Poste Italiane Spa

Good afternoon and welcome to Posse Italiana's second quarter and first half 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. These will be followed by a Q&A session where you can ask questions either by phone or through our webcast platform. Please limit yourself to two questions. Over to you, Matteo.

Good afternoon. and thank you for attending our Q2 and Half One 2024 call. I will start the call with thanking again all our employees and stakeholders. Our people play an important role, and I'm proud to say we have signed in record time a new collective labor contract, which represents a key milestone in the execution of our business plan as it enables us to implement the logistic and distribution transformation and increases visibility on the cost base. We are accelerating our strong, profitable and cash-generated growth. For consistency with business plan targets, in today's presentation, we will show an adjusted EBIT before the impact of the insurance guarantee fund. Furthermore, we will be focusing on underlying growth, which does not take into consideration the impact of the Sender Capital Gain book in Q2 last year, active portfolio management, and the contribution to the insurance guarantee funds where applicable. In the first half of the year, revenue reached 6.2 billion, up 3% year-on-year or 7% on an underlying basis. Ongoing expense management remains a key focus as we continue to successfully mitigate inflationary impacts, while cost increases came from growing business volumes. Adjusted EBIT in half one is 1.5 billion euros, up 14% on an underlying basis. Net profit at just over 1 billion, also up 14% on an underlying basis. We continue to see positive net flows in investment products with strong results in asset management and resilient insurance business in a challenging environment. On the back of our performance in mail and parcel in half one, record and AI since listing, very solid post-a-day services result, as well as IOVTBs on our cost base. We are today upgrading our full year 2024 adjusted EBIT guidance to $2.8 billion. Let's focus for a moment on the new collective labor agreement on slide four. I'm very pleased to announce this new mutually beneficial national labor contract finalized in record time and signed just last week. Also on behalf of our chairwoman, Silvia Rovere, and our general manager, Giuseppe Lasco, I would like to thank everyone involved in this process. and specifically the labor unions for their extremely constructive approach. Firstly, we signed an agreement on the reorganization of our logistic operation, which is unique in the sector, and will enable POSTE to build a future-proof network. We will implement a directly managed parcel-dedicated network with our own employees, ensuring the level of flexibility which is required in the parcel market. In particular, our parcel-dedicated network will be able to deliver items of up to 10 kilograms and will work up to 39 hours a week, with more flexible daily and weekly shifts to meet new market needs. This agreement is a major building block of our strategic plan. in particular with respect to the target of up to two-thirds of parcel delivered by our employees by 2028. Secondly, thanks to the new agreement, we will be able to implement a new distribution model for financial services in the postal offices, a key ingredient in the 2028 plan. Finally, regarding compensation, the new agreement covers the four-year period from 2024 to 2027 with an overall average monthly increase of €230 by 2027 starting from September 2025 and a lump sum 1,000 euros to be paid in September 2024, of which 60% covers 2024 and 40% covering up to August 2025. The operating and financial impacts of the agreement are fully consistent with our 2024-2028 business plan. and today we significantly increased the visibility on the evolution of our cost base. Let's move to group financial results on slide five. We have continued generating profitable growth in the second quarter and first half of 2024. Let's focus on the latter. where we generated 7% year-on-year underlying growth in the top line to €6.2 billion. Adjusted EBIT in the first half of 2024 is at €1.5 billion, up 14% year-on-year on an underlying basis, with net profit at over €1 billion, up 14% as well. On slide six, you can see the acceleration of the policy trends across all businesses in Q2 this year. In mail parcel and distribution, half one revenues amount to $1.9 billion, driven by double-digit parcel volume growth. where we're gaining market share in all customer segments, as well as highly registered mail volume and repricing actions more than offsetting unregistered mail volume decline. This is the highest quarterly year-on-year mail and parcel revenue growth recorded since listing by Post Italiane, excluding the post-COVID period, obviously. In financial services, revenues were up 9% in the quarter and 7% in the first half on an underlying basis, driven by record NII since listing again and positive commercial trends across products. Insurance revenues increased. were up 13% in the quarter and 7% in the first half as a result of resilient life investment and pension and fast-growing and profitable protection insurance businesses. Post-EPA services continue to grow double-digit in the half thanks to increased card and digital payments and our leadership in e-commerce transactions. with our successful energy business making an important contribution to the revenue growth. Let's go to slide seven and EBIT evolution by segment. Male parcel distribution shows an underlying €80 million EBIT improvement compared to the first half of 2023, supported by a strong revenue momentum across products. Financial services operating profitability is resilient and improving in Q2, reflecting revenue trend and higher distribution network costs. Insurance services EBIT reflects the strong performance of our protection business and resilient results in life investment and pension. Finally, for the base service, double-digit EBIT growth is driven by strong top-line performance. Let's move to a more detailed review of our numbers by our CFO.

Over to you, Camillo. Thank you, Matteo. Hello, everyone. Let's move to slide number nine on mail parcel and distribution. Revenues amount to $954 million in Q2 and $1.9 billion in H1, up respectively 7% and 6% on the underlying basis. Mail revenues at $548 million were up a remarkable 7% in Q2 and up 5% to over $1 billion in H1, supported by a favorable business mix with higher volumes of registered mail and repricing actions, with the latest major OSU repricing applied since July 2023. Passenger revenues were up 15% to $375 million in Q2 and up 12% to $743 million in H1, supported by all customer segments with a further acceleration in Q1 growth trends. Distribution revenues from other business units are up 8% in Q2, reflecting positive commercial trends and compensating for higher network costs. Let's look at volumes and targets on slide number 10. Parcel volumes are up a robust 26% in Q2 and 23% in H1, with growth in all customer segments, from large e-commerce platforms to small-medium merchants, as we are managing increasing volumes, gaining market share from our competitors, also on the back of strong performances during peak periods. items delivered via the postal network increased from 35% to 39% in Q2, in line with our targets and positively impacting the business units' profitability. Looking at pricing, the reduction in average parcel tariffs in the quarter is related to a mixed effect with increasing volumes with lower pricing and lower delivery unit costs. Moving to mail, The volume decline is related to lower margin unrecorded items. Higher margin registered mail volumes have grown mid to high single digits in the first half. These, coupled with effective regretting actions, have generated a 13% increase of the average tariff. Moving to financial services on slide number 11. Gross revenues are at $1.6 billion in Q2, up 7%, and at $3.1 billion in H1, up 5% on the underlying basis. Net interest income came at $653 million in Q2, up 16%, and over $1.2 billion in H1, up 12%, representing the highest quarterly and half-year NII we recorded since listing. Such record NII is driven by higher interest rates combined with our proactive foresight. follow management activity, allowing us to lock in higher rates, thus enabling an increased visibility on future portfolio return. Postal savings distribution fees are at $415 million in Q2, up 3%, and at $844 million in H1, up 2%, supported by continued commercial focus. Transaction banking fees are stable at $181 million in Q2, reflecting the same current account pricing as in Q2 2023. Consumer loans distribution fees continue to regain ground, with volumes at $121 million in H1, up 16%, supported by higher volumes. Asset management fees came at $52 million in Q2, up 35%, and $97 million in H1, up 43%, benefiting from record high net inflows in the first half of 2024. Finally, adjusted EBIT up 9% to $218 million in Q2 on an underlying basis, reflecting positive revenue trends and higher distribution network costs. Moving to slide 12. TFA has reached $509 billion, up $8 billion since the end of 2023. Once again, POS Italiani has adapted its offer to meet evolving client needs in order to have a compelling financial proposition in all market environments, reaching $4 billion net inflows in the first half. Let's look at each component. We reported a remarkable 2.8 billion net inflows in investment products, which is the sum of mutual funds and life investment and pension. Within this group, we reported record numbers in mutual funds, driven by strong demand for our target date fixed income products, allowing us to minimize outflows from managed products. As of May, we are the leading asset manager in Italy in terms of net inflows, according to Assocgestioni. Our life insurance business remains resilient in a challenging market, see recording positive net inflows year-to-date. Postal savings net outflows improved versus last year, driven by high maturities mitigated by interest accrual as well as highly successful new commercial initiatives. This includes offers targeting new liquidity, generating 5 billion inflows in the first half of the year. Deposits benefited from higher balances from PA clients, while the retail deposits were resilient, confirming the stickiness and loyalty of our customer base. Moving to slide 13, insurance services revenues reached $430 million in Q2 and $827 million in H1, up respectively 13.7%, supported by a resilient life business and a fast-growing protection one. As mentioned previously, life investment and pension net increase. should be considered in the context of a strong client demand for fixed income mutual funds. Yet we continue to outperform the market with positive net inflows in H1 of 0.3 billion and a loss rate of 6.4%, still well below market levels, currently estimated at above 11%. In this context, we are rolling out commercial initiatives that will positively contribute to life net influx in the second part of the year. Among those, a policy with returns linked to specific assets collecting half a billion in June and July, and the recent launch of a life insurance product with a return profile similar to fixed income mutual funds. Life investment and pension revenues are up 8% in Q2 to $378 million and up 2% in H1 at $740 million, supported by stable CSN with high release percentage in the quarter. Protection revenues continue to increase materially year on year and are up a remarkable 77% both in Q2 and H1. Protection revenue growth is driven by higher volumes and improving combined ratio, which we expect to be in line with our guidance of 85%. Adjusted EBIT is at $378 million in Q2, up 15%, and up $727 million in H1, up 9%. On slide 14, we show the CSM evolution. Normalized CSM growth increased 1.3% in the first half of 2024 versus 0.4% in Q1, with new business and expected return more than compensating the release. Therefore, Q2 normalized CSM growth accelerated to 2.2%. We expect this KPI to further improve in the second half of the year as a result of the commercial initiatives mentioned earlier. Group CSM at the end of the first half stood at 13.5 billion, providing strong visibility on the division of sustainable profitability going forward. Let's look at the solvency ratio evolution on slide 15. Postevita Group's solvency to 297% at the end of June 2024, well above our managerial ambition of circa 200% through the cycle, and already embedding the new remittance ratio of 100% to the parent company, more than compensated by internal capital generation. The 16 percentage points declined from March 2024 is due to rates and spreads widening in the quarter. Such an impact was already partially absorbed in July as our solvency duration is currently between 295 and 310%. Moving to Post-EPA services in slide number 16. Revenues are up 9% to $382 million in Q2 and up 13% to $761 million in H1. Payment revenues up 7% to $281 million in Q2 and up 10% to $464 million in H1, driven by increasing transaction value with e-commerce growing at 16% in Q2 and H1, combined with an increase in total ecosystem transactions, including top-ups, growing at 11%. Results are also supported by a strong performance of our IBAN-backed post-depay evolution cards, showing a 5% year-on-year increase in stock to 10.2 million cards, with a well-above market transaction value increase of 18% in H1. Telco revenues are resilient to $163 million in H1 and impacted by a marginally lower client base versus last year, though growing versus Q1. Finally, continued positive commercial trends in our energy business are confirmed, with 34 million net revenues in H1. Yet again, thanks to strong revenue growth, adjusted EBIT grew a remarkable 19% to 132 million in CO2, and 25% to 249 million in H1. On slide 17, 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 2,800 new hires in the quarter. HR costs per FTE are up almost 5% to 47,000 euro as a result of salary increases and other items such as variable compensations. With value added per FTE growing by around 3% at 85,000 euro per FTE. Moving to group HR costs on slide number 18. Ordinary HR costs are up 4% in H1 to $2.8 billion, which was already in line with the new collective labor agreement. In the quarter, ordinary HR costs and revenues are stable at 41%. Moving to slide 19, non-HR costs increased by 7% to $2.1 billion in H1. In particular, COCs were up $137 million, mainly driven by $87 million of additional variable costs, reflecting higher business volumes and $60 million inflation impact, while non-inflation-related fixed COCs decreased by $10 million. Our focus on continuing discipline remains laser-sharp, and protecting the bottom line for stability remains our top priority. Thank you for your time. Let me hand over to Matteo for a wrap-up.