Poste Italiane Spa

Good afternoon and welcome to Posse Italiana's first quarter 2024 results conference call. Matteo Delfante, our CEO, will take you through some opening remarks and then Camillo Greco, our CFO, will cover the financials. This will be followed by Q&A session where you can ask questions either via phone or to our webcast platform. Please limit yourself to two questions. Over to you, Matteo. Thank you, Giuseppe. Good afternoon and thank you I'm pleased to report that POS Italiane had a strong start of the year, with overall group revenues at over €3 billion, with all business segments in line or above targets. Our cost-based management remains a key focus as we continue to successfully mitigate inflationary impacts. EBIT for the quarter is at €706 million, up 14% versus last year, if we exclude the higher contribution of active portfolio management revenues in the first quarter of 2023. Commercial trends have been supportive in all businesses, as customers continue to see Poste as the safe haven for their savings and the go-to place for the majority of their daily needs. We continue to see positive net flows in asset management and insurance products, while retail deposits remain resilient in a challenging environment. We deliver solid results while maintaining a strong balance sheet. At the end of June, we will pay the balance of the 2023 dividend for €729 million for a total of over €1 billion dividends paid on 2023 results. equivalent to 80 cents per share. I'm also pleased to announce that the Board of Poste Italiane and CDP have approved a term sheet outlining the key terms of the Renew Postal Savings Contract. The agreement covers 2024-26 reappeared and is fully in line with our targets as well as our aim of preserving a stable stock of savings over the plan. Let's move to group financial results on slide four. Total revenues are over €3 billion, up 6% year-on-year, excluding active portfolio management. Total cost came up €2.3 billion, up 3.7% year-on-year, reflecting business growth and benefiting from actions to mitigate inflation impact. As a result, for the quarter, EBIT is at €706 million and net profit is at €501 million, up 14% and 16% respectively, excluding APN. On slide 5, you can see a healthy underlying revenue progression across all our businesses. In main parcel and distribution, revenues were driving were driven, sorry, by growing parcel volume as well as stable registered mail volume and repricing actions more than offsetting unregistered mail volume decline. In financial services, revenues were up 5% in the quarter, excluding APM, supported by stronger AI and postal saving fees, as well as positively underlying business momentum in consumer loan and asset management fees. Insurance services revenues were in line with guidance with a resilient life investment and pension businesses, growing volumes and improving profitability in protection. We continue to record the positive live net flows of facing a challenging market and our lapse rate remains well below market level. Posted pay services continue to grow double digits, supported by increase in card and digital payments, and our leadership in e-commerce transactions. All product of this business unit are contributing to revenue growth, including our successful new energy business. Let's go to slide six, and EBIT evolution by segment. Mail pass and distribution shows A 71 million euro EBIT improvement compared to the first quarter of 2023, excluding APM, supported by a strong revenue momentum. Financial services operating profitability is resilient and reflects revenue trend and higher distribution network costs. Insurance service EBIT is in line with our plan, representing the lion's share of group EBIT. Finally, Post-ETA Services' double-digit EBIT growth is driven by strong top-line performance. Let's now move to a more detailed review of our numbers by our CFO. Over to you, Camillo, please. Thank you, Matteo, and good afternoon, everyone. Let's move to slide number eight. Made parcel and distribution revenues are up 5% to $134 million. Mail revenues at $535 million were up 3% year-on-year, thanks to ongoing repricing actions as well as favorable product mix supported by stable volumes of higher-value registered mail. Let me remind you that our business plan embeds $100 million lower mail revenue every year. So far, we have not yet experienced such a decline. Pulsar revenues are up 10% to $368 million, supported by healthy B2C business, with increasing volumes compensating the reduced contribution from the COVID logistics mandate, as well as the sender Italia deconsolidation. Adjusting for these items, Pulsar revenues are up 14% in Q124. Distribution revenues from other business units are up 9% in the quarter, excluding impact of active portfolio management. reflecting positive commercial trends and compensating for higher network costs. Let's look at volume centari from slide number nine. Parcel volumes were up 21% in the quarter, driven by healthy B2C growth, with 38% of items delivered via the postal network. Looking at pricing, the slight reduction in parcel tariffs in the quarter is related to a mixed effect with increasing volumes with lower tariffs as well as lower delivery unit costs, with items delivered to our third-party network increasing over 20%. Moving to mail, lower margin unrecorded mail volumes continue to decline in the quarter, driving the overall 9% volume reduction. However, stable volumes of higher margin registered mail and effective repricing actions have led to the strongest increase of average tariffs in 2016, plus 2% year-on-year. Moving to financial services, slide number 10. Gross revenues for the quarter came at $1.6 billion, up 4%, excluding the impact of active portfolio management. Net interest income came at $590 million in Q1, up 8%, supported by growing asset yields, resilient retail deposits, and low cost of funding. Postal saving distribution fees amounted to $430 million, up 1% year-on-year, and in line with business plan targets. Transaction banking fees were impacted by lower current accounts repricing applied from April 2023, leading to 186 million revenues, down 8% year-on-year. Consumer loans distribution fees reached 62 million, up 41% versus Q1, driven by higher volumes coupled with increasing upfront fees in a stabilizing interest rate environment. Asset management delivered another remarkable quarter, reaching 45 million revenues, up 54 percent versus Q123, supported by strong inflows. Finally, EBIT came in at 199 million, reflecting a revenue trend and higher distribution network costs. Moving to slide 11, TFA has reached $586 billion, up $5 billion since the end of 2023. Let's look at each component. Insurance net inflows were at $0.5 billion, continuing the outperformance in a challenging market. Deposits were up, benefiting from higher balances from PA clients, while retail deposits were resilient to $56 billion, confirming the stickiness of our customer base. Postal saving outflows were related to lower postal bonds gross inflows while we recorded new liquidity in postal books. Finally, let me highlight the impressive $1.3 billion in inflows in mutual funds, the highest ever quarterly inflow we have reported on this product. Moving to slide number 12. Insurance services revenues amounted to $397 million in the quarter, in line with our plan. We continue to have positive net inflows in Q124 with a lapse rate of 5.5%, still well below market levels in a tough environment for life insurance investment products. Life investments and pension revenues are slightly down 3% to $363 million in the quarter, driven by a lower release of risk adjustment as a result of lower maturities, partially compensated by higher CSM releases. Protection revenues were up a strong 78% in the quarter, supported by higher GWP in protection and net insurance consolidation, which represents an accelerating enabler for the growth of our protection business. In fact, protection GWP were up 29% to 312 million in Q1, of which 50 million from net insurance. The combined ratio was 85% for the last quarter in line with our guidance and improving versus last year. EBIT of 349 million is up 4% compared to Q1 23. At present, we are not accounting for systemic charges related to the insurance guarantee fund as we are still waiting for the implementation details. As a reminder, these charges are not included in our EBIT targets over the plan. On slide number 13, we show the CSM evolution in the quarter. Normalized CSM growth is positive 0.4%, with new business and expected return more than compensating the quarterly release. Group CSM at the end of the quarter was up to $13.8 billion since December 2023, providing strong visibility on the division's sustainable profitability going forward. Let's look at the solvency ratio evolution of slide 14. Post-EVITA group solvency 2 landed at 313% at the end of March 2024, up 6 percentage points from December 2023, and well above the managerial ambition of circa 200% through the cycle, already embedding the new remittance ratio of 100% to the parent company. The improvement was mainly related to the positive impact from economic variances, driven by the decline in BTP spread in the last quarter, while the internal capital generation of the business fully covers the foreseeable dividend, even with a higher remittance ratio. Solved C2 ratio continues to be strong and is currently between 295 and 310%. Moving to post-pay services, slide number 15. Revenues continue to rise double digit, reaching 379 million in the quarter, up 17% year on year. Payment revenues grew by 14% to $283 million in the quarter, as we lead the continued structural shift from cash to card-based and digital payments, and confirm our leadership in e-commerce payments, up 16% in Q1-24. Telco revenues grew 2% in the quarter versus last year, supported by the Fiber Offer. Finally, positive commercial trends in our energy business are confirmed, with 15 million net revenues in the quarter, a substantial growth year on year. Yet again, thanks to strong revenue growth, EBIT grew a remarkable 32% to $117 million in Q1, supported by all businesses. Let me highlight that the comparison of Q1-23 is now fully on a like-for-like basis, as the niche was consolidated since September 2022. On slide number 16, we look at our workforce evolution. Since the end of 2023, the average headcount decreased to 118,000 as we continue to renew our workforce with 2,200 new hires in the quarter. HR costs per FTE are up over 4% to 47,400 euro as a result of salary increases and other items such as variable compensation with the value added per FTE growing over 2%. now at almost 84,000 euro per FTE. Moving to group HR costs on slide number 17. Overall, ordinary HR costs are up 3% in the quarter to just under 1.4 billion, with higher compensation partially mitigated by lower FTEs. In the quarter, ordinary HR costs on revenues are stable at 42%. Moving to slide number 18. Non-HR costs increased by $62 million year on year. In particular, COGS were up $70 million, mainly driven by $51 million of additional variable costs reflecting our higher business volumes and $30 million inflation impact, while non-inflation-related fixed COGS decreased by $11 million. More in general, our focus on cost discipline remains laser-sharp, and protecting the bottom line profitability remains our top priority. Thank you for your time. Let me hand over to Matteo for a wrap-up. Thank you, Camillo. On our Capital Market Day two months ago, we set out our strategic plan, the Connecting Platform. Amy, are we shaping our business to continue generating substantial growth? We have established ourselves as the largest digital platform company in Italy, committed to serve the largest client base in the country, catering for both long-term and everyday needs. This is our first progress report against our journey, and this is a strong one. We deliver high-quality results across the board and from each of our business units, supported by positive commercial trends in our products and services. We are executing our plan with a continuous focus on cost discipline, mitigating inflationary impacts. We continue to invest in automation and technology. We objected to constantly improve customer experience and loyalty. Thanks to our rock solid capital position and sustainable profitability from our well diversified business model, we're well on track to meet our financial and shareholders' remuneration targets. Giuseppe, over to you for the Q&A. Thank you. Thank you, Matteo. Let's start our Q&A session. Let me remind you that to ask a question, you need to press star 1, and to remove yourself from the question queue, you need to press star 2. The first question is from Giovanni Razzoli at Deutsche Bank. Go ahead, Giovanni.

Thank you, Giuseppe. I have two questions. The first one is on the GDP agreement, which, if I'm not mistaken, envisages a remuneration of 1.6, 1.9 billion. Can you remind us what was the assumptions that you have incorporated in your business plan? Because it seems to me that you have the possibility to exceed the target of the business plan, and as usual, Seems like you have been prudent on this. And in order to achieve the top of the range, what would be the targets in terms of inflows? I mean, if you can share with us if something has changed compared with the previous scheme of remuneration. And the second question refers to the quality of your revenues in the financial services division, because we have seen that the banks have reported very strong fee generation in the Q1, mainly thanks to the upfront contribution, which seems to me that a very low portion of your revenue stream. Can you share with us any details on this so that we can compare the performance with Apple? So thank you.

Thank you. No, I think that it was very important to find an agreement with CDP and having a three years agreement allow us to start this plan and this journey with the right contract in place. In terms of the upside versus the top of the range, and what we had in our figures in the plan. I can tell you that from the range of targets we agreed in the plan, uh i would not anticipate to be close to the top of the range okay so i think you know having a book for 2023 1.73 billion all we can say is that we are in a continuity slash marginal improvement over last year. The more important objective we achieved in the new agreement was finding the right support in terms of product offering, which as you have seen in the last two years is coming from CDP with a lot of quality and commitment and this has been re-established in the new agreement. And the second item, it was also important for us, given the very significant amount of redemption, maturities and early redemptions, to have targets that are feasible for us, because clearly in the current situation, market environment with strong redemptions. We need to have realistic targets, which was the reason, you know, it took a bit, you know, a few extra weeks versus, you know, our capital market day to find the agreement. In terms of fee generation, I think, you know, Camillo mentioned, you know, our asset management results in the quarter, but maybe, Camillo, you want to add something. Yeah, so what you can see in the slide in the Financial services who increased fees in asset management from 29 million to 40 million, an increase of 16 million euros in absolute terms against 1.3 billion of net inflows. for 2024, we have put a 0.2 of number for that line of business and that equates to approximately 1% on the underlying asset base.