Poste Italiane S.p.A. (OTCPK:PITAF) Q2 2024 Earnings Conference Call July 30, 2024 6:00 AM ET
Company Participants
Giuseppe Esposito - Head, Investor Relations
Matteo del Fante - Chief Executive Officer
Camillo Greco - Chief Financial Officer
Conference Call Participants
Gianluca Ferrari - Mediobanca
Irene Rossetto - Stifel
Alberto Villa - Intermonte
Farooq Hanif - JPMorgan
Michael Huttner - Berenberg
Elena Perini - Banca IMI
Manuela Meroni - Banca IMI
Giuseppe Esposito
Good afternoon. And welcome to Poste Italiane’s Second Quarter and First Half 2024 Results Conference Call. Matteo del Fante, our CEO, will take you through some opening remarks and then Camillo Greco, our CFO, will cover the financials. This 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.
Matteo del Fante
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 level 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-generative 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 sennder Capital Gain book in Q2 last year, active portfolio management and the contribution to the insurance guarantee fund were 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, up 14% on an underlying basis. Net profit adjusts 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 Q1, recon NII since listing very solid posted day services results, as well as high visibility 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 4. 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 parcels 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 of €1,000 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 5. 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 topline 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 6, you can see the acceleration of the positive 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 are gaining market share in all customer segments, as well as higher 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 Poste 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 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. PostePay 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 7 and EBIT evolution by segment. Mail, Parcel and Distribution shows an underlying €18 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 trends 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, PostePay Services, double-digit EBIT growth is driven by strong topline performance.
Let’s move to a more detailed review of our numbers by our CFO. Over to you, Camillo.
Camillo Greco
Thank you, Matteo. Hello, everyone. Let’s move to Slide #9 on Mail, Parcel and Distribution. Revenues amount to €954 million in Q2 and €1.1 -- €1.9 billion in H1, up respectively 7% and 6% on 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 auto repricing applied since July 2023.
Parcel 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 #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 Postini network increased from 35% to 39% in Q2, in line with our targets and positively impacting the business unit’s 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 on recorded items, and margin registered mail volumes have grown mid-to-high single digits in the first half. These, coupled with effective reprising actions, have generated a 13% increase of the average tariff.
Moving to Financial Services on Slide #11. Growth 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 portfolio 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 at €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 €709 billion, up €8 billion since the end of 2023. Once again, Poste Italiane 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 Assogestioni.
Our Life Insurance business remains resilient in a challenging market, still 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 balancing 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% and 7%, supported by a resilient life business and a fast-growing Protection 1. As mentioned previously, Life Investment and Pension net flows should be considered in the context of 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 inflows in the second part of the year. Among those, a policy with returns linked to specific assets collecting €0.5 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 CSM 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 to 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 an example 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. Poste Italiane groups Solvency II landed 297% at the end of June 2024, well above our managerial ambition of circa 200% through the cycle and already embedding the new remit cancellation 100% to the parent company, more than compensated by internal capital generation. The 16 percentage points decline from March 2024 is due to rates and spreads widening in the quarter. Such an impact has already been partially absorbed in July as our solvency duration is currently between 295 and 310%.
Moving to PostePay Services on Slide #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 Postepay 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 Q2 and 25% to €214 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 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 per FTE.
Moving to group HR costs on Slide #18. Ordinary HR costs are up 4% in H1 to €2.8 billion, which already -- 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, costs were up €137 million, mainly driven by €87 million of additional variable costs reflecting higher business volume and €60 million inflation impact, while non-inflation related fixed costs decreased by €10 million. Our focus on company discipline remains razor sharp and protecting the bottomline profitability remains our top priority.
Thank you for your time. Let me hand over to Matteo for a wrap-up.
Matteo del Fante
Thank you, Camillo. Our anti-fragile, phygital business model designed for sustainability has proven itself again with these results. Year-to-date performance continues to be strong in all segments with a further acceleration of positive trends in Q2. As always, we remain focused on continuing to deliver, with discipline, as we progress on the execution of the Connecting Platform 2028 business plan.
We have also achieved the key milestones of the new labor agreement which is crucial to the transformation of our Logistics business and implementation of the new service model providing us full visibility on our cost-based evolution of the plan. This achievement coupled with strong first half results supports upgrading full year 2024 adjusted EBIT guidance to $2.8 billion. Let me remind you that our new dividend policy is based on a minimum 65% payout ratio and therefore is directly linked to our financial results.
Finally, I want to thank again our dedicated employees whose hard work, commitment and professional skills are key to the strong results we continue to achieve.
Thank you everybody, and Giuseppe, over to you for the Q&A.
Question-and-Answer Session
A - Giuseppe Esposito
Thank you, Matteo. Let’s begin with the question-and-answer session. [Operator Instructions] The first question is from Gianluca Ferrari at Mediobanca. Go ahead, Gianluca.
Gianluca Ferrari
Yes. Hi. Good afternoon, everyone. So, the first question is on the increase in NII Q-on-Q. I was wondering if you can quantify the swap component in there and if we can define that as a kind of one-off projecting Q3 and Q4? The second is on the CSM release. There was a sharp pickup in the second quarter, more than 10%. If we can have the guidance for the year. I have a third one, if I may. There was a very high lapse rate in Life moving up in Q2, but inflows were pretty much flat in Insurance. So what happened here? Are you incentivizing some kind of exits from G&A savings to move into unit linked or what happened to justify these two trends? Thank you.
Matteo del Fante
Thank you, Gianluca. I will give a short overview on the second question and then let, Camillo, answer more specifically the first and second questions, which are both important for us. We experienced in the first half demand from fixed income higher yield products by our clients in the network. In other words, with fixed income markets providing 3%, 3.5%, 4% revenues, we had to put on the table as soon as we could mutual funds that could package those bonds for our investors in the easiest way possible. From there you see our record net retail collection on mutual funds.
And we were relatively fast, but probably not as fast as we could have been on providing the same products with an Insurance router, which came in the final version at the end of the quarter in June and is showing since then good results. So a portion of the increase in the Life has moved into Insurance, but there is also a component that is also moving to mutual funds. But I will let Camillo go more in detail.
Camillo Greco
Okay. I will start answering with NII. So, with respect to the increase quarter-on-quarter, sort of more in general terms, our portfolio is obviously combined by different slices of business. We have fixed rate, we have fixed forward start, we have variable rate, we have task credit and we have deposit in the public administration. So, the increase is a result of a different mix of evolution of those subcomponents.
With respect to what has happened, the first thing that has happened is that, the numbers that we had at budget in terms of short-term rates have been in a way not confirmed, as we had in our budget two cuts in the short-term. There was only one cut, so that had a positive impact on the variable portion of our portfolio, and as I think you mentioned, we also re-fixed in March part of the swap portfolio and that generated around €20 million of incremental NII. With respect to the CSM, with respect to the CSM...
Gianluca Ferrari
Sorry, Camillo, sorry. So you are telling us that…
Camillo Greco
Yeah.
Gianluca Ferrari
… €654 million NII in Q2, only €20 million is a non-repeatable component in Q3 and Q4, the rest is recurring, am I right?
Camillo Greco
No. I didn’t say that. What I’m saying, and I repeat is that, we have a portfolio which has fixed and variable. There is a portion of that which is €20 million, but there is also a variable component of the portfolio which will progress in line with wage. And on a full year basis, our estimate is that vis-à-vis the €2.3 billion that we gave of total portfolio return for the first, in terms of the budget, we probably have €100 million more at the end.
Gianluca Ferrari
Okay. Very clear. Thank you.
Camillo Greco
With respect to the instead of the point about the coverage unit of -- and the CSM release, we expect that to be between 8% and 9% on a full year. We have not given guidance on year end on CSM. What we said is that, we would expect to have a normalized rate in terms of growth around 5%, and based on what we have today, we expect that to be in the area of 3% as a result of the new actions that we have described. What we also confirm is the number at the year-end in terms of revenues for the division, which we expect to be in excess of €1.6 billion as a combined of Life and Protection revenues.
Gianluca Ferrari
Thank you very much.
Giuseppe Esposito
Okay. Thank you. The next question is from Irene Rossetto at Stifel. Go ahead, Irene.
Irene Rossetto
Hello to everyone. Thanks for taking my question. I have one on payments. Could you provide more color on why your revenues and the volume dynamics seem to be much stronger than the one of the market? Thank you.
Camillo Greco
So the question is with respect to the performance of PostePay. As I mentioned in my script, we have a business which is skewed towards non-discretionary spending, which has been performing well. We also have a continuing increase of the usage of our PostePay Evolution cards, which I remind the audience are the cards which have an IBAN number associated to that, which now have a stock in excess of €10 billion and it’s continuing to grow. So that, I think, is the main driver of the performance together with the increased average transaction value.
Irene Rossetto
Thank you.
Giuseppe Esposito
Thank you. The next question is from Alberto Villa at Intermonte. Go ahead, Alberto.
Alberto Villa
Yes. Thank you very much. A couple of questions. One is back on the net inflows dynamics. I understood from the previous answer that there would be a return to a more normalized level of contribution coming from the different segments, but I was wondering if you still expect also in the second half of the year a strong contribution to net inflows coming from the Asset Management and if you have a sort of a target for the full year 2024 in terms of net inflows for the Asset Management. Related to that, on the Postal Savings, if you have any comment on the dynamics, we can expect on the second half would be helpful and on the margins on the Life products, we have had many of your competitors that decreased the commissions on Life Insurance to, let’s say, propel inflows in a period of outflows. Did you have any change in your way of charging commissions on your Life products in line with the rest of the industry or is not the case for Poste? Thank you.
Matteo del Fante
Thank you, Alberto. Let me just do an add-on on Irene’s question if I may. Camillo’s point on the PostePay Evolution is a key element of our strategy. Having reached 10 million cards, these are cards that are paid by clients to be owned and there is a very large portion of the 10.2 million cards issued that are replacing a current account. So they are a current account lite given that they have an IBAN code and those are the cards are showing details increase in terms of volumes and those are the cards are allowing us today to grow more than the market.
In terms of Alberto’s question, I would take the Postal Savings and then let Camillo for the net inflows and the margin on the Life products. Postal Savings, we had a very solid first half. There is usually a strong half two seasonality in Postal Savings business starting usually with a very strong August. So the fact that we did a strong half one supported by in terms of the positive capacity product generation and attention to the network and to the investor sensitivities is, we believe, a good sign to achieve our budget and our targets for the year end.
Camillo Greco
Okay. So, with respect to the question on post-EBIT margin, we have launched a new product that I mentioned in my script in July. That product has specifically some promotional features apart from the general public and platform for employees. So, we expect it is going to be margin -- some margin compression, because specifically, but overall our fees in the first six months of the year have been more or less stable between 180 basis points and 165 basis points with being first half 165 basis points above our budget.
With respect to the other question which was on Asset Management targets, I think, that as both said by the CEO and myself in the script we had the first half of the year where we had heavily biased towards Asset Management. I think we said as of March we were the largest beneficiary of inflows according to our suggestion. We do expect the second half of the year to have a different trend with greater emphasis on Insurance to get closer to our targets and probably performance more modest on Asset Management.
Alberto Villa
Thank you for your answers.
Giuseppe Esposito
Thank you. Next question is from Farooq Hanif at JPMorgan. Go ahead, Farooq.
Farooq Hanif
Hi, everybody. Thanks. I hope you can hear me. Can you just explain again the sensitivity of the coverage units in the Life business and how the rates impact that? So, I mean, we are still expecting potentially if macro conditions remain where they are that the higher CSM release rate will continue. So, just a question around that. Secondly, on NII, I want to clarify your answer to the previous question. I think you said €100 million higher than budget is the run rate at the moment. I remember your budget -- your target is obviously to keep NII quite flat over the planned period. So, if we added this into our forecast, do you expect you still maintain flat at higher NII going forward? And maybe as a very quick clarification also on the lump sum that you are paying, can I confirm that this is a one-off lump sum pay in September and there are no more expected in the planned period? Thank you very much.
Matteo del Fante
I will start with the last one. Yes. It is €1,000 paid on the 1st of September and it covers basically eight months of, sorry, 12 months of 2024 and eight months of 2025. On the first and second question, please.
Camillo Greco
Okay. I will start with NII. So, when we add in the presentation in the Capital Markets Day Page #69, what we had was that we had for 2024 a total portfolio return of around €2.3 billion, that €2.3 billion was mainly driven by NII. There were around €15 million of capital gain in that amount. Where we are now is that we are in €2.4 billion area without having capital gain. The performance of the NII is sufficient to increase by €100 million without having to generate capital gain on the portfolio. So, there is a delta of €100 million.
With respect to the question on CSM, I am going to get the right page and answer that too. Just one second. Okay. Yes, basically the coverage unit has gone up in the quarter because of increase of interest rates and spreads. So, it’s a technical consequence of the movement of market parameters. So, basically the trend in the next quarter will depend on how interest rates will move.
Farooq Hanif
Okay. Can I just follow up very quickly on NII? So, thanks for that clarification. So, you’ve got that extra €100 million and that’s all sustainable. So, even the swap re-fixing is kind of sustainable amortization. So, if we take your €2.5 billion guidance for 2028, are you changing that as well?
Camillo Greco
Okay. So, we are starting back from Adam and Eve. The answer is, no. We look at the portfolio as a total return which is combination of NII and capital gains. So, we move on to this definition in March. So, we think about them on an aggregate basis. As mentioned, we benefited from the fact that short-term curve was higher than we expected. We embedded in our plan two cuts. There was one by the ECB. At this stage, we are not changing our guidance beyond 2024.
However, I remind you and the other in the audience that we have in the slide of my colleague, Guido Nola, a sensitivity, specifically Page #60, Page #62, apologies, where in the industrial plan you can see that under any scenario we are capable to perform at least what we committed to back in March.
Matteo del Fante
Yeah. If I may add, when we reach or specifically this quarter we exceed our targets without using capital gains, it means that basically we are not selling securities that have a capital gain, which means that they have coupons which are higher than the market and create liquidity that we will obviously have to reinvest at lower return. So we are protecting the portfolio for the future. So, we should look at our results of NII increase without capital gain as a double positive for the actual reported figure, which is higher than anticipated and for not having used future cash flow from our portfolio.
Farooq Hanif
That’s very clear. Thank you so much.
Giuseppe Esposito
Thank you. Next question is from Michael Huttner of Berenberg. Go ahead, Michael.
Michael Huttner
Yes. Fantastic. Thanks, Giuseppe and Matteo and Camillo. Thanks and excellent presentation. I had two questions. One is a little bit complicated. I hope you can follow me. The other one is really very simple. On the complicated one, so €1.5 billion EBIT in the adjusted EBIT in the first half. The kind of one-offs I detected or to come, whatever, there’s €20 million this sort of thing, and then there’s €60 million to come, I guess. My estimate from the €1,000 budget, so 60% of 1,000 times the number of employees. So if I adjusted that, I would get in the second half €1.4 billion, and I didn’t actually see any other negatives talked about. So I get to a figure of €2.9 million or actually just over €2.9 million. Is there something I’m saying or is it just the same as what the prudence which is coming through in the first half? And then the second question is, the €78 million to the Insurance fund and what do you get for that [Technical Difficulty] and the answer I’d like to hear is that you beat that or profit, whatever is, you’re actually going to make a profit on that portfolio. I don’t know if you could discuss that. Thanks.
Matteo del Fante
Okay. I’ll start with the second question. I mean, we are due to pay €74 million specifically of -- at the group level as an Insurance fund at year end which will directly impact our net income and it was already embedded in our Connecting Platform plans of last March. The link of what we will get with that fund with Eurovita my hope cannot -- is not possible, in the sense that we’re committing the resources to the fund and then, the regulator will make decisions on the collective amount of funds that all insurance and financial intermediaries have to commit.
If you ask the question, how is Eurovita legacy portfolio progressing, I can update you and tell you that, it’s progressing very well and we are not -- we have no reason to register any impairment on the initial investment we made which is a short of €50 million have basically taken control of those networks that have been allocated to Poste Italiane on the back of this 20% plus stake in the new core saying whether this is going to be a capital gain at the end of the plan I think is very premature.
On the complicated question, there is probably a very easy answer, not to disappoint you, but we do last quarter non-ordinary personnel, how you say, adjustment. So…
Camillo Greco
Contributions.
Matteo del Fante
… contribution, so you cannot basically extrapolate the six months or the nine months into the 12 months, because the last quarter is by construction weaker, because it is a quarter where we have always made our annual contribution to the non-ordinary HR cost and is a one-off Q4.
Very clear. Super. Thank you so much.
Giuseppe Esposito
Okay. Thank you, Michael. Next question from Elena Perini, Banca IMI, by Elena.
Elena Perini
Yes. Good afternoon and thank you for taking my questions. Actually, I’ve got only one last which is about your combined ratio which had a very strong improvement in the first half of this year compared to the first half of 2023, 83% from 88%. Can you elaborate a bit on this improvement and can we consider the 83% as a normalized level going forward, because it is a very important point also for the support of the Protection revenues? Thank you.
Matteo del Fante
Okay. I’ll let Camillo answer. But the level already of half one of 2023 of 88% was extremely good and Camillo will tell you what will happen in the second half. Please, Camillo?
Camillo Greco
What will happen in the second half is that we confirmed the target of 85% for full year. We have had -- we started to benefit of the contribution of net insurance which I remind Elena we consolidate net from the 1st of April, 2023. So, there is -- there are six months -- three months in the first six months of 2024 that have not been consolidated. The dynamics of loss ratio of net are different and have played in that level. But we confirm 85% for full year which is the number we had budgeted that, Matteo, already had shared back in March.
Giuseppe Esposito
Okay. Next question from Manuela Meroni, Banca IMI, as well. Manuela?
Manuela Meroni
Hi. Thank you for taking my questions. I have a follow-up on the NII. You are guiding for €2.4 billion in 2024. That means approximately €100 million lower NII in the second half compared with the first half. I’m wondering when you expect the NII to start declining. So, can we expect stabilization in the third quarter and then a decline in the fourth quarter or are you expecting a different trend? The second question is another follow-up on the new labor agreement. Should we expect some one-off costs in 2024 related to the lump sum of €1,000 in the third quarter or is it already embedded in the ordinary sub cost? And I’m also wondering if we may expect a material increase of the cost of staff in the second half compared with the first half also considering that the HR cost that FTE has already increased by 4.7% in the first half compared with last year. The third question is on the Energy business. The anti-trust asked you to open your postal offices excluded from the Polis project to other players in the gas and power sector. So, I’m wondering if you expect any material effect on your target for the business and any color you can provide would be helpful. And the last question on the Mail business, I’m wondering if you are expecting any repricing action in the second half of 2024 and what is the potential effect? Thank you.
Matteo del Fante
Thank you, Manuela. I will answer the second, third and fourth and let Camillo focus on the NII which seems to be top of everybody’s agenda. On the labor agreement, no, there is no one-off to be expected in Q3 or Q4. It’s already embedded on our forecast and no specific increase versus labor cost of Q2 and Q1.
On Energy, yes, in the latest document from the anti-trust has to a large extent softened the obligations versus the initial position taken versus Poste. So, obviously, we are going to collaborate in the rest of 2024, but not worried, nor anticipating any impact on our business production and business activities in Energy.
On Mail business, no, unfortunately we are not anticipating any specific one-off universal service repricing which will not be possible in 2024. The first universal service window to be repriced is 2021 March specifically. There is an ongoing repricing on the known universal service on the private side which will keep taking place at the pace you have seen over the last two years.
And that’s why I think, if I want to make an estimated 50% of the increase overall, bear in mind that first half of 2024 we benefited from the comparison with the first half of 2023 which was before the universal service increase of 1st July of 2023. So second half of 2024, the Mail increase will not be of the same magnitude of the first half of 2021 -- 2024 obviously. Please, Camillo.
Camillo Greco
So, yeah, with respect to NII, the third question, so I repeated once and for all, hopefully. So we had €2.3 billion expected for 2024. I want to clarify, first of all, the €2.3 billion is an interval of €100 million, because €2.251 billion to 2.349 billion and we are taking it now to €2.4 billion. So, if you look at the, so to be the lower end of the initial range and took the -- take the upper end of the new range, there are €200 million if you want to also look at that. Point number one.
Point number two, we said in those €2.3 billion, there were around €50 million of capital gain, but we were not planning to do any incremental capital gain.
The third thing I’ll say that I said before is that, we had an overall expected yield on the portfolio for 2024 of around 260 basis points net of costs, okay, so net of cost of funding. We are now looking at a level which is around 15 basis points to 20 basis points incremental to that.
And what I also say is that to the extent that the rates will go down because the ECB decides to cut rates vis-à-vis the two that were embedded in regional plan obviously that will have an impact on the NII in the second half, but because we have the next re-fixing in system before the variable portfolio. But irrespective of that we are very confident that we are going to make at least €2.4 billion of total return on the portfolio which is going to be at this point entirely driven by NII with no incremental capital gain.
Manuela Meroni
Thank you.
Giuseppe Esposito
There’s no further question. Thank you very much.
Matteo del Fante
Thank you everybody for taking the time, and obviously, we are all available starting with Giuseppe Esposito, Head of the Back Operation. Thanks again.