Poste Italiane SpA

MIL:PST

Earnings Call Analysis

Strong Profitable Growth and Upgraded EBIT Guidance

In H1 2024, Poste Italiane reported 7% year-on-year growth in revenue to EUR 6.2 billion, driven by strong performances across mail, parcel, financial services, and insurance. Adjusted EBIT rose 14% to EUR 1.5 billion, while net profit increased 15% to over EUR 1 billion. The company upgraded its full-year 2024 adjusted EBIT guidance to EUR 2.8 billion. The new labor agreement will also enhance logistics and financial service models, contributing to future profitability. The company maintains a strong solvency ratio and continues to lead in market segments through innovative initiatives.

Strong Revenue and Profit Growth

In the first half of 2024, Poste Italiane reported impressive financial performance with strong growth in both revenue and profit. The company achieved a 7% year-on-year increase in revenue, amounting to EUR 6.2 billion. Adjusted EBIT grew by 14% to EUR 1.5 billion, and net profit rose by 15% to exceed EUR 1 billion. These results were driven by solid performance across all business segments, including mail, parcels, financial services, and insurance.

Significant Performances in Mail and Parcels

The Mail, Parcel & Distribution segment showed robust growth, with revenues reaching EUR 1.9 billion in the first half of 2024. This growth was attributed to a 15% increase in parcel revenues and a 7% rise in mail revenues. Despite a decline in unregistered mail volumes, higher registered mail volumes and effective repricing actions more than compensated for this decline. The company also gained market share across all customer segments.

Financial Services and Record Net Interest Income (NII)

Financial services saw a notable increase in revenues, up 7% in the first half of 2024, driven by record NII since listing. NII recorded a 16% growth in Q2 and a 12% increase in the first half, primarily due to higher interest rates and proactive portfolio management activities. The company’s financial services business demonstrated resilience and profitability, benefiting from higher distribution fees and positive commercial trends.

Insurance Services and Protection Business Growth

Insurance Services reported a 13% increase in revenues in Q2 and a 7% rise in the first half, fueled by resilient life investments and pensions, as well as fast-growing protection insurance. Protection revenues saw a significant surge of 77%, driven by higher volumes and an improved combined ratio, which is expected to align with the guidance of 85% for the full year.

Postepay Services: Growth in Digital Payments

Postepay Services continued to experience double-digit growth, with revenues up 13% in the first half of 2024. This growth was supported by increased card and digital payments, with e-commerce transactions up 16% and total ecosystem transactions growing by 11%. The stock of IBAN-backed Postepay Evolution cards increased by 5% to 10.2 million cards, contributing to the robust performance.

New Labor Agreement and Cost Base Visibility

Poste Italiane finalized a new labor agreement in record time, which is crucial for the company's logistics transformation and cost base visibility. The agreement includes an average monthly increase of EUR 230 by 2027 and a lump sum payment of EUR 1,000 in September 2024. This agreement supports the company's strategic plan and enhances its ability to manage future operational flexibility.

Outlook and Upgraded Guidance

Given the strong performance in the first half of 2024 and increased visibility in the cost base, Poste Italiane has upgraded its full-year 2024 adjusted EBIT guidance to EUR 2.8 billion. The company's dividend policy, based on a minimum 65% payout ratio, is directly linked to its financial results, indicating confidence in sustained profitability and growth.

Earnings Call Transcript 2024-Q2

[Giuseppe Esposito, executive]

Good afternoon and welcome to Poste Italiane's Second Quarter and First Half 2024 Results Conference Call. Matteo Del Fante, our CEO, will take you through some opening remarks; and then Camillo Greco, our CFO, will cover the financials. [Operator Instructions]

Over to you, Matteo.

[Matteo del Fante, executive]

Good afternoon and thank you for attending our Q2 and half 1 2024 call. I will start the call with thanking again all our employees and stakeholders. Our people play an important role and I'm proud to say we have signed in record time a new collective labor contract, which represents a key milestone in the execution of our business plan as it enables us to implement the logistic and distribution transformation and increases visibility on the cost base.

We are accelerating our strong profitable and cash generative growth. For consistency with business plan targets, in today's presentation we'll show an adjusted EBIT before the impact of the insurance guarantee fund. Furthermore, we will be focusing on underlying growth which does not take into consideration the impact of the sennder capital gain booked in Q2 last year, active portfolio management and the contribution to the insurance guarantee funds were applicable.

In the first half of the year, revenue reached EUR 6.2 billion, up 3% year-on-year or 7% on an underlying basis. Ongoing expense management remained a key focus as we continue to successfully mitigate inflationary impacts while cost increase came from growing business volumes. Adjusted EBIT in half 1 is EUR 1.5 billion, up 14% on an underlying basis. Net profit just over EUR 1 billion, also up 14% on an underlying basis. We continue to see positive net flows in investment products with strong results in asset management and resilient insurance business in a challenging environment.

On the back of our performance in Mail and Parcel in half 1, record NII since listing, very solid Postepay Services results, as well as higher visibility in our cost base, we are today upgrading our full year 2024 adjusted EBIT guidance to EUR 2.8 billion. Let's focus for a moment on the new collective labor agreement on Slide 4. I'm very pleased to announce this new mutually beneficial national labor contract finalized in record time and signed just last week. Also on behalf of our Chairwoman Silvia Rovere and our General Manager Giuseppe Lasco, I would like to thank everyone involved in this process and specifically the labor unions for their extremely constructive approach.

Firstly, we signed an agreement on the reorganization of our logistics operation, which is unique in the sector and will enable Poste to build a future-proof network. We will implement a directly-managed, parcel-dedicated network with our own employees, ensuring the level of flexibility which is required in the postal market. In particular, our parcel dedicated network will be able to deliver items of up to 10 kilograms and will work up to 39 hours a week with more flexible daily and weekly shift to meet the new market needs. This agreement is a major building block of our strategic plan in particular with respect to the target of up to 2/3 of parcel delivered by our employees by 2028.

Secondly, thanks to the new agreement, we will be able to implement a new distribution model for financial services in the postal offices, a key ingredient in the 2028 plan. Finally, regarding compensation, the new agreement covers the full year period from 2024 to 2027, with an overall average monthly increase of 2000 -- EUR 230 by 2027, starting from September 2025. And the lump sum, EUR 1,000 to be paid in September 2024, of which 60% covers 2024 and 40% covering up to August 2025. The operating and financial impact of the agreement are fully consistent with our 2024-2028 business plan. And today, we significantly increased the visibility on the evolution of our cost base.

Let's move to group financial results on Slide 5. We have continued generating profitable growth in the second quarter and first half of 2024. Let's focus on the latter where we generated 7% year-on-year underlying growth in the top line to EUR 6.2 billion. Adjusted EBIT in the first half of 2024 is at EUR 1.5 billion, up 14% year-on-year on an underlying basis with net profit at over EUR 1 billion, up 15% as well.

On Slide 6, you can see the acceleration of the positive trends across all businesses in Q2 this year. In mail, parcel and distribution, half 1 revenues amount to EUR 1.9 billion, driven by double-digit parcel volume growth. We're gaining market share in all customer segments as well as higher registered mail volume and repricing actions more than offsetting unregistered mail volume decline. This is the highest quarterly year-on-year mail and parcel revenue growth recorded since listing by Poste Italiane, excluding the post-COVID period, obviously.

In Financial Services revenues were up 9% in the quarter and 7% in the first half on an underlying basis driven by record NII since listing again and positive commercial trends across products. Insurance revenues were up 13% in the quarter and 7% in the first half as a result of resilient Life Investments & Pension and fast-growing and profitable Protection insurance businesses. Postepay Services continued to grow double digit in the half, thanks to increased card and digital payments and our leadership in e-commerce transaction with our successful energy business, making an important contribution to the revenue growth.

Let's go to Slide 7 and the EBIT evolution by segment. Mail, Parcel & Distribution shows an underlying EUR 80 million EBIT improvement compared to the first half of 2023, supported by a strong revenue momentum across products. Financial Services operating profitability is resilient and improving in Q2, reflecting revenue trends and higher distribution network costs. Insurance Services EBIT reflects the strong performance of our Protection business and resilient results in Life Investments & Pension.

Finally, Postepay service double-digit EBIT growth is driven by strong top line performance. Let's move to a more detailed review of our numbers by our CFO. Over to you, Camillo.

[Camillo Greco, executive]

Thank you, Matteo. Hello, everyone. Let's move to Slide #9 on Mail, Parcel and Distribution. Revenues amounted to EUR 954 million in Q2 and EUR 1.9 billion in H1, up respectively, 7% and 6% on an underlying basis. Mail revenues at EUR 548 million were up a remarkable 7% in Q2 and up 5% to over EUR 1 billion in H1, supported by favorable business mix with our volumes of registered mail and repricing actions, with the latest major USO repricing applied since July 2023. Parcel revenues were up 15% to EUR 375 million and up 12% to EUR 743 million in H1, supported by all customer segments with a further acceleration in Q1 growth trends.

Distribution revenues from other business units are up 8% in Q2, reflecting positive commercial trends and compensating for higher network costs. Let's look at volumes and tariffs on Slide #10. Parcel volumes are up a robust 26% in Q2 and 23% in H1 with growth in all customer segments, from large e-commerce platforms to small, medium merchants, as we are managing increasing volumes, gaining market share from our competitors also on the back of strong performances during peak periods. Items delivered via the postal network increased from 35% to 39% in Q2, in line with our targets and positively impacting the business unit's profitability.

Looking at pricing, the reduction in average parcel tariffs in the quarter is related to a mix effect of increasing volumes with lower pricing and lower delivery unit costs. Moving to mail, the volume decline is related to lower margin and recorded items. Higher-margin registered mail volumes have grown mid- to high single digits in the first half. This, coupled with effective repricing actions have generated a 13% increase of the average tariff.

Moving to Financial Service on Slide #11. Gross revenues are at EUR 1.6 billion in Q2, up 7% and up to EUR 3.1 billion in H1, up 5% on a underlying basis. Net interest income came at EUR 653 million in Q2, up 16% and over EUR 1.2 billion in H1, up 12%, representing the highest quarterly and half year NII we recorded since listing. Such record NII is driven by higher interest rates, combined with our proactive portfolio management activity, allowing us to lock in higher rates, thus enabling an increased visibility on future portfolio return. Postal Savings distribution fees added EUR 415 million Q2, up 3% and up EUR 844 million in H1, up 2%, supported by continued commercial focus.

Transaction Banking fees are stable at EUR 181 million in Q2, reflecting the same current account pricing as in Q2 2023. Consumer Loans distribution fees continued to regain ground with volumes at EUR 121 million in H1, up 15%, supported by higher volumes. Asset management fees came at EUR 52 million in Q2, up 35%. And EUR 97 million in H1, up 43%, benefiting from record high net inflows in the first half of 2024. Finally, adjusted EBIT, up 9% to EUR 218 million in Q2 on an underlying basis, reflecting positive revenue trends and higher distribution network costs.

Moving to Slide 12. TFAs reached EUR 589 billion, up EUR 8 billion since the end of 2023. Once again, Poste Italiane has adapted its offer to meet evolving client needs in order to have a compelling financial proposition in all market environments, reaching EUR 4 billion net inflows in the first half. Let's look at each component. We reported a remarkable EUR 2.8 billion net inflows in investment products, which is the sum of mutual funds and Life Investments and Pension. Within this group, we reported record numbers in mutual funds, driven by strong demand for our target date fixed income products, allowing us to minimize outflows from managed products.

As of May, we are the leading asset manager in Italy in terms of net inflows according to [indiscernible]. Our Life Insurance business remains resilient in a challenging market, still recording positive net inflows year-to-date. Postal Savings net outflows improved versus last year, driven by high maturities mitigated by interest accrual as well as highly successful new commercial initiatives. This includes offers targeting new liquidity, generating EUR 5 billion inflows in the first half of the year. Deposits benefited from higher balances from PA clients, while the retail deposits were resilient confirming the stickiness and loyalty of our customer base.

Moving to Slide 13. Insurance Services revenues reached EUR 430 million in Q2 and EUR 827 million in H1, up respectively, 13% and 7%, supported by a resilient life business and a fast-growing protection one. As mentioned previously, Life Investments & Pension net flows should be considered in the context of a strong client demand for fixed income mutual funds. Yet we continue to outperform the market with positive net inflows in H1 of EUR 0.3 billion and a lapse rate of 6.4%, still well below market levels, currently estimated at above 11%.

In this context, we are rolling out commercial initiatives that will positively contribute to Life net inflows in the second part of the year. Among those, a policy with returns linked to specific assets collecting EUR 0.5 billion in June and July and the recent launch of a life insurance product with a return profile similar to fixed income mutual funds. Life Investments & Pension revenues are up 8% in Q2 to EUR 378 million and up 2% in H1, at EUR 740 million, supported by stable CSM with high release percentage in the quarter. Protection revenues continued to increase materially year-on-year and are up a remarkable 77%, both in Q2 and H1. Protection revenue growth is driven by higher volumes and improving combined ratio, which going forward, we expect to be in line with our guidance of 85%.

Adjusted EBIT is at EUR 378 million in Q2, up 15% and up EUR 727 million in H1, up 9%. On Slide 14, we show the CSM evolution. Normalized CSM growth increased 1.3% in the first half of 2024 versus 0.4% in Q1 with new business and expected return more than compensating the release. Therefore, Q2 normalized CSM growth accelerated 2.2%. We expect this KPI to further improve in the second half of the year as a result of the commercial initiatives mentioned earlier. Group CSM at the end of the first half stood at EUR 13.5 billion, providing strong visibility on the division's sustainable profitability going forward.

Let's look at the solvency ratio evolution on Slide 15. Poste Vita Group's Solvency II, 297% at the end of June 2024, well above our managerial ambition of circa 200% through the cycle and already embedding the new remittance ratio of 100% to the parent company, more than compensated by internal capital generation. The 16 percentage points decline from March 2024 is due to rates and spreads widening in the quarter. Such an impact has already been partially absorbed in July as our solvency ratio is currently between 295% and 310%.

Moving to Postepay Services on Slide #16. Revenues are up 9% to EUR 382 million in Q2 and up 13% to EUR 761 million in H1. Payments revenues up 7% to EUR 281 million in Q2 and up 10% to EUR 564 million in H1, driven by increase in transaction value with e-commerce growing 16% in Q2 and H1 combined, an increase in total ecosystem transactions, including top ups, growing 11%. Results are also supported by a strong performance of our IBAN-backed Postepay Evolution cards, showing a 5% year-on-year increase in stock to 10.2 million cards. We're well above market transaction value increase of 18% in H1.

Telco revenues are risen to EUR 163 million in H1 impacted by a marginally lower client base versus last year, though growing versus Q1. Finally, continued positive commercial trends in our energy business are confirmed, with EUR 34 million net revenues in H1. Yet again, thanks to strong revenue growth, adjusted EBIT grew a remarkable 19% to EUR 132 million in Q2 and 25% to EUR 249 million in H1.

On Slide 17, we look at our workforce evolution. Since the end of 2023, the average head count decreased to 118,000 as we continue to renew our workforce with 2,800 new hires in the quarter. HR costs per FTE are up almost 5% to EUR 47,000, as a result of salary increases and other items such as variable compensations with value added per FTE growing by around 3% at EUR 85,000 per FTE.

Moving to group HR costs on Slide #18. Ordinary HR costs are up 4% in H1 to EUR 2.8 billion, which was already in line with the new collective labor agreement. In the quarter, ordinary HR cost per revenue was stable at 41%. Moving to Slide 19. Non-HR costs increased by 7% to EUR 2.1 billion in H1. In particular, costs were up EUR 137 million (sic) [ EUR 132 million ], mainly driven by EUR 87 million of additional variable costs reflecting higher business volumes and EUR 60 million inflation impact, while noninflation related fixed COGS decreased by EUR 10 million. Our focus on cost discipline remains laser sharp and protecting the bottom line profitability remains our top priority.

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

[Matteo del Fante, executive]

Thank you, Camillo. Our antifragile phygital business model designed for sustainability has proven itself again with these results. Year-to-date performance continues to be strong in all segments with a further acceleration of positive trends in Q2. As always, we remain focused on continuing to deliver with discipline as we progress on the execution of The Connecting Platform 2028 business plan.

We have also achieved the key milestones of the new labor agreement, which is crucial to the transformation of our logistics business and implementation of the new service model, providing us a full visibility on our cost base evolution of the plan. This achievement, coupled with strong first half results supports upgrading full year 2024 adjusted EBIT guidance to EUR 2.8 billion. Let me remind you that our new dividend policy is based on a minimum 65% payout ratio and therefore, is directly linked to our financial results.

Finally, I want to thank again our dedicated employees whose hard work, commitment and professional skills are key to the strong results we continue to achieve. Thank you, everybody, and Giuseppe, over to you for the Q&A.

[Giuseppe Esposito, executive]

[Operator Instructions] The first question is from Gian Luca Ferrari at Mediobanca.

[Gian Ferrari, analyst]

So the first question is on the increase in NII Q-on-Q. I was wondering if you can quantify the swap component in there. And if we can define that as a kind of one-off project in Q3 and Q4. The second one is on the CSM release. There was a sharp pickup in the second quarter, more than 10%. If we can have a guidance for the year. I have a third one, I may, lapse rate in Life moving up in Q2 but inflows were pretty much flat in insurance. So what happened here? Are you incentivizing some kind of exits from D&A savings to move into unit linked? Or what happened to justify these 2 trends?

[Matteo del Fante, executive]

Thank you, Gian Luca. I will give a short overview on the second question and then let Camillo answer more specifically the first and second questions, which are both important for us. We experienced in the first half demand from fixed income higher yield products by our clients in the network. In other words, with fixed income markets providing 3%, 3.5%, 4% revenues, we had to put on the table as soon as we could, mutual funds that could package those bonds for our investors in the easiest way possible. And from there, you see our record net retail collection on mutual funds.

And we were relatively fast but probably not as fast as we could have been on providing the same products with insurance wrapped, which came in the final version at the end of the quarter in June and is showing since then good results. So a portion of the increase in the lapse has move into insurance but there is also a component that has also move into mutual funds. But I'll let Camillo more in detail in...

[Camillo Greco, executive]

Okay. I will start answering with NII. So with respect to the increase quarter-on-quarter have been sort of more in general terms, our portfolio is obviously combined by different branches of business. We have fixed rate. We have fixed [indiscernible]. We have variable rate. We have tax credit and we have deposits in the public administration. So the increased result of different mix evolution of those subcomponents. With respect to what has happened, the first thing that has happened is that the numbers that we had budgeted in terms of short-term rates have been, in a way, not confirmed as we had in our budget 2 cuts in the short term. There was only one cut. So that had a positive impact on the variable portion of our portfolio. And as I think you mentioned, we also refixed in March part of the swap portfolio and that generated around EUR 20 million of incremental NII. With respect to the CSM -- with respect to the CSM release...

[Gian Ferrari, analyst]

Sorry. Camillo, sorry. So you are telling out of EUR 654 million NII in Q2, only EUR 20 million is a non-repeatable component in Q3 and Q4. The rest is recurring. Am I right?

[Camillo Greco, executive]

No, I didn't say that. What I'm saying and I repeat is that we have a portfolio which has fixed and variable. There is a portion of that, which is EUR 20 million but there is also a variable component of the -- there is also a variable component of the portfolio which will progress in line with rates. And on a full year basis, our estimate is that vis-a-vis the EUR 2.3 billion that we gave of total portfolio return for the first, in terms of the budget, we probably will have EUR 100 million more at year-end.

With respect to the -- instead the point about the coverage unit of -- in the CSM release, we expect that to be between 8% and 9% on a full year. We have not given guidance on year-end on CSM. What we said is that we would expect to have a normalized rate in terms of growth around 5%. And based on what we have today, we expect that to be in the area of 3% as a result of the new actions that we have described. What we also confirm is the number at year-end in terms of revenues for the division, which we expect to be in excess of EUR 1.6 billion combined of Life and Protection revenues.

[Giuseppe Esposito, executive]

Next question is from Irene Rossetto at Stifel.

[Irene Rossetto, analyst]

I have one on payments. Could you provide more color on why your revenues and the volume dynamics seem to be much stronger than the one of the market?

[Camillo Greco, executive]

So the question is with respect to the performance of PostePay. As I mentioned in my script, we have a business which is skewed towards nondiscretionary spending, which has been performing well. We also had a continued increase of the usage of our PostePay Evolution card, which I remind the audience are the cards which have an IBAN # associated to that, which now have a stock in excess of [ EUR 10 billion ] and it's continuing to grow. So that I think is the main driver of the performance, together with the increased average transaction value.

[Giuseppe Esposito, executive]

The next question is from Alberto Villa at Intermonte.

[Alberto Villa, analyst]

A couple of questions. One is back on the net inflows dynamics. I understood from the previous answer that there would be a return to a more normalized level of contribution coming from the different segments. But I was wondering if you still expect, also in the second half of the year, a strong contribution to net inflows coming from the asset management and if you have a sort of a target for the full year 2024 in terms of net inflows for the asset management.

Related to that on the Postal Savings, if you have any comment on the dynamics we can expect on the second half, would be helpful. And on the margins on the Life products, we have had many of your competitors that decreased the commissions on Life insurance to, let's say, propel inflows in a period of outflows. Did you have any change in your way of charging commissions on your life products in line with the rest of the industry or this is not the case for Poste?

[Matteo del Fante, executive]

Thank you, Alberto. Let me just do a add-on Alberto's question, if I may. Camillo's point on the Postepay Evolution is a key element of our strategy, having reached 10 million cards, these are cards that are paid by clients to the owner. And there is a very large portion of the 10.2 million cards issued that are replacing a current account. So they are current account light, given they have a IBAN code and those are the cards that are showing the biggest increase in terms of volumes and those are the cards that are allowing us today to grow more than the market.

In terms of Alberto's question, I would take the Postal Savings, and I'll let Camillo for the net inflows and the margin on the Life products. Postal Savings, we had a very solid first half. There is usually a strong half 2 seasonality in Postal Savings business, starting with a very strong August. So the fact that we did a strong half 1 supported by [indiscernible] product generation and attention to the network and to the investor sensitivities is, we believe, a good sign to achieve our budget and our targets for year-end.

[Camillo Greco, executive]

Okay. So with respect to the question on Poste Vita margin, we have launched a new product, as I mentioned in my script, in July. Those are -- that product has specifically some promotional features apart from the general public and apart for employees. So we expect there is going to be margin -- some margin compression in the product specifically. But overall, our fees in the first 6 months of the year have been more or less stable between 180 basis points to 165 basis points with, being first half 165 basis points above our budget.

With respect to the other question, which was on asset management targets, I think that as both said by the CEO and by myself in the script, we had in the first half of the year where we had heavily biased towards asset management. I think we said, as of March, we are the largest beneficiary of inflows according to [indiscernible], we do expect the second half of the year to have a different trend with greater emphasis on insurance to get closer to our targets and probably a performance more modest on asset management.

[Giuseppe Esposito, executive]

Next question is from Farooq Hanif, JPMorgan.

[Farooq Hanif, analyst]

Can you just explain again the sensitivity of the coverage units in the Life business and how interest rates impact that. So I mean we're still expecting, essentially if macro conditions remain where they are but the [indiscernible] and the lease rate will continue. So just a question around that. Secondly, on NII, I just want to clarify your answer to the previous question, particularly you said it was EUR 100 million higher than budget as this is the run rate of 9 months. I remember your budget, your target is obviously to keep NII percentage flat over the time period.

So if we add the difference to our forecasts, do you expect to still maintain flat or higher NII going forward? And maybe just a very quick clarification also on the lump fund that you're paying. Can I just confirm that this is kind of a one-off lump sum came in September and there are no more expected in the planned period.

[Matteo del Fante, executive]

Okay. Okay. I'll start with the last one. Yes, is EUR 1,000 paid on the 1st of September and it covers basically 8 months of -- sorry, 12 months of 2024 and 8 months of 2025. And on the second -- on the first and second question.

[Camillo Greco, executive]

Okay. I'll start with NII. So what we had in the presentation, in the Capital Markets Day, Page #69. What we had was that we had for 2024 a total portfolio return of around EUR 2.3 billion. EUR 2.3 billion was mainly driven by NII with around [ EUR 60 million ] of capital gain in that amount.

Where we are now is that we are in EUR 2.4 billion area without having a capital gains as the performance of the NII that I just described, is sufficient to increase by EUR 100 million without having need to generate a capital gain on the portfolio. So that is a delta of EUR 100 million. With respect to the question on CSM, I am going to get the right page and answer that one.

Okay. Yes. Farooq, basically, the coverage unit has gone up in the quarter because of increase of interest rate spreads. So it's a technical consequence of the movement of market parameters. So basically, the trend in the next quarter will depend on how interest rates spread will move.

[Farooq Hanif, analyst]

Can I just follow up very quickly on NII. So thanks for that clarification. So you've got that extra EUR 100 million and that's all sustainable. So even the swap refixing is kind of a sustainable amortization. So if we take your EUR 2.5 billion guidance for 2028 and you're changing that as well.

[Camillo Greco, executive]

Okay. So without starting back from [indiscernible] the answer is no. We look at the portfolio as a total return, which is a combination of NII and capital gains. So we moved to this definition in March. So we think about them on an aggregate basis. As mentioned, we benefited from the fact that short-term curve was higher than we expected. We embedded in our plan 2 cuts. There that was 1 by the ECB. At this stage, we are not changing our guidance beyond 2024. However, I remind you and the others on the audience that we had in the slide of my colleague [indiscernible], a sensitivity, specifically, Page #62, I apologize, where in the industrial plan, where you can see that under any scenario, we are capable to perform at least what we committed to back in March.

[Matteo del Fante, executive]

Yes. And if I may add, when we reach or specifically in this quarter, we exceed our targets without using capital gains, it means that basically we are not selling securities that have a capital gain, which means that they have coupons which are higher than the market and create liquidity that we will obviously have to reinvest at lower return. So we are protecting the portfolio for the future. So we should look at our results of NII increase, without capital gain, has a double positive for the actual report, that figure, which is higher than anticipated and for not having use future cash flow from our portfolio.

[Giuseppe Esposito, executive]

Next question is from Michael Huttner with Berenberg.

[Michael Huttner, analyst]

I had 2 questions. One is a little bit complicated. I hope you can follow me and the other one is really, really simple. On the complicated one, so EUR 1.5 billion EBIT in -- adjusted EBIT in the first half, the kind of one-offs I detected or yet to come, whatever, there's EUR 20 million this sort of thing. And then there's EUR 60 million to come, I guess, my estimate from the EUR 1,000 [indiscernible]. So 60% of 1,000 x number of employees. So if I adjust for that, I would get in the second half, EUR 1.4 billion. And I didn't actually see any other negatives talked about.

So I get to a figure of 2.9 or actually just over 2.9. Is there something I'm missing? Or is it just the famous [indiscernible] which is coming through. So I'd be interested in that. And then the second question is really, certainly, you know the EUR 78 million for the insurance fund, would you get to that? And my guess, the answer I'd like to hear is that the Eurovita lapses or profit, whatever is, you're actually going to make a profit on that portfolio. I don't know if you could discuss that.

[Matteo del Fante, executive]

Okay. I'll start with the second question. I mean, we are due to pay EUR 74 million, specifically of -- at the group level as an insurance fund at year-end, which will directly impact our net income and it was already embedded in our connecting platform plans of last March. The link of what we will get with that fund with Eurovita, Michael, cannot -- is not possible in the sense that we're committing the resources of the fund and then the regulator will make decision on the collective amount of funds that all insurance and financial intermediaries have to commit.

If you ask the question, how is Eurovita legacy portfolio progressing? I can update you and tell you that it's progressing very well. And we are not -- we have no reason to register an impairment on the initial investment we made, which is short of EUR 50 million, have basically taken control of those networks that have been allocated to Poste Italiane in the back of its 20% plus stake in the [ new co ], saying whether this is going to be a capital gain at the end of the plan, I think, is very premature.

On the complicated question, there is probably a very easy answer, not to disappoint you but we do last quarter nonordinary personnel, how do you say, adjustments. So contribution, contribution. So you cannot basically extrapolate the 6 months or the 9 months into the 12 because the last quarter is, by construction weaker because it's a quarter where we have always made our annual contribution to the nonordinary HR costs and is a one-off Q4.

[Giuseppe Esposito, executive]

Next question is from Elena Perini, Banca IMI.

[Elena Perini, analyst]

Actually, I've got only one left, which is about your combined ratio, which had a very strong improvement in the first half of this year compared to the first half of 2023, 83% from 88%. Can you elaborate a bit on this improvement? And can we consider the 83% as a normalized level going forward because it is a very important point also for the support of the Protection revenues.

[Matteo del Fante, executive]

Okay. I'll let Camillo answer. But the level already of half 1 of 2023 of 88% was extremely good and Camillo will tell you what will happen in the second half, please, Camillo.

[Camillo Greco, executive]

Well, what will happen in the second half is that we confirm the target of 85% for full year. We have had -- we started to, obviously, benefit of the contribution of net insurance, which I reminded and we consolidate net from the 1st of April 2023. So there is the -- there are 3 months in the first 6 months of 2024 that are not reconsolidated, the dynamics of -- the dynamics of the loss ratio of net are different and as you know, played in that level but we confirm 85% for full year, which is the number we have budgeted in fair value and shared back in March.

[Giuseppe Esposito, executive]

Next question from Manuela Meroni, Banca IMI as well.

[Manuela Meroni, analyst]

I have a follow-up on the NII. You are guiding for EUR 2.4 billion in 2024, that means approximately EUR 100 million lower NII in the second half compared with the first half. So I'm wondering when you expect the NII to start declining. So can we expect stabilization in the third quarter and then a decline in the fourth quarter or you are expecting a different trend?

The second question is another follow-up on the new labor agreement. Should we expect some one-off costs in 2024 related to the lump sum of EUR 1,000 in the third quarter or this is already embedded in the, let's say, ordinary staff cost. And I also wondering if we may expect a material increase of the cost of staff in the second half compared with the first half also considering that the HR cost, that their FTE has already increased by 4.7% in the first half compared with last year. The third question is on the energy business. The antitrust asked you to open your postal offices excluded from the Polis project to other players in the gas and power sector. So I'm wondering if you expect any material effect on your target for the business. And any color you can provide would be helpful. And last question on Mail business. I'm wondering if you are expecting any repricing action in the second half of 2024. And what is the potential effect?

[Matteo del Fante, executive]

Thank you, Manuela. I will answer the second, the third and fourth and let Camillo focus on the NII, which seems to be top of everybody's agenda. On the labor agreement, no, there is no one-off to be expected in Q3 or Q4, it's already embedded in our forecast and no specific increase versus labor cost of Q2 and Q1. On energy, yes, I mean, the latest document from the antitrust has, to a large extent, softened the obligations versus the initial position taken versus Poste. So obviously, we are going to collaborate in the rest of 2024 but not worried nor anticipating any impact on our business production and business activities in energy.

On Mail business, no, unfortunately, we are not anticipating any specific one-off universal service repricing which will not be possible in 2024. The first universal service window to be repriced is 2021, March specifically. There is an ongoing repricing on the non-universal service on the private side, which will keep taking place at the pace you have seen over the last 2 years. And that's, I think, if I want to make an estimate, 50% of the increase overall. Bear in mind that the first half of 2024, we benefited from the comparison with the first half of 2023, which was before the Universal Service increase of 1st July of 2023. So second half of 2024, the mail increase will not be of the same magnitude of the first half of 2021 -- 2024, obviously. Please, Camillo.

[Camillo Greco, executive]

So yes, with respect to NII, it's the third question. So I'll repeat it once and for all, hopefully. So we had EUR 2.3 billion expected for 2024. I want to clarify, first of all, the EUR 2.3 billion is an interval of EUR 100 million overall because [ EUR 2.251 billion, EUR 2.349 billion ], and we are taking it now to [ EUR 2.4 billion ]. So if you look at the sort of the lower end of the initial range, and you took the -- take the upper end of the new range, there's EUR 200 million, if you wanted to also look at that, point #1.

Point #2, we said in those EUR 2.3 billion, there were around EUR 50 million of capital gains, we are telling you we are not planning to do any incremental capital gain. The third thing I'll say that I didn't say before instead is that we had an overall expected yield on the portfolio for 2024 of around 260 basis points, net of costs, okay? So net of cost of funding. We're now looking at a level, which is around 15 basis points -- 15 to 20 basis points incremental to that. And what I'd also say is that to the extent that the rates will go down because ECB decides to cut rate vis-a-vis the 2 that we have embedded in the regional plans that will have an impact on the NII in the second half but because we have the next 3 weeks in September for the variable portfolio.

But irrespective of that, we are very confident we're going to make at least EUR 2.4 billion of total return on the portfolio, which is going to be, at this point, entirely driven by NII with an incremental capital gain.

[Giuseppe Esposito, executive]

There's no further questions. Thank you very much.

[Matteo del Fante, executive]

Thank you, everybody, for taking the time. And obviously, we are all available, starting with Giuseppe Esposito, our Head of Investor Relations. Thanks again.