Upload
lyhanh
View
216
Download
0
Embed Size (px)
Citation preview
20
As the issuer of
€900,000,000 81⁄4%/9% Senior Secured Fixed Rate PIK Toggle Notes due 2021
€200,000,000 Senior Secured Floating Rate PIK Toggle Notes due 2021
€600,000,000 privately-placed Senior Secured Floating Rate PIK Toggle Notes due 2021
€600,000,000 71⁄8%/77⁄8% Senior Secured Fixed Rate PIK Toggle Notes due 2021
_____________
Interim Financial Report
For the nine months ended 30 September 2017
20
TABLE OF CONTENTS
1 CERTAIN DEFINITIONS .................................................................................................................. 3
2 GLOSSARY OF PAYMENT AND BANKING TERMS ............................................................................ 6
3 GROUP STRUCTURE ..................................................................................................................... 7
4 PRESENTATION OF FINANCIAL AND OTHER INFORMATION ........................................................... 8
5 INDUSTRY RANKING AND OTHER DATA ...................................................................................... 10
6 FORWARD LOOKING STATEMENTS ............................................................................................. 11
7 OVERVIEW OF RESULTS .............................................................................................................. 12
8 OPERATING AND FINANCIAL REVIEW.......................................................................................... 29
9 RISK FACTORS ............................................................................................................................ 66
10 APPENDIX – FINANCIAL STATEMENTS ......................................................................................... 67
MERCURY BONDCO PLC ............................................................................................................. 68
MERCURY A CAPITAL LIMITED .................................................................................................... 70
MERCURY B CAPITAL LIMITED .................................................................................................... 72
MERCURY ABC CAPITAL LIMITED ................................................................................................ 74
MERCURY UK HOLDCO LIMITED .................................................................................................. 76
2
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Certain definitions
20
1 CERTAIN DEFINITIONS
“Advent” ................................... Advent International Corporation and its affiliates and, where applicable, the funds
and limited partnerships managed or advised by them
“AFS Portfolio” .......................... Nexi ’s portfolio of available-for-sale financial assets. Nexi’s AFS Portfolio primarily
consists of Italian government bonds
“Annual Report” ....................... Mercury UK Holdco Limited Annual Report for the year ended 31 December 2016
“Bain Capital” ........................... Bain Capital Investors, LP and its affiliates and, where applicable, the funds and
limited partnerships managed or advised by them
“Bassilichi Payments” ............... Bassilichi S.p.A. and its consolidated subsidiaries in connection with the Bassilichi
Payments Acquisition
“Bassilichi Payments
Acquisition” ...............................
Nexi’s acquisition of Bassilichi Payments
“BIREL” ...................................... Banca d’Italia RTGS System for Large-Value Payments, an Italian real time gross
settlement system implemented by the Bank of Italy
“Bondco” ................................... Mercury Bondco Plc
‘‘BPO Services Business’’ ........... The operating segment referred to as ‘‘Application outsourcing and innovative
services’’ in Nexi’s Financial Statements
“Cleansing Statement” .............. The cleansing statement: Bond offering posted on the Bondco website
(www.mercurybond.com) on 10 February 2017
“Clessidra SGR” ......................... Clessidra SGR S.p.A. on behalf of the fund Clessidra Capital Partners 3
“DB Cards Acquiring” ................ The merchant acquiring business of Deutsche Bank S.p.A.
“DB Cards Acquisition” .............. Nexi Payments’ acquisition of DB Cards Acquiring
“Financial Statements” .............. As the context requires, the financial statements of the Mercury Group, the Nexi
Group and the Latino Group
“Help Line” ................................ Help Line S.p.A., a majority-owned subsidiary of Nexi
“Holdco” ................................... Mercury UK Holdco Limited
“Indentures” .............................. The base indentures and the supplementary indentures entered into among, inter
alios, Bondco and U.S. Bank Trustees Limited, in respect of the €900,000,000 8 1⁄4%
/ 9% Senior Secured Fixed Rate PIK Toggle Notes due 2021 and the €200,000,000
Senior Secured Floating Rate PIK Toggle Notes due 2021 (both issued 13 November
2015), €600,000,000 privately-placed Senior Secured Floating Rate PIK Toggle Notes
due 2021 (issued 15 December 2016) and €600,000,000 7 1⁄8% / 7 7⁄8% Senior
Secured Fixed Rate PIK Toggle Notes due 2021 (issued 16 February 2017)
“ISP” .......................................... Intesa Sanpaolo S.p.A. and its subsidiaries
“Latino” ..................................... Latino Italy S.r.l.
“Latino Group” .......................... Collectively, Latino, Mercury Payments, Mercury Processing and its subsidiaries
3
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Certain Definitions
4
“Listing Particulars” .................. The listing particulars posted on the Bondco website (www.mercurybond.com) on
21 December 2015
“Mercury Group” ...................... Mercury UK Holdco Limited, Nexi Group and the Latino Group
“Mercury Italy” ......................... Mercury Italy S.r.l.
“Mercury Payments” ................ Mercury Payments Services S.p.A. (formerly Setefi Services S.p.A.)
“Mercury Processing” ............... Mercury Processing Services International d.o.o. (formerly Intesa Sanpaolo Card
d.o.o.) and its subsidiaries
“MPS Acquiring” ....................... The merchant acquiring and POS businesses of Banca Monte dei Paschi di Siena
S.p.A.
“MPS Acquisition” ..................... The Nexi Group’s acquisition of MPS Acquiring
“Nexi” ........................................ Nexi S.p.A. (formerly Istituto Centrale delle Banche Popolari Italiane S.p.A.)
“Nexi Group” ............................. Collectively, Nexi, Nexi Payments, Oasi, Help Line and Bassilichi Payments
“Nexi Payments” ....................... Nexi Payments S.p.A. (formerly CartaSi S.p.A.)
“Nexi Payments Business” ......... The operating segment referred to as ‘‘Nexi Payments’’ in Nexi’s Financial
Statements
“Notes” ..................................... Collectively, the Senior Secured Fixed Rate PIK Toggle Notes and the Senior Secured
Floating Rate PIK Toggle Notes issued on 13 November 2015, the privately-placed
Senior Secured Floating Rate PIK Toggle Notes issued on 15 December 2016 and
Senior Secured Fixed Rate PIK Toggle Notes issued 16 February 2017 by Bondco
“Oasi” ........................................ Oasi Diagram S.p.A.
“Payments Business” ................. The operating segment referred to as ‘‘Payments’’ in Nexi’s Financial Statements
“Resolution Authorities” .......... Independent authorities that manage the resolution which, by means of the use of
techniques and powers that are authorised by the Bank Recovery and Resolution
Directive, aims to prevent interruptions in the supply of the essential services
offered by the bank (e.g., deposits and payment services) in addition to restoring
conditions of economic sustainability for the healthy portion of the bank and
liquidating the remaining parts
“Revolving Credit Facility” ........ The revolving credit facility established under the Revolving Credit Facility
Agreement, and which was increased on 15 December 2016 from €55 million to €95
million, and on 29 June 2017 to €100 million
“Revolving Credit Facility
Agreement” ..............................
The revolving credit facility agreement which was entered into on 10 November
2015 between, amongst others: Bondco, the Sponsors’ HoldCos, the Agent (as
defined therein), the Security Agent and the Arrangers (as defined therein); and was
amended on 15 December 2016 and 29 June 2017
“Security Agent” ........................ U.S. Bank Trustees Limited, in its capacity as security agent for the secured creditors,
the holders of the Notes, the trustee and the lenders under the Revolving Credit
Facility
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Certain Definitions
5
“Securities Services Business” ... The operating segment referred to as ‘‘Securities services’’ in Nexi’s Financial
Statements
“SETIF” ...................................... The Italian electronic interbank fund transfer system
“Sponsors” ................................ Collectively, Advent, Bain Capital and Clessidra
“Sponsors’ HoldCos” ................. Mercury A Capital Limited, Mercury B Capital Limited and Mercury ABC Capital
Limited
“Sponsors’ NewCos” ................. Mercury (AI) S.à.r.l, Mercury (BC) S.à.r.l and Fides S.p.A.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Glossary of Payment and Banking Terms
20
2 GLOSSARY OF PAYMENT AND BANKING TERMS
For a glossary of payment and banking terms used in this Interim Financial Report, please refer to the Cleansing
Statement.
6
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Group Structure
20
3 GROUP STRUCTURE
7
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Presentation of Financial and Other Information
20
4 PRESENTATION OF FINANCIAL AND OTHER INFORMATION
4.1 Basis of preparation of the pro forma financial information
This Interim Financial Report includes the following financial statements:
• the unaudited consolidated interim financial statements of the Mercury Group (as defined in the section entitled “Certain Definitions”) as of and for the nine months ended 30 September 2017 compared to the nine months ended 30 September 2016 (the “Interim Financial Statements”);
• the unaudited interim income statement, statement of financial position and statement of cash flows of Bondco as of and for the nine months ended 30 September 2017; and
• the unaudited interim income statement, statement of financial position and statement of cash flows of each of the Sponsors’ HoldCos as of and for the nine months ended 30 September 2017.
The pro forma financial information presents the results of the Mercury Group as if all of the entities within the Mercury
Group as at 30 September 2017 had been included within the Mercury Group from the beginning of the earliest reporting
period presented (i.e. 1 January 2016). The pro forma financial information is presented to illustrate the estimated effects
of the acquisition of Nexi, Mercury Payments, Mercury Processing, MPS Acquiring, DB Cards Acquiring and Bassilichi
Payments on the Mercury Group’s historical financial position and results of operations as if all such transactions had
occurred on the first day of the periods presented. The unaudited pro forma financial information is presented for
information purposes only and is not intended to represent or be indicative of the financial condition or results of
operations that would have been reported had the transactions described above actually occurred during the periods
and as at the dates presented, and the unaudited pro forma financial information does not purport to project our results
of operations or financial condition for any future period. The unaudited pro forma financial information has not been
prepared in accordance with the requirements of Regulation S-X of the Securities Act, the Prospectus Directive or any
generally accepted accounting standards. Neither the assumptions underlying the pro forma adjustments nor the
resulting unaudited pro forma financial information have been audited or reviewed.
Unless otherwise indicated, the financial information for the nine months ended 30 September 2017 and 2016 presented in this Interim Financial Report has been prepared in accordance with IFRS as endorsed by the EU (‘IFRS’).
The Interim Financial Statements do not include all the information required in accordance with IFRS and should be read
in conjunction with the Annual Report.
The financial information and various other numbers and percentages set forth in this Interim Financial Report are presented in euros, rounded to the nearest thousand, unless otherwise noted. Therefore, discrepancies in the tables between totals and the sums of the amounts listed may occur due to such rounding. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Mercury Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to our financial statements, are disclosed in the Annual Report. Since the date of the Annual Report, there have been no material changes to these critical accounting judgments.
8
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Presentation of Financial and Other Information
9
4.2 Non-IFRS financial information
This Interim Financial Report presents (i) certain financial measures that are not recognised by IFRS and that may not be
permitted to appear on the face of IFRS compliant financial statements or footnotes thereto; (ii) certain key performance
indicators and other non-financial operating data that is derived from management estimates and does not form part of
the financial statements or the accounting records and (iii) certain data derived from the management accounts that has
not been prepared in compliance with IFRS and differs in important respects from the financial statements.
For a discussion of further limitations that apply to the financial statements, please refer to the section entitled
“Presentation of Financial Information” in the Listing Particulars.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Industry Ranking and Other Data
20
5 INDUSTRY RANKING AND OTHER DATA
For certain macroeconomic data please refer to Mercury Bondco Plc’s Annual Report and the section entitled
“Management‘s Discussion and Analysis of Financial Condition and Results of Operations-Trends-Economic and market
trends” from the Nexi research department, based on data provided by the Bank of Italy, the International Monetary
Fund, the Operation for Economic Co-operation and Development and other third-party sources. We have not
independently verified such third party data and make no representation as to the accuracy of such data.
For a discussion of the limitations applicable to the industry, ranking and other data included in this Interim Financial
Report, please refer to the section entitled “Industry, Ranking and Other Data” in the Listing Particulars
.10
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Forward Looking Statements
11
6 FORWARD LOOKING STATEMENTS
This interim Financial Report of Bondco is provided pursuant to Section 4.08(i) of the Indentures. This Interim Financial
Report contains and refers to certain forward-looking statements with respect to our financial condition, results of
operations and business. Forward-looking statements are statements of future expectations that are based on
management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could
cause actual results, performance or events to differ materially from those expressed or implied in these statements.
Forward-looking statements include, among others, statements concerning the potential exposure to market risks and
statements expressing management’s expectations, beliefs, plans, objectives, intentions, estimates, forecasts,
projections and assumptions. All statements other than statements of historical fact are, or may be deemed to be,
forward-looking statements.
Forward-looking statements are typically identified by words such as “anticipate”, “believe”, “could”, “estimate”,
“expect”, “intend”, “may”, “plan”, “objectives”, “outlook”, “probably”, “project”, “will”, “seek”, “target” and other words
of similar meaning in connection with a discussion of future operating or financial performance. All of these forward-
looking statements are based on estimates and assumptions made by such entities that, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be placed upon any forward-looking
statements. There are important factors that could cause actual results to differ materially from those contemplated by
such forward-looking statements. In addition, even if our actual results are consistent with the forward-looking
statements contained herein, those results or developments may not be indicative of results or developments in
subsequent periods. Important risks, uncertainties and other factors that could cause these differences include, but are
not limited to, the risks described under the section entitled “Risk Factors” of the Cleansing Statement and under the
section entitled “Risk Factors” of the Listing Particulars.
The risks described in this Interim Financial Report should not be construed as exhaustive. Other sections of the Listing
Particulars, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, “Industry” and “Our Business” as well as the Bondco’s interim and annual financial reports released from
time to time may describe additional risk factors and you should review these discussions for a more complete view of
the factors that could affect our future performance and the industry in which we operate.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of
the date of the particular statement. We undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise. All forward-looking statements are
expressly qualified in their entirety by the cautionary statements referred to in this section and contained elsewhere in
this Interim Financial Report, the Cleansing Statement or the Listing Particulars, including those described under the
section entitled “Risk Factors” of the Cleansing Statement and “Risk Factors” of the Listing Particulars. In light of these
risks, our results could differ materially from the forward-looking statements contained in this Interim Financial Report.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
12
7 OVERVIEW OF RESULTS
7.1 Summary Overview of Results
The Mercury Group
During the course of the nine months ended 30 September 2017, the Mercury Group has continued to deliver on its
strategic plans, aimed at building up the leading digital payments company in Italy.
On 1 June 2017, Nexi Payments completed the acquisition of DB Cards Acquiring and on 30 June 2017 completed the
acquisition of MPS Acquiring. On 3 July 2017, Nexi completed the acquisition of Bassilichi Payments, a leading Italian
payment operator.
The pro forma operating revenue of the Mercury Group increased by €52.2 million, or 6.7%, to €834.0 million for the
nine months ended 30 September 2017, from €781.8 million for nine months ended 30 September 2016. Pro forma
EBITDA1 increased by €50.7 million, or 18.7%, to €322.1 million for the nine months ended 30 September 2017 from
€271.4 million for the nine months ended 30 September 2016. Pro forma net profit attributable to the owners of the
parent decreased by €134.9 million to €64.7 million for the nine months ended 30 September 2017 from €199.7 million
for the nine months ended 30 September 2016, due to (i) €149.2 million of negative non-recurring/extraordinary items
in the nine months ended 30 September 2017 driven by HR restructuring costs (€82.5 million), advisory costs for the
ongoing transformation program (€32.5 million) and taxes on M&A transactions (€17.0 million), and further due to (ii)
€52.0 million of positive gross non-recurring net income/costs in the nine months ended 30 September 2016 driven by
an extraordinary gross income of €82.5 million for VISA proceeds paid by VISA Inc. in connection with the VISA Europe
acquisition.
We expect that these HR restructuring costs will lead to savings of approximately €21 million per annum. These savings
will be partly reinvested in the hiring of new people, who will be instrumental in helping us deliver our strategy.
The Nexi Group (formerly the ICBPI Group)
In November 2017 Istituto Centrale delle Banche Popolari Italiane S.p.A. and CartaSi S.p.A. have changed their names to Nexi S.p.A. and Nexi Payments S.p.A., respectively.
The Nexi Group pro forma operating revenue and EBITDA for the nine months ended 30 September 2017, including the
first-time consolidation of Bassilichi Payments, increased compared to the nine months ended 30 September 2016. The
pro forma operating revenue increased by €41.8 million, or 6.4%, to €693.3 million for the nine months ended 30
September 2017, from €651.5 million for nine months ended 30 September 2016, due to an increase in net fee,
commission and other business income of €35.5 million, or 5.7%. The pro forma EBITDA increased by €40.4 million, or
19.9%, to €243.6 million for the nine months ended 30 September 2017 from €203.2 million for the nine months ended
30 September 2016, driven by increased operating revenue.
The EBITDA increase was achieved as a result of higher contributions by all customer-facing reporting segments. EBITDA
in our BPO services segment increased despite lower revenue, mainly due to the discontinuation of our ICT security and
internal controls business line. Our Other Nexi Group Activities reporting segment, which primarily manages our
internal financing needs and is not customer-facing, recorded higher revenue mainly due to higher net interest income,
although it generated lower EBITDA than in the previous period.
1 Pro forma EBITDA as used in this summary Interim Financial Report refers to pro forma normalised EBITDA.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
13
The pro forma profit for the period attributable to the owners of the Nexi Group decreased to €31.7 million for the nine
months ended 30 September 2017, from €329.0 million for the nine months ended 30 September 2016, due to (i)
extraordinary and non-recurring expenses of €135.4 million in the first nine months of 2017 for restructuring costs
(€85.7 million), one-off projects for the transformation program (€22.9 million), taxes on M&A transactions (€17.0
million) and investment write-down (€3.5 million), and further due to (ii) positive extraordinary and non-recurring
financial income of €278.9 million in the first nine months of 2016, mainly consisting of VISA proceeds of €244.5 million
related to the VISA Europe acquisition by VISA Inc.
Most of the key performance indicators for the Nexi Group increased in the nine months ended 30 September 2017
compared to the nine months ended 30 September 2016, in line with operating revenue.
The Nexi Payments Business grew both in terms of value of card transactions (+6.0% in total; +4.8% for the Issuing and
+6.7% for the Acquiring businesses compared to the nine months ended 30 September 2016). However when
considered on a like-for-like basis (after adjusting the 2016 figures for the card outflow related to Intesa Sanpaolo and
the clean-up of inactive pre-paid cards carried out by Nexi Payments at the end of 2016), the increase for the Issuing
business was +5.9%.
The Nexi Payments Business grew also in terms of number of managed transactions (+6.9%) with an increase in debit
business (+2.6%), Issuing business (+11.3%) and Acquiring business (+9.9%) compared to the nine months ended 30
September 2016.
The number of managed cards at 30 September 2017 was consistent with 30 September 2016 (-0.6%) but, although
there was a small decrease (-1.5%) in the total Issuing cards (including charge, prepaid and credit cards), on a like-for-
like basis there was an increase versus 2016 of 6.0%.
The number of managed POS increased by 2.8%.
The value of transactions managed by MPS Acquiring increased by 6.5% in the nine months ended 30 September 2017.
In the Payments Business, compared to the previous period, the number of banking payment transactions grew by
7.4%, the number of clearing transaction by 7.3%, while the number of e-banking workstations fell by 8.9%.
The Securities Services business increased in depositary bank assets in custody between 30 September 2017 and 2016
(+ 6.5%), in global custody, assets in custody (+2.1%) and in the value of brokerage negotiation (+26.7%) compared to
the previous year.
In our Bassilichi Payments business, the number of managed POS terminals increased by 6.2% between 30 September
2017 and 2016, while the number of managed ATMs and the number of e-banking workstations decreased by 2.7% and
3.2% respectively.
Mercury Payments
The Mercury Payments business increased in terms of pro forma operating revenue and pro forma EBITDA in the nine
months ended 30 September 2017 compared to the same period in the previous year: the pro forma operating revenue
increased by €8.5 million, or 8.2%, to €111.8 million for the nine months ended 30 September 2017, from €103.3
million for the nine months ended 30 September 2016, and the pro forma EBITDA increased by €8.7million, or 13.6%, to
€73.0 million for the nine months ended 30 September 2017 from €64.3 million for the nine months ended 30
September 2016. Pro forma net profit decreased by €80.6 million to €37.4 million for the nine months ended 30
September 2017, from €118.0 million for the nine months ended 30 September 2016, which benefited by a one-off
gross income of €82.5 million relating to the VISA proceeds paid by VISA Inc., in connection with the VISA Europe
acquisition.
The number of cards managed by Mercury Payments as of 30 September 2017 increased (+6.5%) compared to 30
September 2016, as well as the number of managed transactions (+13.9%), the number of managed POS (+ 14.3%) and
the number of managed ATMs (+11.9%).
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
14
Mercury Processing
In the nine months ended 30 September 2017, Mercury Processing decreased its pro forma operating revenue but
increased its pro forma EBITDA, due to lower operating costs. The pro forma operating revenue decreased by €0.7
million, or 2.4%, to €27.6 million for the nine months ended 30 September 2017, from €28.3 million for the nine months
ended 30 September 2016. The pro forma EBITDA increased by €0.4 million, or 5.8%, to €7.0 million for the nine
months ended 30 September 2017 from €6.6 million for the nine months ended 30 September 2016. Pro forma net
profit increased by €1.0 million, or 30.3%, to €4.3 million for the nine months ended 30 September 2017, from €3.3
million for the nine months ended 30 September 2016, due to higher EBITDA and a reduction in depreciation,
amortisation and impairment losses on property, equipment, investment property and intangible assets of €0.9 million.
The number of transactions managed by Mercury Processing increased (+8.6%) compared with 2016, as well as the
number of managed cards (+2.7%). The number of managed POS decreased (-3.5%), as well as the number of managed
ATMs (-8.0%).
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
15
7.2 Mercury Group Summary Pro Forma Financial Information
The following table shows the pro forma (1) operating revenue and pro forma EBITDA of the Mercury Group for the nine
months ended 30 September 2017 and 2016.
Nine months to 30 September
2017 2016 % change
(in € millions)
Pro forma operating revenue (1) ..................................................................... 834.0 781.8 6.7%
Nexi Group ................................................................................................... 693.3 651.5 6.4%
Latino Group ................................................................................................. 139.3 131.6 5.8%
Holdco........................................................................................................... 1.5 0.7 103.6%
Consolidation adjustments ........................................................................... 0.0 (2.0) n/r
Pro forma normalised EBITDA (2) ..................................................................... 322.1 271.4 18.7%
Nexi Group .................................................................................................... 243.6 203.2 19.9%
Latino Group ................................................................................................. 79.8 70.9 12.5%
Holdco........................................................................................................... (1.3) (0.7) 83.3%
Consolidation adjustments ........................................................................... 0.0 (2.0) n/r
Pro forma profit for the period attributable to the owners of the parent .... 64.7 199.7 (67.6%)
Nexi Group .................................................................................................... 31.7 329.0 (90.4%)
Latino Group ................................................................................................. 39.4 121.3 (67.5%)
Holdco........................................................................................................... (2.9) (5.4) (46.8%)
Consolidation adjustments (3) ....................................................................... (3.5) (245.2) n/r
(1) Pro forma operating revenue, pro forma normalised EBITDA and pro forma profit for the period attributable to the parent are extracted and aggregated from
the management accounts of the Nexi Group, Latino Group, Holdco and net of consolidation adjustment.
(2) Pro forma normalised EBITDA is defined in section 7.6.1, footnote 1.
(3) Consolidation adjustments mainly represents the adjustments for non-controlling interest. In 2016, it includes Mercury Italy profit of €13.8 million which
relates to ACE tax benefit and the consolidation of €219.7 million for VISA proceeds related to Nexi Payments. Please refer to Mercury Bondco Plc Interim
Financial Report for nine months to 30 September 2016 for more details.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
16
7.3 Mercury Group
The following table provides an overview of the results of operations for the pro forma (1) financial information of the
Mercury Group for the nine months ended 30 September 2017 and 2016.
Nine months to 30 September
2017 2016
(in € millions)
Net fee and commission income ................................................................................ 804.3 758.7
Net interest income .................................................................................................... 26.2 20.7
Net trading / hedging income .................................................................................... 3.0 2.0
Dividends from equity investments and AFS investments ......................................... 0.7 0.4
Pro forma operating revenue ................................................................................ 834.0 781.8
Payroll and related costs ............................................................................................ (166.8) (160.5)
Other administrative expenses .................................................................................. (339.0) (345.7)
Administrative expenses ....................................................................................... (505.8) (506.1)
Other net operating income ....................................................................................... 0.6 4.6
Net accruals to provisions for risks and charges ........................................................ (6.8) (8.9)
Pro forma operating costs (before depreciation and amortisation) ....................... (511.9) (510.4)
Pro forma EBITDA (1) ............................................................................................... 322.1 271.4
Depreciation and amortisation .................................................................................. (51.4) (43.9)
Pro forma operating profit .................................................................................... 270.7 227.5
Depreciation and amortisation on customer contracts ............................................. (7.9) (7.9)
Share of profits/ (loss) of investees ............................................................................ 0.5 (0.3)
Non-recurring / extraordinary items .......................................................................... (149.2) 52.0
Pre-tax pro forma profit ........................................................................................ 114.1 271.3
Income taxes .............................................................................................................. (46.5) (63.4)
Post-tax pro forma profit ....................................................................................... 67.6 207.9
Pro forma profit for the period attributable to non-controlling interests ................. (2.8) (8.3)
Pro forma profit for the period attributable to the owners of the parent .............. 64.7 199.7
(1) Pro forma normalised EBITDA is defined in section 7.6.1, footnote 1
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
17
7.4 Mercury Group Summary Pro Forma Financial Information: Summary Segmental Information
The following table shows the pro forma (1) operating revenue and pro forma EBITDA by segment of the Mercury Group
for the nine months ended 30 September 2017 and 2016:
(1) Pro forma operating revenue and pro forma normalised EBITDA are extracted and aggregated from the management accounts for the Nexi Group,
Latino Group, Holdco and net consolidation adjustments. (2) Pro forma normalised EBITDA is defined in section 7.6.1, footnote 1.
(3) Segmental pro forma profit information for those operating segments within Nexi is not reported to the board of Nexi and therefore not presented
here.
(4) Consolidation adjustments mainly represents the adjustments for non-controlling interest. In 2016, it includes Mercury Italy profit of €13.8 million
which relates to ACE tax benefit and the consolidation of €219.7 million for VISA proceeds related to Nexi Payments. Please refer to Mercury Bondco Plc
Report for nine months to 30 September 2016 for more details.
Nine months to 30 September
2017 2016 change % change
(€ millions)
Pro forma Operating Revenue (1) ........................................................ 834.0 781.8 52.2 6.7% Nexi Group...................................................................................... 693.3 651.5 41.8 6.4% Nexi Payments ............................................................................... 434.5 403.4 31.1 7.7% Card Issuing ................................................................................ 165.3 154.1 11.1 7.2% Merchant Acquiring and POS ...................................................... 222.7 204.1 18.6 9.1% Other .......................................................................................... 46.5 45.2 1.4 3.0% Payments ....................................................................................... 66.0 66.1 (0.2) (0.3%) Securities Services .......................................................................... 52.9 49.5 3.4 6.9% BPO Services ................................................................................... 18.6 20.8 (2.2) (10.5%) Bassilichi Payments……………………………………………………………………… 111.3 107.5 3.9 3.6% Other Nexi Group Activities / consolidation adjustments ............... 10.0 4.3 5.8 n/r Latino Group ................................................................................... 139.3 131.6 7.7 5.8% Mercury Payments ......................................................................... 111.8 103.3 8.5 8.2% Mercury Processing ........................................................................ 27.6 28.0 (0.4) (1.4%) Latino / consolidation adjustments ................................................ (0.2) 0.0 (0.2) n/r Other Group ................................................................................... 1.5 (1.3) 2.7 n/r Holdco ............................................................................................ 1.5 0.7 0.7 103.6% Consolidation adjustments ............................................................. 0.0 (2.0) 2.0 n/r Pro forma normalised EBITDA (2) ........................................................ 322.1 271.4 50.7 18.7% Nexi Group...................................................................................... 243.6 203.2 40.4 19.9% Nexi Payments ............................................................................... 196.2 160.8 35.5 22.1% Payments ....................................................................................... 19.7 17.8 2.0 11.0% Securities Services .......................................................................... 14.4 10.0 4.4 43.8% BPO Services ................................................................................... 6.4 6.3 0.1 1.2% Bassilichi Payments……………………………………………………………………… 0.7 (2.6) 3.3 n/r Other Nexi Group Activities / consolidation adjustments ............... 6.2 11.0 (4.8) (43.6%) Latino Group ................................................................................... 79.8 70.9 8.9 12.5% Mercury Payments ......................................................................... 73.0 64.3 8.7 13.6% Mercury Processing ........................................................................ 7.0 6.6 0.4 5.8% Latino / consolidation adjustments ................................................. (0.3) 0.0 (0.3) n/r Other Group ................................................................................... (1.3) (2.7) 1.4 n/r Holdco ............................................................................................ (1.3) (0.7) (0.6) 83.3% Consolidation adjustments ............................................................. 0.0 (2.0) 2.0 n/r
Pro forma profit for the period attributable to the owners of the
parent.................................................................................................. 64.7 199.7 (134.9) (67.6%)
Nexi Group (3) .................................................................................. 31.7 329.0 (297.3) (90.4%) Latino Group ................................................................................... 39.4 121.3 (81.9) (67.5%) Mercury Payments ......................................................................... 37.4 118.0 (80.6) (68.3%) Mercury Processing ........................................................................ 4.3 3.3 1.0 30.3% Latino / consolidation adjustments ................................................. (2.4) 0.0 (2.4) n/r Other Group ................................................................................... (6.4) (250.6) 244.3 (97.5%) Holdco ............................................................................................ (2.9) (5.4) 2.5 (46.8%) Consolidation adjustments (4) ......................................................... (3.5) (245.2) 241.7 n/r
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
18
7.5 Mercury Group Summary Pro Forma Financial Information: EBITDA reconciliation
The following table shows the pro forma EBITDA reconciliations of the Mercury Group for the nine months ended 30
September 2017 and 2016:
Nine months to 30 September
2017 2016
(€ millions)
Pro forma profit for the period attributable to the owners of the parent ............ 64.7 199.7
Pro forma profit for the period attributable to non-controlling interests .............. 2.8 8.3
Income taxes ........................................................................................................... 46.5 63.4
Share of profit of investees ..................................................................................... (0.5) 0.3
Non-recurring / extraordinary net financial costs/ (income) .................................. 5.2 (116.8)
Non-recurring / extraordinary operating costs ....................................................... 144.0 64.8
Depreciation, amortisation and impairment losses on customer contracts .......... 7.9 7.9
Pro forma operating profit ...................................................................................... 270.7 227.5
Depreciation, amortisation and impairment losses on property, equipment,
investment property and intangible assets (included in operating profit) ............. 51.4 43.9
Pro forma normalised EBITDA ................................................................................. 322.1 271.4
Nine months to 30 September
2017 2016
Pro forma EBITDA Margin .................................................................. 38.6% 34.7%
Nexi Group...................................................................................... 35.1% 31.2%
Nexi Payments ............................................................................... 45.2% 39.9%
Payments ....................................................................................... 29.9% 26.8%
Securities Services .......................................................................... 27.2% 20.2%
BPO Services ................................................................................... 34.3% 30.3%
Bassilichi Payments …………………………………………………………………….. 0.6% (2.4%)
Other Nexi Group Activities / consolidation adjustments .............. n/r n/r
Latino Group ................................................................................... 57.3% 53.9%
Mercury Payments ......................................................................... 65.3% 62.3%
Mercury Processing ........................................................................ 25.3% 23.4%
Latino / consolidation adjustments ................................................. n/r n/r
Other Group ................................................................................... n/r n/r
Holdco ............................................................................................ n/r n/r
Consolidation adjustments ............................................................. n/r n/r
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
19
Non-recurring / extraordinary net financial costs for the nine months ended 30 September 2017 were €5.2 million and
primarily comprised a write-off of a Nexi investment. Non-recurring / extraordinary net financial income of €116.8
million for the nine months ended 30 September 2016 primarily comprises VISA proceeds paid by VISA Inc. in
connection with the VISA Europe acquisition.
Non-recurring / extraordinary operating costs of €144.0 million for the nine months ended 30 September 2017 are
comprised of (i) €82.5 million for restructuring costs, (ii) €32.5 million for one-off projects for the transformation
program, (iii) €17 million for taxes on M&A operations, (iii) €12.0million for re-branding and other one-off extraordinary
costs. Non-recurring / extraordinary operating costs of €64.8 million for the nine months ended 30 September 2016 are
mainly comprised of (i) €37.0 million for one-off projects for the transformation program, (ii) €16.2 million for the pass-
thorough of VISA proceeds to previous shareholders, (iv) €6.9 million for restructuring costs.
7.6 Other Financial and Operating Information - Mercury Group
7.6.1 Other performance indicators
Ref Twelve months to 30
September 2017
(in € millions)
Pro forma operating revenue ................................................................................................. 1,110.4
Pro forma normalised EBITDA (1) ............................................................................................ 7.6.2 424.3
Pro forma normalised EBITDA margin (2) ................................................................................ 38.2%
Adjusted pro forma EBITDA (1) ................................................................................................ 7.6.2 488.4
Adjusted pro forma EBITDA margin (2) .................................................................................... 44.0%
Pro forma profit for the period attributable to the owners of the parent .............................. 7.6.3 96.9
Adjusted pro forma profit for the period attributable to the owners of the parent .............. 7.6.3 266.4
CET1 Capital Ratio ................................................................................................................... 16.1%
Adjusted pro forma profit of the Mercury Group available to Sponsors’ HoldCos ................ 7.6.4 251.9
Net financial debt (3) ............................................................................................................... 2,206.7
Pro forma cash interest expense (4) ........................................................................................ 185.3
Ratio of net financial debt to adjusted pro forma EBITDA ..................................................... 4.5x
Ratio of adjusted pro forma EBITDA to pro forma cash interest expense ............................. 2.6x
Adjusted pro forma coverage (5) ............................................................................................. 1.4x
(1) Set forth below are the definitions of the pro forma normalised EBITDA-based measures used in this Interim Financial Report:
• Pro forma normalised EBITDA is defined as pro forma operating profit for the period after adding back the charges for
depreciation, amortisation and impairment losses on property, equipment, investment property and intangible assets,
and net non-recurring or extraordinary items.
• Adjusted pro forma EBITDA is defined as pro forma EBITDA further adjusted as set forth in section 7.6.2.
For a reconciliation of pro forma normalised EBITDA and adjusted pro forma EBITDA to pro forma profit for the period
attributable to the owners of the parent, see sections 7.6.2 and 7.6.3. Management believe that these EBITDA-based measures
are useful to investors in evaluating operating performance and the ability of the Mercury Group to incur and service its
indebtedness. These non-IFRS measures are not indicators of performance recognised under IFRS. These non-IFRS measures
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
20
are not necessarily comparable to the performance figures published by other companies. Caution should be exercised in
comparing these non-IFRS measures as reported here to the non-IFRS measures of other companies. For more information,
see “Presentation of Financial and Other Information—Non-GAAP Financial Information” in the Listing Particulars, which are
available on the website (www.mercurybond.com).
(2) Pro forma normalised EBITDA margin represents pro forma normalised EBITDA divided by pro forma operating revenue.
Adjusted pro forma EBITDA margin represents adjusted pro forma EBITDA divided by pro forma operating revenue (without
considering any potential impact that such adjustments may have on pro forma operating revenue).
(3) Net financial debt represents the combined gross financial debt of the Sponsors’ HoldCos and Bondco, minus cash at Bondco
and the Sponsors’ HoldCos. At 30 September 2017, the cash and cash equivalents of Bondco and Sponsors’ HoldCos was equal
to €93 million. On 16 February 2017, Bondco issued €600,000,000 in aggregate principal amount of 71⁄8%/77⁄8% senior secured
fixed rate PIK toggle notes due 2021 (the “2017 Notes”) to finance the pending acquisitions by the Nexi Group of the merchant
acquiring business of Banca Monte dei Paschi di Siena S.p.A., at least 92.24% of capital stock in Bassilichi S.p.A. and the
merchant acquiring business of Deutsche Bank S.p.A.
(4) Pro forma cash interest expense represents the estimated cash interest expense of the Sponsors’ HoldCos on a pro forma
basis for the period ended 30 September 2017. This includes €15.68 million of cash interest expense that would have been
payable by the Sponsors’ HoldCos, had the 2017 Notes been issued and their proceeds been on-lent to the Sponsors’ HoldCos
at the beginning of the period presented. The 2017 Notes accrue interest at a rate per annum equal to 71⁄8% (in case of cash
interest) and 77⁄8% (in case of PIK interest), commencing February 16, 2017.
(5) Represents the ratio of adjusted pro forma profit of the Mercury Group to pro forma cash interest expense
7.6.2 Reconciliation of pro forma normalised EBITDA to adjusted pro forma EBITDA
Twelve months to 30
September 2017
(in € millions)
Pro forma normalised EBITDA ................................................................................................ 424.3
Capitalisation of ICT expenditures(A) ...................................................................................... 1.6
ICT and procurement savings(B) ............................................................................................. 8.5
Expected average annualised decrease in interest income from AFS Portfolio(C) ................. (6.4)
International debit initiative(D) ............................................................................................... 2.7
Synergies with Mercury Payments(E) ...................................................................................... 20.0
Synergies with MPS Acquiring(F) ............................................................................................. 13.8
Synergies with DB Cards Acquiring(G) ..................................................................................... 3.7
Synergies with Bassilichi Payments(H) .................................................................................... 20.2
Adjusted pro forma EBITDA .................................................................................................... 488.4
(A) Capitalisation of ICT expenditures relates to the effect on the adjusted pro forma EBITDA of capitalising 33% of ICT
expenditures (excluding payment processing costs) in respect of the period ended 30 September 2017. For the period ended
30 September 2017, it is estimated that the Mercury Group capitalised approximately 31% of all ICT expenditures. On the
basis of benchmarks in the banking and financial services industry, management believe that 33% of the Mercury Group’s
total ICT expenditures for the period ended 30 September 2017 related to growth and transformation and so could have
been capitalised. The adjustment has been calculated as if the Mercury Group had capitalised 33% of total ICT costs, in line
with the aforementioned industry benchmarks, and excluding the amounts actually capitalised by the Mercury Group in such
period. Any such capitalised expenditures would be amortised over a three-to-five-year period.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
21
(B) ICT and procurement savings gives effect to outstanding estimated savings, net of related expenses, that are expected to be
realised within two-to-three years following the implementation of certain operational efficiency measures. The estimates of
these savings are based on the Sponsors’ experience with the Nexi Group and previous investments, as well as industry
benchmarking, the advice of industry experts and management consultants retained in connection with the acquisition of
Nexi and further acquisitions. However, there can be no assurance that all, or any, of these potential cost savings will be
realised, see “Forward Looking Statements”. The assumptions used in estimating savings and related expenses are made in
reliance on the available information and judgments based on such information. These assumptions are inherently uncertain
and subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause
actual results or timeline to differ materially from those contemplated in the savings estimates.
(C) Holdings of Italian government bonds made up 92.4% of total AFS Portfolio as at 30 September 2017, and are accounted for
as AFS financial assets. In line with relevant accounting principles, interest income accruing on the AFS Portfolio is accounted
for at amortised cost—that is, using the historical yield. Since the yields on the three-to-four-year maturity Italian
government bonds that were purchased in 2013 and 2014 were significantly higher than present yields, the average yield
that is currently received on the AFS Portfolio is higher than the yield that would be achievable if the AFS Portfolio was
replaced at present market yields. As the Italian government bonds that were purchased in 2013 and 2014 mature and are
replaced with lower-yielding Italian government bonds, it is expected that the interest income from the AFS Portfolio will
decrease. It is currently estimated that the effect of this decrease in interest income over the next five years will have an
average annual impact on adjusted pro forma EBITDA of €6.4 million. This average annual impact is estimated using the
following reinvestment cycle:
• based on the actual composition of the AFS Portfolio as at 30 September 2017, it is assumed that the proceeds of any
maturing Italian government bond held in the AFS Portfolio would be continuously reinvested in a new three-year Italian
government bond (or a bond with a lower maturity if the original maturity of the re-invested bond was lower than three
years);
• the expected yield earned on any newly-purchased bond is estimated using the forward Italian government bond yield
curve as at 30 September 2017; and
• the notional interest income that would be earned in each year from 2017 to 2020 is calculated and the average of
the four-year period is taken.
The assumptions used in estimating this adjustment are made in reliance on the information available to management and
its judgments based on such information. These assumptions are inherently uncertain and subject to a wide variety of
significant market and economic risks and uncertainties that could cause actual results to differ materially from this estimate.
(D) Represents the annualised run-rate effect of the launch of a new Nexi Payments debit product (Nexi Payments Pagomat)
which will be positioned as a substitute for Bancomat, featuring additional functionalities aimed at improving customer
experience and be fully integrated into the latest digital innovations (e.g. HCE, contactless, etc.). It is estimated that the
positive effect resulting from the introduction of this new initiative over the next three years will have an impact on adjusted
pro forma EBITDA of €2.7 million.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
22
(E) Represents the annualised run rate cost synergies net of any increase in annualised run rate operating expenditures that are
estimated to be realised in connection with the migration of certain acquiring processing to Mercury Payments (achievable in
2-3 years on average) and certain other in-house developments (achievable in 3-5 years), following cumulative expenditure
of approximately €51.0 - €72.0 million in capital expenditures and one-off costs.
(F) Represents cost and revenue synergies which we expect to realize within two to three years following the consummation of the MPS Acquiring Acquisition after expenditure of approximately €10.0 million in one-off costs. The estimated annualized run rate impact of these synergies on adjusted pro forma EBITDA includes:
(i) cost savings of €3.8 million from the elimination of value added tax (VAT) currently imposed on transactions between (A) MPS Acquiring and the Nexi Group on the one hand and (B) MPS Acquiring and Bassilichi Payments on the other hand;
(ii) cost savings of €2.0 million from the rationalization of MPS Acquiring’s cost base facilitated through the integration of MPS Acquiring into the Nexi Group’s existing payments infrastructure;
(iii) synergies of €8.0 million through (A) the commercialization of loss-making merchant acquiring contracts of MPS Acquiring, (B) improved up-selling and cross-selling of value-added services to merchant customers of MPS Acquiring and (C) a modernization of MPS Acquiring’s POS fleet, which we expect to enable the Mercury Group to charge higher, premium prices for the improved service.
(G) Represents the estimated annualized adjusted pro forma EBITDA contribution of the DB Cards Acquisition, plus expected
synergies.
(H) Represents cost and revenue synergies which we expect to realize within two to three years following the consummation of
the Bassilichi Payments Acquisition after expenditure of approximately €14.0 - €24.0 million in capital expenditure and one-
off costs. The estimated annualized run rate impact of these synergies on adjusted pro forma EBITDA includes:
(i) cost savings of €3.8 million from the integration of Bassilichi Payments into the Nexi Group’s existing payments infrastructure; (ii) cost savings of €7.6 million from the rationalization of Bassilichi Payments’ cost base facilitated through the integration of Bassilichi Payments into the Nexi Group’s existing payments infrastructure;
(iii) cost savings of €4.6 million from reductions in Bassilichi Payments’ general and administrative costs. Specifically, we believe we can achieve cost savings of (A) €4.2 million through the consolidation of general expenses such as administration costs, consulting costs, compensation and gifts and (B) €0.4 million through reductions in real estate expenditures; and (iv) cost savings of €4.2 million mainly from reductions in ICT costs.
The adjustments described above are presented before any deductions for minority equity interests.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
23
7.6.3 Reconciliation of pro forma profit attributable to the owners of the parent to adjusted pro forma profit
Twelve months to
30 September 2017
(in € millions)
Pro forma profit for the year attributable to the owners of the parent .................................. 96.9
Extraordinary (income)/costs(A) .............................................................................................. 130.2
Capitalisation of ICT expenditure(B) ......................................................................................... 0.3
ICT and procurement savings(B) ............................................................................................... 5.7
Expected average annualised decrease in interest income from AFS Portfolio(B) .................. (4.3)
International debit initiative(B) ................................................................................................. 1.8
Tax benefit due to equity investment (ACE)(C) ......................................................................... (2.8)
Synergies with Mercury Payments(B) ....................................................................................... 13.4
Synergies with MPS Acquiring(B) .............................................................................................. 9.2
Synergies with DB Cards Acquiring(B) ....................................................................................... 2.5
Synergies with Bassilichi Payments(B) ...................................................................................... 13.5
Adjusted pro forma profit ...................................................................................................... 266.4
(A) Represents the estimated after-tax effect on profit for the year attributable to the owner of Holdco of the following items
(amounts represent pre-tax values): (i) a gross negative impact of €107.7 million of non-recurring items of the Nexi Group, (ii)
a gross negative impact of €6.1 million of one-off costs for M&A initiatives at Holdco and Latino, (iii) a gross negative impact of
€12.4 million of non-recurring items in Mercury Payments and Mercury Processing and (iv) a gross negative impact of €4.0
million of non-recurring items in Bassilichi Payments. All of the aforementioned costs are reported in the management accounts
below EBITDA, under the line item non-recurring/extraordinary items, and therefore do not impact on EBITDA. The revenues
and expenses reflected in these lines items are subject to different tax rates, subject to which entity within the Mercury Group
recognised such revenues or expenses, as well as their nature. In calculating the total tax impact, the actual tax rates applied
are applicable to each individual revenue and expense that was recognised under the line items pro forma
non-recurring/extraordinary net financial income and pro forma non-recurring/extraordinary operating costs.
(B) Represents the estimated effect on pro forma profit for the year attributable to the owners of the parent for each of the other
adjustments to pro forma normalised EBITDA described above. Each adjustment is subject to different tax rates, subject to
which entity within the Mercury Group recognised such revenues or expenses as, as well as their nature and each adjustment
ignores the impact of the 1.3% minority interest in Nexi Payments, the total effect of which is estimated to be less than
€1.0 million on such adjustments. The adjustment related to capitalisation of ICT expenditures is based on the average annual
savings over the next five years (taking into account the offsetting depreciation charge). The adjustment to ICT and
procurement savings takes into account the equity interest in the payment processor with which the contract was
renegotiated.
(C) This figure represents the annualised adjustment of a tax optimisation benefit which was included in financial statements for
the twelve months ended 30 September 2017. The ACE (“Aiuto alla Crescita Economica”) benefit is a tax benefit provided by
the Italian government to support economic growth, and consists of a notional interest deduction.
Adjusted pro forma profit is defined as profit attributable to the owners of the parent for the twelve months ended 30
September 2017 after giving effect to the adjustments above. A number of assumptions have been made in order to
calculate these adjustments. These assumptions are inherently uncertain and subject to a wide variety of significant
business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those
assumed in the adjustments below. Management believe that these adjustments to profit attributable to the owners of
the parent are useful to investors in evaluating operating performance and the ability of the Mercury Group to incur and
service its indebtedness. These non-IFRS measures are not indicators of performance recognised under IFRS. These non-
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
24
IFRS measures are not necessarily comparable to the performance figures published by other companies and caution
should be exercised in comparing these non-IFRS measures as reported here to non-IFRS measures of other companies.
For more information, see “Presentation of Financial and Other Information—Non-GAAP Financial Information” in the
Listing Particulars which are available on the website (www.mercurybond.com).
7.6.4 Capacity to make distributions and other sources of funding available to Holdco, Bondco and Sponsors’
HoldCos
The following table provides an overview of the main factors driving Holdco’s capacity to make distributions to its
shareholders and other sources of funding potentially available to Holdco. Dividends indirectly received by Bondco from
the Mercury Group through the Sponsors’ HoldCos, along with drawings on the Revolving Credit Facility, are expected to
be Bondco’s principal source of liquidity and thus a key determinant of its ability to pay cash interest on the Notes:
Twelve months to
30 September 2017
(in € millions)
Adjusted pro forma profit(A) .......................................................................................................... 266.4
Minority equity interests(B) ................................................................................................................. (15.5)
Tax leakage(C) ...................................................................................................................................... 1.0
Adjusted pro forma profit of the Mercury Group available to Sponsors’ HoldCos(D) ..................... 251.9
Additional liquidity available to Bondco and the Sponsors’ HoldCos ............................................ 193.3
thereof: Revolving Credit Facility(E) ............................................................................................. 100.0
thereof: cash at Sponsors’ HoldCos and Bondco(E) ...................................................................... 93.3
Notional excess capital buffer available to Holdco(F) ..................................................................... 86.6
(A) For the purposes of this notional analysis, adjusted pro forma profit is used as a proxy for annual profits and assume that the
subsidiaries of the Mercury Group have (on both an individual and consolidated basis) sufficient distributable reserves,
measured for the period ended 30 September 2017.
(B) Reflects the profit attributable to the Mercury Group’s minority shareholders in respect of the adjustments above at 7.6.3 to
arrive at the adjusted pro forma profit. A small number of the shares of Nexi and Nexi Payments are held by minority
shareholders and thus a corresponding percentage of the dividends paid by Nexi to Holdco, for further distribution to the
Sponsors’ HoldCos and Bondco will be paid to these minority shareholders. The amount shown also excludes the effect of
shares in Nexi held as treasury shares.
(C) Represents estimated taxes levied on dividends paid from Nexi Payments to Nexi and from Mercury Payments to Latino.
(D) This analysis of the adjusted pro forma profit attributable to Holdco and the Holdco liquidity for the period ended 30 September
2017 is notional. The Revolving Credit Facility available to Bondco and the Sponsors’ HoldCos remains undrawn. Cash interest
was paid on the Notes on the interest payment dates in November 2017. See section 7.10. “Cash/PIK Interest Determination.”
(E) Represents amounts available for drawing under the Revolving Credit Facility.
(F) Based on CET1 Capital and represents the calculation of Holdco’s notional excess capital above a 14% CET1 capital ratio as of
30 September 2017, after giving effect to any tax leakage (as described in footnote (C) above).
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
25
30 September 2017
(in € millions)
CET1 Capital in excess of 14% CET1 capital ratio ................................................................................................ 86.6
Tax leakage(A) ...................................................................................................................................................... -
Notional excess capital buffer available to Holdco ........................................................................................... 86.6
(A) Future dividends paid from Nexi to Holdco will not to be subject to withholding taxes. Holdco has obtained the clearance from
HMRC regarding the withholding tax on dividends from Nexi subject to annual renewal. However, there may be a tax impact
of any future dividends paid from Mercury Payments or Mercury Processing to Latino.
7.7 Financial Condition
The following table provides an overview of the Mercury Group’s consolidated own funds, exposures, capital
requirements and capital ratios at 30 September 2017.
The CET1 ratio reflects the full impact of the strategic M&A transactions and it is calculated, based on an adjusted
purchase price of Bassilichi Payments of €62.9 million and goodwill of €107.5 million. This calculation is subject to the
finalisation of the net asset value adjustments, as set forth in the Bassilichi Payments acquisition agreement.
30 September 2017
(in € millions, except
where stated
otherwise)
Own funds
Common Equity Tier 1 (CET1) ...................................................................................................... 722.7
Tier 1 capital ................................................................................................................................ 722.7
Tier 2 capital ................................................................................................................................ 0.4
Total own funds .................................................................................................................... 723.1
Capital Requirements
Credit and counterparty risk ....................................................................................................... 182.7
Market risk .................................................................................................................................. 1.8
Operational risk ........................................................................................................................... 174.1
Total prudential requirements .............................................................................................. 358.8
Risk-Weighted Assets and capital ratios
Risk-weighted assets ................................................................................................................... 4,485.0
CET1 capital ratio ......................................................................................................................... 16.1%
Tier 1 capital ratio ........................................................................................................................ 16.1%
Total capital ratio .................................................................................................................. 16.1%
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
26
7.8 Non-financial key performance indicators
7.8.1 Non-financial key performance indicators by segment
The following table provides an overview of the non-financial key performance indicators for the Mercury Group as of
and for nine months ended 30 September 2017 and 2016. Investors should read the following presentation in conjunction
with the section entitled “Management's discussion and analysis of financial condition and results of operations" in each
of the Cleansing Statement and the Listing Particulars.
As of and for nine
months to 30
September
2017 2016 change % change
Nexi Payments reporting segment (1)
Number of managed cards (‘000) ...................................................... 27,817 27,989 (172) (0.6%)
Debit cards ......................................................................................... 11,760 11,659 101 0.9%
Issuing ................................................................................................ 16,056 16,330 (274) (1.7%)
Charge cards ....................................................................................... 9,609 9,480 129 1.4%
Prepaid cards ...................................................................................... 6,070 6,448 (378) (5.9%)
Credit cards ......................................................................................... 377 402 (25) (6.1%)
Value of card transactions (€millions) (2) ............................................ 63,960 60,318 3,642 6.0%
Issuing ............................................................................................... 22,135 21,112 1,023 4.8%
Acquiring ........................................................................................... 41,825 39,206 2,619 6.7%
Number of managed transactions (millions) (3) .................................. 2,094 1,958 136
6.9%
Debit cards ......................................................................................... 904 881 23 2.6%
Issuing ............................................................................................... 462 415 47 11.3%
Acquiring ........................................................................................... 728 662 65 9.9%
Number of managed POS .................................................................. 553,037 537,990 15,047 2.8%
Number of managed ATMs ................................................................ 8,996 9,380 (384) (4.1%)
Payments reporting segment (1)
Number of banking payment transactions (millions) (4) ..................... 436 406 30 7.4%
Number of clearing transactions (millions) (4) .................................... 685 639 46 7.3%
Number of e-banking workstations ................................................... 235,684 258,577 (22,893) (8.9%)
Securities Services reporting segment (1)
Depositary bank—amount of assets in custody (€millions) (5) ........... 61,895 58,111 3,784 6.5%
Global custody—amount of assets in custody (€millions) (5) ............. 123,257 120,735 2,522 2.1%
Value of brokerage negotiation (€millions) ....................................... 35,918 28,341 7,577 26.7%
(1) The figures presented above are subject to variation from period to period, including due to seasonality and acquisitions. See the sections entitled “Key Factors
Affecting Results of Operations and Financial Condition” and “Risk Factors—Risks Related to Our Business” of the Listing Particulars. These figures exclude Bassilichi
Payments.
(2) Aggregates credit, charge and prepaid cards managed under the licensing model only. See the section entitled “Our Business— Our Services—Card Issuing—
Licensing (Card Issuing)” of the Listing Particulars
(3) Aggregates debit, credit, charge and prepaid cards managed under the licensing or servicing model. See the sections entitled “Our Business—Our Services—Card
Issuing” and “Our Business—Our Services—Merchant Acquiring and POS” of the Listing Particulars
(4) Clearing transactions includes certain banking payment transactions
(5) Global custody—Amount of Assets in custody includes most of the assets comprised in Depositary Bank—Amount of Assets in custody
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
27
As of and for nine
months to 30
September
2017 2016 change % change
Bassilichi Payments reporting segment
Number of managed POS .......................................................................... 318,800 300,300 18,500 6.2%
Number of managed ATMs ........................................................................ 5,195 5,339 (144) (2.7%)
Number of e-banking workstations ........................................................... 256,963 265,467 (8,504) (3.2%)
Mercury Payments reporting segment (1)
Number of managed cards (‘000) ............................................................ 15,792 14,834 959 6.5%
Debit cards .............................................................................................. 10,536 9,791 745 7.6%
Charge cards ............................................................................................ 2,333 2,130 203 9.5%
Prepaid cards ........................................................................................... 2,923 2,912 11 0.4%
Number of managed transactions (millions) (2) ........................................ 1,169 1,026 143 13.9%
Issuing ...................................................................................................... 428 393 35 8.9%
Acquiring ................................................................................................. 741 633 108 17.1%
Number of managed POS ........................................................................ 464,963 406,944 58,019 14.3%
Number of managed ATMs ...................................................................... 7,209 6,445 764 11.9%
Mercury Processing reporting segment (1)
Number of managed cards (‘000) ............................................................ 6,192 6,029 163 2.7%
Debit cards .............................................................................................. 5,010 4,801 209 4.4%
Charge cards ............................................................................................ 570 598 (27) (4.6%)
Credit cards ............................................................................................. 613 631 (18) (2.9%)
Number of managed transactions (millions) (2) ........................................ 525 484 41 8.6%
Issuing ...................................................................................................... 262 240 22 9.1%
Acquiring ................................................................................................. 264 244 20 8.0%
Number of managed POS ........................................................................ 208,028 215,513 (7,485) (3.5%)
Number of managed ATMs ...................................................................... 2,117 2,301 (184) (8.0%)
(1) The figures presented above are subject to variation from period to period, including due to seasonality and acquisitions. See the sections entitled “Key Factors
Affecting Results of Operations and Financial Condition” and “Risk Factors—Risks Related to Our Business” of the Listing Particulars
(2) Aggregates debit, credit, charge and prepaid cards managed under the licensing or servicing model. See the sections entitled “Our Business—Our Services—Card
Issuing” and “Our Business—Our Services—Merchant Acquiring and POS” of the Listing Particulars
(3) In future reports, MPS Acquiring will be included within the Nexi Payments reporting segment
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Overview of Results
28
7.9 Cash/PIK Interest Determination
As of the most recent Determination Date (in respect of the interest period commencing on 13 and 31 May 2017 and ending on 13 and 30 November 2017), Cash Available for Debt Service was determined to be at least equal to 100% of the amount of Cash Interest that would be due on 13 November and 30 November 2017. As a result, the entirety of the interest payment due on 13 and 30 November 2017 have been or will be made in cash. 7.10 Warrants
Included in the financial liabilities held for trading are warrants issued by Holdco in the amount of €6.8 million. Warrants are rights to purchase existing shares of Nexi up to a maximum of 12.7% of the share capital of Nexi. In December 2016, Holdco made an offer to certain members of the Nexi management team to subscribe for a proportion of the warrants and these were accepted and issued for the amount of €5.1 million in January 2017. In May 2017, these warrants were fair valued at €6.1 million (€5.1 million in Q1). There was no change in fair value of the warrants as at 30 September 2017. Additional warrants were issued in addition to the initial subscription and payment received in the amount of €0.7 million. Total warrants in issue now represent 7.9% out of the maximum 12.7% of the share capital of Nexi.
7.11 Key Subsequent Events
In October 2017, the Sponsors’ NewCos have subscribed for an additional 3,000,000 shares of €1 in each of the Sponsors’ HoldCos.
In October 2017, Nexi signed a binding agreement for the disposal of a small business within the Securities Services division. The business currently generates approximately €7 million of revenues with a €1 million EBITDA. The transaction will generate approximately €15 million of gross capital gain. Closing is expected to occur by the year end.
In November 2017 Istituto Centrale delle Banche Popolari Italiane S.p.A. and CartaSi S.p.A. have changed their names to Nexi S.p.A. and Nexi Payments S.p.A., respectively.
In the post reporting period, an offer to subscribe for additional warrants in the amount of €0.3 million was made. The Board of Holdco declared an interim dividend to the Sponsor HoldCos in the amount of €10 million payable in November 2017. No other events took place after the reporting period that would have had a significant effect on Mercury Group’s financial position, results of operations or cash flows that would have required adjustments to the financial statements captions.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review
29
8 OPERATING AND FINANCIAL REVIEW
The following discussion and analysis of financial condition and results of operations are based on the pro forma financial
information of the Mercury Group, which is extracted and aggregated from the unaudited consolidated financial
statements of Holdco, Nexi and Mercury Processing, unaudited financial statements of Mercury Payments and pro forma
management accounts of MPS Acquiring for the period ended 30 September 2017.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
30
8.1 Results of Operations - Nexi Group
8.1.1 Nexi Group financial statements
Nine months to 30 September
2017 2016
(in € millions)
Interest and similar income .......................................................................................... 54.8 49.5
Interest and similar charges ......................................................................................... (26.9) (25.9)
Net interest income ................................................................................................. 27.9 23.6
Fee and commission income ........................................................................................ 857.3 837.4
Fee and commission expense ....................................................................................... (471.9) (474.5)
Net fee and commission income ............................................................................. 385.4 362.9
Dividends and similar income ....................................................................................... 0.6 0.0
Net trading income ....................................................................................................... 1.1 2.2
Net profit on sale or repurchase .................................................................................. 0.2 260.3
Total income ........................................................................................................... 415.2 648.9
Net impairment losses .................................................................................................. (5.7) (2.4)
Net financial income ................................................................................................ 409.5 646.5
Administrative expenses: .............................................................................................. (598.2) (506.2)
a) Payroll and related costs ................................................................................ (225.6) (146.9)
b) Other administrative expenses ...................................................................... (372.5) (359.3)
Net accruals to provisions for risks and charges .......................................................... (7.2) (3.2)
Depreciation and net impairment losses on property, equipment and investment
property ........................................................................................................................ (23.4) (24.9)
Amortisation and net impairment losses on intangible assets .................................... (28.5) (21.8)
Other net operating income ......................................................................................... 304.1 294.9
Operating costs ....................................................................................................... (353.1) (261.3)
Share of profits of investees ......................................................................................... 0.5 21.9
Profits from continuing operations .......................................................................... 56.8 407.1
Income taxes ................................................................................................................ (25.7) (71.2)
Profit from continuing operations ........................................................................... 31.1 335.9
Profit for the period ..................................................................................................... 31.1 335.9
Loss/(profit) for the period attributable to non-controlling interests ......................... 0.6 (6.9)
Profit for the period attributable to the owners of the parent ................................ 31.7 329.0
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
31
8.1.2 Nexi Group: Reconciliation of consolidated financial statements to management accounts
We have presented in this Interim Financial Report certain data extracted from the Nexi Group’s consolidated and
reporting segment management accounts.
The management accounts are prepared on a similar basis to the pro forma financial information for the Mercury Group
presented at section 7.4 and differ in important ways from the Nexi Group’s consolidated financial statements presented
in accordance with IFRS. In particular, the Nexi Group’s management accounts are prepared to supplement the
consolidated financial statements with information on the consolidated operating revenue of the Nexi Group and the
operating performance on a reporting segment basis.
The consolidated financial statements present the revenues and costs of certain activities not core to the operations of
a bank under the line items other net operating expenses/income, as part of operating costs. Because income related to
many of the Nexi Group’s operations, including its POS Business, ATM management, Help Line, debit servicing, clearing,
digital corporate banking, BPO Services and certain other operations are not considered under IFRS to be financial income
core to the operations of a bank, a significant amount of the revenues and costs are classified in the consolidated financial
statements under other net operating expenses/income. In the Nexi Group’s management accounts, these amounts are
reassigned under such line items in the consolidated financial statements to the line items operating revenue and
operating costs to provide a clearer picture of the operating results.
Operating profits in the Nexi Group’s management accounts comprise the net of operating revenues and operating costs.
Adding the line items depreciation, amortisation and impairment losses on property, equipment, investment property
and intangible assets (excluded from operating profit), share of gain/losses of investees, non-recurring/extraordinary
operating costs/income, income taxes and profit for the period attributable to non-controlling interests reconciles
operating profit in the Nexi Group’s management accounts to profit for the period attributable to the owners of the
parent in the consolidated financial statements.
The line items presented in the Nexi Group’s management accounts are not recognised by IFRS and may not be permitted
to appear on the face of the consolidated financial statements in the manner presented herein. Different companies and
analysts may calculate the line items presented in the Nexi Group’s management accounts differently, so making
comparisons among companies on this basis should be done very carefully. The line items presented in the Nexi Group’s
management accounts are not measures of performance under IFRS and should not be considered in isolation or
construed as substitutes for the results of operations as reported in accordance with IFRS. For a discussion of the
differences in classification, see the section entitled “Explanation of Key Line Items—Management Accounts” of the
Annual Report and Listing Particulars.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
32
Reconciliation of Management Accounts – Nexi Group Nine months to 30 September
(€ millions) 2017 2016
Financial
Statements Reclassified
Line Items Excluded
Line
Items
Management
Accounts
Financial
Statements Reclassified
Line Items Excluded
Line
Items
Management
Accounts
Net fee, commission and other business income (1) 385.4 276.3 (0.0) 661.7 362.9 282.0 (18.7) 626.2 Net interest income 27.9 (0.1) - 27.8 23.6 (0.1) (0.7) 22.7 Dividends from equity investments and AFS 0.6 (0.0) 0.0 0.6 0.0 (0.0) 0.4 0.4 Net trading / hedging income 1.1 0.0 2.1 3.2 2.2 0.0 - 2.2 Net profit on sale or repurchase 0.2 - (0.2) - 260.3 - (260.3) - Net impairment losses (5.7) 2.3 3.5 - (2.4) 1.4 1.0 - Net financial income 409.5 278.5 5.3 693.3 646.5 283.3 (278.3) 651.5 Operating revenue
693.3
651.5 Nexi Payments 434.5
403.4 Card Issuing 165.3
154.1 Merchant Acquiring and POS 222.7
204.1 Other 46.5
45.2 Payments 66.0
66.1 Securities Services 52.9
49.5 BPO Services 18.6
20.8 Bassilichi 111.3 107.5 Other Group Activities 35.1
30.3 Consolidation adjustments (25.1)
(26.1)
Administrative expenses:
a) payroll and related costs (2) (225.6) 1.1 80.7 (143.8) (146.9) 1.5 6.9 (138.5) b) other administrative expenses (2) (372.5) 28.5 43.7 (300.4) (359.3) 33.7 20.8 (304.8) Production costs (101.3) (106.2) ICT costs (167.2) (165.8) General expenses (32.0) (32.9) Depreciation and impairment losses on property (23.4) - - (23.4) (24.9) - - (24.9) Amortisation and net impairment losses on intangible assets (28.5) - 7.9 (20.6) (21.8) - 7.9 (14.0) Other net operating expenses / income (2) 304.1 (303.2) (0.1) 0.7 294.9 (314.0) 22.9 3.8 Net accruals to provisions for risks and charges (2) (7.2) (4.8) 5.8 (6.2) (3.2) (4.6) (1.0) (8.8)
Operating costs (493.7) (261.3) (283.3) 57.4 (487.2)
Operating profit 199.6
164.3
(1) Represents the line items captioned Net fee and commission income in the Nexi Group consolidated financial statements and, respectively, Net fee, commission and other business income in the Nexi Group’s management accounts
(2) Non- recurring/ extraordinary items described in section 7.7.3 above are excluded from operating costs and reclassified under non- recurring items
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
33
8.1.3 Nexi Group: Management accounts
This pro forma financial information presents the results of the Nexi Group as if all of the entities within the Nexi Group
as at 30 September 2017 had been included within the Nexi Group from the beginning of the reporting period presented
(January - September). The pro forma financial information is presented to illustrate the estimated effects of the
acquisitions of MPS Acquiring, DB Cards Acquiring and Bassilichi Payments on the Nexi Group’s results of operations as if
all of such transactions had occurred on the first day of the periods presented. The unaudited pro forma financial
information is presented for information purposes only and is not intended to represent or be indicative of the financial
condition or results of operations that would have been reported had the transactions described above actually occurred
during the periods and as at the dates presented, and the unaudited pro forma financial information does not purport to
project our results of operations or financial condition for any future period.
Nine months to 30 September
2017 2016
(in € millions)
Net fee and commission income .................................................................................. 661.7 626.2 Net interest income ...................................................................................................... 27.8 22.7 Net trading / hedging income ...................................................................................... 3.1 2.2 Dividends from equity investments and AFS investments ........................................... 0.6 0.4 Operating revenue .................................................................................................. 693.3 651.5
Payroll and related costs .............................................................................................. (143.8) (138.5) Other administration costs ........................................................................................... (300.4) (304.8) Administrative expense ........................................................................................... (444.2) (443.3)
Other net operating income ......................................................................................... 0.7 3.8 Net accruals to provisions for risks and charges .......................................................... (6.2) (8.8) Operating costs (before depreciation and amortisation) ......................................... (449.7) (448.3)
EBITDA .................................................................................................................... 243.6 203.2
Depreciation and amortisation (included in operating profit) ...................................... (44.0) (38.9) Operating profit ...................................................................................................... 199.6 164.3
Depreciation and amortisation on customer contracts ............................................... (7.9) (7.9) Share of profits of investees ......................................................................................... 0.5 21.9 Non-recurring / extraordinary items ............................................................................ (135.4) 228.8 Pre-tax profit ............................................................................................. 56.8 407.1
Income taxes ................................................................................................................ (25.7) (71.2) Post-tax profit ......................................................................................................... 31.1 335.8
Loss/(profit) for the period attributable to non-controlling interests ......................... 0.6 (6.9) Profit for the period attributable to the owners of the parent ................................ 31.7 329.0
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
34
8.1.4 Nexi Group: Discussion of Results of Operations
The following tables are extracts from the Management Accounts for the nine months ended 30 September 2017 and
2016.
Nexi Group Operating Revenue
Nine months to 30 September
2017 2016
(in € millions)
Net fee and commission income .................................................................................. 661.7
9
626.2
Net interest income ...................................................................................................... 27.8 22.7
Net trading / hedging income ...................................................................................... 3.1 2.2
Dividends from equity investments and AFS investments ........................................... 0.6 0.4
Operating revenue .................................................................................................. 693.3 651.5
Operating revenue increased by €41.8 million, or 6.4%. Net fee and commission income increased by €35.5 million, or
5.7%, driven by improved performance across Nexi Payments, Securities Services and Bassilichi Payments reporting
segments as a result of increases in value of almost all KPI operating data. Payments reporting segment shows net fee
and commission consistent with 2016; BPO Services show lower net fee and commission, due to the discontinuation of
the ICT Security and internal controls business line.
Net interest income increased by €5.1 million, or 22.3%, driven by (i) growing average size and yield of the securities
portfolio of Other Nexi Group activities reporting segment and by (ii) growing collection and yield of the portfolio of the
Securities Services reporting segment.
Nexi Group Operating Costs (before charges for depreciation and amortisation)
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses ............................................................................................. (444.2) (443.3)
thereof: Payroll and related costs ............................................................................... (143.8) (138.5)
thereof: Other administrative expenses ...................................................................... (300.4) (304.8)
Other net operating income ........................................................................................ 0.7 3.8
Net accruals to provision for risks and charges ........................................................... (6.2) (8.8)
Operating costs (net of depreciation and amortisation included in operating
profit) (449.7) (448.3)
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
35
Operating costs (net of depreciation and amortisation included in operating profit) increased by €1.4 million, or 0.3%.
Payroll and related costs increased by €5.3 million, or 3.8% and other administrative expenses decreased by €4.4 million,
or 1.5%, due to efficiency initiatives. Other net operating income decreased by €3.1 million, or 81.3%, and net accruals
to provision for risks and changes decreased by €2.6 million, or 29.3%.
Nexi Group EBITDA
Nine months to 30 September
2017 2016
(in € millions)
Operating revenue ....................................................................................................... 693.3 651.5
Operating costs (before depreciation and amortisation charges included in
operating profit) ............................................................................................................ (449.7) (448.3)
EBITDA .................................................................................................................... 243.6 203.2
EBITDA increased by €40.5 million, or 19.9%, with all business reporting segments raising their contribution to EBITDA,
excluding the Other Nexi Group Activities reporting segment which generated a decreasing EBITDA.
Depreciation, Amortisation and Net Impairment Losses on Property, Equipment, Investment Property and Intangible
Assets
Nine months to 30 September
2017 2016
(in € millions)
Depreciation, amortisation and impairment losses on property, equipment,
investment property and intangible assets .................................................................. (51.9) (46.8)
Depreciation, amortisation and impairment losses on property, equipment, investment property and intangible assets
increased by €5.1 million, or 10.9%.
Amortisation of intangible assets increased by €4.2 million, or 17.3% (from €24.3 million for the period ended 30
September 2016 to €28.5 million for the period ended 30 September 2017), and consisted of (i) an expense of €7.9 million
relating to the amortisation of customer contracts acquired in connection with the acquisitions of Depositary Bank
activities and C-Card S.p.A. from 2010 to 2014 and (ii) an expense of €20.6 million relating to the amortisation of other
intangible assets, consisting primarily of software investments.
Depreciation of property, equipment and investment property increased by €0.9 million, or 4.0%, from €22.5 million in
the nine months ended 30 September 2016, to €23.4 million in the nine months ended 30 September 2017, and consisted
of (i) depreciation charges on real estate of €3.3 million, (ii) depreciation charges on POS and ATM equipment of €16.5
million and (iii) depreciation charges on other equipment of €3.6 million.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
36
Non-Recurring Items
Nine months to 30
September
2017 2016
(in € millions)
Non-recurring / extraordinary financial income ........................................................ (5.2) 278.9
Non-recurring / extraordinary operating costs .......................................................... (130.2) (50.1)
Non-recurring / extraordinary items ..................................................................... (135.4) 228.8
Non-recurring financial expense in the nine months ended 30 September 2017 primarily consisted of investments write-
off. Non-recurring / extraordinary operating costs in the nine months ended 30 September 2017 primarily consisted of
(i) restructuring costs of €85.7 million, (ii) taxes on M&A transactions of €17.0 million and (iii) a charge of €22.9 million
for one-off project costs for the transformation program initiated by the Sponsors.
Non-recurring/extraordinary items in the nine months ended 30 September 2016 mainly consisted of (i) VISA proceeds
of €244.5 million related to VISA Europe acquisition by VISA Inc., net of €16.2 million transferred to a partner bank, (ii) a
charge of €18.3 million for one-off project costs for the transformation program initiated by the Sponsors, (iii) a charge
of €6.9 million for restructuring costs, (iv) an income of €3.2 million for one-off revenue of Nexi Payments, (v) a charge of
€1.7 million in connection with the pass-through of recovered taxes in connection with a merger to the merged entity’s
previous shareholders and (vi) non-recurring compensation of €18.3 million received by Bassilichi Payments from a
customer pursuant to the revenue guarantee.
Income Taxes
Nine months to 30 September
2017 2016
(in € millions)
Income taxes ................................................................................................................. (25.7) (71.2)
Income taxes expense decreased by €45.5 million from €71.2 million for the period ended 30 September 2016 to €25.7
million for the period ended 30 September 2017, due to the decrease of pre-tax profit because of non-recurring /
extraordinary items.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
37
Loss/(profit) for the period attributable to non-controlling interests
Nine months to 30 September
2017 2016
(in € millions) Loss/(profit) for the period attributable to non-controlling interests ....................... 0.6 (6.9)
Profit for the period attributable to non-controlling interests decreased by €7.5 million, from €6.9 million for the period
ended 30 September 2016 to a positive value of €0.6 million for the period ended 30 September 2017, and relates to
Nexi Payments and Bassilichi Payments minority shareholders.
Profit for the period attributable to the owners of the parent
Nine months to 30 September
2017 2016
(in € millions) Profit for the period attributable to the owners of the parent ......................................... 31.7 329.0
Profit for the period attributable to the owners of the parent decreased by €297.3 million, from €329.0 million for the
period ended 30 September 2016 to €31.7 million for the period ended 30 September 2017. This decrease was due to
non-recurring / extraordinary costs, partly offset by higher EBITDA.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
38
Discussion of Results of Operations by Reporting Segment
Operating Revenue by Reporting Segment
Nexi Group
Nine months to 30 September
2017 2016
(in € millions)
Operating Revenue ............................................................................................................. 693.3 651.5
Nexi Payments ............................................................................................................. 434.5 403.4
Payments ..................................................................................................................... 66.0 66.1
Securities Services ........................................................................................................ 52.9 49.5
BPO Services ................................................................................................................. 18.6 20.8
Bassilichi Payments ...................................................................................................... 111.3 107.5
Other Group Activities .................................................................................................. 35.1 30.3
Consolidation adjustments (1) ....................................................................................... (25.1) (26.1)
(1) Eliminates the effect of intragroup activities on operating revenue
Nexi Payments
Nine months to 30 September
2017 2016
(in € millions)
Net fee, commission and other business income ............................................................
..........................................................................................................................................
..........................................................................................................................................
442.3 409.9
Net interest expense ........................................................................................................ (7.6) (6.0)
Net trading / hedging loss ................................................................................................ (0.4) (0.6)
Dividends from equity investments and AFS .................................................................... 0.2 0.0
Operating revenue ...................................................................................................... 434.5 403.4
thereof: Card Issuing ........................................................................................................ 165.3 154.1
. thereof: Merchant Acquiring and POS ............................................................................. 222.7 204.1
thereof: Others (1) ............................................................................................................. 46.5 45.2
(1) Includes operating revenue generated by Nexi Payments from debit servicing and ATM management and
operating revenue generated by Help Line
Operating revenue generated by the Nexi Payments reporting segment increased by €31.1 million, or 7.7%. This
increase resulted from increased operating revenue in all business segments. Operating revenue generated by the Card
Issuing business increased by €11.1 million, or 7.2%, primarily due to increases in the number and value of card
transactions. Operating revenue generated by the Merchant Acquiring and POS Business increased by €18.6 million, or
9.1%, due to increases in the number and value of card transactions and in the number of managed POS. Operating
revenue generated by the other Nexi Payments Business units (debit services, ATM management and Help Line)
increased by €1.4 million, or 3.0%. This increase was due to higher number of managed debit cards and debit
transactions.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
39
Payments
Nine months to 30 September
2017 2016
(in € millions) Net fee, commission and other business income ............................................................ 64.3 64.9 Net interest income ......................................................................................................... 1.7 1.2 Net trading / hedging income .......................................................................................... - - Dividends from equity investments and AFS ................................................................... - - Operating revenue ...................................................................................................... 66.0 66.1
Operating revenue generated by the Payments reporting segment was consistent with 2016. Net fee, commission and
other business income decreased by €0.6 million, or 1.0%, due to less revenue from cheques and receivables business
and Electronic banking business. Net interest income increased by €0.5 million, or 40.8%. The increase in net interest
income primarily resulted from an increase in the spread on the deposits by 8 basis points. The average gross deposit
volume decreased by €15.7 million, or 1.8%, from €863.7 million in the nine months ended 30 September 2016 to
€848.0 million in the nine months ended 30 September 2017.
Securities Services
Nine months to 30 September
2017 2016
(in € millions)
Net fee, commission and other business income ...................................................... 44.9 42.8
Net interest income ................................................................................................... 6.1 3.3
Net trading / hedging income .................................................................................... 1.9 3.4
Dividends from equity investments and AFS ............................................................. - -
Operating revenue ................................................................................................ 52.9 49.5
Operating revenue generated by the Securities Services reporting segment increased by €3.4 million, or 6.9%. Net fee,
commission and other income business increased by €2.1 million, or 4.9%, due to increases in all KPIs’ values. Net
interest income increased by €2.8 million, or 85.3%. The increase in net interest income primarily resulted from an
increase in the spread on deposits by 6 basis point and by growth of the average gross deposit volume which increased
by €654.7.0 million, or 14.5%, from €4,517.6 million in the nine months ended 30 September 2016, to €5,172.3 million
in the nine months ended 30 September 2017.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
40
BPO Services
Nine months to 30 September
2017 2016
(in € millions)
Net fee, commission and other business income .......................................................... 18.6 20.8
Net interest income ....................................................................................................... (0.0) (0.0)
Net trading / hedging income ....................................................................................... - -
Dividends from equity investments and AFS ................................................................. - -
Operating revenue ................................................................................................... 18.6 20.8
Due to the absence of funding activity, operating revenue contributed by the BPO Services reporting segment is almost
entirely composed of net fee, commission and other business income.
Net fee, commission and other business income generated by the BPO Services reporting segment decreased by €2.2
million, or 10.5%. This decrease was primarily due to the discontinuation of the ICT Security and Internal control business
line, which generated €3.3 million of operating revenue in the nine months ended 30 September 2016. Operating revenue
from anti-money laundering services decreased by €0.6 million, or 7.4%, from €7.7 million in the nine months ended 30
September 2016 to €7.2 million in the nine months ended 30 September 2017. Operating revenue from regulatory
reporting services increased by €1.7 million, or 17.8%, from €9.7 million in the nine months ended 30 September 2016 to
€11.5 million in the nine months ended 30 September 2017, as a result of increased provision of services.
Bassilichi Payments
Nine months to 30 September
2017 2016
(in € millions)
Net fee, commission and other business income .......................................................... 116.0 113.0
Net interest income ....................................................................................................... (4.7) (5.6)
Net trading / hedging income ........................................................................................ - -
Dividends from equity investments and AFS ................................................................. - -
Operating revenue ................................................................................................... 111.3 107.5
Operating revenue increased by €3.9 million, or 3.6%, from €107.5 million in the nine months ended 30 September 2016
to €111.3 million in the nine months ended 30 September 2017, driven by increase in the number of managed terminals.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
41
Other Nexi Group Activities
Nine months to 30 September
2017 2016
(in € millions)
Net fee, commission and other business income ............................................................ 0.9 0.9
Net interest income ......................................................................................................... 32.1 29.6
Net trading / hedging income .......................................................................................... 1.7 (0.6)
Dividends from equity investments and AFS ................................................................... 0.4 0.4
Operating revenue ...................................................................................................... 35.1 30.3
Operating revenue contributed by the Other Nexi Group Activities reporting segment is primarily related to net interest
income generated by the treasury function in connection with its investment portfolio consisting primarily of investments
in Italian government bonds.
Operating revenue contributed by the Other Nexi Group Activities reporting segment increased by €4.8 million, or
15.7%. This increase was primarily due to an increase in the size, partly offset by a declining average yield of the
securities portfolio. The average yield on the securities portfolio decreased from 101 basis points in the nine months
ended 30 September 2016, to 93 basis points in the nine months ended 30 September 2017. The average value of the
securities portfolio increased by €0.4 billion, or 13.9%, from €2.7 billion in the nine months ended 30 September 2016,
to €3.1 billion in the nine months ended 30 September 2017.
Operating Costs by Reporting Segment
Nine months to 30 September
2017 2016
(in € millions)
Operating costs (net of depreciation and amortisation included in operating profit) (449.7) (448.3)
Nexi Payments ........................................................................................................... (238.2) (242.6)
Payments ................................................................................................................... (46.2) (48.4)
Securities Services ...................................................................................................... (38.5) (39.5)
BPO Services .............................................................................................................. (12.2) (14.5)
Bassilichi Payments .................................................................................................... (110.6) (110.1)
Other Group Activities ............................................................................................... (26.9) (19.5)
Consolidation adjustments (1) ..................................................................................... 23.1 26.2
(1) Eliminates the effect of intragroup activities on operating costs
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
42
Nexi Payments
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses: ................................................................................................. (232.2) (235.3)
a) payroll and related costs .......................................................................................... (44.3) (42.9)
b) other administrative expenses .................................................................................. (187.9) (192.4) Other net operating income ............................................................................................. (0.1) 1.0
Net accruals to provision for risks and charges ................................................................ (6.0) (8.3)
thereof: Fraud ................................................................................................................... (4.5) (5.9)
thereof: Credit losses ........................................................................................................ (1.2) (1.7)
thereof: Others ................................................................................................................. (0.4) (0.7)
Operating costs (net of depreciation and amortisation included in operating profit) (238.2) (242.6)
Operating costs (net of depreciation and amortisation included in operating profit) in the Nexi Payments reporting
segment increased by €4.4 million, or 1.8%. Administrative expenses increased by €3.1 million, or 1.3%. Specifically,
payroll and related costs increased by €1.5 million, or 3.4%, due to an increase of the number of employees and to the
reinforcement of the management team. Other administrative expenses decreased by €4.6 million, or 2.4%, due to
efficiency initiative. Other net operating income decreased by €1.1 million and net accruals to provision for risks and
charges decreased by €2.3 million, or 28.1% due to lower provisions in respect of fraud and credit losses.
Payments
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses: ................................................................................................... (39.6) (43.9)
a) payroll and related costs ............................................................................................ (10.4) (12.4)
b) other administrative expenses .................................................................................... (29.2) (31.5)
Other net operating expenses ............................................................................................. (6.4) (4.1)
Net accruals to provision for risks and charges ................................................................... (0.3) (0.4)
Operating costs (net of depreciation and amortisation included in operating profit) .... (46.2) (48.4)
Operating costs (net of depreciation and amortisation included in operating profit) in the Payments reporting segment
decreased by €2.1 million, or 4.4%. This decrease was due to lower administrative expenses, decreasing by €4.3 million,
or 9.9%, partly offset by increase of Other net operating expenses due to higher internal invoicing. Payroll and related
costs decreased by €2.1 million, or 16.5% and other administrative expenses decreased by €2.3 million, or 7.2% due to
efficiency initiatives.
Securities Services
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
43
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses: .............................................................................................. (30.9) (32.3)
a) payroll and related costs ....................................................................................... (13.1) (14.2)
b) other administrative expenses ............................................................................... (17.8) (18.1)
Other net operating expenses ........................................................................................ (7.3) (7.2)
Net accruals to provision for risks and charges .............................................................. (0.3) -
Operating costs (net of depreciation and amortisation included in operating profit) (38.5) (39.5)
Operating costs (net of depreciation and amortisation included in operating profit) in the Securities Services reporting
segment decreased by €1.0 million, or 2.5%. This decrease was due to lower administrative expenses, decreasing by €1.3
million, or 4.1%, partly offset by net accruals to provision for risks and charges of €0.3 million, due to a customer claim.
Payroll and related costs decreased by €1.1 million, or 7.5% and other administrative expenses decreased by €0.3 million,
or 1.4% due to efficiency initiatives.
BPO Services
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses: ...................................................................................................... (12.4) (14.6)
a) payroll and related costs ........................................................................................... (5.7) (6.1)
b) other administrative expenses .................................................................................. (6.7) (8.5)
Other net operating income ................................................................................................. 0.2 0.1
Operating costs (net of depreciation and amortisation included in operating profit) ...... (12.2) (14.5)
Operating costs (net of depreciation and amortisation included in operating profit) in the BPO Services reporting segment
decreased by €2.3 million, or 15.6%. Administrative expenses decreased by €2.2 million. Payroll and related costs
decreased by €0.4 million, or 6.8%. Other administrative expenses decreased by €1.8 million, or 20.8% due to efficiency
initiatives and the discontinuation of the ICT Security and Internal control business.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
44
Bassilichi Payments
Nine months to 30
September
2017 2016
(in € millions)
Administrative expenses: ...................................................................................................... (110.6) (110.6)
a) payroll and related costs ........................................................................................... (33.7) (35.0)
b) other administrative expenses ................................................................................... (76.9) (75.6)
Other net operating income ................................................................................................. - 0.6
Net accruals to provision for risks and charges .................................................................... - (0.1)
Operating costs (net of depreciation and amortisation included in operating profit) ...... (110.6) (110.1)
Operating costs (net of depreciation and amortisation included in operating profit) increased by €0.5 million, or 0.5%,
from €110.1 million for the nine months ended 30 September 2016 to €110.6 million for the nine months ended 30
September 2017. Administrative expenses were consistent at €110.6 million, for the nine months ended 30 September
2016 and 2017.
Other Nexi Group Activities
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses: ............................................................................................. (57.4) (48.3)
a) payroll and related costs ...................................................................................... (36.6) (28.0)
b) other administrative expenses ............................................................................. (20.8) (20.3)
Other net operating income ........................................................................................ 30.5 28.8
Net accruals to provision for risks and charges ........................................................... - -
Operating costs (net of depreciation and amortisation included in operating
profit) ........................................................................................................................... (26.9) (19.5)
Operating costs (net of depreciation and amortisation included in operating profit) in the Other Nexi Group Activities
reporting segment increased by €7.4 million, or 38.1%. Administrative expenses increased by €9.1 million, or 18.9%.
Payroll and related costs increased by €8.6 million, or 30.6% due to management team improvement. Other
administrative expenses increased by €0.5 million, or 2.7% due to increasing ICT expenses. Other net operating income
increased by €1.7 million, or 5.9%, due to higher internal invoicing. No substantial accruals to provision for risks and
charges were recognised.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
45
EBITDA by Reporting Segment
Nine months to 30 September
2017 2016
(in € millions)
EBITDA ........................................................................................................................... 243.6 203.2
Nexi Payments .............................................................................................................. 196.2 160.8
Payments ...................................................................................................................... 19.7 17.8
Securities Services ......................................................................................................... 14.4 10.0
BPO Services ................................................................................................................. 6.4 6.3
Bassilichi Payments ...................................................................................................... 0.7 (2.6)
Other Group Activities .................................................................................................. 8.2 10.9
Consolidation adjustments (1) ........................................................................................ (2.0) 0.1
(1) Eliminates the effect of intragroup activities on EBITDA
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
46
Liquidity and Capital Resources
Liquidity, Funding and Intragroup Funding
Nexi uses funding from surplus liquidity generated by its Securities Services reporting segment and Payments reporting
segment partly to fund Nexi Payments’ receivables from cardholders in its Card Issuing Business and merchants in its
Merchant Acquiring Business. Remaining liquidity is then invested mainly in government bonds or in the interbank
market. Due to the volatility of some balance sheet items, which are linked to the volume of transactions executed by
Nexi with its customers across its operations, daily average volumes provide a better illustration of Nexi ’s liquidity,
funding and intragroup funding than period-end figures.
The following table provides an overview of average daily balances in the sources and uses of our funding for Nexi for the
nine months ended 30 September 2017 and 2016, according to the management accounts.
Sources Nine months to 30 September
2017 2016
(in € millions)
Interbank deposits ......................................................................................................... 889.6 427.2
Current bank accounts ................................................................................................... 949.1 908.8
Securities services deposits ........................................................................................... 5,172.3 4,517.6
Payments deposits ......................................................................................................... 848.0 863.7
Other liabilities ............................................................................................................... 404.3 211.9
Equity ............................................................................................................................. 1,647.9 759.7
Total sources ............................................................................................................ 9,911.1 7,688.8
Uses
Nine months to 30
September
2017 2016
(in € millions)
Interbank deposits ........................................................................................................... 1,120.2 2,065.1
Current bank accounts ..................................................................................................... 2,225.4 627.3
AFS portfolio .................................................................................................................... 3,072.8 2,698.9
Nexi Payments loan ......................................................................................................... 1,364.0 1,165.8
Equity investments .......................................................................................................... 1,494.2 537.5
Other assets ..................................................................................................................... 634.7 594.2
Total uses .................................................................................................................. 9,911.1 7,688.8
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
47
The following table provides an overview of average daily balances in the sources and uses of our funding for Nexi
Payments S.p.A. for the nine months ended 30 September 2017 and 2016, according to the management accounts.
Sources Nine months to 30 September
2017 2016
(in € millions)
Loan from Nexi ................................................................................................................... 1,364.0 1,165.8
Payables to other banks ..................................................................................................... 379.3 431.7
Equity and other liabilities .................................................................................................. 795.4 732.0
Total Sources ................................................................................................................. 2,538.7 2,329.5
Uses Nine months to 30 September
2017 2016
(in € millions)
Issuing receivables .............................................................................................................. 1,702.6 1,632.1
Acquiring receivables .......................................................................................................... 369.5 161.5
Fixed and other assets ........................................................................................................ 466.6 535.9
Total Uses ...................................................................................................................... 2,538.7 2,329.5
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Nexi Group
48
Capital Expenditures
To support the business strategy and development plans, capital expenditures are incurred regularly. Expansion capital
expenditures mainly relate to the purchase of assets, joint ventures and acquisitions of other businesses. Maintenance
capital expenditures mainly relate to purchases and upgrades of the ICT infrastructure, software, POS terminals and
ATMs. Maintenance capital expenditures are expected to increase in the next nine months due to the gradual
implementation of a revised policy on the capitalisation of ICT expenditures.
Nine months to 30 September
2017 2016
(in € millions)
Expansion capital expenditures ...................................................................................... 738.0 -
Maintenance capital expenditures ................................................................................. 47.3 44.8
Capital expenditures ................................................................................................. 785.3 44.8
For the nine months ended 30 September 2017, Nexi Group has incurred expansion capital expenditures of €738.0
million, due to the acquisitions of DB Cards Acquiring business, MPS Acquiring and Bassilichi Payments. The
maintenance capital expenditures of €47.3 million primarily related to ICT expenses for €32.6 million, purchases and
maintenance of POS and ATM property for €12.3 million and other equipment for €2.4 million.
For the nine months ended 30 September 2016, no expansion capital expenditure was incurred. Our maintenance capital
expenditures of €44.8 million primarily related to purchases and maintenance of POS and ATM property for €14.8 million,
ICT expenses for €25.0 million and other intangibles for €3.8million, primarily related to the transformation program
advisory cost.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
49
8.2 Mercury Payments
8.2.1 Mercury Payments: Financial statements
Nine months to 30 September
2017 2016
(in € millions)
Interest and similar income ........................................................................................... 0.1 -
Interest and similar charges .......................................................................................... (1.7) -
Net interest charges ................................................................................................. (1.6) -
Fee and commission income ......................................................................................... 114.7 104.7
Fee and commission expense ........................................................................................ (1.3) (1.4)
Net fee and commission income .............................................................................. 113.4 103.3
Dividends and similar income ....................................................................................... - -
Net trading income ....................................................................................................... - (0.1)
Net profit on sale or repurchase ................................................................................... - 82.5
Total income ............................................................................................................ 111.8 185.8
Net impairment losses .................................................................................................. - -
Net financial income ................................................................................................ 111.8 185.8
Administrative expenses: .............................................................................................. (51.2) (39.5)
a) Payroll and related costs: ................................................................................ (14.1) (11.7)
b) Other administrative expenses: ...................................................................... (37.2) (27.8)
Net accruals to provisions for risks and charges ........................................................... (0.2) (0.1)
Depreciation and net impairment losses on property, equipment and investment
property......................................................................................................................... (3.8) (0.8)
Amortisation and net impairment losses on intangible assets ..................................... (1.8) (1.6)
Other net operating income .......................................................................................... 0.4 0.7
Operating costs ........................................................................................................ (56.6) (41.4)
Share of profits of investees .......................................................................................... - -
Pre-tax profits from continuing operations .............................................................. 55.3 144.4
Income taxes ................................................................................................................. (17.8) (26.4)
Post-tax profit from continuing operations .............................................................. 37.4 118.0
Profit for the period ...................................................................................................... 37.4 118.0
Profit for the period attributable to non-controlling interests ..................................... - -
Profit for the period attributable to the owners of the parent ................................. 37.4 118.0
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
50
8.2.2 Mercury Payments: Reconciliation of consolidated financial statements to management accounts
We have presented in this Interim Financial Report certain data extracted from the Mercury Processing’s financial
statements and the reporting segment management accounts.
The management accounts are prepared on a similar basis to the pro forma financial information for the Mercury Group
presented at section 7.4 and differ in important ways from the Mercury Payments financial statements presented in
accordance with IFRS.
The line items presented in the Mercury Payments management accounts are not recognised by IFRS and may not be
permitted to appear on the face of the financial statements in the manner presented herein. Different companies and
analysts may calculate the line items presented in the management accounts differently, so making comparisons among
companies on this basis should be done very carefully. The line items presented in the management accounts are not
measures of performance under IFRS and should not be considered in isolation or construed as substitutes for the results
of operations as reported in accordance with IFRS. For a discussion of the differences in classification, see the section
entitled “Explanation of Key Line Items—Management Accounts” of the Annual Report and Listing Particulars.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
51
8.2.3 Mercury Payments: Reconciliation of Financial Statements to Management Accounts
Nine months to 30 September
(€ millions) 2017 2016
Financial
Statements Reclassified
Line Items Excluded
Line
Items
Management
Accounts
Financial
Statements Reclassified
Line Items Excluded
Line
Items
Management
Accounts
Net fee, commission and other business income (1) 113.4 - - 113.4 103.3 - - 103.3 Net interest charges (1.6) -
-
- (1.6) 0.0 - - 0.0 Dividends from equity investments and AFS - -
- - - - - - Net trading/hedging expense - - 0.0 - (0.1) - - (0.1) Net profit on sale or repurchase - - - - 82.5 - (82.5) - Net impairment losses - - - - - - - - Net financial income 111.8
111.8 185.8 - (82.5) 103.3
Operating revenue - - - 111.8 - - - 103.3
Administrative expenses:
a) payroll and related costs (2) (14.1) 0.1 1.8 (12.2) (11.7) 0.2 - (11.6) b) other administrative expenses (2) (37.1) (0.2) 10.4 (26.9) (27.8) (0.2) - (28.0)
Depreciation and impairment losses on property (3.8) - - (3.8) (0.8) - - (0.8) Amortisation and net impairment losses on intangible assets (1.8) - - (1.8) (1.6) - - (1.6) Other net operating expenses/income 0.4 0.1 - 0.5 0.7 - - 0.7 Net accruals to provisions for risks and charges (0.2) 0.0 - (0.2) (0.1) - - (0.1)
Operating costs (56.6) 0.0 12.2 (44.4) (41.4)
(41.4)
Operating profit 67.4 (82.5) 61.9
(1) Represents the line items captioned net fee and commission income in the Mercury Payments financial statements and, respectively, Net fee, commission and other business income in the Mercury Payments management accounts
(2) Non-recurring /extraordinary items related to the transformation program initiated by Sponsors are excluded from operating costs and reclassified under non- recurring items. The transformation program consists of measures aimed at revenue
increases, cost savings, organisational improvements and M&A initiatives
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
52
8.2.4 Mercury Payments: Management accounts
Nine months to 30 September
2017 2016
(in € millions)
Net fee and commission income .................................................................................. 113.4 103.3
Net interest expense .................................................................................................... (1.6) 0.0
Net trading / hedging income ...................................................................................... - (0.1)
Dividends from equity investments and AFS investments ........................................... - -
Operating revenue .................................................................................................. 111.8 103.3
Payroll and related costs .............................................................................................. (12.2) (11.6)
Other administrative expenses .................................................................................... (26.9 (28.0)
Administrative expenses ......................................................................................... (39.1) (39.5)
Other net operating income ......................................................................................... 0.5 0.7
Net accruals to provisions for risks and charges .......................................................... (0.2) (0.1)
Operating costs (before depreciation and amortisation) ......................................... (38.8) (39.0)
EBITDA .................................................................................................................... 73.0 64.3
Depreciation and amortisation .................................................................................... (5.6) (2.4)
Operating profit ...................................................................................................... 67.5 61.9
Depreciation and amortisation on customer contracts ............................................... - -
Share of profits / (losses) of investees ......................................................................... - -
Non-recurring / extraordinary items ............................................................................ (12.2) 82.5
Pre-tax profit ........................................................................................................... 55.3 144.4
Income taxes ................................................................................................................ (17.8) (26.4)
Post-tax profit ......................................................................................................... 37.4 118.0
Profit for the period attributable to non-controlling interests .................................... - -
Profit for the period attributable to the owners of the parent ................................ 37.4 118.0
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
53
8.2.5 Discussion of Mercury Payments Results of Operations
The following tables are extracts from the Management Accounts for the nine months ended 30 September 2017 and
2016.
Mercury Payments Operating Revenue
Nine months to 30 September
2017 2016
(in € millions)
Net fee, commission and other business income ........................................................... 113.4 103.3
Net interest expense ...................................................................................................... (1.6) 0.0
Net trading / hedging income ........................................................................................ 0.0 (0.1)
Dividends from equity investments and AFS .................................................................. 0.0 0.0
Operating revenue .................................................................................................... 111.8 103.3
Net fee and commission income grew by €10.1 million, or 9.8%, in the nine months ended 30 September 2017, mostly
attributable to pricing effects.
Operating revenue, at €111.8 million in the same period, recorded a slightly lower growth rate (8.2%), due to the negative
contribution of net interest income.
Mercury Payments Costs
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses ................................................................................................ (39.1) (39.5)
thereof: Payroll and related costs .................................................................................. (12.2) (11.6)
thereof: Other administrative expenses ......................................................................... (26.9) (28.0)
Other net operating income ........................................................................................... 0.5 0.7
Net accruals to provision for risks and charges .............................................................. (0.2) (0.1)
Operating costs (net of depreciation and amortisation included in operating profit)
on 1 October 2016 ............................................................................................
(38.8) (39.0)
Administrative expenses decreased by €0.5 million, or 1.3%.
Payroll and related costs increased by €0.6 million, or 5.3% due to the hiring of new executives, promotions and
incentives. Over the same period, other administrative expenses decreased by just over €1 million, or 4.0% due to
capitalisation effects and general costs optimisation.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
54
Mercury Payments EBITDA
Nine months to 30 September
2017 2016
(in € millions)
Operating revenue ........................................................................................................... 111.8 103.3
Operating costs (net of depreciation and amortisation included in operating profit) ..... (38.8) (39.0)
EBITDA ........................................................................................................................ 73.0 64.3
EBITDA increased by €8.7 million, or 13.6%.
Depreciation, amortisation and net impairment losses on property, equipment, investment property and intangible
assets
Nine months to 30 September
2017 2016
(in € millions)
Depreciation, amortisation and impairment losses on property, equipment, investment
property and intangible assets (5.6) (2.4)
Depreciation, amortisation and impairment losses on property, equipment, investment property and intangible assets
increased by €3.2 million. Amortisation of intangible assets increased by €0.2 million, from €1.6 million in the nine months
ended 30 September 2016 to €1.8 million in the nine months ended 30 September 2017, and resulted mainly from the
amortisation charges on new intangible assets purchased during the period. Amortisation of property, equipment and
investment property increased by €3.0 million, from €0.8 million in the nine months ended 30 September 2016 to €3.8
million in the nine months ended 30 September 2017 and was mainly a result of the amortisation charges on new POS
purchased in 2017.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
55
Non-Recurring/extraordinary Items
Nine months to 30 September
2017 2016
(in € millions)
Non-recurring /extraordinary items ................................................................................. (12.2) 82.5
Non-recurring expenses in the nine months ended 30 September 2017 amounted to €12.2 million and consisted of (i) a
charge of €8.0 million for one-off project costs for the transformation program initiated by the Sponsors, (ii) a charge of
€2.4 million for VAT costs of capitalized POS terminals due to mandatory requirements of the circuits, and (iii) a charge
of €1.8 million for company restructuring.
In the first nine months ended 30 September 2016 the profit was mainly influenced by non-recurring income arising
from the gain on the transfer of the Visa EU share (€83.6 million). For additional details, reference should be made to
the Annual Report 2016.
Income Taxes
Nine months to 30 September
2017 2016
(in € millions)
Income taxes
........................................................................................................................................
(17.8) (26.4)
Income taxes decreased by €8.6 million, or 32.5%, due to decrease of pre-tax profit.
Profit for the period attributable to the owners of the parent
Nine months to 30 September
2017 2016
(in € millions)
Profit for the period attributable to the owners of the parent ........................................ 37.4 118.0
Profit for the period attributable to the owners of the parent decreased by €80.6 million, or 68.3%, from €118.0 million
in the first nine months ended 30 September 2016 to €37.4 million in the first nine months ended 30 September 2017.
As mentioned, profit for the first nine months ended to 30 September 2016 was mainly influenced by non-recurring
income arising from the gain on the transfer of the Visa EU share (€83.6 million). For additional details, reference should
be made to the Annual Report 2016.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
56
Liquidity and Capital Resources
Overview
The table below shows cash flow statement information for the nine months ended 30 September 2017 and 2016.
Nine months to 30 September
2017 2016
(in € millions)
Net cash generated by operating activities ........................................................... (45.9) 117.2
Net cash used in investing activities ...................................................................... (17.5) (7.0)
Net cash used in financing activities ..................................................................... (130) (36.1)
Net (decrease)/increase in cash and cash equivalents, net of bank ..................... (193.4) 74.1
Cash and cash equivalents net of bank deposits/overdraft at beginning of period
.....................................................................................................................
93.9 (69.5)
Cash and cash equivalents net of bank overdraft/deposits at end of period .... (99.5) 4.5
In the first nine months of 2016 change in operating activities and financing activities was influenced by the dividend in
respect of the 2015 fiscal year (€133.5 million), due to the transfer of this amount from Equity (decrease) to Other
liabilities (increase). The dividend was paid in November 2016.
In 2017 the Cash Flow has been influenced by the transfer of the business unit to Intesa Sanpaolo (effective 1 October
2016) and by the acquiring contract with Banca ITB that was terminated by mutual agreement (from 1 December 2016).
The balance of bank deposits has also been affected by:
• payment of dividend to Latino of €129.99 million (occurred on 24 April 2017)
• reimbursement of the financing of €95 million to Intesa Sanpaolo (occurred on 28 April 2017) and opening of a new financing with Latino of €45 million (occurred on 27 April 2017)
• receipt of €17 million from Latino related to the Visa shares sale (occurred on 27 April 2017).
The balance of bank deposits does not include a payment in the amount of €100 million, received from Visa and
Mastercard, with a settlement date falling after the period end (2 October 2017).
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Payments
57
Capital Expenditures
Mercury Payments has always focused on maintaining a high quality of services for its customers, a major one of which
is Intesa Sanpaolo Group. To support the business strategy and development plans, capital expenditures are incurred.
Nine months to 30 September
2017 2016
(in € millions)
Expansion capital expenditures ............................................................................. - -
Maintenance capital expenditures ........................................................................ 15.5
6.6
Capital expenditures ........................................................................................ 15.5 6.6
In the first nine months of 2017 the maintenance capital expenditures mainly related to the ICT infrastructure and the
acquisitions of POS terminals. The investments in POS is due to the reconsideration of POS procurement strategy. Like
all members of the Visa and Mastercard international circuits, Mercury Payments is subject to the mandates of the
international schemes established over time; some of these mandates set forth security requirements and specific
functionalities for all the POS devices to be met within binding deadlines. Mercury Payments therefore drew up a plan
to upgrade the POS devices to comply with the mandates of the International schemes.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
58
8.3 Mercury Processing
8.3.1 Mercury Processing: Financial statements
Nine months to 30 September
2017 2016
(in € millions)
Interest and similar income .............................................................................................. 0.2 -
Interest and similar charges .............................................................................................. - -
Net interest income .................................................................................................... 0.2
34.9
-
Fee and commission income ............................................................................................. - -
Fee and commission expense ........................................................................................... - -
Net fee and commission income ................................................................................. - -
Dividends and similar income ........................................................................................... - -
Net trading income ........................................................................................................... (0.2) (0.1)
Net profit on sale or repurchase ....................................................................................... - -
Total loss ..................................................................................................................... (0.1) (0.1)
Net impairment losses ...................................................................................................... - -
Net financial loss ......................................................................................................... (0.1) (0.1)
Administrative expenses: ................................................................................................... (20.1) (21.7)
a) Payroll and related costs ..................................................................................... (10.2) (9.8)
b) Other administrative expenses ........................................................................... (9.9) (11.9)
Net accruals to provisions for risks and charges ............................................................... - -
Depreciation and net impairment losses on property, equipment and investment
property ............................................................................................................................ (0.9) (1.4)
Amortisation and net impairment losses on intangible assets ......................................... (0.9) (1.3)
Other net operating income / expense ............................................................................. 27.1 28.4
Operating costs ........................................................................................................... 5.2 4.0
Share of profits / (losses) of investees .............................................................................. - -
Pre-tax profits from continuing operations ................................................................. 5.2 3.9
Income taxes ..................................................................................................................... (0.8) (0.6)
Post-tax profit from continuing operations ................................................................. 4.3 3.3
Profit for the period .......................................................................................................... 4.3 3.3
Profit for the period attributable to non-controlling interests ......................................... - -
Profit for the period attributable to the owners of the parent .................................... 4.3 3.3
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
59
8.3.2 Mercury Processing: Reconciliation of Consolidated Financial Statements to Management Accounts
We have presented in this Interim Financial Report certain data extracted from the Mercury Processing’s financial
statements and reporting segment management accounts.
The management accounts are prepared on a similar basis to the pro forma financial information for the Mercury Group
presented at section 7.4 and differ in important ways from the Mercury Payments financial statements presented in
accordance with IFRS.
The line items presented in the Mercury Payments management accounts are not recognised by IFRS and may not be
permitted to appear on the face of the financial statements in the manner presented herein. Different companies and
analysts may calculate the line items presented in the management accounts differently, so making comparisons among
companies on this basis should be done very carefully. The line items presented in the management accounts are not
measures of performance under IFRS and should not be considered in isolation or construed as substitutes for the results
of operations as reported in accordance with IFRS. For a discussion of the differences in classification, see the section
entitled “Explanation of Key Line Items—Management Accounts” of the Annual Report and Listing Particulars.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
60
8.3.3 Mercury Processing: Reconciliation of Financial Statements to Management Accounts
Nine months to 30 September
(€ millions) 2017 2016
Financial
Statements Reclassified
Line Items Excluded
Line
Items
Management
Accounts
Financial
Statements Reclassified
Line Items Excluded
Line
Items
Management
Accounts
Net fee, commission and other business income (1) - 27.6 - 27.6 - 28.1 - 28.1 Net interest income 0.2 - - 0.2 - - - - Dividends from equity investments and AFS - - - - - - - - Net trading / hedging income/ (expense) (0.2) - - (0.2) (0.1) - - (0.1) Net profit on sale or repurchase - - - - - - - - Net impairment losses - - - - - - - - Net financial income/(expense) (0.1) 27.6 - 27.6 (0.1) 28.1 - 28.0
Operating revenue
27.6
28.0
Administrative expenses:
a) payroll and related costs (10.2) - - (10.2) (9.8) - - (9.8) b) other administrative expenses (9.9) - - (9.9) (11.9) - - (11.9)
Depreciation and impairment losses on property (0.9) - - (0.9) (1.4) - - (1.4) Amortisation and net impairment losses on intangible assets (0.9) - - (0.9) (1.3) - - (1.3) Other net operating expenses 27.1 (27.6) - (0.5) 28.4 (28.1) - 0.3 Net accruals to provisions for risks and charges - - - - - - - -
Operating costs 5.2 (27.6) - (22.4) 4.0 (28.1) - (24.1)
Operating profit 5.2 3.9
(1) Represents the line items captioned Net fee and commission income in the financial statements and, respectively, Net fee, commission and other business income in the management accounts
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
61
8.3.4 Mercury Processing: Management accounts
Nine months to 30 September
2017 2016
(in € millions)
Net fee and commission income .................................................................................. 27.6 28.1
Net interest income ....................................................................................................... 0.2 -
Net trading / hedging expense ..................................................................................... (0.2) (0.1)
Dividends from equity investments and AFS investments ........................................... - -
Operating revenue .................................................................................................. 27.6 28.0
Payroll and related costs .............................................................................................. (10.2) (9.8)
Other administrative expenses .................................................................................... (9.9) (11.9)
Administrative expenses ......................................................................................... (20.1) (21.7)
Other net operating (expense)/ income ....................................................................... (0.5) 0.3
Net accruals to provisions for risks and charges .......................................................... - -
Operating costs (before depreciation and amortisation) ......................................... (20.6) (21.4)
EBITDA .................................................................................................................... 7.0 6.6
Depreciation and amortisation .................................................................................... (1.8) (2.7)
Operating profit ...................................................................................................... 5.2 3.9
Depreciation and amortisation on customer contracts ............................................... - -
Share of profits of investees ......................................................................................... - -
Non-recurring / extraordinary items ............................................................................ - -
Pre-tax profit ........................................................................................................... 5.2 3.9
Income taxes ................................................................................................................ (0.8) (0.6)
Post-tax profit ......................................................................................................... 4.3 3.3
Profit for the period attributable to non-controlling interests .................................... - -
Profit for the period attributable to the owners of the parent ................................ 4.3 3.3
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
62
8.3.5 Discussion of Mercury Processing Services International Results of Operations
The following tables are extracts from the Management Accounts for the nine months ended 30 September 2017 and
2016.
Mercury Processing Operating Revenue
Nine months to 30 September
2017 2016
(in € millions)
Net fee, commission and other business income ............................................................ 27.6 28.1
Net interest income ......................................................................................................... 0.2 -
Net trading/hedging expense ........................................................................................... (0.2) (0.1)
Operating revenue ..................................................................................................... 27.6 28.0
Operating revenue decreased by €0.5 million, or 1.8%. The decrease is primarily a consequence of cancellation of business
advisory services previously provided through a local offices network (closing of all offices initiated in the second half of
2016). Stated negative impact is partially offset by increased revenues from core processing services.
Mercury Processing Operating Costs
Nine months to 30 September
2017 2016
(in € millions)
Administrative expenses ................................................................................................ (20.1) (21.7)
thereof: Payroll and related costs ................................................................................... (10.2) (9.8)
thereof: Other administrative expenses ......................................................................... (9.9) (11.9)
Other net operating expenses / income ......................................................................... (0.5) 0.3
Net accruals to provision for risks and charges .............................................................. - -
Operating costs (net of depreciation and amortisation included in operating profit) (20.6) (21.4)
Administrative expenses decreased by €1.6 million, or 7.4%. Payroll and related costs increased by €0.4 million, or 4.1%
primarily due to the reclassification of Personnel expenses starting from December 2016 (the date on which all employee
related costs have been included under this item).
Other administrative expenses decreased by €2.0 million or 16.8% mostly due to the elimination of costs related to local
offices, the optimisation and postponement of certain IT maintenance costs as well as the reclassification of a portion of
other administrative costs under Payroll and related costs.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
63
Mercury Processing EBITDA
Nine months to 30 September
2017 2016
(in € millions)
Operating revenue ........................................................................................................... 27.6 28.0
Operating costs (net of depreciation and amortisation included in operating profit) ..... (20.6) (21.4)
EBITDA ....................................................................................................................... 7.0 6.6
EBITDA increased by €0.4 million, or 6.1%. This increase was primarily the result of lower operating costs.
Depreciation, amortisation and net impairment losses on property, equipment, investment property and intangible
assets
Nine months to 30 September
2017 2016
(in € millions)
Depreciation, amortisation and impairment losses on property, equipment, investment,
property and intangible assets .............................................................................. (1.8) (2.7)
Depreciation, amortisation and impairment losses on property, equipment, investment property and intangible assets
decreased by €0.9 million, or 26% as a result of decreased depreciation of both tangible and intangible assets, but
primarily software equipment.
Income Taxes
Nine months to 30 September
2017 2016
(in € millions)
Income taxes .................................................................................................................... (0.8) (0.6)
Income taxes expense increased by €0.2 million, or 33.3%.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
64
Profit for the period attributable to the owners of the parent
Nine months to 30 September
2017 2016
(in € millions)
Profit for the period attributable to the owners of the parent .................................... 4.3 3.3
Profit for the period attributable to the owners of the parent increased by €1 million, or 30.3%.
Liquidity and Capital Resources
Overview
In the first nine months of 2017, Mercury Processing Services International d.o.o., which is based in Zagreb (Croatia) and
Mercury Processing Services International d.o.o., which is based in Ljubljana (Slovenia) continued their joint venture
aimed at implementing the “Target Business Architecture” in both Croatia and Slovenia (the “TBA project”). The TBA
project is performed in two jurisdictions (Croatia and Slovenia), thereby creating current and future benefits for both
entities. The aim of the TBA project is to consolidate the various data centres in Zagreb (Croatia) and Koper (Slovenia)
and to merge these centres into one centre per country with a consistent and uniform system, whereby each party
undertakes to contribute certain efforts, required for the successful implementation of the TBA project. Each of the
parties agreed to carry out specific activities to implement the TBA project, and the joint venture is under both parties’
joint control. Each party has capitalized its own costs (internally realised intangible assets have been identified and
recorded) and sold its share (project portion) to the other party in accordance with the agreed allocation key. Distribution
of costs between both countries was done in accordance with the allocation key based on the expected portion of future
benefit generated from the TBA project for each party.
Following the successful finalisation of the insourcing of a new business in June, in the third quarter Mercury Processing
was heavily involved in preparing the migration of its client Banka Intesa Beograd, Serbia to target back office systems.
These efforts should bring additional revenues to the Mercury Processing starting from November 2017.
Close attention was also given to security and regulatory compliance as Mercury Processing has passed Personalization
Biro Audit performed by third party authorised by MasterCard.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Operating and Financial Review – Results of Operations – Mercury Processing
65
Cash Flows
The table below shows cash flow statement information for the nine months ended 30 September 2017 and 2016.
Nine months to 30 September
2017 2016
(in € millions)
Net cash generated by operating activities ................................................................... 5.0 7.5
Net cash generated/ (used) in investing activities ........................................................ 5.3 (2.0)
Net cash used in financing activities ............................................................................. - (3.9)
Net increase in cash and cash equivalents, net of bank deposits/bank overdrafts in
the period .................................................................................................................. 10.4 1.6
Cash and cash equivalents net of bank deposits/overdraft at beginning of the
period ................................................................................................................... 2.2 0.4
Cash and cash equivalents net of bank deposits/overdraft at end of the period ...... 12.6 1.9
Capital Expenditures
To support the business strategy and development plans, capital expenditures are incurred regularly.
Expansion capital expenditures mainly relate to the TBA project and are capitalised when they meet the criteria outlined
in IAS 38 Intangible Assets.
Maintenance capital expenditures mainly relate to purchase and upgrade of the MPSI Group ICT infrastructure and
software, and are increased with aim to comply with enhanced security and stability requirements, as a consequence of
change of ownership.
Nine months to 30 September
2017 2016
(€ million)
Expansion capital expenditures ..................................................................................... 2.07 1.24
Maintenance capital expenditures ................................................................................. 1.02 0.16
Capital expenditures ................................................................................................. 3.09 1.39
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Risk Factors
66
9 RISK FACTORS
As of the date of this Interim Financial Report, we are not aware of any material changes to the Risk Factors described in
the Cleansing Statement. See “Cleansing Statement—Risk Factors” for a discussion of the material risk factors affecting
the business, results of operation, financial condition and liquidity of the Mercury Group. Also, see “Risk Policies” in the
notes to Holdco’s Annual consolidated financial statements.
The risks and uncertainties described above are not the only ones the Mercury Group face. Additional risks and
uncertainties of which the Mercury Group is not aware or that are currently believed to be immaterial may also adversely
affect the business, financial condition and results of operations and the ability to fulfill the obligations under the Notes
and the Indentures. If any of the possible events described above were to occur, our business, financial condition and
results of operations could be materially and adversely affected. If that happens, the trading prices of the Notes could
decline, Bondco may not be able to pay interest or principal on the Notes when due and Investors could lose all or part of
their investment.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix Financial Statements
67
10 APPENDIX – FINANCIAL STATEMENTS
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix – Financial Statements- Mercury Bondco Plc
68
MERCURY BONDCO PLC
UNAUDITED INCOME STATEMENT FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
INCOME STATEMENT Revenues ....................................................................................................... Other revenue .................................................................................................... 117,612 67,536 Total revenues ............................................................................................... 117,612 67,536 Expenditure ................................................................................................... Finance costs ...................................................................................................... (144,297) (72,408)
Administrative expenses .................................................................................... - (1,431)
Pre-tax loss from continuing operations ........................................................ (26,685) (6,303) Income taxes ....................................................................................................... - - Loss for the period ............................................................................................. (26,685) (6,303)
UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017
€’000
30 September 2017 31 December 2016
ASSETS
Loan & other assets ............................................................................................ 2,447,556 1,793,683 Deferred charges ................................................................................................ 10 9 Cash at bank and in hand .................................................................................... 907 4,711 Total current assets ....................................................................................... 2,448,473 1,798,403 LIABILITIES
Loans and borrowings ......................................................................................... (2,214,230) (1,614,230) Other creditors ................................................................................................... (2,338) (3,442) Accrued expenses ............................................................................................... (96,455) (18,596) Total liabilities ............................................................................................... (2,313,023) (1,636,268) NET ASSETS ......................................................................................................... 135,450 162,135 CAPITAL AND RESERVES
Called up share capital ........................................................................................ 181,564 181,564
Retained loss ....................................................................................................... (19,429) (10,112)
Profit and loss account ....................................................................................... (26,685) (9,317)
SHAREHOLDERS’ FUNDS ................................................................................ 135,450 162,135
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix – Financial Statements- Mercury Bondco Plc
69
MERCURY BONDCO PLC
UNAUDITED STATEMENT OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
Cash flows from operating activities .............................................................. Loss before tax .................................................................................................... (26,685) (6,303) Adjustment for .................................................................................................... Increase in receivables ........................................................................................ (81,193) (67,382) Increase in payables............................................................................................ 165,358 72,548 Interest received ................................................................................................. 27,320 -
Net cash generated from/ (used in) operating activities ................................ 84,800 (1,137)
Cashflow from investing activities .................................................................
Loans made to related parties ............................................................................ (600,000) -
Net cash used in investing activities ............................................................... (600,000) - Cash flows from financing activities ...............................................................
Interest paid........................................................................................................ (66,347) (49,355)
Proceeds from issue of loan ............................................................................... 577,743 -
Net cash generated from/ (used in) financing activities ................................. 511,396 (49,355) Net decrease in cash and cash equivalent ...................................................... (3,804) (50,492) Cash and cash equivalents at the beginning of the period ............................. 4,711 96,784 Cash and cash equivalents at the end of the period ....................................... 907 46,292
Mercury Bondco Plc
Interim Financial Report for the nine months 30 September 2017
Appendix – Financial Statements- Mercury A Capital Limited
70
MERCURY A CAPITAL LIMITED UNAUDITED INCOME STATEMENT FOR THE NINE MONTHS PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
INCOME STATEMENT Expenditure ................................................................................................... Management Service Fee ................................................................................... (173) (86)
Professional Fees ................................................................................................ (5) (6)
Audit Fee ............................................................................................................. (32) (11)
Finance costs ...................................................................................................... (39,203) (22,512)
Changes in derivative liability ............................................................................. (321) -
Share of profit from equity accounted investment ............................................ 22,216 19,948
Foreign exchange gain ........................................................................................ 1 2
Other expenditure .............................................................................................. (10,311) -
Pre-tax loss from continuing operations ........................................................ (27,828) (2,665)
Income taxes ....................................................................................................... - - Loss for the period ............................................................................................. (27,828) (2,665)
UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017
€’000 30 September 2017 31 December 2016
ASSETS
Shares in equity accounted investments ............................................................ 1,150,521 990,716 Total non-current assets ................................................................................ 1,150,521 990,716
Deferred charges ................................................................................................ 1 - Cash at bank and in hand .................................................................................... 30,823 3 Total current assets ....................................................................................... 30,824 3 LIABILITIES
Loans and borrowings ......................................................................................... (815,852) (597,894)
Other creditors ................................................................................................... (392) (205)
Derivative liability ............................................................................................... (321) -
Accrued expenses ............................................................................................... (11) (23) Total current liabilities ................................................................................... (816,576) (598,122) NET ASSETS ......................................................................................................... 364,769 392,597 CAPITAL AND RESERVES
Called up share capital ........................................................................................ 404,501 404,501
Retained loss ....................................................................................................... (11,904) (4,994)
Profit and loss account ....................................................................................... (27,828) (6,910)
SHAREHOLDER’S FUNDS ................................................................................ 364,769 392,597
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix – Financial Statements- Mercury A Capital Ltd
71
MERCURY A CAPITAL LIMITED
UNAUDITED STATEMENT OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
Cash flows from operating activities .............................................................. Loss before tax .................................................................................................... (27,828) (2,665) Non cash adjustments for: ............................................................................. Share of profit from equity accounted investment ............................................ (22,216) (19,948) Finance costs ...................................................................................................... 39,203 22,512 Loss on derivative liability ................................................................................... 321 - Net cash used in operating activities.............................................................. (10,520) (101) Adjustment for .................................................................................................... (Increase)/decrease in receivables ..................................................................... (1) 3 Increase in payables............................................................................................ 10,486 93 Net cash used in operating activities.............................................................. (35) (5)
Cashflow from investing activities .................................................................
Purchase of investment ...................................................................................... (161,667) -
Dividends received.............................................................................................. 24,078 -
Net cash used in investing activities ............................................................... (137,589) - Cash flows from financing activities ...............................................................
Proceeds from issue of loan ............................................................................... 200,000 -
Interest paid........................................................................................................ (31,556) -
Net cash generated from financing activities ................................................. 168,444 - Net increase in cash and cash equivalents ..................................................... 30,820 (5) Cash and cash equivalents at the beginning of the period ............................. 3 10 Cash and cash equivalents at the end of the period ....................................... 30,823 5
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix – Financial Statements- Mercury B Capital Limited
72
MERCURY B CAPITAL LIMITED
UNAUDITED INCOME STATEMENT FOR THE NINE MONTHS PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
INCOME STATEMENT Expenditure ................................................................................................... Management Service Fee ................................................................................... (173) (86)
Professional Fees ................................................................................................ (5) (6)
Audit Fee ............................................................................................................. (32) (11)
Finance costs ...................................................................................................... (39,203) (22,512)
Change in derivative liability ............................................................................... (321) -
Share of profit from equity accounted investment ............................................ 22,216 19,948
Foreign exchange gain ........................................................................................ 1 2
Other expenditure .............................................................................................. (10,311) -
Pre-tax loss from continuing operations ........................................................ (27,828) (2,665)
Income taxes ....................................................................................................... - - Loss for the period ............................................................................................. (27,828) (2,665)
UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017
€’000 30 September 2017 31 December 2016
ASSETS
Shares in equity accounted investments ............................................................ 1,150,521 990,716 Total non-current assets ................................................................................ 1,150,521 990,716
Deferred charges ................................................................................................ 1 - Cash at bank and in hand .................................................................................... 30,823 3 Total current assets ....................................................................................... 30,824 3 LIABILITIES
Loans and borrowings ......................................................................................... (815,852) (597,894)
Other creditors ................................................................................................... (392) (205)
Derivative liability ............................................................................................... (321) -
Accrued expenses ............................................................................................... (11) (23) Total current liabilities ................................................................................... (816,576) (598,122) NET ASSETS ......................................................................................................... 364,769 392,597 CAPITAL AND RESERVES
Called up share capital ........................................................................................ 404,501 404,501
Retained loss ....................................................................................................... (11,904) (4,994)
Profit and loss account ....................................................................................... (27,828) (6,910)
SHAREHOLDER’S FUNDS ................................................................................ 364,769 392,597
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix – Financial Statements- Mercury B Capital Ltd
73
MERCURY B CAPITAL LIMITED UNAUDITED STATEMENT OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
Cash flows from operating activities .............................................................. Loss before tax .................................................................................................... (27,828) (2,665) Non cash adjustments for: ............................................................................. Share of profit from equity accounted investment ............................................ (22,216) (19,948) Finance costs ...................................................................................................... 39,203 22,512 Loss on derivative liability ................................................................................... 321 - Net cash used in operating activities.............................................................. (10,520) (101) Adjustment for .................................................................................................... (Increase)/decrease in receivables ..................................................................... (1) 3 Increase in payables............................................................................................ 10,486 93 Net cash used in operating activities.............................................................. (35) (5)
Cashflow from investing activities .................................................................
Purchase of investment ...................................................................................... (161,667) -
Dividends received.............................................................................................. 24,078 -
Net cash used in investing activities ............................................................... (137,589) - Cash flows from financing activities ...............................................................
Proceeds from issue of loan ............................................................................... 200,000 -
Interest paid........................................................................................................ (31,556) -
Net cash generated from financing activities ................................................. 168,444 - Net increase in cash and cash equivalents ..................................................... 30,820 (5) Cash and cash equivalents at the beginning of the period ............................. 3 10 Cash and cash equivalents at the end of the period ....................................... 30,823 5
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix – Financial Statements- Mercury ABC Capital Limited
74
MERCURY ABC CAPITAL LIMITED UNAUDITED INCOME STATEMENT FOR THE NINE MONTHS PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
INCOME STATEMENT Expenditure ............................................................................................. Salaries.......................................................................................................... (34) (38)
Management Service Fee ............................................................................. (173) (86)
Professional Fees .......................................................................................... (5) (6)
Audit Fee....................................................................................................... (32) (11)
Finance costs ................................................................................................ (39,203) (22,512)
Foreign exchange loss ................................................................................... 2 8
Change in derivative liability ........................................................................ (321) -
Share of profit from equity accounted investment ...................................... 22,216 19,948
Other expenditure ........................................................................................ (10,311) -
Pre-tax loss from continuing operations .................................................. (27,861) (2,697)
Income taxes................................................................................................. - - Loss for the period ....................................................................................... (27,861) (2,697)
UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017
€’000 30 September 2017 31 December 2016
ASSETS
Shares in equity accounted investments .......................................................... 1,150,521 990,716 Total non-current assets .............................................................................. 1,150,521 990,716
Deferred charges .............................................................................................. 1 - Cash at bank and in hand ................................................................................. 30,766 6 Total current assets ...................................................................................... 30,767 6 LIABILITIES
Loans and borrowings ...................................................................................... (815,852) (597,894)
Other creditors ................................................................................................. (447) (260)
Derivative liability ............................................................................................. (321) -
Accrued expenses ............................................................................................. (33) (72) Total current liabilities ................................................................................. (816,653) (598,226) NET ASSETS ....................................................................................................... 364,635 392,496 CAPITAL AND RESERVES
Called up share capital...................................................................................... 404,501 404,501
Retained loss .................................................................................................... (12,005) (5,051)
Profit and loss account ..................................................................................... (27,861) (6,954)
SHAREHOLDERS’ FUNDS ............................................................................... 364,635 392,496
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix – Financial Statements- Mercury ABC Capital Ltd
75
MERCURY ABC CAPITAL LIMITED
UNAUDITED STATEMENT OF CASH FLOWS FOR THE NONE MONTH PERIOD ENDED 30 SEPTEMBER 2017
€’000 Nine months to 30 September 2017
Nine months to 30 September 2016
Cash flows from operating activities ......................................................... Loss before tax ............................................................................................... (27,861) (2,697) Non cash adjustments for: ........................................................................ Share of profit from equity accounted investment ....................................... (22,216) (19,948) Finance costs ................................................................................................. 39,203 22,512 Loss on derivative liability ............................................................................. 321 - Net cash used in operating activities ......................................................... (10,553) (133) Adjustment for .............................................................................................. (Increase)/decrease in receivables ................................................................ (1) 3 Increase in payables ...................................................................................... 10,459 128 Net cash (used in)/generated from operating activities ............................ (95) (2)
Cashflow from investing activities .............................................................
Purchase of investment ................................................................................. (161,667) -
Dividends received ........................................................................................ 24,078 -
Net cash used in investing activities .......................................................... (137,589) - Cash flows from financing activities ..........................................................
Proceeds from issue of loan .......................................................................... 200,000 -
Interest paid .................................................................................................. (31,556) -
Net cash generated from financing activities ............................................ 168,444 - Net increase/(decrease) in cash and cash equivalents .............................. 30,760 (2) Cash and cash equivalents at the beginning of the period ........................ 6 10 Cash and cash equivalents at the end of the period .................................. 30,766 8
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Financial Statements - Mercury UK Holdco Limited
76
MERCURY UK HOLDCO LIMITED UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE NINE MONTH PERIOD ENDED
30 SEPTEMBER 2017 €’000
Nine months to 30 September 2017
Nine months to 30 September 2016
INCOME STATEMENT
10. Interest and similar income ............................................................. 54,692 49,106 20. Interest and similar expense ............................................................ (24,597) (20,106) 30. Net interest income ..................................................................... 30,095 29,000 40. Fee and commission income ............................................................ 908,725 726,705 50. Fee and commission expense .......................................................... (441,719) (422,115) 60. Net fee and commission income .................................................. 467,006 304,590 70. Dividends and similar income .......................................................... 621 12 80. Net trading income .......................................................................... 879 2,188 100. Profit on disposal or buy-back of available for sale financial assets 242 - 110. Net income from financial assets at fair value ................................. 43 - 120. Total income ................................................................................ 498,887 335,790 130. Net impairment losses on: ............................................................... (5,744) (1,926) a) loans and receivables ................................................................... (2,263) (1,340) b) financial assets available for sale................................................. (3,481) (586) 140. Net financial income .................................................................... 493,141 333,863 180. Administrative expenses: ................................................................. (616,319) (414,232) a) personnel expense ........................................................................ (225,881) (110,903) b) other administrative expenses ..................................................... (390,438) (303,329) 190. Net accruals to provisions for risks and charges .............................. (1,862) (3,227) 200. Depreciation and net impairment losses on property, equipment
and investment property ................................................................. (25,448) (17,271) 210. Amortisation and net impairment losses on intangible assets ........ (26,057) (17,373) 220. Other operating income, net ........................................................... 283,453 207,685 230. Operating costs ............................................................................ (386,233) (244,418) 240. Share of profits of investees ............................................................ 595 - 270. Net gains on sales of investments .................................................... (500) - 280. Pre-tax profit from continuing operations .................................... 107,003 89,445 290. Income taxes .................................................................................... (37,210) (20,723) 300. Post-tax profit from continuing operations .................................. 69,793 68,722 320. Profit for the period ........................................................................ 69,793 68,722 330. Profit for the period attributable to non-controlling interests ........ (3,144) (8,879) 340. Profit for the period attributable to the owners of the parent ..... 66,649 59,843
The accompanying notes are an integral part of these interim consolidated financial statements.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Financial Statements - Mercury UK Holdco Limited
77
MERCURY UK HOLDCO LIMITED UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE MONTH PERIOD
ENDED 30 SEPTEMBER 2017
€’000
Nine months to 30 September 2017
Nine months to 30 September 2016
Profit for the period ............................................................... 69,792 68,722
Items, net of tax, that will not be reclassified to profit or loss
40. Defined benefit plans ............................................................. 513 (1,392)
Items, net of tax, that may be reclassified subsequently to profit
or loss
80. Exchange rate gains ............................................................... 243 -
100. Available-for-sale financial assets - net change in fair value . 28,401 (5,660)
130. Other comprehensive income/ (expense), net of tax ........... 29,157 (7,052)
140. Comprehensive income ........................................................ 98,950 61,670
150. Comprehensive income attributable to non-controlling
interests ............................................................................. 6,504
8,079 160. Comprehensive income attributable to the owners of the
parent ................................................................................ 92,446
53,591
The accompanying notes are an integral part of these consolidated financial statements.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Financial Statements - Mercury UK Holdco Limited
78
MERCURY UK HOLDCO LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017
€’000 30 September 2017 31 December 2016
ASSETS
10. Cash and cash equivalents ................................................ 2,280,149 1,798,785
20. Financial assets held for trading ....................................... 20,488 13,193
30. Financial assets designated at fair value though profit and
loss .................................................................................... 203 201
40. Available-for-sale financial assets ..................................... 3,233,731 3,362,213
50. Held-to-maturity investments .......................................... 4,951 15,933
60. Loans and receivables with banks ..................................... 1,114,452 1,019,978
70. Loans and receivables with customers ............................. 3,071,982 2,966,678
100. Equity investments ........................................................... 12,153 10,103
120. Property, equipment and investment property ............... 245,558 200,682
130. Intangible assets ............................................................... 2,727,250 2,088,344
140. Tax assets .......................................................................... 99,520 103,530
150. Non-current assets held for sale ....................................... 95 112
160. Other assets ...................................................................... 671,487 466,830
TOTAL ASSETS ................................................................ 13,482,020 12,046,582
LIABILITIES
10. Borrowings: Due to banks ................................................. 1,821,350 1,797,217
20. Borrowings: Due to customers ......................................... 6,935,391 6,260,283
40. Financial liabilities held for trading ................................... 13,432 8,067
60. Hedging derivatives........................................................... 1,746 -
80. Tax liabilities...................................................................... 64,757 56,483
90. Liabilities associated with assets held for sale .................. 6 8
100. Other liabilities .................................................................. 1,023,637 747,960
110. Post-employment benefits ............................................... 31,930 22,789
120. Provisions for risks and charges ........................................ 55,215 40,955
TOTAL LIABILITIES........................................................... 9,947,464 8,933,762
NET ASSETS .................................................................... 3,534,556 3,112,820
CAPITAL AND RESERVES
140. Valuation reserves ............................................................ 44,899 19,101
170. Reserves ............................................................................ (6,840) (6,385)
190. Share capital...................................................................... 3,396,444 2,911,444
210. Equity attributable to non-controlling
interests ........................................................................... 33,404 116,397
220. Profits for the period/year ................................................ 66,649 72,263
SHAREHOLDERS’ FUNDS ................................................. 3,534,556 3,112,820
The accompanying notes are an integral part of these interim consolidated financial statements.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Financial Statements - Mercury UK Holdco Limited
79
MERCURY UK HOLDCO LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2017
Period ended 30 September 2017 2017 comprehensive income
Balance at
1 January
2017
Dividends and
other
allocations
Non-
controlling
interest
adjustment due
to business
combination
Other changes
in reserves
Issue
of new
shares
Profit for the
period
Other
comprehensive
income – AFS
financial assets
Other
comprehensive
income –
Actuarial
reserve
2017
comprehensive
income
Balance at
30 September
2017
€’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000
Share capital:
a) ordinary shares 2,911,444 - - - 485,000 - - - - 3,396,444
b) other shares - - - - - - - - - -
Share premium - - - - - - - - - -
Reserves:
a) income-related 65,878 (72,235) - (483) - 66,649 - - 66,649 59,809
b) other - - - - - - - - - -
Valuation reserves 19,101 - - - - - 25,344 454 25,798 44,899
Equity instruments - - - - - - - - - -
Interim dividend - - - - - - - - - -
Treasury shares - - - - - - - - - -
Equity attributable to the owners
of the Mercury Group
2,996,423 (72,235) - (483) 485,000 66,649 25,344 454 92,447 3,501,152
Equity attributable to non-
controlling interests
116,397 (11,978) (77,519) - - 3,144 3,300 59 6,504 33.404
Total equity 3,112,820 (84,213) (77,519) (483) 485,000 69,792 28,644 513 98,950 3,534,556
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Financial Statements - Mercury UK Holdco Limited
80
MERCURY UK HOLDCO LIMITED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS: INDIRECT METHOD FOR THE NINE MONTH
PERIOD ENDED 30 SEPTEMBER 2017
€000 30 September 2017 30 September 2017 30 September 2016
30 September 2016
Operating Activities Operations Profit for the period 66,649 59,843 Net losses on financial assets held for trading and financial assets/liabilities at
fair value through profit or loss 125 48
Net impairment losses 5,744 1,340 Net amortisation, depreciation and impairment losses on property, plant and
equipment, investment property and intangible assets
51,505 34,644
Net accruals to provisions for risks and charges - 3,227
Unpaid taxes, duties and tax assets 37,210 20,723
Other adjustments 46,556 479 207,789 120,304 Cash flows (used in)/ generated by financial assets Financial assets held for trading (7,420) 4,151 Financial assets at fair value through profit and loss (2) - Available for sale financial assets 109,488 425,516 Loans and receivables with banks (83,532) (1,039,407) Loans and receivables with customers (107,567) 285,148 Other assets (47,162) (19,411) (136,194) (344,003) Cash flows generated by financial liabilities Due to banks: on demand (55,965) (47,819) Due to banks: other (11,621) - Due to customers 675,108 1,845,621 Financial liabilities held for trading 5,365 (1,181) Other liabilities 139,338 (242,413) 752,225 1,554,208 Net cash flows generated by operating activities 823,820 1,330,509 Investing Activities Cash flows generated by: Dividends from equity investments 363 - Sales / repayments of HTM investments 11,000 16,000 Sales of property, equipment and investment property 263 1,202 Cash flows used to acquire: Property, plant and equipment (30,389) (27,913) Intangible assets (37,576) (15,966) Subsidiaries and business units, net of cash acquired (686,903) (28,828) Equity investments - (2,614) Net cash flows used in investing activities (743,243) (58,119) Financing activities Issue of equity instruments 485,000 - Dividends and other distributions (84,213) - Net cash flows generated by financing activities 400,787 - Net cash flows for the period 481,365 1,272,390 Net cash flows for the period 481,365 1,272,390 Opening cash and cash equivalents 1,798,785 22,389 Closing cash and cash equivalents 2,280,150 1,294,780
The accompanying notes are an integral part of these consolidated financial statements.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
81
PART A - ACCOUNTING POLICIES
A.1—GENERAL PART
Section 1—Statement of compliance
Pursuant to Regulation (EC) no. 1606 of 19 July 2002, Mercury UK Holdco Limited has prepared these interim consolidated financial statements as at and for the nine months ended 30 September 2017.
Holdco was incorporated on 15 June 2015 in England. Holdco has its registered office at 111 Buckingham Palace Road, London, SW1W 0SR and is domiciled in the United Kingdom. The principal activity of Holdco is to invest in, and subsequently to hold and monitor its investments in, its direct and indirect subsidiaries.
These interim consolidated financial statements are unaudited. Section 2—Basis of presentation
The interim consolidated financial statements comprise an income statement, a statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows and related notes.
The Mercury Group’s presentation currency and the functional currency of Holdco is the Euro and the amounts shown in the interim consolidated financial statements and these notes are in thousands of Euros.
The following table shows the new standards or amendments with the related endorsement regulations. Their application is mandatory from 1 January 2018 (for entities whose reporting period is the calendar year) or subsequently.
Endorsement
regulation
Name Standard/Interpretation
Year of application
2016/2067 IFRS 9 Financial Instruments 2018
2016/1905 IFRS 15 Revenue from contracts with customers 2018
2017/1986 IFRS 16 Leases 2019
With reference to IFRS 9, we specify the following:
• Classification and Measurement: the reference business models are going to be established and an analysis of the stock of financial assets have been conducted which do not envisage any significant impact relating to reclassification from the current Accounting Standard IAS 39; and given the reference business models, the trading portfolio will not suffer any substantial changes. The financial assets available for sale, may have to be measured at fair value and be transferred to the consolidated income statement given the fact that several financial assets in the above-cited portfolio, based on their characteristics, are not expected to pass the so-called “Solely Payment of Principal and Interest” test (SPPI test). The loans and receivables portfolio should not be altered and there should be no significant impact on financial instruments held at fair value;
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
82
• Impairment: given the characteristic of the loan portfolio, that mainly includes current accounts related to the payment and the security services provided by Nexi and short-term loans related to the e-money services provided by the Nexi Group, no significant impacts are expected.
Furthermore, the amendment related to hedge accounting and the accounting treatment of "own credit risk"
will not have any impact as it is not relevant for the Mercury Group.
The potential impacts of IFRS 15 are currently being analysed and, based on the results of the checks carried out
to date, there should be no potential impacts.
The next table shows the standards for which amendments were issued, specifying the scope of our object for
such amendments.
Standards Name Publication
date
IFRS 14 Regulatory Deferral Accounts 30/01/2014
Amendments to IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture 11/09/2014
IFRS 17 Insurance Contracts 18/05/2017
As none of the above have been endorsed by the European Commission, they did not affect Holdco’s 2016 consolidated financial statements and these Interim Financial Statements as at 30 September 2017. The Mercury Group applies the measurement criteria assuming that it will continue as a going concern and in accordance with the principles of accruals, materiality and significance of the financial data and the principle of substance over form.
The notes include additional disclosures which are not mandatory but are deemed useful to give a true and fair view of the Mercury Group’s financial position and results of operations.
Basis of presentation of the interim consolidated financial statements
Statement of financial position, income statement and statement of comprehensive income
They comprise captions, subcaptions and additional information. Revenue is shown without a plus sign while costs are shown with a minus sign in the income statement.
Statement of changes in equity
This statement shows changes in equity during the period split between share capital, equity-related reserves, income-related reserves, valuation reserves and the profit (loss) for the period. Treasury shares are offset against equity. The parent has not issued equity instruments other than ordinary shares.
Statement of cash flows
The statement of cash flows for the period has been prepared using the indirect method, whereby cash flows from operations are the profit for the period adjusted by the effects of non-monetary transactions.
Cash flows are split between those from operating, investing and financing activities.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
83
Basis of presentation of the notes
These notes include a description of the accounting policies and a table of the main captions of the interim consolidated financial statements and the other disclosures as required by the IFRS.
The accounting policies described below have been adopted to disclose all the information in the consolidated financial statements.
Section 3—Basis of consolidation
The Mercury Group has established the consolidation scope in accordance with IFRS 10—Consolidated financial statements. Accordingly, the concept of control is fundamental to consolidation of all types of entities. It exists when the investor concurrently:
• has power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee;
• has the ability to affect those returns through its power over the investee.
Therefore, the Mercury Group consolidates all types of entities when all three control elements exist.
When an entity is directed mainly through exercise of voting rights, control exists when the investor holds more than half the voting rights.
In other cases, the assessment of control is more complex and requires the greater use of judgement as it is necessary to consider all the factors and circumstances that give control over the investee (de facto control).
In the case of Holdco, all the consolidated entities are directed mainly through voting rights. Accordingly, the Mercury Group did not have to perform special judgements or make significant assumptions in order to establish the existence of control over subsidiaries and significant influence over associates.
Investments in subsidiaries are consolidated by combining the captions of the statement of financial position and income statement on a line-by-line basis, making the following adjustments:
(a) the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary are eliminated;
(b) the equity and profit or loss attributable to non-controlling interests are recognised separately.
Positive differences arising from the above adjustments are recognised as goodwill in caption “130 Intangible assets” at the date of first consolidation after allocation to the subsidiary’s assets and liabilities. Any negative differences are recognised in profit or loss.
Intragroup assets and liabilities, off-statement of financial position transactions, income and expense and profits and losses among the consolidated companies are eliminated.
The income and expenses of a subsidiary are included in the consolidated financial statements from the acquisition date. The income and expense of a subsidiary that is sold are included in the income statement up to the sales date, i.e. until the date when the parent ceases to control the subsidiary.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
84
Pursuant to IAS 28 – “Investments in Associates”, the consolidated financial statements also include the results of associates, i.e., entities over which the Mercury Group has significant influence and the power to participate in directing its financial and operating policies without having control or joint control. These investments are measured using the equity method which entails the initial recognition of the investment at cost and its subsequent measurement using the equity method. The Mercury Group’s share of the associate’s profit or loss is recognised separately in the income statement.
The difference between the investment’s carrying amount and the Mercury Group’s share of its equity is included in the investment’s carrying amount.
If there is an indication of impairment, the Mercury Group calculates the investment’s recoverable amount, considering the discounted future cash flows that the investee may generate, including the investment’s costs to sell. When the recoverable amount is less than the investment’s carrying amount, the difference is recognised in profit or loss.
At present, the Mercury Group is not a party to joint arrangements as defined by IFRS 11- “Joint Arrangements” either in the form of joint operations (where the parties have rights to the assets and obligations for the liabilities) or joint ventures (where the venturers have rights to the arrangement’s net assets).
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
85
1. Investments in fully controlled subsidiaries
Name of subsidiary Operating
office Registered
office
Type of relationship
(1) Investor Investment
%(2)
Voting rights
%(2)
Nexi S.p.A. (formerly ICBPI S.p.A.) Milan Milan 1 Mercury UK Holdco Limited
89.07 89.07
- Nexi Payments S.p.A (formerly CartaSi S.p.A)
Milan Milan 1 Nexi S.p.A. 98.74 98.74
- Oasi Diagram S.p.A. Milan Milan 1 Nexi S.p.A. 100.00 100.00
- Help Line S.p.A. Cividale del Friuli /
Milan
Cividale del Friuli
1 Nexi S.p.A. 70.00 70.00
- Bassilichi S.p.A. Florence Florence 1 Nexi S.p.A. 92.24 92.24
- Consorzio Triveneto S.p.A. Padova Padova 1 Nexi S.p.A. 26.09 26.09
Bassilichi S.p.A. 64.26 64.26
- Moneynet S.p.A. Palermo Palermo 1 Bassilichi S.p.A. 61.00 61.00
Consorzio Triveneto S.p.A.
39.00 39.00
- Bassmart S.r.l. Florence Florence 1 Bassilichi S.p.A. 95.00 95.00
- Bassilichi CEE d.o.o. Belgrado Belgrade Belgrade 1 Bassilichi S.p.A. 80.00 80.00
- ArsBlue d.o.o. Belgrade Belgrade 1 Bassilichi CEE d.o.o. Belgrado
51.00 51.00
- Bassilichi CEE d.o.o. Banja Luka Banja Luka Banja Luka 1 Bassilichi CEE d.o.o. Belgrado
100.00 100.00
- Bassilichi CEE d.o.o. Podgorica Podgorica Podgorica 1 Bassilichi CEE d.o.o. Belgrado
100.00 100.00
Latino Italy S.r.l. Milan Milan 1 Mercury UK Holdco Limited
100.00 100.00
- Mercury Payment Services S.p.A. Milan Milan 1 Latino Italy S.r.l. 100.00 100.00
- Mercury Processing Services International d.o.o. Zagreb Zagreb
1 Latino Italy S.r.l.
100.00
100.00
- Mercury Processing Services International procesiranje plačilnih kartic in razvoj d.o.o.
Koper /Ljubljana
Koper /Ljubljana
1 Mercury Processing Services International
d.o.o
100.00 100.00
- Intesa Sanpaolo Card BH d.o.o. (in liquidation)
Sarajevo Sarajevo 1 Mercury Processing Services International
d.o.o
100.00 100.00
Key (1) Type of relationship: majority of voting rights at ordinary shareholders’ meetings (2) The above percentages do not include treasury shares
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
86
The Mercury Group includes the following companies:
• Nexi S.p.A. —operating company, investee Holdco; • Oasi Diagram S.p.A.—Outsourcing Applicativo e Servizi Innovativi S.p.A., operating company; • Help Line S.p.A., operating company; • Nexi Payments S.p.A., financial company included in the register of payment institutes as per article 114-septies of the Consolidated Banking Act; • Bassilichi S.p.A., operating company; • Consorzio Triveneto S.p.A., operating company; • Moneynet S.p.A., operating company; • Bassmart S.r.l., operating company; • Bassilichi CEE d.o.o. Belgrado, operating company; • ArsBlue d.o.o., operating company; • Bassilichi CEE d.o.o. Banja Luka, operating company; • Bassilichi CEE d.o.o. Podgorica, operating company; • Latino Italy S.r.l., holding company, investee of Mercury UK Holdco Limited; • Mercury Payments Services S.p.A., operating company; • Mercury Processing Services International d.o.o, operating company; • Mercury Processing Services International procesiranje plačilnil kartic in razvoj d.o.o, operating company; • Intesa Sanpaolo Card BH d.o.o., a limited liability company for credit card transactions; in liquidation. As well as the consolidated banking group companies, the Mercury Group includes the following equity-accounted associates under IAS 28 at 30 September 2017:
• Hi-Mtf Sim S.p.A., in which Nexi has a 25% interest, equity-accounted; • Unione Fiduciaria S.p.A., in which Nexi has a 24% interest, equity-accounted; • Consorzio Stabile Win Join s.c.a.r.l., in which Bassilichi S.p.A. has a 24% interest, equity-accounted; • RS Records Store S.p.A., in which Bassilichi S.p.A. has a 30% interest, equity-accounted; • ICT Logistica s.r.l., in which Bassilichi S.p.A. has a 33% interest, equity-accounted; • K.Red s.r.l., in which Bassilichi S.p.A. has a 50% interest, equity-accounted.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
87
2. Significant judgements and assumptions applied to define the consolidation scope
As stated above and given the Mercury Group’s current structure, where control is principally based on voting rights held, there were no situations that would have made it necessary to make specific judgements or significant assumptions to define the consolidation scope.
This is also true for the associates, where significant influence is basically attributable to the voting rights held by the Mercury Group.
3. Investments in consolidated companies with significant non-controlling interests
3.1 Non-controlling interests, their voting rights and dividends distributed to them
Investment
% Voting
rights %(1) Dividends
1. Help Line S.p.A............................................................................................ 30% 30% —
(1) availability of votes at ordinary shareholders’ meetings
3.2 Investments with significant non-controlling interests: financial information
€’000 Total assets
Cash and cash
equivalents
Property, equipment
and investment
property and intangible
assets Equity
Net interest expense
Total expense
Operating costs
Pre-tax loss from
continuing operations
Post-tax loss from continuing
operations Loss for
the period
1. Help Line S.p.A. ....... 23,873 1 6,744 8,587 - - (5,971) (5,971) (4,533) (4,533)
4. Significant restrictions
There are no significant restrictions to the exercise of voting rights for the investments in subsidiaries and associates.
5. Other information
Given the Mercury Group’s structure, there is no other information that needs to be disclosed.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
88
Section 4—Events after the reporting period
In October 2017, the Sponsors’ NewCos have subscribed for an additional 3,000,000 shares of €1 in each of the Sponsors’ HoldCos.
In October 2017, Nexi signed a binding agreement for the disposal of a small business within the Securities Services division. The business currently generates approximately €7 million of revenues with a €1 million EBITDA. The transaction will generate approximately €15 million of gross capital gain. Closing is expected to occur by the year end.
In November 2017 Istituto Centrale delle Banche Popolari Italiane S.p.A. and CartaSi S.p.A. have changed their names to Nexi S.p.A. and Nexi Payments S.p.A., respectively.
In the post reporting period, an offer to subscribe for an additional warrants in the amount of €0.3 million was made. The Board of Holdco declared an interim dividend to the Sponsor HoldCos in the amount of €10 million payable in November 2017. No other events took place after the reporting period that would have had a significant effect on Mercury Group’s financial position, results of operations or cash flows that would have required adjustments to the financial statements captions.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
89
ACCOUNTING POLICIES
A.2—KEY FINANCIAL STATEMENTS CAPTIONS
1—Financial assets held for trading
Classification
A financial asset is classified as held for trading if it is:
• acquired principally for the purpose of selling it in the near term;
• part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking;
• a derivative (except for a derivative that is an effective hedging instrument).
Derivatives are recognised under assets when they have a positive fair value and under liabilities when they have a negative fair value.
Recognition
Financial instruments held for trading are initially recognised at fair value, which is usually the transaction price, net of any directly attributable transaction costs.
Measurement
After initial recognition, financial assets held for trading are measured at fair value. Any resulting fair value gains or losses are recognised in caption 80 “Net trading income” of the income statement. Interest accrued on these assets is recognised in caption 10 of the income statement “Interest and similar income”, although interest and/or other income and expense on trading derivatives are recognised in caption 80 “Net trading income” of the income statement.
Section 13—Other information provides information on the calculation of fair value of listed financial instruments. Equity instruments and derivatives hedging equity instruments are maintained at cost when it is not possible to calculate their fair value reliably.
Derecognition
Financial assets or parts of financial assets are derecognised when the contractual rights to cash flows expire or are transferred, transferring substantially all the related risks and rewards.
2—Available-for-sale financial assets (‘AFS’)
Classification
This category includes non-derivative financial assets that are not classified as loans and receivables, financial assets held for trading, held-to-maturity investments or financial assets at fair value through profit or loss.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
90
Recognition
They are initially recognised at the settlement date and measured at fair value, which includes the directly related transaction costs.
Measurement
AFS financial assets are subsequently measured at fair value with recognition of amortised cost in profit or loss and the fair value gains or losses in a specific equity reserve until the asset is derecognised or an impairment loss is recognised. Gains or losses recognised in equity are reclassified to profit or loss when the asset is sold.
Realised gains or losses are recognised in caption 100 “Profit on disposal or buy back of available for sale financial assets” of the other comprehensive income.
Fair value is calculated using the same criteria applied to financial assets held for trading.
Equity instruments included in this category and derivatives hedging equity instruments are maintained at cost when it is not possible to calculate their fair value reliably.
The Mercury Group tests its assets for impairment at each reporting date. When there is a significant or prolonged decline in fair value, the Mercury Group recognises it in profit or loss as the difference between the asset’s carrying amount (acquisition cost net of impairment losses already recognised in profit or loss) and fair value. Fair value losses are significant when they exceed 20% of the cost and prolonged if they have existed for over nine months.
If the fair value of a debt instrument increases in a subsequent period and this increase is objectively due to an event that took place in a period after that in which the impairment loss was recognised in profit or loss, the impairment loss is reversed and the related amount is recognised in the same income statement caption. The reversal may not generate a carrying amount higher than that which would have been obtained by measuring that asset at amortised cost had the loss not been recognised. Impairment losses on shares, recognised in profit or loss, cannot be reversed through profit or loss but only directly through equity.
Derecognition
Financial assets or parts of financial assets are derecognised when the contractual rights to cash flows expire or are transferred, transferring substantially all the related risks and rewards.
3—Held-to-maturity investments (‘HTM’)
Classification
This category includes debt instruments with fixed or determinable payments and fixed maturities that the Mercury Group has the ability and intention to hold to maturity. If it is no longer appropriate to maintain an asset classified as HTM following a change in the Mercury Group’s intentions or ability, it is reclassified to “AFS financial assets”.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
91
Recognition
HTM investments are initially recognised at cost, being the fair value of the amount traded, including any directly related costs and income.
Measurement
After initial recognition, HTM investments are subsequently measured at amortised cost using the effective interest method. Fair value gains or losses are recognised in profit or loss when the investments are derecognised.
At each reporting date, the Mercury Group tests the HTM investments for impairment. The impairment loss, if any, is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate.
Impairment losses are recognised in profit or loss. When the reasons for impairment are no longer valid as a result of an event that took place subsequent to recognition of the impairment loss, it is reversed through profit or loss.
Derecognition
Financial assets or parts of financial assets are derecognised when the contractual rights to cash flows expire or are transferred, transferring substantially all the related risks and rewards.
4—Loans and receivables
Classification
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Recognition
Loans and receivables are initially recognised at the agreement signing date, which is usually the disbursement date, based on the financial instrument’s fair value, which usually equals the amount disbursed including transaction costs or revenue attributable to the individual loan or receivable and determinable from the transaction start date, even when they are disbursed subsequently. The initially recognised amount does not include costs that, despite having the above characteristics, are to be reimbursed by the counterparty or that are administrative costs.
Measurement
After initial recognition, loans and receivables are measured at amortised cost using the effective interest method.
Interest is recognised in caption 10 “Interest and similar income” of the income statement.
Loans and receivables are tested for impairment at each reporting date to determine whether there is objective evidence of impairment due to events subsequent to initial recognition. Indication of impairment is based on one or more events that took place after initial recognition that have an impact on the estimate of future cash flows of a financial asset or the Mercury Group of financial assets that can be measured reliably.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
92
Loans and receivables tested individually for impairment include positions classified as non-performing, doubtful or restructured as per the Bank of Italy regulations. Assets not tested individually or for which impairment has not been identified are tested collectively.
The individual impairment test measures the difference between the carrying amount and present value of estimated future cash flows discounted at the position’s original effective interest rate.
Estimated cash flows include guarantees securing the debtor’s exposure and their probable enforcement. When enforcement of the guarantees is unlikely, the Mercury Group uses their present value, while if it is probable that they will be enforced, the Mercury Group considers their realisable value net of the costs to be incurred for enforcement.
Impairment losses are recognised in caption 130 “Net impairment losses” in the income statement.
Loans and receivables are reinstated to their original value in subsequent three months when the reasons for impairment are no longer valid, as long as this assessment is objectively linked to an event that took place after recognition of the impairment loss. Reversals of impairment losses are recognised in the income statement and may not exceed the position’s amortised cost had the impairment loss not been recognised.
Loans and receivables that are not tested individually for impairment are tested collectively. They are grouped into categories based on their risk and the related impairment loss percentages are estimated considering historical data, based on elements observable at their measurement date, so as to estimate each category’s unrealised loss. The impairment test considers the counterparty’s country risk. Collective impairment losses are recognised in profit or loss.
Derecognition
Financial assets or parts of financial assets are derecognised when the contractual rights to cash flows expire or are transferred, transferring substantially all the related risks and rewards.
5—Equity investments
This caption includes equity-accounted investees as described in section 3—Basis of consolidation.
Investments in entities other than subsidiaries and associates are classified as AFS financial assets and treated accordingly (see point 2).
6—Property, equipment and investment property
Classification
This caption includes land, owner-occupied property, investment property, furniture and fittings and all equipment. It also comprises assets under finance lease.
Recognition
Assets acquired on the market are recognised as assets when the main risks and rewards of title are transferred. Initial recognition is at cost, which includes all directly related charges.
Land is recognised separately, including when it is purchased together with the building, using the component approach. It is separated from the building based on third party appraisals.
The cost of subsequent maintenance that increases the item’s future economic benefits is capitalised while other ordinary maintenance costs are expensed.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
93
Investment properties are properties held to earn rentals or for capital appreciation, or both, and are accounted for using the fair value model. Investment properties are held at cost.
Measurement
Property, equipment and investment property are subsequently measured at cost adjusted by accumulated depreciation and any impairment losses/reversals of impairment losses.
The depreciable value of property and equipment equals their cost as the residual value after depreciation is not deemed significant. Depreciation is charged systematically on a straight-line basis over the asset’s estimated useful life to reflect their technical-economic life and residual use.
The useful life of the main categories of property, equipment and investment property is as follows:
• furniture and fittings: 5 - 8 years;
• owner-occupied buildings: 33 years;
• investment property: 33 years;
• POS and ATM, classified as electronic equipment, are depreciated over 3 and 7 years, respectively, as these periods are held to reflect their useful lives.
Land is not depreciated as it has an indefinite life nor are works of art as their useful lives cannot be estimated and their value usually increases over time.
The Mercury Group tests the assets for impairment at every reporting date. If there is indication of impairment, it compares the asset’s carrying amount to its recoverable amount being the higher of fair value and value in use.
Derecognition
Property, equipment and investment property are derecognised when sold or when no future economic benefits are expected from their continued use or sale.
7—Intangible assets
Classification
An intangible asset is an identifiable non-monetary asset without physical substance able to generate future economic benefits controllable by the entity.
Recognition
Intangible assets are recognised at cost when the principal risks and rewards are transferred, only when it is probable that the related future economic benefits will materialise and cost can be measured reliably. Otherwise, cost is expensed in the period in which it is incurred.
Measurement
All intangible assets other than goodwill are considered to have finite useful lives and are amortised in line with their cost and related useful lives.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
94
The Mercury Group has Software and Customer Contract intangible assets. The useful life of the Mercury Group’s intangible assets is three years, except for those assets related to the depositary services, which have an estimated useful life of ten years depending on the contractual terms.
Their residual value is taken to be nil.
The Mercury Group tests the intangible assets for impairment at every reporting date. If there is indication of impairment, it compares the asset’s carrying amount to its recoverable amount being the higher of fair value and value in use.
Derecognition
The Mercury Group derecognises intangible assets when they are sold or when it does not expect to receive future economic benefits from their continued use or sale.
Goodwill
Goodwill arising on business combinations is the difference between the consideration paid, including related costs, and fair value of the assets acquired and the liabilities assumed at the transaction date. If the difference is positive, it is recognised as an asset (goodwill), being a payment by the acquiree for future economic benefits to be generated by assets that cannot be identified individually or recognised separately. If the difference is negative, it is recognised directly in profit or loss (negative goodwill).
Goodwill is recognised at cost, net of accumulated impairment losses. It is not amortised.
It is tested annually for impairment even if there are no indicators of impairment.
Any impairment losses on goodwill are recognised in caption 260 “Impairment losses on goodwill” and through the income statement. They are not reversed in subsequent periods.
8—Current and deferred taxes
The Mercury Group estimates current and deferred taxes.
Current taxes not yet paid in whole or in part at the reporting date are recognised as tax liabilities in the statement of financial position. If payments on account in the current or previous reporting period exceed the related tax expense, the difference is recognised as a tax asset.
Current and deferred taxes are recognised in caption 290 “Income taxes” of the income statement unless they relate to gains or losses on AFS financial assets and actuarial gains and losses, which are recognised directly in the valuation reserves, net of tax.
Deferred tax assets and liabilities are recognised in the statement of financial position without offsetting as “Tax assets” and “Tax liabilities”, respectively.
The income tax expense is calculated on the basis of an estimate of the current and deferred tax expense and income. Specifically, deferred tax assets and liabilities are calculated on the temporary differences between the carrying amounts of assets and liabilities and their tax bases. The Mercury Group recognises deferred tax assets for deductible temporary differences and carry forward tax losses that will reverse in subsequent periods when it is probable that it will make a taxable profit in the same period, according to its business plans, against which it can offset the deferred tax asset.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
95
Deferred tax liabilities are calculated on all taxable temporary differences, excluding only reserves taxed upon
distribution as, given the amount of the taxed available reserves, the Mercury Group does not expect to
undertake transactions that would require their taxation.
Deferred tax assets and liabilities are calculated using the tax rates expected to be enacted in the period in which the deferred tax asset will be recovered or the deferred tax liability extinguished, based on the ruling tax laws.
They are remeasured regularly to reflect any changes in the tax laws or rates or any subjective situations in which the Mercury Group may find itself.
9—Provisions for risks and charges
Pension and similar provisions
Internal pension plans are considered to be defined benefit plans. The Mercury Group calculates the related liabilities and current service cost using actuarial assumptions and the projected unit credit method. This method projects future payments using historical figures and the demographic curve and discounts these flows using a market interest rate.
The discount rate is the average market rate at the measurement date. The present value of the Mercury Group’s liability at the reporting date is also adjusted by the fair value of any plan assets.
Other provisions
The Mercury Group recognises provisions for risks and charges when:
• it has a present legal or constructive obligation as a result of a past event;
• it is probable that an outflow of resources will be necessary to settle the obligation; and
• the liability can be reliably estimated.
When the effect of the time value of money is material, the provision is discounted using the current market rates at the closing date. Accruals and increases due to the time factor are recognised in profit or loss. Where discounting is used, the increase in the provision due to the passage of time is recognised as interest expense.
Provisions and contingent liabilities are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
10—Liabilities and Securities issued
Classification
An issued financial instrument is classified as a liability when, based on the substance of the contractual agreement, the Mercury Group has a contractual obligation to deliver cash or another financial asset to another party.
Due to banks and customers include funding obtained on the interbank market and from customers, including through repurchase agreements and the placing of bonds and certificates of deposit.
They also include finance lease liabilities.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
96
Recognition
Amounts due to banks are recognised at the contract agreement date, which is usually when the Mercury Group receives the funds and issues the debt instruments.
Financial liabilities are initially recognised at fair value, which is normally the amount received or the issue price, plus the directly related costs/income. Internal administrative costs are excluded.
Measurement
After initial recognition, financial liabilities are measured at amortised cost using the effective interest method.
Interest is recognised in caption 20 “Interest and similar expense” of the income statement.
Derecognition
Financial liabilities, or parts thereof, are derecognised when they are extinguished, i.e., when the obligation is complied with, cancelled or has expired.
They are also derecognised when previously issued securities are repurchased. The difference between their carrying amount and the amount paid to repurchase them is recognised in the income statement.
If the repurchased security is subsequently placed on the market again, this is treated as a new issue and is recognised at the new placement price.
11—Financial liabilities held for trading
This caption includes derivatives held for trading with negative fair values.
All financial liabilities held for trading are measured at fair value and the fair value gains or losses are recognised in the income statement.
The measurement and recognition criteria are identical to those used for financial assets held for trading.
12—Foreign currency transactions
Initial recognition
Upon initial recognition, a foreign currency transaction is translated into the functional currency using the spot exchange rate ruling at the transaction date.
Subsequent measurement
Foreign currency assets and liabilities are retranslated into Euros at each subsequent reporting date using the following criteria:
• monetary items are retranslated using the closing rates;
• non-monetary items measured at historical cost are retranslated using the transaction-date exchange rates;
• non-monetary items measured at fair value are retranslated using the closing rates.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
97
Exchange rate differences arising from the settlement of monetary items are recognised in profit or loss in the period in which they arise; exchange rate differences on non-monetary items are recognised in equity or in profit or loss in line with the method used to recognise the gains or losses that include this component.
Foreign currency costs and revenue are translated at the exchange rate ruling on their recognition date or, if they have not been realised, at the closing spot rate.
13—Other information
Post-employment benefits
The Italian post-employment benefits (TFR) are a form of deferred remuneration paid to employees when they leave the Mercury Group. They accrue over the employment term and are recognised under personnel expense.
Following the Italian supplementary pension reform introduced with Legislative decree no. 252 of 5 December 2005, benefits accruing from 1 January 2007 are calculated without using an actuarial approach as the Mercury Group’s liability is limited to its contribution defined by the Italian Civil Code (defined contribution plan as per IAS 19 – “Employee Benefits”).
Post-employment benefits vested up to 31 December 2006 continue to be considered defined benefit plans under IAS 19. Accordingly, the related obligation is subject to actuarial valuation using the projected unit credit method. This method projects future payments using historical statistics and the demographic curve and discounts these flows using a market interest rate.
The rate used to discount the post-employment benefit obligation (both funded and unfunded) varies from country to country. It is determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The term of the corporate bonds is consistent with the estimated term of the post-employment benefit obligations.
Specifically, the amount recognised as a liability equals the net balance of the obligation’s present value at the reporting date, the sum of any actuarial gains or losses, less any pension costs for past service not yet recognised and the current value of plan assets, if any, at the reporting date that will be used to directly extinguish the obligation.
Mercury Group has recognised actuarial gains and losses in the statement of comprehensive income as required by the revised IAS 19.
Before that, they had been recognised immediately in the income statement.
Interest accrued on the net liability continues to be recognised.
Treasury shares
Repurchased treasury shares are directly offset against equity. No gain or loss on the repurchase, sale, issue or extinguishment of these shares can be recognised in profit or loss. Any amounts paid or received for these shares are recognised directly in equity.
The Nexi Group has set up the specific reserve.
Measurement of the fair value of financial instruments
The fair value of financial instruments is measured using the financial market prices in the case of instruments listed on active markets or by using internal measurement models for other financial instruments.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
98
An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
The closing date bid price and ask price are used for financial assets and financial liabilities respectively.
The fair value of financial instruments not quoted on active markets is determined using prices of recent market transactions of instruments with similar characteristics or by using valuation techniques based mainly on discounting cash flows. These techniques include all the factors that the market considers to set the price. Accordingly, the models consider the time value of money measured using the risk-free interest rate, default risks, the prepayment risk and the volatility of the financial instrument price, as well as, if applicable, foreign currency exchange rates.
The valuation model adopted for a financial instrument is the same over time, adjusted only in the case of significant changes in market conditions or subjective changes affecting Bondco.
Valuation models based on market parameters are used for bonds and derivatives. The calculation method also considers the need to include the credit risk of both counterparties.
Specifically, bonds are measured by discounting the expected future cash flows of the contractual plan, adjusted for Bondco credit risk.
This method is also used for derivatives, being interest rate swaps (“IRS”), overnight interest rate swaps (“OIS”) and options.
A fair value hierarchy has been developed for shares and an application order for the measurement methods which considers any significant transactions involving the share in a sufficiently short time period compared to the measurement period, comparable transactions carried out by companies operating in the same sector and the application of financial, income and equity analytical valuation methods.
The fair value of financial assets and liabilities carried at cost or amortised cost is disclosed in the notes and is determined as follows:
• for non-current financial assets and liabilities, the discounted cash flow method is mainly used;
• for on demand assets and liabilities, with a short term or undetermined maturity, the carrying amount net of a collective/individual impairment loss is deemed to reasonably reflect fair value as it reflects changes in interest rates and Bondco credit risk;
• for floating-rate and current fixed-rate securities issued, the carrying amount is deemed to adequately reflect fair value, for the reasons set out above;
• for non-current fixed-rate liabilities, the discounted cash flow method, without considering changes in its credit spread, given its immateriality, is used.
Measurement of fair value of non-financial assets
The fair value of investment property is only calculated for disclosure in the notes. The Mercury Group uses third party appraisals considering transactions at current prices in an active market for similar real estate assets in the same location and condition and that have the same lease and other contractual terms.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
99
Determination of impairment losses on goodwill
Impairment losses on goodwill are determined using the discounted cash flow method.
Guarantees issued
Guarantees issued, credit derivatives and similar instruments as per IAS 39 and subsequent impairment losses are recognised in caption 100 “Other liabilities”.
Income statement
Interest income and expense
Interest income and expense and related income and expense relate to cash and cash equivalents, non-derivative financial assets and liabilities held for trading, AFS financial assets, HTM investments, loans and receivables, liabilities and securities issued.
Interest income and expense are recognised in the income statement on all instruments measured at amortised cost, using the effective interest method.
Fee and commission income and expense
They are recognised on an accruals basis.
Specifically, trading commissions on securities are recognised when the service is rendered.
Fees and commissions included in amortised cost to calculate the effective interest rate are excluded as they are recognised under interest.
Dividends
Dividends are recognised in the income statement when their distribution is approved.
Other income and costs
They are recognised on an accruals basis.
Business combinations
Assets and liabilities deriving from business combinations are recognised at their acquisition-date fair value. After allocating the acquisition price to the assets acquired, liabilities assumed and contingent liabilities to obtain their fair value, any positive difference is recognised as goodwill. After initial recognition, goodwill is tested annually for impairment, even if there is no indication of impairment.
If the allocation of the acquisition cost to the assets acquired, liabilities assumed (and contingent liabilities) gives rise to a negative difference, this is taken to profit or loss.
Utilisation of estimates and assumptions in the preparation of the interim consolidated financial statements
The interim consolidated financial statements captions are measured using the policies set out above.
Application of these policies sometimes involves the adoption of estimates and assumptions that may have a significant effect on the carrying amount of assets and liabilities, income and expenses.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
100
The use of reasonable estimates is an essential part of the preparation of financial statements but must not affect their reliability. The financial statements captions affected to a greater extent by the use of estimates and assumptions are:
• measurement of financial assets not listed on active markets;
• measurement of intangible assets and equity investments;
• quantification of accruals to provisions for risks and charges; and
• quantification of deferred liabilities.
A change in an accounting estimate may occur due to changes in the circumstances on which the estimate was based or as a result of new information or more experience. The effect of a change in an accounting estimate is recognised prospectively by including it in profit or loss of the period of the change and, if the change affects future periods, also in future periods.
No significant changes to the accounting estimates were made in the period.
A.3. Transfers between portfolios of financial assets
A.3.1 Reclassified financial assets: carrying amount, fair value and effects on comprehensive income
Income or expense if
transfer had not taken place
(before taxes)
Income or expense for the period (before
taxes
Type of financial instrument Original portfolio
Portfolio to which
transfer is made
Carrying amount at 30
September 2017
Fair value at 30 September
2017 Fair value gain/loss Other
Fair value gain/loss Other
1. Debt instruments ................. Financial
assets held for trading
Available-for- sale financial assets 17,551 17,551 9 - 144 -
A.3.2 Reclassified financial assets: effects on comprehensive income before transfer
No transfers among portfolios took place during the period.
A.4 Fair value disclosure
The IFRS require that financial products classified in the HFT or AFS portfolios be measured at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the principal market at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. When measuring fair value, an entity uses the assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk.
IFRS 13 –“Fair Value Measurement” establishes a hierarchy for measuring fair value of financial instruments depending on the entity’s use of discretion, prioritising the use of relevant observable inputs that reflect the assumptions that market participants would use to price assets/liabilities.
The fair value hierarchy has three input levels:
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
101
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices);
• Level 3: unobservable inputs for the asset or liability.
The decision about which level to use is not optional as they are to be applied in hierarchical order. Highest priority is given to official prices available on active markets for the assets or liabilities to be measured (level 1) or assets and liabilities measured using techniques based on parameters observable on the market other than prices (level 2) and the lowest priority is given to assets and liabilities whose fair value is calculated using techniques that are based on unobservable inputs and which are, therefore, more discretional (level 3).
The Mercury Group uses the reporting date market price for instruments listed on active markets (level 1).
The fair value of financial instruments not listed on active markets is measured using techniques mainly based on discounting cash flows. These techniques consider all the factors that the market uses to set the price which are mainly inputs observable on the market (level 2). Specifically:
• bonds are measured by discounting the expected future cash flows of the contractual plan, adjusted for Bondco credit risk;
• derivatives, including IRSs, OISs and options are measured using the market models that mainly use market rates as their input, adjusted to reflect counterparty risk. This risk includes changes in the counterparty’s credit standing and in Bondco’s credit standing (own credit risk), if material;
• a fair value hierarchy has been developed for shares and an application order for the measurement methods which considers any significant transactions involving the share in a sufficiently short time period compared to the measurement period, comparable transactions carried out by companies operating in the same sector and the application of financial, income and equity analytical valuation methods.
The valuation model adopted for a financial instrument is the same over time, adjusted only in the case of significant changes in market conditions or subjective changes affecting the Mercury Group.
Quantitative information
A.4.1 Levels 2 and 3: valuation techniques and inputs used
The Mercury Group measured Level 2 financial instruments (mainly IRSs, OISs, interest rate and currency options) using market interest rates and volatility. The adjustments made to the Level 2 instruments to reflect counterparty risk were immaterial due to the fact that the Mercury Group has limited operations in the unlisted derivatives segment, that its transactions are mainly with Italian institutional counterparties and, most importantly, it has guarantees mitigating risk.
A.4.2 Measurement processes and sensitivity
As noted above, the Mercury Group does not have nor did it trade in Level 3 financial instruments during the financial year, except for immaterial amounts. At 30 September 2017, the Mercury Group held Level 3 financial instruments for which the disposal process was already defined.
A.4.3. Fair value hierarchy
Transfers between the fair value levels are made to reflect changes in the instruments or its market.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
102
Transfers from Level 1 to Level 2 are made when there is an inadequate number of contributors or a limited number of investors that hold the outstanding float.
Conversely, instruments that are illiquid when issued and have a small number of trades classified in Level 2 are transferred to Level 1 when an active market exists.
A.4.4. Other disclosures
The Mercury Group did not avail itself of the exception under IFRS 13 paragraph 48 to measure the net positions of groups of assets and liabilities managed on a net basis.
The Mercury Group does not hold assets for which the current use differs from their highest and best use.
Quantitative information
A.4.5 Fair value hierarchy
A.4.5.1 Assets and liabilities measured at fair value on a recurring basis: breakdown by fair value level.
30 September 2017 31 December 2016
L1 L2 L3 L1 L2 L3
1. Financial assets held for trading .................................... 16,390 4,098 - 11,445 1,748 - 2. Financial assets at fair value through profit or loss ....... 203 - - 201 - - 3. Available-for-sale financial assets ................................. 3,009,983 223,747 - 3,170,237 191,977 - 4. Hedging derivatives ....................................................... - - - - - - 5. Property, equipment and investment property ............ - - - - - - 6. Intangible assets ........................................................... - - - - - -
Total 3,026,576 227,846 - 3,181,883 193,725 -
1. Financial liabilities held for trading ............................... 1,939 11,493 - 438 7,629 - 2. Financial liabilities at fair value through profit or loss .. - - - - - - 3. Hedging derivatives ....................................................... 1,746 - - - - -
Total 3,685 11,493 - 438 7,629 -
Key
L1 = level 1
L2 = level 2
L3 = level 3
The Mercury Group did not transfer assets and liabilities between level 1 and level 2 during the period.
Given the Mercury Group’s limited operations in the unlisted derivative segment, the fact that it solely works with Italian institutional counterparties and the existence of guarantees that mitigate counterparty risk, the above fair value is not significantly influenced by adjustment factors for counterparty risk (credit value adjustments and/or debit value adjustments).
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
103
A.4.5.2 Assets and liabilities not measured at fair value or measured at fair value on a non-recurring basis: breakdown by fair value level
30 September 2017 31 December 2016
CA L1 L2 L3 CA L1 L2 L3
1. Held-to-maturity investments .................... 4,951 4,900 - - 15,933 15,933 - - 2. Loans and receivables with banks............... 1,114,452 - 1,114,452 - 1,019,978 - 1,019,978 - 3. Loans and receivables with customers ....... 3,071,982 - 3,071,591 391 2,966,678 - 2,966,287 391 4. Investment property ................................... 70,411 - 75,320 - 71,569 - 75,320 - 5. Non-current assets held for sale and disposal 95 - 95 - 112 - 112 -
Total ............................................................ 4,261,891 4,900 4,261,458 391 4,074,270 15,933 4,061,697 391
1. Due to banks ............................................... 1,821,350 - 1,821,350 - 1,797,217 - 1,797,217 - 2. Due to customers ....................................... 6,935,391 - 6,935,391 - 6,260,283 - 6,260,283 - 3. Securities issued ......................................... - - - - - - - - 4. Liabilities associated with assets held for sale 6 - 6 - 8 - 8 -
Total ............................................................ 8,756,747 - 8,756,747 - 8,057,508 - 8,057,508 -
Key:
CA = carrying amount
L1 = level 1
L2 = level 2
L3 = level 3
A.5 Information on “day one profit/loss”
Pursuant to IFRS 7.28 and IAS 39.AG.76, a financial instrument shall be initially recognised at an amount that is equal to its fair value, which is generally considered to be the price paid/collected from its trading, as permitted by IFRS 13. In practice, there could be a difference between the two values. In these cases, the standard stipulates that a financial instrument can be recognised at a fair value different from the amount paid/collected only if it is measured:
• using prices from observable current market transactions in the same instrument;
• using valuation techniques exclusively based on observable market date as the variable factors.
In other words, IAS 39 states that the presumption that the fair value is equal to the price paid/collected can be rebutted only if it is determined using objective evidence that the price paid/collected does not represent the real market value of the financial instrument being traded.
The objective evidence shall be obtained using the most objective method available, i.e. reducing valuation discretion to the minimum.
The difference between fair value and the negotiated price, when the above conditions are met, is called the “day one profit or loss” and is immediately taken to profit or loss.
The Mercury Group did not recognise transactions of this kind in the period.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
104
Part B—NOTES TO THE STATEMENTS OF FINANCIAL POSITION
Assets
Section 1—Cash and cash equivalents—Caption 10
1.1 Cash and cash equivalents: breakdown
30 September 2017 31 December 2016
a) Cash ................................................................................................ 613 471 b) Demand deposits with central banks ............................................. 2,279,536 1,798,314
Total ................................................................................................... 2,280,149 1,798,785
Section 2—Financial assets held for trading—Caption 20
2.1 Financial assets held for trading: breakdown by product
30 September 2017 31 December 2016
L1 L2 L3 L1 L2 L3
A. Assets 1. Debt instruments .............................................. 16,363 - - 11,406 - -
1.1 Structured instruments ............................... 770 - - 314 - - 1.2 Other instruments ...................................... 15,593 - - 11,092 - -
2. Equity instruments ............................................ 3 - - 13 - - 3. OEIC units .......................................................... 20 - - 26 - - 4. Financing ........................................................... - - - - - -
4.1 Reverse purchase agreements .................... - - - - - - 4.2 Other ........................................................... - - - - - -
Total .............................................................. 16,386 - - 11,445 - -
B. Derivatives 1. Financial derivatives: ........................................ 4 4,098 - - 1,748 - 1.1 trading ............................................................. 4 4,098 - - 1,748 - 1.2 associated with fair value option .................... - - - - - - 1.3 other ............................................................... - - - - - - 2. Credit derivatives: ............................................. - - - - - - 2.1 trading ............................................................. - - - - - - 2.2 associated with fair value option .................... - - - - - - 2.3 other ............................................................... - - - - - -
Total .............................................................. 4 4,098 - - 1,748 -
Total .............................................................. 16,390 4,098 - 11,445 1,748 -
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
105
2.2 Financial assets held for trading: breakdown by debtor/issuer
30 September 2017 31 December 2016
A. Assets 1. Debt instruments a) Governments and central banks ............................................... 317 190 b) Other government agencies ..................................................... 1,439 92 c) Banks ......................................................................................... 10,336 10,212 d) Other issuers ............................................................................. 4,271 912 2. Equity instruments a) Banks ......................................................................................... 2 9 b) Other issuers: ............................................................................ 1 4
—insurance companies ............................................................. - - —financial companies ............................................................... - - —non-financial companies........................................................ 1 4 —other ...................................................................................... - -
3. OEIC units .................................................................................. 20 26 4. Financing a) Governments and central banks ............................................... - - b) Other government agencies ..................................................... - - c) Banks ......................................................................................... - - d) Other ......................................................................................... - -
Total ...................................................................................... 16,386 11,445
B. Derivatives a) Banks ......................................................................................... 2,427 1,598
—fair value ................................................................................ 2,427 1,598 b) Customers ................................................................................. 1,675 150
—fair value ................................................................................ 1,675 150
Total ...................................................................................... 4,102 1,748
Total ...................................................................................... 20,488 13,193
Derivatives mainly relate to matched interest rate swaps held for trading.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
106
Section 3—Financial assets designated at fair value though profit and loss—Caption 30
3.1 Financial assets at fair value: breakdown by product
Level 1 financial assets 30 September 2017 31 December 2016
A. Assets 1. Debt
instruments……………………………………………………….
1.1 Structured instruments - - 1.2 Other instruments - -
2. Equity instruments 194 192 3. OEIC units - - 4. Financing
4.1 Structured instruments - - 4.2 Other instruments 9 9
Total 203 201 3.2 Financial assets at fair value: breakdown by debtor/issuer
30 September 2017 31 December 2016
Assets 1. Debt instruments a) Governments and central banks - - b) Other government agencies - - c) Banks - - d) Other issuers - - 2. Equity instruments a) Banks 194 192 b) Other issuers - - —insurance companies - - —financial companies - - —non-financial companies - - —other - - 3. OEIC units - - 4. Financing a) Governments and central banks - - b) Other government agencies - - c) Banks 9 9 d) Other - - Total 203 201
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
107
Section 4—Available-for-sale financial assets—Caption 40
4.1 Available-for-sale financial assets: breakdown by product
30 September 2017 31 December 2016
L1 L2 L3 L1 L2 L3
1. Debt instruments .................. 3,008,352 - - 3,169,903 - - 1.1 Structured instruments .. - - - - - - 1.2 Other instruments .......... 3,008,352 - - 3,169,903 - -
2. Equity instruments ............... 1,631 182,164 - 333 147,576 - 2.1 FVTPL .............................. 1,631 182,164 - 333 147,576 - 2.2 Cost ................................. - - - - - -
3. OEIC units ............................. - 41,584 - - 44,401 - 4. Financing ............................... - - - - - -
Total.................................. 3,009,983 223,748 - 3,170,236 191,977 -
4.2 Available-for-sale financial assets: breakdown by debtor/issuer
30 September 2017 31 December 2016
1. Debt instruments a) Governments and central banks ........................................................ 3,008,352 3,169,903 b) Other government agencies .............................................................. - - c) Banks .................................................................................................. - - d) Other issuers ...................................................................................... - -
2. Equity instruments ................................................................................ a) Banks .................................................................................................. 749 486 b) Other issuers: ..................................................................................... 183,046 147,423
—insurance companies ...................................................................... - - —financial companies ........................................................................ 83,245 48,540 —non-financial companies ................................................................ 99,763 98,844 —other ............................................................................................... 39 39
3. OEIC units ............................................................................................... 41,584 44,401 4. Financing ................................................................................................
a) Governments and central banks ........................................................ - - b) Other government agencies .............................................................. - - c) Banks .................................................................................................. - - d) Other .................................................................................................. - -
Total .................................................................................................... 3,233,731 3,362,213
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
108
Section 5—Held-to-maturity investments—Caption 50
5.1 Held-to-maturity investments: breakdown by product
30 September 2017 31 December 2016
FV FV
CA Level 1 Level 2 Level 3 CA Level 1 Level 2 Level 3
1. Debt instruments ..................... —structured instruments ............ 4,951 4,900 - - 4,948 4,948 - - —other instruments .................... - - - - 10,985 10,985 - - 2. Financing .................................. - - - - - - - -
Total ............................................ 4,951 4,900 - - 15,933 15,933 - -
Key
FV = fair value
CA = carrying amount
5.2 Held-to-maturity investments: breakdown by debtor/issuer
30 September 2017
31 December 2016
1. Debt instruments a) Governments and central banks ....................................................................... - - b) Other government agencies ............................................................................. - - c) Banks ................................................................................................................. 4,951 15,933 d) Other issuers ..................................................................................................... - - 2. Financing .......................................................................................................... - - a) Governments and central banks ....................................................................... - - b) Other government agencies ............................................................................. - - c) Banks ................................................................................................................. - - d) Other................................................................................................................. - -
Total ...................................................................................................................... 4,951 15,933
Total fair value ..................................................................................................... 4,951 15,933
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
109
Section 6—Loans and receivables with banks—Caption 60
6.1 Loans and receivables with banks: breakdown by product
30 September 2017 31 December 2016
FV FV
CA Level 1 Level 2 Level 3 CA Level 1 Level 2 Level 3
A. Loans and receivables with central banks .................................... 186,297 - 186,297 - 170,519 170,519 1. Term deposits ............................... - - - - - - - - 2. Minimum reserve ......................... 186,297 - 186,297 - 170,519 - 170,519 - 3. Reverse repurchase agreements .. - - - - - - - - 4. Other............................................. - - - - - - - - B. Loans and receivables with banks 928,154 - 928,154 - 849,459 - 849,459 - 1. Financing 923,967 923,967 845,405 845,405
1.1 Current accounts and demand deposits ........................................ 286,905 - 286,905
- 425,753
- 425,753
-
1.2 Term deposits ......................... 6,469 - 6,469 - 862 - 862 - 1.3 Other financing: ...................... 630,593 - 630,593 - 418,790 - 418,790 -
—Reverse repurchase agreements .............................. 340,748
- 340,748
- 231,707
- 231,707
-
—Finance leases ...................... - - - - - - - - —Other .................................... 289,845 - 289,845 - 187,083 - 187,083 -
2. Debt instruments .......................... 4,188 - 4,188 - 4,054 - 4,054 - 2.1 Structured instruments .......... - - - - - - - - 2.2 Other debt instruments .......... 4,188 - 4,188 - 4,054 - 4,054 -
Total carrying amount ............ 1,114,452 - 1,114,452 - 1,019,978 - 1,019,978 -
Key
FV = fair value
CA = carrying amount
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
110
Section 7—Loans and receivables with customers—Caption 70
7.1 Loans and receivables with customers: breakdown by product
30 September 2017 31 December 2016
Carrying amount Fair Value Carrying amount Fair value
Performing
Non-performing L1 L2 L3 Performing
Non-performing L1 L2 L3
Purchased Other Purchased Other
Financing ................... 3,070,994 - 988 - 3,071,592 391 2,965,371 - 1,307 - 2,966,287 391 1. Current accounts ... 65,935 - 391 - 65,935 391 75,738 - 391 - 75,738 391
2. Reverse repurchase
agreements ............... 381,001 - - - 381,001
-
207,517 - -
-
207,517
-
3. Loans ..................... - - - - - - - - - - -
4. Credit cards, personal loans and salary backed loans ... 1,979,781 - 299 - 1,980,080 - 2,260,190 - 154
-
2,260,344
-
5. Finance leases ....... - - - - - - - - - - - 6. Factoring ............... - - - - - - - - - - -
7. Other financing...... 644,276 - 299 - 644,576 - 421,926 - 762 - 422,688 -
Debt instruments ...... - - - - - - - - - - - - 8 Structured
instruments .... - - - - - - - - - -
- -
9. Other instruments . - - - - - - - - - - - -
Total carrying amount ........... 3,070,994 - 988 - 3,071,592 391 2,965,371 - 1,307 - 2,966,287 391
“Other financing” mainly relates to guarantee deposits.
7.2 Loans and receivables with customers: breakdown by debtor/issuer
30 September 2017 31 December 2016
Non-performing Non-performing
Performing Purchased Other Performing Purchased Other
1. Debt instruments ................. - - - - - - a) Governments ........................ - - - - - - b) Other government agencies . - - - - - - c) Other issuers ......................... - - - - - -
—non-financial companies ... - - - - - - —financial companies ........... - - - - - - —insurance companies ......... - - - - - - —other issuers ...................... - - - - - -
2. Financing to: ......................... 3,070,994 - 988 2,965,371 - 1,307 a) Governments ........................ - - - - - - b) Other government agencies . - - - - - - c) Other ..................................... 3,070,994 - 988 2,965,371 - 1,307
—non-financial companies ... 109,353 - 299 33,554 - 558 —financial companies ........... 981,657 - 427 687,666 - 598 —insurance companies ......... - - - 50 - - —other .................................. 1,979,984 - 263 2,244,101 - 151
Total .................................. 3,070,994 - 988 2,965,371 - 1,307
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
111
Section 8—Equity investments—Caption 100
8.1 Equity investments
Investment
Registered office
Operating office
Type of relationship Investor
Investment %
Voting rights
%
B. Associates 1. Hi-Mtf Sim S.p.A. ......................... Milan Milan 1 Nexi 25 25 2. Unione Fiduciaria ......................... Milan Milan 1 Nexi 24 24 3. Consorzio Stabile Win Join s.c.a.r.l. Lecce Rome 1 Bassilichi S.p.A. 24 24 4. RS Records Store S.p.A. ............... Caorso Caorso 1 Bassilichi S.p.A. 30 30 5. ICT Logistica s.r.l. ......................... Empoli Empoli 1 Bassilichi S.p.A. 33 33 6. K.Red s.r.l. .................................... Milan Milan 1 Bassilichi S.p.A. 50 50
(1) Type of relationship:
1 = majority of voting rights at ordinary shareholders’ meetings
8.2 Significant equity investments: carrying amount
30 September 17 31 December 2016
Associates 1. Hi-Mtf Sim S.p.A................................................... 1,536 1,536 2. Unione Fiduciaria ................................................. 8,728 8,564 3. Consorzio Stabile Win Join s.c.a.r.l. ..................... 48 - 4. RS Records Store S.p.A......................................... 1,364 - 5. ICT Logistica s.r.l. ................................................. 259 - 6. K.Red s.r.l. ............................................................ 220 -
Total ................................................................. 12,153 10,103
8.3 Equity investments: changes
30 September 2017 31 December 2016
A. Opening balance ................................................................ 10,103 108,396 B. Increases ............................................................................ 4,267 22,131 B.1 Purchases .......................................................................... - - B.2 Reversals of impairment losses ........................................ - - B.3 Fair value gains ................................................................. - 16 B.4 Other increases ................................................................. 2,378 22,115 - Including business combinations ...................................... 1,889 22,115 C. Decreases ........................................................................... (328) (120,424) C.1 Sales .................................................................................. - - C.2 Impairment losses ............................................................ - - C.3 Other decreases ................................................................ (328) (120,424) D. Closing balance .................................................................. 12,153 10,103 E. Total fair value gains .......................................................... - - F. Total impairment losses ..................................................... - -
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
112
Section 9—Property, equipment and investment property—Caption 120
9.1 Property, equipment and investment property: assets measured at cost less accumulated depreciation.
30 September 2017 31 December 2016
1. Owned a) land ................................. 18,804 18,804 b) buildings .......................... 68,418 48,811 c) furniture .......................... 1,981 2,021 d) electronic systems .......... 81,573 57,830 e) other ............................... 4,371 1,647
2. Under finance lease a) land ................................. - - b) buildings .......................... - - c) furniture .......................... - - d) electronic systems .......... - - e) other ............................... - -
Total ............................... 175,146 129,113
9.2 Investment property: breakdown of assets measured at cost less accumulated depreciation.
30 September 2017 31 December 2016
Fair value Fair value
Carrying amount L1 L2 L3
Carrying amount L1 L2 L3
1. Owned a) land ................................................ 39,898 - 42,429 - 39,898 - 56,863 - b) buildings ........................................ 30,513 - 32,891 - 31,670 - 39,777 -
2. Under finance lease a) land ................................................ - - - - - - - - b) buildings ........................................ - - - - - - - -
Total ............................................. 70,411 - 75,320 - 71,569 - 96,640 -
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
113
9.3 Property and equipment: changes
Land Buildings Furniture Electronic systems Other Total
A. Gross opening balance ...................... A.1 Total net impairment losses ............. - - - - - - A.2 Net opening balance ......................... 18,804 48,812 2,021 57,830 1,646 129,113 B. Increases ........................................... - 21,615 121 43,576 5,280 70,592 B.1 Purchases .......................................... - 19 121 28,907 1,342 30,389 B.2 Capitalised improvement costs ......... - - - - - - B.3 Reversals of impairment losses ......... - - - - - - B.4 Fair value gains recognised in: .......... - - - - - -
a) equity .............................................. - - - - - - b) profit or loss .................................... - - - - - -
B.5 Exchange rate gains .......................... - - - - - - B.6 Transfers from investment property . - - - - - - B.7 Other increases ................................. - - - - -
—including business combinations ..... - 21,596 - 14,669 3,933 40,198 —other changes .................................. - - - - 5 40,198
C. Decreases ............................................ - (2,009) (161) (18,833) (2,556) (24,558) C.1 Sales .................................................. - - - (263) - (263) C.2 Depreciation ...................................... - (2,004) (161) (19,571) (2,556) (24,291) C.3 Impairment losses recognised in: ..... - - - - - -
a) equity .............................................. - - - - - - b) profit or loss .................................... - - - - - -
C.4 Fair value losses recognised in: ......... - - - - - - a) equity .............................................. - - - - - - b) profit or loss .................................... - - - - - -
C.5 Exchange rate losses ......................... - - - - - - C.6 Transfers to: ...................................... - - - - - -
a) investment property ....................... - - - - - - b) disposal group ................................. - - - - - -
C.7 Other decreases ................................ - (5) - - - - D. Net closing balance ........................... - - - - - - D.1 Total net impairment losses ............. - - - - - -
D.2 Gross closing balance ...................... 18,804 68,418 1,981 81,573 4,371 175,146
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
114
9.4 Investment property: changes
Total
Land Buildings
A. Opening balance ......................................... 39,898 31,670 B. Increases - - B.1 Purchases .................................................... - - B.2 Capitalised improvement costs ................... - - B.3 Fair value gains............................................ - - B.4 Reversals of impairment losses ................... - - B.5 Exchange rate gains .................................... - - B.6 Transfers from property and equipment .... - - B.7 Other increases ........................................... - - C. Decreases - (1,158) C.1 Sales ............................................................ - - C.2 Depreciation ................................................ - (1,158) C.3 Fair value losses .......................................... - - C.4 Impairment losses ....................................... - - C.5 Exchange rate losses ................................... - - C.6 Transfers to other portfolios: - -
a) property and equipment ........................... - - b) non-current assets held for sale ............... - -
C.7 Other decreases .......................................... - -
D. Closing balance ............................................ 39,898 30,513
E. Fair value ....................................................... 42,429 32,891
Investment property is covered by IAS 40 and includes property held (either owned or under finance lease) to earn rental and/or obtain appreciation of invested capital.
Investment property is measured at cost, net of depreciation.
Investment properties are held by Mercury Group and are listed below:
• building in via Verziere 11, Milan,
• building in via Cavallotti 14, Milan,
• building in via Zurigo 3, Milan,
• building in via Broletto 37, Milan,
• building in Corso Europa 18, Milan,
• building in Assago,
• building in via Nazionale 3, San Giovanni al Natisone.
At the reporting date, there are no:
• restrictions to the sale of investment property or the collection of lease payments;
• obligations/contractual commitments to purchase, build, develop, repair or maintain owner-occupied property.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
115
Section 10—Intangible assets—Caption 130
10.1 Intangible assets: breakdown by asset
30 September 2017 31 December 2016
Finite
life Indefinite
life Finite
life Indefinite
life
A.1 Goodwill .......................................................................... - 2,570,772 - 1,968,647 A.1.1 attributable to the owners of the parent ...................... - 2,570,772 - 1,968,647 A.1.2 attributable to non-controlling interests ...................... - - - - A.2 Other intangible assets ................................................... 156,479 - 119,697 - A.2.1 Assets measured at cost: - - - - a) Internally developed assets ................................................ - - - - b) Other .................................................................................. 156,479 - 119,697 - A.2.2 Assets measured at fair value: - - - - a) Internally developed assets ................................................ - - - - b) Other .................................................................................. - - -
Total ....................................................................................... 156,479 2,570,772 119,697 1,968,647
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
116
10.2 Intangible assets: changes
30 September 2017
Other intangible assets: developed
internally Other intangible
assets: other
Goodwill Finite
life Indefinite
life Finite life Indefinite
life Total
A. Opening balance ......................................... 1,968,647 - - 143,535 - 2,112,182
A.1 Total net impairment losses ...................... - - - 23,838 - 23,838 A.2 Net opening balance ................................ 1,968,647 - - 119,697 - 2,088,344
B. Increases ...................................................... 602,125 - - 62,985 - 665,110 B.1 Purchases ................................................... - - - 37,576 - 37,576 B.2 Increase in internally generated assets ..... - - - - - - B.3 Reversals of impairment losses .................. - - - - - - B.4 Fair value gains recognised in: ................... - - - - - -
—equity .................................................... - - - - - - —profit or loss ......................................... - - - - - -
B.5 Exchange rate gains ................................... - - - - - - B.6 Other increases .......................................... 602,125 - - 25,409 - 627,534
—including business combinations .............. 602,125 - - 25,409 - 627,534 C. Decreases ................................................... - - - (26,205) - (26,205) C.1 Sales ........................................................... - - - - - - C.2 Impairment losses ...................................... - - - - - -
−Amortisation .......................................... - - - (26,057) - (26,057) −Fair value losses ..................................... - - - - - -
+ equity ................................................ - - - - - - + profit or loss ...................................... - - - - - -
C.3 Fair value losses recognised in: .................. - - - - - - —equity .................................................... - - - - - - —profit or loss ......................................... - - - - - -
C.4 Transfers to non-current assets held for sale....................................................................... - - - - - -
C.5 Exchange rate losses .................................. - - - - - - C.6 Other decreases ......................................... - - - (148) - (148)
—business combinations ............................. - - - - - - D. Net closing balance ..................................... 2,570,772 - - 156,479 - 2,727,251
D.1 Total net impairment losses ...................... - - - 50,043 - 50,043 E. Gross closing balance ................................. 2,570,772 - - 206,522 - 2,777,294
The increase in the period to 30 September 2017 relates to the acquisitions of MPS Acquiring, DB Cards
Acquiring and Bassilichi Payments. In particular the acquisition by Nexi Payments of MPS Acquiring (on 1 June
2017) and DB Cards Acquiring (on 30 June 2017) resulted in a recognition of goodwill in an amount of €464
million and €26.5 million, respectively. The acquisition by Nexi of Bassilichi Payments (on 3 July 2017) resulted
in a recognition of goodwill in an amount of €111.4 million.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
117
Section 11—Tax assets and liabilities—Caption 140 of assets and Caption 80 of liabilities
11.1 Current tax assets and liabilities
These balances relate to €40.932 million (2016: €45.869 million) of tax recoveries receivable and €13.689 million (2016: €17.096 million) of tax payments due under the IRES and IRAP taxation regimes in Italy.
11.2 Deferred tax assets: breakdown
30 September 2017 31 December 2016
IRAP Net impairment losses on loans and receivables ......................................... 316 337 Provisions ..................................................................................................... 197 190 Substitute tax on goodwill ........................................................................... 3,515 3,543 Amortisation/depreciation .......................................................................... 1,411 1,272 Fair value reserve ......................................................................................... - 81 Other ............................................................................................................ 3 3 IRES Net impairment losses on loans and receivables ......................................... 11,414 12,183 Provisions ..................................................................................................... 10,992 9,300 Substitute tax on goodwill ........................................................................... 17,353 17,490 Impairment losses on intangible assets, P&E and investment property ..... 12,352 11,460 Fair value reserve ............................................................................... - 399 Other ............................................................................................................ 1,035 1,403 Total ........................................................................................................ 58,588 57,661
11.3 Deferred tax liabilities: breakdown
30 September 2017 31 December 2016
IRAP Building revaluations...................................................................................... 3,923 3,894 Other .............................................................................................................. 2,588 858 Fair value reserve ........................................................................................... 1,803 1,594 IRES Building revaluations...................................................................................... 19,658 19,931 Other .............................................................................................................. 14,191 5,242 Fair value reserve ........................................................................................... 8,905 7,868 Total .......................................................................................................... 51,068 39,387
Italian corporate entities are subject to corporate income tax (IRES) and to regional production tax (IRAP).
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
118
11.4 Changes in deferred tax assets (recognised in profit or loss)
30 September 2017 31 December 2016
1. Opening balance ......................................................................................... 54,090 716 2. Increases ..................................................................................................... 5,024 59,510 2.1 Deferred tax assets recognised in the period ........................................... - -
a) related to previous years ........................................................................ - - b) due to changes in accounting policies .................................................... - - c) reversals of impairment losses ................................................................ - 2,249 d) other ....................................................................................................... 5,024 52,113
2.2 New taxes or increases in tax rates ........................................................... - 4,824 2.3 Other increases ......................................................................................... - 324 3. Decreases .................................................................................................... (2,626) (6,136) 3.1 Deferred tax assets derecognised in the period ....................................... - -
a) reversals .................................................................................................. (2,626) - b) impairment due to non-recoverability.................................................... - (5,848) c) change in accounting policies .................................................................. - - d) other ....................................................................................................... - (288)
3.2 Decrease in tax rates ................................................................................. - - 3.3 Other decreases ........................................................................................ - - a) conversion into tax credits as per Law no 214/2011................................ - - b) other ........................................................................................................ - - 4. Closing balance ....................................................................................... 56,488 54,090
11.5 Changes in deferred tax liabilities (recognised in profit or loss)
30 September 2017 31 December 2016
1. Opening balance ......................................................................................... 29,857 3,362 2. Increases 10,451 30,143 2.1 Deferred tax liabilities recognised in the period ....................................... - -
a) related to previous years ........................................................................ - - b) due to changes in accounting policies .................................................... - -
c) tax assets related to land and building recognised in equity for PPA ......... - 8,223 d) recognised in equity in prior period........................................................ - 21,552 e) other ....................................................................................................... 10,394 368
2.2 New taxes or increases in tax rates ........................................................... - - 2.3 Other increases ......................................................................................... 57 - 3. Decreases (320) (3,648) 3.1 Deferred tax liabilities derecognised in the period ................................... - -
a) reversals .................................................................................................. (320) (3,648) b) due to changes in accounting policies .................................................... - - c) other ........................................................................................................ - -
3.2 Decrease in tax rates ................................................................................. - - 3.2 Other decreases ........................................................................................ - - 4. Closing balance ....................................................................................... 39,988 29,857
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
119
11.6 Changes in deferred tax assets (recognised as part of a business combination)
30 September 2017 31 December 2016
1. Opening balance ......................................................................................... 3,571 53,063 2. Increases - 2,621 2.1 Deferred tax assets recognised in the period ........................................... - -
a) related to previous years ........................................................................ - - b) due to changes in accounting policies .................................................... - - c) other ........................................................................................................ - 448
2.2 New taxes or increases in tax rates ........................................................... - - 2.3 Other increases ......................................................................................... 1,180 2,173 3. Decreases (2,651) (52,113) 3.1 Deferred tax assets derecognised in the period ....................................... - -
a) reversals .................................................................................................. (2,651) - b) impairment due to non-recoverability ................................................... - - c) due to changes in accounting policies ..................................................... - - d) other ....................................................................................................... - (52,113)
3.2 Decrease in tax rates ................................................................................. - - Other decreases .............................................................................................. - - 4. Closing balance ....................................................................................... 2,100 3,571
11.7 Changes in deferred tax liabilities (recognised in equity) 30 September 2017 31 December 2016
1. Opening balance ............................................................................ 9,530 52,755 2. Increases 2,483 294 2.1 Deferred tax liabilities recognised in the period ...........................
a) related to previous periods......................................................... - - b) due to changes in accounting policies ........................................ - - c) other ........................................................................................... 2,483 237
2.2 New taxes or increases in tax rates .............................................. - - 2.3 Other increases ............................................................................. - 57 3. Decreases (933) (43,519) 3.1 Deferred tax liabilities derecognised in the period.......................
a) reversals ...................................................................................... (876) (43,519) b) due to changes in accounting policies ........................................ - - c) other ........................................................................................... - -
3.2 Decrease in tax rates..................................................................... - - 3.2 Decrease in tax rates..................................................................... - -
3.3 Other decrease .................................................................................. (57) -
4. Closing balance .................................................................................. 11,080 9,530
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
120
Section 12—Non-current assets held for sale—Caption 150
12.1 Non-current assets held for sale and discontinued operation: breakdown by type of asset
30 September 2017 31 December 2016
Non-current assets held for sale: Due from banks ............................................................................................ 53 112 Other ............................................................................................................ 41 -
Total ............................................................................................................. 95 112
Of which Fair Value Level 2 .......................................................................... 95 112
30 September 2017 31 December 2016
Liabilities associated with non-current assets held for sale: Other ............................................................................................................ 6 8
Total ............................................................................................................. 6 8
Of which Fair Value Level 2 .......................................................................... 6 8
Section 13—Other assets—Caption 160
13.1 Other assets: breakdown
30 September 2017 31 December 2016
Withholding taxes paid on interest charged to customers and other tax assets ............................................................................................................ 82,857 89,286 Negotiated cheques to be cleared ............................................................... 27,008 11,644 Matured securities and accrued interest to be collected ............................. 157 70 Commissions and other income to be charged ............................................ 276,765 181,868 BIREL, transfers, SETIF, received messages to be charged, e-money ........... 181,349 139,310 Sundry and residual items ............................................................................ 103,351 44,652
Total ............................................................................................................. 671,487 466,830
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
121
Liabilities
Section 1—Due to banks—Caption 10
1.1 Due to banks: breakdown by product
30 September 2017 31 December 2016
1. Due to central banks ................................................................................ 903 862 2. Due to banks ............................................................................................ 1,820,447 1,796,355 2.1. Current accounts and demand deposits ................................................ 975,926 818,979 2.2. Term deposits ........................................................................................ 134,500 215,440 2.3. Financing ................................................................................................ 352,694 443,086 2.3.1. repurchase agreements .................................................................. 10,018 -
2.3.2 other ................................................................................................ 442,677 - 2.5 Other liabilities ....................................................................................... 257,327 318,850
Total ......................................................................................... 1,821,350 1,797,217
Fair value—level 1 ................................................................................ - - Fair value—level 2 ............................................................................ 1,821,350 1,797,217 Fair value—level 3 ................................................................................ - -
Total fair value ............................................................................. 1,821,350 1,797,217
Section 2—Due to customers—Caption 20
2.1 Due to customers: breakdown by product
30 September 2017 31 December 2016
1. Current accounts and demand deposits .................................................. 5,638,963 5,153,539 2. Term deposits .......................................................................................... 173 209 3. Financing .................................................................................................. 711,665 231,676
3.1 repurchase agreements ..................................................................... 711,665 231,676 3.2 other .................................................................................................. - -
4. Commitments to repurchase own equity instruments ............................ - - 5. Other liabilities ......................................................................................... 584,590 874,859
Total ........................................................................................ 6,935,391 6,260,283
Fair value—level 1 ............................................................................... - - Fair value—level 2 ............................................................................... 6,935,391 6,260,283 Fair value—level 3 ............................................................................... - -
Total fair value ............................................................................ 6,935,391 6,260,283
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
122
Section 3—Financial liabilities held for trading—Caption 40
3.1 Financial liabilities held for trading: breakdown by product
30 September 2017 31 December 2016
FV FV
NA L1 L2 L3 FV* NA L1 L2 L3 FV*
A. Financial liabilities 1. Due to banks ..................................... 1,632 1,667 - - - 69 90 - - - 2. Due to customers .............................. 262 272 - - - 302 348 - - - 3. Debt instruments .............................. - - - - - - - - - -
3.1 Bonds .......................................... - - - - - - - - - - 3.1.1 Structured ........................... - - - - - - - - - - 3.1.2 Other bonds ........................ - - - - - - - - - -
3.2 Other securities .......................... - - - - - - - - - - 3.2.1 Structured ........................... - - - - - - - - - - 3.2.2 Other ................................... - - - - - - - - - -
Total A ................................... 1,893 1,939 - - 371 438 - -
B. Derivatives 1. Financial derivatives
1.1 Trading ........................................ - - 4,704 - - - - 7,629 - - 1.2 Associated with fair value option - - 6,790 - - - - - - - 1.3 Other .......................................... - - - - - - - - - -
2. Credit derivatives .............................. - - - - - - - - - - 2.1 Trading ........................................ - - - - - - - - - - 2.2 Associated with fair value option - - - - - - - - - - 2.3 Other .......................................... - - - - - - - - - -
Total B .................................... - - 11,493 - - - - 7,629 - -
Total (A + B) .......................
1,893 1,939 11,493 -
- 371 438 7,629 -
-
Included in the financial liabilities held for trading are warrants issued by Holdco in the amount of €6.8 million. Warrants are rights to purchase existing shares of Nexi up to maximum of 12.7% of the share capital of Nexi. In December 2016, Holdco made an offer to certain members of the Nexi management team to subscribe for a proportion of the warrants and these were accepted and issued in January 2017. Additional warrants were issued in July and August 2017. In the post reporting period, an offer to subscribe for additional warrants was made in an amount of €0.3 million.
Legend:
FV = fair value
NA = nominal or notional amount
FV* = fair value calculated by excluding gains and losses due to changes in Bondco’s credit standing compared to the issue date.
L1 = level 1
L2 = level 2
L3 = level 3
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
123
Section 4—Hedging derivatives—Caption 60
4.1 Hedging derivatives: breakdown by type of hedge and level
30 September 2017 31 December 2016
L1 L2 L3 NV L1 L2 L3 NV
A. Financial derivatives .................................. - - - - - - -
1.Fair value ................................................ 1,746 - - 7,895 - - - 2.Cash flows .............................................. - - - - - - -
3.Foreign Investments ............................... - - - - - - -
B. Credit derivatives ...................................... - - - - - - -
1 Fair value ................................................ - - - - - - -
2. Cash flows ............................................. - - - - - - -
Total ...................................................... 1,746 - - 7,895 - - -
4.2 Hedging derivatives: breakdown by hedged portfolio and type of hedge as at 30 September 2017
Fair value Cashflow
Specific
Interest
rate Foreign
exchange rate
Credit risk
Price risk
Various
Generic
Specific
Generic
Foreign Investment
A. Total assets ...................... - - - - - - - - - 1 Financial assets available
for sale ....................... - - - - - - - - -
2 Loans .................................. - - - - - - - - - 3 Investments held to
maturity ..................... - - - - - - - - -
4. Portfolio ............................ - - - - - - - - - 5. Other transactions ............ - - - - - - - - - B. Total liabilities - - - 1,746 - - - - - 1 Financial liabilities .............. - - - 1,746 - - - - - 2 Portfolio ............................. - - - - - - - - - 1. Forecast transactions ........ - - - - - - - - - 2. Financial assets and
liabilities portfolio ...... - - - - - - - - -
Section 5—Tax liabilities—Caption 80
See section 11 of Assets.
Section 6—Liabilities associated with assets held for sale—Caption 90
See section 12 of Assets.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
124
Section 7—Other liabilities—Caption 100
7.1 Other liabilities: breakdown
30 September 2017 31 December 2016
Tax liabilities, withholding taxes and other amounts to be paid ............................. 6,573 24,418 Cheques, cheque truncation flows to be credited ................................................... 10,716 11,314 Securities, currency and premium transactions paid for options to be credited .... 20,102 1,757 Due to employees .................................................................................................... 80,823 25,906 Other liabilities for expenses, commissions and interest to be paid ....................... 375,524 258,324 Prepaid debit cards .................................................................................................. 48,863 56,769 Currency differences on portfolio transactions ....................................................... 16,191 17,202 BIREL, transfers, payment flows to be credited ....................................................... 381,655 277,868 Sundry and residual items ....................................................................................... 83,190 74,402
Total ............................................................................................................... 1,023,637 747,960
Section 7- Post employment benefits—Caption 110
7.2 Post-employment benefits: changes
30 September 2017 31 December 2016
A. Opening balance ................................................................................... 22,789 21,686 B. Increases 14,146 2,440 B.1 Accruals .................................................................................................... 332 231 B.2 Other increases ........................................................................................ 13,814 2,209
-including business combination ............................................................. 13,806 2,193 -other changes ..................................................................................... 8 16 C. Decreases (5,005) (1,337) C.1 Payments .................................................................................................. (3,897) (585) C. 2 Other decreases ...................................................................................... (1,108) (752)
Total .......................................................................................................... 31,930 22,789
Section 8—Provisions for risks and charges—Caption 120
8.1 Provisions for risks and charges: breakdown
30 September
2017 31 December 2016
1. Internal pension funds ..................................................................................... 903 940 2. Other provisions for risks and charges ............................................................. 54,312 40,015
Total ............................................................................................................ 55,215 40,955
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
125
8.2 Provisions for risks and charges: changes
30 September 2017 31 December 2016
Pension Funds
Other provisions
Total
Pension Funds
Other provisions
Total
A. Opening balance ........................................... 940 40,014 40,954 978 38,147 39,125
B. Increases 6 18,926 18,932 30 10,243 10,273
B.1 Accruals ...................................................... - 5,831 5,831 - 6,606 6,606
B.2 Discounting ................................................ - - - 30 - 30
B.3 Changes due to variations in discount rate - - - - - -
B.4 Other increases .......................................... - 29 29 - 3,637 3,637
Including business combination .................. 6 13,066 13,072 - - -
C. Decreases (43) (4,628) (4,671) (68) (8,375) (8,443)
C.1 Utilisations ................................................. (43) (3,057) (3,100) (68) (8,357) (8,425)
C.2 Changes due to variations in discount rate - - - - - -
C.3 Other decreases ......................................... - (1,571) (1,571) - (18) (18)
D. Closing balance ............................................. 903 54,312 55,215 940 40,015 40,955
8.3 Defined benefit internal pension plans
1. Description and related risks
The liability for defined benefit internal pension plans includes the accruals made for the Nexi Group’s obligation to its former employees. There are no other defined benefit pension plans within the Mercury Group.
2. Changes in defined benefit plan liabilities (assets) and related repayment rights
The present value of the defined benefit liability at 30 September 2017 amounts to €903,000.
3. Fair value of plan asset
There are no plan assets.
4. Cash flow amount, timing and uncertainty
The plan is based on the latest remuneration.
8.4 Provisions for risks and charges—other provisions
Provision for legal disputes
The legal environment in which the Mercury Group operates exposes it to a wide range of legal disputes.
The related risks are specifically analysed in order to make the related accrual to the provision for risks and charges when the outlay is considered probable based on information available at the time of the analysis.
Provisions for risks and charges—employee benefits
The item “employee benefits” principally relates to bonuses and other incentives granted to employees.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
126
Provisions for risks and charges—other
“Other” includes all accruals made for probable outlays mainly relating to:
• contractual costs; • operational risks; • non-banking invoices issued; • pending tax litigation.
Section 9—Equity—Captions 140, 160, 170, 190 and 220
9.1 “Share capital” and “Treasury shares”: breakdown
30 September 2017 31 December 2016
1. Share capital .................................................................................................... 3,396,444 2,911,444 2. Share premium ................................................................................................ - - 3. Reserves .......................................................................................................... (6,840) (6,385) 4. Treasury shares
a) parent .......................................................................................................... - - b) subsidiaries - -
5. Valuation reserves ........................................................................................... 44,899 19,101 6. Profit for the period /year ............................................................................... 66,649 72,263
Total ........................................................................................................... 3,501,152 2,996,423
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
127
9.2 Share capital—number of shares: changes
Ordinary shares
30 September 2017 31 December 2016
A. Opening balance
—fully paid-in ............................................................................................... 2,911,444 1,864,107 —not fully paid-in - -
A.1 Treasury shares (−) ..................................................................................... - - A.2 Outstanding shares: opening balance ....................................................... 2,911,444 1,864,107
B. Increases ...................................................................................................... 485,000 1,047,337 B.1 New issues .................................................................................................. - -
—against consideration: ............................................................................... 485,000 1,047,337 —business combinations .......................................................................... - - —bond conversions .................................................................................. - - —exercise of warrants .............................................................................. - - —other...................................................................................................... 485,000 1,047,337
—bonus issues: ............................................................................................. - - —to employees ......................................................................................... - - —to directors ............................................................................................ - - —other...................................................................................................... - -
B.2 Sale of treasury shares ............................................................................... - - B.3 Other increases ........................................................................................... - - C. Decreases ..................................................................................................... - - C.1 Cancellations .............................................................................................. - - C.2 Repurchases of treasury shares .................................................................. - - C.3 Disposals of entities .................................................................................... - - C.4 Other decreases .......................................................................................... - - D. Outstanding shares: closing balance ........................................................... 3,396,444 2,911,444
D.1 Treasury shares (+) ..................................................................................... - - D.2 Closing balance ..................................................................................... 3,396,444 2,911,444
—fully paid-in .......................................................................................... 3,396,444 2,911,444 —not fully paid-in - -
Holdco increased authorized share capital by 485,000,000 class A shares in June 2017.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
128
Section 10—Equity attributable to non-controlling interests—Caption 210
10.1 Caption 210 “Equity attributable to non-controlling interests”
30 September 2017 31 December 2016
Investments in consolidated companies with significant non-controlling interests:
Help Line ..................................................................................................... 1,519 2,553 Nexi Payments S.p.A. ................................................................................. 2,890 9,826 Nexi S.p.A. .................................................................................................. 29,272 104,018
Bassilichi S.p.A. ........................................................................................... (1,089) -
Bassmart S.r.l. ............................................................................................ 66 -
Consorzio Triveneto ................................................................................... (1) -
Moneynet S.p.A. ......................................................................................... (256) -
Bassilichi CEE d.o.o. Belgrado..................................................................... 241 -
Bassilichi CEE d.o.o. Banja Luka.................................................................. 25 -
ArsBlue d.o.o. ............................................................................................. 733 -
Bassilichi CEE d.o.o. Podgorica ................................................................... 5 -
Total ........................................................................................................... 33,404 116,397
Other disclosures
1. Guarantees and commitments
30 September 2017 31 December 2016
1) Financial guarantees issued ......................................................................... 2,421 - a) Banks ........................................................................................................ 2,421 - b) Customers ................................................................................................ - -
2) Commercial guarantees issued .................................................................... 961 1,093 a) Banks ........................................................................................................ - 83 b) Customers ................................................................................................ 961 1,010
3) Irrevocable commitments to disburse funds ............................................... 157,545 110,930 a) Banks ........................................................................................................ 93,503 1,247
i) certain use ............................................................................................. 93,503 1,247 ii) uncertain use ........................................................................................ - -
b) Customers ................................................................................................ 64,042 109,683 i) certain use ............................................................................................. 3,672 2,934 ii) uncertain use ........................................................................................ 60,370 106,749
4) Commitments underlying credit derivatives: protection sales .................... - - 5) Assets pledged as collateral for third party commitments .......................... - - 6) Other commitments ..................................................................................... - -
Total ............................................................................................................. 160,927 112,023
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
129
2. Assets pledged as guarantee for liabilities and commitments
30 September 2017 31 December 2016
1. Financial assets held for trading ..................................................................... - -
2. Financial assets at fair value through profit or loss ........................................ - -
3. Available-for-sale financial assets .................................................................. 100,881 98,288
4. Held-to-maturity investments ........................................................................ - -
5. Loans and receivables with banks .................................................................. - -
6. Loans and receivables with customers ........................................................... - - 7. Property, equipment and investment property ............................................. - -
Total ...................................................................................................................... 100,881 98,288
3. Management and trading on behalf of third parties
30 September 2017 30 September 2016
1. Execution of customer orders a) Purchases
1. settled ..................................................................................................... 19,001,542 16,385,740 2. unsettled ................................................................................................. - -
b) Sales ............................................................................................................ 1. settled ..................................................................................................... 18,303,414 16,387,277 2. unsettled ................................................................................................. - -
2. Asset management a) individual .................................................................................................... - - b) collective..................................................................................................... - -
3. Securities custody and administration a) third party securities held as part of depository bank services (excluding
asset management) ............................................................................................ 49,908,683 46,806,681
1. securities issued by the consolidated entities ........................................ - - 2. other securities ....................................................................................... 49,908,683 46,806,681
b) third party securities on deposit (excluding asset management): other ... 67,111,668 73,182,344 1. securities issued by the consolidated entities ........................................ 39,694 39,694 2. other securities ....................................................................................... 67,071,974 73,142,650
c) third party securities deposited with third parties ..................................... 100,142,290 103,362,927 d) securities owned by the bank deposited with third parties ....................... 2,983,724 2,352,777
4. Order collection and transmission a) Purchases
1. settled ..................................................................................................... 1,208,333 946,329 2. unsettled ................................................................................................. - -
b) Sales ............................................................................................................ 1. settled ..................................................................................................... 1,032,777 929,927 2. unsettled ................................................................................................. - -
5. Placement of secured and unsecured securities ........................................... a) Placement of unsecured securities ............................................................. 196,243 302,956 b) Placement of secured securities ................................................................. 6,500 3,803
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
130
Part C—NOTES TO THE UNAUDITED CONSOLIDATED INCOME STATEMENTS
Section 1—Interest—Captions 10 and 20
1.1 Interest and similar income: breakdown
Debt
instruments Financing Other
9 months to 30 September
2017 9 months to 30
September 2016
1. Financial assets held for trading ..................................... 301 - - 301 303 2. Financial assets at fair value through profit or loss ....... - - - - - 3. Available-for-sale financial assets .................................. 21,517 - - 21,517 20,700 4. Held-to-maturity investments ........................................ 116 - - 116 279 5. Due from banks .............................................................. 145 5,198 1,310 6,653 3,980 6. Loans to customers ........................................................ - 1,325 16,371 17,696 22,859 7. Hedging derivatives ........................................................ - - - - - 8. Other assets ................................................................... - 4 8,404 8,408 986
Total ........................................................................... 22,079 6,527 26,086 54,692 49,106
1.2 Interest and similar expense: breakdown
Liabilities Securities Other
9 months to 30 September
2017
9 months to 30 September
2016
1. Due to central banks ................................................... - - - - 206 2. Due to banks ............................................................... 14,815 - - 14,815 15,585 3. Due to customers ........................................................ 2,775 - - 2,775 4,252 4. Securities issued .......................................................... - - - - - 5. Financial liabilities held for trading ............................. 52 2 - 54 47 6. Financial liabilities at fair value through profit or loss - - - - - 7. Other liabilities and provisions .................................... - - 6,953 6,953 17 8. Hedging derivatives ..................................................... - - - - -
Total ......................................................................... 17,642 2 6,953 24,597 20,106
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
131
Section 2—Fees and commissions—Captions 40 and 50 2.1 Fee and commission income: breakdown
9 months to 30
September 2017 9 months to 30
September 2016
a) guarantees received ................................................................................ 132 89 b) credit derivatives .................................................................................... - - c) management, brokerage and consultancy services: ............................... 7,938 7,718
1. trading in financial instruments .......................................................... 7,938 7,718 2. foreign currency transactions ............................................................. - - 3. asset management .............................................................................. - -
3.1. individual ...................................................................................... - - 3.2. collective ...................................................................................... - -
4. securities custody and administration ................................................ 3,872 3,690 5. depository services ............................................................................. 38,352 36,323 6. securities placement ........................................................................... 684 1,207 7. order collection and transmission ....................................................... 1,295 1,177 8. consultancy services ............................................................................ 155 134
8.1. concerning investments ............................................................... - - 8.2. concerning financial structure ..................................................... 155 134
9. distribution of third party services ...................................................... - - 9.1. asset management ....................................................................... - -
9.1.1. individual ............................................................................... - - 9.1.2. collective ............................................................................... - -
9.2. insurance products ....................................................................... - - 9.3. other products ............................................................................. - -
d) collection and payment services ............................................................. 780,173 602,835 e) servicing services for securitisations ....................................................... - - f) services for factoring transactions........................................................... - - g) tax collection services ............................................................................. - - h) management of multilateral trading systems ......................................... - - i) keeping and management of current accounts ....................................... - - j) other services ........................................................................................... 76,122 73,532
Total................................................................................ 908,725 726,705
2.2 Fee and commission expense: breakdown 9 months to 30
September 2017 9 months to 30
September 2016
a) guarantees received .................................................................................. 40 33 b) credit derivatives ....................................................................................... - - c) management and brokerage services: ...................................................... 7,003 7,094
1. trading in financial instruments ............................................................ 372 252 2. foreign currency transactions ................................................................ 51 41 3. asset management: ............................................................................... - -
3.1 own portfolio ................................................................................... - - 3.2 third party portfolios ....................................................................... - -
4. securities custody and administration .................................................. 4,649 4,297 5. placement of financial instruments ....................................................... 571 1,072 6. securities settlement ............................................................................. 1,359 1,432 7. off-premises distribution of financial instruments, products and
services ........................................................................................................... - - d) collection and payment services ............................................................... 432,570 412,028 e) other services ............................................................................................ 2,107 2,961
Total ....................................................................................................... 441,719 422,115
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
132
Section 3—Dividends and similar income—Caption 70
3.1 Dividends and similar income: breakdown
9 months to 30
September 2017 9 months to 30
September 2016
Dividends
Income from OEIC
units Dividends
Income from OEIC
units
A. Financial assets held for trading .............................. 17 - 3 - B. Available-for-sale financial assets ............................ 584 - 9 - C. Financial assets at fair value through profit or loss . - - - - D. Equity investments .................................................. 21 - - -
Total .......................................................................... 621 - 12 -
Section 4—Net trading income—Caption 80
4.1 Net trading income: breakdown
Gains Trading income Losses
Trading losses
Net trading income
for 9 months to
30 September
2017
Net trading income
for 9 months to
30 September
2016
1. Financial assets held for trading 1.1 Debt instruments ............................................................ 128 2,342 182 165 2,123 2,658 1.2 Equity instruments .......................................................... - 576 1 408 167 80 1.3 OEIC units ........................................................................ 2 - 1 13 (13) - 1.4 Financing ......................................................................... - - - - - - 1.5 Other ............................................................................... - - - - - - 2. Financial liabilities held for trading 2.1 Debt instruments ............................................................ 3 - 6 - (3) 2 2.2 Payables .......................................................................... - - - - - - 2.3 Other ............................................................................... - - - - - - 3. Other financial assets and liabilities: exchange rate gains (losses) ......................................................................... 82 (1,167) 4. Derivatives 4.1 Financial derivatives: —On debt securities and interest rates ................................ - - - - - - —On equity instruments and equity indexes ........................ 2,159 4,386 1,223 6,800 (1,477) 616 —On currencies and gold ...................................................... - - - - - - —Other .................................................................................. - - - - - - 4.2 Credit derivatives ............................................................ - - - - - -
Total ................................................................................... 2,291 7,305 1,414 7,386 879 2,188
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
133
Section 5—Profit on disposal or buy back of—Caption 100
5.1 Profit on disposal or buy back of:
30 September 2017 30 September 2016
Financial assets available for sale Loans and receivables with customers ................................................ 31 - Equity instruments ............................................................................... 211 -
Total ..................................................................................................... 242 -
Section 6—Net income from financial assets at fair value—Caption 110
6.1. Net income from financial assets at fair value: breakdown
30 September 2017 30 September 2016
Financial assets at fair value Equity instruments ............................................................................... 43 -
Total ..................................................................................................... 43 -
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
134
Section 7—Net impairment losses—Caption 130
7.1 Net impairment losses on loans and receivables: breakdown
Period ended 30 September 2017
Impairment losses (1) Reversals of impairment
losses (2)
Individual Individual Collective
Derecognition Other Collective A B A B
9 months to 30 September
2017
A. Loans and receivables with banks - - - - - - - - —Financing ........................................... - - - - - - - - —Debt instruments ............................... - - - - - - - -
2. Loans and receivables with customers . - - - - - - - - Impaired loans acquired ....................... - - - - - - - - —Financing ........................................... - - - - - - - - —Debt instruments ............................... - - - - - - - - Other ..................................................... - - - - - - - —Financing ........................................... - 2,263 - - - - - 2,263 —Debt instruments ............................... - - - - - - - -
C. Total ................................................... - 2,263 - - - - - 2,263
Period ended 30 September 2016
Impairment losses (1) Reversals of impairment
losses (2)
Individual Individual Collective
Derecognition Other Collective A B A B
9 months to 30 September
2016
A. Loans and receivables with banks - - - - - - - - —Financing ........................................... - - - - - - - - —Debt instruments ............................... - - - - - - - -
2. Loans and receivables with customers . - - - - - - - - Impaired loans acquired ....................... - - - - - - - - —Financing ........................................... - - - - - - - - —Debt instruments ............................... - - - - - - - - Other ..................................................... - - - - - - - - —Financing ........................................... - - 1,341 - - - - 1,341 —Debt instruments ............................... - - - - - - - -
C. Total ................................................... - - 1,341 - - - - 1,341
Key
A = from interest
B = other reversals
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
135
7.2 Net impairment losses on AFS financial assets: breakdown
Impairment losses (1)
Reversals of impairment
losses (2)
Individual Individual
Derecognitio
n Other A B 9 months to 30
September 2017 9 months to 30
September 2016
A. Debt instruments……………………………. - - - - - - B. Equity instruments ............................. - 3,481 - - 3,481 586 C. OEIC units ........................................... - - - - - - D. Financing to banks ............................. - - - - - - E. Financing to customers - - - - - -
F. Total………………………………………………. - 3,481 - - 3,481 586
Key
A = from interest
B = other reversals
Section 8—Administrative expenses—Caption 180
8.1 Personnel expense: breakdown
9 months to 30
September 2017 9 months to 30
September 2016
1) Employees a) wages and salaries................................................................................ 139,079 77,969 b) social security charges ......................................................................... 23,081 19,754 c) post-employment benefits ................................................................... 1,055 526 d) pension costs........................................................................................ 122 191 e) accrual for post-employment benefits ................................................. 416 353 f) accrual for pension and similar provisions: ..........................................
—defined contribution plans ............................................................... 17 - —defined benefit plans ........................................................................ - -
g) payments to external supplementary pension funds: ......................... —defined contribution plans ............................................................... 5,644 5,341 —defined benefit plans ........................................................................ - -
h) costs of share-based payment plans .................................................... - - i) other employee benefits ....................................................................... 53,897 3,266
2) Other personnel ....................................................................................... 919 1,445 3) Directors and statutory auditors .............................................................. 1,650 2,057 4) Retired personnel ..................................................................................... - -
Total ............................................................................................. 225,881 110,903
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
136
8.2 Average number of employees per category
9 months to 30 September
2017 9 months to 30
September 2016
a) managers ................................................................................... 104 59
b) junior managers ......................................................................... 730 605
c) other employees ........................................................................ 2,561 1,043
8.3 Other administrative expenses: breakdown
9 months to 30
September 2017 9 months to 30
September 2016
—data processing ................................................................. 109,376 71,301 —post office, valuables transportation and couriers ........... 16,233 18,255 —external services ................................................................ 13,073 14,146 —interbank network traffic .................................................. 5,549 7,467 —IT connections and automation costs ............................... 3,103 2,869 —access to markets .............................................................. 1,659 1,725 —professional services ......................................................... 33,324 41,710 —agents’ commissions ......................................................... 1,150 1,164 —bank draft books ............................................................... 93 10 —maintenance and lease ..................................................... 34,151 26,238 —building running costs, leases, heating and lighting.......... 4,678 4,225 —stationery and printed matter .......................................... 417 438 —insurance companies ......................................................... 1,750 1,390 —telegraph, telephone and telex ......................................... 4,188 4,314 —card processing ................................................................. 37,717 21,951 —membership fees ............................................................... 977 1,278 —surveillance and cleaning .................................................. 691 607 —other .................................................................................. 61,549 41,844 —taxes and duties ................................................................ 60,758 42,396
Total ...................................................................................... 390,438 303,329
Section 9—Net accruals to provisions for risks and charges—Caption 190
9.1 Net accruals to provisions for risks and charges: breakdown
9 months to 30 September
2017 9 months to 30
September 2016
Accruals to provisions ..................................................................... 1,862 3,227
Total ............................................................................................... 1,862 3,227
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
137
Section 10—Depreciation and net impairment losses on property, equipment and investment property—Caption 200
10.1 Depreciation and net impairment losses on property, equipment and investment property: breakdown
Depreciation Impairment
losses
Reversals of
impairment losses
Carrying amount
for 9 months to
30 September
2017
Carrying amount
for 9 months to
30 September
2016
A. Property, equipment and investment property ................. A.1 Owned .............................................................................. —Property and equipment..................................................... 24,291 - - 24,291 16,015 —Investment property ........................................................... 1,158 - - 1,158 1,256 A.2 Acquired under finance lease ........................................... —Property and equipment..................................................... - - - - - —Investment property ........................................................... - - - - -
Total ....................................................................................... 25,448 - - 25,448 17,271
Section 11—Amortisation and net impairment losses on intangible assets—Caption 210
11.1 Amortisation and net impairment losses on intangible assets: breakdown
Amortisation Impairment
losses
Reversals of
impairment losses
Carrying amount
for 9 months to
30 September
2017
Carrying amount
for 9 months to
30 September
2016
A. Intangible assets ......................................................... A.1 Owned ....................................................................... —Generated internally.................................................... - - - - - —Other............................................................................ 26,057 - - 26,057 17,373 A.2 Acquired under finance lease ................................... - - - - -
Total ................................................................................ 26,057 - - 26,057 17,373
Section 12—Other operating expense and income, net—Caption 220
12.1 Other operating expense: breakdown
9 months to 30
September 2017 9 months to 30
September 2016
Transfer of revenue from services .......................................................... 13,477 15,628 Other costs 4,433 7,617
Total 17,910 23,245
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
138
12.2 Other operating income: breakdown
9 months to 30
September 2017 9 months to 30
September 2016
Lease income .................................................................................. 632 762 Services ........................................................................................... 216,872 173,259 Recoveries of stamp duties from customers and post office expenses ......................................................................................... 52,597 52,575 Other income .................................................................................. 31,261 4,334
Total ............................................................................................... 301,363 230,930
Section 13—Income taxes—Caption 290
13.1 Income taxes: breakdown
9 months to 30
September 2017 9 months to 30
September 2016
Tax expense for the period ....................................................... (37,210) (20,723)
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
139
PART D - EQUITY
Section 1—Equity
A. Qualitative disclosure
The figure available for allocation purposes is the regulatory capital. Under this approach, the supervisory regulations represent the minimum restriction. Specifically, the Mercury Group’s equity policy is based on full compliance with the supervisory regulation requirements, which identify equity as the main capital management tool against unexpected losses arising from the various risks (credit, market and operational) taken on by banks. Equity availability is therefore an indispensable tool supporting the Mercury Group’s development plans.
In accordance with internal procedures, the relevant departments regularly monitor the Mercury Group’s use of capital and its compliance with capital requirements. These figures are reported with different frequencies to senior management and the board of directors, which are the bodies responsible for deciding, in line with their delegated powers, the methods that the Nexi Group should use to pursue its capital management objectives. Similarly, when new activities with potential impacts on the use of capital are carried out, the Nexi Group forecasts the related effects on equity and their suitability.
Lastly, the Nexi Group’s dividend distribution policies are also aimed at ensuring a suitable capitalisation level, in line with its development objectives.
B. Quantitative disclosure
B.1 Equity: breakdown by type of entity
30 September 2017
Banking group
Insurance companies
Other companies
Eliminations and
consolidation adjustments Total
Share capital ......................................................... - - 3,396,444 - 3,396,444 Valuation reserves ................................................ - - - - -
—Available-for-sale financial assets ................. 44,005 - - - 44,005
—Actuarial reserve ........................................... 894 - - - 894 Reserves ............................................................... - - - - -
—Income related .............................................. - - (6,840) - (6,840)
Profit for the period ............................................. - - 66,649 - 66,649
Equity ................................................................... 44,899 - 3,456,253 - 3,501,152
31 December 2016
Banking group
Insurance companies
Other companies
Eliminations and
consolidation adjustments Total
Share capital .......................................................... - - 2,911,444 - 2,911,444 Valuation reserves ................................................. - - - - -
—Available-for-sale financial assets .................. 18,661 - - - 18,661
—Actuarial reserve ............................................ 440 - - - 440 Reserves ................................................................ - - - - -
—Income related ............................................... - - (6,385) - (6,385) Profit for the year .................................................. - - 72,263 - 72,263
Equity .................................................................... 19,101 - 2,977,322 - 2,996,423
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
140
PART E - SEGMENT REPORTING
Segment reporting complies with the requirements of IFRS 8: Operating Segments.
Reporting by business segment includes, in order of importance, the segments that may be identified within the Mercury Group’s organisation and specifically:
E-money
It comprises Nexi Payments Business (including MPS Acquiring) and Help Line and its integrated activities are as follows:
• financial and operating services relating to the issue and acceptance of payment cards and related management services;
• payment card terminal management (POS and ATM).
Payments
It comprises an operating division of the parent, which carries out the following integrated activities:
• banking payment services and related back-office services for banks, companies and bodies;
• interbank payment systems for companies and bodies and related management services and e-banking;
• IT and computer-based services relating to payment systems.
Securities services
It comprises an operating division of the parent, which carries out the following integrated activities:
• securities custody and administration services;
• fund services;
• investment and investment-related services for qualified parties and professional customers.
Application outsourcing and innovative services
It comprises Oasi, which carries out the following integrated activities:
• IT systems for supervisory reporting and management systems;
• anti-money laundering, safety and internal control systems;
• development and provision of training courses.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
141
Latino Group activities
It comprises Mercury Payments, Mercury Processing and their following integrated activities:
• payment processing services including issuing solutions and acquiring solutions; and
• other related services
Other Mercury Group activities
This segment manages the activities that are not carried out by the parent’s business units. Specifically:
• credit and financial activities for the relevant business segments;
• property management;
• equity investment management;
• group management and coordination; and
• other activities of the consolidated companies.
A.1 Breakdown by business segment: income statement
The results of operations for the period of each of the above business segments are set out below.
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Financial Statements - Mercury UK Holdco Limited
142
9 months to 30 September 2017 (€’000) E-
mo
ne
y
Pay
me
nts
Secu
riti
es
serv
ice
s
Ap
plic
atio
n
ou
tso
urc
ing
Bas
silic
hi
Pay
me
nts
Oth
er
Nex
i G
rou
p a
ctiv
itie
s
Co
nso
lidat
ion
adju
stm
en
t
Ne
xi G
rou
p
Lati
no
Gro
up
Me
rcu
ry
acti
viti
es
Co
nso
lidat
ion
ad
just
me
nt
Co
nso
lidat
ed
fi
nan
cial
st
ate
me
nts
Net fee and commission income ........................ 407,604 64,254 444,909 18,628 43,575 941 (10,481) 569,429 141,049 1,465 - 711,942 Net interest income ............................................ (7,636) 1,703 6,119 (4) (838) 32,104 152 31,602 (1,616) (6) - 29,980 Net trading/hedging income .............................. (395) - 1,862 - (19) 1,699 - 3,148 (175) 1 - 2,974 Dividends from equity investments and AFS ...... 248 - - - - 363 - 611 130,009 93,110 (223,098) 632
Operating revenue ..........................................
399,822
65,957
52,890
18,624
42,718
35,107
(10,329)
604,790
269,267
94,570
(223,098)
745,528
Payroll and related costs .................................... (43,390) (10,379) (13111) (5,665) (9,994) (36,568) - (119,106) (22,390) (635) 51 (142,131) Production costs ................................................. (61,311) (7,655) (3,426) (2,290) (9,087) (276) 5,538 (78,507) - - - (78,507) ICT costs ............................................................. (88,572) (19,651) (13,876) (2,981) (17,640) (6,903) 1,295 (148,328) - (33) - (148,360) General expenses ............................................... (27,557) (1,876) (527) (1,461) (3,178) (13,670) 17,727 (30,541) (36,875) (2,100) 51 (69,464)
Administrative expenses ................................. (220,829) (39,560) (30,941) (12,396) (39,899) (57,416) 24,559 (376,482) (59,264) (2,767) 51 (438,462) Other net operating expenses/income 1,135 (6,365) (7,304) 159 367 30,512 (16,230) 1,907 (40) - (51) 1,816 Net accruals for risks and charges (5,646) (324) (283) - - - - (5,886) (205) - - (6,091) Operating costs (Net of DA) ...................................................... (225,340) (46,249) (38,528) (12,237) (39,532) (26,904) 8,329 (380,461) (59,509) (2,767) - (442,737)
EBITDA ............................................................ 174,483 19,709 14,362 6,387 3,186 8,203 (2,000) 224,329 209,758 91,803 (223,098) 302,791
Depreciation and amortisation ........................... (20,369) (2,911) (2,452) (3,910) (3,960) (2,578) (40) (36,219) (7,412) (2) - (43,632) Operating profit .............................................. 154,113 16,798 11,910 2,477 (774) 5,625 (2,040) 188,110 202,346 91,801 (223,098) 259,159
Depreciation and Amort. (customer contract) ... (7,873) - - - (7,873) Share of gains/losses of investees ...................... 94 - - - 95 Non-recurring/extraordinary items .................... (130,581) (12,209) (1,589) - (144,379)
Pre-tax profit for the period ............................
49,751 190,137 90,213 (223,098) 107,002
Income taxes .......................................................... (16,451) (20,759) - - (37,210)
Profit to non-controlling interests .......................... 324 - - (3,468) (3,144)
Net profit ............................................................ 33,624 169,378 90,213 (226,566) 66,648
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Financial Statements - Mercury UK Holdco Limited
143
Net interest income (expense) is the business segments’ contribution to the Mercury Group’s net interest income resulting from the sum of realised interest income and expense recognised in the accounting system and unrealised interest calculated as part of the planning and control system, using the cash-pooling method based on internal transfer rates. A breakdown of operating revenue arising from transactions with third party customers and other business segments of the same entity by operating segment is set out below for better disclosure purposes.
2017 interim consolidated financial statements: Operating revenue
9 months to 30 September 2017 (€’000) E-
mo
ne
y
Pay
me
nts
Secu
riti
es
serv
ice
s
Ap
plic
atio
n
ou
tso
urc
ing
Bas
silic
hi
Pay
me
nts
Oth
er
Nex
i G
rou
p
acti
viti
es
Lati
no
-MP
S-
MP
SI
Me
rcu
ry
acti
viti
es
Me
rcu
ry
Gro
up
to
tal
E-money ........................................ 2,321 - 219 6,914 14,955 - - 24,409 Payments ...................................... (1,523) - - - - - - (1,523) Securities services ......................... - - 418 - - - - 418 Application Outsourcing ............... 99 38 - - 268 - - 405 Bassilichi Payments ....................... - - - - 122 - - 122 Other Mercury Group activities .... (14,191) - - 812 (122) (160) - (13,661) Latino -MPS-MPSI ......................... - - - - - 160 - 160 Mercury activities ........................ - - - - - - -
Operating revenue—other .......... (15,616) 2,359 - 1,448 6,792 15,505 (160) - 10,329
Third party customers ................... 415,438 63,598 52,890 17,175 35,927 19,602 139,439 1,460 745,528
Total operating revenue .............. 399,822 65,957 52,890 18,624 42,718 35,107 139,279 1,460 755,857
Reconciliation between the management accounts and the interim consolidated financial statements
Segment reporting is consistent with the Mercury Group planning and control system’s principles and operating procedures defined by the central planning and control (P&C) department and approved by Mercury Group management, whose aim is to ensure consistent management reporting among the various Mercury Group operations and structures.
This system is based on the general criteria of tracing management data and reports to the general accounting records. Considering the characteristics of the parent, which is required to prepare consolidated financial statements, the Mercury Group’s management account income statement is presented with the general classification used in the financial statements of banking groups.
In order to improve management reporting of the Mercury Group’s operations and performance, as an exception to the above-mentioned general criteria of tracing management figures to those of the separate and consolidated financial statements, the P&C system sets out certain grouping rules for data that are dissimilar from those of the general accounts. The main differences in data grouping relate to the following:
• income classified in Other operating income/expense (caption 220 of the consolidated financial statements), relating to (i) the provision of services (non-banking/financial) that are part of the operating segments’ core business, (ii) the provision of rents from buildings, are presented under Net fee and commission income and revenue from services in the management accounts;
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
144
• expense classified in Other operating income/expense (caption 220 of the consolidated financial statements), relating to the retrocession of revenue from services and/or selling costs, is presented under Net fee and commission income and revenue from services in the management accounts;
• income classified in Other operating income/expense (caption 220 of the consolidated financial statements), relating to the recovery of expenses, is presented in the caption to which the expense refers in the management accounts;
• income classified in Fee and commission income (caption 40 of the consolidated financial statements), relating to items subject to IFRIC 13, which establishes the accounting treatment to be applied by entities that grant awards under customer loyalty programmes relating to the purchase of goods or services and requires that the consideration for the obligation arising from granting the award be separated from sales revenue and deferred up to when the obligation with the customers is settled, is presented under Production costs in the management accounts;
• gains and losses relating to impairment losses/reversals of impairment losses on the equity portion of the AFS and HTM portfolios and classified in Net impairment losses (captions 130b and 130c of the consolidated financial statements) are presented under Gains (losses) on equity investments and AFS financial assets in the management accounts;
• profits relating to the bond portion of the AFS portfolio and classified in Profit (loss) on sale or repurchase of AFS financial assets are presented under Profit on securities and exchange rate gains in the management accounts;
• income and expense relating to prior year items, classified in the caption that generated them in the financial statements of banks and financial companies, are presented under Other operating income (expense) in the management accounts;
• dividends collected on equity instruments included in the trading portfolio, classified in Dividends and similar income (caption 70 of the consolidated financial statements), are presented under Profits on securities and exchange rate gains in the management accounts;
• fees paid to directors and statutory auditors, classified in Personnel expense (caption 180a of the consolidated financial statements), are presented under General expenses in the management accounts;
• gains and losses relating to interest rate hedging derivatives are presented under Net interest income (expense) in the management accounts even when they do not formally meet the requirements for recognition as such and are, therefore, classified in Net trading income (expense) in the consolidated financial statements (caption 80);
• accruals relating to the remuneration of employees, classified in Net accruals to provisions for risks and charges (caption 190 of the consolidated financial statements), are presented under Personnel expense in the management accounts;
• consolidation entries relating to dividends distributed by non-group companies that are accounted for using the equity method, classified in Dividends and similar income (caption 70 of the consolidated financial statements), are presented under Gains (losses) on equity investments and AFS financial assets in the management accounts;
• income and expense that, based on supporting evidence, relate to extraordinary and/or non-recurring events for the Mercury Group are presented under Other items in the management accounts, even if they are classified in other captions in the general accounting system;
• Other administrative expenses (caption 180b of the consolidated financial statements) are classified as expenses relating to the production of offered services, ITC service costs or general expenses and presented in the related caption of the management accounts, in order that the Mercury Group companies present operating costs consistently.
The Mercury Group’s income statement included in the management accounts is set out below, with a reconciliation of its captions to those of the interim consolidated financial statements:
Mercury Bondco Plc
Interim Financial Report for the nine months ended 30 September 2017
Appendix –Notes to the Financial Statements - Mercury UK Holdco Limited
145
Interim consolidated financial statements
(€’000) Man
agem
en
t ac
cou
nts
Re
con
cilia
tio
n
(co
ns.
f/s
- m
ngm
t.
acco
un
ts)
Inte
rim
con
solid
ate
d
fin
anci
al
stat
em
en
ts
Co
ns.
fin
anci
al
stat
em
en
ts
cap
tio
n
Management account captions Net fee and commission income ........................................................... 711,942 (244,936) 467,006 60
Net interest income ............................................................................... 29,980 114 30,094 30
Net trading/hedging income ................................................................. 2,974 (2,095) 879 80 - 90
Dividends from equity investments and AFS ......................................... 632 (11) 621 70
Operating revenue ............................................................................ 745,528 (246,929) 498,600 sum
Payroll and related costs ....................................................................... (142,131) (83,750) (225,881) 180a
Other administrative expenses (*) .......................................................... (296,332) (94,106) (390,438) 180b
Administrative expenses ................................................................... (438,462) (177,857) (616,319) sum
Other net operating expenses/income ................................................. 1,816 281,636 283,453 220
Net accruals for risks and charges ......................................................... (6,091) (1,516) (7,606) 130 - 190
Operating costs (Net of DA) .............................................................. (442,737) 102,264 (340,473) sum
EBITDA .............................................................................................. 302,791 (144,664) 158,127 sum
Depreciation and amortisation ............................................................. (43,632) (7,873) (51,505) 200-210
Operating profit ................................................................................ 259,159 (152,537) 106,622 sum
Depreciation and Amort. (customer contract) ..................................... (7,873) 7,873 - 200-210
Share of gains/losses of investees ......................................................... 95 - 95 100-240
Non-recurring/extraordinary items ....................................................... (144,379) 144,664 285 Other items
Pre-tax profit for the period .............................................................. 107,002 - 107,002 sum
Income taxes ......................................................................................... (37,210) - (37,210) 290
Profit attributable to non-controlling interests ..................................... (3,144) - (3,144) 330
Profit attributable to the owners of the parent ................................ 66,648 - 66,648 sum
(*) Sum of the “Production costs”, “ICT costs” and “General expenses” management account captions