Poste Italiane SpA

MIL:PST

Earnings Call Transcript 2021-Q1

[Massimiliano Riggi, executive]

Good afternoon, ladies and gentlemen. Welcome to Poste Italiane's financial results for the first quarter 2021, presented by our CEO, Matteo Del Fante; and our CFO, Camillo Greco. Following the presentation, we will be glad to answer your questions. Then now, let me pass it over to Matteo, please.

[Matteo del Fante, executive]

Good afternoon, and thank you for joining us today. We are pleased to present Poste Italiane results for the first quarter of 2021. This is the first call after announcing our new strategic plan, 2024 Sustain and Innovate. The results are strong, and the implementation of our plan is well on track as we're fully committed to delivering on our targets.

It has already been a year since the beginning of the COVID-19 emergency. Poste Italiane has emerged from the pandemic as an even stronger company, with a resilient performance and the confirmation of its key role as a strategic pillar for Italy. Our position among our employees, customers and stakeholders has been further strengthened, having delivered critically important services. Indeed, we're currently supporting the rollout of the vaccination plan across Italy by leveraging on our unique technological and logistics capabilities.

Let me start with the key highlights of Q1 2021 before handing over to our group CFO, Camillo Greco, for a more detailed business review. After some closing remarks, I will then open the call for questions.

Beginning on Slide 3. Our diversified business model is continuing to deliver strong financial results, benefiting from positive commercial trends across all our segments. Despite restriction due to several regional lockdowns introduced over the course of the first quarter, we managed to expand our business in line with strategic priorities set with 2024 Sustain & Innovate. Our operating profitability has proved to be very solid. Also considering the impact of emergency-related costs borne to ensure the highest safety standards for our customers and our employees. Each segment contributed to this robust performance.

This was the best Q1 ever for our Parcel business with overall volumes growing more than 70% year-on-year and almost doubling in the B2C segment. Our strategic focus on wealth management resulted in positive net inflows on investment products with a strong increase of our multi-class and new Class I products. Our Payment business is continuing to grow double digit with strong growth in card payments supported by higher stock and increasing volumes. We have reconfirmed our role as a key strategic pillar for Italy, and we are grateful to our customers, our colleagues and stakeholders who once again demonstrated their trust in Poste Italiane, rewarding us with an increased reputation score.

Since last quarter, our reputation corporate measured by RepTrack increased by 4.5 percentage points. This significant increase of our reputation score is a result of our continued support of the country and the Italian, especially during such a challenging period. Presenting our 24SI plan, we defined our target as ambitious but achievable with a focus on revenue growth to create and deliver higher and sustainable value to our stakeholders. Q1 results are indeed showing that our plan execution is progressing in the right direction.

Let me move to group financial results on Slide 4. Group revenues grew by an impressive 9.8% year-on-year, highlighting that the group is now in full recovery mode. This result is even more remarkable considering that throughout the quarter, Italy has been under several partial lockdowns, involving specific areas of the country and with different degrees of restrictions evolving over time. Nevertheless, we have adapted to a changed world while continuing to provide our services.

Our top line growth in Q1 2021 is an excellent starting point for the execution of the plan with our segments exposed to favorable business trends. Total costs increased by 3.7%, mainly due to variable costs directly linked to our business growth. As a result, EBIT grew by a strong 40.8% in Q1, reaching EUR 620 million, a tangible sign of our strong commitment to deliver on our targets. Thanks to the robustness of our diversified business, net profit stands at EUR 447 million in the first quarter, up 46% year-on-year.

The comparison with Q1 2020 is clearly impacted by the first full national lockdown of March 2020. But it's also fair to say that 2021, we successfully adapted to ensure business continuity despite several regional restriction and despite some EUR 23 million cost borne in the quarter to face emergency. In fact, a quick comparison of this quarter results versus the same period of 2029 shows an improvement in both top line and margins.

Moving to Page 5. We provide an update on main initiatives for all our segments, which paved the way to a successful execution of 24SI. Starting from Mail & Parcel, our JV with Sengi is delivering excellent results in Parcel and reached 7 million parcel in Q1, contributing to an increased diversification of our client base and greater international volumes. A new fully automated hub is now operational in Northern Italy, with a sorting capacity of around 270,000 parcel per day additional. This allows our logistic network to continue to deliver more parcel volumes in an efficient way.

In the Mail business, Nexive's integration is progressing according to plan with the reorganization of its activities within Poste Italiane announced today. Our role in the vaccination plan is confirmed and continues to expand. On the other hand, our state-of-the-art cloud-based IT platform is tracking every step of the vaccination and managing booking appointments via our digital properties, our ATMs network, our contact centers and also with the help of our 30,000 Postini. In this way, we're contributing to the potential vaccination and to the vaccination of over 37% of the Italian population.

Financial Services segment is continuing to act as a central brain in planning and governing distribution on financial products throughout our omnichannel network. During Q1, the new customer needs model has been deployed, further support our financial advisers and clear sign of increased productivity and enhanced performance have already been achieved, as demonstrated by the shift of the investment mix towards multi-class life insurance products. The offer set up to purchase tax credit related to government incentives from small business and individuals has proven to be very successful, leveraging on an agile digital procedure, committing to purchase around EUR 1.5 billion of tax credit as of today.

This offers significant opportunity in terms of increased customer satisfaction and sale of other financial products starting from QR code and full acquiring, for example. And we're confident that this will lead to further growth, thanks to our new corporate current account which has been recently launched. As a part of our remote advisory model, we introduced a new automated digital offer for postal savings, which we believe will contribute to enhance accessibility and will increase our range of available products for clients.

In Life Insurance, our offer has been enhanced in the quarter with the launch of Class I products, a new bundle solution integrating life and protection features. As demonstrated by strong results achieved in the quarter, these offers are well responding to emerging customer needs and are contributing to the diversification of our insurance reserves with a beneficial effect on our solvency position. The lapse rate remains very low, contributing to strong net insurance inflows among the best ever for Q1, about EUR 2 billion.

Our model offer is the engine for growth in our B2C business, highlighting strong customers' approval for this flexible, smart and tailored solution for protection needs, which are perceived by Italians as increasingly important.

Moving to Payment and Mobile. A new broadband solution has been launched. For the time being, targeted only to Poste employees. This represents a milestone in our product offering in order to capture growth expected in the Italian fiber and broadband market. The full rollout of our offer to our customer base is planned by the end of May. As you are aware, we also signed a new contract with Vodafone, which allow us to reduce viable cost of our MVNO business in the second quarter -- from the second half of 2021.

As you can see on Slide 6, commercial activity showed positive sign of recovery through the quarter, notwithstanding regional lockdowns with a remarkable increase in digital and third-party network transactions, accounting for up to almost 1/3 of overall transaction. New channels continued growth is a positive sign for the sustainable development of our platform businesses.

Parcel volume growth continues to break recent records, exceeding 1 million daily deliveries in March, doubling last year's figure. Decline in main volumes stopped in January and February as a combined effect of Nexive's contribution and regional lockdowns in 2021, while volume increased by 36% in March, which was the first month in 2020 impacted by the first national lockdown. Volumes on higher tariff products are still subdued with a partial recovery starting from Q2.

Moving to Slide 7. In Q1, we register remarkable commercial results in Financial and Insurance Services as well as in Payments and Mobile. Daily gross inflows in investment products increased year-on-year, though deteriorating over the quarter due to the tightening of restrictions and were above prepandemic levels with a strong performance of Life multi-class products, which accounted for 46% of the quarter gross written premiums, confirming Life Insurance at the heart of the group wealth management strategy.

Sales of new P&C product increased year-on-year versus prepandemic levels and more than double in March. Our distinctive model offer is fueling the growth, showing early positive sign in line with 24SI strategic targets on P&C expansion. In payments of the day, daily average e-commerce transaction grew steadily, up to 56% year-on-year in March, embracing evolving customer spending habits. Telco customer base continued to increase with a 6% growth since last year, reaching 4.8 million users, thanks to a very loyal customer base.

Slide 8 shows how revenues are increasing in line with the trajectory set with our new 24SI plan. Parcel, Insurance and Payments have been the growth engines during the quarter. While March growth rates are impacted by the national lockdown in place last year, January and February performance are clearly highlighting a structural pickup in revenues versus prepandemic levels despite regional restrictions still in place partially.

Mail, Parcel & Distribution revenues increased 19% year-on-year, thanks to accelerated growth in Parcel and stabilization in Mail due to the Nexive consolidation. Financial Services revenue declined 4%, mainly due to low interest rates and continued decline of payment slips volumes. Insurance Services grew by an impressive 40% year-on-year with strong results both in Life and P&C. Payments and Mobile is consistently delivering growth with segment revenues increasing 16% in Q1, highlighting the ability of Postepay to lead market trends in the space.

Let me now hand over to Camillo who will take you through a more detailed business review. Thank you. Over to you, Camillo.

[Camillo Greco, executive]

Thank you, Matteo, and good afternoon, everyone. Let's move to a quick overview of each segment's revenues, starting with Mail, Parcel & Distribution on Slide #10.

In Q1, we witnessed a very strong revenue growth of 19% year-on-year. Indeed, this is the best quarter we ever had in terms of yearly revenue progression. This robust performance is mainly driven by record organic revenue increase in Parcel, supported by both market trends and our own business focus. Exceptional revenue growth in Parcel, coupled with a rigorous cost discipline, led us to a positive EBIT which increased by EUR 93 million since last year.

Looking at revenue breakdown. The main component in Q1 was down 1% year-on-year, supported by Nexive consolidation of EUR 46 million additional revenues mostly in registered and unregistered mail. Looking at Parcels, all products supported record high revenues, up by a strong 75%. Distribution revenues grew 1.2% consistently with the recovery of commercial activities and taking into account the stricter lockdown measures introduced in March 2021. As already mentioned, Q1 EBIT improved EUR 93 million, reaching EUR 57 million from a negative EUR 36 million last year, thanks to both strong Parcel revenue growth and HR cost reduction.

On Slide 11, we look at Mail and Parcel volume and pricing trends. Parcel volumes increased by 72%, supported by all products with the highest growth registered in B2C, where volumes almost doubled year-on-year. The average B2C Parcel tariff was down 10 percentage points, mainly impacted by lower tariff volumes from China, which grew 4x year-on-year. Let me remind you that inbound volumes from China are key to our strategy to diversify our customer base and increase international revenues. We have recently invested in a JV with Sengi, which will allow us to in-source the entire logistic chain, resulting in higher future margins.

C2X volumes increased 41% in the quarter, driven by a new offer model that meets customer needs in terms of multichannel access, proximity and speed, guaranteeing an excellent user experience integrated between physical and digital channels. Overall, Mail volumes rose 6% in Q1, with the consolidation of Nexive mitigating the structural Mail decline. The average mail tariff was down 7% due to a lower margin product mix. On one hand, Nexive mail volumes are mostly concentrated in lower tariff recorded in recorded mail. On the other hand, higher tariff products are not yet back to normal due to the postponement of tax bill notifications, which we now expect later this year.

Moving to Financial Services on Slide 12. The segment delivered resilient performance compared to the prepandemic levels of January and February 2020, though declining over the quarter due to commercial activities impacted by regional lockdowns. As Matteo mentioned, the launch of our new customer niche model supported advisers in enhancing quality of inflows. Gross revenues were broadly stable in Q1, decreasing by only 1%. Net interest income was down 7% on persistently low interest rates. This reduction was partially mitigated by higher volumes coming from new deposits. Contribution from active portfolio management amounted to EUR 222 million, while a similar amount has already been secured and will be booked in H2.

Postal saving distribution fees were stable, as we are continuing to render the service on the ground of the essential provisions of the previous agreement, while negotiating for the new ones are still ongoing. In Loan and Mortgage, we consolidated our market share. Compared to last year, when both January and February showed very strong results, Q1 '21 volumes are continuing to recover from the past 3 quarters. Transaction banking fees were down 8% with lower physical payment slips volumes, partially mitigated by digital interparty volumes. Asset management fees increased 14% year-on-year, thanks to a positive net inflows. Intersegment distribution revenues increased 25%, mainly thanks to strong gross inflows in Insurance. EBIT is down 8% in the quarter due to lower revenues and a flat cost base.

Moving to Slide 13. TFAs reached EUR 572 billion, up by significant EUR 33 billion year-on-year and up by EUR 3 billion compared to December 2020. Net inflows were up EUR 2.7 billion. Deposits as well as new capital light and multi-class life insurance products accounted for EUR 2 billion of the above-mentioned growth. More in general, all components of TFAs grew steadily.

Postal savings benefited from market effect with accrued interest more than compensating outflows. Net technical provisions increased by EUR 0.7 billion, with new production more than offsetting the negative performance related to higher interest rates compared to December 2020. Deposits increased by EUR 1.7 billion, supported by customers' preference for liquidity and higher inflows from corporates. Mutual funds contribution was positive, thanks to ESG fund inflows.

Moving to Slide 14. Insurance Services posted a robust performance, confirming the key role of this segment within our wealth management strategy. Life revenues were up 44%, thanks to EUR 5.7 billion total gross-written premiums with almost half related to multi-class products. The lapse rate continued to be lower than the market, contributing to positive net inflows of EUR 2 billion. Life revenues grew, supported by both increasing volumes and higher profitability. Almost all of the revenue increase is explained by the improvement in the financial margin due to higher volumes and improved profitability.

Nonlife revenues were up across all lines, thanks to the modular offer and welfare products. Our modular offer on personnel and property protection continues to grow, reconfirming key role in our P&C commercial offer. The combined ratio increased for a pure mix effect related to an increasing share of welfare in the business mix. Operating profit was up by a robust 54% or by over EUR 100 million, the biggest contribution to EBIT progression at group level in this quarter.

Let's move to Slide 15. PosteVita Group's Solvency II ratio stood at 301%. The Solvency II ratio increased in the quarter, benefiting from higher rates and lower spreads across all asset classes. Transitional measures provide additional 31 percentage points to address potential market volatility.

Moving to Slide 16. Payments and Mobile revenues continue to increase, up by strong 16% in Q1, confirming the steady progression of this business over time. Card payment revenues were up by a material 20% in Q1, supported by an increasing number of PostePay Evolution cards as well as the increase of over 50% of transactions value year-on-year. Other payments increased 34% in the quarter, thanks to the recovery of tax-related payments.

Telco revenues grew 9% in the quarter, benefiting from a loyal customer base, both on mobile and fixed lines. As Matteo mentioned earlier, we are going to further enlarge our Telco services with a new fiber offer by the end of May. EBIT is up by 3% in Q1 despite lower payment slips contributions booked in intersegment revenues and increasing Telco costs related to the increased data usage. Starting from the second half of the year, the new wholesale Telco traffic contract with Vodafone will result in cost savings.

On Slide 17, you can appreciate how Poste Italiane's workforce transformation is progressing. Over the course of last year, our average headcount decreased by over 3,000 from 126,000 to below 123,000 FTEs. This once again demonstrates our ability to effectively adjust our workforce in a flexible way. While we still confirm our target for 2021, since December 2020, we registered 6,100 exits, and we hired 2,200 FTEs. Further 2,200 FTE relate to temporary workers and Nexive workforce. As a final remark, the value-added per FTE increased year-on-year, even though the comparison is affected by the impact of strict lockdown of 2020.

Moving to group HR costs on Slide 18. Lower FTEs resulted in EUR 47 million savings in HR costs with an overall reduction of 3% in Q1 despite additional costs for EUR 11 million related to the consolidation of Nexive. The most significant KPI here is the ordinary HR cost on revenues, which went down from 53% to 46% year-on-year, confirming our focus on growing the business.

On Page 19, let's review non-HR costs. As a tangible sign of efficiency, the ratio between variable costs related to business volumes and related revenues was down 2 percentage points year-on-year, now landing at 72% in Q1 from 74% last year. The increase of total cost is due to the variable component of COGS to support the growth-related to volume increase in Parcel, Telco and Payment. Additional EUR 35 million are related to the consolidation of Nexive. As a final remark, Q1 costs include EUR 23 million of emergency-related one-off costs, as we continue to provide all the necessary protective equipment and sanitization to ensure highest health and security standards for workplaces, employees and customers.

Now let's move to Slide 20, showing a positive operating profit progression in Q1. This is a very significant milestone, which confirms that we are well on track with the execution of our plan 24SI, even more so considering that local restrictions have been still in place in 2021.

Let me now hand back to Matteo for some closing remarks. Thank you.

[Matteo del Fante, executive]

Thank you, Camillo. Before taking your question, let me reiterate with some key messages on Slide 21, please.

At the beginning of the first hardest lockdown back In March last year, we have shown confidence in our ability to weather an unprecedented situation and crisis, fully aware of our systemic role for the country in these critical times. Thanks to our diversified business model, we're now targeting revenue growth, leveraging on our core competencies and favorable business trends. On this solid grounds, we're making our first steps toward 2024 with a strong commitment to deliver.

Let's move to the Q&A session, please, and over to you, Massi.

[Massimiliano Riggi, executive]

[Operator Instructions] Now the first question is from Domenico Santoro, HSBC.

[Domenico Santoro, analyst]

Domenico, HSBC here. I do have a number of questions. First of all, everybody is, of course, worried about the inflation risk, so the steepening of the yielding curve is a topic. I just wonder what are the -- if you could remember as the transmission channels to your P&L. You might benefit, of course, in terms of NII given that you swapped part of your bond portfolio into variable rates, but any other impact on the P&L? If you could just give some color, that will be great.

Then there are 2 divisions, in my view, which we are doing very well. So I'm just wondering if you can let understand us a bit more on the speed and cruise of the revenues. First of all, Mail & Parcel, I mean analyzing Q1, this is probably the question of everybody. We get a number, which is well ahead of your target for this year. So I just wonder what we should consider over the next quarters and whether there is any seasonality?

And then on the Insurance side, I mean, the gross premium in the quarter, they're pretty strong. But the multi-class are 46%, you said, of the new production. I just wonder how this could evolve going forward in order to understand a little bit the evolution of revenue. So I remember, in the plan, you gave us a target of more than 60%.

Then I apologize if I'm mistaken, but I understand that you mentioned purchase of EUR 1.5 billion of tax credit at the beginning of the presentation. So just wonder if you could give us the economics attached to this. And then just can you give us an update on all the measures that you have in place in order to reduce the sensitivity of your solvency ratio to BTP spread and other factors, in particular, regarding the building up of the internal model?

[Matteo del Fante, executive]

Okay. Thank you, Domenico. I'll try with the help of Camillo to go step-by-step. Speaking on the yield curve, I think we are fresh enough from our planned presentation and you remember that in Section 3 on our March presentation, we were showing the difference in between the maturity and the duration of our portfolio, which is quite significant. And in the same graph on Page 18, we were also showing the percentage of swap portfolio versus the fixed rate balance. So we benefit from the steepening in a very significant way on the mark-to-market of the asset swaps. The swap lag clearly has a very positive impact.

Should the yield curve move up also in the short term, obviously, we have a lot of short-term refixing benefit as well. The second question, I think, is tough because, yes, we had a tremendous Q1 in Parcel, a very strong Mail Q1. Can we extrapolate for the rest of the year? I think we need to be a bit cautious. We have certainly some tailwind in Parcel. I mean the good news is that, as Camillo has shown, is widespread and its healthy growth in Parcel because there is a strong component of B2C related to China becoming a very significant portion of our business. And this is clearly allowing that diversification in B2C, which is important for us.

There is a strong growth in B2B, which has a price, which is almost double as an average, and this clearly helps. And there is also the component of the C2X, which lower but growing well. So in summary, in Parcel, very healthy, maybe one can be a bit more optimist versus year-end. But on the other side, with Mail, we have to keep our turn and our cautiousness that probably could balance the 2 factors together.

Multi-class is an easy question. We're doing better than we expected. We set ourselves in the plan and above 60% target for 2024 of multi-class versus Class 1. We're already at 46%. I'm very, very, very happy. You remember that we had, I think, 30% target back in 2018 for 2022. So we're in 2021 at 46%, and I think will be at 60% by the end of next year. And the product is doing extremely well with our network. It's correct, I do -- I did mention the 1.4 in between the committed and the actual already paid. The economics are in the space of 10% discount versus nominal value and this business is growing very well. I mean, it's not a 10% that we will book in 2021, but it will be either spread over the course of the tax credit, which is 3 to 5 years or should we decide to sell, then you bring it to the income statement. But at the moment, we have enough tax capacity to keep the reposition in tax credit.

And we look at it, certainly it's a nice revenue generation item, which was not in our plan, to be fair. But more importantly to us is an excellent opportunity to bring many new clients on the SMEs and on the private side, on the individual side for thousands of clients that are coming to us with the credits, and this is a tremendous client development and franchise development opportunity for us. On the solvency activities to diversify, I will let Camillo help me.

[Camillo Greco, executive]

Thank you, Matteo. So as we had also mentioned back in March, we are actively working to reduce the volatility of the Solvency II ratio and the things we had talked about at the time was reduction of weight of government bonds. We had discussed information around capital-light product, which observed less capital and obviously the internal model. We confirm that we are progressing on all of those directions. And with respect to the internal model specifically, which was the question, we are pressing ahead but we are not yet ready to share at the time as this will take time and interaction with the relevant authorities.

[Domenico Santoro, analyst]

Sorry, can I follow up very quickly on the tax credit, please? So my understanding is that there are not -- revenues not in the P&L yet. This is my understanding. Can you let us understand what they are, the economies in terms of revenues as well that might emerge over the next quarters on this stock of EUR 1.4 billion?

[Camillo Greco, executive]

So I think that Matteo did refer to around a stock of around EUR 1.5 billion, and he did say that we're getting those at around EUR 0.90 on average. These tax credits are into 3 different buckets are 1 year, 5 years and 10 years, depending on the specific use. We are more skewed towards the middle in terms of average maturity. So you should do the math for EUR 1.5 billion and 90% and distribute them over 10 years with the average maturity being 5.

[Massimiliano Riggi, executive]

The next question comes from Alberto Cordara, Bank of America.

[Alberto Cordara, analyst]

So for me, a couple of questions and also clarification. The first question relates to the discussion that you've been entertaining with CDP. So if you can give us an update on this discussion. The second question relate to the results that you have delivered. The bottom line is incredibly strong. And if we look at it, I mean, you're already consistent, if you want, with the 2024 earnings target of EUR 1.6 billion. I know that -- I mean, clearly, we're not there yet because in the quarter, you had some capital gains. So you have some elements that are a bit one-offish. But given the framework of your target for the year, which is EUR 1.2 billion ex SIA, or EUR 1.4 billion including SIA, can we say that you feel comfortable enough to beat this target for the year?

So the clarification I just wanted to ask you is, you have a baseline dividend of EUR 0.55 in 2021, and then it's increasing by 6% every year up until 2024. Is this EUR 0.55 fixed amount or is the result of payout on earnings? And if the second possibilities is the true one. If we need to re-benchmark all the future of EPS based on potentially higher EPS for the year than EUR 0.55.

[Camillo Greco, executive]

Okay. The upgrade -- sorry, the update on the CDP agreement, we're making good steps towards the agreement. I think the good news is that as we have shown, again, on Page 19 of our March presentation, we are keeping our commitment on the product. So you remember that page, which was showing the shape of positive inflows up to a certain period. Then there was 2015, '16 and '17 of very significant outflows in the region of EUR 10 billion.

And then since the new Board took the responsibility, there was a clear change of focus in Poste in the network for the product. In Q1, we kept that focus. So we have very good results also for Q1 net inflows. And this is finally, I think, bringing us to a good agreement with the CDP, where we're now looking at maximizing the fees, which is reasonable, but we are looking for stability and commitment.

On the second 2 questions, I could have a very short answer to the 2 questions that, Alberto, you allow me to summarize. Are you ready based on the very good results of Q1 to revise your guidance? Are you ready based on the very good results of Q1 to revise your dividend policy? The answer is we will announce eventually a new guidance when we will announce a new guidance. And we will review the dividend policy when we will review the dividend policy.

So there is clearly positive signs, but let's -- you know the style. We've been together on this project for over 4 years. So we want to take commitments that we then have all the tools to bring home for our stakeholders and investors. But I can reassure you and the investor base that at the moment that we see the opportunity for an upgrade on guidance and dividend is probably easier. The moment we decide we will do it, and we know this is something that the market is appreciating. But it's not today, the day where we're doing the review, sorry.

[Alberto Cordara, analyst]

This is a very clear answer. If you forgive me, just a follow-up. Can Q2 be a quarter when potentially we may relook at the target for the year at least?

[Camillo Greco, executive]

In Q2, you already have half of the year in the pocket and you have more visibility to take decisions along those lines.

[Massimiliano Riggi, executive]

The next question is from Manuela Meroni, Banca Imi.

[Manuela Meroni, analyst]

One on revenues and one on cost. The first one on revenues. I'm wondering if you could share with us the trends that you have seen in April following the easing of the lockdown. I'm mainly interested in Parcel cards and current account trend. So are these trends still accelerating or not? The second question on cost is on HR cost that declined significantly in the first quarter year-on-year and better than the trend that you forecasted for the full year 2021. So I'm wondering if there are some nonrecurring items there and if the renewal of the contract is already embedded in this number. So If you can please elaborate a little bit more on the HR cost?

[Matteo del Fante, executive]

Okay. Thank you, Manuela. I will let Camillo give a specific answer. Thank you, Camillo.

[Camillo Greco, executive]

Okay. I'll start from -- I'll start from HR costs. It is fair to say that the first quarter came in with better numbers in terms of full-time employees, but I also urge you to consider that there is an element of seasonality as we have 6,100 exits in the first quarter of the year, and we have not yet fully reabsorbed those exits with an equal amount of hirings. So for the time being, we stick to the target of 125,000 FTEs, which is the number that we shared with you back in March. As the year progresses and whether some of those exits become structural, and we feel that there is a margin on that front, we will update you. But for the time being, we stick to the guidance back in March.

With respect to your question as to whether, in fact, we have yet already baked in a new labor contract, I think that was the other question. I can only confirm that historically, this management team and the group has other excellent relations with relevant stakeholders and that we are currently ongoing discussions with respect to the renewal of the labor contract. So that is with respect to -- that is with respect to costs. With respect to revenues, I'd say that, first of all, to put into context, the first 3 months of the year, January and February, were not clearly comparable to the tough months of last year, but were a touch less open than 2020.

March was not as bad as this year. It was a difficult March, too, but we still saw good trends. Trends are evolving positively in April. And specifically, we are seeing a bit of greater dynamics on the correspondence space, Mail. You had a question around cards. The progression of cards is consistent with our plan. And you might recall that we had a plan not a dramatic increase of the total stock of cards, but rather a continued switch from Postepay standard to Postepay Evolution. That is confirmed in our numbers as parcels continue also to be in line with what we have in mind with around 1 million daily parcels. And last but not least, you had a question also on bank accounts. We are progressing well on that front, too, also as a result of the credit purchase effort that Matteo described earlier.

[Massimiliano Riggi, executive]

The next question is from Gian Luca Ferrari, Mediobanca.

[Gian Ferrari, analyst]

My first question is on the sensitivities to the solvency ratio. They all improved with the one to interest rates down improved dramatically from 42 basis points to just 6 basis points decline. Now Camillo mentioned a potential change in the asset allocation with lower weight of BTPs. In reality, if I look at Page 43, the asset allocation is pretty much unchanged. So my question is, is that attributable to lower complexity given that the euro swap went up 33 bps in the quarter? And if this is the case with an additional increase in rates plus the mentioned decline in the weight of BTPs, is there the possibility that your solvency ratio will become even less sensitive to changing rates, for example? The second question is on the combined ratio. I presume it is only nonmotor here. Can you give us the discrete data for the welfare products as it seems to have had an impact in the overall combined ratio of the quarter?

[Camillo Greco, executive]

I think on the factors that we don't -- we're not appreciating and maybe we should do an effort to explain it better. Our multi-class product is a combination of a Class I and a Class III unit-linked product. But as opposed to put our investor on the target asset allocation on day 1, we are putting in place an 18-month accumulation period. So let's assume that the target asset allocation is 40% equity, 60% Class 1 capital protected. On day 1, you are basically 100% Class 1, okay? After 1 year, you have the 40% divided 18 months, so you have around 2-point-something percent of equity and -- after 1 month. The second month, you take another 2% and so on and so forth. So having started distributing this product back in the end of '19, we are now starting to go into asset allocation of all the products that we've been selling in the past. Okay. So you have a sort of a lag effect of this diversification of our capital commitments. On the complexity, I don't know Massi, you want to add something on the complexity of the potential rate backing up.

[Massimiliano Riggi, executive]

People answer is just that you have seen interest rates going up from a negative area to a significant -- a significant jump. And in short, this has increased the loss absorbing capacity that is embedded in our model. So without going into technical details, this is enough for you to see a lower sensitivity. Plus all the jobs that we have been doing over time as the fact that we are investing new flows in a diversified portfolio out of government bonds plus capital-light products and multi-class products that Matteo was mentioning earlier.

[Matteo del Fante, executive]

And on the wealth and the combined ratio, Camillo?

[Camillo Greco, executive]

Yes. I think the last question was around that. I think, that the increase from EUR 82 million to EUR 85 million was planned as the cost of our welfare policies has increased.

[Massimiliano Riggi, executive]

The next question is from Ashik Musaddi from JPMorgan.

[Ashik Musaddi, analyst]

Yes. Just one question I have is, on the cost side, if I look at your plan 2021, it feels like you have a 6% increase in cost expectations. But if I look at the first quarter numbers, the costs were flat. I agree that you have always mentioned that cost will go up in line with the revenue growth, but this time that did not happen. So what would be the delta for next 9 months that cost will go up significantly? And it feels like the cost has to go up by 10% or 7%, 8% for next 9 months for you to meet those cost hurdles. So that would be good because that could be a good source of positive upside for my numbers. That's why I'm thinking around these lines.

[Matteo del Fante, executive]

Well, yes, Camillo, please.

[Camillo Greco, executive]

Thank you, Matteo. Well, first of all, you will have noticed that most of the COGS have gone up as a result of variable costs. So your question is well put. I think that you should also consider that in 2020, despite the exceptional challenges that we had in terms of the market environment, there were a number of items that were, in a way, less costly to us as a result of that specific market environment. Specifically, we had, as an example, EUR 150 million plus of costs related to government support, a reduction of cost related to employees. And I think that for 2021, as we move to a more stabilized market at this point, we are confirming the projections we made at the time with the understanding as I said with respect to HR that if in the next months, we see that there is a positive evolution, would obviously share that with you guys.

[Massimiliano Riggi, executive]

The last question comes from Fabrizio Bernardi from Bestinver.

[Fabrizio Bernardi, analyst]

Two questions on my side. First is on Anima. Given your stake, I was wondering whether you may get the most from it, trying to, let's say, move more of the financial wealth of your clients into Anima. Given that at the end, as far as I can remember, Anima in any case asset management is doing EUR 25 million, EUR 28 million of fees quarterly, if I'm not mistaken. And secondly, I'm asking you a question that a few clients asked me to ask you about banking consolidation. There is a wave of speculations and rumors about a few banks that may be active in consolidation, given your main shareholders. I was asking if you have any interest in banking assets in very general terms?

[Matteo del Fante, executive]

Okay. I think the second question is easy, Fabrizio, because I think, it's not in the cards of the company. We're not aware of this being in the cards of our shareholder. And it would be -- technically, I cannot say impossible, but certainly extremely difficult from a regulatory standpoint. On Anima, yes, we keep growing the commitment in the business with Anima. But we have taken the decision to grow our noncapital protected manage business with the multi-class product. And it's working very well. This was a decision taken back in 2017. We're sticking to that position. In the unit-linked component, there is certainly room for Anima to bring their expertise to the table. But Poste Italiane has decided in 2017 not to be the network of the distribution of funds from asset managers. Anima would be the obvious one, because we are a shareholder. So any other top asset manager will not have access directly to our network because of the strategy of the group and because of the nature of our client base.

Thank you, everybody, for your time. And obviously, we're all starting from our Head of IR, Massimiliano Riggi, always available for follow-up questions. Thank you very much.