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Good afternoon. Welcome, and thank you for joining Poste Italiane's Second Quarter and First Half 2020 Financial Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Massimiliano Riggi, Poste Italiane's Head of Investor Relations. Please go ahead, sir.
Good afternoon, ladies and gentlemen. Welcome to Poste Italiane's Second Quarter 2020 results, presented by our CEO, Matteo Del Fante; and our group CFO, Guido Nola. Following the presentation, we will be glad to answer your questions.
Now let me pass it over to Matteo.
Good afternoon, and thank you for joining us. I will take you through the highlights of the quarter before handing over to our CFO, Guido Nola, for a more detailed business review. I also have the pleasure to introduce you today a newly appointed deputy CFO, [ Camila Berto ]. Happy to have you aboard, [ Camila ] I will then provide some closing remarks before we open the call for questions.
Let's start with a quick overview on Slide 3, please. Lockdown has materially impacted the first half results. However, we can now proudly say that we successfully managed the emergency and tested the resilience of our business, reconfirming our reputation and role as a systemic player of the country. Lockdown accelerated the trends already embedded in our long-term strategy across all segments. And thanks to our ongoing transformation plan, we are now able to fully exploit market opportunities.
In summary, the trends accelerated by the emergency were e-commerce and digital usage on the positive side and Mail decline on the negative. In line with Deliver 2022, in the last 2 years, we invested significantly in logistics sorting capabilities, we fully implemented our Joint Delivery Model and strengthened our client digital penetration to counterbalance the Mail decline. Our strategy was appropriate then and still stands going forward.
Mail revenues were significantly impacted by a mix of temporary and permanent effects. On one end, the acceleration of e-substitution persists, on the other hand, the sharp decline of some higher-margin products, strictly related to lockdown, is expected to slowly reverse in the next 6 to 12 months, as registered mail backlog reduces.
Parcels revenues grew as e-commerce pushed B2C volumes further. After having reached historical peaks, B2C flows are holding up well above pre-COVID levels and expected to take this new base for additional growth going forward as Italy remains well below European average in terms of number of parcels per year per head. However, these diverging trends in Mail and Parcel are, at present, negatively impacting our P&L as Parcels revenues are growing from a lower base and with lower margins compared to Mail.
Financial & Insurance services as well as Payments and Mobile have gained momentum since June. More specifically, in Financial & Insurance services, product sales are steadily recovering, supported by a renewed commercial focus. The gradual upturn in activities will positively contribute to an encouraging second half of the year. In Payments and Mobile, we are experiencing increasing traffic and volume, both in Telco and digital payments. Finally, we are proactively addressing lower revenues with a structural cost reduction, already visible in the quarter.
Moving to group financial results on Slide 4, please. The financial performance was impacted by the emergency, both in the quarter and in the first half across all segments. Group revenues amount to EUR 2.3 billion in the quarter, down 13% year-on-year and EUR 5.1 billion in the first half, down 8% year-on-year.
Total costs came down in Q2 by almost 10%. And you will see later, over 40% of the cost base reduction achieved in Q2 is recurring. EBIT for the quarter is equal to EUR 325 million, down 30% and EUR 766 million in the first half, down 29% year-on-year. Thanks to significant cost positions we have achieved, we have been able to absorb approximately 60% of lower revenues impact on these.
Net profit stands at EUR 239 million in the second quarter, down 26% and EUR 546 million in the first half, down 28%. Considering 3 months of full lockdown in the first half of the year, these results really demonstrate our resiliency.
Moving to Slide 5. We want to remind how we weathered the crisis, leading up to our role as social and economic beacon of the country. We faced the crisis with a strong balance sheet, a profitable and diversified business model and steady operations. Our performance [ and AG ] suffered from lockdown, but thanks to the reach of our unique client base, we consolidated our role as a distribution platform of choice.
During the emergency, uninterrupted services were guaranteed across the country, while ensuring the safety of our employees and customers. We supported local and central institution in the implementation of social and economic initiatives. A clear example is how we partnered with Italian institutions, managing the logistics of the COVID-related PPE materials in 90,000 square meters warehouses, distributed in 12 locations, across the country. We are home delivering 3 million masks to Italian households and cash pensions to elderly clients in partnership with Arma dei Carabinieri.
Thanks to our uninterrupted services and client focus, our brand and client trust further improved. In this context, as we anticipated in our analyst call in May, the emergency has been the opportunity for a comprehensive strategic review of our market opportunities, commercial approach, cost base and processes. We will continue to leverage on our multichannel network to deliver a wide range of products, developing synergies between physical, digital and third-party networks. Complementing in-person interaction with the remote advisory model, we intend to maximize our commercial network productivity offering, both financial and nonfinancial products and gain efficiencies at the same time.
On non-HR expenses, we have put in place tactical short-term initiatives as well as long-term actions, such as the strategic review of our real assets portfolio. We have completely restructured our commercial organization in July with the aim of targeting SMEs with our wide product offering and introduced a strong industry-specific focus to better understand and better serve our clients.
In summary, we are pushing our B2C and B2B2C agendas with the strongest efforts and commitment. Finally, time was appropriate to reassess the way we run our activities, accelerating on smart working and in-sourcing. These are just some of the elements that we contribute to the upcoming strategic plan.
In the next 2 slides, you will see certain business trends we have experienced before, during and post lockdown across all segments. As you can see on Slide 6, in June, commercial activities rebounded with a steady increase in digital and third-party network transactions, partially compensating a reduction in operation across our physical network. As we mentioned, Mail and Parcel show diverging trends, with Mail declining persisting and B2C Parcels volumes stayed increasing since lockdown and year-on-year.
Moving to Slide 7. You can see that Financial & Insurance services as well as Payment and Mobile are now back to business with commercial activities picking up year-on-year. Daily gross inflows in June recorded a higher pace compared to both the beginning of the year and 2019. This is partially related to a backlog effect since lockdown was [ instated ], a positive trend is also confirmed in July in terms of distribution of postal savings, multi-class and modular P&C products.
Looking at payments, Postepay e-commerce transactions grew steadily with customers widening the scope of their spending. Telco continues to progress in a competitive environment, and the relevant market share increased by 1% point in March thanks to a very loyal client base.
Let me now hand over to Guido, who will take you through a more detailed business review. I will then provide some final comments before we answer your questions. Over to you, Guido.
Thank you, Matteo. Good afternoon, everyone. We are glad to talk to you today in a much better environment than last time.
Let's start with a quick overview of segment revenues on Slide 9. In line with last quarter, we present April and May on one side as they are the most impacted by lockdown and June on the other side, which shows initial signs of recovery across most segments.
At group level, we reached EUR 2.3 billion in revenues. Mail, Parcel & Distribution was the most impacted by lockdown. E-substitution and product mix continue to visibly impact Mail revenues with only marginal recovery in June. On the other hand, B2C volume growth confirmed the validity of our strategy, supporting a strong increase in Parcel revenues as shown in a couple of slides. In June, the other segments have showed significant signs of recovery of the underlying operating trends.
Financial Services is back on track, mainly thanks to the strong momentum of postal savings bonds distribution. In Insurance, while the top line in June is blurred by a positive valuation effect related to 2019, the commercial activity has registered higher gross inflows in June year-on-year thanks to multi-class products and P&C modular offer.
Payment and Mobile revenues in June were impacted by a mix effect of lower-margin transactions and the suspension of tax payments. However, we continued to see progression in digital platforms usage with over 40% increase year-on-year of daily online users. The Telco business continues to perform well and gain further market share, leveraging on a loyal customer base.
Let me now take you through each segment, starting with Mail, Parcel & Distribution, on Slide 10. Overall segment revenues were down 20% in the quarter, due to a general slowdown of the relevant activities. There are several reasons for this slowdown. All of them driven by external factors, such as e-substitution for unrecorded mail and a stop of commercial activities for direct marketing mail. In addition to these items, the suspension of recorded mail delivery due to the closure of courts of justice during lockdown and very few road traffic sign certification accounted for over 50% of the overall decline.
On the Parcel side, revenues increased by 33%, thanks to higher volumes across all product lines, boosted by B2C. Distribution revenues decreased by 11%, impacted by lower fees paid to the network.
On Slide 11, we look at the core volume and pricing trends for Mail. Overall, Mail volumes fell 24% in the second quarter. Higher margin recorded mail experienced a sharp fall of 48% in Q2, with certain volumes and revenues expected to recover in the second half of the year. This trend is in line with all our European peers, which, in certain cases, are showing an even steeper decline. In June, the negative trends slowed down to 14% year-on-year, compared to a minus 28% in April and May. May average price was down 11% in the quarter due to a product mix effect.
On Slide 12, we are providing you with monthly data on volumes, including July, to give you further granularity on trends. Mail volumes started to recover from April, mainly due to lower-margin products, such as direct marketing and our recorded mail. Monthly volumes decreased on average by 20% year-to-date, a trend we deem to be reasonable also for the rest of the year. Looking forward to the plan, we're already working on a proactive efficiency measures to address the acceleration of e-substitution.
On Slide 13, we show Parcel volumes in the quarter with a strong increase of 54% year-on-year. B2C volumes surged 80%, also leveraging on the ongoing diversification of the customer base. B2B volumes also increased, with corporates diversifying their shipments also to retail customers. The successful industrial transformation fueled by ongoing investments strengthened our logistic value chain. Our automated sorting center in Bologna managed a prolonged peak period and our Joint Delivery Model gave us more flexibility as our Postini started to deliver more parcels counterbalancing lower Mail volumes.
The partnerships with sennder and Milkman continue to improve our long-haul transportation and last-mile delivery options month after month. The average price index for Parcel was down 21% a year, reflecting a change in volume mix. B2C prices were stable on average with higher tariffs from key customers.
Slide 14 shows the monthly evolution of Parcel volumes until July. As we have already seen, volumes significantly increased from April, repeatedly reaching record high daily peaks, comparable to those normally registered during Black Friday or Christmas. In the second quarter, inbound parcel volumes and revenues from China was 6x higher than last year. To give you an idea for several days during the quarter, China, as a whole, represented the first client of Poste. We intend to strengthen even further the cooperation with our Chinese partners to boost volumes, offering additional services such as end-to-end tracking and faster delivery.
Moving to Payment and Mobile on Slide 15. Revenues continue to increase, up 3.5%, despite the current challenging environment. Our integrated strategy for Telco and Payments continues to pay off, with Telco revenues up by a strong 24% thanks to an increasing customer base outpacing competitors. Traffic volumes, both on mobile and fixed lines, increased in line with the trend witnessed during March and April, both for voice and data. This has limited effect on revenues as most clients paid flat fares, while on our side, certain costs increased with traffic. Our stock remained broadly stable. And let me underline that we are already running ahead of the original target set for 2022. Our Payment revenues were resilient also during lockdown. The gradual shift towards higher recurring margin evolution cards continues, offsetting lower international transactions and ATM withdrawals, also affected by the absence of tourism. After operational trends, we continue to gain momentum, thanks to the strength of our multichannel platform that responded well to the partial closure of post offices.
Since the beginning of the year, over 2 million existing customers started to use our digital channels with a broader activity in e-commerce transactions, especially in the food, pharma, electronics and clothing sectors. An important widening of scope, especially if we think that just a few months ago, clients' online purchases were directed mainly towards transport and leisure.
Other payments were impacted by the deferral of tax payments introduced by law, but are expected to resume in the second half with the company revenues, mostly coming from Financial Services, were down, due to the decrease in bill payments in post offices, partially compensated by increased transaction through our digital channels and third-party networks.
Moving to Financial Services on Slide 16. Segment revenues were down 10% in the quarter to EUR 1.2 billion. The suspension of commercial activities during lockdown of both financial and insurance products marked the performance of the quarter. However, already in June, we saw tangible signs of restart, which we expect to consolidate during the second part of the year.
Going line by line. Interest income was resilient, down 3% year-on-year, thanks to the active management of our B2B portfolio and higher retail inflows on accounts in the first half, mitigating the impact of yield compression. Postal saving distribution fees were up 5% to EUR 451 million, in line with our original full year projection, thanks to the new campaign products successfully distributed by physical and digital channels in June. Asset management fees were resilient year-on-year, thanks to recurring commissions. Loan and mortgage distribution upfront fees amount to EUR 13 million in the quarter, strongly affected by lockdown until May.
As you can see in the appendix on Page 41, in June, we saw volumes up 22% year-on-year with positive progression in July. This performance consolidated our position, thus reaching a 20% market share on new personal loans in June, compared to about 9% pre-lockdown. The positive commercial dynamics is not yet reflected in revenues. Since in June, we conservatively booked a negative EUR 18 million one-off charge to face potential future early repayments, driven by a low interest rate environment. Transaction banking fees were down 21%, mainly due to strong reduction in payment slips as commented already in Payment and Mobile. This item is broadly neutral on EBIT, as these revenues are paid back to Payment and Mobile for service and to Mail, Parcel & Distribution for network remuneration. No capital gains were booked this quarter, around EUR 100 million net capital gains remaining for 2020 are already secured with strong contracts -- with forward contracts to be accounted for in the second half. Given current market conditions, we are also starting to secure capital gains planned for 2021. Intersegment distribution revenues were down 20%, mainly related to fewer insurance products distributed year-on-year.
Moving to Slide 17. TFAs are up by a significant EUR 12.2 billion, reaching EUR 548 billion with EUR 9 billion positive net interest across all asset classes and EUR 3.3 billion positive market effect. Customers confirm their trust in our brand and continue to rely on our wide range of products. Postal savings registered new flows for EUR 1.5 billion, thanks to a successful campaign products that well responded to clients' demand for liquid and fully capital guaranteed products. Deposits increased by EUR 5.7 billion, confirming a clear preference of customers for liquidity, which will support commercial initiatives planned for the second half of the year. Net technical provisions are up EUR 1.6 billion, thanks to commercial focus on insurance products, in particular, multi-class. As we have seen since June, commercial activities restarted, leveraging on large liquidity on current accounts and postal saving books, also coming from the expiry of a very large stock of existing products. The resumption of our dialogue with customers on [ saving ] products after lockdown has been flawless, as their portfolio had very limited impact, if any, from the market downturn. Insurance volumes are growing year-on-year, thanks to products with gradual increase of risk exposure that well protected our clients. After 2 years since the launch of multi-class products, back in July 2018, we have totaled over EUR 10 billion gross written premiums, becoming #1 in the Italian market.
Moving to Slide 18. On Insurance Services, top line revenues were impacted by reduced customer activity. Life revenues were down by 17% year-on-year due to EUR 1 billion lower gross written premiums and to a lesser extent, to promotional fees on new products sold from May. Revenues declined less than gross inflows, as we increasingly rely on recurring management fees. The reliability of our business and brand is also confirmed by the reduction of the lapse rate in such a challenging quarter. Lapse rate, which continues to remain low to date. Year-on-year, June was impacted by lower releases on technical reserves related to expenses for EUR 24 million. This effect is expected to reverse in the second half of the year. As mentioned, commercial activity is recovering steadily in June with gross written premiums higher year-on-year. We continue to focus on our multi-class product that gradually increases exposure for the -- the risk for clients. It was launched back in January and further developed in June to allow for better potential returns in sharp market movements. Non-Life revenues were impacted by lockdown, particularly in April and May, while our modular offer contributed to reverse this trend since June with strong daily average sales.
Let's move to Slide 19. PosteVita's Solvency II ratio stood at 216%, above our managerial ambition of 200% through the cycle and in a volatile market. Since March, the negative impact of lower risk-free rates more than offset BTP-BUND spread tightening. On the other hand, corporate spreads' positive trend resulted in a lower currency volatility adjustment of 27 basis points with a negative net impact on the ratio. Including transitional measures, Solvency II ratio is up to 250% as they provide a benefit of 34 percentage points and represent an additional buffer to address market volatility.
Let's move to Slide 20, where we present sensitivity on the Solvency II ratio. Without taking into account transitional measures, Solvency II ratio is above our risk tolerance threshold in all assumed scenarios. A sudden decrease in interest rates by 25 basis points would reduce the ratio to 177%, implying a 10-year swap at minus 42 basis points, 10 basis points lower than historical minimum ever reached. A sudden increase in the Italian government spread by 100 basis points would result in a ratio of 164% as country volatility adjustment would be triggered. We also ran the same simulation presented in Q1, combining a shock on interest rates down 25 basis points; equity, down 30%; and corporate and government bond spreads, up 100 basis points. In this shocked scenario, the outcome will still be above our risk tolerance of 130% and 165% considering transitional measures.
Finally, let me reiterate that PosteVita is developing an internal model, which we expect to further reduce the volatility of Solvency II ratio in the future.
On Slide 21, we go back to group level with Poste's continued workforce evolution. Our average headcount decreased from 129,000 in December, '19 to 125,000 FTEs at the end of June, nearing our target of 123,000 FTEs in 2022. On the other hand, we managed the exit of almost 7,000 FTEs and the termination of almost 2,000 fixed-term contracts. On the other hand, we hired 4,600 FTEs. Indeed, we continue to believe that people are a key enabler of our successful transformation, and we remain committed to continuously reassess and rejuvenate our workforce, taking into account organizational size and skills required in specific business areas. Our ability to actively manage our workforce with -- in a flexible way is confirmed to adapt to the evolution of business needs and to create sustainable efficiencies.
Moving to group costs on Slide 22. In order to mitigate lower revenues, we took managerial actions to cut the cost line as already visible in the quarter. Ordinary HR costs are down 12% year-on-year. The reduction of FTEs leads to a recurring saving of around EUR 50 million on a quarterly basis. Performance-related savings of EUR 65 million refer to the first half of the year, with additional EUR 30 million expected in the second half. Non-HR costs overall are down, despite the EUR 29 million one-off cost incurred to face an emergency in the quarter on top of the EUR 23 million booked in Q1. Other costs for goods and services were flat in the quarter, even including almost EUR 50 million higher, volume-driven expenses related to growing business in Payment and Mobile and in Parcels. D&A decreased by EUR 60 million due to the reassessment of the residual useful life and value of certain group real assets in accordance with IFRS. Going forward, the group will benefit quarterly from EUR 30 million lower D&A on a recurring basis. Besides, we are undertaking a strategic review of our real estate assets starting from the instrumental ones and aiming to extend it to noninstrumental assets later in the year.
Turning on Slide 23. You can see an update on the cost reduction initiatives in Q2. Please bear in mind, once again, that our objective here is not merely to cut cost in 2020, but to take the opportunity to extract long-term efficiencies and act on our cost base in a structural way to preserve sustainability.
Let's start from HR costs. As seen on the previous slide, 2020 performance-related incentives have been reduced with EUR 65 million savings in the first half and EUR 30 million expected in H2, leading to an overall cost reduction of almost EUR 100 million in 2020. This is a one-off as we expect activity to be entirely back in 2021. Moving to headcount, also leveraging on the joint delivery model in Mail & Parcels, we have already saved EUR 100 million in the first half. And we plan to achieve recurring EUR 200 million savings yearly already starting from 2020. On the other hand, we confirm our early retirement plan to achieve a leaner organization. Other cost savings within HR have been achieved during lockdown, thanks to follow payments with savings of some EUR 75 million envisaged for 2020, already booked in Q2. Of course, this item is not expected beyond 2020.
Non-HR costs were down some EUR 15 million in the quarter for items such as energy, employee benefits and travel expenses. We expect some EUR 45 million savings in 2020 and approximately EUR 60 million on a yearly basis going forward. In the meantime, we continue to review discretionary expenses to address new priorities.
From a strategic point of view, in light of the new plan, we are reviewing process to maximize efficiencies, while sustaining our services in the long run. Of course, this needs more time to bear fruit that will allow us to do business in a more efficient and productive way starting from 2021.
Now let's move to Slide 24, summarizing the effect of revenues and cost at operating level segment by segment. As anticipated, Mail, Parcel & Distribution suffered the most. Quarterly operating profitability was down 30% year-on-year, with all segments impacted by lockdown, partially mitigated by a recovery in June and managerial actions on costs. In particular, revenues were severely affected by a 2-month lockdown in the quarter, and we effectively managed to absorb over 60% of the impact with strong reduction of costs.
As a result, EBIT for the quarter is equal to EUR 325 million, down EUR 139 million year-on-year, against a revenue decrease of EUR 352 million. On a segment basis, the underlying operating trends confirms the recovery of the activity since June, with the exception of Mail, where the recovery is merely related to cost cutting.
Let me now hand back to Matteo for some closing remarks. Thank you.
Thank you, Guido. Before taking your questions, let me close with some key messages on Slide 25. The environment remained challenging for most of the quarter, but we continue to show a strong resilience.
The diversification of positive business model and the essential client needs we serve ensure profitability throughout the cycle. To face the challenges posed by the emergency, we have implemented targeted cost discipline initiatives, absorbing a relevant part of the impact of lower revenues and creating structural efficiency to preserve the long-term sustainability of our business.
Looking at the rest of 2020, we're working under the assumption of reduced uncertainty supported by constructive commercial trends and effective efficiency measures. Under this assumption, we confirm our dividend strategy ahead of the update of our Deliver 2022 strategic plan later in Q4.
Before moving to Q&A session, let me thank you, again, for joining us today. As you can imagine, we're not traveling after these results. However, we will organize virtual roadshows, and we hope to see you then. Over to you, Massimiliano.
[Operator Instructions] The first question is from Giovanni Razzoli, Equita.
Three very quick questions. The first one relates to the comment that Mr. Matteo made -- just made about the dividend strategy. So that is unchanged ahead of the plan in Q4. So shall we assume that you are targeting to confirm the interim dividend payment in the Q3? This is my first question.
The second question. You have made a clear commitment to structurally reduce the cost base. Can you remind us what were the extraordinary costs booked in the Q4 2019 for the staff reduction? And whether shall we assume more or less the same level also for 2020?
And the third question relates to the trend in the Mail & Parcel division, especially as far as the mail volumes are concerned, which are, in my view, the only weak spot of this set of numbers. Specifically relating to the recorded mails, you've clarified that part of this is due to the stop of the delivery of some mail and to the close of the court. I
was wondering whether in the second half of the year when there will be back-to-normal activity, also the public administration, shall we assume that part of the volume loss in the first half will be recovered in the second half, so there will be an abnormal amount of volumes in the second half as the situation normalizes?
Yes. I'll take -- thank you, Giovanni. Yes, we confirm the full dividend policy. The third question on volumes of registered mail. As I say in my speech, we expect the backlog to reduce of registered mail over the next 6 to 12 months. It depends very much on the specific items. Let me be more granular. When it comes to traffic fines, yes, it will resume because people have gone back to using cars and they will get fined, and we will do the delivery of the tickets.
When it comes to Inland revenue, so Agenzia delle Entrate, in Italy, is still under discussion, but it's likely that no request official with a registered message will be pushed forward for -- in additional few months. So I don't know whether this will restart in 2020. We will need to wait a bit more. When it comes to legal proceedings, courts were closed and they will -- so it's something between the two. So it will come back slowly.
So as Guido say, more than 50% of the negative reduction in Mail comes from this item. And we're working very hard to get it back over the next 6 to 12 months. Please, Guido, on the second question on the cost base.
Sure. Giovanni, on your question, I think, two points. So in terms of what would be the number, if I understand correctly, of reserves if we take this year for early retirements. We have indicated at the beginning of the year when we gave you the guidance that -- we then stopped using, but when -- at that point, we said EUR 0.2 billion. So around EUR 200 million was the number expected for this year. So for the moment, we're still working on that assumption. Obviously, as you know, we are working on a new plan, and that will form part of that plan that the assumptions that you've seen also in this presentation is on Page 23, for example, we are referring exactly to that number.
Then if I can give you a little bit more color. Last year, you said correctly, we had over EUR 400 million in this reserve, which we're using this year on the early retirements that we're doing. The good news there is that the retirements are coming as a price, so -- as a cost that is lower than what we expected. So that leaves us a bit of flexibility in terms of numbers that we can do and the usage of that this year.
The next question is from Alberto Cordara, Bank of America Merrill Lynch.
My first question is related to the performance of Financial Services, and I would articulate it in different points. And the first one is, I didn't see any capital gain in the quarter. So if you can clarify to us what would be the level expected for the year?
The second one relates to third-party products. I saw that there was a quite severe drop in revenues in this area. But I would assume this is just a temporary effect related to the lockdown. So can you give us a bit of an idea when do you expect revenues from third-parties to go back to the original level?
And the other question about Financial Services regards the net interest income, which looks incredibly resilient. And I don't know how -- what to make of it because, I mean, to be honest, I think, we -- my understanding from you in the past is that this could have been under pressure and maybe this year, we would have seen EUR 1.5 billion in [ decel ], if I remember correctly. But things do seem to be doing much better than expected. So I don't know if you can clarify a bit when finally we will see this margin pressure and if we are going to see it? Because, to me, this actually looks very good news.
Then I just wanted to touch base on the question of my colleague before about the long-term effect of cost reduction initiatives. We all know the cost is a very high potential of revenue prioritization across different businesses. But it seems to me that the cost-cutting angle is getting increasing prominence in your story. So if you can just comment a bit more on the specification of this before the update that you want to provide in Q3. But any additional color would be extremely helpful.
And then my very last question is, if you can clarify a bit more what is your reliance of B2C revenues from Amazon? And how this has evolved over time?
Okay. I will maybe take the high-level portion of the 5 questions, and then hand over to Guido for more detailed answers. Skipping the capital gain, where Guido will give you the details, the loan mortgages and third-party is clearly a very important source of revenue stream for Poste. And we're very pleased that both the month of June and the month of July, the engine has restarted. Restarting the engine means having our consultants to start reviewing the client base, putting the calls, making the meetings and selling the products. We're still running some, let's say, fine-tuning issues in terms of third-party providers. So we have started a performance review of our third-party providers, which are always judged by us, both in terms of time and quickness of replying and obviously, spread and pricing. And I think that its review and some potential decision we will take on the back of the review will give an additional boost to the business.
Last question on Amazon. As you know, that we don't disclose the official figures of the contract and the revenues. All I can tell you is that probably 2 things, in summary, that the share of our B2C business, both in terms of volumes and revenues of Amazon, has never been so low. It's still significant. But it's going down on a quarter-by-quarter basis.
And the second is that, as Guido anticipated, we have several clients that are growing in the space of B2C. Guido mentioned China, which is 6x last year. And in several days, in the last few weeks, they were our top daily delivery client. We have unique partnerships with Zalando and their client base is growing steadily. And this is also shown not only by the volume of our B2C business, but the staggering growth of our last-mile B2C deliveries by Postini. So the -- what I said in my -- at the beginning of my call, what we plan, we deliver on February (sic) [July] '18 to increase our presence in B2C translated into large EUR 700 million CapEx in sorting center. We have one operating. We have two coming over the next 6 months. One larger than the one in Bologna. And this is clearly giving us a very strong competitive edge because it's mainly automated, and it's fast and it's cheap. And then the last-mile. And the last-mile delivery by Postini, which is clearly unique to Poste. We are seeing an increase, and we're forecasting an increase for 2020, which is above 50% increase over last year in terms of number of parcels delivered by Postini. So this is the high level. And Guido, you want to take care of that...
Sure. Alberto, so on the first one, it's very quick and simple. As I said in my speech, we have basically realized all the capital gain for the year that will be accounted for it at the end of the year because we close forward contracts. And then we will put it in -- it will be accounted then in Q4.
For interest income, well, first, maybe on loan and mortgage, I can give you a little bit more color. What we highlighted is that the volumes came down, especially at the beginning of the lockdown. They started recovering well, although as we maybe mentioned when we talked over the last 3 months, remember that we specified that we also suffered a bit from volumes restriction from our partners. All of that is now gone. We finally think that both our commercial activities and our partners are back on track and volumes reflect that. So if I look at the volumes for June and July in terms of daily sales, those are absolutely in line or actually above last year and in line with the original budget that we had for this period of time, what we have planned.
Then moving on to interest and interest income. You said that you were surprised by the resiliency of our NII. We were a bit less surprised, I think, because, as we always say, we quite actively manage our portfolio. We managed to buy the EUR 12 billion that we have to buy as a combination of new cash inflowing and the expiry of existing bonds and some anticipation of loans or expires. So all of that together implied a EUR 20 billion of purchases, which we did at an average of 1.7%, when rates in the same period were at 1.17%. And that, I think, testifies our ability to take good market opportunities. So much so that we are already starting securing some of the capital gains for next year as we believe rates and spreads are extremely low at the moment, and so we can get good market opportunities.
On costs, going back to Page 23 of the presentation, again. Today, I think, you have pretty much everything in there, right? So if we look at performance related, as I said, some effect -- some good effect in the quarter, EUR 65 million. It will amount to about EUR 100 million for the rest of the year, but we think none of this will continue into next year because we think that commercial activity will go back to normality, and therefore, we will pay our sales force for that.
For headcount flexibility, that's where you have the bulk of the savings for the long run. As we said, EUR 100 million applied for the first half of the year. There's another half for the next half of the year. So another EUR 100 million, and this is then something will stay with us, given that we still have 5,000 FTEs less to account for. So going further down, we said that we had about EUR 75 million of other measures, and the majority of that, as I said, was [ follow ] payments and other activities that are not coming back, nor in the second half, nor in the future in 2021. So that's more a one-off.
And then I think the other good news is that we indicated EUR 15 million of other discretionary costs. We said that this number is for the quarter. So you can pretty much multiply it for the next 2 quarters to come. And we believe this is a number that will stay with us. So EUR 15 million is a good number -- EUR 15 million a quarter is a good number for the years to come. I hope this is clear enough.
The next question is from Ashik Musaddi from JPMorgan.
I have a few questions. So first of all, if you can help us get some color on what's happening with Codice Postepay? Now clearly, at the beginning of the year, it was a big focus at your end. But I guess because of COVID, this has been pushed a bit forward. So how should we think about that? What are the time lines? Any deadlines you have? Any color on that would be very helpful.
The second question I have is how should we think about the -- what is the strategic review of real estate, real asset portfolio? I mean, are we talking about your real estate portfolio? Or what is this? So a strategic review, that would be very helpful.
And thirdly is, for next year, I mean, you mentioned that you have already started thinking about securing capital gains for 2021. I mean, if I remember correctly, in your plan, it was about EUR 100 million expectation. Am I correct? Or are we talking about like a bit EUR 200 million, EUR 300 million of capital gains for next year?
Yes. We don't have a lot of data point on QR code because it was going to market with door-to-door sale in March. So we're now resuming the marketing efforts. And anyway, this is -- it's a long-term proposition to win clients on the acquiring side. So for us, it is an entry tool to penetrate the acquiring client base. The -- on the question of the capital gain, we are not yet -- we have not defined the total figure. But maybe what we can tell you at this point in time is that it's going to be less than EUR 200 million for next year. But we would see in the -- when we are going to present the plan at the end of the year.
The second question, I will let Guido.
So on real estate, what I can tell you is that we started in -- what I said in my speech is that we started a review of the entire real estate portfolio. And in doing that, we also realized that there was a mismatch between the residual life that we had accounted for and the residual life that was actual today. So we have just aligned the residual life of our real estate assets with the one we accounted for with the actual one. And this resulted in less D&A, so less amortization of about EUR 120 million yearly and this will be there to stay. Maybe on the more strategic review, I'll ask Matteo to...
Yes, I think on the more strategic side of the question, Ashik, is -- we did not focus on the topic in the first 3 years. We were busy in the business, now we're doing a bit of housekeeping. And we have started the project to understand, which assets we want to keep for our business, which assets we don't consider we need for our business. And in that case, how we can best extract value over the course of the next 2 to 3 years. And this is something that we will present, again, in the last quarter with the update of the year 2022.
The next question is from Gian Luca Ferrari, Mediobanca.
The first one is on postal products. I remember, Matteo, during the last conference call, you seemed a bit cautious on the EUR 1.6 billion, EUR 1.8 billion guidance, also because we were at the beginning of the lockdown. But looking at these numbers, in Q2, you even made a positive net inflows in postal savings, despite 2 months out of 3 of lockdown. EUR 1.5 billion in the first half is the best semester ever for these products. So I was wondering if you are now turning a bit more constructive that you would expect something in the mid to top part of the range. So probably something in between the EUR 1.7 billion to EUR 1.8 billion, if you can give a bit of comment on this?
The second one is on pricing pressure in the B2C parcel business. Apparently, the revenue per unit is absolutely stable year-on-year. So I was wondering if it is a matter of lack of pricing pressure or more higher average spending from Italians. So probably they are buying something more value added, and the cost of shipping is also a bit higher and this is explaining why the cost per unit is basically stable.
The third is probably more for Guido. And I was trying to reconcile all the moving parts of solvency of the PosteVita in the first half. And I was wondering if you can give us the capital generation gross of the dividend accrual at PosteVita in the first semester. I was wondering if it is something like 10% or a figure like this?
Yes. I think there is -- in the middle of the lockdown in May on postal savings, Gian Luca, yes, we were more cautious on revenues for this year. So we were clearly on the very bottom of the range of the EUR 1.6 billion to EUR 1.8 billion. I think we can be more optimistic, but we still have 6 months to go. So certainly, one can consider that can be something probably in the middle of the range.
Pricing pressure, I think, is an interesting question because one has to put in the picture, the fact that now Poste Italiane is #1 for volumes and revenues B2C player in Italy, which clearly was nowhere the case 3 years ago. And when you are a #1 player, maybe you start looking at margins and choosing clients in a better position versus a player that has to enter the market. So we -- adding to this the specific position of Poste, which explains, I think, part of the good news of resilience in pricing is more temporary. There was a shortage of last-mile capabilities during the lockdown. And therefore, all the players had the opportunity maybe to have a bit more room for maneuver with clients, and this is more clearly related to the specific period.
But our road map in last-mile and B2C is, I think, very clear and very robust. Guido mentioned the partnership with Milkman, which is now going all across Italy and serving clients also in segments that we were not covering before. The footprint of the third-party for parcel delivery and for pickup and acceptance with the return product is growing very fast. So Poste today can count on over 20,000 pickup and return points in Italy. So if you are a client that wants to do e-commerce, nobody can offer 20,000 points. If you look around Europe, in the parcel space, our competitors, they talk hundreds of pickup points, we are putting on the table and growing over 20,000 outlets. And therefore, a client that wants to enter B2C Finance in Poste, quite a unique partner. And adding to that, we have changed our model of coverage, as I mentioned in my presentation. So we now have a team, which is specifically dedicated to industry-focused clients. So we don't divide any longer our 1,200 sales force by region, which is a typical old style. They're all organized since 1st of July by client industry. And this, I'm sure, will bring much more client penetration. On the B side and then the road map on the product is also putting as a client, as the real client, the retailer. So we had additional services we're giving to the retailer, because the best that we serve the final client, the happier would be the platform or the client that gives us the opportunity to deliver to that final client. So we're focusing a lot, and we consider the real client, the retailer, that receives the parcel at home.
On the third question on the insurance.
Yes. Guido, please.
I'll take that one. Thank you. Maybe just to give you, maybe, just a couple of numbers on the specific column on average price index on Page 13, Gian Luca, to close on B2C. I think you're referring to the fact that you see a sharp decline in average pricing mix. You need to bear in mind that, that decline is all due to the mix of products, not to the tariff that we are tying to clients. Actually, all the main clients, so all the -- at least the first 5 that I've seen have actually carried this up, not down. So the movement you see there is because we're doing much more volumes in B2C. And because, as I said in my speech, some of the volume growth you see into B2B is because corporate clients are sending, over this period, more parcels to clients, to end clients, to retail clients, which are normally smaller packets, and therefore, with a nominal fare. But not -- this is just a different product.
So going to solvency. I think what you're asking me is the fact that we are not paying dividend from PosteVita to Poste Italiane. We haven't so far. It has a positive effect on solvency. Yes, you're right. We are taking into account that. You need to remember that we're only paying 50% dividend payout to PosteVita -- from PosteVita to Poste Italiane. So that accounted last year to EUR 340 million. So if you look at something similar to that this year, that accounts to roughly 4% percentage points of solvency, which, therefore, as of today, in the solvency that you saw. Obviously, if and when we pay the dividend, this will be taken out.
So 4% is capital generation in the semester with no deal...
We account for it running. So now they are accounted for it running. In the moment -- so each month, we take a little bit. And the moment we decided not to -- we take the decision not to pay it, then we did stop accounting for the dividend basically. So you have a positive effect on solvency on that term.
But 4% is for the semester or 4% -- or it's annualized?
4%. No, 4% is for the entire amount.
For 1 month?
No. For the entire dividend that was not paid.
Oh, okay. Okay. It's clear.
I wish it was for a month. Are you happy? Are you okay, Gian Luca, are you clear?
Yes, yes. It's very clear.
The next question is from Anna Maria Benassi and that has been submitted by the platform. So I will read it. Consolidation in the Italian banking sector has started to lower its trend in the Financial & Insurance sector, too. Do you see any challenges and opportunities for Poste Italiane? Would this change your partnerships in financial products?
Never say never. But I don't anticipate any role of Poste Italiane in the consolidation of the banking and the insurance sector. It's not in our road map from a strategic standpoint. Our strategy is to be as close as possible to our clients. This is really the value we have, the trust, the number of clients, the multichannel ability that we have to reach them. And I think this is still in line, we believe, with 2022, the best option for our shareholders. The increase, even outside the financial products of our cross-selling capabilities and improvement of the user experience of our clients in our products can give much more results than any strategic transaction.
In terms of partners, the second part of the question, as I said, we keep them in -- under close scrutiny. Happy to say, which I forgot in the previous question that in July, we reached a record month ever in salary-backed loans. So we are adding a new product, [ staging ], to our product range, and we think this is an interesting development because we see a lot of upside in that specific item and more partnership potentially, yes, but that only if our partners play the right role in supporting us.
And the last question is from Federico Braga from UBS.
Just two quick follow-ups. The first one is on the interest income of the Financial Services division on the resiliency of this line. A big driver of this resiliency seems to me, actually, there has been the -- related to volumes. So current accounts have been growing quite nicely, especially in this second quarter of the year. So I just wanted to understand how much of this growth was structural or just related to the overall macro environment? And if this conversion of clients should decrease in the coming quarters, can -- could we see some volume decline, and therefore, some pressure to interest income at that point?
And the second question is on the -- if you could give some guidance, please, on the average number of employees in the second half of the year, has been 125,000 in first half, but if you could give us some guidance for the second half of the year as well.
Excuse me, Federico, It's very confusing. Can you say it again? The second one, please. Your line is a bit blurred.
Sorry, yes, no. The second one is just if you could please give some guidance on the average number of employees of [ active ], in the second half of the year?
Please, Guido.
So on the first part of your question, I would refer to what I said before. The -- as I said, the interest -- net interest income held up, thanks to two main things. And one you referred to again now. So volumes, as we say here on -- when we talked about the TFAs, on Page 17, you have EUR 5.7 billion of extra deposits on our accounts, and that was obviously invested in BCPs at the average EUR 1.7 billion I was referring to before, so that helped us. So you're now asking how much of that is stable. Do you expect that some will be withdrawn and therefore, your NII will go down? If I understand correctly. If that's the question, well, on one side, a bit, I wish, will be used for investment and some of the commercial activity will be done exactly in that direction to use some of this liquidity for investments and therefore, looking for high-margin products. What I can tell you is that, obviously, we invest in maturities that take this into account. So we have now a lot of years, many years of history of the behavior of our clients. So we have an expectation of how much of that may leave a bank account to become an investment, and therefore, that is invested in shorter-term maturities, in shorter-term in bonds, which have obviously a much lower yield, which is barely positive, if that.
So in a nutshell, I wouldn't expect that trend to have a negative impact. If you could add that in a prolonged economic crisis, then there will be some outflows related to the economic crisis. Also, that was taking into account. So the overall maturity of investments also takes into account and that some outflows cannot be directed to investment, but also for consumption. But that is already part of the way we invest. So in a normal -- so in the crisis that we're already envisaging for some part, that is already taken into consideration.
In terms of expectations on FTEs at year-end, as I said, we had a very good start. Obviously, that was driven by the fact that we had to hire less people during the crisis because we did not need as many people, especially in delivery. Our original target is 125,000-ish. But again, we have to see how the second half develops and how we will -- and this is, as you remember, the target we provided you at the beginning of the year, which was higher than that. And therefore, it takes into account what the work we've done so far in the first half. Also, I would refer back to what I was saying before. We also have the opportunity of having a reserve that we took last year for early retirements, which is working well because, as I was saying before, the early retirements we've done so far are happening at a good pace, not as much as we have anticipated because the lockdown has slowed us down in that exercise. But the ones that we've done is doing it at a much better cost. So that means that we have more ability to -- more flexibility for the second half.
We have actually the very last question from Manuela Meroni, who connected back. So I have given her a chance to ask your question. So please, Manuela.
I have a couple of questions remaining. The first one is on postal savings. The net inflow has been positive for the second quarter in a row. So I'm wondering what you can -- we can expect for the remaining part of the year? And if you have any update on the renewal of the agreement with CDP.
And lastly, [ could the MCT ] domestic press reported about the potential investments of Poste Italiane in Aspi, Autostrade per l'Italia. I'm wondering if you could elaborate on the rationale of the potential investment, and on the size of the investment, if any.
Okay. Yes, total savings flows were quite impressive. I think that clearly, we are very happy. But one should not be probably too taken by an excess of enthusiasm in the fact that, one, it was clearly a backlog of the months of the lockdown of our consultants that were not able to direct clients on postal savings.
And two, we had very good product offering, and this is something that we hope is going to be there in the future. As far as the Aspi, Autostrade per l'Italia is concerned, I think what we saw in the press, we were surprised because it's not part of the road map of Poste, and there is no conversation. The only contacts we had is in the space of our managed account in the insurance company. And as you know, we diversify our 140 assets that we hold to manage the technical reserves of our life contracts. We have several asset manager infrastructure funds we invested into and maybe some of those funds are involved in that transaction. And so in a way, as the subscriber of those funds in the past, one can associate thoughts to the asset, but that's the only link I can see. And now that I read in the press and yes that's going to be the final outcome it's a listed company, maybe it doesn't belong any longer even to the infrastructure funds that usually look for private assets.
Thank you very much, everybody, and thank you for the time, as usual, that you're putting on Poste. And we're going to do our online roadshow. But as usual, myself, the CFO and especially our IR, Massimiliano Riggi, we're all available any time for any additional questions you might have. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.