271,098 959,147 1,087,590 311,951 (128,443)
Due to clients 57,776 25,792 82,560 31,984 (56,768)
Due to banks 1,010,365 757,597 836,393 252,768 (78,796)
Outstanding securities 36,134 43,737 42,693 (7,603) 1,044
Balance of other items 32,828 26,896 17,626 5,932 9,270
Net equity 133,995 105,125 108,318 28,870 (3,193)
Total net liabilities 1,271,098 959,147 1,087,590 311,951 (128,443)
Due from banks
Total due from banks at the end of the accounting year stood at 312 million Euro against 267 million Euro as at 31 December 2006 (+16.8%). The utilisation of available financial resources care of other institutes does not represent an autonomous activity for the bank and is due to maintaining a high level of liquidity to cover year-end expiries.
The bank’s aim remains only to utilise available resources in order to increase financing operations in the favour of clients as a result.
Due from clients
At the end of the accounting year, total due from clients reached 923 million Euro, an increase of 17.9% compared to the end of 2006.
Net total loans to clients, excluding bad debts on loans for 7,385 thousand, equalled 916 million Euro, an increase of 18% compared to the end of 2006.
BANKING PRODUCTS
(in thousands of Euro)
ACCOUNTING YEAR VARIATION
31/12/2007 31/12/2006 ABSOLUTE %
Current accounts and similar 61,574 31,545 30,029 95.2%
Advance accounts for future credit
assignments 20,875 11,649 9,226 79.2%
Advance accounts for factoring 638,381 464,754 173,627 37.4%
Receivables from debtors for definitive
purchase 192,060 265,254 (73,194) (27.6)%
Loans 2,786 2,833 (47) (1.8)%
Total net current loans 915,676 776,035 139,641 18.0%
Net bad debts on loans 7,385 6,942 443 6.4%
Total due from clients 923,061 782,977 140,084 17.9%
The breakdown of clients by geographic area in Italy, with a separate indication for those abroad, together with the breakdown of clients by product category are as follows:
BREAKDOWN OF CLIENTS BY GEOGRAPHIC AREA COMMITMENTS TURNOVER
Northern Italy 42.6% 43.5% Central Italy 31.4% 27.4% Southern Italy 20.7% 15.1% Abroad 5.3% 14.0% Total 100.0% 100.0%
BREAKDOWN OF CLIENTS BY PRODUCT SECTOR (*)
COMMITMENTS TURNOVER
051 Agriculture, forestry and fish products 1.1% 0.8%
052 Energy products 0.2% 0.3%
053 Minerals and ferrous and non-ferrous metals 0.3% 0.2%
054 Minerals and mineral based products 0.4% 0.3%
055 Chemical products 0.7% 0.2%
056 Products in metal excluding machines and equipment 8.9% 9.8%
057 Agricultural and industrial machines 1.5% 1.4%
058 Machines for offices and EDP machinery 0.5% 0.3%
059 Electrical material and supplies 2.5% 1.9%
060 Transportation vehicles 6.4% 13.1%
061 Food and beverage products 2.3% 1.7%
062 Textile, leather, shoe and clothing products 4.0% 2.9%
063 Paper, printing and publishing 0.5% 0.8%
064 Rubber and plastic products 1.4% 1.3%
065 Other industrial products 0.9% 1.0%
066 Construction and public works 12.4% 11.2%
067 Wholesale and retail trade, recoveries and repair 11.1% 12.7%
068 Hotel and public establishment services 0.6% 0.6%
069 Internal transportation services 1.2% 1.5%
070 Maritime and air transportation services 0.7% 0.4%
071 Transportation related services 1.6% 0.5%
072 Telecommunications services 0.4% 0.1%
073 Other services for sale 20.5% 22.4%
000 Non classifiable 19.9% 14.6%
of which non-resident subjects 5.3% 14.0%
of which financial institutions 1.8% 0.2%
of which others(**) 12.8% 0.4%
Total 100.0% 100.0%
(*) List according to Bank of Italy’s Circular n.140 of 11/02/91.
(**) This item includes Banca IFIS’s commitments with companies operating in the healthcare and ancillary services sectors.
Non performing loans and country risks
Total bad debts on loans to clients, net of value adjustment write-downs, was 7,385 thousand Euro as at 31 December 2007, against 6,942 thousand Euro as at 31 December 2006 (an increase of 6.4%). The ratio of bad debts on loans over net equity at the end of 2007 equalled 5.5%, (6.4% at 31 December 2006). Gross of any value adjustments, bad debts on loans amounted to 29,855 thousand Euro, against 29,554 thousand Euro at the end of 2006 (+1%). Banca IFIS enters its gross bad debts on loans up to the point in which all legal procedures to recoup the credit have been exhausted. The longest standing bad debts on loans date back to 1990. Gross bad debts on loans for years up to 2000 stood at 2,199 thousand Euro. Also due to the strategy of risk spreading, the total amount of bad debts on loans is, on average, quite contained.
As at 31 December 2007, 136 non-performing loans, for an average amount of 54 thousand Euro net, were registered. The consolidated notes contain details on these by categories according to their size and the year in which they became overdue. The hedging index on gross non-performing loans stood at 75.3% (76.5% as at 31 December 2006). This percentage is representative of the policy of setting aside prudential provisions over the years.
Potential problem loans/difficult loans, net of estimated value adjustment write-downs, amounted to 2,143 thousand Euro, against 1,439 thousand Euro as at 31 December 2006 (an increase of 48.9%).
Service for full definitive purchase factoring activities. Taking into consideration the quality of the credit and the counterparties involved, no value adjustments were considered necessary on these positions.
Rescheduled loans amounted to 303 thousand Euro as at 31 December 2007, against 347 thousand Euro in 2006, a reduction of 12.7%.
Total net non-performing loans equalled 67,802 thousand Euro, against 88,123 thousand as at 31 December 2006, a fall of 23.1%.
CREDIT QUALITY
(in thousands of Euro) ACCOUNTING YEAR VARIATION
31/12/2007 31/12/2006 ABSOLUTE %
Bad debts on loans 7,385 6,942 443 6.4%
Difficult loans 2,143 1,439 704 48.9%
Rescheduled loans 303 347 (44) (12.7)%
Past-due loans 57,971 79,395 (21,424) (27.0)%
Total net non performing loans
with clients 67,802 88,123 (20,321) (23.1)%
Net performing loans 855,259 694,854 160,405 23.1%
Total due from clients 923,061 782,977 140,084 17.9%
The ratio of net bad debts on loans over total loan commitments to clients passed from 3.7% to 3.1% in terms of nominal value and from 0.9% to 0.8% if taking value adjustments into consideration. The incidence of difficult/potential problem loans over total loan commitments to clients passed from a total of 0.2% of the nominal value of receivables to 0.3%, remaining at 0.2% if considering value adjustments.
NON PERFORMING LOANS AND LOANS TO COUNTRIES AT RISK
(in thousands of Euro)
BAD DEBTS ON LOANS
DIFFICULT
LOANS RESCHED. LOANS PAST-DUE LOANS TOTAL
SITUATION AT 31/12/2007
Nominal value of non performing loans 29,855 2,839 304 58,943 91,941
Incidence on total loans at
nominal value 3.1% 0.3% 0.0% 6.2% 9.7%
Value adjustments 22,470 696 1 972 24,139
Incidence on non performing loans at
nominal value 75.3% 24.5% 0.3% 1.6% 26.3%
Balance sheet value of non performing
loans 7,385 2,143 303 57,971 67,802
Incidence on net total loans 0.8% 0.2% 0.0% 6.3% 7.3%
SITUATION AT 31/12/2006
Nominal value of non performing loans 29,554 1,799 349 79,445 111,147
Incidence on total loans at
nominal value 3.7% 0.2% 0.0% 9.8% 13.7%
Value adjustments 22,612 360 2 50 23,024
Incidence on non performing loans at
nominal value 76.5% 20.0% 0.6% 0.1% 2.8%
Balance sheet value of non performing
loans 6,942 1,439 347 79,395 88,123
Incidence on net total loans 0.9% 0.2% 0.0% 10.1% 11.3%
Funding Banca IFIS obtains the resources necessary for financing its business from the inter-banking market, from the flow of liquid assets from a revolving securitisation of performing loans effected as from October 2003, from the issue of a convertible bond loan in July 2004 and, finally, from client deposits.
Total gross funding as at 31 December 2007 equalled 1,104,275 thousand Euro (+14.8% with respect to 2006). Due to banks are composed of: deposits from the inter-banking market for 865,763 thousand Euro, +20.7% compared to December 2006, of which 474,500 thousand Euro regulated on the E-MID (+51.8% compared to 2006) and from funding from securitisation operations for 144,602 thousand Euro, an increase of 21.4% when compared to 2006. Overall, due to banks amounted to 1,010,365 thousand Euro (+20.8% compared to 2006). Due to clients, equal to 57,776 thousand Euro, decreased by 30% when compared to December 2006.
The convertible bond loan ‘Banca IFIS Convertible Bond Loan 2004-2009’ issued in July 2004 and underwritten for the total nominal value of 50 million Euro, stood, as at 31 December 2007, at 36,134 thousand Euro net, a reduction of 15.4% compared to the results as at 31 December 2006. The debt is booked under liabilities, net of any buybacks of such convertible bonds that are considered, in adherence to IAS principles, as settlement of debt, while the successive sale is considered as issue of a new debt. The decrease with respect to last year is mainly due to the buy-back of 538,800 treasury bonds for a nominal value of 6,735 thousand Euro.
No savings management activity was carried out, as this is not compatible with the group’s industrial plan.
Intangible and tangible fixed assets
Intangible fixed assets totalled 1,927 thousand Euro, against 1,707 thousand Euro at 31 December 2006 (+12.9%). Gross increases of 641 thousand Euro are mainly for the enhancement of IT supports.
Tangible fixed assets increased by 11.7% to 32,741 thousand Euro. The property entered among the consolidated tangible assets relates to:
- the property in Mestre-Venice, acquired under financial leasing, which housed the management from 2001 up to December 2005, and was then leased in part to the controlling company, La Scogliera S.p.A.;
- the important historical building, ‘Villa Marocco’, located in Mestre, for which a renovation and expansion project was created and approved by the Monuments Office for the region and for which work was substantially completed in December 2007. This building became the new Banca IFIS Head Office back in December 2005;
- the representative office in Bucharest;
- a management office building of residual value in Padua; - a building of residual value destined to be sold.
The final value of the property that has become the new Head Office, together with the value of the ex Head Office up until the end of 2005, have been confirmed by professionals in valuing such buildings. ‘Villa Marocco’ is not depreciated as its estimated residual value at the end of its useful life is expected to be higher than its book value.
Capital adequacy and solvency ratios
In the absence of assets attributable to third parties, the net equity of the group as at 31 December 2007 was 133,995 thousand Euro, against 108,318 thousand Euro at the end of the previous accounting year. This increase in net equity is shown below:
NET EQUITY
(in thousands of Euro)
Net Equity at 31/12/2006 108,318
Increases:
Profit for period 19,534
Exercising of stock options 1,502
Exercising of warrants 12,357
Sale of own instruments 7,155
Reductions:
Dividends distributed (6,865)
Purchase of own instruments (5,586)
Other decreases (2,420)
Consolidated regulatory capital was 122,717 thousand Euro, composed of tier 1 capital and positive and negative elements of Tier 2 (supplementary capital). Based on the trend of risk-weighted assets, the total consolidated solvency ratio is 12.6%.
Surplus capital as at 31 December 2007, taking into account the 8% minimum required, equalled 44,994 thousand Euro.
CAPITAL ADEQUACY RATIOS (In thousands of Euro)
31/12/2007 31/12/2006 Regulatory capital Tier 1 capital 122,663 96,477 Tier 2 capital 54 1,343 Deductibles --- --- Total capital 122,717 97,820
Regulatory minimum requirements
Credit risk 77,343 57,675
Market risk 380 ---
Total minimum requirements 77,723 57,675
Solvency ratios
Tier 1 capital/total weighted assets 12.6% 13.4%
Total capital/total weighted assets 12.6% 13.6%
Surplus capital compared to minimum required 44,994 40,145
PROFIT AND LOSS ACCOUNT
Formation of net operating revenue
Based on the overall trend of the sector and the result of expansions in progress, Banca IFIS increased both its market share in the sector and the number of clients and debtors.
Net operating revenue for the group equalled 51,248 thousand Euro as at 31 December 2007, against 39,423 thousand Euro as at December 2006, an increase of 30%.
The earning margin passed from 41,211 thousand Euro to 53,718 thousand Euro, an increase of 30.3%. The composition of the earning margin is 57.8% from commissions and 37.5% from interest. The individual components making up the earning margin showed differing growth due to the increasing or decreasing client tendency towards products with a significant service component, income from which being classified under factoring commission only. The effect of such movement on the profit and loss figures is such that it makes a comparison between the individual components of the margin insignificant.
In 2007, net value adjustment write-downs passed from 1,788 thousand Euro in 2006 to 2,470 thousand Euro in 2007 (+38.1%). This total is a result of Banca IFIS’s choice to book any write-downs as soon as presuppositions arise.
FORMATION OF OPERATING REVENUE
(in thousands of Euro)
ACCOUNTING YEAR VARIATION 31/12/2007 31/12/2006 ABSOLUTE
%
Interest margin 20,146 14,749 5,397 36.6%
Net commissions 31,023 24,190 6,833 28.2%
Dividends and similar income 46 7 39 n.s.
Net trading result 18 (35) 53 n.s.
Profit from sale of AFS assets 2,585 2,300 285 12.4%
Losses from buybacks of financial
liabilities (100) --- (100) 100.0%
Earning Margin 53,718 41,211 12,507 30.3%
Net value adjustment write-downs on
loans (2,470) (1,788) (682) 38.1%
Net operating revenue 51,248 39,423 11,825 30.0%
Analysing in detail, the interest margin, equal to 20,146 thousand Euro, recorded an increase of 36.6% when compared to 31 December 2006. This growth is thanks to changes in market rates, together with actions taken to optimise profitability on loan commitments.
Net commissions for the period were excellent, an increase of 28.2% when compared to last year, and demonstrated the capability of the factoring activity to generate added value through management and service for credit; the added expenses connected to this activity are diluted, above all, among personnel expenses.
Receivable commissions, equal to 33,505 thousand Euro against 26,301 thousand Euro at the end of 2006, came primarily from factoring commissions on the turnover generated by individual clients (non-recourse and recourse, in a flat or monthly formula) as well as other fees usually charged to
have an organisation suitable to effectively and efficiently manage the factoring activity; - activities with credit intermediaries who submit factoring operations;
- activities with debtors with whom there are agreements which entail writing off commissions against the introduction of new potential clients;
- commission to corresponding factors.
Dividends and similar income, equalled 46 thousand Euro at the end of 2007, against 7 thousand Euro at the end of 2006.
The net trading result is positive for 18 thousand Euro and is entirely due to the differences deriving from operations in currencies different from the Euro.
Profit from the sale of available for sale financial assets, equal to 2,585 thousand Euro, refers to the sale of part of the listed shares held in the available for sale portfolio.
Losses from the sale of financial liabilities, equal to 100 thousand Euro, refer to buy-backs on treasury bonds which, in compliance with IAS, are considered as settlement of debt.
Net value adjustment write-downs on loans equalled 2,470 thousand Euro, a growth of 38.1% when compared to 1,788 thousand Euro in 2006. The figures for the 2007 accounting year include 2,902 thousand Euro of collective value adjustments on performing loans, against 1,981 thousand Euro in 2006. The remaining amount refers to write-downs and write-backs on bad debts on loans. Banca IFIS has continued to be rigorous in its assessment of asset quality, booking write-downs to the profit and loss account in a timely manner as soon as presuppositions to do so arise.
NET COMMISSIONS
(in thousands of Euro)
ACCOUNTING YEAR VARIATION 31/12/2007 31/12/2006 ABSOLUTE %
Endorsement credit 16 29 (13) (44.8)%
Management and brokerage services 334 (40) 374 n.s.
Collection and payment services 461 410 51 12.4%
Other factoring services 30,609 24,565 6,044 24.6%
Other services (397) (774) 377 (48.7)%
