Poste Italiane SpA

MIL:PST

Earnings Call Transcript 2023-Q1

[Massimiliano Riggi, executive]

Good afternoon, everyone, and thank you for joining us today. Massimiliano Riggi here, Investor Relations. On behalf of Poste Italiane's management team, it is my pleasure to welcome you to our first quarter 2023 results. Hopefully, you all had a chance to review all the documents, which, as usual, are available on the Investor Relations section on our website.

I'm going to turn the call over to our CEO, Matteo Del Fante, for some opening remarks. And then Camillo Greco, the CFO, will cover the financial details of the quarter. After the presentation, feel free to ask any questions either via phone or through our webcast platform. Over to you, Matteo.

[Matteo del Fante, executive]

Good afternoon, and thank you for joining us.

Beginning on Slide 3. It has been just over a month since I updated you on our strategy alongside the full year results. So let's focus on the first quarter today. The Q1 results are strong, significantly increasing visibility on 2023 guidance. Commercial trends have been supported in all businesses as customers continue to see Poste as a safe haven for their savings and majority of their daily needs. Our financial products shield our clients from market volatility throughout the economic cycle, with over 90% of our customer TSAs protected from market turbulence.

We reported solid overall group revenues and a healthy growth in EBIT with all segments contributing to a positive progression. We continue to manage cost with discipline as the increase in line with expectation. As a last point, we have built up a solid capital position. And in June, we will pay the balance of the dividend of the full year 2022 results.

Let's move to group financial results on Slide 4. As you can see from the solid numbers, we enjoyed a very positive quarter. Total revenues are above EUR 3 billion, up 8% from Q1 2022. Total costs were EUR 2.3 billion, up 7% year-on-year due to cost inflation, M&A activities and energy business setup costs. Q1 '22 EBIT reached EUR 767 million, up by 11% with net income of EUR 540 million, increasing by over 9% from last year.

Let's go to Slide 5, where we describe our EBIT evolution segment by segment. Mail, Parcel & Distribution shows a strong increase in operating profitability. The top line remained resilient and distribution revenues more than offset cost inflation. In Financial Services, the operating progression is mostly driven by NII increase. Insurance Services EBIT grew 3% even when compared with a strong Q1 last year. Payment & Mobile continue to grow steadily, more than compensating the energy business setup cost, which in itself is progressing ahead of plan.

Let's move to a more detailed review of our numbers by our CFO, Camillo Greco. Over to you, Camillo, please.

[Camillo Greco, executive]

Thank you, Matteo, and good afternoon, everyone. Let's start with Mail, Parcel & Distribution on Slide 7.

Mail revenues were up 2% year-on-year, supported by a favorable product mix and ongoing repricing actions. The lower margin and recorded mail revenue decline was compensated by higher value-added recorded mail and integrated services such as notifications for public administrations. Parcel revenues are stable year-on-year, benefiting from increased B2C and B2B impacted by market evolution. Other revenues were down, mainly related to the Poste motor service no longer being offered as well as other noncommercial items.

Finally, financial product distribution revenues are up 9%, more than offsetting cost inflation and resulting in an EBIT increase of 58%, reaching EUR 88 million.

Let's look at Mail & Parcel volumes and tariff on Slide #8. Parcel volumes were up 3% in Q1, supported by growth in B2C. Looking at pricing, the average parcel tariff was down 3% in the quarter due to a different product mix with a stable B2C tariff.

Moving to Mail. Volumes were lower year-on-year, driven by structural decline in our recorded and direct marketing Mail. However, an increase of 7% in tariffs driven by repricing actions and favorable product mix more than offset lower volume impact.

Moving to Financial Services on Slide 9. Gross revenues were up 9%, reaching EUR 1.6 billion, mostly driven by insurance revenues and NII growth. In particular, NII increased 30% year-on-year, [ benefiting ] from higher interest rates and increasing retail deposits.

Let's review the other items one by one. Early last year, we already secured capital gains for 2023, which were entirely booked in this quarter for EUR 168 million. Postal saving distribution fees amounted to EUR 425 million, in line with full year guidance of EUR 1.7 billion. Transaction banking fees were up 12% in Q1, although traditional payments continued to decline in line with market trends. This quarter, it was more than offset by the repricing action, repricing of the current account fees put in place in mid-2022.

Loan and mortgage distribution fees were down 36%. However, the underlying commercial performance was in fact positive with volumes up 8% and strong growth in personal loans. Distribution fees are affected by higher cost of funding of our partners from higher interest rates, making the year-on-year comparison not representative.

Asset Management revenues were down 7%, impacted by a difficult market environment, while we continue to see positive flows in the business. Finally, EBIT and net profit registered a healthy growth of 11% and 9%, respectively.

Let's look at NII evolution on Slide #10, focusing on the yearly progression on the top graph. The retail and corporate component, mostly invested in BTPs [indiscernible] million. During last year, we invested in 2.6 billion BTPs with around [ 39 ] basis point yield pickup compared to the BTP sold and matured over the same period. Looking at the quarter, the yield pickup was, in fact, 144 basis points on almost EUR 1 billion of investment.

Moving on to the NII component from public administration. We have EUR 11.5 billion of deposits in those accounts with the remuneration linked for 60% to the near BTPs and 40% to 6 months Italian Govies. The increase in 10-year BTP yield and 6 months Euribor led to a EUR 30 million NII improvement year-on-year. The fair value component is now providing an agile contribution to NII, mainly related through the expiration of hedges previously in place. The contribution from the treasury component is not very significant at the moment, but we expect it to have a negative impact over the next quarters.

Moving to Slide 11. TFAs reached EUR 579 billion, up by EUR 3 billion since December, supported by net inflows and positive market effect. Let me highlight that over 90% of customers' TFAs are shielded from market volatility. Since the beginning of the year, net inflows amounted to just over -- under EUR 1 billion.

Looking at each component postal savings outflows were EUR 2.3 billion due to early redemptions of postal bonds in a new interest rate environment and higher maturities. Nevertheless, net inflow significantly improved year-on-year, thanks to renewed postal saving offer, resulting in strong postal saving bonds inflows and EUR 1.9 billion new liquidity in postal saving books. The market effect mitigated the outflow by EUR 1.2 billion.

Insurance net inflows were strong at EUR 2.1 billion, successfully addressing a challenging market and supported by a solid new production in excess of EUR 6 billion in life, up 20% year-on-year in a market declining almost 10% in the same period.

Please note that following IFRS 17 adoption, we reclassified insurance reserves, netting out the mark-to-market. The performance effect, including customer accrued interest is positive for EUR 1.1 billion. Deposits grew by EUR 1 billion with the retail deposits up by EUR 2.5 billion versus Q1 '22 confirming the stickiness of our customer base. Mutual funds recorded a positive net inflow scope coupled with a positive market effect. Finally, retail flows improved by EUR 3.5 billion year-on-year, and net inflows in savings and investments reached EUR 500 million, supported by insurance products, deposits and mutual funds.

Moving to Slide 12. Following the adoption of IFRS 17, we have restated last year's figures with revenues and costs directly attributable to insurance policies accounted for in the contractual service margin. The first quarter results were very solid compared to a difficult market and a strong first quarter in 2022. Revenue were up 5% in the quarter, driven by the Life business. Life insurance revenues increased 8% to EUR 381 million on the back of both higher volumes and higher investment margin. We continue to experience strong net inflows of EUR 2.1 billion coupled with a consistently low lapse rate below 4%, outperforming the market and supporting constant growth in insurance reserves. As mentioned, Life GWP exceeded EUR 6 billion in Q1, up 21% year-on-year in a market down almost 10%. The product mix is in Class I and multi-class products has been adapted to a different market scenario, satisfying customer demand for capital guaranteed policies.

The release of CSM was EUR 313 million, down year-on-year due to the technicalities of IFRS 17 calculation, but as you can see in the Slide 30 in the appendix, the CSM stock increased to over EUR 13 billion. The stock is the key variable driving sustainable profitability.

GWP in P&C was up 63% year-on-year to EUR 201 million with a positive contribution from all product lines with welfare doubling year-on-year. Non-Life net revenues were down 42% due to a change in the business mix. A higher combined ratio is linked to the strong increase in welfare GWP, which doubled year-on-year as well as standing recognition of additional reserves as per IFRS 17 standards. We expect this reserve to be released during the contract term, mainly within the year, therefore, not affecting full year combined ratio guidance of about 88%.

In Q1 '23, EBIT was EUR 334 million, up 3% compared to a strong Q1 '22. Finally, we completed the net insurance tender offer, which will accelerate the growth of our protection business.

Let's look at the solvency ratio evolution on Slide #13. Poste Vita Group's Solvency II ratio further improved by 14 percentage points from the end of last year, reaching 267%, well above the managerial ambition of 200% through the cycle. The Solvency II ratio benefited from lower risk-free rates and BTP spreads as well as positive capital generation from the new business and in-force portfolio. Solvency II ratio is currently between 265% and 280%.

Moving to Payment & Mobile on Slide #14. Revenues grew by a remarkable 48% to EUR 343 million, with all business lines providing outstanding contribution. The structural increase in cashless payments in Italy propelled card payments revenues to EUR 162 million, up 55% year-on-year. The underlying PostePay transaction value was above expectations, increasing 18% since Q1 '22, supported by a strong e-commerce growth.

Other payments more than doubled in the quarter, mainly driven by increased payment transactions now directly managed by PostePay as a payment service provider. The benefit from LIS consolidation can be seen in both card and other payments revenues, weighing at EUR 23 million and EUR 46 million, respectively. Telco revenues grew 3%, supported by the fiber offer, a strong result in a traditionally high-churn market.

Last but not least, the new energy business is progressing very well with about 200,000 contracts signed to date, resulting in EUR 15 million revenues. EBIT reached a record high level of EUR 108 million, net of energy start-up costs.

On Slide 15, we look at our continuous workforce evolution. Since December, the average headcount decreased to just below 119,000. That number includes new hires of 5,500 people towards the level of Q1 '22. This was more than balanced out by both lower fixed-term contracts and turnovers, once again demonstrating our ability to effectively adjust the workforce in a flexible way. M&A added 600 FTEs to the average headcount. HR cost per FTE are up 2.1% year-on-year to EUR 45,000. But more importantly, the value added per FTE is growing at a faster rate of 7% year-on-year, reaching almost EUR 82,000 per FTE.

Moving to group HR costs on Slide #16. Let me remind you that the adoption of IFRS 17 also affects intra group transactions. Costs directly attributable to insurance policies are accounted for in the CSM and released over the term of the insurance contracts. The majority of costs paid by insurance services to remunerate the network is spread across HR costs, COGS and D&A. As a result, an accounting adjustment is implemented at the group level, resulting EUR 126 million lower HR costs on a reported basis in Q1 '23. Overall, ordinary HR costs were slightly higher year-on-year, with the planned salary increase in variable compensation mitigated by continued FTE reduction.

An important KPI to highlight here is the ordinary HR cost on revenues, which continues to fall to 42% from 45% in Q1 '22.

on Page 17, let's review non-HR costs. Excluding the effects of IFRS 17 and net of M&A, non-HR costs increased by EUR 79 million. In particular, COGS were up EUR 55 million, including EUR 28 million energy business set up cost and EUR 16 million of cost inflation. The D&A item was up EUR 23 million on the back of increasing CapEx. Let me highlight that these increases were already expected and included in our 2023 guidance.

Finally, M&A activity resulted in EUR 65 million higher cost, which we consolidate starting from September 2023.

Thanks for your time. Let me hand over to Matteo for the wrap-up.

[Matteo del Fante, executive]

Thank you, Camillo. We had a strong start to the year. We're on track to achieve our full year targets. We see positive underlying commercial trends supporting organic growth of our businesses. At the same time, we have full visibility on the cost base evolution over the next quarters. Most importantly, we're committed to rewarding all our stakeholders with a sustainable performance over 2023 and beyond.

Stay tuned, please. Massi, over to you for the Q&A.

[Massimiliano Riggi, executive]

So let's start with the Q&A session. And the first question is from Elena Perini in Intesa Sanpaolo.

[Elena Perini, analyst]

Yes. I've got 2 questions on the insurance services and then 2 other questions, which are more strategic ones.

The first question on the insurance business refers to Slide #12. The fact that you are mentioning that the revenues for the P&C business and the combined ratio are worse than last year due to the significant way increasing in the welfare business. Could you please add a bit more color on this?

And then on the contractual service margin, I would like to ask about the CSM release. The reasons for the decline Q1 '23 versus Q1 '22. And then can we -- as looking on Slide 30, we can see that the new business, which amounts to approximately [ EUR 290 million ] is not significantly different from the CSM release. Could we take it as a proxy for next -- for next quarters and years?

And then the 2 more strategic questions. I would like to have an update on Eurovita. According to press rumors, you are involved in a potential rescue plan. So I would like to elaborate a bit on it if you can.

And then we read yesterday actually a press article talking about the potential in interest for [ TIM ] What could be the strategic rationale of this?

[Matteo del Fante, executive]

Okay. Thank you, Elena. If you allow me, let me start in reverse order. The last question on team, I mean, all I can tell you is that, yes, several banks and advisers are knocking at the door, but there is no reason and no file open for PostePay in relation with the TIM.

Eurovita is a different answer. We are working on a market solution together with the supervisory authority and with the regulator. It will be a market solution. It will include the very top insurance companies involved on the technical aspects, obviously, of the Eurovita and obviously, the banking sector. Because the banking sector is very aware of the reputation risk related to the live contract that were placed with their clients. So the banking sector is clearly, especially with respect to those players that have played a larger role in distribution, the policies involved in this market solution project that is ongoing.

With respect to your specific insurance questions, I can let Camillo. And let me just remind as a general statement on the implementation of IFRS 17, which is clearly relatively cumbersome for all players in the market. But let me give you just a 20-second view from the top.

We are an insurance group that is still producing EUR 6 billion of premium, which is up more than 20% in a market that, as you are aware, is down 10%. That's the first statement. We had, as a matter of fact, positive inflows in the quarter of EUR 2.1 billion. Notwithstanding the Eurovita, notwithstanding higher interest rate, our lapse rate notched up from 3.7% to 3.9%, still below 4%. And it's more or less 50% of what the market is.

And specifically on IFRS 17, we have a CSM very strong, EUR 13.2 billion, which is up EUR 600 million versus last year before you consider the release related to the last quarter.

But let me hand over to Camillo for the specific question on Page 12, starting with PSC and then CSM and -- please, Camillo.

[Camillo Greco, executive]

So with respect to the first question on P&C, we had a stronger first quarter in P&C, which had revenues, which are the GWP up 63% to EUR 201 million. Of that amount, there was a portion which was related to welfare policies, which in fact doubled, went from EUR 59 million to EUR 123 million. Our P&C business overall is still ramping up and is getting to the ideal scale to run the business effectively. And as a result of that, we have had in the first quarter an accounting change, which was related to IFRS 17, and that has driven the change of the revenues as the business mix led to an accounting effect on the timing of the recognition of the additional reserves in IFRS 17. That led to the combined ratio going up 11%. But this, I want to stress, is a temporary impact of the business. And we expect in the next 3 quarters, the combined ratio to go down to 88% is in line with the guidance we gave last month.

And we also expect that revenues, which are driven by gross written premium will start increasing as we took a particularly cautious approach in the first quarter, I wanted to ensure that we're consistent with the new accounting policy. But we expect throughout the rest of the year, to have a stronger performance in revenue as we are going to release additional CSM following a very cautious stance in the first quarter. This is with respect to P&C specifically.

With respect to CSM in general and why CSM changed compared to Q1 2022, as Matteo already said, I want to stress again that we took a very cautious approach on the CSM coverage unit and the first time we adopted it and the accounting standard is complex, but we feel that we have put a set of numbers that are very credible.

The release -- the difference in the release is mainly driven by the fact that, first of all, a change -- there was a change in what we call technical assumptions due to the convergence of risk neutral rates and the real world rates. And then there was a second effect driven by lower time value of guarantees released, which were impacted by extraordinary rates increase. We continue to see very clearly that there is consistency between what we have presented today and the guidance that we gave for 2023 in total, which I also remind, which are revenues for the business of EUR 1.6 billion and EBIT for the business of EUR 1.4 billion.

The last point, which you asked was whether we believe that the new production of EUR 289 million is representative of the revenues that we had in the first quarter. I'm afraid that, that is only a part of the answer as the release in the first quarter of CSM is driven by the total CSM or the embedded value of the insurance business, which as Matteo said earlier, it's EUR 13.3 billion. The new production is only a piece of the profitability that we have been able to extract from our portfolio in the quarter. And therefore, I would not link directly EUR 289 million of new business to the CSM release of the quarter. The key driver of the revenues for the insurance building from now on is going to be the CSM release, which is a portion of the total, specifically, again, at the end of Q1, the total portion was 13 billion -- we released EUR 313 million.

[Massimiliano Riggi, executive]

Okay. Thank you. So the next question is from Antonio Reale, Bank of America.

[Antonio Reale, analyst]

Hello, 3 questions for me please. Starting with the first one on costs. You are the largest employer in Italy and I understand you're due to start labor contract discussions with trade unions, which I presume you will present in the second half of the year with your business plan. But how should we think about cost dynamics, particularly on the HR side into next year? Can you give us an update on any management initiatives and mitigating factor you can consider to perhaps spread the cost of what's to be inevitable salary inflation view. That's my first question.

Second on is on Mail & Parcel. You had a target or an ambition to be breakeven in Mail & Parcel by 2024. Guidance looked quite starting this quarter you've been taking some initiatives to mitigate some of the cyclical trends. But I wonder if a breakeven in Mail & Parcel is still feasible into next year?

And last question is on NII hedging strategy. There is a lot of focus on strategies on the hedging side for reasons, we know you have a portfolio of about EUR 86 billion, excluding repos, which you swap with a relatively high back book yields above 2%, if I remember it right. Can you maybe share some more details on the repricing of the book and the investment of maturities, how back-end loaded is the benefit -- and how is this going to affect your net interest income outlook going forward.

[Matteo del Fante, executive]

Okay. On the labor cost. Yes, obviously, we will have to sit with unions representative over the course of 2023. In the past, we never started a new period, which I remind you is 2024 because the carrying contract will lapse at the end of 2023. We never started a new period with a contract signed. So typically, negotiation takes several months and they go into the new period of contract. And if you remember the last 2 rounds in the first year of the new contract, given it was still work ongoing, we allowed for some one-off recognition as part of the new contract. So we -- after the summer, more or less, we will start the negotiation.

What are the levers we have, you mentioned, Antonio? Obviously, we have now 6 years of overperformance on the cost side. And this has been a combination of -- number of headcounts and cost per head count over time. So clearly, we will need to keep that good practice also going forward because clearly, the new contract will have an increase. And this is very much also if you allow me -- the answer to your second question, Antonio, because our aim is to reach breakeven in 2024 in Mail, Parcel & Distribution. So your question is still feasible. The answer is yes. But the first answer I gave you is very much linked to this. And the new plan that we are working on, which is the plan of the new Board that, as you know, will be fully in power as of next Monday, will be presented to investors in the last quarter of 2023. And in that plan, you will have all the answers to the first 2 questions you posed.

The third question on our NII and hedging strategy maybe Camillo, you want to take it?

[Camillo Greco, executive]

Yes. So we have a portfolio, as you were saying, of circa EUR 85 billion. Of that amount, 65% is at fixed rate and 35% is variable. If you look at the yield of the portfolio, we think that the portfolio in 2023 will generate an yield of around 2.3%, which is a result of 3% gross interest and circa 70 basis points of interest expense. And with respect to the total amount of interest that we -- NII that you expect to achieve in 2023, that is a total of circa EUR 2.2 billion of NII.

[Massimiliano Riggi, executive]

So the next question is from Alberto Villa, Intermonte. Please, Alberto.

[Alberto Villa, analyst]

Congratulations for the reappointment. I have 2 quick questions. One is related to the trends in traditional life business. We have seen solid premiums in the first quarter and pretty flattish lapses ratios. I was wondering if you have any, let's say, indications that these trends are going to change in the future, you are confident that the lapse ratios will keep on being very low as they were in the first quarter of this year. And you mentioned during the full year presentation that you were considering launching a new segregated fund. I wanted to ask if that has gone live already -- and the second one is an update on your stance on bonuses -- super bonus and so on. If you can update us on your stance on that would be helpful.

[Matteo del Fante, executive]

Yes. On the Life business, we still see it strong even in the second quarter. There is one answer for our relative strength versus the market which you correctly underlying both on the net inflows and on the lapse side. we have an average size of clients, policy we sell today of around EUR 22,000, EUR 23,000. So we are targeting a market which, by definition, is nonvolatile, and we made this product as our flagship product to diversify portfolios.

First, into Class I products and marginally, as you have seen in the last 4 years into multi-class. As far as the new segregated account is underway and is coming to the market extremely soon. The update on credits is basically no update in the sense that there is basically no news. We made a very large statement we're -- today, we're not open for business. So we follow all the legal proceedings related to what we disclosed in our annual account.

[Massimiliano Riggi, executive]

Thank you. And the next question is from Michael Huttner from Berenberg.

[Michael Huttner, analyst]

Fantastic. I have lots of little questions. The first one is the cash at holding maybe you can give us an update? The second -- and this comes from my colleagues on the bank side, I see a line in revenues mentioning tax credit. And I just wonder if you can remind me what that is. The third one is, given the start of the year, so strong and so sustainable, could we think of higher guidance maybe? And the fourth one is on IFRS 17, you see the shareholders' equity, if I read it correctly, was EUR 7.8 billion in December '22 and EUR 9.3 billion in Q1 '23. And I just wondered why it is so volatile.

And finally, on Eurovita, just googled a little bit, so it looks as if the company is looking for the regulator, EUR 300 million or EUR 400 million of capital. So my guess, you're about 20% market share, so you take a fit of that. Is that roughly the extent of cost we should think in terms of solvency?

[Matteo del Fante, executive]

Thank you, Michael, can you repeat the very first question?

[Michael Huttner, analyst]

Yes, the first question is cash holding.

[Matteo del Fante, executive]

Okay. You want to start with this answer, Camillo?

[Camillo Greco, executive]

Yes. Yes, sorry. So first of all, we have a slide in the appendix of the presentation, which should give you some highlights of how we are doing from a cash and liquidity standpoint, specifically on Page #21, if you look at the cash available EUR 1.1 billion. And then obviously, we have additional source of funding.

The other thing that I think you are implicitly asking your question is what is the cash generation of the holding company, which we call Mail, Parcel and distribution on that you have on Page #22, some details. As you can see that there has been a net positive cash generation in the first quarter by EUR 304 million. And you have also a comparison compared to Q1 2022, where that amount was EUR 63 million. So hopefully, that addresses your first question.

[Michael Huttner, analyst]

Okay. Second question. Tax credit growth...

[Matteo del Fante, executive]

Sorry, the second question was the tax credit, and it's probably -- what is the tax credit, Michael?

[Michael Huttner, analyst]

Yes, what is it?

[Matteo del Fante, executive]

It's a -- basically -- we can take it off-line, but it' the opportunity for financial institutions and intermediaries to buy tax credit from third parties that obviously own it and have a credit versus the tax man and you paid front. It comes in your tax declaration and what you have paid, you have then the opportunity to discharge it from your tax declaration for the number of years that you have it bought it for. But if you allow me, Michael, we can take it off-line with our IR department.

Higher guidance we just announced the 2023 guidance, I think, is premature. Equity down is purely related to IFRS 17, which has reallocated value within our equity component, and it has gone into the CSM. And your Eurovita assumption, it's probably not far, but we're all working at a solution where basically everybody use its own balance sheet to find this market solution. I repeat, including insurance companies, the top and all the banks involved in the distribution on the other side, where we all use mainly our balance sheet as opposed to simply considering a recapitalization of the company, okay?

So I will not be able to go more into details what I mean, but don't assume that if there is a shortfall of X, the insurance companies will do a recapitalization of the bank will do a recapitalization of the Eurovita is a different kind of solution with market participants that has been looked at.

[Massimiliano Riggi, executive]

And the next question is from Farooq Hanif from JPMorgan.

[Farooq Hanif, analyst]

If you don't mind, I'm going to ask some insurance questions mainly. So I just want to understand if I'm modeling the CSM now, does the new business value represents a decent run rate? I mean, could you give us maybe the new business sales behind that so that we can model this. On the unwinding and the economic variances, where you have a EUR 320 million gain, is that mainly unwinding? Or does it have quite a lot of economic variances in it?

And could you also, I guess, talk about the net financial result that seems quite volatile. Do you have any guidance that you can give around how to think about that number as well?

And then last question, which I think you kind of answered given your positive flows. You seem to be one of the only companies that has a kind of a zero deposit beta in your retail deposit business. And I know you've addressed this before, but it seems to be in Italy that all of your peers are talking about more pressure here. So could you comment on why you think you're not going to see this big deposit beta in the retail deposits?

[Matteo del Fante, executive]

I'll start with the last question and then let Camillo answer the previous one, starting with CSM. Yes, there is increasing pressure, but we have the postal savings channel, which is addressing that pressure. You know that we distribute, and it's not on our balance sheet, postal passbooks and postal bonds. So as far as the deposits remuneration, we have currently in the market an offer which is extremely competitive of passbooks. So when we see pressure from clients on this front we have the product that we can give to our clients. And bear in mind, Farooq, that we have an average deposits on our current account, which is [ EUR 6,000 ] So it's very different, again, as I said before, on the average insurance life contract, we are way below our financial institution peers and that clearly decreases significantly the pressure. Please, Camillo.

[Camillo Greco, executive]

Yes. Okay. So I'll start with the question on the CSM. So I'm afraid that the answer is no. In the sense that we do not believe that EUR 289 million of new business generated in the quarter are representative of the revenues in the quarter of the insurance business because that would basically mean that you are excluding all what we had already generated in previous years that at the beginning of opening balance sheet on the 1st of January was already EUR 12.9 billion. So I would...

[Farooq Hanif, analyst]

My question was more on whether new business is equal to revenue. My question is the EUR 289 million represent growth of your CSM on new business every quarter, is it a grow and what can give us on the guidance on the value of the new business generation.

[Camillo Greco, executive]

Okay. So with respect to the guidance on that, what we can tell you is that in this quarter, we had a release of CSM that represents around EUR 2.5 billion of the underlying CSM and that to a 2.5% of the underlying CSM that I think as far we -- so we are not, at this stage, ready to give you guidance on what is going to be translated into CSM as part of the new business as we are -- we have been implementing this in the last 30 days.

And frankly, we had bit more time to -- we have to be more precise in giving you precise guidance on that point. The second question that you had was -- is that with respect to the net financial result, which has indeed increased in the quarter and has gone up from circa EUR 20 million to EUR 36 million. This represents the return between the assets that we have invested in and the returns we need to give to our policyholders that we are able to retain. This too is volatile number. So I wouldn't go as far as giving you a guidance of that. What we feel strongly about giving you guidance is instead EUR 1.6 billion of revenues for the year and EUR 1.3 billion of EBIT for the year, which we stick to.

[Farooq Hanif, analyst]

And finally, the 320 of unwinding -- is that unwinding or is that mainly economic.

[Camillo Greco, executive]

That is mainly -- the result is not made that is only economic. That is driven by financial measures, which have to do with the reduction of the spread and the decrease of underlying -- unrealized losses.

[Massimiliano Riggi, executive]

So the next question is from Gianmarco Bonacina from Equita.

[Operator]

This is the operator, Gianmarco Bonacina withdrew his question.

[Massimiliano Riggi, executive]

So we go to the next question then Ashik Musaddi from Morgan Stanley.

[Ashik Musaddi, analyst]

Just a couple of questions. I mean, can you just explain the interest rate hedge thing again. I guess you mentioned that interest rate hedges will have a negative impact on NII going forward. So I mean, in a simple sense, if interest rates remain at the current level, no change for next 2, 3 years, then what would be the NII for the next 2, 3 years? Any color on that would be helpful. I heard you mentioned about EUR 2.2 billion number. So I just wanted to make sure I get that right.

And second thing is around Parcel's growth. I mean, clearly, Parcels volume has gone up this quarter, which is a good sign, but where do you see that heading to in next few quarters? So that would be very helpful to get a bit of understanding.

And then just lastly, I mean, there has been a lot of discussion around CSM, but is it fair to conclude the CSM that you have printed today for first quarter, EUR 311 million, the CSM release, I mean that's pretty much a very -- on a very conservative basis. Is that a fair conclusion? Or would you say that I'm reading it wrong based on what you're commenting.

[Matteo del Fante, executive]

Please, Camillo.

[Camillo Greco, executive]

Okay. So with respect to the first question on the portfolio. Yes, EUR 2.2 billion is the guidance for 2023. With respect to what we see going forward, obviously, we'll discuss it at a later stage. But what I think we can tell you is that we expect the yield -- the net yield on our portfolio to increase by around 15 basis points in the year after 2023. So that's the first data point that we can leave you with.

With respect to the hedges and the cost of funding, what I think we're trying to say is that as interest rates go up, the cost of funding increase and as a result of that, the delta positive spread between the level which we invest our funding and the cost of financing for that funding skewed towards a smaller amount, and therefore, the spread that will benefit of, if you will, is reduced as rates go up?

Then there was a second question, which was with respect to Parcel growth. What we had communicated last -- what we have communicated last month, which we confirm is that we see scenario for 2023, what we are going to see growth. And specifically, we're going to see positive volume growth by the tune of 4% and we expect to see negative pricing by the tune of around 2%, driven principally by business mix, and that will result in positive revenue growth in Parcel for 2023 to circa EUR 1.4 billion.

And then there was a third question on...

[Matteo del Fante, executive]

Yes. But the answer is yes, in principle, but we can give you more color off-line, Ashik, on the CSM assumptions.

[Ashik Musaddi, analyst]

Okay. Yes. And just one more question I have. I mean, the growth in the guaranteed business in Life, the segregated fund Class 1 has been pretty strong. I mean, really very strong and this is really helping your net inflows. I mean have you changed anything in the product structure that makes this growth look higher? Or is it just that the demand has gone up and the distribution is helping you. So is it more distribution driven? Or would you say that there is any specific changes in the product structure?

[Camillo Greco, executive]

It's mainly demand. And don't forget that in 2022 and 2023, all clients that around Italy own asset management products or multi-class products have suffered. We start from a very strong position because 93% of our TFAs are capital guaranteed. So our clients basically have not suffered the market correction. So if you are a client that has money, maybe with a competitor that is under water, you come to Poste and naturally, you choose a Class 1 product because you want the capital guarantee. And that explains the fact that we have positive net flows with a strong bias to Class 1.

[Massimiliano Riggi, executive]

And the last question is from Luca Ferrari from Mediobanca.

[Operator]

Excuse me, this is the operator. Mr. Ferrari withdrew his question.

[Massimiliano Riggi, executive]

Okay. So that's all.

[Matteo del Fante, executive]

Okay. So thank you, everybody. Stay tuned and the follow-up, obviously, on what we discussed and anything more you have is available with our IR, Massimiliano. Thank you very much for the time. Thank you.