2016
Financial Report
Financial Report 2016
Contents AUDITORS REPORT ___________________________________ 2 CONSOLIDATED FINANCIAL STATEMENTS _________________ 5 DIRECTORS’ REPORT OF THE ICF GROUP ___________________ 83
1
Financial Report 2016
AUDITORS REPORT
2
Financial Report 2016
3
Financial Report 2016
4
Financial Report 2016
CONSOLIDATED FINANCIAL STATMENTS ICF’S GROUP
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Financial Report 2016
INSTITUT CATALÀ DE FINANCES GROUP BALANCE SHEETS AT 31 DECEMBER 2016 AND 2015 (in thousands of Euros) (Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails.) ASSETS
Note
31/12/2016
31/12/2015*
Cash, cash balances with central banks and other demand deposits
5
69,194
105,120
LIABILITIES
Available-for-sale financial assets Equity instruments Debt securities
6
489,341 102,919 386,422
263,118 93,196 169,922
Loans and receivables Loans and advances to Credit institutions Customers
7
2,186,057 2,186,057 283,659 1,902,398
2,656,824 2,656,824 468,165 2,188,659
Financial liabilities at amortized cost Deposits Credit institutions Customers Debt securities issued Other financial liabilities
Held-to-maturity investments
8
1,097
17,319
Derivatives – hedge accounting
9
6,744
4,527
Investments in joint ventures and associates
11
11,236
14,205
11,236
14,205
59,059 9,733 49,326
59,713 9,728 49,985
Associates Tangible assets Property, plant and equipment Investment property
12
Intangible assets Other intangible assets
13
620 620
744 744
Tax assets Current tax assets Deferred tax assets
21
45,827 84 45,743
45,661 129 45,532
Other assets
14
13,998
21,106
13,998
21,106
Rest of other assets
Non-current assets and disposal groups classified as held for sale
10
TOTAL ASSETS MEMORANDUM ACCOUNTS Guarantees given Contingent commitments given
22 22
4,356
4,021
2,887,529
3,192,358
2,886,627 135,279 91,037
3,192,358 147,179 114,324
LIABILITIES AND EQUITY
Note
31/12/2016
31/12/2015*
15
1,983,176 1,350,794 1,232,585 118,209 628,168 4,214
2,311,523 1,654,952 1,527,435 127,517 651,808 4,763
Derivatives – hedge accounting
9
18,880
18,156
Provisions Commitments and guarantees given Other provisions
16
3,095
996
2,213 882
996 -
Tax liabilities Current tax liabilities Deferred tax liabilities
21
749 371 378
6,031 408 5,623
Other liabilities
17
46,351
32,453
2,052,251
2,369,159
825,627 693,149 693,149 119,119 3,597
817,507 693,149 693,149 111,385 4,414
3,597
4,414
9,762
8,559
9,651
5,692
9,651
5,692
(11,319)
(11,092)
20,970 1,129 19,661 835,278 2,887,529
16,783 (425) 17,208 823,199 3,192,358
TOTAL LIABILITIES EQUITY Shareholders’ equity Share capital Paid-in capital Retained earnings Other reserves Reserves from joint ventures and associates Profit/(loss) attributable to equity holders of the parent Other accumulated comprehensive income Items that can be reclassified to profit or loss Hedging derivatives. Cash flow hedge Available-for-sale financial assets Debt instruments Equity instruments TOTAL EQUITY TOTAL LIABILITIES AND EQUITY
20
19
* Presented solely for comparative purposes. The figures have been adapted in accordance with Note 1.d.
Notes 1 to 36 to these financial statements form an integral part of the balance sheets at 31 December 2016 and 2015.
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Financial Report 2016
INSTITUT CATALÀ DE FINANCES GROUP INCOME STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015 (in thousands of Euros) (Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails.) Note
2016
2015*
Interest income
23
70,337
81,644
(Interest expenses)
24
(21,513)
(31,197)
48,824
50,448
A) INTEREST MARGIN Dividend income
6
1,911
388
Profit (loss) of equity-accounted entities
11
-
43
Commission income
25
3,375
3,667
(Commission expenses)
26
(666)
(888)
Gains or (-) losses on derecognition of financial assets and liabilities not at fair value through profit or loss, net
27
8,034
1,186
22
22
Exchange [gains or (-) losses], net Other operating income
28
3,924
3,759
(Other operating expenses)
29
(1,498)
(1,437)
63,926
57,188
B) GROSS MARGIN (Administrative expenses) (Personnel expenses) (Other administrative expenses)
30 31
(8,235) (5,344) (2,891)
(8,139) (5,442) (2,697)
(Depreciation and amortization)
32
(1,154)
(1,178)
(Provisions or (-) reversal of provisions)
16
(2,099)
(586)
(40,730)
(33,923)
(199) (1,274) (39,256)
6 (1,971) (31,958)
11,708
13,362
(Impairment losses or (-) reversal of impairment losses on financial assets not at fair value through profit or loss) (Financial assets measured at cost) (Available-for-sale financial assets) (Loans and receivables)
33 6, 33 33
C) OPERATING MARGIN Gains or (-) losses on derecognition of non-financial assets and investments, net
11
-
(812)
Gains or (-) losses on non-current assets and disposal groups classified as held for sale not eligible as discontinued operations
34
500
(1,242)
12,208
11,308
(2,446)
(2,748)
9,762
8,559
9,762
8,559
D) PROFIT OR (-) LOSS BEFORE TAX FROM CONTINUING OPERATIONS (Gains or (-) losses on income tax from continuing operations) E) PROFIT OR (-) LOSS AFTER TAX FROM CONTINUING OPERATIONS F) PROFIT FOR THE YEAR
21
* Presented solely for comparative purposes. The figures have been adapted in accordance with Note 1.d.
Notes 1 to 36 to these financial statements form an integral part of the income statement for 2016 and 2015.
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Financial Report 2016
INSTITUT CATALÀ DE FINANCES GROUP STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015 (in thousands of Euros) (Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails.)
A) Statements of recognized income and expense for the years ended 31 December 2016 and 2015: Profit for the year Other comprehensive income Items that will not be reclassified to profit or loss Actuarial gains or (-) losses on defined benefit plans Non-current assets and disposal groups held for sale Other valuation adjustments Income tax related to items that will not be reclassified Items that can be reclassified to profit or loss Hedge of net investments in foreign operations [effective portion] Revaluation gains/(losses) recognized in equity Amount transferred to profit or loss Other reclassifications Foreign currency translation Gains or (-) losses on foreign currency translation recognized in equity Amount transferred to profit or loss Other reclassifications Cash flow hedges [effective portion] Revaluation gains/(losses) recognized in equity Amount transferred to profit or loss Amounts transferred to the initial carrying amount of hedged items Other reclassifications Available-for-sale financial assets Revaluation gains/(losses) recognized in equity Amount transferred to profit or loss Other reclassifications Non-current assets and disposal groups held for sale Revaluation gains/(losses) recognized in equity Amount transferred to profit or loss Other reclassifications Income tax related to items that can be reclassified to profit or loss Total comprehensive income for the year
2016 9,762 3,959 (1,126) (302) (302) (824) (824) 5,087 13,721
2015* 8,559 3,956 5,274 697 697 4,577 4,577 (1,318) 12,515
* Presented solely for comparative purposes. The figures have been adapted in accordance with Note 1.d.
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Financial Report 2016
B) Statements of total changes in equity for the years ended 31 December 2016 and 2015:
Statement for the year ended 31 December 2016 Sources of changes in equity Balance at 1 January 2015 Effects of correction of errors Effects of changes in accounting policies Adjusted balance at 1 January 2015 Total comprehensive income for the year Other changes in equity Issue of ordinary shares Issue of preferred shares Issue of other equity instruments Exercise or maturity of other equity instruments issued Conversion of debt into equity Capital decrease Dividends (or remuneration of shareholders) Acquisition of treasury shares Sale or cancellation of treasury shares Reclassification of financial instruments from equity to liabilities Reclassification of financial instruments from liabilities to equity Transfers between equity items Increase or (-) decrease in equity as a result of business combinations Share-based payments Other increases or (-) decreases in equity Of which: discretionary allowances to foundations and social funds (only savings Banks and cooperative credit institutions) Balance at 31 December 2016
Share capital
Share premium
Equity instruments issued other than capital
Other equity items
Retained earnings
Revaluation reserves
Other reserves
(-) Treasury shares
Profit/(loss) attributable to equity holders of the parent
(-) Interim dividend
Other accumulated comprehensive income
Total
693,149 -
-
-
-
111,385 -
-
4,414 -
-
8,559 -
-
5,692 -
823,199 -
-
-
-
-
-
-
-
-
-
-
-
-
693,149 -
-
-
-
111,385 7,734 -
-
4,414 (817) -
-
8,559 9,762 (8,559) -
-
5,692 3,959 -
823,199 13,721 (1,642) -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,559
-
-
-
(8,559)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(825)
-
(817)
-
-
-
-
(1,642)
-
-
-
-
-
-
-
-
-
-
-
-
693,149
-
-
-
119,119
-
3,597
-
9,762
-
9,651
835,278
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Financial Report 2016
Statement for the year ended 31 December 2015 Sources of changes in equity Balance at 1 January 2014 Effects of correction of errors Effects of changes in accounting policies Adjusted balance at 1 January 2014 Total comprehensive income for the year Other changes in equity Issue of ordinary shares Issue of preferred shares Issue of other equity instruments Exercise or maturity of other equity instruments issued Conversion of debt into equity Capital decrease Dividends (or remuneration of shareholders) Acquisition of treasury shares Sale or cancellation of treasury shares Reclassification of financial instruments from equity to liabilities Reclassification of financial instruments from liabilities to equity Transfers between equity items Increase or (-) decrease in equity as a result of business combinations Share-based payments Other increases or (-) decreases in equity Of which: discretionary allowances to foundations and social funds (only savings Banks and cooperative credit institutions) Balance at 31 December 2015
Share capital
Share premium
Equity instruments issued other than capital
Other equity items
Retained earnings
Revaluation reserves
Other reserves
(-) Treasury shares
Profit/(loss) attributable to equity holders of the parent
(-) Interim dividend
Other accumulated comprehensive income
Total
693,149 -
-
-
-
105,015 -
-
4,172 -
-
7,870 -
-
1,736 -
811,942 -
-
-
-
-
-
-
-
-
-
-
-
-
693,149 -
-
-
-
105,015 6,370 -
-
4,172 242 -
-
7,870 8,559 (7,870) -
-
1,736 3,956 -
811,942 12,515 (1,258) -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,870
-
-
-
(7,870)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,500)
-
242
-
-
-
-
(1,258)
-
-
-
-
-
-
-
-
-
-
-
-
693,149
-
-
-
111,385
-
4,414
-
8,559
-
5,692
823,199
Notes 1 to 36 to these financial statements form an integral part of the statement of changes in equity for the years ended 31 December 2016 and 2015.
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Financial Report 2016
INSTITUT CATALÀ DE FINANCES GROUP STATEMENT OF CASH FLOWS FOR 2016 AND 2015 (Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails.)
2016 A) CASH FLOWS USED IN OPERATING ACTIVITIES Profit for the year Adjustments to obtain cash flows from operating activities Depreciation and amortisation Other adjustments Net increase/decrease in operating assets Financial assets held for trading Financial assets at fair value through profit or loss Available-for-sale financial assets Loans and receivables Other operating assets Net increase/decrease in operating liabilities Financial liabilities held for trading Financial liabilities at fair value through profit or loss Financial liabilities at amortised cost Other operating liabilities Income tax receivable/payable B) CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES Payments Tangible assets Intangible assets Investments in subsidiaries, joint ventures and associates Other business units Non-current assets and associated liabilities held for sale Held-to-maturity investments Other payments related to investment activities Amounts received Tangible assets Intangible assets Investments in subsidiaries, joint ventures and associates Other business units Non-current assets and associated liabilities held for sale Held-to-maturity investments Other amounts received related to investment activities C) CASH FLOWS FROM FINANCING ACTIVITIES Payments Dividends Subordinated liabilities Repayment of own equity instruments Acquisition of own equity instruments Other payments related to financing activities Amounts received Subordinated liabilities Issue of own equity instruments Sale of own equity instruments Other amounts received related to financing activities D) EFFECT OF EXCHANGE RATE CHANGES E) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D) F) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD G) CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD CASH AND CASH EQUIVALENTS ITEMS AT THE END OF THE PERIOD Cash Cash equivalents in central banks Other financial assets Less: bank overdrafts repayable on demand
2015* (27,599) 9,762 47,217 1,150 46,067 213,259 (221,011) 429,687 4,583 (295,391) (303,699) 8,308 (2,446) 16,298 (2,901) (197) (272) (701) (1,731) 19,199 2,969 16,222 8 (24,647) (72,267) (72,267) 47,620 47,620 22 (35,926)
138,360 8,559 40,446 1,178 39,268 406,902 (186,174) 530,430 62,646 (316,729) (320,606) 3,877 (818) 74,185 (348) (109) (239) 74,533 487 74,046 (173,186) (282,809) (282,809) 109,623 109,623 22 39,381
105,120 69,194
65,739 105,120
674 68,520 -
1 105,119 -
* Presented solely for comparative purposes. The figures have been adapted in accordance with Note 1.d.
Notes 1 to 36 to these financial statements form an integral part of the statements of cash flows for 2016 and 2015.
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Financial Report 2016
Institut Català de Finances and companies comprising the Institut Català de Finances Group (Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails.)
Notes to the Consolidated Financial Statements for the year ended 31 December 2016 1.
Introduction, basis of presentation of the financial statements and other disclosures a) Nature of the Entity Institut Català de Finances (hereinafter the Institut or ICF) is an entity with its own legal identity and is subject to the private law, wholly owned by la Generalitat de Catalunya. The standards regulating the Institut are set forth in Legislative Decree 4/2002 of 24 December 2002, approving the consolidated text of Law on Institut Català de Finances, subsequently modified several times, the most recent of which through Decree Law 4/2005 of December 29. The Institut Català de Finances has its own assets and funds and, in order to carry out its functions, acts with organizational, financial, capital, operational and management autonomy, fully independent of public entities. The Institut Català de Finances adheres to the specific legislation of credit institutions and, therefore, is only subject to public basic legislation and that stipulated by applicable regulating bodies of the European Union, taking into account its special activity and the nature of its activities. The Institut has to prepare its annual financial statements and recognize its transactions in accordance with the accounting criteria and standards for credit institutions. On 1 August 2011, pursuant to Law 7/2011, of 27 July 2011 on fiscal and financial measures, the ICF carried out the merger by absorption of the Institut Català de Crèdit Agrari (hereinafter the ICCA). The ICCA, an independent financial body affiliated to the Department of Agriculture of the Generalitat de Catalunya, was created by Law 4/1984 of 24 February 1984 of the Parliament of Catalonia to promote, coordinate and distribute agricultural credit throughout Catalonia. Its statutory activity, which has been integrated into the activity of ICF from the effective date of the merger, is the financing of investment in productive assets of owners of agricultural operations or companies in the agricultural, fishing and agrifood sectors. On 20 December 2013 and through public deed with protocol number 3534 the assets and liabilities of Institut Català de Finances Holding, SAU were globally transferred to its sole shareholder Institut Català de Finances. Because this global transfer is made to the sole shareholder of the transferee company, Institut Català de Finances Holding is wound up without liquidation, with the transfer in bloc of all its assets and liabilities. This transaction was inscribed in the Barcelona Mercantile Registry on 13 January 2014. Institut Català de Finances is the parent company of Institut Català de Finances Group (hereinafter the Group or ICF Group). At 31 December 2016 and 2015 the following subsidiaries form part of the ICF Group and are directly or indirectly 100% owned by it: - Instruments Financers per a Empreses Innovadores, S.L. Societat Unipersonal (hereinafter IFEM) was incorporated by public deed on 12 December 2008. Its statutory activity is to hold and manage financial investments in funds of any type, in guaranteed investment companies or funds, in venture capital companies and funds and in other public and private companies. The company manages the funds provided by the Generalitat de Catalunya to roll out the JEREMIE Program in Catalonia. - Institut Català de Finances Capital, S.G.E.I.C., S.A. Societat Unipersonal (hereinafter ICF Capital) was incorporated for an indefinite period on 26 February 2011 and is subject to Circular 7/2008, of 26 November 2008, of the Spanish Securities Market Commission, which regulates Venture Capital Companies, in addition to the current legislation in relation to such companies, such as Law 22/2015, of 12 November 2005, and in its absence, Royal Decree 1/2011, of 2 July 2011, which approves the revised text of the Spanish Companies Act. Its statutory and principal activity is the administration and management of the funds and assets of venture capital companies.
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Financial Report 2016
It is a solely-owned company, its sole shareholder being Institut Català de Finances.- Capital MAB, F.C.R. (hereinafter Capital MAB) is a venture capital fund set up on 27 February 2012, subsequent to authorisation from the Spanish Securities Market Commission on 17 February 2012. On 2 March 2012 the Spanish Securities Market Commission registered the Fund in its Venture Capital Fund Register under number 134. The Fund's duration is 10 years, extendable to a maximum of 12 years. - Capital Expansió, F.C.R. (hereinafter Capital Expansió) is a venture capital fund set up on 20 July 2012, subsequent to authorisation from the Spanish National Securities Market Commission dated 6 July 2012. On 26 July 2012 the Spanish National Securities Market Commission registered the Fund in its Venture Capital Fund Register under number 136. The Fund's duration is 10 years, extendable to a maximum of 12 years. The registered office of the ICF Group is located at Gran Via de les Corts Catalanes 635, in Barcelona. b) Basis of presentation for the consolidated financial statements In accordance with applicable regulations, the ICF Group presents its financial statements primarily in accordance with the measurement and recognition criteria established in Bank of Spain Circular 4/2004 (revised by the subsequent amendments), on accounting principles and financial statement models, in order to present a true and fair view of the equity and financial position of the Group at 31 December 2016, and the consolidated results of operations and changes in equity and cash flows for the year then ended, since these are considered to be the most appropriate Spanish accounting principles and standards. The consolidated financial statements have been prepared on the basis of the accounting records kept by Institut Català de Finances and the other Group companies. Nonetheless, and since the accounting principles and measurement criteria applied in the preparation of the Group's 2016 consolidated financial statements may differ from those used by some of the entities comprising the Group, certain adjustments and reclassifications have been made in the consolidation process in order to standardize these principles and criteria and bring them into line with the accounting standards adopted by the Institut. Most significant regulatory changes during the period comprised between 1 January 2016 and 31 December 2016 The main developments in the accounting regulations applicable to the Group in 2016, which have been considered in the preparation of these financial statements, are as follows: o
Bank of Spain Circular 4/2016, of 27 April, amending Circular 4/2004, of 22 December, to credit institutions, on public and confidential financial reporting standards and financial statements models, and Circular 1/2013 of 24 May on the Central Credit Register. Bank of Spain Circular 4/2016 of 27 April was issued on 6 May 2016 to update Circular 4/2004, mainly Appendix IX, to adapt it to the new developments in banking regulations (Commerce Code; Royal Decree 878/2015, amending the clearing, settlement and recognition systems for marketable securities; Commission Implementing Regulation (EU) No 680/2014, including the definitions and format for the preparation of statements for supervisory reporting (FINREP statements); and the 2015 update to the guidelines on credit risk management and accounting issued by the Basel Committee on Banking Supervision. The objectives of Appendix IX “Credit risk analysis and impairment” are: i) to establish a general framework for credit risk management that serves as a basis for the criteria for classifying transactions according to credit risk, and for making a prudential estimate of the level of impairment allowances of credit losses, and ii) set references that facilitate both the standard adoption of the aforementioned classification and impairment criteria and greater comparability between the financial statements of the entities. This general framework sets policies, methodologies, procedures and criteria for managing credit risk, and is structured into the following sections: - Acceptance of transactions: emphasizes the entity’s pricing policy. - Amendment to the terms of the transactions: the definitions applicable to restructured or refinanced transactions are aligned with FINREP and their accounting classification of credit risk is simplified. - Credit risk assessment, monitoring and control: comprises the general principles for estimating impairment allowance, which relate to governance, integration into management, efficiency, simplicity, documentation
13
Financial Report 2016
and traceability. In accordance with the efficiency principle, entities shall make periodical verifications through retrospective tests and comparison and reference examinations.
These general principles shall guide the development of own methodologies for estimating specific impairment allowances on an individual basis and internal methodologies for estimating specific and generic impairment allowances on a collective basis. This section also sets out specific requirements for individual and collective estimates. Additionally, it includes the criteria for identifying those transactions whose impairment will be estimated on an individual basis and those whose impairment will be estimated on a collective basis. - Guarantees and appraisals: efficient real and personal guarantees are developed, as well as the requirements for determining the reference measurement of real guarantees, for the purpose of measuring the impairment allowance. As for the classification of transactions based on credit risk, the “substandard” category disappears and a new category of risk is included identified as “watch-list” within performing exposures. Alternative solutions are offered, calculated based on sectorial information and the experience gained by the Bank of Spain, to estimate the specific impairment allowance of non-performing exposures and the generic impairment allowance of performing exposures for those entities that have not developed internal methodologies for these estimates. Regarding real estate assets foreclosed or received in exchange for the payment of debts, criteria for their measurement are offered, including the estimate of impairment. The entities shall develop internal methodologies for estimating discounts on the reference value and the costs to sell these assets, or to apply percentage discounts estimated by the Bank of Spain based on its experience and the information it has on the Spanish banking sector. o
Bank of Spain Circular 7/2016 of 29 November enacting the accounting specifications to be applied by banking foundations, and amending Bank of Spain Circular 4/2004 of 22 December, to credit institutions, on public and confidential financial reporting standards and financial statements formats, and Circular 1/2013 of 24 May on the Central Credit Register. Bank of Spain Circular 7/2016 of 29 November was issued on 3 December 2016. Regarding Circular 4/2004 of 22 December, to credit institutions, on public and confidential financial reporting standards and financial statements formats, amendments are made to specify and update the contents of some standards and statements, in line with the last amendments to the definitions and formats for the preparation of statements for supervisory reporting in the European Union (FINREP statements), as well as simplifying the disclosure requirements for credit institutions. Additionally, Appendix IX “Credit risk analysis and impairment” includes amendments to the treatment of reclassifications between risk classifications for transactions entailing credit risk and, in particular, for restructuring and refinancing transactions.
c) Responsibility for information and estimates During the preparation of the ICF Group’s 2016 consolidated financial statements, estimates have been used to quantify certain assets, liabilities, income, expenses and commitments disclosed therein. These estimates basically refer to:
Impairment losses of certain assets (Notes 6, 7, 8, 9 and 10)
The useful life of tangible assets and intangible assets (Notes 12 and 13)
The fair value of certain unquoted financial assets (Note 18)
Deferred tax assets (Note 21)
While these estimates are made based on the best information on the facts disclosed available at 31 December 2016, future events may take place requiring these estimates to be modified (increased or decreased) in subsequent
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Financial Report 2016
years. The effects on the balance sheet and income statement of changes in accounting estimates are recognized prospectively in accordance with the nineteenth standard of Circular 4/2004. d) Comparison with information from 2015 For presentation purposes, the financial statements for the year ended 31 December 2016 have been prepared considering the adoption of the contents of public financial information to the criteria for the preparation, terminology, definitions and formats of the so-called FINREP statements which are mandatory for consolidated financial information as set forth in Commission Implementing Regulation (EU) No 680/2014 of 16 April, in compliance with Regulation (EU) No 575/2013 of the European Parliament and Council. Consequently, the information related to the year ended 31 December 2015 has been adapted to the new aforementioned formats in order to facilitate comparability between the respective year’s financial information. As established by prevailing legislation, the information disclosed in the notes to the financial statements for 2015 is presented solely for comparison with the information for 2016. It therefore does not form part of the financial statements for 2015. e) Environmental issues Given its activities, the Group has no responsibilities, expenses, assets, provisions or contingencies of an environmental nature that may be material to its equity, financial position or results. Therefore, the notes to the Group's consolidated financial statements do not include specific disclosures on environmental issues. f) Events after the reporting period No significant subsequent events have arisen between the reporting date and the date on which these consolidated annual financial statements were authorized for issue. 2.
Accounting Principles and Valuation Criteria In the consolidated financial statements for 2016, the following accounting principles and policies, and valuation criteria have been applied: a) Consolidation principles The consolidated financial statements have been prepared by fully consolidating the subsidiaries and accounting for investments in associates using the equity method. Subsidiaries Subsidiaries are those entities over which the Institut has the capacity to exercise control, which is understood to be when: -
The Group has the power to govern the activities of the subsidiary; The Group has the practical capacity to exercise this power for the purpose of influencing its profitability; Due to the involvement of the Group, it is exposed or is entitled to variable profits from the subsidiary. Any event or circumstance which could have an effect on the assessment of whether control exists or not, as well as the analyses described in the related guidelines for the application of legislation, i.e. that a direct or indirect interest of more than 50% of voting rights of the entity being assessed is held.
When events and circumstances indicate that there have been changes in one of the three preceding conditions, the Group shall once again evaluate its control capacity over the subsidiary. In the acquisition of control over a subsidiary, the Group applies the acquisition method set out in the regulatory framework, except for if it involves the acquisition of an asset or group of assets. The financial statements of subsidiaries are fully consolidated, irrespective of their activity, with those of the Institut, which involves aggregating the assets, liabilities and equity, income and expenses of a similar nature disclosed in the individual financial statements. A percentage of the carrying amount of direct and indirect holdings in subsidiaries is eliminated equivalent to the proportion of equity of these subsidiaries represented by these holdings. The remaining balances and transactions are eliminated in the consolidation process. For consolidation purposes, the results of subsidiaries are those generated since the acquisition date.
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Financial Report 2016
Those companies forming part of the venture capital activity are not considered to be subsidiaries, because in accordance with the Regulations on Management of Venture Capital Funds and Companies, the Institut has no control over their management, with the only exception being Capital MAB F.C.R. and Capital Expansió F.C.R., which are solely owned by the Institut and managed by ICF Capital S.G.E.I.C. S.A.U. These two companies joined the consolidated group on 1 January 2015. Associates Associates are entities over which the Institut directly or indirectly exercises significant influence and which are not subsidiaries or joint ventures entities. Significant influence arises, inter alia, in the following situations: a) b) c) d) e)
Representation in the board of directors or equivalent management body of the subsidiary. Participation in the establishing of policies, including those relating to dividends and other distributions. Existence of significant transactions between the Group and subsidiary. Exchange of senior management personnel. Supply of essential technical information.
The analysis to determine the existence of significant influence over a subsidiary shall also take into consideration the importance of the investment in the subsidiary, the age of the subsidiary's governing bodies and the existence of potential voting rights convertible at the analysis date. Significant influence is considered to exist in most cases when the Group has 20% or more of the voting rights of a subsidiary in which it holds a stake. Companies which form part of the venture capital activity are not considered associates since, in accordance with the Regulations on Management of Venture Capital Funds and Companies, it does not have significant influence over its management. These investments are recognized under “Available-for-sale financial assets”. Associates are accounted for in the consolidated financial statements using the equity method, i.e. for the percentage of their equity equal to the Group's percentage shareholding, after taking into account dividends received and other equity eliminations. The same percentage of any gains or losses from transactions with associates is eliminated. Appendix II presents a breakdown of the Group’s subsidiaries and associates, together with relevant information thereon. b) Financial instruments Initial recognition Financial instruments are initially recognized on the balance sheet when the Group becomes party to the relevant contract, in accordance with the terms set out therein. Loans and deposits — the most common type of financial asset and liability — are recognized on the date the amount becomes legally payable or receivable. Financial derivatives are generally recognized on the trade date. Operations involving regular-way sale and purchase of financial assets, and which may not be settled net, are recognized on the date when the rewards, risks, rights and duties inherent to ownership of the asset are transferred to the purchaser. Depending on the type of financial asset acquired or sold, this may occur on the trade, settlement or delivery date. In particular, spot currency transactions are recognized on the settlement date; transactions involving equity instruments traded on Spanish secondary securities markets are recognized at the trade date; and those involving debt instruments traded on secondary Spanish markets are recognized on the settlement date. Derecognition of financial instruments An asset is fully or partially derecognized from the balance sheet when the contractual rights to the associated cash flows expire or when the asset is transferred. Transfer of an asset must involve the substantial transfer of the risks and rewards, or, if not, the transfer of control of the asset (Note 2.g). A financial liability is fully or partially derecognized when the obligations it generates are extinguished or when it is purchased by the Group.
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Financial Report 2016
Fair value and amortized cost All financial instruments are initially recognized in the balance sheet at fair value, this being the cost of the transaction unless there is evidence to indicate otherwise. Subsequently, on a specific date, the fair value is taken to be the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The most objective and common benchmark for the fair value of a financial instrument is the quoted price in an organized, transparent and deep market ("quoted price" or "market price"). If there is no market price for a specific financial instrument, its fair value is estimated based on that established in recent transactions involving similar instruments and, failing that, on models that have been adequately tested by the international financial community. Consideration must also be given to the specific nature of the asset to be valued and, in particular, to the different types of risk associated with the instrument. The fair value of financial derivatives traded on organized, transparent and deep markets recognized as financial assets held for trading is taken as the daily quoted price. If, for exceptional reasons, it is not possible to obtain a price for a specific date, the instrument will be valued using methods similar to those used to value derivatives that are not traded on organized markets. The fair value of derivative instruments not traded on organized markets, or which are traded on insufficiently transparent or deep markets, is determined using recognized methods such as the net present value (NPV) method or models used to determine the price of options. Nevertheless, some specific financial assets and financial liabilities are recognized in the balance sheet at amortized cost. This criterion is applied to financial assets included under “Loans and receivables” and to financial liabilities recognized as Financial liabilities at amortized cost. Amortized cost is the acquisition cost of the financial asset or financial liability, plus or minus principal repayments and the part systematically taken to profit and loss using the effective interest method, of any difference between that initial amount and the maturity amount. In the case of financial assets, amortized cost also includes any reduction for impairment. The effective interest rate is the rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed-rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date, adjusted, where applicable, for initial premiums, discounts and commissions that are similar in nature to interest charges or transaction costs. For variable rate financial instruments, the effective interest rate is the same as that used for all other instruments until the next review of the benchmark interest rate takes place. A portion of the assets and liabilities recognized under these headings are included in some of the fair-value and cash flow microhedges managed by the Group and the carrying amount is therefore adjusted to include its fair value attributable to the hedged risk. Most other assets and certain liabilities bear interest at a variable rate which is adjusted each year and, accordingly, the fair value of these assets and liabilities, solely as a result of market interest rate fluctuations, will not differ significantly from the value recognized in the balance sheet. All other assets and liabilities are fixed-rate instruments; a substantial portion of which mature in less than a year and, therefore, as in the preceding case, the fair value of these assets and liabilities resulting solely from market interest rate fluctuations does not differ significantly from the value recognized in the balance sheet. Details of the fair value of assets classified under “Tangible assets” on the balance sheet are provided in Note 12. Classification and measurement of financial assets and financial liabilities The financial instruments not classified under one of the categories detailed below are recognized under one of the following headings in the accompanying balance sheet: “Cash, cash balances in central banks and other demand deposits”, Derivatives - hedge accounting” and “Investments in subsidiaries, joint ventures and associates”. Additionally, all other financial instruments are classified on the balance sheet according to the following categories:
Loans and receivables: This heading includes financing extended to third parties in connection with the ordinary lending activities carried out by the Group, and receivables from purchasers of goods and users of services. It also includes unquoted debt securities or debt securities which are traded on markets which are barely active. The financial assets included in this category are initially measured at fair value adjusted
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Financial Report 2016
by the amount of the commissions and transaction costs that are directly attributable to the acquisition of the financial asset and which are expensed using the effective interest method over the life of the asset. They are subsequently measured at amortized cost, as previously described in this Note. Assets acquired at a discount are measured at the cash amount paid. The difference between their repayment value and the amount paid is recognized as finance income on the income statement during the remaining term to maturity. The interest accrued on these operations, which is calculated using the effective interest rate method, is recognized under “Interest income” in the income statement. Any impairment losses on these securities are recognized as set out in Note 2.h. Finally, differences arising in the fair value of financial assets included in fair value hedges are recognized as described in Note 2.c.
Held-to-maturity investments: This caption contains debt securities with fixed or determinable payments and fixed maturity traded on an active market and that the Institut has the positive intention and ability to hold to maturity. Held-to-maturity investments are measured at amortized cost using the effective interest rate method.
Financial liabilities at amortized cost: Financial liabilities not classified as held for trading are included under this heading. The balances recognized correspond to the normal activities of obtaining funds carried out by credit institutions, irrespective of the type of operation or its maturity. They are initially measured at fair value adjusted by the amount of transaction costs that are directly attributable to the issue of the financial liability and which are expensed in the income statement using the effective interest method until maturity. They are subsequently measured at amortized cost, as previously described in this Note. The interest accrued on these financial liabilities is recognized under “Interest expenses” in the income statement. The differences arising in the fair value of financial liabilities included in fair value hedges are recognized as described in Note 2.c.
Available-for-sale financial assets: This balance sheet heading includes debt securities that are not considered as held for trading or held to maturity, or lending. It also includes equity instruments issued by entities other than associates, providing that these instruments are not classified as assets held for trading. The debt securities included in this category are always measured at fair value adjusted by the amount of the transaction costs that are directly attributable to the acquisition of the financial asset and which are expensed to the income statement using the effective interest method over the life of the asset. When a sufficiently objective calculation of fair value is not possible, equity instruments are measured at cost, net of any possible impairment. Changes in the fair value of financial assets when they are acquired are recognized with a balancing entry under “Equity. Valuation adjustments - Available-for-sale financial assets” until the financial asset is disposed of or there is evidence of impairment. At this point, the balance in equity is taken to profit or loss and recognized under “Impairment losses or reversal of impairment losses on financial assets”. Gains from securities, comprising interest or dividends, are recognized under “Interest income” (calculated using the effective interest method) and under “Dividend income” in the income statement, respectively. Any impairment losses on these securities are recognized as set out in Note 2.h. Finally, differences arising in the fair value of financial assets included in fair value hedges are recognized as described in Note 2.c.
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Financial Report 2016
In the particular case of investments in unquoted venture capital companies and Funds, these investments are measured at fair value, recognizing under “Equity” those changes in fair value which are between 90% and 60% of the value of the investment, until the asset is sold or is impaired (in a stable or permanent manner), which is when the accumulated profit or loss previously recognized under “Equity” is recognized in the income statement. Impairment is considered to exist (permanently) if the fair value is under 60% of the value of the investment. Likewise, changes in the fair value implying an increase in the value of the investment are recognized under “Equity”. Debt securities are measured based on the quoted price in organized markets, considering that there is evidence of impairment when the market value is 60% lower than the cost. In addition, Circular 4/2004 stipulates other categories for financial instruments: “Assets and liabilities held for trading” and “Assets and liabilities at fair value through profit or loss”. At 31 December 2016 and 2015 the Group had no assets and/or liabilities in any of these portfolios. Reclassification between portfolios Reclassification between financial instrument portfolios can only be made, where appropriate, as follows: a) Financial instruments classified as “At fair value through profit or loss” cannot be reclassified into or out of this financial instrument category once acquired, issued or held. b) If, as a result of a change in intention or financial ability, it is no longer appropriate to classify a financial asset as held to maturity, it is reclassified into the “Available-for-sale financial assets” category. In this case, the same treatment shall be applied to all the financial instruments classified as “Held-to-maturity investments”, unless the reclassification is made in any of the circumstances permitted under the applicable regulations (sales very close to maturity, or virtually all of the financial asset's original principal has been collected, etc.). c) If, as a result of a change in intention or financial ability or because the two penalty financial years established by the regulations applicable to the sale of financial assets classified in the held-to-maturity category have elapsed, the financial assets (debt instruments) included in the “Available-for-sale financial assets” category can be reclassified into “Held-to-maturity investments”. In this case, the fair value of these financial instruments on the date of reclassification becomes their new amortized cost and the difference between this amount and the redemption value is taken to profit and loss over the remaining life of the instrument using the effective interest method. None of the reclassifications described in the above paragraphs were carried out in 2016 or 2015. c) Derivative instruments and hedging The ICF Group uses financial derivatives as a tool to manage financial risks (Note 3). When these transactions meet certain requirements, they are considered as hedges. When the ICF Group designates a transaction as a hedge, it does so from the date of inception of the transactions or instruments included in the hedge, and provides adequate documentation of the hedging transaction, in accordance with current regulatory requirements. The hedge accounting documentation includes adequate identification of the hedged item(s) and the hedging instrument(s), the nature of the risk to be hedged and the criteria or methods used by the ICF Group to assess the effectiveness of the hedge over its entire life, taking into account the risk to be hedged. The ICF Group only applies hedge accounting for hedges that are considered highly effective. A hedge is regarded as highly effective if, during its expected life, the changes in the fair value or cash flows of the hedged item that are attributable to the risk being hedged in the operation are almost fully offset by changes in the fair value or cash flows, as appropriate, of the hedging instrument(s).
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Financial Report 2016
To measure the effectiveness of hedges defined as such, the ICF Group analyses whether, from the inception to the end of the term defined for the hedge, the Group can expect, prospectively, that the changes in fair value or cash flows of the hedged item that are attributable to the hedged risk will be almost completely offset by changes in the fair value or cash flows, as appropriate, of the hedging instrument(s) and, retrospectively, that the actual results of the hedge are within a range of 80% to 125% of the results of the hedged item. The hedging transactions performed by the ICF Group are classified as follows:
Fair value hedges that hedge the exposure to changes in the fair value of financial assets or liabilities or unrecognized firm commitments, or of an identified portion of such assets, liabilities or firm commitments, that is attributable to a particular risk, provided that it affects profit or loss. Cash flow hedges that hedge the exposure to variability in cash flows that is attributable to a particular risk associated with a financial asset or financial liability or a highly probable forecast transaction, provided that it affects profit or loss.
In the specific case of financial instruments designated as hedged items and qualifying for hedge accounting, gains and losses are recognized as follows:
In fair value hedges, the gain or loss on both the hedging instruments and the hedged items attributable to the type of risk being hedged are recognized directly in profit or loss. Cash flow hedges: the Group recognizes as income and expenses recognized in equity the gains and losses arising from the measurement at fair value of the hedging instrument which corresponds to the portion that is determined to be an effective hedge. If a hedge of a forecast transaction results in the recognition of a financial asset or liability, the associated gains of losses that were recognized in equity are reclassified to profit or loss in the same period or periods during which the acquired asset or assumed liability affect profit or loss, and in the same income statement caption.
The gains or losses on the ineffective portion of the hedging instruments are recognized directly under “Gains or losses on hedge accounting, net” in the income statement. The ICF Group discontinues hedge accounting when the hedging instrument expires or is sold, when the hedge no longer meets the criteria for hedge accounting, or the designation as a hedge is revoked. When, as described in the previous paragraph, a fair value hedge is discontinued, in the case of hedged items carried at amortized cost, the value adjustments made as a result of the hedge accounting described above are recognized in the income statement over the life of the hedged items using the effective interest rate recalculated at the hedge’s discontinuation date. Derivatives embedded in other financial instruments or contracts are disclosed separately when their risks and characteristics are not closely related to those of the host instrument or contract, provided it is possible to assign a reliable, independent fair value to the embedded derivative. d) Leases Operating leases Under an operating lease, ownership of the leased asset and substantially all the risks and rewards incidental to ownership remain with the lessor. When the ICF Group acts as lessor, the cost of acquisition of the leased assets is presented under “Tangible assets” either as “Investment property” or as “Other assets under operating lease”. The depreciation policy for these assets is consistent with that for similar tangible assets for own use (Note 2.l) and income from operating leases is recognized on a straight-line basis under “Other operating income” in the income statement. When the Group acts as lessee, the lease expenses include incentives, where applicable, granted by the lessor and are presented on a straight-line basis in the income statement under “Other general administrative expenses”. e) Foreign currency transactions The ICF Group's functional currency is the Euro. Therefore, all balances and transactions denominated in currencies other than the Euro are deemed to be denominated in foreign currency.
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Financial Report 2016
Based on the type of the asset, foreign currency balances are translated into euros as follows: - Non-monetary items measured at historical cost are translated into the functional currency at the exchange rate prevailing at acquisition date. - Non-monetary items measured at fair value are translated into the functional currency at the exchange rate prevailing at the date fair value was determined. - Monetary items denominated in foreign currency are translated into euros applying the exchange rate prevailing at the balance sheet date. - Income and expenses are translated applying the exchange rate of the transaction. The exchange rate applied in the translation of foreign currency balances into euros are the ones published by the European Central Bank at 31 December of each year. Exchange gains and losses arisen in the translation of foreign currency balances into euros are recorded, in general, for their net amount under “Exchange [gains or (-) losses], net” in the income statement, except for exchange gains and losses arisen in financial instruments classified at fair value through profit or loss, which are recorded in the income statement in the same manner as the other changes in their carrying amount under “Gains or (-) losses on financial assets and liabilities held for trading, net” or “Gains or (-) losses on financial assets and liabilities at fair value through profit or loss, net”. f) Recognition of income and expenses The most significant accounting criteria used by the ICF Group to recognize its income and expenses are summarized as follows. a) Interest income and expenses, dividends and similar items Interest income, interest expenses and similar items are generally recognized on an accrual basis using the effective interest method, independently of when the associated cash or financial flows arise. Interest accrued on receivables classified as non-performing exposures, including those associated with country risk, is credited to income when collected, as an exception to the general rule. Dividends received from other companies are recognized as income when the Institut’s right to receive them arises, provided that distribution corresponds to profit generated by the subsidiary since the Institut gained a shareholding interest in it. b) Commission income and expenses Commission income and expense are recognized in the income statement using criteria that vary according to their nature. Financial commissions, such as loan arrangement fees, are a part of the effective cost or yield of a financial transaction and are recognized under the same headings as the finance income or costs, i.e. “Interest income” and “Interest expenses”. These commissions, which are collected in advance, are recorded as income over the life of the transaction, except to the extent that they offset related direct costs. Commission that offset related direct costs, which are taken to be those costs that would not have been incurred if the transaction had not been arranged, are recognized under “Other operating income” when the asset transaction is closed. Taken individually, the amount of these commissions does not exceed 0.4% of the principal of the financial instrument, subject to a limit of Euros 400; any excess is recognized in the income statement over the life of the transaction. Amounts no greater than Euros 90 are recognized immediately in the income statement. Non-financial commissions deriving from the provision of services are recognized under “Commission income” and “Commission expense” over the period in which the service is provided, except for those relating to services provided in a single act, which are recognized when the single act is carried out. c) Non-financial income and expenses These are recognized for accounting purposes on an accrual basis.
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Financial Report 2016
d) Deferred collections and payments These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates. g) Transfers of financial assets The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties:
If the risks and rewards of the transferred assets are transferred to third parties (unconditional sale of financial assets, sale of financial assets under an agreement to repurchase them at their fair value at the date of repurchase, sale of financial assets with a purchased call option or written put option that is deeply out of the money, securitization of assets in which the transferor does not retain a subordinated debt or grant any credit enhancement to new holders, and other similar cases), the transferred financial asset is derecognized and any right or obligation retained or created in the transfer is recognized simultaneously.
If the risks and rewards associated with the transferred financial asset are substantially retained (sale of financial assets under an agreement to repurchase them at a fixed price or the sale price plus interest, a securities lending agreement in which the borrower undertakes to return the same or similar assets, securitization of financial assets in which a subordinated debt or another type of loan enhancement is retained that absorbs substantially all the expected credit losses on the securitized assets, and other similar cases), the transferred financial asset is not derecognized and continues to be measured using the same criteria as those applied before the transfer. However, the following items are recognized, without offsetting:
An associated financial liability, for an amount equal to the consideration received; this liability is subsequently measured at amortized cost.
The income from the transferred financial asset that is not derecognized and any expense incurred on the new financial liability.
If all the risks and rewards associated with the transferred financial assets are neither substantially transferred nor retained (sale of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of financial assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases) a distinction is made between:
If the Group does not retain control of the transferred financial asset, it is derecognized from the balance sheet and any right or obligation retained or created in the transfer is recognized.
If the Group retains control of the transferred financial asset, it continues to recognize the asset in the balance sheet for an amount equal to its exposure to changes in value and recognizes a financial liability associated with the transferred financial asset. The net amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost; or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value.
Accordingly, financial assets are only derecognized when the cash flows they generate have been extinguished or when substantially all the inherent risks and rewards have been transferred to third parties. h) Impairment of financial assets A financial asset is considered to be impaired when there is objective evidence of a negative impact on the future cash flows that were estimated at the transaction date, or when the carrying amount is not fully recoverable. As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the income statement for the period in which it is evident that impairment has occurred, and the reversal, if any, of previously recognized impairment losses is recognized in the income statement for the period in which the impairment is reversed or reduced.
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Financial Report 2016
When the recovery of any recognized amount is considered unlikely, the amount is derecognized from the balance sheet, without prejudice to any actions that the Group may initiate to seek collection until its contractual rights are extinguished definitively due to expiry of the statute-of-limitations period, forgiveness or any other cause. Debt instruments carried at amortized cost The amount of an impairment loss incurred on a debt instrument carried at amortized cost is equal to the negative difference arisen when comparing the present values of their estimated future cash flows discounted at the effective interest rate and their respective book values. When estimating future cash flows of debt instruments the following is considered: - All amounts expected to be obtained during the remaining life of the instrument, even those that may derive from related guarantees, if any (net of the costs necessary for their foreclosure and subsequent sale). Impairment losses consider that uncollected past due interest accrued may be collected. - The different types of risk that each instrument is subject to. - The circumstances in which collections are expected to occur. Specifically as regards impairment losses deriving from the materialization of the insolvency risk of the debtor (credit risk), a debt instrument is impaired due to insolvency (objective evidence of impairment): -
When there is evidence of a deterioration of the debtors' ability to pay, either because it is in arrears (more than 90 days past due) or for other reasons related to the debtors’ financial position or ability to pay.
-
When country risk materializes, defined as the risk that is associated with debtors resident in a given country due to circumstances other than normal commercial risk.
Impairment losses on these assets are assessed through differentiated processes based on whether the customers are classified as individually significant or non-significant, following an analysis of the portfolio and according to the monitoring policy applied by the bank. This customer selection criterion results in the individual analysis having a highly significant importance on the overall impairment estimated in the model. Once the thresholds have been set, the process is as follows: - Analysis on an individual basis: for individually significant assets an analysis is made to identify customers with Objective Evidence of Impairment (hereinafter OEI), differentiating two groups: • Customers with OEI: the loss incurred is calculated based on the present value of expected future cash flows (repayment of principal and interest) of each customer transaction (discounted at the original effective interest rate), and this present value is compared to book value. To that effect, both the going concern (collection of cash flows) and the gone concern (foreclosure of the collateral) assumptions are considered. • Customers with no OEI: it is verified that they do not actually show any evidence of impairment, and no provision is required given their good credit position. These exposures are grouped into homogenous risk groups and impairment losses are collectively assessed. - Analysis on a collective basis: for no significant exposures with OEI and for other exposures a collective calculation is made by homogenous risk groups, in order to obtain both the generic hedge associated with a group of transactions and the specific hedge to cover specific transactions bearing similar risk characteristics that make it possible to classify them into homogenous group. To this effect, the Bank uses as reference the risk parameters provided by Bank of Spain Circular 4/2004, which are based on historical experience of the Spanish market and have been updated by the Bank of Spain in 2016.
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Financial Report 2016
Available-for-sale equity instruments Impairment losses on available-for-sale equity instruments equal the positive difference between their acquisition cost and fair value, after deducting any impairment loss previously recognized in the income statement, since a reduction of the fair value to below acquisition cost does not of itself constitute evidence of impairment. When there is objective evidence that the positive differences resulting from the measurement of assets are due to impairment, they are no longer recognized in equity as “Other accumulated comprehensive income” and are recognized in the consolidated income statement for the amount considered to be the accumulated impairment loss to date. If all or part of the impairment losses are subsequently recovered, this amount is recognized in equity under “Other accumulated comprehensive income” for the period in which the recovery occurred (Note 2.b.). Equity instruments measured at acquisition cost The impairment losses on equity instruments measured at acquisition cost are the difference between their carrying amount and the present value of the expected future cash flows discounted at the market rate of return for similar securities. Impairment losses are recognized in the income statement for the period in which they arise as a direct reduction of the cost of the instrument. These losses may only be subsequently reversed if the related assets are sold. The estimation and calculation of the impairment losses of shareholdings in subsidiaries, joint venture or associates which, for the purpose of the preparation of these financial statements, are not considered Equity instruments, are made by the ICF Group in accordance with the criteria set out in Note 2.a above. i) Financial guarantees and provisions for financial guarantees Financial guarantees are defined as contracts whereby an entity undertakes to make specific payments on behalf of a third party if the latter fails to do so, irrespective of the various legal forms they may have, such as guarantees, irrevocable documentary credits issued or confirmed by the Group. These operations are disclosed in a memorandum account to the balance sheet, under “Contingent liabilities”. When the contracts are arranged they are recognized at fair value (taken to be the present value of the future cash flows) under “Loans and receivables” with a balancing entry in Financial liabilities at amortized cost. Changes to the value of the contracts are recognized as finance income in the income statement under “Interest income”. Financial guarantees, regardless of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost (described in Note 2.h above). The provisions made for these transactions are recognized under “Provisions – Contingent commitments and guarantees” on the liabilities side of the balance sheet. These provisions are recognized and reversed with a charge or credit, respectively, to “Provisions or (-) reversal of provisions” in the income statement. j) Personnel expenses Termination benefits Bank of Spain Circular 4/2004 only permits a provision to be recognized for future termination benefits when the Group has created a valid expectation against third parties involved. A valid expectation is that the Group is demonstrably committed to severing its relationship with an employee before the normal retirement date or to paying termination benefits as a result of an offer made to encourage voluntary redundancy by employees. The Group has no such commitment making it necessary to recognize a provision in this regard.
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Financial Report 2016
k) Income tax The income tax expense is recognized in the income statement, except when it results from a transaction recognized directly in equity, in which case the income tax is also recognized in the Institut’s equity. The income tax expense for the financial year is calculated as the tax payable on the taxable profit for the year, adjusted by the amount of the changes in the year in the recognized assets and liabilities due to temporary differences and to tax credit and tax losses. The Group considers that there is a temporary difference when there is a difference between the carrying amount of an asset or liability and its tax base. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. A temporary difference for tax purposes is one that will generate a future obligation for the Group to make a payment to the relevant taxation authorities. A deductible temporary difference is one that will generate a right to a refund or a reduction in future tax charges. Tax credits for tax deductions and benefits are amounts that, after occurrence or performance of the activity or obtainment of the profit or loss carrying the right to them, are not applied for tax purposes in the tax return until the conditions to do so established in the tax regulations are met but the Group considers it probable that they will be used in future periods, as it expects to have sufficient taxable profits in the future against which to offset them. All these temporary differences are recognized in the balance sheet as deferred assets or liabilities, separate from current tax assets and liabilities, which correspond principally to payments on account of corporate income tax balances payable to the taxation authorities and VAT receivable. Deferred tax assets and liabilities are reviewed at each reporting date in order to ascertain that they are still valid, and appropriate adjustments are made in accordance with the findings of the analyses carried out. Since 1 January 2006, the Group has been subject to the special provisions on consolidation for tax purposes set out in article 64 et seq. of the revised text of the Law on Income Tax approved by Royal Legislative Decree 4/2004. At 31 December 2016, the Group for consolidation purposes consists of the Institut and its subsidiaries, Instruments Financers per Empreses Innovadores, S.L. and Institut Català de Finances Capital, S.G.E.I.C. S.A.U. (Note 21.1). l) Tangible assets Tangible assets are broken down in the balance sheet into property, plant and equipment for own use, investment property and assets leased out under operating leases. Tangible assets that have been foreclosed in settlement of loans are classified as non-current assets held for sale. Property, plant and equipment for own use include assets, owned or held under a finance lease, for present or future administrative uses or for the production or supply of goods, that are expected to be used for more than one financial year. Investment property corresponds to the net value of land, buildings and other constructions held for the purposes of generating rental income or gains from their sale. Tangible assets are normally recognized at acquisition cost less accumulated depreciation and any adjustment resulting from a comparison of the net value with the corresponding recoverable amount. Depreciation is calculated on a straight-line basis on the acquisition cost of the assets less their residual value. An exception is land, which is considered to have an indefinite life and is therefore not depreciated. Depreciation is charged annually to “Amortization and depreciation” in the income statement, and is calculated using the following fixed rates as percentages of the estimated useful life of each asset type.
Buildings for own use and constructions Furniture Machinery and electronic equipment Installations IT equipment
% Annual depreciation 2% 10% 10% 10% 25%
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Financial Report 2016
At the reporting date the Group assesses whether there is indication that the net value of its tangible assets exceeds its recoverable amount. If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life, if this needs to be re-estimated. The reduction in the carrying amount of tangible assets is charged to “Impairment losses or reversal of impairment losses on non-financial assets” in the income statement. Similarly, if there is an indication of a recovery in the value of an impaired item of tangible assets, the Group recognizes the reversal of the impairment loss recognized in prior periods in the aforementioned heading in the income statement and adjusts the future depreciation charges accordingly. Under no circumstances may the reversal of an impairment loss on an asset increase its carrying amount above the carrying amount it would have if no impairment losses had been recognized in previous years. Once a year, or when circumstances make it advisable, the estimated useful lives of tangible assets are reviewed and any necessary adjustments made to the depreciation to be charged to the income statement in future financial years. Upkeep and maintenance expenses are charged to “Other general administrative expenses” in the income statement. Independent experts carry out appraisals on behalf of the Group in order to determine whether any impairment exists in its real estate assets. m) Intangible assets Intangible assets are identifiable non-monetary assets without physical substance which are acquired from third parties or which are developed internally. Only intangible assets whose cost can be estimated objectively and from which it is considered probable that future economic benefits will be generated are recognized. Intangible assets are recognized initially at acquisition or production cost, and are subsequently measured at cost less any accumulated amortization and any accumulated impairment losses. This heading basically refers to amortizable expenses incurred in relation to the development of IT systems. Such assets have a fixed useful life and are amortized over a maximum of five years. Amortization is charged annually to “Amortization and depreciation” in the income statement and any impairment losses and subsequent recoveries are charged to “Impairment losses or reversal of impairment losses on nonfinancial assets”. n) Non-current assets held for sale The Group only has classified as non-current assets held for sale the tangible assets received in settlement of loans, which have not been retained for own use or classified as investment property available for lease. Assets received in settlement of debts are recognized at the lower of the carrying amount of financial assets and the received asset’s fair value less estimated costs to sell. Should foreclosed assets remain on the balance sheet for a longer time than initially envisaged, the value of the assets is adjusted to recognize any impairment loss caused by difficulties in finding buyers or receiving reasonable offers. Impairment losses that become evident after capitalization are recognized under “Impairment losses - Non-current assets held for sale” in the income statement. If the value subsequently recovers, this is recognized under the same heading in the income statement, the amount recovered being limited to the amount of the impairment previously recognized. Assets classified under this category are not depreciated.
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Financial Report 2016
o) Provisions and contingencies Provisions cover present obligations at the reporting date arising from past events, which could give rise to a loss for entities, and are considered to be likely to occur; their nature is certain but their amount and/or timing is uncertain. Contingent liabilities are possible obligations that arise from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more future events not within the entities’ control. The Group’s financial statements include all the material provisions with respect to circumstances in which it is considered that it is more likely than not that the obligation will have to be settled. Provisions are recognized in the balance sheet according to the obligations covered, including provisions for taxes and for contingent exposures and commitments. Contingent liabilities are disclosed in the memorandum accounts to the balance sheet. Allowances to provisions are recognized in the income statement under “Provisions or (-) reversal of provisions” (Note 33). At 2016 year end certain litigation and claims were underway arising from the ordinary course of the Group’s operations. The Group’s legal advisors and directors consider that the outcome of litigation and claims will not have a material effect on the financial statements for the years in which they are settled. p) Consolidated statement of changes in equity The statement of changes in equity presented in these financial statements shows the total changes in equity during the year. This information is in turn presented in two statements: the statement of recognized income and expense and the full-format statement of changes in equity. The main characteristics of the information contained in both parts of the statement are explained below: Statement of recognized income and expense This part of the statement of changes in equity presents the income and expenses generated by the Entity as a result of its business activity during the year, and a distinction is made between the income and expenses recognized in the income statement for the year and the other income and expenses recognized, in accordance with current regulations, directly in equity. Accordingly, the statement presents: a)
Profit for the year.
b)
Net amount of the income and expenses recognized temporarily in equity under “Valuation adjustments”.
c)
The net amount of the income and expenses recognized definitively in equity.
d)
The income tax incurred by the items indicated in b) and c) above.
e)
The total income and expenses recognized, being the sum of the above letters.
The changes in income and expenses recognized in equity under Valuation adjustments are broken down as follows: a)
Valuation gains (losses): includes the income, net of the expenses incurred in the year, recognized directly in equity. The amounts recognized in this account during the year are included under this heading, even though they are transferred in the same year to the income statement, at the initial value of other assets or liabilities, or are reclassified into another account.
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Financial Report 2016
b)
Amounts transferred to the income statement includes the amount of the revaluation gains and losses previously recognized in equity, albeit in the same year, which are recognized in the income statement.
c)
Amounts transferred to opening balance of hedged accounts: includes the amount of the revaluation gains and losses previously recognized in equity, albeit in the same year, which are recognized in the opening balances of assets or liabilities as a result of cash flow hedges.
d)
Other reclassifications: transfers made in the year between valuation adjustment accounts in accordance with current regulations.
Where applicable, the amounts of these items are presented gross and the related tax effect is recognized under “Income tax”. Statement of total changes in equity This part of the statement of changes in equity presents a reconciliation of the carrying amount at the beginning and end of the year of all the equity accounts, and the changes made are grouped together on the basis of their nature into the following categories: a)
Adjustments due to changes in accounting criteria and correction of errors: changes in equity arising as a result of the retrospective restatement of the balances in the financial statements due to changes in accounting policy or to the correction of errors.
b)
Income and expenses recognized during the year: the aggregate total of the aforementioned items recognized in the statement of recognized income and expense.
c)
Other changes in equity: the remaining items recognized in equity, including increases and decreases in the assigned capital, distribution of profit, transactions involving own equity instruments, equity-instrument based payments, transfers between equity items and any other increases or decreases in equity.
q) Statement of cash flows The following terms are used in the statements of cash flows:
Cash flows: Inflows and outflows of cash or cash equivalents, which are short-term, highly liquid investments subject to a low risk of changes in value.
Operating activities: the typical activities of credit institutions and other activities that cannot be classified as investing or financing activities.
Investing activities: the acquisition, sale or other disposal of long-term assets and other investments not included in cash or cash equivalents
Financing activities: activities that result in changes in liabilities that do not form part of operating activities. Issues made by the Group and placed on established markets are considered to be financing activities.
For the purpose of preparing the cash flow statement, any short-term investments that are highly liquid and have a low risk of them changing in value are considered as cash or cash equivalents. Thus, the Group recognizes the following financial assets and financial liabilities as cash or cash equivalents:
Cash held by the Group is recognized under “Cash, cash balances with central banks and other demand deposits” on the balance sheet. Cash held by the Group is recognized under “Cash, cash balances with central banks and other demand deposits” on the balance sheet.
r) Going concern principle Upon preparing the statements it has been considered that the Group will continue to operate as a going concern in the foreseeable future. Therefore, the application of the accounting legislation is not focused on determining the value of equity for the purpose of global or partial transfer or the resulting amount in the event of liquidation.
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Financial Report 2016
s) Accrual basis These financial statements, except for the statements of cash flows, have been prepared on the basis of the real flow of assets and services, irrespective of the date of payment or collection, with the exception of interest relating to lending and other risks without investment with borrowers considered as impaired, which is charged to profit or loss when collected. The accrual of interest in asset and liability transactions, with liquidation terms exceeding 12 months, is calculated using the effective interest rate method. In operations of less than 12 months, interest is accrued without distinction between the interest or straight-line method. Following general financial practice, transactions are recognized at the date on which they take place, which can differ from their corresponding value date, base on which finance income and costs are calculated.
3.
Risk management and capital management 3.1 Market risk With the sole exception of the fixed income portfolio, the counterparties of which are mainly credit institutions and public entities (Notes 6, 7 and 8), the Group does not have any financial instruments with a market risk in its assets. Derivatives are only contracted for the purpose of hedging interest rate and currency risk. In relation to the fixed income portfolio, a comparison between the value at which financial assets and financial liabilities are recognized on the accompanying balance sheet at 31 December 2016 and 2015 and their corresponding fair value is as follows: 31/12/2016 Held-to-maturity investments Available-for-sale assets
Carrying amount
Fair value
1,097
1,100
386,422
386,422
With the respective values at 31 December 2015 being: 31/12/2015
Carrying amount
Fair value
Held-to-maturity investments
17,319
16,849
Available-for-sale assets
169,922
169,922
164
164
Loans and receivables
3.2 Liquidity risk 3.2.1. Liquidity risk purposes, policies and management Liquidity risk involves the risk of not having sufficient funds to meet obligations acquired as they fall due, as well as the risk of not being able to liquidate a certain position as a result of market imperfections. Liquidity risk policies and procedures are approved at the Governing Board, and the Entity’s Asset-Liability Committee (hereinafter the ALC) is responsible for supervising it and define the procedures for mitigating and controlling it. The Group’s fundamental objective in relation to liquidity risk is to have the necessary instruments and processes in place at all times to enable the Group to keep sufficient levels of liquidity to meet its payment obligations without significantly affecting the Group’s results, and to preserve the mechanisms that, in any eventuality, enable it to meet its payment obligations.
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Financial Report 2016
Aside from the daily forecast of what funds are available and are needed, medium-term planning to assess these needs is fundamental. This planning is prepared taking into account future evolution of the balance sheet. This enables the Group to make forecasts sufficiently in advance of any possible cash flow tensions that could arise and ensure instruments are available to resolve them. This analysis is performed under different growth rates, bad debt, and other scenarios and enables future payments and collections that are expected to be made in the short to midterm to be identified and planned. As a general rule, the Group normally has several sources of funds, including capital increases, borrowing from public and private financial institutions, and issuing of debt securities. The monthly review by the ALC of this action ensures the Group has sufficient funds to meet all its payment obligations on a timely basis, and fulfil its strategic and operating objectives regarding investments, and sustained, stable and moderate growth. Its ordinary financing policy has always been conservative, based on the following three principles: a. Diversifying its debt between private financial institutions, public credit institutions and capital markets. b. Entering into long-term transactions. Consequently, the average debt contract length is 13.5 years. c. Avoiding a concentration of maturities in any single year. 3.2.2. Maturity dates of financial assets and financial liabilities As explained in section 3.2.1 above, a key part of the ICF Group’s strategy to manage liquidity is to analyze the maturity dates of its financial assets and financial liabilities. The tables below show financial assets and financial liabilities at 31 December 2016 and 2015, classified in accordance with the time remaining to maturity at these dates, according to the conditions stipulated in the associated contractual conditions: At 31 December 2016
Assets Cash, cash balances in central banks and other demand deposits Loans and receivables Deposits in credit institutions Loans to customers Debt securities Total assets Liabilities Financial liabilities at amortized cost Deposits from credit institutions Funds from customers Debt securities issued Total liabilities Maturity GAP % of total assets
On-demand deposits
< 1 month
1-3 months
3-12 months
69,194 32,298 23,506 8,792 101,492
55,300 35,740 19,560 5,275 60,575
62,906 25,416 37,490 44,562 107,468
336,452 61,685 274,767 24,129 360,581
1,094,288 137,311 956,977 313,554 1,407,843
604,810 604,810 604,810
69,194 2,186,057 283,659 1,902,398 387,519 2,642,769
11,858 11,858
835 918 1,753
45,006 407 1,089 46,502
257,663 2,611 128,245 388,519
543,584 49,123 465,541 1,058,247
385,498 54,211 32,376 472,085
1,232,585 118,209 628,168 1,978,963
89,635 3%
58,821 2%
60,966 2%
(27,938) (1%)
349,596 13%
132,726 5%
1-5 years
> 5 years
Total
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Financial Report 2016
At 31 December 2015
Assets Cash, cash balances in central banks and other demand deposits Loans and receivables Deposits in credit institutions Loans to customers Debt securities Total assets Liabilities Financial liabilities at amortized cost Deposits from credit institutions Funds from customers Debt securities issued Total liabilities Maturity GAP % of total assets
On-demand deposits
< 1 month
1-3 months
3-12 months
105,120 20,894 11,734 9,160 126.014
64,168 46,027 18,141 2.079 66.247
157,094 115,824 41,270 8.300 165.394
345,380 114,243 231,137 143.216 488.596
1,270,940 176,490 1,094,450 33.646 1.304.586
798,184 3,847 794,337 798.184
105,120 2.656.660 468.165 2.188.495 187.241 2.949.021
66,128 66,128
836 29 4,427 5,292
63,396 (158) 7,351 70,589
195,285 2,415 17,789 215,489
719,829 55,441 268,002 1,043,272
548,089 3,662 354,239 905,990
1,527,435 127,517 651,808 2,306,760
59,886 2%
58,876 2%
86,505 3%
129,891 5%
261.314 8%
(107,806) (4%)
1-5 years
> 5 years
Total
3.3 Structural interest rate risk 3.3.1 Interest rate risk purposes, policies and management Interest rate risk consists of the risk to which the Group is exposed in relation to its financial instruments, the source of which lies in variations in market interest rates. The interest rate risk directly affects the Group's activity due to the effect that its variations could have on the income statement. The pegging of financial instruments to market interest rates gives rise to accrued income and expenses indexed to market performance, in such a way that variations in these references could affect, in a non-symmetric manner, other instruments (interest rate GAP). In the case of variable interest rate arrangements, the risk to which the Group is exposed arises in the periods when interest rates are revised. The objectives of managing interest rate risk and the policies to do so are approved by the Institut’s Governing Board. Meanwhile, the ALC is responsible for defining and overseeing procedures to ensure these objectives are met and policies are implemented. The Group’s objectives regarding this risk focus on limiting any deviation in the financial margin to ensure any corrections in market interest rate curves do not significantly directly affect its results. The ALC implements procedures that ensure the Group complies with interest rate risk control and management policies at all times, and takes any corrective measures it sees fit to resolve any deviations that may arise in an effective manner. In order to analyze, measure and control interest rate risk assumed by the Group, sensitivity analyses and scenario analyses are performed, establishing appropriate limits to avoid exposure to levels of risk that could significantly affect the Group. These analytical procedures and techniques are reviewed as often as is required to ensure they function correctly. The Group uses hedges to mitigate individual interest rate risk associated with all significant financial instruments that could expose the Group to significant interest rate risk, thereby reducing this type of risk to practically zero. 3.3.2 Interest rate risk sensitivity analysis The information disclosed in this section on the interest-rate sensitivity of the Group's income statement and equity has been prepared on the basis of a scenario of variation in the market interest rate of 200 basis points compared to the rate at 31 December 2016.
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Financial Report 2016
This analysis has been performed considering changes in the Euribor interest rate for the tranches used by the Group, maintaining constant all other variables affecting the Group's results and equity. The effect shown below has been calculated taking into account the financial instruments existing at 31 December 2016, without considering the existence of new investments or financing that could be entered into as of that date. Given the Group’s conservative risk management policies, it seeks to ensure the optimum balance between its assets and liabilities, maintaining the gap as close to zero as possible to ensure a neutral position with regard to interest rate fluctuations, independent of market rate forecasts. The tables below show, via a static gap analysis, the distribution of maturities and interest rate reviews at 31 December 2016 and 31 December 2015 of sensitive items on the balance sheet of the parent entity, excluding valuation adjustments. The sensitivity to interest rates of items with no contractual maturity date has been analyzed using their expected maturity date. At 31 December 2016: Thousands of Euros
Sensitive balances Liabilities
As a % of total assets (TA) Assets
Liabilities
Quantification of static gap Simple
Accum.
Ac. Gap (%TA)
RENEWAL
Assets
Up to 1 month From 1 to 3 months From 3 to 6 months From 6 to 12 months ACCUMULATED 12M
369,075 538,160 473,494 492,747 1,873,476
631,282 491,356 203,530 17,429 1,343,597
12.7% 18.6% 16.3% 17.0% 64.6%
21.8% 16.9% 7.0% 0.6% 46.3%
(262,206) 46,804 269,963 475,318
(262,206) (215,403) 54,561 529,879 529,879
(9.0%) (7.4%) 1.9% 18.3% 18.3%
From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years From 5 to 7 years From 7 to 10 years From 10 to 15 years From 15 to 20 years From 20 to 25 years Total
190,862 119,432 102,216 14,518 19,408 55,544 6,044 5,518 65 2,387,083
30,153 71,025 24,275 18,025 261,050 74,074 26,414 2,200 1,850,812
6.6% 4.1% 3.5% 0.5% 0.7% 1.9% 0.2% 0.2% 0.0% 82.3%
1.0% 2.4% 0.8% 0.6% 9.0% 2.6% 0.9% 0.1% 0.0% 63.8%
160,708 48,407 77,941 (3,507) (241,642) (18,530) (20,370) 3,318 65
690,587 738,994 816,936 813,429 571,787 553,257 532,887 536,205 536,271 536,271
23.8% 25.5% 28.2% 28.0% 19.7% 19.1% 18.4% 18.5% 18.5% 18.5%
At 31 December 2015: Thousands of Euros
Sensitive balances
Liabilities
Simple
Accum.
Ac. Gap (%TA)
Assets
Up to 1 month From 1 to 3 months From 3 to 6 months From 6 to 12 months ACCUMULATED 12M
388,870 694,855 585,067 664,553 2,333,345
777,892 768,432 229,322 17,988 1,793,634
12.0% 21.5% 18.1% 20.6% 72.2%
24.1% 23.8% 7.1% 0.6% 55.5%
(389,022) (73,577) 355,744 646,565
(389,022) (462,599) (106,855) 539,710 539,710
-12.0% -14.3% -3.3% 16.7% 16.7%
71,530 54,490 18,565 14,472 21,420 60,872 2,469 -
27,369 21,775 72,275 24,275 111,050 74,074 40,124 6,514 -
2.2% 1.7% 0.6% 0.4% 0.7% 1.9% 0.1% 0.0% 0.0%
0.8% 0.7% 2.2% 0.8% 3.4% 2.3% 1.2% 0.2% 0.0%
44,161 32,715 (53,710) (9,803) (89,629) (13,202) (37,655) (6,514) -
583,871 616,586 562,876 553,073 463,444 450,241 412,586 406,072 406,072
18.1% 19.1% 17.4% 17.1% 14.3% 13.9% 12.8% 12.6% 12.6%
2,577,163
2,171,090
79.7%
67.2%
406,072
12.6%
Total
Assets
Quantification of static gap
RENEWAL
From 1 to 2 years From 2 to 3 years From 3 to 4 years From 4 to 5 years From 5 to 7 years From 7 to 10 years From 10 to 15 years From 15 to 20 years From 20 to 25 years
Liabilities
As a % of total assets (TA)
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Financial Report 2016
In relation to the methods and assumptions described above, the following table shows the estimated impact in the parent entity of a 200 basis point decrease in the Euribor interest rate for the various maturities compared to the figures at 31 December 2016 and 31 December 2015:
31/12/2016 (Thousands of Euros)
Interest margin
Effect on equity
(728)
(8,882)
Interest margin
Effect on equity
1,853
(7,750)
Decrease of 200 basis points in the Euribor
31/12/2015 (Thousands of Euros) Decrease of 200 basis points in the Euribor
3.4 Credit risk 3.4.1. Credit risk management objectives, policies and processes Credit risk is the risk of incurring a loss due to a customer or other counterparty breaching its contractual payment obligations. This risk is inherent to traditional banking products (loans, credit facilities, financial guarantees provided, etc.). Credit risk affects both financial assets that are recognized at amortized cost in the financial statements, and those carried at fair value. The Group applies the same policies and procedures to control credit risk, irrespective of the accounting criteria used to recognize financial assets in the financial statements. The general objectives and policies for awarding credit and the credit limits to mitigate credit risk are approved by the Group’s Governing Board. The Risk Supervision and Management Department has also established the required control procedures to oversee the credit risk portfolio by type of customer and inform General Management of its performance. On the other hand, the Global Risk Management Department performs this supervision at global level and ensures that the risk policies established in the Group’s regulations are appropriately applied and that the risk control methods and procedures are adequate and are effectively implemented and reviewed regularly. This department sends any information thereon to General Management to permit them, where necessary, to implement any corrective measures required. The Group’s fundamental aim concerning credit risk is to achieve sustained, stable and moderate growth of credit risk, enabling a balance to be maintained between acceptable levels of risk concentration among creditors, sectors, activity and geographical areas on the one hand; and robust, prudent and moderate levels of solvency, liquidity and credit impairment allowances on the other. The risk concentration objectives are approved by the Group’s Governing Board from two perspectives: firstly, by selecting levels of positioning in certain priority sectors based in accordance with the Group’s strategic plan; and secondly, limiting the concentration of credit risk for counterparties at an individual level and for groups of companies. The limits of risk concentration are established based on economic sector, and other common economic factors. The objectives for risk concentration limits are basically established using parameters such as equity and the total amount of credit extended. One of the purposes of credit risk management is to promote, through the aforementioned limits on concentration and positioning in certain strategic sectors, the growth of operations that include additional guarantees to the personal guarantee provided by the debtor. The maximum credit risk to which the Group is exposed is measured, for financial assets at amortized cost, at the nominal value of the assets plus the balances available to debtors without any conditions applying. The Group internally classifies financial assets subject to credit risk based on the characteristics of the operation, taking into account the counterparties with which the arrangements have been made and the guarantees provided to secure the operation, among other factors. The Global Risk Management Department carries out regular monitoring of the levels of risk concentration, changes in bad debt rates, and various alerts that have been set up to monitor changes in credit risk. The Supervisory
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Financial Report 2016
Committee also analyses specific operations that, for various reasons, have given rise to non-performing or irrecoverable loans.
The results of this monitoring are periodically sent to General Management for analysis and the appropriate corrective measures are taken when deviations arise between the forecast of controlled parameters and actual data: redefinition of established control mechanisms if it is identified that they are not performing satisfactorily, modification of the policies for extending credit and analytical procedures, and review of the limits set by the Group. In addition, the Audit and Control Committee is in charge of planning and monitoring internal and external audit, global control of risk and regulatory compliance; internal control and anti-money laundering. 3.4.2. Level of credit risk exposure The following table shows the level of credit risk to which the Group is exposed at 31 December 2016 and 2015 for each class of financial instrument, without deducting any real guarantee or other loan enhancements received to ensure debtors honor their payment obligations: At 31 December 2016: Thousands of Euros Asset balances Types of instruments
Available-forsale financial assets
Loans and receivables
Held-tomaturity investments
Derivatives - Hedge accounting
Memorandum accounts
Total
Debt instruments Deposits in credit institutions Loans to customers Debt securities Total debt instruments Guarantees given Financial guarantees Other guarantees given Total guarantees given Other exposures Derivatives Contingent commitments given Total other exposures
-
282,786
-
-
-
282,786
378,814 378,814 -
2,145,886 2,428,672 -
1,076 1,076 -
6,744
135,279 135,279 -
2,145,886 379,890 2,808,562 135,279 135,279 6,744
-
-
-
-
91,037
91,037
-
-
-
6,744
91,037
97,781
MAXIMUM LEVEL OF CREDIT RISK EXPOSURE
378,814
2,428,672
1,076
6,744
226,316
3,041,622
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Financial Report 2016
At 31 December 2015: Thousands of Euros Asset balances Types of instruments Debt instruments Deposits in credit institutions Loans to customers Debt securities Total debt instruments Guarantees given Financial guarantees Other guarantees given Total guarantees given Other exposures Derivatives Contingent commitments given Total other exposures MAXIMUM LEVEL OF CREDIT RISK EXPOSURE
Available-forsale financial assets
Loans and receivables
Held-tomaturity investments
Derivatives - Hedge accounting
Memorandum accounts
Total
-
466,719
-
-
-
466,719
164,868 164,868
2,517,341 164 2,984,224
16,849 16,849
-
-
2,517,341 181,881 3,165,941
-
-
-
-
147,179 147,179
147,179 147,179
-
-
-
4,527
-
4,527
-
-
-
-
114,324
114,324
-
-
-
4,527
114,324
118,851
164,868
2,984,224
16,849
4,527
261,503
3,431,971
The following points are of note in relation to the information provided in the previous tables:
Data on debt instruments in the previous tables recognized under assets on the balance sheet are shown at their carrying amount, net of related impairment losses and any other valuation adjustments (deferred interest, loan arrangement commission and similar income pending accrual, etc.).
Guarantees given are recognized for the maximum amount guaranteed by the Group. In general, it is estimated that the majority of these balances reach maturity without the Group having a real need to finance them. These balances are presented net of provisions established to cover any credit risk associated therewith.
Information on other exposure to credit risks, such as counterparty risk associated with the contracting of derivative financial instruments, is presented at their carrying amount.
3.4.3 Real guarantees received and other loan enhancements As well as personal guarantees from debtors, the Group strives to ensure that the financial assets it acquires or contracts include real guarantees and other loan enhancements as a fundamental instrument for managing credit risk. The Group’s policies for analyzing and selecting risk define, based on the characteristics of the operations (purpose of risk, counterparty, maturity period, etc.), the real guarantees or loan enhancements required in addition to the debtor's real guarantee for such arrangements to be entered into. Real guarantees are measured based on the nature of the real guarantee received. In general, real guarantees comprising real estate is measured at its appraisal value upon contracting, obtained from independent entities in accordance with the rules established by the Bank of Spain. Real guarantees comprising shares listed on active markets is stated at the quoted price, adjusted by a specific rate to cover possible fluctuations in the share price that could weaken risk cover. Real guarantees and similar guarantees are stated at the amount guaranteed in such arrangements. Guarantees comprising pledged deposits are stated at the amount deposited and, if these are in foreign currencies, are translated at the exchange rate prevailing at the measurement date.
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Financial Report 2016
Details, in thousands of Euros, of the amount of credit risk covered by each type of real guarantee and other loan enhancements available to the Group at 31 December 2016 and 2015, by class of financial instrument, are as follows: At 31 December 2016:
Real estate guarantee Debt instruments Loans to customers Total debt instruments Guarantees given Financial guarantees Other guarantees given Total guarantees given Other exposures Derivatives Contingent commitments given Total other exposures Total hedged amount
Guarantees from financial institutions
Other real guarantees
Guarantees from the public sector
Total
379,023 379,023
162,198 162,198
73,376 73,376
-
614,596 614,596
1,079 1,079
13,780 13,780
-
78,962 78,962
93,821 93,821
-
-
-
-
-
380,102
175,978
73,376
78,962
708,417
At 31 December 2015:
Real estate guarantee Debt instruments Loans to customers Total debt instruments Guarantees given Financial guarantees Other guarantees given Total guarantees given Other exposures Derivatives Contingent commitments given Total other exposures Total hedged amount
Guarantees from financial institutions
Other real guarantees
Guarantees from the public sector
Total
512,046 512,046
190,432 190,432
94,356 94,356
-
796,833 796,833
9,327 9,327
18,763 18,763
-
85,897 85,897
113,987 113,987
-
-
-
-
-
521,373
209,195
94,356
85,897
910,820
3.4.4. Credit quality of unmatured and unimpaired financial assets 3.4.4.1. Classification of exposure to credit risk by counterparty The level of exposure to credit risk classified by counterparty at 31 December 2016 and 2015 for credit risk exposures that are not matured or impaired at these dates is as follows:
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Financial Report 2016
At 31 December 2016:
Thousands of Euros Debt instruments Held-to-maturity investments Financial assets available for sale Deposits in credit institutions Loans to customers Total debt instruments Guarantees given Financial guarantees Other guarantees given Total guarantees given Total
Public entities
Financial institutions
Other national sectors
Total
65,156 617,543 682,699
187,608 282,786 470,395
1,076 126,049 1,238,993 1,366,118
1,076 378,814 282,786 1,856,537 2,519,212
38,154 38,154 720,854
470,395
85,905 85,905 1,452,024
124,059 124,059 2,643,272
At 31 December 2015:
Thousands of Euros Debt instruments Held-to-maturity investments Financial assets available for sale Deposits in credit institutions Loans to customers Total debt instruments Guarantees given Financial guarantees Other guarantees given Total guarantees given Total
Public entities
Financial institutions
Other national sectors
Total
14,802 61,345 656,088 732,235
78,731 464,768 543,499
1,088 28,848 1,469,882 1,499,818
15,890 168,924 464,768 2,125,970 2,775,552
34,935 34,935 767,170
543,499
103,883 103,883 1,603,701
138,818 138,818 2,914,370
3.4.5 Renegotiated financial assets In accordance with Bank of Spain Circular 06/2012, of 28 September 2012, a brief summary of the policy for modifying transactions is set out below. Modifications that involve changes to the repayment calendar are implemented in accordance with the following premises: -
A detailed analysis of the economic and financial situation of the borrower, including the circumstances that have given rise to the need to modify the envisaged repayment calendar.
-
In accordance with the business plan, reviewed by the Group, the customer must be able to pay the sums included in the new repayment calendar.
-
A minimum of 6 months experience with the customer in order to modify the transaction
-
All accrued and unpaid interest payments, both current and in arrears, for the transaction must be up to date
-
Extending time periods will be avoided, instead the subsequent payments will be adjusted to return to the agreed debt period
With regard to guarantee changes, these will be studied on a case-by-case basis, although it is envisaged that guarantee changes will be made maintaining the hedge in the approval of the transaction, and that any releasing of guarantees will be associated to a reduction in risk by the same amount. On the other hand, on the basis of the aforementioned Circular 06/2012, modifications are classified according to the reason for the modification and the economic and financial situation of the borrower. Accordingly, the following is taken into consideration:
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Financial Report 2016
-
Refinancing transaction: a transaction which, for reasons relating to the borrower's financial difficulties (current or foreseeable) in cancelling one or various transactions extended by the entity or other companies in its economic group, or to fully or partially fulfil payment obligations, for the purpose of facilitating payment of the debt by the borrowers because they cannot, or it is foreseen that they will be unable to, comply in time and form with these conditions.
-
Refinanced transaction: a transaction which fully or partially has fulfilled payment obligations as a result of a refinancing transaction.
-
Restructured transaction: a transaction which, for reasons relating to the borrower's financial difficulties (current or foreseeable) modifies the financial conditions in order to facilitate payment of the debt because the borrower cannot, or it is foreseen it will not able to, comply in time and form with these conditions, in the case that the modification is foreseen in the contract. In any case, restructured transactions include those transactions in which a waiver is carried out or assets are received to reduce the debt; terms and conditions are modified to increase the maturity period; the repayment schedule is changed to decrease the sum of the instalments in the short term, decrease their frequency or establish or extend the grace period of the principal, interest or both; except when it can be proved that the conditions are modified for reasons other than financial difficulties of the borrowers and are similar to those applied in the market at the date of modifying these transactions for customers with similar risk profiles.
-
Renewal transaction: this is formalized to replace another transaction previously granted by the same entity, without the borrower having or foreseeably going to have financial difficulties.
-
Renegotiated transaction: this is where the transaction's financial terms are modified without the borrower having or foreseeably going to have financial difficulties in the future.
On the basis of directives from the Bank of Spain the Group classifies restructured, refinanced and refinancing transactions as performing exposures, performing exposures in the watch-list or non-performing exposures. In general: -
All restructured, refinanced or refinancing transactions are classified as performing exposures in the watch-list, except for those which meet the conditions to be classified as non-performing exposures.
-
Those restructured, refinanced and refinancing transactions which, although not meeting the objective criteria for default, have grace periods of more than 30 months or prior refinancing/restructuring, are classified as non-performing exposures.
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Financial Report 2016
Details of the carrying amount, classified by class of financial instrument, of the financial assets at 31 December 2016 and 2015 which have been refinanced or restructured according to the definitions contained in Appendix IX of Bank of Spain Circular 4/2004 are as follows: TOTAL Without real guarantee
Gross book value
Without real guarantee
With real guarantee
31/12/2016 No. of transactions
Of which: non-performing exposures
No. of transactions
Gross book value
Maximum amount of real guarantee that can be considered Mortgage
Other
Accum. impairment losses due to credit risk
No. of transactions
With real guarantee
Gross book value
No. of transactions
Maximum amount of real guarantee that can be considered
Gross book value
Mortgage
Other
Accum. impairment losses due to credit risk
4
12,013
2
8,175
9,223
-
-
-
-
-
-
-
-
-
Non-financial companies and individual entrepreneurs (nonfinancial business activity)
189
185,042
146
191,702
466,585
32,463
(136,437)
79
89,752
76
102,644
248,490
10,181
(124,990)
Of which: funding to property construction and development (including land)
15
10,598
10
38,960
77,073
4,000
(22,350)
7
8,504
5
27,887
51,075
4,000
(20,492)
193
197,055
148
199,877
475,808
32,463
(136,437)
79
89,752
76
102,644
248,490
10,181
(124,990)
Public administrations
Total
39
Financial Report 2016
TOTAL Without real guarantee
Gross book value
Without real guarantee
With real guarantee
31/12/2015 No. of transactions
Of which: non-performing exposures
No. of transactions
Gross book value
Maximum amount of real guarantee that can be considered Mortgage
Other
Accum. impairment losses due to credit risk
No. of transactions
Without real guarantee
Gross book value
No. of transactions
Maximum amount of real guarantee that can be considered
Gross book value
Mortgage
Other
Accum. impairment losses due to credit risk
9
20,623
3
10,583
8,675
66,024
-
1
47
-
-
-
25
-
Non-financial companies and individual entrepreneurs (nonfinancial business activity)
315
322,272
174
247,010
291,399
304,171
(110,296)
73
95,573
64
73,417
10,035
58,780
(89,546)
Of which: funding to property construction and development (including land)
17
9,254
10
38,931
42,594
6,155
(10,823)
4
2,192
2
816
1,348
4,195
(1,189)
324
342,895
177
257,593
300,074
370,195
(110,296)
75
95,620
64
73,417
10,135
58,805
(89,546)
Public administrations
Total
40
Financial Report 2016
3.4.6 Assets that have matured and/or are impaired due to credit risk Details of impaired assets at 31 December 2016 and 2015, based on the method for estimating their impairment losses, are as follows: Thousands of Euros 31 December 2016
31 December 2015
Financial assets estimated on an individual basis to be impaired
Financial assets estimated on a collective basis to be impaired
Total impaired assets
289,349 289,349 289,349
224,326 224,326 224,326
511,593 511,593 511,593
Debt instruments Loans to customers Total debt instruments Total
Financial assets estimated on an individual basis to be impaired 391,370 391,370 391,370
Financial assets estimated on a collective basis to be impaired
Total impaired assets
147,730 147,730 147,730
539,100 539,100 539,100
Furthermore, details of financial assets estimated on an individual basis to be impaired at 31 December 2016 and 2015, based on the age of the oldest outstanding amount of each operation, are as follows: At 31 December 2016:
Up to 6 months
Thousands of Euros From 12 to 18 From 18 to 24 months months
From 6 to 12 months
More than 24 months
Total
Debt instruments Loans to customers Total debt instruments Total
79,066 79,066 79,066
8,162 8,162 8,162
7,468 7,468 7,468
73,574 73,574 73,574
121,081 121,081 121,081
289,349 289,349 289,349
At 31 December 2015:
Up to 6 months
Thousands of Euros From 12 to 18 From 18 to 24 months months
From 6 to 12 months
More than 24 months
Total
Debt instruments Held-to-maturity investments Loans to customers Total debt instruments Total
-
-
-
-
-
-
15,389 15,389 15,389
9,404 9,404 9,404
81,339 81,339 81,339
29,331 29,331 29,331
255,908 255,908 255,908
391,370 391,370 391,370
3.4.7 Financial assets estimated on an individual basis as impaired Details at 31 December 2016 and 2015 of assets that are estimated on an individual basis as impaired, by class of financial asset, based on an individual analysis of each asset, are as follows: At 31 December 2016: Thousands of Euros
Carrying amount (excluding impairment losses)
Impairment losses
Debt instruments Loans to customers
289,349
207,327
Total debt instruments
289,349
207,327
41
Financial Report 2016
At 31 December 2015: Thousands of Euros
Carrying amount (excluding impairment losses)
Impairment losses
Debt instruments Loans to customers
391,370
278,552
Total debt instruments
391,370
278,552
3.4.8 Movement in impairment losses The tables below show the movements in impairment losses recognized during 2016 and 2015. In 2016 the generic allowance included Euros 12,169 thousand recognized as a provision for performing exposures in the watch-list and Euros 6,696 as a provision for the remaining performing exposures: Thousands of Euros 2016
Opening balance
Charges
Transfers and others
Recoveries
Balance 31/12/2016
Specific allowance
(278,552)
(408,607)
380,164
99,668
(207,327)
Loans to customers
(278,552)
(408,607)
380,164
99,668
(207,327)
Generic allowance
(28,236)
(18,865)
-
28,236
(18,865)
Loans to customers Total
(28,236)
(18,865)
-
28,236
(18,865)
(306,788)
(427,472)
380,164
127,904
(226,192)
Thousands of Euros 2015
Opening balance
Charges
Transfers and others
Recoveries
Balance 31/12/2015
Specific allowance
(272,404)
(73,197)
38,910
28,139
(278,552)
Loans to customers
(272,404)
(73,197)
38,910
28,139
(278,552)
Generic allowance
(14,919)
(13,317)
-
-
(28,236)
Loans to customers
(14,919)
(13,317)
-
-
(28,236)
(287,323)
(86,514)
38,910
28,139
(306,788)
Total
Amounts corresponding to debt instruments are recognized under “Impairment losses or (-) reversal of impairment losses on financial assets not measured at fair value through profit or loss - Loans and receivables”. In 2016 this item includes other recoveries, mainly associated to the recovery of irrecoverable assets, for an amount of Euros 7,805 thousand (Euros 15,640 thousand in 2015). Movement for 2016 and 2015 included under “Transfers and other” mainly reflects the derecognition of financial assets for their transfer to irrecoverable assets (Note 3.4.10) and the transfer of allowances to foreclosed assets (Note 10), as well as allocations from generic to specific allowance. Movement in the provision for impairment of capital investments is shown in Note 6.
42
Financial Report 2016
3.4.9 Matured and unimpaired financial assets Details of financial assets that have matured but are not impaired at 31 December 2016 and 2015, classified by class of financial instrument and the period left to maturity, are as follows:
At 31 December 2016: Thousands of Euros Debt instruments Loans to customers Total debt instruments
Up to 3 months
More than 3 months
Total
1,414
-
1,414
1,414
-
1,414
At 31 December 2015: Thousands of Euros Debt instruments Loans to customers Total debt instruments
Up to 3 months
More than 3 months
Total
1,662
-
1,662
1,662
-
1,662
3.4.10 Impaired financial assets derecognized from assets A summary of movements in 2016 and 2015 in items that have been derecognized in the accompanying balance sheet as their recovery is considered remote is provided below. These financial assets are recognized under Irrecoverable assets in the memorandum accounts complementary to the accompanying balance sheets. Thousands of Euros Opening balance: Additions Charged to adjustments for asset impairments (Note 7.2) Recognition of interest accrued Recoveries Recovery of principal in cash and/or instruments expired and not received Disposals Closing balance:
2016
2015
236,775
241,096
125,028 16,537
27,266 -
(5,748) (89,074)
(11,735) (19,852)
283,518
236,775
43
Financial Report 2016
3.4.11 Breakdown of the distribution of loans to customers by activity and geographical activity Distribution of the Group's lending at 31 December 2016 is as follows: Thousands of Euros
Total
Catalonia
Other
Credit institutions
174,618
174,618
-
Public entities
619,763
619,763
-
Other
619,763
619,763
-
1,318,796
1,272,587
46,209
141,059
135,403
5,656
1,177,737
1,137,184
40,553
558,894
529,303
29,591
618,843
607,881
10,962
(18,865)
(18,865)
-
2,094,312
2,048,103
46,209
Non-financial companies and individual entrepreneurs Property construction and development Other purposes Large-sized companies Small and medium-sized companies and individual entrepreneurs Less: Impairment adjustments of assets not attributable to specific operations Total
Distribution of the portfolio at 31 December 2015: Thousands of Euros
Total
Catalonia
Other
Credit institutions
221,501
221,501
-
Public entities
656,135
656,135
-
Other
656,135
656,135
-
1,582,654
1,538,918
43,736
170,999
163,699
7,300
1,411,655
1,375,219
36,436
732,845
721,420
11,425
678,810
653,799
25,011
(28,236)
(28,236)
-
2,432,054
2,388,318
43,736
Non-financial companies and individual entrepreneurs Property construction and development Other purposes Large-sized companies Small and medium-sized companies and individual entrepreneurs Less: Impairment adjustments of assets not attributable to specific operations Total
3.4.12 Breakdown of the distribution of loans to customers by activity and guarantee In accordance with the provisions set out in Circular 6/2015, the distribution of credit risk to customers by activity is set out below.
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Financial Report 2016
At 31 December 2016:
Secured loans. Book value over the last available appraisal (Loan to value) 31/12/2016
Public entities Non-financial companies and individual entrepreneurs (nonfinancial business activity) Property construction and development (including land) Other purposes Large-sized companies Small and medium-sized companies and individual entrepreneurs
TOTAL
619,763
Of which: other real guarantees
Greater than 40% and less or equal to 60%
Less or equal to 40%
Greater than 60% and less or equal to 80%
Greater than 80% and less or equal to 100%
Greater than 100%
84,607
28,388
-
-
-
-
-
425,654
287,486
102,919
73,896
89,990
114,059
72,802
97,234
29,021
9,166
7,730
20,398
44,246
3,054
1,177,737
328,420
258,465
93,753
66,166
69,592
69,813
69,748
558,893
122,898
134,043
19,355
13,296
18,932
26,285
39,187
205,522
124,422
74,398
52,870
50,660
43,528
30,561
510,261
315,874
102,919
73,896
89,990
114,059
72,802
1,318,797
141,060
618,844 1,938,560
TOTAL
Of which: real estate guarantee
At 31 December 2015:
Secured loans. Book value over the last available appraisal (Loan to value) 31/12/2016
Public entities Non-financial companies and individual entrepreneurs (nonfinancial business activity) Property construction and development (including land) Other purposes Large-sized companies Small and medium-sized companies and individual entrepreneurs TOTAL
TOTAL
Of which: real estate guarantee
Of which: other real guarantees
Greater than 40% and less or equal to 60 %
Less or equal to 40%
Greater than 60% and less or equal to 80 %
Greater than 80% and less or equal to 100%
Greater than 100%
656,135
82,593
31,926
-
-
-
-
-
1,582,653
575,082
298,298
166,045
146,192
207,983
399,090
655,961
304,284
165,648
114,666
22,005
3,883
33,162
64,848
47,101
1,278,369
409,434
183,632
144,040
142,309
174,821
334,242
608,860
652,829
192,736
130,659
58,954
46,971
61,754
216,397
426,334
625,540
216,698
52,973
85,086
95,338
113,067
117,845
182,526
2,238,788
657,675
330,224
166,045
146,192
207,983
399,090
655,961
45
Financial Report 2016
3.5 Counterparty risk ICF incurs this type of risk when financial institutions draw on the ICF Credit Intermediation Scheme, on deposits of other entities and also on interest rate hedging operations. Intermediation loans (Euros 174,618 thousand in 2016 and Euros 221,500 thousand in 2015) and deposits and current accounts (Euros 176,688 thousand in 2016 and Euros 350,487 thousand in 2015) are recognized on the balance sheet under “Deposits from credit institutions” and are spread across 14 credit institutions according to the new groupings of financial institutions in force at 31 December 2016 (12 institutions in 2015) (Note 7.1). The counterparties to interest rate hedges at 31 December 2016 are detailed below:
Counterparty
Notional amount
Derivative
Maturity
BBVA
IRS
15/06/2024
12,000
BBVA
IRS
22/10/2029
20,000
MEDIOBANCA
IRS
05/07/2022
75,000
CAIXABANK
IRS
30/06/2022
3,769
BSCH
IRS
05/07/2022
50,000
BANC SABADELL TOTAL
IRS
05/07/2022
100,000 260,769
The counterparties to interest rate hedges at 31 December 2015 were as follows:
Counterparty
Notional amount
Derivative
Maturity
BBVA
IRS
15/06/2024
12,000
BBVA
IRS
22/10/2029
20,000
MEDIOBANCA
IRS
05/07/2022
75,000
CAIXABANK
IRS
30/06/2022
4,528 111,528
TOTAL
At 31 December 2016 the entire balance of ICF Group is denominated in euros and, therefore, the Group has not arranged any exchange rate hedge. The last ones contracted matured on 24 March 2016 (Note 9). The counterparties to exchange rate insurance at 31 December 2015 were as follows (in thousands of Euros): Counterparty BBVA TOTAL
Maturity 24/03/2016
Notional amount 4,921 4,921
3.6 Operational risk Operational risk relates to the possibility of incurring losses as a result of poor allocation or of errors in processes, systems and personnel, or extraneous circumstances. In accordance with the Risk Control and Management Model adopted by ICF, which is based on three lines of defense, the management and control of operational risk involves the whole Group and is not limited to specific organizational areas or areas specializing in risks or control functions. In this regard, the Group's different areas and companies are responsible, in the first instance, for the daily management of operational risk and are assigned, inter alia, the responsibility for keeping processes, risks and controls in their areas of activity updated. As a second line of defense the Group has set up an internal control
46
Financial Report 2016
coordination function, focusing on analyzing the Group's operating processes and maintaining the corporate risk and control map and another operational risk function, in charge of establishing the specific procedures and methodologies for identifying, assessing and controlling operational risk. In addition, the Group has a Global Risk Control Department which is responsible, inter alia, for calculating the consumption of own resources due to operational risk using the basic indicator method set out by Basel III. Finally, as an ultimate control measure, the Internal Audit Department carries out an independent review of the Model, verifying compliance and efficiency of the corporate policies and reporting the results of its activities to the Audit and Control Committee.
3.7 Capital management ICF has eligible own funds for Euros 844,362 thousand at 31 December 2016 (Euros 843,940 thousand at 31 December 2015), with a solvency ratio of 33.5% (30.7% at 31 December 2015), a coefficient well in excess of that required by the Regulator (8%). Solvency is calculated in accordance with Royal Decree 84/2015 published in the Spanish Official Gazette of 14 February 2015. Details of the solvency ratio at 31 December 2016 and 2015 are as follows: Solvency ratio (thousands of Euros)
4.
2015
2016
Common equity tier 1 (CET1) Eligible equity Total Risk Weighted Assets
825,007 844,362 2,523,606
816,745 843,940 2,747,963
CET1 ratio
32.7%
29.7%
Solvency ratio
33.5%
30.7%
Distribution of profit for the year of Institut Català de Finances as Parent of the ICF Group The distribution of 2016 profit that the Institut's Governing Board proposes submitting for approval and the distribution approved for 2015, respectively, are as follows: Thousands of Euros Basis of allocation: Profit and loss Distribution: Capitalization reserve Voluntary reserves
2016
2015
10,125
7,926
6,763
-
3,362
7,926
The capitalization reserve is distributed in accordance with Article 25 of Law 27/2017 of 27 November on the Income Tax. 5.
Cash, cash balances with central banks and other demand deposits Details of this caption of the balance sheet at 31 December 2016 and 2015 are as follows: Thousands of Euros Cash Deposits in Bank of Spain
2016
2015 1
1
673
-
Current accounts
68,520
105,119
Total
69,194
105,120
47
Financial Report 2016
6. Available-for-sale financial assets Details of this caption of the accompanying balance sheet at 31 December 2015 and 2014, by type of transaction, are as follows: Thousands of Euros
2016
2015
Equity instruments Investments in venture capital companies
114,223
100,168
10,825
10,825
Subtotal equity instruments
125,048
110,993
Debt securities
377,309
167,482
Subtotal debt securities
377,309
167,482
Impairment
(38,043)
(34,429)
Other equity instruments
Valuation adjustments Total
25,027
19,072
489,341
263,118
Valuation adjustments include changes in the fair value of the instruments, as well as interest accrued and premiums of debt instruments pending accrual. Changes in the financial assets classified under the caption “Available-for-sale financial assets” during 2016 and 2015 are as follows:
Description
FonsInnocat F.C.R. Catalana d'Iniciatives SA (in liquidation) Spinnaker Invest S.C.R., S.A. Invernova F.C.R.
31/12/2015
Additions or charges
Withdrawals or reductions
Impairment /changes in value
1,214
-
-
(289)
925
-
-
-
-
-
8.,617
814
-
(1,446)
7,985
31/12/2016
125
-
-
(19)
106
Barcelona Emprèn , S.C.R., S.A.
1,551
-
(130)
(185)
1,236
Nauta Tech Invest II, S.C.R.,S.A.
6,889
-
(964)
(2,679)
3,246
-
-
-
-
-
Fons de la Mediterrània, F.C.R.
18,604
-
(2,459)
(393)
15,752
Caixa Capital TIC, S.C.R., S.A.
1,319
-
-
123
1,442
Highgrowth Innovación, F.C.R.
1,618
-
(665)
(45)
908
-
-
-
-
-
Soc.Catalana d’Inv. en Coop., S.A. (in liquidation)
1,003
-
(287)
(291)
425
Ysios BioFund I, F.C.R
2,136
-
(184)
(76)
1,876
279
-
(279)
-
-
5,927
-
-
1,745
7,672
Ingenia S.C.R.
Ingenia Capital, S.A. (in liquidation)
Taiga V, F.C.R. Nauta Tech Invest III, S.C.R., S.A. Caixa Capital Biomed, S.C.R., S. A.
654
-
-
(272)
382
Amerigo Innvierte Spain Ventures F.C.R.
2,364
-
(317)
227
2,274
Caixa Innvierte Industria, S.C.R., S.A.
2,794
-
-
(98)
2,696
Suma Capital Growth Fund I, S.C.R.
7,987
2,000
(156)
-
9,831
Caixa Innvierte Biomed II F.C.R.
2,000
657
-
-
2,657
Idinvest Digital Fund II, FPCI
4,302
-
-
(97)
4,205
Nauta Tech Invest IV, F.C.R.
10,254
2,808
(7)
-
13,055
-
10,000
-
-
10,000
Aurica III, F.C.R.
48
Financial Report 2016
Finaves IV, S.A
83
-
(75)
189
197
863
-
(210)
(245)
408
Societat d'Inversió dels Enginyers S.L.
1,010
-
-
-
1,010
Healthequity S.C.R.
4,000
-
-
(469)
3,531
Inveready Venture Finance S.C.R.
1,100
-
(172)
120
1,048
Inveready Biotech II, S.C.R. SA
1,038
-
(40)
133
1,131
Inveready First Capital I, S.A.
Venturcap II, S.C.R.
953
-
-
(103)
850
Caixa Innvierte Start, F.C.R.
-
2,000
-
-
2,000
K Fund, F.C.R.E.
-
2,000
-
-
2,000
1,150
-
-
-
1,150
AB Biotics,S.A.
737
66
(141)
662
Agile Content, S.A.
963
(53)
910
Lleidanet networks, S.A.
575
(208)
367
Plásticos Compuestos, S.A.
Oryzon Genomics, S.A.
(254)
149
957
93,171
20,345
(6,199)
(4,423)
102,894
Other equity instruments
25
-
-
-
25
Total long-term capital investments
25
-
-
-
25
Debt securities
169,922
509,764
(296,198)
2,934
386,422
Total debt securities
169,922
509,764
(296,198)
2,934
386,422
Total investments (net)
263,118
530,109
(302,397)
(1,489)
489,341
Additions or charges
Withdrawals or reductions
Impairment/c hanges in value
31/12/2015
1,567
-
(140)
(213)
1,214
Total investments in Venture Capital Companies
Description
FonsInnocat F.C.R. Catalana d’Iniciatives,S.A. (in liquidation)
1,062
31/12/2014
-
-
-
-
-
8,722
-
(33)
(72)
8,617
132
-
-
(7)
125
Barcelona Emprèn , S.C.R., S.A.
1,780
-
(261)
32
1,551
Nauta Tech Invest II, S.C.R.,S.A.
6,617
-
-
272
6,889
-
-
-
-
-
Fons de la Mediterrània, F.C.R.
16,265
-
-
2,339
18,604
Caixa Capital TIC, S.C.R., S.A.
1,418
-
-
(99)
1,319
Highgrowth Innovación, F.C.R.
1,768
-
-
(150)
1,618
-
-
-
-
-
Soc. Catalana d’Inv. en Cooperatives , S.C.R., S.A.
2,260
-
(1,268)
11
1,003
Ysios BioFund I, F.C.R
1,863
-
(365)
638
2,136
590
-
(229)
(82)
279
6,224
-
(509)
212
5,927
Spinnaker Invest S.C.R., S.A. Invernova F.C.R.
Ingenia S.C.R.
Ingenia Capital, S.A. (in liquidation)
Taiga V, F.C.R. Nauta Tech Invest III, S.C.R., S.A. Caixa Capital Biomed, S.C.R., S. A.
580
-
-
74
654
Amerigo Innvierte Spain Ventures F.C.R.
1,773
-
-
591
2,364
Caixa Innvierte Industria, S.C.R., S.A.
3,000
-
-
(206)
2,794
Suma Capital Growth Fund I, S.C.R.
5,445
2,550
(8)
-
7,987
49
Financial Report 2016
Caixa Innvierte Biomed II F.C.R. Idinvest Digital Fund II, FPCI Nauta Tech Invest IV, F.C.R.
2,000
-
-
-
2,000
-
4,023
-
279
4,302
-
10,254
-
-
10,254
385
-
(103)
(199)
83
Inveready First Capital I, S.A.
1,403
-
-
(440)
863
Societat d'Inversió dels Enginyers S.L.
1,083
-
-
(73)
1,010
Healthequity S.C.R.
3,952
48
-
-
4,000
Inveready Venture Finance S.C.R.
1,015
-
(3)
88
1,100
Venturcap II, S.C.R.
1,000
-
-
(47)
953
Inveready Biotech II, S.C.R. SA
1,000
-
-
38
1,038
Finaves IV, S.A.
AB Biotics,S.A.
658
-
-
79
737
1,341
280
-
(1,621)
-
Plásticos Compuestos, SA
-
1,150
-
-
1,150
Agile Content, S.A
-
1,000
-
(37)
963
Lleidanet Networks, SA
-
700
-
(125)
575
Oryzon Genomics, S.A.
-
1,000
-
62
1,062
73,841
21,005
(2,919)
1,344
93,171
Other equity instruments
621
-
-
(596)
25
Total long-term capital investments
621
-
-
(596)
25
Total capital investments in listed companies
610
-
-
(610)
-
Debt securities
410
169,922
-
(410)
169,922
Total debt securities
410
169,922
-
(410)
169,922
75,482
190,927
(2,919)
(272)
263,118
Sux Trit, S.L.
Total investments in Venture Capital Companies
Total investments (net)
On incorporation of venture capital companies, the Institut is obliged to pay out a fixed amount to ensure these financial vehicles can perform the operations for which they were incorporated in accordance with the agreements signed. These commitments are payable on demand, in accordance with the agreements signed and are classified under Operations pending payment under “Other liabilities” for an amount of Euros 38,002 thousand (Note 17), Euros 26,824 thousand in 2015. In 2016 the following amounts have been recognized as dividends: -
Euros 1,678 thousand corresponding to Nauta Tech Invest II, S.C.R., S.A. (Euros 349 thousand in 2015).
-
Euros 233 thousand corresponding to Soc. Catalana d’Inv. en Cooperatives, S.A.
Appendix II shows the data related to share capital, reserves and profit/(loss) of corporate enterprises and longterm capital investments. At 31 December 2015 “Available-for-sale financial assets” include Euros 100 thousand to hedge risks inherent to IFEM’s business lines. Appendices III and IV to these financial statements present a breakdown of the Group’s investees, excluding subsidiaries and associates, together with relevant information thereon. Regarding debt securities, the balances of this heading, according to the classification and type of the transactions, are as follows: Classification:
50
Financial Report 2016
Thousands of Euros
2016
2015
Available-for-sale financial assets
372,542
164,868
Valuation adjustments Total
13,880 386,422
5,054 169,922
Valuation adjustments mainly reflect receivable interest accrued at each year end and differences between the nominal amounts and acquisition costs of these securities. Nature (excluding valuation adjustments): Thousands of Euros
2016
Autonomous region public debt
2015
43,800
61,250
Financial institutions
187,139
97,618
Other fixed-income securities
141,603
6,000
Total
372,542
164,868
The whole balance reflects debt issues at an average effective interest rate of 0.94% for 2016 and 1.10% for 2015. 7.
Loans and receivables Details of this caption of the accompanying balance sheet by type of financial instrument, are as follows: Thousands of Euros
2016
Credit institutions
2015
283,659
468,165
Customers
1,902,398
2,188,659
Total
2,186,057
2,656,824
The principal valuation adjustments made to each asset type included under “Loans and receivables” are detailed below: Valuation adjustments 2016 Thousands of Euros
Gross balance
Impairment provisions
Interest accrued
Commission
Other
Net balance
282,786
(240)
1,179
-
(66)
283,659
Customers
2,145,886
(226,192)
6,278
(7,542)
(16,032)
1,902,397
Total
2,428,672
(226,432)
7,456
(7,542)
(16,098)
2,186,056
Credit institutions
Valuation adjustments 2015 Thousands of Euros
Gross balance
Impairment provisions
Interest accrued
Commission
Other
Net balance
466,719
-
1,591
-
(145)
468,165
Customers
2,517,505
(306,788)
7,369
(9,773)
(19,654)
2,188,659
Total
2,984,224
(306,788)
8,960
(9,773)
(19,799)
2,656,824
Credit institutions
Loans and receivables - Customers - Other valuation adjustments include microhedges on loan operations to the value of Euros 3,072 thousand at 31 December 2016 (Euros 3,366 thousand at 31 December 2015), and adjustments to the fair value of loans acquired at a discount for an amount of Euros -18,717 thousand (Euros -23,020 thousand in 2015).
51
Financial Report 2016
7.1 Credit institutions A breakdown of the balances under this heading by type and status of the credit, excluding valuation adjustments, is as follows: Thousands of Euros
2016
2015
Time deposit accounts
108,168
245,219
Intermediation loans
174,618
221,500
Total deposits in credit institutions
282,786
466,719
“Credit institutions - Time deposits accounts” mainly comprises deposit with fixed maturity held by ICF in banks. “Credit institutions - Intermediation loans” correspond to agreements signed with various financial institutions. The average effective interest rate accrued during 2016 on the balances deposits in credit institutions was 1.31%. During 2015 it was 1.16%.
7.2 Customers A breakdown of the balances under this heading by type and form of loan, borrower's sector and by type of interest accrued, excluding valuation adjustments, is as follows: By type and form of loan: Thousands of Euros
2016
2015
Public entities
617,543
656,088
Secured debtors
618,946
798,583
Other fixed-term debtors
559,695
595,625
Debtors on demand and sundry debtors Non-performing exposures Total loans to customers
60,353
75, 839
289,349
391,370
2,145,886
2,517,505
By borrower’s sector: Thousands of Euros
2016
2015
Public sector
619,763
Public entities
619,763
656,135
Private sector
1,526,123
1,861,370
Resident
1,526,123
1,861,370
2,145,886
2,517,505
Total loans to customers
656,135
By interest rate: Thousands of Euros At fixed interest rate
2016
2015
190,597
222,752
At variable interest rate
1,955,289
2,294,753
Total loans to customers
2,145,886
2,517,505
The average effective interest rate payable on the balances recognized under “Loans to customers” was 2.25% in 2016. During 2015 it was 2.42%.
52
Financial Report 2016
The ICF Group has extended a number of loans which, where appropriate, in addition to the guarantees extended by the borrower (Note 3.4.3), are secured by a payment commitment from various departments of the Generalitat de Catalunya if the debtor defaults on its obligations. This type of operation is generally recognized under “Secured debtors”, the balance of which was Euros 95,297 thousand (Euros 106,276 thousand in 2015). Movement in the balance of non-performing exposures in 2016 and 2015 was as follows: 2016
Thousands of Euros Opening balance: Plus: Additions of new assets Less: Debts settled Recoveries Transfer to irrecoverable assets (Note 3.4.10) Closing balance:
2015
391,370
437,249
78,608
26,970
(17,936) (37,665) (125,028) 289,349
(32,730) (12,853) (27,266) 391,370
The ageing of non-performing exposures at 31 December 2016 and 31 December 2015, broken down by guarantee type, is as follows:
Thousands of Euros Secured loans Loans with other guarantees Loans with negligible risk Total
Thousands of Euros Secured loans Loans with other guarantees Loans with negligible risk Total
Age of non-performing exposures, 2016 Up to 6 From 6 to From 12 to From 18 to More than months 12 months 18 months 24 months 24 months 52,688 4,517 5,414 13,793 102,459 24,005 2,913 1,965 59,249 17,163 2,373 732 89 532 1,459 79,066 8,162 7,468 73,574 121,081
Age of non-performing exposures, 2015 Up to 6 From 6 to From 12 to From 18 to More than months 12 months 18 months 24 months 24 months 7,402 6,042 18,024 9,703 149,002 6,173 2,494 61,037 17,891 87,984 1,814 868 2,278 1,737 18,921 15,389 9,404 81,339 29,331 255,907
Total 178,871 105,294 5,184 289,349
Total 190,173 175,579 25,618 391,370
7.3 Impairment provisions Movement in the balance of the provisions covering impairment losses on assets contained under “Lending” for 2016 and 2015 are disclosed in Note 3.4.8. 7.4. Financial assets derecognized due to impairment Details of impaired financial assets derecognized in 2016 and 2015 because their recovery is considered unlikely, although the ICF Group has not discontinued its efforts to recover these debts, are disclosed in Note 3.4.10. The balances derecognized from “Lending” at 31 December 2016 and 31 December 2015 that the ICF Group considers unlikely to be recovered correspond entirely to loans to customers.
8.
Held-to-maturity investments The balances of this heading, according to the classification, type and currency of the transactions, are as follows: Classification:
53
Financial Report 2016
Thousands of Euros Debt securities
2016
16,849
21
470
1,097
17,319
Valuation adjustments Total
2015
1,076
Valuation adjustments mainly reflect interest accrued up to 31 December 2016. Nature (excluding valuation adjustments): Thousands of Euros Autonomous region public debt
2016
Financial institutions
2015 -
14,645
-
1,116
Other fixed-income securities
1,076
1,088
Total
1,076
16,849
The whole balance reflects debt issues at an average effective interest rate of 1.82% for 2016 and 1.94% for 2015. Currency (excluding valuation adjustments): Thousands of Euros Euros
2016
2015
1,076
12,094
-
4,755 16,849
Swiss francs
1,076
Total
In 2015 the Group contracted exchange rate insurance to secure total amounts receivable from currency instruments (Note 9). 9.
Derivatives – Hedge accounting The breakdown by type of product of the notional amount of the derivatives classified as “Derivatives – Hedge accounting” at 31 December 2016 and 31 December 2015 is as follows: Thousands of Euros
2016
Interest rate swaps
2015
260,769
Exchange rate insurance (Note 9) Total
111,528
-
4,921
260,769
116,449
The notional amount of the contracts entered into does not reflect the actual risk assumed by the Group, as the net position held in these instruments results in them being offset and/or combined. All interest-rate swap transactions relate to micro-hedges to mitigate the impact that changes in interest rates may have on the fair value or cash flows of hedged transactions. Specifically, at 31 December 2016, the Institut has 6 interest rate swaps, 3 of which are cash flow micro-hedges of a debt issue at variable interest rate, 2 are fair value hedges of marketable debt securities issued at a fixed interest rate and 1 is a fair value micro-hedge of a lending transaction. The breakdown by type of product of the fair value of the derivatives classified as hedging derivatives at 31 December 2016 and 31 December 2015 is as follows:
Fair value hedge transactions: Thousands of euros
31/12/2016
31/12/2015
Fair value
Fair value
54
Financial Report 2016
Receivable balances: Interest rate swaps Other Total Payable balances: Interest rate swaps Other Total
6,029 6,029
4,527 4,527
3,072 3,072
3,366 3,366
Cash flow hedge transactions: Thousands of euros
31/12/2016
31/12/2015
Fair value
Fair value
Receivable balances: Interest rate swaps Other Total Payable balances: Interest rate swaps Other Total
715 715
-
15,807 15,807
14,662 128 14,790
10. Non-current assets and disposal groups held for sale This heading on the balance sheet only contains assets which have been foreclosed in the settlement of unpaid loans and which have not been retained for own use or classified as investment property. Movement in foreclosed assets during 2016 and 2015 is as follows: Thousands of Euros Opening balance: Plus: Other additions for the year Transfers Less: Assets sold Derecognition through transfers Impairment provisions for the year (Note 33) Closing balance:
2016
2015 4,021
4,387
531
1,361 -
(29) (167) 4,356
(457) (1,270) 4,021
The main movements during 2016 have been as follows: -
Foreclosures of ten property assets with a net value (including related allowances) of Euros 530 thousand.
-
Sale of six properties valued at Euros 29 thousand (including related allowances).
The main movements during 2015 were as follows:
55
Financial Report 2016
-
Foreclosures of ten property assets with a net value (including related allowances) of Euros 1,361 thousand.
-
Sale of six properties valued at Euros 457 thousand.
11. Investments in joint ventures and associates This heading of the accompanying balance sheets contains the interest held in the capital of one associate (Note 2.a). These shareholdings are accounted for using the equity method using the best available estimate of their underlying carrying amount on the date the financial statements were authorized for issue.
Details of this company's capital, reserves, and results, as well as the interest held by the Group, are provided in Appendix II of the notes to these financial statements. Information is the latest actual or estimated data available on the date these notes to the financial statements were drafted.
Thousands of Euros Avalis de Catalunya S.G.R. Investment Equity method Closing balance:
2016 7,639 3,597 11,236
2015 9,748 4,457 14,205
The reduction in the investment is due to the refund of contributions by the associate plus its profit/(loss) for 2016.
In accordance with Circular 5/2013 details of the most relevant information in relation to the financial statements of the associate are as follows: Thousands of Euros Total assets Total liabilities Total equity Profit after income tax
2016 85,332 27,395 57,937 64
2015 85,747 28,360 57,387 156
Movement during 2016 and 2015 of the reserves consolidated using the equity method is detailed in Note 20.
In 2015 “Gains or (-) losses on derecognition of non-financial assets and investments, net” includes Euros 812 thousand corresponding to technical provisions associated with the investment held by IFEM in Avalis de Catalunya S.G.R.
12. Tangible assets A breakdown of tangible assets, the corresponding accumulated depreciation and movement during 2016 and 2015 is as follows:
56
Financial Report 2016
2016 (Thousands of Euros)
For own use
Investment property
Total
Cost Opening balance Additions Disposals Transfers Total cost at 31 December 2016
11,963 192 (90) 12,064
74,206 6 74,212
86,169 198 (90) 86,276
Accumulated depreciation Opening balances Additions (Note 32) Derecognition and transfers Total accum. depreciation at 31 December 2016
(2,236) (96) (2,332)
(4,078) (665) (4,743)
(6,314) (761) (7,075)
9,733
(20,143) (20,143) 49,326
(20,142) (20,142) 59,059
Impairment Opening balances Additions Recoveries Total impairment at 31 December 2016 TOTAL TANGIBLE ASSETS AT 31 DECEMBER 2016
2015 (Thousands of Euros)
For own use
Investment property
Total
Cost Opening balance Additions Disposals Transfers Total cost at 31 December 2015
11,845 109 (14) 11,940
74,231 74,231
86,076 109 (14) 86,171
Accumulated depreciation Opening balances Additions (Note 32) Derecognition and transfers Total accum. depreciation at 31 December 2015
(1,849) (377) 14 (2,212)
(3,727) (376) (4,103)
(5,576) (753) 14 (6,315)
9,728
(20,143) (20,143) 49,985
(20,143) (20,143) 59,713
Impairment Opening balances Additions Recoveries Total impairment at 31 December 2015 TOTAL TANGIBLE ASSETS AT 31 DECEMBER 2015
A breakdown of the entries, classified by type, which make up “Tangible assets - For own use” at 31 December 2016 and 31 December 2015 is as follows:
2016 (Thousands of Euros) IT equipment and installations
Accumulated depreciation
Cost
Net balance
749
(597)
152
Furniture and other fixtures
1,468
(1,047)
421
Land and buildings
9,848
(688)
9,160
12,065
(2,331)
9,733
Balances at 31 December 2016
57
Financial Report 2016
2015 (Thousands of Euros)
Accumulated depreciation
Cost
IT equipment and installations
Net balance
814
(618)
Furniture and other fixtures
1,372
(1,002)
370
Land and buildings
9,754
(592)
9,162
11,940
(2,212)
9,728
Balances at 31 December 2015
196
At 31 December 2016, certain tangible assets for own use valued at Euros 1,094 thousand (Euros 1,272 thousand at 31 December 2015) were fully depreciated. The fair value of total tangible assets at 31 December 2016 and 31 December 2015 does not differ significantly from that recognized under “Tangible assets” in the accompanying balance sheet. 13. Intangible assets Other intangible assets correspond entirely to the acquisition of software programs and systems. Movement in this balance sheet heading in 2016 and 2015 was as follows: 2016 Cost Balances at 1 January 2016 Additions Derecognition and transfers Total cost at 31 December 2016
Thousands of Euros 5,074 272 (3) 5,343
Accumulated amortization Balances at 1 January 2016 Additions (Note 32) )Derecognition and transfers Total accum. amortization at 31 December 2016 TOTAL INTANGIBLE ASSETS AT 31 DECEMBER 2016
2015 Cost Balances at 1 January 2015 Additions Derecognition and transfers Total cost at 31 December 2015 Accumulated amortization Balances at 1 January 2015 Additions (Note 32) )Derecognition and transfers Total accum. amortization at 31 December 2015 TOTAL INTANGIBLE ASSETS AT 31 DECEMBER 2015
(4,330) (393) (4,723) 620
Thousands of Euros 5,081 239 5,320
(4,151) (425) (4,576) 744
At 31 December 2016, certain intangible assets valued at Euros 3,913 thousand (Euros 3,120 thousand at 31 December 2015) were fully amortized.
58
Financial Report 2016
14. Other assets and prepayments and accrued income Details of this balance sheet caption are as follows: Thousands of Euros
2016
Prepayments and accrued income
2015
2,386
2,790
Other items
11,612
18,316
Total
13,998
21,106
Prepayments and accrued income are as follows: Thousands of Euros
2016
Accruals through the sale of financial instruments
2015
2,367
Unaccrued current expenses paid Total
2,484
19
306
2,386
2,790
Accruals through the sale of financial instruments recognized for 2016 and 2015 correspond to the sale of derivatives in 2012 with maturity after 31 December 2016 and 2015 (Note 27), which are taken to profit or loss in accordance with the remaining life of the different hedged items. Other assets - Other for 2016 and 2015 mainly include the following: -
Approved contributions to be received from various departments of the Generalitat de Catalunya for obligations recognized on certain loans to entities and companies. In general, these loans have been extended in the form of advances for subsidies awarded by these departments, when they have not been obtained to secure the transfer of receivables.
-
Group receivables
15. Financial liabilities at amortized cost A breakdown by type of this heading on the accompanying balance sheets at 31 December 2016 and 2015 is as follows: Thousands of Euros
2016
Deposits from credit institutions
2015
1,232,585
1,527,435
Deposits from customers
118,209
127,517
Debt securities issued
628,168
651,808
4,214
4,763
1,983,176
2,311,523
Other financial liabilities Total
Thousands of Euros
Gross balance
Interest accrued
Valuation adjustments 2016 Derivative Transaction micro-hedges costs
Discounted premiums
Net balance
Deposits from credit institutions Deposits from customers Debt securities issued Other financial liabilities
1,229,573 118,168 620,840 4,214
3,545 41 1,898 -
6,029 -
(533) -
(599) -
1,232,585 118,209 628,168 4,214
Total
1,972,795
5,484
6,029
(533)
(599)
1,983,176
59
Financial Report 2016
Gross balance
Thousands of Euros
Interest accrued
Valuation adjustments 2015 Derivative Transaction micro-hedges costs
Discounted premiums
Net balance
Deposits from credit institutions Deposits from customers Debt securities issued Other financial liabilities
1,523,406 127,515 647,685 4,763
4,939 2 2,036 -
4,528 -
(910) -
(2,441) -
1,527,435 127,517 651,808 4,763
Total
2,303,369
6,977
4,528
(910)
(2,441)
2,311,523
15.1 Deposits from credit institutions A breakdown of the balances under this heading by transaction type, excluding valuation adjustments, is as follows: Thousands of Euros
2016
2015
Fixed-term deposits
1,229,573
1,523,406
Fixed-term accounts
1,229,573
Total
1,229,573
1,523,406 1,523,406
In 2016, the average effective interest rate on the financial instruments classified under this heading was 0.98% (1.22% in 2015). The heading contains the bank borrowings used by the Group. The detailed balance relates to 14 public and private entities at 31 December 2016 (14 entities at 31 December 2015). Repayments of bank borrowings by residual maturity at 31December 2016 and 2015 were as follows:
Thousands of Euros Up to three months
2016
2015 45,729
64,062
From three months to one year
257,033
194,769
From one to five years
380,168
717,930
More than five years Total
546,643
546,645
1,229,573
1,523,406
At 31 December 2016 and 2015 the Institut has not recognized any borrowings which have been arranged but are undrawn. 15.2 Funds from customers A breakdown of the balances under this heading by sector and transaction type, excluding valuation adjustments, at 31 December 2016 and at 31 December 2015 is as follows: By sectors: Thousands of Euros Public entities Other resident sectors Total
2016 104,430
2015 126,153
13,738
1,362
118,168
127,515
By type:
60
Financial Report 2016
Thousands of Euros
2016
2015
Funds received
60,871
57,524
Other – Managed loans
57,297
69,991
118,168
127,515
Total
Funds received mainly relate to resources received from various departments and entities of the Generalitat de Catalunya to secure a number of lending transactions. The average effective interest rate of current accounts and other demand accounts during 2016 was 0.20% (0.37 in 2015). 15.3 Debt securities issued A breakdown of the balances under this heading at 31 December 2016 and at 31 December 2015, excluding valuation adjustments and by issues, is as follows: Thousands of Euros 31/12/2016
Maturity
Amount
Effective cost
Sixth issue
05/07/2017
99,500
EUR3M+0.050%
Sixth issue
05/07/2022
295,000
EUR3M+0.06%
Eighth issue
15/06/2024
12,000
EUR3M+2.35%
Tenth issue
18/09/2019
13,750
4.540%
Eleventh issue
22/10/2029
20,000
EUR3M+1.550%
Twelfth issue
28/10/2019
100,000
EUR3M+1.595%
Thirteenth issue
08/05/2018
10,000
0.250%
Fourteenth issue
01/09/2019
18,000
3.750%
Fourteenth issue
01/09/2019
2,000
3.750%
Fourteenth issue
01/09/2019
3,000
3.750%
Fourteenth issue
01/09/2019
10,000
3.750%
Total
583,250
Thousands of Euros 2015
Maturity
Amount
Interest rate in force
Sixth issue
05/07/2017
99,500
EUR3M+0.05%
Sixth issue
05/07/2022
295,000
EUR3M+0.06%
Eighth issue
15/06/2024
12,000
EUR3M+2.35%
Tenth issue
18/09/2019
15,000
4.54%
Tenth issue
18/09/2024
25,000
EUR3M+1.20%
Eleventh issue
22/10/2029
20,000
EUR3M+1.55%
Twelfth issue
28/10/2019
100,000
EUR3M+1.595%
Thirteenth issue
08/05/2018
10,000
0.25%
Fourteenth issue
01/09/2019
18,000
3.75%
Fourteenth issue
01/09/2019
2,000
3.75%
Fourteenth issue
01/09/2019
3,000
3.75%
Fourteenth issue
01/09/2019
10,000
3.75%
Total
609,500
In 2016 the ICF Group has repurchased Euros 34,000 thousand corresponding to the Tenth issue, generating a positive result of Euros 7,652 thousand (Note 27). Of the total repurchased amount, Euros 7,750 thousand where placed again on the market.
61
Financial Report 2016
At 31 December 2016 and 31 December 2015, redemption of the aforementioned issues according to their residual maturity dates was as follows: 2016
Thousands of Euros From three months to one year
2015 99,500
-
From one to five years
156,750
257,500
More than five years
327,000
352,000
Total
583,250
609,500
In addition, at 31 December 2016 the caption includes promissory notes for a total of Euros 37,590 thousand (Euros 38,185 thousand at 31 December 2015). This amount reflects 88 transactions (137 transactions at 31 December 2015) with nominal amounts of between Euros 100 thousand and Euros 3,000 thousand (between Euros 100 thousand and Euros 4,000 thousand at 31 December 2015). The average weighted return on the promissory notes is 0.87% (1.24% at 31 December 2015) and the average residual term is 0.7 years (0.7 years at 31 December 2015). On 5 April 2016 ICF’s fourth program of listed promissory notes came into force for a maximum overall amount of Euros 200,000 thousand. The duration of the promissory note program is one year, until 5 April 2017, and is addressed to qualified investors, with the unit nominal amount being Euros 100,000. These promissory notes are listed on the Barcelona Stock Exchange. 15.4 Other financial liabilities A breakdown of this balance sheet heading is as follows: Thousands of Euros
2016
2015
Accrued commissions on financial guarantees
4,214
Total
4,214
4,763 4,763
16. Provisions Details of this caption of the balance sheet at 31 December 2016 and 2015 are as follows: Thousands of Euros 2016
Net provisions
31/12/2015 Provisions for commitments and guarantees given
Transfers and others
Recoveries
31/12/2016
996
1,217
-
-
2,213
-
-
-
-
-
Guarantees given
996
1,217
-
-
2,213
Other provisions
-
882
-
-
882
996
2,099
-
-
3,095
Contingent commitments given
Total
Thousands of Euros 2015
Net provisions
31/12/2014
Transfers and others
Recoveries
31/12/2015
Provisions for commitments and guarantees given
-
996
-
-
Contingent commitments given
-
-
-
-
-
Guarantees given
-
996
-
-
996
Other provisions
34
(410)
(34)
410
-
Total
34
586
(34)
410
996
996
62
Financial Report 2016
The balance shown at 31 December 2016 and 2015 under “Commitments and guarantees given” reflects the allowance for impairment of guarantees given. The Group's directors do not consider that any additional liabilities will accrue in addition to those disclosed at 31 December 2016.
17. Other liabilities A breakdown of this balance sheet heading is as follows: 2016
2015
Accrued expenses and deferred income
4,627
3,637
Suppliers
1,501
1,241
Eligible expenses IFEM
1,271
362
Operations pending payment
38,952
28,013
Total
46,351
33,353
IFEM’s eligible expenses correspond to the difference between the pluriannuities recorded and the operating expenses accrued, in accordance with the European Funds Regulations and the Financing Agreement signed between Institut Català de Finances and Direcció General d’Anàlisi i Política Econòmica on 25 June 2008. Operations pending payment reflect commitments assumed for venture capital investments (Note 6). 17.1 Late payments to suppliers. "Reporting requirement" Third additional provision of Law 15/2012 of 5 July At 31 December 2016 and 31 December 2015, the Group does not have any outstanding invoices to suppliers which exceed the maximum legal period. Information on the average payment period during 2016 is as follows: 2016
2015
Days
Days
Average supplier payment period
44.46
38.45
Transactions paid ratio
44.46 23.61
40.16
Amount in thousands of Euros
Amount in thousands of Euros
20,958
4,420
139
236
Transactions payable ratio
Total payments made Total outstanding payments
6.49
18. Fair value of financial assets and liabilities The fair value of a financial asset or financial liability at a certain date is understood to be the amount by which it can be exchanged or settled, respectively, on that date between two independent and expert parties, who act willingly and prudently on an arm's length basis. The fair values of financial instruments reflected in the financial statements are classified using the following fair value levels: -
Level I: fair values are obtained from quoted prices (unadjusted) in active markets for the same instrument.
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Financial Report 2016
-
Level II: fair values are obtained from quoted prices in active markets for similar instruments, recent transaction prices or expected cash flows or other valuation techniques in which all significant inputs are based on market data.
-
Level III: fair values are obtained using valuation techniques in which a certain significant input is not based on observable market data.
The main valuation techniques, assumptions or inputs used to estimate the fair value of financial instruments classified in Levels II and II, according to the type off instrument. The valuation criteria remain the same as those in 2015. Financial instruments Level II Derivatives – hedge accounting
Level III financial instruments Available-forsale equity instruments
Valuation techniques
Main assumptions
Main inputs used
Libor Market model
This model assumes that the forward rates in the structure of the curve of rates are perfectly matched.
- Temporary interest rate structure - Credit risk of issuers
Valuation techniques
Main assumptions
Main inputs used
Comparison of the accounting information with the equity value of the subsidiaries
- Impairment exists if the fair value is less than 60% of the value of the investment
Audited financial information of the subsidiaries
- Variation of less than 10% is not significant for the volatility of the instruments
The main financial instruments recognized at fair value on the accompanying balance sheet at 31 December 2016 and 2015, detailing the valuation technique used to estimate their fair value, are as follows:
2016 Level 1
Level 2
Level 3
386,422
-
102,920
-
6,744
-
386,422
6,744
102,920
Assets: Available-for-sale financial assets (Note 6) Hedging derivatives (Note 9) Total assets
2016 Level 1
Level 2
Level 3
Hedging derivatives (Note 9)
-
18,880
-
Total liabilities
-
18,880
-
Liabilities:
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Financial Report 2016
2015 Level 1
Level 2
Level 3
169,992
-
93,196
-
4,527
-
169,992
4,527
93,196
Assets: Available-for-sale financial assets (Note 6) Hedging derivatives (Note 9) Total assets
2015 Level 1
Level 2
Level 3
Hedging derivatives (Note 9)
-
18,156
-
Total liabilities
-
18,156
-
Liabilities:
Any variation in one or more variables and other reasonably possible alternative assumptions would not entail any significant change in the fair value of Level 3 instruments over the whole financial instruments portfolio. As indicated in Note 2.b, the fair value of financial assets and liabilities measured at amortized cost does not significantly differ from their carrying amount. During 2015 and 2016 changes in the fair value of Level 2 and Level 3 financial instruments are solely due to the maturity of existing transactions, the arranagement of new transactions and changes in the fair value classified in other comprehensive income (in the case of Available-for-sale financial assets and cash flow hedging derivatives) and in income statement (in the case of fair value hedging derivatives). No transfers from one level to another occurred.
19. Other accumulated comprehensive income This heading of the accompanying balance sheet includes the following: -
The net amount of the tax effect of the differences between the market value and acquisition cost (net gains/losses) of available-for-sale assets which, as disclosed in Note 2.b must be included in the Group's equity. These differences are recognized in the income statement when the assets giving rise to them are sold.
-
The net tax effect of the variations in cash flow hedges, in accordance with what is disclosed in Note 2.c.
The total amount of the adjustments for a change in value, net of tax effect, recognized in equity is as follows:
2016 Thousands of Euros Available-for-sale financial assets Cash flow hedges Total
2015
20,970
16,784
(11,319)
(11,092)
9,651
5,692
20. Shareholders’ equity 20.1 Assigned capital
65
Financial Report 2016
Movement in this caption during 2016 and 2015 is as follows: Thousands of Euros
2016
Opening balance
693,149
693,149
-
-
693,149
693,149
Contribution to assigned capital Total
2015
20.2 Reserves Movement in this heading during 2016 and 2015 was as follows:
Item Balance at 31.12.2014 Distribution of profit Other movements Profit for 2015 Inclusion in consolidation group Balance at 31.12.2015 Distribution of profit Other movements Profit for 2016 Inclusion in consolidation group Balance at 31.12.2016
Parent reserves
Reserves in equityaccounted companies
Subsidiaries’ reserves
Profit /(loss) for the year
Total
104,779 7,921 -
236 (51) (1,500) -
4,172 242 -
7,870 (7,870) 8,559 -
117,057 7,301 -
-
-
-
-
-
112,700 9,822 (1,895) -
(1,315) (1,306) 1,113 -
4,414 43 (860) -
8,559 (8,559) 9,762
124,358 (1,642) 9,762
-
-
-
-
-
120,627
(1,508)
3,597
9,762
132,478
All balances of reserves at 31 December 2016 and 2015 are freely distributable. 21. Taxation 21.1 Tax consolidation The ICF Group has filed consolidated corporate income tax returns since 2006. The composition of the Group filing consolidated corporate income tax returns in 2016 is as follows: Parent Subsidiaries
Institut Català de Finances Institut Català de Finances Capital, SGEIC, S.A.U. Instruments Financers per a Empreses Innovadores S.L.U.
21.2 Financial years subject to tax inspection At 31 December 2016, the Group is open to inspection for all taxes to which it is liable for the last four financial years. Due to the treatment permitted by fiscal legislation of certain operations carried out by the ICF Group, certain tax contingencies could arise that cannot be objectively quantified. In the opinion of the Group’s management and that of its tax advisors, any such liabilities would not, in any event, have a significant impact on the 2016 consolidated financial statements.
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Financial Report 2016
21.3 Reconciliation of accounting profit and taxable income and tax rate calculation A reconciliation of the 2016 and 2015 accounting profit and taxable income, and the income tax expense/(recoverable income tax) is as follows: Thousands of Euros
2016
Accounting profit before tax
2015
12,208
11,307
58 (5,061)
(43) 824 (1,896) (173)
44,324 (41,106) (676)
50,222 (56,191) -
Consolidation adjustments Equity-accounted profit/loss Profit of companies not included in the tax group Other consolidation adjustments Permanent differences Temporary differences Increases Decreases Capitalization reserve (Note 4) Application of tax loss carryforwards Consolidated taxable income Tax at prevailing rate Deductions and credits Withholdings and payments on account Income tax expense (recoverable tax)
-
9,747
4,051
2,437 (4) (2,327)
1,134 (2) (1,119)
106
13
Details of the income tax expense related to profit for 2015 and 2014 are as follows: Thousands of Euros
2016
2015
Accounting profit before tax
12,208
11,308
Tax at prevailing rate Tax effect of non-deductible expenses
3,052 (1,265)
3,166 (49)
-
7,259
Tax credit adjustment due to change in tax rate Consolidation adjustments Deductions and credits applied Capitalization reserve (Note 4) Adjustments
15 (4) (169) 817
(7,259) (312) (2) (55)
Income tax expense (recoverable tax)
2,446
2,748
Recognition of prior years' temporary differences
Adjustments in 2016 basically correspond to the derecognition of certain deferred tax assets associated with the impairment of ownership investments, as a result of Royal Decree Law 3/2016 of 2 December, approving tax measures aimed at consolidating public finances and other urgent social measures. Additionally, in 2015 deferred tax assets generated in 2011 and amounting to Euros 7,259 thousand were recognized as their recoverability within the terms set out by legislation applicable to the Institut was considered reasonable. The Group has off-balance sheet non-capitalized temporary differences originating from 2011, the tax effect of which totals Euros 1,062 thousand at 31 December 2016 (Euros 1,062 thousand at 31 December 2015).
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Financial Report 2016
A reconciliation of current income tax and the income tax expense (recoverable income tax) for 2016 and 2015 is as follows: Thousands of Euros
2016
2015
Taxable income due to tax rate Deductions and credits
2,437 (4)
1,134 (2)
Current income tax for the year Change in temporary differences Application of tax credits Deferred tax assets not recognized in the financial year Adjustments Income tax expense (recoverable tax)
2,433 (805)
1,132 1,671 (55) 2,748
817 2,446
In 2011 the tax group obtained income of Euros 14,173 thousand from the transfer of assets and liabilities subject to the deduction for reinvestment set out in article 42 of the revised Income Tax Law. During the period between the year prior to the availability of the assets and liabilities transferred and the three subsequent years, the tax group made the following investments which have entitled it to apply the deduction for reinvestment as stipulated by the aforementioned article 42: -
2014 tax year: the tax group made investments of Euros 3,703 thousand up to the deadline for applying the deduction for reinvestment, mainly relating to the venture capital activity, which have entitled it to apply the deduction for reinvestment amounting to Euros 68 thousand.
-
2013 tax year: the tax group made investments of Euros 6,392 thousand, mainly relating to the venture capital activity, which have entitled it to apply the deduction for reinvestment amounting to Euros 117 thousand.
-
2012 tax year: the tax group made investments of Euros 10,011 thousand, mainly relating to the venture capital activity, which have entitled it to apply the deduction for reinvestment amounting to Euros 183 thousand.
Period between the year prior to the availability of the assets and liabilities transferred and 31 December 2011: the tax group made investments of Euros 34,648 thousand, mainly relating to the venture capital activity and the purchase of the building where its head offices were located, which have entitled it to apply the deduction for reinvestment of Euros 633 thousand. 21.4 Deferred taxes The differences, wherever applicable, between the amount of income tax recognized and that payable corresponds to current and deferred taxes arising due to temporary differences, and are recognized under “Tax assets” and “Tax liabilities”. Details of current and deferred tax balances at 31 December 2016 and 31 December 2015 are as follows: Thousands of Euros Opening balance of deferred tax assets For non-deductibility of provisions Changes in value of equity Depreciation limit Other tax assets Recognition of prior years' temporary differences Adjustments due to change in tax rate Closing balance of deferred tax assets
2016 45,532 599 83 (20) 383 (834) 45,743
2015 48,452 (1,613) (1,152) (23) (172) 7,259 (7,218) 45,532
Thousands of Euros Opening balance of deferred tax liabilities IFDV changes in value Other tax liabilities Adjustments due to change in tax rate Closing balance of deferred tax liabilities
2016 5,623 517 (38) (5,724) 378
2015 5,687 923 (70) (917) 5,623
68
Financial Report 2016
Adjustments due to changes in tax regulations in 2016 basically correspond to the derecognition of certain deferred tax assets associated with the impairment of equity investments, as a result of Royal Decree Law 3/2016 of 2 December, approving tax measures aimed at consolidating public finances and other urgent social measures, whereas adjustments due to changes in tax regulations in 2015 corresponded to the change in the tax rate applicable to Institut (25%), in accordance with Law 27/2015 on the Income Tax. 21.5 Current taxes The balances related to current tax assets at 31 December 2016 and 2015, amounting to Euros 84 and 129 thousand, respectively, correspond essentially to the uncollected arrears of Group entities that are not part of the consolidated tax. The detail of current tax liabilities at December 31, 2016 and 2015 is as follows:
Liability (thousands of euros)
31/12/2016
31/12/2015
Withholding debt
133
127
Social security debt
102
101
Taxation authority, IS credit
106
102
Other Total
30
78
371
408
22. Other relevant information a) Guarantees given Contingent exposures are defined as those amounts which the Group would be obliged to pay on behalf of a third party in the event of that party failing to meet its payment obligations, in accordance with commitments assumed during normal business activity. The majority of such amounts will reach maturity without giving rise to any obligation to pay on the part of the Group, and therefore the total balance of these commitments cannot be considered part of the Group’s real financing or liquidity needs. Revenues earned on guarantee instruments are recognized under “Commission income” and “Interest income” (in the amount corresponding to the adjustment to the value of the commissions) in the income statement for the financial year and are calculated by applying the rate established in the contract to the nominal amount of the guarantee. The provisions recognized to cover these guarantees, calculated using similar criteria to those used to calculate impairment losses and valued at amortized cost, are recognized under “Commitments and guarantees given” in the balance sheet (note 16). The breakdown of the heading “Guarantees given” included in the memorandum accounts to the balance sheets at 31 December 2016 and 31 December 2015 is as follows: Thousands of Euros Guarantees and other deposits provided Total
2016 135,279
2015 147,179
135,279
147,179
b) Contingent commitments given The balance on this caption includes any irrevocable commitment that could give rise to the recognition of a financial asset.
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Financial Report 2016
The breakdown of the heading “Commitments given” included in the memorandum accounts to the balance sheets at 31 December 2016 and 31 December 2015 is as follows:
Thousands of Euros Available to third parties Public sector Other resident sectors Total
2016 91,037 16,589 74,448 91,037
2015 114,324 15,195 99,129 114,324
23. Interest income This heading on the income statement includes interest accrued during the year as the implicit or explicit yield on financial assets, obtained by applying the effective interest rate (mainly for loans provided by the ICF Group). The breakdown of the origin of interest and similar payments accrued in favor of the ICF Group in 2016 and 2015 is as follows: Thousands of Euros Deposits in credit institutions Loans to customers Public entities Other resident sectors Debt securities Other interest Total
2016
2015
664 61,432 12,464 48,968 2,602 5,639 70,337
1,795 69,611 14,336 55,275 1,653 8,585 81,644
The sum corresponding to “Other interest” refers to interest income from intermediation activities and variations in the present value of guarantee commissions. 24. Interest expenses This heading on the income statement includes interest accrued during the year as the implicit or explicit interest generated on financial liabilities, obtained by applying the effective interest rate, and also adjustments due to accounting hedges. The breakdown of this heading in the income statements for 2016 and 2015 is as follows: Thousands of Euros Deposits from credit institutions Deposits from customers Debt certificates including bonds Total
2016 (13,475) (49) (7,989) (21,513)
2015 (18,997) (68) (12,132) (31,197)
25. Commission income Commission income at 31 December 2016 and 2015 amounts to Euros 3,375 thousand and Euros 3,667 thousand, respectively, and mainly corresponds to commissions for guarantees given.
70
Financial Report 2016
26. Commission expenses Commission expense at 31 December 2016 and 2015 amounts to Euros 666 thousand and Euros 888 thousand, respectively, and mainly corresponds to fees for asset and liability transactions.
27. Gains or (-) losses on derecognition of financial assets and liabilities not at fair value through profit or loss, net The breakdown of this heading is as follows:
Item
Thousands of Euros 2016 2015
Available-for-sale financial assets Debt securities Equity instruments
501
29
396
29
105
-
Sale of swaps (Note 14) Repurchase of own issues (Note 15.3)
(117)
671
7,652
485
Total
8,034
1,185
28. Other operating income The breakdown of this heading in the income statements for 2016 and 2015 is as follows: Thousands of Euros
2016
Income from investment property
2015
3,825
Other items Total
3,316
99
443
3,924
3,759
“Income from investment property” mainly reflects income that the Group has generated from the leasing of the office buildings classified under “Tangible assets - Investment property”. 29. Other operating expenses The breakdown of this heading in the income statements for 2016 and 2015 is as follows: Thousands of Euros
2016
2015
Expenses from investment property
(801)
(807)
Other items
(697)
(630)
(1,498)
(1,437)
Total
30. Personnel expenses The breakdown of this heading in the income statements for 2016 and 2015 is as follows: Thousands of Euros
2016
2015
Wages and Salaries
(4,267)
(4,381)
Social Security
(1,057)
(1,061)
Other personnel expenses Total
(20)
-
(5,344)
(5,442)
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Financial Report 2016
Personnel expenses include remuneration of the directors (CEO and two general managers) of Institut Català de Finances, the parent company of the ICF Group, amounting to Euros 322 thousand in 2016 (Euros 429 thousand in 2015). At 31 December 2016 and 2015, the distribution ICF Group’s workforce by professional category and gender is as follows: December 31, 2016 Male Female Total CEO General managers Directors and managers Technicians Administrative staff Total
1 1 17 16 35
1 11 35 12 59
1 2 28 51 12 94
December 31, 2015 Male Female Total CEO General managers Directors and managers Technicians Administrative staff Total
1 2 17 17 37
1 12 32 12 57
1 3 29 48 12 94
The distribution ICF Group’s average workforce by professional category and gender during 2016 and 2015 is as follows: December 31, 2016 Male Female Total CEO General managers Directors and managers Technicians Administrative staff Total
1 2 16 16 35
1 12 34 12 59
1 3 28 50 12 94
December 31, 2015 Male Female Total CEO General managers Directors and managers Technicians Administrative staff Total
1 2 17 17 37
1 12 32 12 57
1 3 29 49 12 94
In accordance with the last Budget Law of Generalitat de Catalunya (Law 2/2015 of 11 March), a budget the validity of which was extended through Decrees 252/2015 of 15 December, the Institut shall make potential contributions to the pension fund in accordance with future Budget Laws.
72
Financial Report 2016
The ICF Group complies with Law 13/1982, which requires companies with more than 50 employees to either employ 2% or more employees with a disability equal to or greater than 33%, or to adopt the alternative measures set out in Royal Decree 27/2000. In 2015 and 2016 the ICF Group has 1 employee with a disability equal to or greater than 33%. Additionally, the Group has supplemented this requirement adopting alternative measures and has contracted the services of the company Femarec, which has been certified to that effect in accordance with its corporate purpose.
31. Other administrative expenses The breakdown of this heading in the accompanying income statement is as follows: Thousands of Euros
2016
2015
Furniture, fittings and materials Information technology Communications Publicity and advertising Technical reports Security and fund courier services Insurance premiums Staff travel and representatives’ expenses Outsourced administrative services Contributions and taxes Control and governing bodies Association fees Other expenses
(205) (1,145) (63) (151) (633) (74) (35) (33) (95) (164) (107) (30) (157)
(283) (720) (48) (298) (551) (78) (40) (39) (99) (147) (142) (24) (228)
Total
(2,891)
(2,697)
“Other general administrative expenses” includes the fees and expenses accrued by Ernst & Young for the annual audit, amounting to Euros 74 thousand (excluding VAT) in 2016 and Euros 95 thousand (excluding VAT) in 2015 accrued by that year’s auditor, KPMG Auditores SL. Additionally, in 2016 Euros 23 thousand have been accrued by the external auditor for reviewing the information on the Internal Control System of Financial Reporting included in the Annual Report on Corporate Governance, and reviewing the ICF Group’s Prudential Relevance Report. Additionally, in 2015 companies related to KPMG International accrued Euros 15 thousand for tax advisory services. “Governing and control bodies” includes Euros 107 thousand (Euros 105 thousand in 2015) for allowances and other remuneration received to attend meetings of the governing bodies of Institut Català de Finances, the Parent of the ICF Group. Details of the allowances and remuneration of the Parent’s bodies at 31 December 2016 and 2015 are as follows: Thousands of Euros Allowances - members of the Governing Boards Remuneration - members of the Governing Boards Total
2016
2015 (107)
(32) (73)
(107)
(105)
Law 3/2015 of 11 March on tax, financial and administrative measures suspended the entitlement of senior officials of the Generalitat de Catalunya (Catalan Regional Government) to receive allowances for attending meetings of governing bodies. This law entered into force on 14 March 2016. Independent members of the Governing Board, the Executive Committee, and of the control committees (Audit and Control Committee and Appointments and Remuneration Committee) received a specific yearly remuneration in their capacity as independent board members, in accordance with the Remuneration Policy approved by the Governing Board on 18 June 2015. More details of these allowances and remuneration for 2016 are provided in Appendix I.
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Financial Report 2016
There were no transactions with any members of the governing bodies for items other than those disclosed. 32. Depreciation and amortization Details of this heading in the income statement for the years ended 31 December 2016 and 31 December 2015 are as follows: Thousands of Euros Tangible assets (Note 12): For own use Investment property Intangible assets (Note 13) Total
2016
2015
(95) (666) (393)
(88) (665) (425)
(1,154)
(1,178)
33. Impairment losses or (-) reversal of impairment losses on financial assets not at fair value through profit or loss The breakdown of the balance of this caption of the accompanying income statement for the years 2016 and 2015 is as follows: Thousands of Euros Impairment losses or (-) reversal of impairment losses on financial assets not at fair value through profit or loss: Impairment allowances Recoveries Total lending Available-for-sale financial assets Impairment of available-for-sale financial assets (Note 6) Total Other financial instruments not at fair value through profit or loss Financial assets measured at cost Total Financial assets measured at cost Total
34.
2016
2015
(427,226) 387,970 (39,256)
(86,508) 54,550 (31,958)
(1,274) (1,274) (199) (199)
(1,971) (1,971) 6 6
(40,730)
(33,923)
Gains (losses) on non-current assets and disposal groups classified as held for sale not eligible as discontinued operations The breakdown of the balance of this caption is as follows: Thousands of Euros Impairment of foreclosed assets Gains on the sale of foreclosed assets Total
2016
2015
(168)
(1,270)
668
28
500
(1,242)
35. Related parties The breakdown of the balances and transactions for 2016 and 2015 with the related parties of the ICF Group, not disclosed in any other Note, is as follows: Amounts and transactions with Avalis de Catalunya S.G.R.:
74
Financial Report 2016
2016 - Thousands of Euros Convertible debt
Assets
Liabilities
Expenses
Income
2,228
-
-
Debt securities
-
10,460
(103)
-
Rental of offices
-
-
-
250
2,228
10,460
(103)
280
Total
2015 - Thousands of Euros
Assets
Liabilities Expenses
30
Income
Convertible debt
3,523
-
-
64
Rental of offices
-
-
-
250
3,523
-
-
314
Total
Likewise, the heading "Loans and receivables - Customers" includes balances with the unique owner in the amount of Euros 60,131 thousand at December 31, 2016 (Euros 63,008 thousand on December 31, 2015), which have accrued Market interest. On the other hand, there has been an income from leasing offices to that owner for Euros 508 thousand in 2016 (508 thousand in 2015). 36. Note added for the purpose of the English translation These consolidated financial statements are a translation of the original issued in Catalan. In case of discrepancy, the Catalan-language version will prevail.
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Financial Report 2016
APPENDIX I - ALLOWANCES AND REMUNERATION OF THE MEMBERS OF THE GOVERNING BODIES OF INSTITUT CATALÀ DE FINANCES DURING 2016 (Note 31)
(Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails.)
At 31/12/2016 the number of members of the Governing Board was 9, of which 5 independent, 3 proprietors and one executive, pending to appoint a proprietary director and an independent director. The remuneration policy approved by the Board of Directors on the proposal of the Nomination and Remuneration Committee is the regulation governing the remuneration of all directors.
Executives
Proprietary
Independent
At 31 December 2016 it was comprised as follows: Governing Board
Executive Committee
Control committees Audit and Control Verger Casasnovas, Virginia Abella Martín, Rafael
Casas Selva, Francesc Domingo Piera, Mercedes Ganyet Cirera, Carmina Verger Casasnovas, Virginia Maria Abella Martín, Rafael
Casas Selva, Francesc Domingo Piera, Mercedes Ganyet Cirera, Carmina
Tarradellas Espuny, Joan Josep M. Jové Lladó Joan Vidal de Ciurana
-
-
Sanromà Celma, Josep Ramon
Sanromà Celma, Josep Ramon
-
Remuneration and Appointments Ganyet Cirera, Carmina Domingo Piera, Mercedes
Taking into consideration all the aforementioned changes, the table below shows the remuneration earned by the members of the governing board and delegate committees: Euros
Remuneration of Governing Board
Remuneration of Delegate Committees
Total
Abella Martin, Rafael (2)
1,000
-
1,000
Casas Selva, Francesc
12,000
7,200
19,200
Domingo Piera, Mercedes
12,000
7,200
19,200
Ganyet Cirera, Carmina
12,000
14,400
26,400
Valls Morató, Manuel (1)
9,000
12,600
21,600
Verger Casasnovas, Virginia Maria
12,000
7,200
19,200
TOTAL
58,000
48,600
106,600
(1) (2)
Directors who have left in 2016. Directors appointed in 2016.
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Financial Report 2016
APPENDIX II – SUBSIDIARIES AND ASSOCIATES IN THE INSTITUT CATALÀ DE FINANCES GROUP AT 31 DECEMBER 2016
(Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails.)
Figures in thousands of Euros at 31/12/2016 Investment
Address
Auditors
% of capital owned:
Capital
Ernst & Young, S.L.
100.00%
50,000
-
-
(463)
(478)
(623)
-
48,436
Ernst & Young, S.L.
100.00%
300
-
-
720
172
-
-
1,192
Venture capital for technology and industrial companies
Ernst & Young, S.L.
100.00%
11,400
-
-
(3,267)
(101)
-
-
8,032
Venture capital, support for listing on M.A.B. alternative stock market
Ernst & Young, S.L.
100.00%
5,250
-
-
(395)
44
(413)
-
4,486
Reciprocal Guarantee Company
KPMG
21.89%
17,743
-
15,333
(650)
64
-
-
32,490
Activity
Share premium
Reserves/ Prior years' profit (loss)
Technical provisions
Profit/(loss) for the last year
Valuation adjustments
Total Shareholders’ equity
Interim dividend
Subsidiaries
Instruments Financers per a Empreses Innovadores, S.L.
Institut Català de Finances Capital SGEIC, S.A. Capital Expansió, F.C.R.
Capital MAB, F.C.R.
Gran Via de les Corts Catalanes, 635 Barcelona Gran Via de les Corts Catalanes, 635 Barcelona Gran Via de les Corts Catalanes, 635 Barcelona Gran Via de les Corts Catalanes, 635 Barcelona
Ownership and management of equity investments and assets on behalf of the Generalitat de Catalunya, in all types of funds, in companies, guarantee funds and venture capital funds. Administration and management of Venture Capital Funds and assets of Venture Capital Companies
Associates Avalis de Catalunya S.G.R.
Gran Via de les Corts Catalanes, 129-131 Barcelona
(1) There are two ICF companies with a holding in Avalis, ICF and Instruments Financers per a Empreses Innovadores S.L.
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Financial Report 2016
APPENDIX II – SUBSIDIARIES AND ASSOCIATES IN THE INSTITUT CATALÀ DE FINANCES GROUP AT 31 DECEMBER 2015
Figures in thousands of Euros at 31/12/2015 Investment
Address
Activity
Auditors
% of capital owned:
Capital
Ernst & Young, S.L.
100.00%
50,000
-
-
1,000
(680)
(445)
-
49,875
100.00%
300
-
-
523
198
-
-
1,020
100.00%
6,300
-
-
(2,532)
(735)
-
-
3,033
100.00%
5,250
-
-
(306)
(89)
(162)
-
4,855
27.29% (1)
19,000
-
16,277
(806)
156
-
-
34,627
Share premium
Reserves/ Prior years' profit (loss)
Technical provisions
Profit/(loss) for the last year
Valuation adjustments
Total Shareholders’ equity
Interim dividend
Subsidiaries Instruments Financers per a Empreses Innovadores, S.L.
Institut Català de Finances Capital SGEIC, S.A. Capital Expansió, F.C.R.
Capital MAB, F.C.R.
Gran Via de les Corts Catalanes, 635 Barcelona Gran Via de les Corts Catalanes, 635 Barcelona Gran Via de les Corts Catalanes, 635 Barcelona Gran Via de les Corts Catalanes, 635 Barcelona
Ownership and management of equity investments and assets on behalf of the Generalitat de Catalunya, in all types of funds, in companies, guarantee funds and venture capital funds. Administration and management of Venture Capital Funds and assets of Venture Capital Companies Venture capital for technology and industrial companies Venture capital, support for listing on M.A.B. alternative stock market
Ernst & Young, S.L. Ernst & Young, S.L. Ernst & Young, S.L.
Associates Avalis de Catalunya S.G.R.
Gran Via de les Corts Catalanes, 129-131 Barcelona
Reciprocal Guarantee Company
Deloitte
(1) There are two ICF companies with a holding in Avalis, ICF and Instruments Financers per a Empreses Innovadores S.L.
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Financial Report 2016
APPENDIX III – INVESTEES OF INSTITUT CATALÀ DE FINANCES – 31 DECEMBER 2016 (Free translation from the original in Catalan. In the event of discrepancy, the Catalan-language version prevails) Figures in thousands of Euros Company name FonsInnocat F.C.R. Catalana d’Iniciatives S.A. (in liquidation) Spinnaker Invest S.C.R., S.A. Invernova F.C.R. Barcelona Empren S.C.R., S.A.
Address Diagonal 605, Barcelona València 225, Barcelona Diputació 246, Barcelona Diagonal 399, Barcelona Gran Via de les Corts Catalanes 635, Barcelona
Nauta Tech Invest II S.C.R., S.A.
Diagonal, 593, Barcelona
Mediterrània Capital, F.C.R. Caixa Capital TIC, S.C.R., S.A.
Diputació 246, Barcelona Diagonal 613, Barcelona
Highgrowth Innovación, F.C.R.
Diagonal 605, Barcelona
Ingenia S.A. (in liquidation) Taiga V, F.C.R. Ysios BioFund I, F.C.R. Soc. Cat. d'Inver. en Cooperatives, S.A. (in liquidation)
Diagonal 399, Barcelona Cº de la Zarzuela 15, Aravaca Travessera de Gràcia 11, Barcelona Gran Via de les C. Catalanes 635, Barcelona
Nauta Invest Tech III S.C.R., S.A.
Diagonal, 593, Barcelona
Caixa Capital Biomed S.C.R., S.A.
Diagonal 613, Barcelona
Caixa Innvierte Industria S.C.R.
Diagonal 613, Barcelona
Amerigo Innvierte Spain Ventures F.C.R. Caixa Innvierte BioMed II, F.C.R. Suma Capital Growth Fund I, S.C.R Idinvest Digital Fund II Nauta Tech Invest IV, F.C.R. Aurica III, S.C.R. Arrendadora Ferroviària SA
Passeig de Gràcia 35, Barcelona Diagonal 613, Barcelona Diagonal 640, Barcelona Avenue des Champs Elysées 117, Paris Diagonal 593, Barcelona Diagonal 407, Barcelona Diagonal, 640, Barcelona
Activity
Auditors
%
Shareholders’ Changes equity in value
Net value of holding
Venture capital for innovative companies Venture capital Venture capital for the media sector Venture capital for technology-based companies
BDO Auditores Deloitte Deloitte
50.75% 24.25% 22% 5.44%
1,642 (8,184) 5,166 1,180
182 23,105 452
926 7,985 89
Venture capital for technology companies
BDO Auditores
26.04%
4,121
627
1,236
Deloitte
7.40%
5,206
49,048
3,244
Deloitte Vir Audit, SLP
24% 9.68%
35,975 14,620
29,662 277
15,753 1,442
Grant Thornton
38.58%
1,564
536
810
Price WaterHouse Price WaterHouse
33.40% 7.32% 4.33%
(1) 36,462
2,984
1,706
Ernst & Young S.L.
33.33%
81
-
425
Deloitte
5.72%
41,456
80,583
6,981
Deloitte
4.55%
8,177
213
382
Deloitte
8.60%
20,532
-
1,766
3.72% 5.71% 30.30% 2.59% 22.91% 13.34% 40.86%
29,416 21,441 13,566 100,063 3,427 2,710 (588)
25,002 8,400 63 -
2,024 1,400 4,403 2,589 1,300 444 25
Venture capital for technology, media and telecommunications Venture capital Venture capital for technology companies Venture capital for companies with innovative projects Venture capital Venture capital for renewable energies Venture capital for health sciences and biotechnology Venture capital for the cooperative sector Venture capital for technology, media and telecommunications Venture capital for health sciences and biotechnology Venture capital for technology and industrial companies Venture capital for technology projects Venture capital for health sciences and biotechnology Venture capital for companies with growth projects Venture capital for companies in the digital sector Venture capital for technology projects Venture capital Rent of trains
BDO Auditores Deloitte BDO Auditores Aplitec Deloitte Price WaterHouse Deloitte
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Financial Report 2016
Investment Company in venture capital Investment Company in venture capital Investment Company in venture capital Investment Company in venture capital Investment Company in venture capital Texture commercialization Transformation of thermoplastic resins
Busquet Economistes Audalia Auditores S.L. BDO Audiberia BDO Audiberia RSM Gassó Auditors Deloitte BDO Audiberia BDO Audiberia VirAudit KPMG KPMG
Pharmaceutical products and Biotechnology
KPMG
3.28%
6,713
Software Telecommunications Pharmaceutical products and Biotechnology
BDO Audiberia BDO Audiberia Grant Thorton
4.64% 3.70% 0.77%
6,356 5,443 19,418
Projectes Territorials del Bages, SA
Muralla del Carme, 22, Manresa
Real state and economic development of Bages
Finaves IV, S.A.
Avinguda Diagonal 453, Barcelona
Investment Company in venture capital
Inveready First Capital I, SA Societat d'Inversió dels Enginyers S.L.
Cavallers 50, Barcelona Via Laietana 39, Barcelona
Inveready Venture Finance, S.C.R.
Cavallers 50, Barcelona
Investment Company in venture capital Investment Company in venture capital Investment Company in venture capital
Healthequity, S.C.R. SA Venturcap II, S.C.R. Inverready Biotech II, S.C.R. Caixa Innvierte Start, F.C.R. K Fund, F.C.R.E
Pg. Bonanova, 47 Barcelona Dr. Ferran, 3 Barcelona Cavallers 50, Barcelona Diagonal 613, Barcelona Rafael Calvo 40, 1-2 Madrid Sant Ferran, 68, Cornellà de Llobregat Orfebreria 1, Palau de Plegamans Científic i Tecnològic de Girona C/ Pic de Peguera, 15, Girona Diagonal, 449 – 7, Barcelona Parque Gardeny (Ed H1) , Pis 2, Lleida Josep Samitier, 1-5, Barcelona
Sux Trit, S.L. Plásticos Compuestos, S.A. AB - Biòtics S.A. Agile Content, S.A. Lleidanetworks Serveis telemàtics, S.A. Oryzon Genomics, S.A. TOTAL
13.22%
850
-
-
966 1,290 1,875
561 (75)
196 408 892
36.40% 33.33% 5.81% 9.48% 1.13% 37.72% 9.82%
7,026 3,712 1,350 9,336 7,295 (116) 12,261
2,473 150 0 2,437 -
846 1,406 450 684 740 320 1,150
12.86% 31.58% 49.58% 8,.90%
-
Figures relating to the equity of these companies were obtained from their financial statements at 31 December 2016 available at the date these financial statements were authorised for issue.
80
662 910 367 957 64,918
Financial Report 2016
APPENDIX III – INVESTEES OF INSTITUT CATALÀ DE FINANCES – 31 DECEMBER 2015
Figures in thousands of Euros Company name
Address
FonsInnocat F.C.R.
Diagonal 605, Barcelona
Spinnaker Invest S.C.R., S.A. Catalana d’Iniciatives S.A. (in liquidation) Invernova F.C.R.
Diputació 246, Barcelona València 225, Barcelona Diagonal 399, Barcelona Gran Via de les Corts Catalanes 635, Barcelona
Barcelona Empren S.C.R., S.A. Nauta Tech Invest II S.C.R., S.A.
Diagonal, 593, Barcelona
Mediterrània Capital, F.C.R. Caixa Capital TIC, S.C.R., S.A.
Diputació 246, Barcelona Diagonal 613, Barcelona
Highgrowth Innovación, F.C.R.
Diagonal 605, Barcelona
Ingenia S.A. (in liquidation) Taiga V, F.C.R. Ysios BioFund I, F.C.R. Soc. Cat. d'Inver. en Cooperatives, S.C.R.
Diagonal 399, Barcelona Cº de la Zarzuela 15, Aravaca Travessera de Gràcia 11, Barcelona Gran Via de les C. Catalanes 635, Barcelona
Activity Venture capital for companies with innovative projects Venture capital for the media sector Venture capital Venture capital for technology-based companies Venture capital for technology companies Venture capital for technology, media and telecommunications Venture capital Venture capital for technology companies Venture capital for companies with innovative projects Venture capital for companies with growth projects Venture capital for renewable energies Venture capital for health sciences and biotechnology Venture capital for the cooperative sector
Nauta Invest Tech III S.C.R., S.A.
Diagonal, 593, Barcelona
Caixa Capital Biomed S.C.R., S.A.
Diagonal 613, Barcelona
Caixa Innvierte Industria S.C.R.
Diagonal 613, Barcelona
Amerigo Innvierte Spain Ventures F.C.R. Caixa Innvierte BioMed II, F.C.R. Suma Capital Growth Fund I, S.C.R. Idinvest Digital Fund II Nauta Tech Invest IV, F.C.R. Arrendadora Ferroviària SA
Passeig de Gràcia 35, Barcelona Diagonal 613, Barcelona Diagonal 640, Barcelona Avenue des Champs Elysées 117, Paris Diagonal 593, Barcelona Diagonal, 640, Barcelona
Venture capital for technology, media and telecommunications Venture capital for health sciences and biotechnology Venture capital for technology and industrial companies Venture capital for technology projects Venture capital for health sciences and biotechnology Venture capital for companies with growth projects Venture capital for companies in the digital sector Venture capital for technology projects Rent of trains
Projectes Territorials del Bages, SA
Muralla del Carme, 22, Manresa
Real state and economic development of Bages
Finaves IV, S.A.
Avinguda Diagonal 453, Barcelona
Investment Company in venture capital
Auditors
%
Shareholders’ Changes equity in value
Net value of holding
BDO Auditores
50.75%
1,653
740
1,214
Deloitte Deloitte
22.00% 24.25% 5.44%
3,254 (8,184) 1,986
35,915 729
8,616 108
BDO Auditores
26.04%
5,118
841
1,552
Deloitte
7.40%
17,548
73,471
6,658
Deloitte Vir Audit, SLP
24.00% 9.68%
47,571 10,888
2,738
18,532 1,319
Grant Thornton
38.58%
3,169
635
1,448
Price WaterHouse Price WaterHouse
33.40% 7.32% 4.33%
(1) 974 30,077
3,272
1,645
KPMG
33.33%
2,148
-
716
Deloitte
5.72%
48,863
42,674
5.236
Deloitte
4.55%
12,454
-
654
Deloitte
7.11%
13,976
-
994
3.72% 5.71% 27.25% 2.59% 25.34% 40.86%
33,462 15,893 9,345 63,381 3,425 (589)
22,542 5 -
2.083 1.000 2.810 1.640 1.025 25
13.22%
261
-
-
1,893
598
BDO Auditores Deloitte BDO Auditores Aplitec Deloitte Deloitte Busquet Economistes Audalia Auditores S.L.
12.86%
81
320
Financial Report 2016
Inveready First Capital I, SA Societat d'Inversió dels Enginyers S.L.
Cavallers 50, Barcelona Via Laietana 39, Barcelona
Investment Company in venture capital Investment Company in venture capital
Inveready Venture Finance, S.C.R.
Cavallers 50, Barcelona
Investment Company in venture capital
Healthequity, S.C.R. SA Venturcap II, S.C.R. Inverready Biotech II, S.C.R.
Pg. Bonanova, 47 Barcelona Dr. Ferran, 3 Barcelona Cavallers 50, Barcelona Sant Ferran, 68, Cornellà de Llobregat Orfebreria 1, Palau de Plegamans Científic i Tecnològic de Girona C/ Pic de Peguera, 15, Girona Diagonal, 449 – 7, Barcelona Parque Gardeny (Ed H1) , Pis 2, Lleida Josep Samitier, 1-5, Barcelona
Investment Company in venture capital Investment Company in venture capital Investment Company in venture capital Texture commercialization Transformation of thermoplastics
BDO Audiberia BDO Audiberia RSM Gassó Auditors Deloitte BDO Audiberia BDO Audiberia KPMG
Pharmaceutical products and Biotechnology Software Telecommunications Pharmaceutical products and Biotechnology
Sux Trit, S.L. Plásticos Compuestos, S.A. AB - Biòtics S.A. Agile Content, S.A. Lleidanetworks Serveis telemàtics, S.A. Oryzon Genomics, S.A. TOTAL
31.58% 49.90%
2,298 1,772
-
38.50% 33.33% 5.81% 37.72% 9.82%
5,148 2,780 1,038 8,528 (116) 12,082
KPMG
3.87%
8,100
1,011 150 938 -
BDO Audiberia BDO Audiberia Grant Thorton
5.95% 3.69% 1.03%
3,881
8.90%
-
6,549 24,388
Figures relating to the equity of these companies were obtained from their financial statements at 31 December 2015 available at the date these financial statements were authorised for issue.
82
726 884 548 1,329 353 550 1,150 737 963 575 1,062 66.472
Financial report 2016
DIRECTORS' REPORT OF THE ICF Group
83
Financial report 2016
CONTENTS
1. THE ICF GROUP 1.1 Group structure 1.2 Corporate governance model and structure 2. ECONOMIC ENVIRONMENT AND POSITIONING IN 2016 3. PERFORMANCE 3.1 Lending activity 3.2 Capital activity 4. FINANCIAL INFORMATION 4.1 Balance sheet performance 4.2 Income statement 4.3 Information on credit ratings 5. RISKS AND UNCERTAINTIES 6. INFORMATION ON HUMAN RESOURCES 7. OUTLOOK FOR 2017 8. EVENTS AFTER THE REPORTING PERIOD
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Financial report 2016
1.
THE ICF GROUP
1.1 Group structure
The ICF Group is headed by Institut Català de Finances, a public financial institution, which was created in 1985 and regulated by law. At 31 December 2016 the Entity has relations with the Generalitat de Catalunya (Catalan Regional Government) through the Department of Economy and Knowledge. Since that date, and after the forming of the new government in Catalonia, ICF has relations with the Catalan Government through the Department of the Vice-Presidency and Economy and Tax. At 31 December 2015 the Institute Català de Finance's net assets and liabilities account for 99.5% of those of the ICF Group. At 31 December 2016 the rest of the Group comprises: o
IFEM (Instruments Financers per a Empreses Innovadores, SLU): a company focusing on the management of resources from the JEREMIE - Joint European Resources for Micro to Medium Enterprises - program, which has the support of structural funds, dedicated to creating and expanding micro, small and medium-sized companies, through participating loans, venture capital, guarantees, micro-credits and investment and working capital loans. Wholly owned by ICF.
o
ICF Capital SGEIC, SAU.: its main objective is to promote, advice and manage venture capital funds or companies which contribute capital to Catalan companies. Wholly owned by ICF. ICF currently directly manages three investment vehicles:
Capital MAB, F.C.R.: a venture capital fund which invests not only in companies when floated on the Alternative Stock Market (ASM) or other alternative stock markets, but also in subsequent capital increases. Wholly owned by ICF.
Capital Expansió, F.C.R.: a venture capital fund, under a co-investment regime, destined to support growth, internationalization and sector consolidation of medium-sized companies. Wholly owned by ICF.
BCN Emprèn, S.C.R.: a venture capital company specialized in technological and innovativebased companies.
o
Avalis de Catalunya, SGR: also forms part of the Group and is considered an associate. It is a mixed capital (public-private) reciprocal guarantee company promoted by the Generalitat de Catalunya in 2003 to facilitate access to credit by small and medium-sized companies and self-employed individuals with activity in Catalonia and to improve their financing conditions by providing guarantees to banks. At 31 December 2016 the Group holds a 21.89% interest in this company through Institut Català de Finances and IFEM. 85
Financial report 2016
1.2 Corporate governance model and structure
At 31 December 2016 the governing structure of ICF, the Parent of the Group, is as follows:
Executive Committee
Governing Board
Appointments and Remuneration Committee Mixed Audit and Control Committee
CEO
Governing bodies The Governing Board is the maximum governing body of the entity and makes strategic and essential decisions regarding its activity. In accordance with law, the Governing Board can present budgets, notes to the annual accounts, balance sheet and accounts of the entity and propose the distribution of results, to the Generalitat de Catalunya owner of the Entity - for approval. It can also make decisions regarding the Entity's organization, functioning and legal relationships and be informed of the initiatives of the other bodies of the Entity. In accordance with the regulations of the Institute, the Governing Board can set up committees to which it may delegate powers such as approving and amending investment and credit operations that have been specifically delegated. The Executive Committee is the competent body for approving and amending credit operations, investments in venture capital and financial investments, as delegated by the Governing Board.
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Financial report 2016
Since 2014, in the specific area of governance and in accordance with Law 10/2014 of 26 June 2014 on the organization, supervision and solvency of credit institutions, ICF has delegated specific powers to the Appointments and Remuneration Committee and the Mixed Audit and Control Committee, which report directly to the Entity's highest governance body. Both committees are currently exclusively formed by independent individuals appointed by the Governing Board. The Appointments and Remuneration Committee has the competency to analyze, validate and make proposals to the Governing Board on aspects regarding the appointment of the members (whether they are honorable and suitable) of the Entity's governing bodies and key personnel and their fixed and variable remuneration. The Mixed Audit and Control Committee is in charge of planning and monitoring internal and external audit; globally controlling risk; legislative compliance; internal control and anti-money laundering. CEO The CEO is appointed freely by the Generalitat de Catalunya and is proposed by the Vice-Presidency of Economy and Tax subsequent to approval by the Appointments and Remuneration Committee. The CEO assumes the ordinary and extraordinary representation of the Institute in any scope or circumstance. Since 22 February 2011 the CEO of ICF has been Mr. Josep-Ramon Sanromà i Celma.
Governing bodies of ICF's subsidiaries: ICF Capital and IFEM ICF's two subsidiaries (ICF Capital and IFEM) have their own Board of Directors which is their highest governing body and is responsible for the administration and management of the Entity.
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Financial report 2016
2. ECONOMIC ENVIRONMENT AND POSITIONING IN 2016
Economic environment Global economy has shown a weak growth again (3.1%), mainly due to the 5-tenth drop in the growth of developed economies, which fell to 1.6% mostly because the United States decreased by 1 point down to 1.6%. In the Euro area the figures for the main countries are in line with 2015 and the Brexit effect has impacted both sides equally. Developed economies continue at a standstill at 1.6% and emerging economies, influenced by the slowdown in China and the recession in Argentina and Brazil, stand at 4.1%. The IMF forecasts a global growth of 0.3% for 2017 that will have three vectors: tax incentive measures and increase in public expenditure in the USA with the new Trump administration; reduction in oil production due to the OPEC agreement; incentive measures in China. As a result of these measures, it is expected that the USA will lead the growth in emerging economies, Russia will emerge from recession and China will keep gradually slowing down. Regarding monetary policy, the United States have started a new cycle in monetary economics with an increase in interest rates by the FED, whereas Europe continues its expansive policy although incentives will be reduced. In this context, Catalan economy grew for the third year in a row up to 3.5%, two times the growth in the Euro area, especially due to the boost to the industrial sector. The number of tourists visiting Catalonia has also increased, as the number of nights they spend, by 4% and 6.5%, respectively. As for the labor market, Catalan unemployment rate stands below 15%, the number of people employed has increased by 3.4% and the number of people registered with the Social Security has increased by 3.7%. Labor costs by employee have decreased by 0.6%. Financial System Several legislative developments have impacted the sector in 2016. In Spain, appendix IX to Circular 4/2004 was amended, introducing changes to risk categories, modifying the allowance rate for doubtful receivables, and re-evaluating the treatment of refinanced transactions. At a European level the payment directive and the draft of the amendment to CRD4 and Regulations stand out. The permanent trickle of standards and guidelines has become normal in the sector, which has adapted its structure to gradually adopt the new regulations and the impacts thereof, and is now focused on increased profitability and digital disruption.
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Financial report 2016
The results of the stress tests show that the balances are ready to assume an increase in the credit balance that is not happening. In this regard, the cash flows from new credit transactions below Euro 1 million has increased by 3.2%, but repayments of performing loans continue to be greater than extensions of credit, and in the third quarter credit balance had decreased by a year-on-year 4.2%. This drop is even stronger in the “Other resident sectors” heading, which has decreased by 4.8%. The overall drop in the “Other resident sectors” segment since 2008 has amounted to around 600Mn€, which results in a 30% reduction in credit. The “Credit to non-financial companies” sub segment has decreased by 42% since the beginning of the crisis. As long as economic deleveraging continues, profitability will be obtained through a balance between cost of risk and pricing of new transactions that helps overcome the current price war, the increase in commission income, related business and expenditure restraint. The entities’ innovation and operations areas are focusing on digital disruption, since it facilitates the entry of new players in the sector, the appearance of new business models and the simplification of processes. The entry of new players in the sector is fostered by the new European payment directive, PSD2 and the use of new technologies that simplify back-end processes, making costs related to financial activities and services cheaper. Current business models have evolved via disintermediation, as happens with the purchase and sale of securities or financial management, but new models have also appeared, such as crowd lending and crowdfunding, among others. Although the financial institutions have lapsed into inertia in terms of structure and technological legacy, returns on new businesses are uncertain, as is their solvency in terms of cybersecurity. That is why the trends in the sector are searching for new cooperation spaces between start-ups and financial institutions and vertical integration into other consolidated businesses as happened with Facebook. As a result of the digital disruption, several European regions are trying to benefit from the potential effects of Brexit while concluding that the future financial system will revolve around new emerging initiatives. Thus, these regions are committed to attracting technological talent by encouraging the implementation of these new digital players in their territory. Several public and private initiatives in Barcelona are pursuing this strategy.
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Financial report 2016
3. PERFORMANCE OF ACTIVITY
3.1 Lending activity
In 2016 the ICF Group has provided financing totaling EUR 570.3 million to 1,441 companies through 2,169 loan and/or guarantee transactions. Due to the reduction in refinancing, the global volume of activity has been EUR 124.4 million lower than in 2015, due to Catalonia’s improved economy. The reactivation of private credit has also made public credit, which behaves in an anti-cyclical manner, less necessary. 97% of the entities financed in 2016 have been small and medium-sized companies and entrepreneurs. The table below shows details of the lending activity by product:
Number of transactions
Amount (M€)
1,496
157.7
13
25.9
1,483
131.8
Direct loans and co-investment
251
279.9
- Investment/working capital
169
269.0
- Business capitalization
8
0.8
- Social economy
10
0.8
- Culture
28
3.1
- Agrofood
28
1.9
- Other
8
4.3
Intermediation loans (shared risk)
316
44.5
- Entrepreneurs, self-employed and retail
266
14.8
- IFEM Creixement
50
29.8
Refinancing
106
88.2
2,169
570.3
Guarantees (working capital and investment) ICF guarantees Avalis guarantees
TOTAL ARRANGED
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Financial report 2016
Direct loans prevail, with a total of 251 transactions amounting to EUR 279.9 million in 2016. Likewise, the following can be highlighted with regard to the number of transactions:
Guarantees, which with 1,496 transactions arranged have enabled companies to obtain financing of EUR 157.7 million, both in investments and working capital. The number of guarantees given by the Group has increased by 2% compared to 2015.
Intermediation loans with shared risk. The funds for these loans are provided by the Group. However, private banks commercialize these loans, taking advantage of their distribution networks. In these kinds of transaction, the Group also bears part of the credit risk on the transaction, therefore facilitating companies' access to financing.
Within this strategy, the following should be highlighted with regard to 2016:
The performance of IFEM Creixement’s mediation line, commercialized by Caixa d'Enginyers and co-financed by the European Regional Development Fund (ERDF), whereby 50 projects for an amount of EUR 29.8 million have been financed.
Consolidation of the intermediation facility for entrepreneurs, self-employed individuals and retail businesses, created in conjunction with the Department of Business and Knowledge, Banc Sabadell and Caixabank, through which 266 projects for a value of EUR 14.8 million have been financed.
Regarding the territorial distribution of the Entity's lending activity, Barcelona and its area of influence is where not only most of the volume of investment is concentrated but also where the highest number of loan transactions are carried out (figures close to 75%), reflecting the economic weight of the region on Catalan GDP and the concentration of business activity in Catalonia. After Barcelona and its area of influence, Girona Lleida and central Catalonia are the following areas with the largest volume of investment. In 2016 the Group has continued with its commercial plan started in 2014 which aims to expand in these areas in order to extend its financing more widely to businesses in the region, not only through its own network of sales representatives but also through financial promoters. Industry, commerce, tourism, services and education have been the main sectors receiving financing from the ICF Group in 2016. ICF has continued to actively work to support a wide range of sectors, under the premise that it is able to provide financing to any companies with activity in Catalonia, regardless of their size or the sector in which they operate.
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Financial report 2016
With regard to the type of customer, in accordance with the plan implemented in 2011, 96.7% of financing for the year has been extended to self-employed individuals and small and medium-sized companies, which have been seriously affected by restricted access to credit in recent years. On the other hand, lending to large companies and the public sector has accounted for 3.0% and 0.3%, respectively. As a whole, the volume of financing given by the ICF Group in 2016 to the private and public sectors has enabled 44,000 jobs to be created and/or retained. 3.2 Capital activity
The venture capital activity is, together with loans and guarantees, another channel through which the ICF Group provides financing to Catalan businesses. The Group acts as a fund of funds. The Entity's participation is based on collaborating with and complementing the specialized private sector, identifying market gaps and acting as a driving force to multiply the funds coming from other investors and are destined to each project. The Group's objective with regard to venture capital is to foster growth and the creation of companies and is generally aimed at innovation projects, internationalization, and/or sector consolidation with good yield perspectives. ICF currently accumulates venture capital investment commitments amounting to EUR 151.5 million - approximately 15% up on 2015 - through 33 vehicles, which together with the EUR 976.3 million committed by other investors, totals an investment capacity of around EUR 1,128 million. During 2016 new commitments have been undertaken in the Seeds, Venture and Growth segments totaling EUR 4.0, 4.3 and 12.0 million, respectively. Likewise, the two venture capital funds managed by the Group have made investments for a global amount of EUR 2.7 million. In addition to this potential investment in venture capital, the investment through a line of participating loans (under co-investment with business angels) for newly-created innovating companies and managed through IFEM should also be highlighted. Through this facility in 2016 the Group has invested EUR 2.4 million in 16 Catalan start-ups.
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4. FINANCIAL INFORMATION 4.1. Balance sheet performance
The Group has closed 2016 with a volume of assets totaling EUR 2,887 thousand, EUR 2,186 thousand of which relate to the loan portfolio. The balance sheet has decreased by 10% compared to December 2015. During 2016 activities have been financed thanks to the generating of business resources, own funds and via bilateral transactions with public and private entities. The NPL ratio at 31 December 2016 stands at 12.2%, increasing to 12.8% if foreclosed assets are taken into consideration. These figures are slightly lower than in 2015, despite the drop in the loan portfolio. Additionally, the hedge ratio for doubtful operations stands at 74.6% (a figure higher than the sector average). In relation to liabilities, the management of borrowing costs with different counterparties enabled a strong and solid cash position to be reached in 2016. ICF’s borrowing capacity is determined by the annual budgetary acts. Within these limits, ICF can borrow external funds using any method, including contracts with public and/or private financial institutions or through issues and private placements of securities on capital markets. In this regard, it should be highlighted that ICF's funds do not generate deficit or debt for the Generalitat de Catalunya. On the other hand, as was the case in the prior year, equity increased (by EUR 12 million), therefore boosting the Group's capacity to expand its future activity. In relation to equity, the historic generation of results, the past effort made by the Generalitat de Catalunya regarding capital contributions and the profile of the investments made it possible to close 2016 with equity of EUR 825.6 million at consolidated level (EUR 823.9 million at the Institute's individual level) and with a solvency ratio of 33.5%, exceeding the figure for 2015.
Solvency ratio (Basel III) 2016
2015
Minimum required by regulator*
33.5%
30.7%
8%
* Source: Basel III and Law 10/2014 on the organization, supervision and solvency of credit institutions
Average payment period to external suppliers During 2016 the average payment period to suppliers outside the Group has been 44 days.
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4.2 Income statement
The operating account shows two clear trends: firstly a stable interest margin in a scenario of strong competition and reduced prices, and secondly the optimization of cash and indebtedness management, as a result of reinforcing these areas in past years. The Group's interest margin has remained in line with that of 2015, despite the lower volume of loan activity. The management of liabilities has led to lower interest and accumulated yield being offset by a lower borrowing cost. The management of liabilities, together with fixed-income investments, has resulted in non-recurring profit of EUR 8 million in 2016, which allowed the Group to face a higher volume of hedges over lending as a result of the adaptation to the regulatory change introduced by the approval of Bank of Spain Circular 4/2016 of 27 April, and despite this, to obtain a profit before tax that is 8% higher than in the prior year. The effort in the hedge increase places the hedge ratio over doubtful receivables at 75%, higher than the sector’s. As for the rest of operating profit, general expenses have stabilized, remaining almost unchanged since 2015, when they decreased by 22% in comparison with 2014. This cut in expenses enables an efficiency ratio of 14% to be upheld, much lower than the sector ratio standing at between 50% and 60%. 4.3 Information on credit ratings
At 31 December 2016, ICF's Fitch rating stood at BB:
Rating Agency
Last review
Long term
Short term
Outlook
Fitch
04/11/2016
BB
B
Negative
It should be pointed out that the method used by the rating agencies links ICF's rating to that of the Generalitat de Catalunya, irrespective of ICF's high solvency and liquidity ratios.
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5. RISKS AND UNCERTAINTIES
Note 3 to the accompanying consolidated annual accounts provides details of ICF's risk management. The organizational structure and functions relating to the management and control of the ICF Group's financial risks are as follows:
Governing Board: maximum body responsible for establishing policies and global limits for risk management purposes.
Asset-Liability Committee (ALC): maximum body for managing and controlling financial risks.
Global Risk Control Committee: body supervising all the Group's risks from a global perspective.
Treasury and Capital Markets Management: execution of policies and decisions of management bodies, in financial markets.
Global Risk Control Unit: unit responsible for all the operational aspects relating to measuring, monitoring and controlling global risk limits.
Mixed Audit and Control Committee (MACC): responsible for supervising that the Group's risk profile remains within the set limits and advising the Board regarding the Group's current and future global risk strategy. The MACC is also responsible for ensuring the validity and application of processes to identify, measure and control financial risks.
Credit risk The Group’s fundamental aim concerning credit risk is to achieve sustained, stable and moderate growth of credit risk, enabling a balance to be maintained between acceptable levels of risk concentration among creditors, sectors, activity and geographical areas on the one hand; and robust, prudent and moderate levels of solvency, liquidity and credit hedging on the other. The Global Risk Management Unit carries out regular monitoring of the levels of risk concentration, changes in bad debt rates, and various alerts that have been set up to monitor changes in credit risk. The Supervisory Committee analyses specific operations that, for various reasons, have given rise to non-performing or irrecoverable loans. Concentration risk management is based on that stipulated in the Bank of Spain Circular on calculation and supervision of minimum equity capital requirements (Circular 3/2008), in particular the ninth chapter relating to limits to large risks. Counterparty credit risk
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In compliance with article 286 of Regulation (EU) No 575/2013 "Management of CCR - policies, processes and systems", the ICF Group has a counterparty credit risk policy contained within its Financial Risks Policy and it also has systems to control counterparty credit risk and maximum exposure. In December 2016 the ICF's counterparty credit risk has exposure hedged by interest rate derivatives which the Group uses exclusively as a financial risk management tool. During 2014 the ICF Group adopted the EMIR (Regulation (EU) no 648/2012). This regulation entered into force on 15 September 2013 with effect as of 12 February 2014 and sets out reporting obligations affecting entities operating with derivatives. Liquidity risk Liquidity position at 31 December 2016: At 31 December 2016 total liquid cash and assets stood at EUR 551 million (EUR 163 million in deposits and current accounts and EUR 388 million in fixed income securities). The Group's cash position represents 19% of its total assets, up on the prior year. Note 3.2 to the accompanying annual accounts for 2016 provides details of the liquidity management policies, as well as information on the maturity dates and main uses and potential sources of liquidity existing at reporting date. The Group has a continuously positive accumulated liquidity gap for the period 2017-2031:
The high positive value of the liquidity gap is due to the conservative risk management profile (medium-low objective risk profile). Likewise, liquidity management aims to adapt the average life of liabilities to the average life of loans.
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Financing: At 31 December 2016 most of the Group's financing (79%) is in the long term, through bank borrowing and bond issuing activity. The following can be highlighted in relation to the issuing activity in 2016:
The promissory note activity is in line with that of the prior year, due to the issue of ICF's 4rd listed promissory note program.
Various repurchase redemptions have been carried out to reduce the borrowing cost: EUR 34 million from various senior bond issues and EUR 0.7 million from repurchase of promissory notes.
The EUR 294 million reduction in the global volume of bank borrowing should be highlighted. Liquidity coverage ratio (LCR): On 17 January 2015 the European Commission published Commission Delegated Regulation 2015/61 which complements Regulation 575/2013 on the liquidity coverage ratio for all credit institutions supervised in accordance with CRD IV. Commission Delegated Regulation 2015/61 does not include exactly the same definition, or the same implementation calendar for the LCR as those established by the Banking Supervision Committee. In accordance with Commission Delegated Regulation 2015/61, credit institutions supervised by CRD IV must comply with the LCR as of 1 October 2015, with the following implementation calendar:
Minimum LCR
01/10/2015
01/01/2016
01/01/2017
01/01/2018
60%
70%
80%
100%
At 31 December 2016 ICF amply complies with the minimum requirements required for supervised credit institutions: LCR ICF 31/12/2016
3,712%
Market risk The Group's assets do not comprise any trading portfolio incurring market risk.
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Note 3.1 to the accompanying consolidated annual accounts show more details of the ICF Group's market risk. All of the ICF Group's fixed income available-for-sale and held to maturity portfolios are in Euros. Interest rate risk The interest rate risk directly affects the Group's activity due to the effect that its fluctuations could have on the income statement. The pegging of financial instruments to market interest rates gives rise to accrued income and expenses depending on market performance, as variations in these interest rates could affect, in a non-symmetric manner, both asset and liability instruments (interest rate gap). In the case of variable interest rate arrangements, the risk to which the Group is exposed arises in the periods when interest rates are revised. Note 3.3.1. to the accompanying consolidated annual accounts provides details of the objectives, policies and processes for the ICF Group's management of the structural interest rate risk. The gap of the first repricing, complementing the information provided in the aforementioned note, is as follows:
The Group complies with all the regulatory minimums regarding interest rate risk. Operational risk Note 3.6 to the accompanying consolidated annual accounts provides details of the objectives, policies and processes for the ICF Group's management of operational risk. In 2016 the ICF Group has initiated improvements to the internal management and reporting systems which have enabled it to significantly reduce its operational risk.
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6. INFORMATION ON HUMAN RESOURCES
Functional organizational chart
Workforce At 31 December 2016 the ICF Group has a headcount of 94 workers (63% female and 37% male), with an average age of 43. The Group's human resources are formed of highly skilled personnel. Most of the Group's workforce is formed of qualified personnel, those with university education representing 85% of the headcount. Training The ICF Group makes significant efforts to train its team of professional through external and internal courses, identifying talent and promoting it according to its needs. This is why the ICF Group does not only have several financing options for accessing training and/or personal and/or professional development courses. Besides, as observed in the data below, the training percentage fully financed by the company is very high. In the event that employees choose
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to co-finance a percentage of such training, they can instrument it through the Entity's flexible compensation scheme as part of the remuneration framework. 57 training actions were carried out in 2016, which means 1,274.5 training hours attended by 262 people. 91% were fully financed by ICF, whereas 9% were co-financed. Language courses should be especially emphasized, as well as the internal policy aimed at encouraging professional certification, training pills, and the internal conference cycle on digital innovation and transformation, which has been a notable success in internal assessment thanks to the quality of the speakers. Corporate social responsibility The ICF Group’s main objective is to contribute to the growth of Catalan economy and generate value that redounds to society. In addition to its core business focused on providing financing to companies, the entity is a firm believer in social responsibility. Accordingly, the ICF Group is actively involved in the Program for Financial Education in Catalan Schools (EFEC by its acronym in Catalan) created by the Catalan Government in collaboration with Institut d’Estudis Financers (IEF). During the 2015-2016 school period 8 ICF professionals have actively participated in the program, visiting schools and encouraging these training activities. Additionally, the ICF Group has signed Agreements with Universitat de Barcelona (UB), Universitat Pompeu Fabra (UPF), Fundació IDEC (belonging to the UPF Group) and Escuela Professional Salesiana to provide students with their first working experience, thus facilitating their future access to the labor market thanks to this previous background. In this regard, during 2016 the ICF Group has had 11 trainees. Furthermore, ICF is a member of the Board of Trustees of Fundación Catalunya Cultura, an entity whose purpose is to create bonds between the worlds of culture and business and civil society. Lastly, regarding non-profit organizations, during Christmas 2016 ICF collaborated with Pallapupes, an entity whose mission is to make hospitalized children smile by sending clowns to visit them. ICF also collaborated with Fundación Banco de Alimentos and during Sant Jordi’s day with Fundació Catalana per a la Paràlisi Cerebral. Apart from their institutional involvement, several professionals are also committed to volunteering projects on an individual basis.
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7. OUTLOOK FOR 2017 Company financing activity In recent months ICF has been working on a commercial action plan focused on publicizing its activity and the impact it has on the companies that benefit from it. The plan is expected to cover the whole territory, not only through the network of delegates, but also with one-off informative actions focused on the segments and sectors to which ICF adds more value. Lending activity ICF's goal is to contribute to Catalonia’s economic recovery and growth. In the context of improving the macroeconomic situation, the Entity foresees that the investment financing activity will remain stable in 2017 and it will continue to focus on providing credit to small and medium-sized companies and entrepreneurs and on financing innovation projects, internationalization, job creation and growth. In this regard, and to continue the efforts made in 2016 to find a common interest framework for collaboration with the private financial sector, co-investment lines will be fostered over 2017. Such co-investment shall reach a maximum number of companies, enhancing the value of the Group's complementary services in the financial market and their driving force and catalyzing effect for financing. In 2017 it is also foreseen that ICF will be able to actively participate in the financing of projects linked to the Juncker plan - modelled on the European public investment banks - and increasingly convey ERDF funds to finance companies in Catalonia, focused on small and medium-sized companies. Venture capital activity In the area of venture capital, through the Institute and the specialized Group companies (ICF Capital and IFEM) the Group continues to promote the Fund of funds lines for the Growth, Venture and Seeds segments to foster internationalization, innovation, consolidation and growth of businesses; additionally, co-investment with business angels will be extended to entrepreneurial corporations and the knowledge industry, as well as other certified investment vehicles.
Attracting resources The current cash position ensures the needs for 2017. However, the Group's mission is to be active in the market, to get better sources of financing that are granted in the long term at the best cost.
Financial statements At the close of 2017 it is forecast that the drop in the balance sheet will continue to slow down, driven mainly by the reduced intermediation with banks without bearing the customer risk and the low
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activity in syndicated transactions, achieving investment volumes with shared customer risk that are more stabilized in relation to closing figures for 2016, as well as the portfolio's credit rating. It is forecast that the reduction in the balance sheet will be offset by a better performance of the portfolio, so profit before tax is expected to be around EUR 11 million, while maintaining the significant weight of equity on the Group's balance sheet, showing an excellent level of capitalization exceeding 30%, doubling the requirements of EU regulators.
Internal organization The Group's internal organization is marked by three important events for 2016:
Maintaining activity figures: reinforcement of technical resources in order to improve support to business areas, whilst reducing operational risks. Senior management will present the commercial action plan all over Catalonia to publicize ICF’s impact on companies.
Regulatory adaptations: o
Improvements in management and reporting systems
o
Creation of processes to manage the ERDF and JUNKER plan.
Boost to digital innovation and transformation of the Group. o
Hiring of a technological partner and definition of a roadmap in this matter.
o
Redefinition and digitalization of processes.
The commitment, effort and continuous desire of ICF employees to improve has allowed us to achieve the goals established for 2016, and we are convinced they are going to allow us to fulfil once again the major challenges we set ourselves each year.
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8. EVENTS AFTER THE REPORTING PERIOD
No significant events have taken place between the reporting date and the date the annual accounts were authorised for issue.
Barcelona, 30 March 2017
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