The Board of Directors of BFF approved today the 2017 consolidated accounts of BFF Banking Group - BFF Italia
- Reported net income of €96m in 2017, up 32% versus €72m in 2016
- Adjusted Net Income of €84m in 2017 for c. 33% RoTE
- €84m cash dividends (+16% versus 2016): 100% payout ratio of Adjusted Net Income, €0.492 per share equivalent to 8.6% dividend yield
- Strong growth in business activity across all geographies with loans up by 21% y/y and new business volumes up 17% y/y
- Increasing geographic diversification: 32% of costumer loans outside Italy (26% as of December 2016)
- Total Capital Ratio of 17.5% and Common Equity Tier I of 12.6% post dividend distribution
- Low risk profile: net NPLs/net loans at 0.6% and cost of risk of 20bps.
The Board of Directors of BFF Banking Group (BFF), approved the 2017 consolidated accounts.
In 2017 the group reported a net income of €95.5m, compared to €72.1m in 2016 which included Magellan in the consolidation perimeter for 7 months.
2017 Adjusted Net Income excluding extraordinary items reached €83.7m, compared to €87.3m adjusted net income 2016 (including Magellan for 12 months). Excluding the costs related to Tier II interest expenses, Magellan acquisition financing for 5 months not included in 2016, ACE tax benefit reduction, FITD voluntary scheme contribution write-off and the negative impact of Magellan’s SME factoring business placed in run-off at the end of 2017 (for €8.7m in total), the 2017 number would be €92.5m, a +6% increase y/y on a like for like basis.
€83.7m cash dividends proposed for 2017 (versus €72.1m for 2016), equivalent to a 100% payout ratio of the 2017 Adjusted Net Income and 0.492 euro per ordinary share. This implies a dividend yield of 8.6%, based on the ordinary shares price as of 08.02.2018.
Customer loans at the end of December 2017 amount to €3,018m, +21% compared to €2,499m at the end of 2016. Volume of new business is up 17% y/y to €4,001m, with strong growth across all geographies. At the end of 2017, the international markets (Spain, Portugal, Poland, Slovakia, Czech Republic and Greece) accounted for 32% of loans.
The Total Capital Ratio was 17.5% at the end of December 2017, above the company’s 15% target, and the CET1 ratio was 12.6% confirming the Group’s solid capital position. These ratios are calculated after setting aside €84m for dividend distribution and taking into account the effects of the 1Q17 DBRS Italian sovereign rating downgrade.
The Group enjoys a low risk profile, with net non performing Loans at 0.6% of net customer loans and a cost of risk of 20 bps (14 bps excluding 6 bps related to the Magellan’s SME factoring business placed in run-off). In 2016 cost of risk was 10bps (including Magellan for 12 months).
“In 2017, the BFF Banking Group continued to grow both in Italy and in the international markets where the Group is present, and successfully completed the IPO. We confirm a high remuneration for our shareholders, with over €83m in dividends, a solid capital base, high operating efficiency and a limited risk profile. Thanks to the enormous contribution of more than 400 employees of the Group, we look forward to the growth opportunities we have created in recent years in Italy and to the further internationalization of the BFF Banking Group.” - commented Massimiliano Belingheri, CEO of BFF.
Key consolidated accounts items
The 2017 reported results include the full consolidation of Magellan within the Group while 2016 reported results included Magellan’s contribution for seven months, since the acquisition was completed on 31th May 2016. In this document year-on-year comparisons are made on the basis of 2016 adjusted results that include Magellan for the entire twelve months period, in order to show more meaningful comparisons between 2017 and 2016 performance.
2017 adjusted net income is calculated by excluding the following extraordinary items that accrued in 1Q17:
- €17.8m post tax (€25.2m pre tax) one-off income related to the change in LPI estimated recovery rate from 40% to 45%;
- €1.7m post tax (€2.4m pre tax) extraordinary costs related to the IPO. All IPO costs are now fully expensed;
- €1.1m post tax (€1.5m pre tax) extraordinary costs related to stock option plan (also related to the IPO); this item generates a positive equity reserve, with therefore no impact on Group equity;
- €3.3m after tax (€4.7m pre tax) negative impact in P/L from the change in €/PLN exchange rate on the acquisition loan for the purchase of Magellan, which is more than counterbalanced by a positive change in equity reserve, related to the higher value in euro of the purchase price of Magellan, reflecting the natural hedging between these two items.
2016 adjusted net income is calculated by including Magellan net income for 12 months and excluding the following extraordinary items:
- €2.4m post tax (€3.5m pre tax) extraordinary costs related to IPO costs;
- €7.6m post tax (€10.4m pre tax) extraordinary costs related to Magellan acquisition;
- €1.5m post tax (€2.2m pre tax) extraordinary contribution to Resolution Fund;
- €0.3m post tax (€0.4m pre tax) negative exchange rate difference.
Main balance sheet data
Customer loans at the end of December 2017 amount to €3,018m (of which €627m related to Magellan), compared to €2,499m at the end of December 2016 (of which €447m related to Magellan), and up by 21% y/y. Geographic diversification continued thanks to a strong growth across all geographies outside Italy and the entry into the Greek market in September 2017. International markets (Spain, Portugal, Poland, Czech Republic, Slovakia and Greece) account for 32% of loans. The costumer loans in Italy are up +10% y/y. The amount of costumer loans at the end of 2017 included in the €3,018m and related to the Magellan’s SME factoring business placed in run-off is equal to €6m.
The Group saw strong business activity in the period, with overall new business volumes of €4,001m (of which €546m related to Magellan), representing a 17% growth compared to 2016 (€3,429m including €414m of Magellan for 12 months). Volumes in Italy and Portugal increased by 10% and 193% respectively. Also the business activity in Spain grew significantly, with volumes up 17% y/y to €419m. Magellan new business was up by 32% y/y, with strong contribution from Poland and Slovakia. The volumes of managed only receivables in 2017 was €2,596m. Given strong performance in Portugal, BFF will open the Portuguese branch in 2Q2018.
The Group total available funding amounts to €3,458m at the end of 2017. In particular, over the 2017 the Group successfully accessed the institutional capital market with the placement of 3 bonds: €100m Tier 2 5.875% coupon bond issued on 2nd March 2017 (first unrated institutional issuance by an unlisted Italian bank), €200m 5Y senior unsecured 2.0% coupon bond issued on 29th June 2017 and €200m 2.5Y senior unsecured Euribor 3M + 1.45% coupon bond issued on 5th December 2017 (first ever unrated floater Euro bond issued by a bank on the European market). Online deposits represent 38% of drawn funds (€1,000m, up by +22% y/y). The Group has ample excess liquidity with undrawn funding at the end of December 2017 equal to c. €0.9bn.
The Government bond portfolio decreased to €1,222m at the end of December 2017, compared to €2,015m at the end of 2016 (-39.3% y/y) and €1,500m at the end of September 2017 (-18.5%).
The Group maintains a very healthy liquidity position, with a Liquidity Coverage Ratio (LCR) of 287.2% at the end of December 2017. The Net Stable Funding Ratio and the leverage ratio, at the same date, are equal to 116.7% and 5.6% respectively.
Main profit and loss data
Adjusted net banking income amounts to €180.3m in 2017, up 3% compared to €174.8m in 2016 (including 12 months of Magellan). Adjusted net interest income reached €172.8m in 2017, a 4% increase on 2016, driven by growth in interest income and declining cost of funds despite the Tier II issuance and the full year impact of the Magellan acquisition finance. In particular, adjusted net interest income 2017 includes the Tier II costs for €4.9m pre-tax (not present in 2016) and €3.1m pre-tax of Magellan acquisition financing costs (only €1.8m included in 2016 since the acquisition was closed in May).
Adjusted interest income is up by +4% to €212.8m thanks to a higher stock of loans (+21% y/y). Interest income increased despite a decrease in DSO in Italy from 197 days in 2016 to 173 in 2017 and lower Late Payment Interest (LPI) recovery rate. LPIs cashed-in in 2017 are equal to €114m, versus €92m in 2016, with lower collections in 4Q17 compared to 4Q16. At the end of 2017, the unrecognized off-balance sheet LPI fund reached €350m, +4% higher than the stock at the end of 2016 (€337m at the 45% assumed recovery rate). The total LPI fund amounts to €534m.
Net interest margin on customer loans decreased compared to last year (6.1% vs. 6.7% in 2016) mainly due to lower recovery rate of LPI and the costs of funding affected by Tier II issuance and full year impact of the Magellan acquisition financing cost for additional €6.2m of interest expenses. Gross yield on customer loans decreased compared to last year (7.9% in 2017 vs. 8.6% in 2016) mainly as a result of the significant growth in customer loans and the deferral effect related to the over recovery on LPI.
The average cost of funding shows a reduction compared to the previous year: the combined figure including Magellan decreased from 2.09% in 2016 to 1.96% in 2017, which includes the Tier II bond cost and the cost of the Magellan acquisition financing for the entire period. The interest expenses increased from €37.1m to €39.9m in 2017, mainly due to: i. the impact of Tier II (€4.9m in 2017, not present in 2016), ii. the cost of the acquisition financing for Magellan (€3.1m in 2017 vs €1.8m in 2016) and iii. the increase in funding (in particular the Zloty funding for Magellan, which are financed at an higher base rate). Rates offered on 12-month online deposits decreased in February 2018 to 0.90% and 0.75% respectively in Italy and Spain (1.00% and 1.15% at the end of December 2017) with the benefit to unfold once the deposits are reinvested at lower rates.
The operational structure remains efficient with an adjusted cost/income ratio excluding extraordinary costs of 34% compared to 32% in 2016. In 2017 adjusted operating costs were €61.2m, versus €56.4m in 2016 (including Magellan for 12 months), driven by an increase of the employees at Group level (412 at end of December 2017, of which 235 in BFF ex Magellan, compared to 409 at end of December 2016 and 388 at end of September 2016, 215 for BFF ex Magellan). Growth in staff has stabilized, with total employee base at end of 2017 in line with December 2016 (409 FTEs). The Resolution Fund and the write-off of the FITD voluntary scheme contribution are entirely expensed.
Loan loss provisions reached €6.0m in 2017, versus €2.6m in 2016 including Magellan for 12 months, implying an annualised cost of risk of 20 basis points (10 bps in 2016 thanks to release of generic portfolio provisions). The 2017 CoR includes: 6 bps related to the SME factoring business (placed in run-off in 4Q17), 10 bps related to Magellan (excluding the factoring SME business) and 4 bps related to “comuni in dissesto”. The Group expects limited impact from the adoption of the IFRS 9 accounting principle.
Reported net income 2017 increased to €95.5m, +32% compared to €72.1m for last year including Magellan for 7 months. Excluding the extraordinary items, 2017 Adjusted Net Income amounts to €83.7m, versus €87.3m for 2016 (including Magellan for 12 months) despite the 2017 adjusted numbers include (all value post tax):
- €3.9m of Tier II cost (not present in 2016)
- €2.5m of Magellan acquisition financing cost (€1.4m included in the 2016 adjusted number and related only for 7 months since the acquisition was completed at the end of May)
- €2.0m of higher taxes related to the reduction of ACE rate (compared to 2016 adjusted number)
- €0.5m of FITD voluntary scheme contribution costs
- €1.3m of negative impact on P&L from the Magellan’s SME factoring business placed in run-off at the end of 2017
Excluding the above costs for €8.7m, 2017 adjusted net income would have been €92.5m, +6% y/y.
The RoTE for 2017 based on the Adjusted Net Income of €83.7m is equal to 33%.
The proposed 2017 cash dividend is equal to €83.7m, implying a 100% payout ratio of Adjusted Net Income and a dividend per share of €0.492.
The Group maintains a solid capital position with a 12.6% CET1 ratio (vs. SREP requirement of 6.55%) and a 17.5% Total Capital ratio (vs. SREP requirement of 10.75%) calculated on the Banking Group perimeter (pursuant to former TUB – Testo Unico Bancario). These ratios include the impact of the reduction in the rating of the Italian Republic to BBB (high) by the rating agency DBRS – the Group ECAI– on January 13, 2017. One Italian rating upgrade would move the risk weighting on the Italian exposure to NHS and other PA (different from local and central government) from 100% to 50% with a 3.4% impact on CET1 ratio and 4.8% on Total Capital ratio.
The above capital ratios do not include the €84m of Adjusted Net Income set aside for dividends distribution.
The RWA density decrease from 70% as of September 2017 to 67% as of December 2017, thanks to a better loan mix. The Group uses the Basel Standard Model.
Superior asset quality is confirmed with a net non-performing loan / net loan ratio of 0.6% at end of 2017, versus the 0.5% at end of December 2016. The value as of 31 December 2017 net of the purchases of non performing receivables decreases to 0.5%, in line with the 0.5% as of December 2016. Total impaired loans (non- performing, unlikely to pay, past due) – net of provisions – amounted to €94.7m, (€61.8m at year end 2016, and lower than €96.6m at September 2017). Net past due, equal to €69.8m (€46.2m in 2016), are for 83% due to Italian Public Administration and public sector companies.
Significant events after the end of 2017
The Group has received authorization to operate into the Croatian market.
Croatia will be the 8th country covered by the Group in Europe, with a market size in term of public expenditure in goods and services of €4bn in line with Slovakia. Croatia has a large Government indebtedness with a Debt/GDP of 83% and long payment time (269 days).
BFF will operate in Croatia through the Freedom of services regime, as previously done in Greece and Portugal, allowing for low investment upfront, leveraging the existing IT systems and processes.
The launch date is expected for 2Q18, with initial focus on healthcare receivables purchase.
Statement of the Manager responsible for preparing the company’s financial reports
The manager responsible for preparing the company’s financial reports, Carlo Zanni, declares, pursuant to paragraph 2 of Article 154 bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the document results, books and accounting records of the Company.