Unicredito Spa Ord New

Good morning, ladies and gentlemen. Before I hand over to Magda Pauszynska, Head of Investor Relations, a reminder that today's call is being recorded. Madam, you may begin.

Good morning and welcome to Unicredit's first quarter 2024 results conference call. Andrea Arcel, our CEO, will take you through the results. This will be followed by a Q&A session with Andrea and Stefano Porro, our CFO. Please limit yourself to two questions. With that, I'll hand over to Andrea.

Thank you, Magda. Good morning and thank you all for joining. Our Q124 results are the embodiment of the continued hard work by Vosat Unicredit and our commitment to continuously pursue excellence. They underscore again that Unicredit Unlocked is the right strategy as we build on our momentum, adapting and navigating the changing external environment to the benefit of all our stakeholders. We remain an attractive investment opportunity as our past performance and future prospects are still not reflected in our evaluation. Both our price earnings and price-to-distribution multiples remain at a substantial discount to both sector and top peers. Our commitment to excellence has resulted in our best first quarter ever and our 13th consecutive quarter of year-on-year profitable growth, setting new benchmarks in performance across all regions, product lines, and metrics. This success is underpinned by resilient, profitable, net NII, robust fee generation, and improved operational and capital excellence with every region and business contributing to making a better whole. We have spent the last three years securing a position of industry leadership as we continue to outperform expectations and peers while building strong foundation of investments, capital, asset quality, and liquidity to support our future. During the next three years, we remain committed to completing our Unicredit Unlocked transformation, further growing our results while delivering outsized returns. We will increase our focus on clients to counteract macro headwinds and further improve earnings quality. We will propel our top line by further expanding our fee base, crystallizing the investments and the work of the past three years while defending our unique high-quality net interest income, net of loan loss provision that already exceed our cost of equity. all while striving to maintain our leadership in operational and capital efficiency. Finally, we will benefit from the gradual release of our extensive profit and loss pathways. We are confident in our ability to deliver our mid-term guidance of strong growth in EPS, DPS, and tangible book value, per share, return on tangible equity above 15%, and overall distribution above 2023, thanks to our expected organic capital generation and excess capital return. For Unicredit, excellence means consistently delivering superior results, exceeding our strategic objectives, and leading the industry across all KPIs. The mindset This mindset is our competitive advantage. Our growth is profitable, constantly outperforming expectations while investing and creating lines of defense for our future to ensure sustainability. Our outstanding performance is across all RF3 financial levers. Net revenues reached 6.3 billion, up 7.5% year-on-year. NII was up 9, with LLPs flat and low. Fees up 3, or 8%, excluding current account fees, reduction in Italy, and securitization costs. We have continued to improve our operational efficiency, reducing absolute cost by 1% to 2.3 billion, while absorbing inflation and propelling investments. Our cost-to-income ratio improved further to 36.2%, three percentage points better than a year ago. We have continued to improve our capital efficiency, with net revenue to RWAs reaching 8.9% up from 7.7% a year ago, with RWAs down 5 billion to 280 billion. all contributed to deliver a record return on tangible equity at 13% CT1 of 23% up 2.6 percentage points year-on-year, a net profit of 2.6 billion up 24% year-on-year, and an organic capital generation of 3.4 billion or 118 basis points, which allowed us to accrue 2.6 billion, or 100% of our net profit in Q1 for distribution, whilst increasing our CET1 ratio by 35 basis points quarter-on-quarter to 16.2%. These translate into an EPS up 42% year-over-year, a DPS up 64% year-over-year, and a tangible book value per share up 25% year-over-year. These results are built on strong foundation across leading capital levels, sound asset quality, and strong liquidity ratio with LCR above 140% and NSFR above 125%. All regions and all product factories contributed to these results. Our net revenue is broken down into three categories. net interest income, net of LLPs, fees, and trading and others. Our focus on quality growth has resulted in structurally low loan loss provision and a net NII that continues to exceed our cost of equity. We believe to be only one of two banks who have achieved this. our fees have experienced strong and broad-based growth leading to a top-tier fee-to-revenue ratio reflecting our investment in product factories over the last three years. Our trading and other revenue has been primarily driven by core client activity which has supported its resiliency. We recognize that NII net of provision plays an important role in our top line. We have successfully focused on keeping it above our cost of equity while laying the foundation for its profitable future growth. Growth NII and margins are slightly down quarter on quarter as rates have peaked and volumes have not recovered. This appears to be a better dynamic though than peers, particularly given our focus on profitability rather than volume. Adjusting for day effects, NII was flat, quarter over quarter. We successfully managed pass-through to increase only 2.2% to 30%, driven mainly by Germany and Central Europe. Deposit volume stabilized, queue on queue, with growth in Germany and Central Europe and Eastern Europe, while Italy reflected some rotation to BTPs. As our approach of prioritizing profitable client segments grows over volumes moderates overall NII growth, our risk-adjusted NII net of LLP remained above our cost of equity and is up 5% quarter over quarter. This focus on quality growth will continue to sustain superior profitability, organic capital generation, and ultimately distributions. Our cost of risk, which is structurally lower thanks to discipline underwriting, improved asset quality and coverage, has contributed to the increase of our net revenues and the decrease of their volatility. This is a differentiated advantage which we intend to defend. Our stated cost of risk remained very low at 10 basis points, mainly due to the continued write-backs, primarily from Central Europe, Eastern Europe, and Russia. we are reiterating our guidance for stated cost of risk below 20 basis points for 2024. Our default rate increase from circa 1% for the full 2023 to 1.3% is exclusively driven by two single names, one of which is mostly state guaranteed. The underlying default rate is at 0.9% down year over year. We have taken an average of 100 million of write-backs from back to bonus per quarter since Q1 2022, and this quarter is no exception. The circa 14 billion reduction in Stage 2 performing loans this quarter is largely due to good performance of underlying portfolio. we still have circa 1.8 billion of overlays to protect our performing portfolio, highest among peers. We have a better quality of NPE with above 70% of unlikely to pay and pass due to total NPE. These demonstrate our strong asset quality combined with a conservative classification and provisioning policy. To report our fees more simply, we have changed their classification as detailed in the Annex. Our fee base, which accounts for 34% of total revenues today, 41% in Italy, grew 8% year-over-year, ex-current account fee reduction in Italy and securitization cost. Investments were up 18%, insurance 5%, driven by non-life up 12%, and payment up 11%. We are particularly pleased with the diversified and balanced nature of our fee streams. The positive momentum across all fee categories reflect our strategic investments in our product factories and renewed client appetite. We see continued potential for differentiated growth as we internalize and focus on capturing more share across each product value chain. A significant portion of this fee growth is locked in and not dependent on market dynamics, rather managerial actions. We therefore aim to achieve 1.4 billion higher run rating fees in 2026 versus 2023. Cost management remains disciplined, supporting investment in our business and people, absorbing inflation and driving overall costs down while increasing our top line. We're continuing to streamline our organization, automating processes and reducing bureaucracy. We maintain a continued focus on hirings, training and remuneration as a direct route to enhancing our product factories and digital capability. As a result, our overall costs are down 170 million, quarter on quarter, and 16 million year over year, offsetting 3.4% inflation in our footprint this quarter by proactively acting to manage salary drift. Our cost-income ratio reached a leading 36.2% in Q1, down 3 percentage points year-over-year and 5.5 percentage points quarter-on-quarter. Q1 was one of our strongest quarters yet in organic capital generation, 118 basis points, or 3.4 billion in the quarter. This allowed us to accrue our full net income of 2.6 billion for distribution, while further increasing our leading CT1 ratio by 35 basis points to 16.2%, and retaining a best-in-class MDA buffer of almost 600% basis points. Our disciplined focus on quality net income growth, complemented by an obsessive focus on operational and capital efficiency, is key to maximizing profitability and organic capital generation, enabling outsized ordinary distribution whilst strengthening capital. This model is a competitive advantage for Unicredit. As I now take you through our regions and product factories, please note the differentiated strengths and value add that each one of our regions brings to the overall group, as well as the value that the group brings to each one of them, making Unicredit better than the sum of its part. Let's move to Italy. Italy has again delivered outstanding results with its ROAC reaching 31% and profit before tax 1.6 billion, up 18%. Italy continues to drive the increase in our group's fees and insurance income and profitability of NII net of LLPs. Our consistent improvement in client focus and delivery across our three financial levers have brought us closer to our ambition of becoming the bank of choice in Italy. Net revenue grew 7% year-over-year to $2.8 billion. NII was up 13% on rates and strong path through management. Cost of risk increased to 33 basis points, driven by the full write-off of a single name credit, which is largely state-guaranteed. As such, net NII was up 14%. Fees were up 11% when excluding the current account fee reduction and securitization costs, 3% otherwise. They reached 41% of overall revenues, including insurance results. The continuous search for operational and capital excellence drove cost-income ratio down to below 34% and net revenue to RWA up to 10.4%, with RWAs decreasing 9% or 11 billion. Our people, clients, and communities remain central to how we operate. It is testament to the support that we provide our people that we have been named top employer in Europe for the eighth year in a row. We launched Buddy, a full-service, fully digital branch, fully integrated in our distribution channels to provide our client with a choice of how, when, and where they access us. we unveiled our third edition of Unicredit for Italy, totaling 10 billion of additional credit. Germany. With its AAA rating and leading European player status, Germany has again delivered strong results, with ROAC exceeding 23%, up 4% point year-over-year, and profit before tax, 800 million, up 24% year-on-year, supported by a standout 7% reduction in their absolute cost base. Net revenue were 1.4 billion, only 4% below our stronger-ever quarter in Q1 2023. Strong growth in high-quality NII, investment and payment fees were unable to offset last year's extremely high client demand for hedging and low cost of risk. NII was down 9. However, it is slightly positive net of higher funding costs on market positioning, which are counterbalanced in trading result. Cost of risk increased to 21 basis points driven by a single name. Investment fees were up 5. Payment fees, 10. Fees overall, down 3 due to the exceptional high base of hedging fees in Q1 2023. The continuous surge For operation and capital excellence, Doroth, Germany cost-income ratio down to 38.5%, and net revenue to RWA up to 8.1%, with RWAs decreasing 9 billion. Our sustained commitment to supporting entrepreneurship and inclusivity has seen us reaching circa 1,700 beneficiaries in underserved areas with training and workshop during the first quarter. Central Europe. Central Europe continues to deliver on our ambition to become the leader in the region, both in terms of franchise and performance. ROAC reached 22%, profit before tax rose 43% to $600 million. Net revenue grew 12% year-over-year to $1.1 billion as our approach to quality growth paid off. NII was up 11% on a strong rates environment. Cost of risk remained negative, reaching minus 20 basis points driven by continued write-backs. Net NII was up 15%. Fees were up 10% driven by investment products. Our costs increased only 1% despite high inflation, leading to an improvement of our cost-income ratio to below 37%. Net revenue over RWAs improved to 7.4%, with RWAs decreasing 600 million. Our innovation in the region continues with Hungary launching one market, adding to successful launches in Austria, Czech Republic and Slovenia. We launched end-to-end investment via mobile in Czech Republic and Slovakia, and we have issued a 750 million euro green mortgage covered bond in Austria. Eastern Europe continues to increase its number of primary clients, driving top-line growth while maintaining sustained operational and capital efficiency. ROAC reached 39%. Profit before taxes was up 29%, landing at 500 million. Net revenue grew 16% year-over-year to 700 million. Our approach to quality growth resulted in a 23% increase in NII, driven by strong commercial dynamics and a favorable rate environment. Cost of risk remained negative at minus 27 basis points. Net NII was up 18%. Fees were up 13% thanks to our focus on payments, financing, and advisory. Our cost growth of 4.8% in the region was half the average inflation level, contributing to a decrease in our cost-income ratio to circa 30%. Net revenue to RWAs reached 10%, with RWAs increasing 10%, however, half our gross revenues. This quarter, we were the joint lead manager on the 1.5 billion euro-zero bond offering by Republic of Croatia and the first in the Bulgarian and Bosnian Erzegovina markets to sign a green renewable energy source. We continued the rollout of our one-market funds with 16 funds in Bulgaria and launches in Romania. Our partnership with Alfa Bank in Romania and Greece is off to a strong start. Client Solution has delivered excellent results, with gross revenues up 6% to 2.9 billion, of which 65% were fees, up 8% thanks to our focus on superior quality products for our banks, while contributing to capital-like growth. our corporate solution revenue increased 4% to $1.4 billion, whilst RWA's declined 12%. Within this, advisory and financing generated strong fees, particularly in DCM and M&A, up 23% year-over-year. Payment solution revenue increased 1% to 600 million, driven by payments up 14, which were able to offset lower current account fees to our clients in Italy. Individual solution revenues increased 14% to 900 million, driven by investments up 18% to 600 million, thanks to demand for in-house products such as one markets, bonds, and certificate, leveraging on interest rate stabilization and product innovation. Insurance was up 5% to 300 million, driven by property and casualty up 12%, and a recovery in life insurance up 2% from a week 2023. As promised, we are going to now go through briefly a couple of deep dives. Firstly, corporate solution. Our ambition for corporate solution is to become the go-to bank for small and mid-corporate clients in our core market. We're well on our way to achieving this. This business delivered 4.9 billion of revenues in 2023, of which 37% or 1.8 billion were fees. But we expect to increase by 300 million by 2026. In advisory and financing, which contributed $2 billion in 2023, we have grown our talent base and built an advisory and capital markets capital-light value-adding business to both balance and benefit from our financing. This is working well, with fees reaching 25% of total revenues. We expect them to increase their weight to circa one-third by 2026. Our trade and correspondent banking business, which contributed 1.1 billion in 2023, is a leader in Europe, where we secured twice the cross-border market share that we have in any domestic market as we accompany our clients end to end. We continue to invest in improving our client experience, digitalization, and overall quality of the service, with fees representing more than half of our revenues. Our client risk management solution, which delivers $1.8 billion in 2023, are designed for SME clients, to whom we provide targeted offerings on rates, commodities, and effects. We remain focused on improving our clients' connectivity and client-driven business. Fees account for 42% of total revenues. We shall reduce RWA usage and cost further through to our trading engine centralization project. Let's move to payment solutions. Payment solution is a core area of investment and growth for the group. It offers transactional payment, issuing and acquiring, and current account to our 15 million clients across our 13 banks in Europe, with the ambition to be every European client's first bank of choice for payment. We are well advanced in consolidating payment solution into a center of excellence, creating a united factory alongside individual and corporate solutions that can provide best-in-class products and growth to our 13 banks. The business delivered $2.5 billion of revenue in 2023, of which circa 90% were fees, that we expect to increase by $300 million by 2026. We are ideally positioned to be a gateway to innovation, leveraging partnership, global platform, and group data intelligence. Our strong payments DNA and flexible technology make us a standout in the market. We are the number one EU bank for transactional payment, with a cross-border payment market share of over three times that of intra-country payments. The business delivered 1.3 billion of revenue in 2023, of which 82% were fees, which we expect to grow at a 4% category out to 2026. Our inherent success factors include advanced international payments, sophisticated cash management, and treasury-related solution in effects, rates, and commodities, and our ability to leverage our unique pan-European network. We have three key strategic priorities here. Further boosting our leading position in the pan-European payment space by expanding our capabilities in mature markets to other CE and EE countries. Second, maintaining our domestic leadership in each market by extending and enhancing our product offering. Third, evolving towards a truly client-centric approach to counter emerging threats and increase our share in the business. In both issuing and acquiring, we are in the top three leading positions in six European markets, including Italy. We intend to further strengthen our position in all our 13 markets, expanding our capabilities and exploiting digital payments, especially in CE and EE. The business delivered 500 million of revenues in 23, of which 91% were fees, which we expect to grow at a category of 8% out to 2026. In issuing, we are positioned to win in the market, with 13 banks having issuing licenses performing over 5.5 million POS or cashless transaction per day in 2023. We have a direct issuing license model in all markets, and we've insight from extensive card transaction data through a highly diversified product offering, including consumer and commercial cards across prepaid, debit, and credit card products. In acquiring, we operate across 10 countries with a principal license model, performing 5.75 million post-transactions per day in 23. In-house acquiring is a cornerstone of our strategy, which gives us a competitive edge. To further enhance our offering, we're also revamping this business. Proposition and product offering becoming a merchant acquiring bank with fully integrated acquiring solutions. Overall, we have the potential to be the standout player in the payment industry and are committed to meeting that ambition and providing excellent services to our clients. Unicredit Unlocked has already fundamentally transformed our bank, laying the foundation for a sustainable and profitable future. This has led to Unicredit delivering 13 consecutive quarters of profitable growth, taking us to the top of the industry in terms of EPS, DPS, and tangible book value per share growth, return on tangible equity, organic capital generation, distribution, operational and capital efficiency, and CET1. all while continuing to invest to propel our future results and continue to accumulate significant buffers to further protect our delivering and our distribution in the future. These include $1.5 billion in non-operating items, $1.8 billion in overlays, and more than $6.5 billion of excess capital going forward. We are far from being finished. We're determined to achieve our long-term ambition of excellence and have the levers to do so. We have made substantial progress in making Unicredit more efficient and effective. We shall now accelerate our journey towards a truly client-centric organization, serving them as efficiently and effectively as possible. Our strategy has a dual focus. The first pillar is our operating machine. We're continuously simplifying our organization, streamlining our processes and operation, and upgrading our technology. This supports our second pillar, our commercial machine. Firstly, this means continuing to empower, motivate, train, and focus our people on understanding and addressing client needs. Secondly, it is developing and fully integrating alternative distribution channels to ensure that clients can access at when, how, and where they want. And finally, it is about ensuring the seamless delivery of top-tier products provided through our factories and best-in-class partners via our integrated distribution channel. Going forward, we focus on continuing to expand our fee base, defending and further enhancing the profitability of our NII net of provision and the stability of our trading operations. This ensures a well-rounded and resilient top line. Our capital accretive NII net of LLPs exceeds the cost of equity in its own right with low volatility. We believe to be one of the only two banks in Europe in our peer group that have delivered this much. Our quality backbook and higher strategic flexibility on volumes, along with our strong replicating portfolio, shall partly offset rates headwind and the continued compression of Russia. Our fees have substantially grown in importance and now provide a strong starting base, stable and diversified. We now have an improved mix compared to our peers, with fees at 34% of revenues and strong lever with which to grow our fees by a further 1.4 billion out to 2026, thanks to past investment and clear action to further unlock our in-house product factories. By integrating these diverse revenue streams, we are creating a high-quality top line, unmatched amongst peers, and one of the critical factors to superior, sustainable, return on tangible equity, organic capital generation, and growth. Our ability to maintain industry-leading operational and capital excellence is critical to delivering on our profitability and organic capital generation ambition, and ultimately distributions. We currently rank first in cost-to-income ratio, cost of risk, and capital efficiency. Our absolute cost base has been consistently reduced despite inflationary pressures while investing for the benefit of the business, in line with Unicredit Unlocked. We have taken significant integration costs, preparing the ground for continued future cost reduction, leveraging ongoing simplification efforts. A decade of de-risking, vigilant origination, and continued conservative provisioning have resulted in a structurally lower and much less volatile cost of risk, which we trust we will be able to maintain below 20 basis points this year and within the 20 to 25 basis points over the cycle, leveraging the release of our 1.8 billion of overlays. We have improved our capital efficiency since Unicredit unlocked, delivering now best-in-class organic capital generation to support sustainable and significant distribution without denting. CT1. Our discipline is now embedded and we expect it to continue unabated. Our unique BNL buffer substantially de-risks our ability to deliver our bottom line and combined with the usage of or return of our excess capital shall support greater total distributions. We are upgrading our net profit guidance to in excess of 8.5 billion versus our previous guidance of broadly in line. And you all know what my personal ambition is. This is driven by a strong Q1 which puts us ahead of our run rate for the year and a better outcome on systemic charges which we now expect to be around 400 million lower than 23 or circa 200 million better than we had anticipated. Given our healthier profitability, and most importantly, organic capital generation and excess capital return commitment, we are upgrading our expected 2024 total distribution to circa 8.6 billion in line with 2023. This continues to represent the highest total distribution yield in the industry. Accordingly, we are accruing 100% of net profit in the first quarter. Our dividend payout remains at 40% of net profit or circa 3.4 billion. Our 2024 calendar distribution could now exceed 10 billion. We aim to commence the first tranche of a remainder of a 2023 share buyback as soon as possible after results. There will be more tranches soon thereafter. we are confident that in the next three years we will continue to offer a compelling investment opportunity across strong growth of EPS and DPS, profitability and best-in-class total distribution underpinned by organic capital generation and excess capital deployment or return no later than 2027. In the event that our excess capital cannot be deployed and is therefore returned in full to our shareholders, we anticipate, based on our profitability and organic capital generation assumption, that our total annual average distribution, 24 to 26, will be either equal in 24 or above 8.6 billion in 25 and 26. As such, we should be able to return, in this event, half of our current market cap to our shareholders within the next three years. Should any of the excess capital be deployed, the level of total annual distribution shall remain best in class, but depend in their amount on the return on those investments. We confirm that traditional bank acquisitions shall be executed only if they fit strategically and if their post synergies return compared favorably with those of our share buyback. Our transformation efforts have delivered consistent outstanding results across all KPIs, surpassing our peers. As of Q1, we have a leader in terms of EPS, DPS, and tangible book per share growth, return on tangible equity, cost-income ratio, CET1, organic capital generation, and expected 2024 distribution yield. And we're not done, as our guidance for 2025 and 2026, and in general for the next three years, demonstrates. We remain an even more attractive investment opportunity as our past performance and future prospects are still not reflected in our evaluation. Both our price-to-earnings and price-to-distribution multiples remain at a substantial discount to not only top peers, but also to the sector, particularly when adjusted for excess capital and the comfort provided by our lines of defense. Before I open to questions, I would like to leave you with three key messages. One, this quarter has once again demonstrated the effectiveness of our Unicredit Unlocked strategy. Our metrics of growth, profitability, and distribution set a benchmark for the industry. Two, looking forward, we have plenty of runway left and are excited at the opportunity to show what we can do when rates and cost of risk normalize. In addition, we shall maintain a distribution yield and strategic optionality that are unmatched. Thirdly, our valuation is far from reflecting the above, and we remain focused on continuing to deliver the results and distribution that will ultimately drive it to where it should be. Thank you, everyone, and I now open for questions.