Banca IFIS s - A Summary Of The Accounting System

Transcription

1 ANNUAL REPORT 2007 TRANSLATION FROM THE ITALIAN ORIGINAL WHICH REMAINS THE DEFINITIVE VERSION

2 Share Capital: 31,213,652 Euro fully paid in Bank License No.: 3205 Tax Identification No.: VAT No.: Enrolment No. in the Board of Banks: 5508 REGISTERED OFFICE AND HEADQUARTERS Via Terraglio, Mestre, Venice, Italy Internet Address: BRANCHES Via Astagno, , Ancona Via C. Rosalba, 47/z 70124, Bari Viale A. Costa, , Imola, Bologna Via Malta 7c Torre Kennedy, 25124, Brescia Viale Bonaria, , Cagliari (Ca) Via Europa, , Florence Via Volta, , Cologno Monzese, Milan Via G. Porzio, 4 Centro Dir. Isola E , Naples Via Monti Iblei , Palermo Via De Paoli, 28/D 33170, Pordenone Viale B. Croce, , Rome Piazza C.L.N , Turin Via Gatta , Mestre, Venice REPRESENTATIVE OFFICES Boulevard Burebista, 3 Bucharest (Romania) Bajza U., 50 Budapest (Hungary)

3 BOARD OF DIRECTORS President Vice President Sebastien Egon Fürstenberg Alessandro Csillaghy C.E.O. Giovanni Bossi (1) Directors General Manager Leopoldo Conti Roberto Cravero Andrea Martin Riccardo Preve Marina Salamon Alberto Staccione BOARD OF STATUTORY AUDITORS President Standing Auditors Alternate Auditors Mauro Rovida Erasmo Santesso Dario Stevanato Luca Giacometti Francesca Rapetti AUDITING FIRM KPMG S.p.A Member of Factors Chain International (1) The C.E.O. has powers for the ordinary administration of the company

4 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: Financial statements for the controlled company, Immobiliare Marocco S.p.A Financial statements for the controlled company, IFIS Finance Sp.Z.o.o Statement of important shareholdings 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 Board of Statutory Auditors report on the statutory financial statements 341 External auditing company s report on the statutory financial statements 346

5 THE BANCA IFIS GROUP CONSOLIDATED ANNUAL REPORT 2007

6 BOARD OF DIRECTORS REPORT ON MANAGEMENT OF THE GROUP

7 RESULTS AND OPERATING TREND The Banca IFIS Group closed its 25 th business year with strong growth both in profit levels and in dimensional and structural expansion. Profit, increasing for the 9 th 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 ( 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 generally, all those activities that involve the assumption of market risks are few and limited to the operational support of management. 7

8 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. 8 * * * 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 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 The strategy of reinforcing Banca IFIS s presence throughout the territory and the strengthening of existing structures continues with the employment and training of many young and enthusiastic sales people. Such activities are also with the view to further expanding activities and introducing new operations. To such an aim, the Palermo and Brescia branches were opened during the year and the opening of a branch in Genoa is due in the first Quarter employees have been taken on, of which

9 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 wellknown credit crisis which hit the credit world in the second Half ROE, equal to 19.5%, increased when compared to the 16.6% recorded in 31 December 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 Net equity per share as at 31 December 2007 came to 4.32 Euro, compared to 3.80 Euro in 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-forsale portfolio, together with losses from the 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 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. 9

10 Net Profit operating costs stood at 22,566 thousand Euro, an increase of 42.7% compared to 15,811 thousand Euro in 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 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 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 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%). 10

11 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 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 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. 11

12 MAIN GROUP FIGURES KEY FIGURES CONSOLIDATED BALANCE SHEET (in thousands of Euro) ACCOUNTING YEAR VARIATION 31/12/ /12/2006 ABSOLUTE % Due from banks 312, ,294 44, % Due from clients 923, , , % Intangible and tangible fixed assets 34,668 31,031 3, % Other asset items 5,584 11,343 (5,759) (50.8)% assets 1,275,404 1,092, , % Due to banks 1,010, , , % Due to clients 57,776 82,560 (24,784) (30.0)% Outstanding securities 36,134 42,693 (6,559) (15.4)% Net equity 133, ,318 25, % Other liability items 37,134 22,681 14, % liabilities 1,275,404 1,092, , % CONSOLIDATED PROFIT AND LOSS ACCOUNT (in thousands of Euro) ACCOUNTING YEAR 31/12/ /12/2006 VARIATION ABSOLUTE % Earning margin 53,718 41,211 12, % Net adjustments on write-downs on receivables (2,470) (1,788) (682) 38.1% Operating revenue 51,248 39,423 11, % Operating costs (22,566) (15,811) (6,755) 42.7% Gross ordinary profit from current operations 28,682 23,612 5, % Net Profit 19,534 15,012 4, % 12

13 ECONOMIC-FINANCIAL INDEXES AND OTHER FIGURES ACCOUNTING YEAR 31/12/ /12/2006 VARIATION 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 assets/number of employees Personnel cost/number of employees (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. (3) Ratios in thousands of Euro. 13

14 RECLASSIFIED CONSOLIDATED BALANCE SHEET (in thousands of Euro) ASSETS ACCOUNTING YEAR 31/12/ /12/2006 ABSOLUTE VARIATION % Receivables due: - from clients 923, , , % - from banks 312, ,294 44, % Financial assets held for trading % Financial assets available for sale 1,216 6,288 (5,072) (80.7)% Assets: - tangible 32,741 29,324 3, % - intangible 1,927 1, % Other asset items 4,306 5,055 (749) (14.8)% assets 1,275,404 1,092, , % LIABILITIES ACCOUNTING YEAR 31/12/ /12/2006 ABSOLUTE VARIATION % Payables due: - to clients 57,776 82,560 (24,784) (30.0)% - to banks 1,010, , , % 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, % Net equity: Capital, share premiums and reserves 114,461 93,306 21, % Net profit 19,534 15,012 4, % liabilities 1,275,404 1,092, , % 14

15 RECLASSIFIED CONSOLIDATED PROFIT AND LOSS ACCOUNT (in thousands of Euro) ACCOUNTING YEAR 31/12/ /12/2006 ABSOLUTE VARIATION % Interest margin 20,146 14,749 5, % Net commission 31,023 24,190 6, % Dividends and similar n.s. Net trading result 18 (35) 53 n.s. Profit from sale of available for sale assets 2,585 2, % Losses from buybacks of financial liabilities (100) (100) 100.0% Earning margin 53,718 41,211 12, % Net adjustment for write-downs on loans (2,470) (1,788) (682) 38.1% Operating revenue 51,248 39,423 11, % 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, % Income tax (9,148) (8,600) (548) 6.4% Net profit 19,534 15,012 4, % 15

16 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, , , ,126 - from banks 312, , ,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 assets 1,275,404 1,021, , ,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, , , ,590 Outstanding securities 36,134 42,121 43,737 43,209 Retirement/severance allowance 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, ,724 Net profit 19,534 13,891 8,246 3,505 liabilities 1,275,404 1,021, , ,327 16

17 RECLASSIFIED CONSOLIDATED PROFIT AND LOSS ACCOUNT: QUARTERLY EVOLUTION (in thousands of Euro) ACCOUNTING YEAR th Q. 3 rd Q. 2 nd Q. 1 st 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) 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) Net profit 5,643 5,645 4,741 3,505 17

18 MARKET TRENDS AND GROUP ACTIVITY The macroeconomic 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 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 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 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. It is for this reason that, presently, market rates are not a reliable indication of the cost of finance for banks, which must obtain much higher returns on their deposits and funding, above all on expiries extending beyond the short term. A moderate reduction in interest rates is foreseeable, even if price fluctuation could contrast the effects. 18

19 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 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 continues to characterise the sector more than the competitive approach of the operators. Many factors make up part of traditional banks. Development therefore depends on expansion of 19

20 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 its ability to listen to clients demands, Banca IFIS has drawn up the first steps for a structural change of approach that, far from wanting to abandon the business model that has allowed the bank to reach the levels it has today, can direct the actions of the bank over the next three years. 20

21 Industrial plan The essence of the Industrial plan involves integrating, to the advantage of client enterprises and entrepreneurs, new relationship-based activities to the historical transactionalbased 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 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 breakeven 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 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 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. 21

22 RISK MANAGEMENT For information on group risk management, please refer to the consolidated notes herein. 22

23 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/ /06/ /12/ /07-06/07 06/07-12/06 Due from clients 923, , , ,026 31,058 Due from banks 312, , , ,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 net assets 1,271, ,147 1,087, ,951 (128,443) Due to clients 57,776 25,792 82,560 31,984 (56,768) Due to banks 1,010, , , ,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, , ,318 28,870 (3,193) net liabilities 1,271, ,147 1,087, ,951 (128,443) Due from banks 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 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