Poste Italiane SpA

MIL:PST

Earnings Call Analysis

Record EBITDA and Revenues for Omnichannel Leader

The company stayed on course with its guidance, reporting EUR 1.4 billion in annual revenues amidst challenging market conditions. Particularly notable was the 59% surge in protection gross written premiums (GWP) to EUR 809 million, propelling non-life net revenues up by 35% for the year. The full year 2023 earnings before interest and taxes (EBIT) of EUR 1.36 billion matched guidance. The Payment and Mobile division had a stellar year, with both revenues and EBIT climbing 28% and 16% respectively, driven by robust growth in card payment revenues and a successful expansion in the energy business. Record earnings before interest, taxes, depreciation, and amortization (EBITDA) reached EUR 2.62 billion in 2023, solidifying the company's position as a leading omnichannel platform in Italy.

Poste Italiane Exceeds Expectations and Optimizes Performance Amidst Challenges

Undeterred by the demanding market conditions in 2023, Poste Italiane's deft management led to surpassing its sustainable targets and previous guidance. The company impressively increased its revenue by over 5%, raking in nearly €12 billion. This, combined with a strategic approach to controlling costs, culminated in an operating profit (EBIT) of €2.62 billion, a figure that notably more than doubles the EBIT of 2018. This financial prowess is also reflected in a substantial 22% yearly growth of the earnings per share (EPS), which advanced to $1.48, signifying robust profitability and operational success.

Strategic Cost Management Amidst Growth Initiatives

The top-line growth was balanced with shrewd cost discipline, accounting for a total expense of €9.4 billion. This was significantly influenced by proactive measures to counter inflationary pressures, reinforcing the company's commitment to growth while ensuring sustainability of its business operations.

Diversification and Innovation as Cornerstones of Success

The resilience of Poste Italiane's various business segments stems from its diversified model. The parcel and distribution division notably achieved breakeven ahead of guidance, illustrating improved operational efficiency and productivity. Financial services, including insurance services, bolstered quarterly and annual revenues by harnessing postal saving fees and the net interest income (NII) which benefited from higher interest rates. The innovation in Payments and Mobile Services experienced double-digit growth, thanks mainly to the increase in card usage and leadership in e-commerce payments. The energy sector's surge, with over 500,000 contracts, exemplifies the company's capacity for growth and the lucrative integration of new services, promising continued revenue enhancement.

Historical Dividend Increase Reflecting Financial Strength

In a testament to its robust financial health and a clear strategic vision for cash and capital generation, Poste Italiane has announced an upgraded dividend per share of $0.80 for 2023. This represents a 23% year-on-year increase and indicates over €1 billion in shareholder distribution, showcasing the company’s generous and consistent return to its shareholders. The long-term growth in dividend payout, at an annualized rate of 11% since 2016, also underscores the company's commitment to creating sustained shareholder value.

Delivering on the Operational Frontline

On an operational level, mail revenue reached upwards of €2 billion, a slight increase driven by effective pricing strategies and a superior product mix. Parcel revenues stood firm at €1.4 billion, with volume growth compensating for certain reduced contributions from other sectors. Simultaneously, the company successfully mitigated potential losses and remained perceptive to potential future adjustments through temporary measures such as early retirement incentives.

Rising Parcel Volumes and Strategic Pricing Decisions

Parcel volumes showcased an upward trajectory, growing by 7% over the full year, underpinned by a thriving B2C segment. Strategic pricing adjustments ensured the revenue impact of lower-margin products was offset by volume growth and optimized tariff structures. This adaptability in pricing saw an increase by 6% over the year, assisting in maintaining revenue amidst an industry-wide decline in lower margin mail items.

Financial Services: The Backbone of Revenue Growth

The financial services arm of Poste Italiane witnessed a 6% annual revenue growth to €6.1 billion. This impressive stride was fueled by the increase in NII, which was up 17% for the year. Translating to €2.2 billion, this surge was predominantly enabled by favorable interest rates, stability in retail deposits, and cost-effective funding. Moreover, transaction banking, despite the impacts of repricing, held stable at €764 million for the year owing to compensatory growth in other banking fees.

Asset Management Flourishes Despite Distribution Cost Impacts

The asset management division delivered a notable performance by recording a 21% revenue uplift to €144 million in 2023, powered chiefly by strong net inflows. However, the earnings before interest and taxes (EBIT) slightly declined by 3%, influenced by the distributional cost allocations, highlighting a minor dent amidst an otherwise lucrative year.

Accelerated Asset Growth Reflecting Customer Confidence

Reaffirming investor confidence, Total Financial Assets (TFAs) rose by €5 billion, reaching €181 billion in 2023. The retail sector showcased resilient net inflows despite adverse market conditions, and the uptick in demand for capital-guaranteed products amplified the insurance net inflows to €3.4 billion. The continuous draw of retail deposits at €57 billion and an ascent in mutual fund inflows by €2.4 billion encapsulate the strong footing and customer loyalty Poste Italiane commands.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone, and welcome to Poste ltaliane Fourth Quarter and Full Year 2023 Results Conference Call. Matteo Del Fante, our CEO, will take you through some operating remarks, and then Camillo Greco, our CFO, will cover the financials. This will be followed by a Q&A session [Operator Instructions] And with that, over to you Matteo.

[Matteo del Fante, executive]

Good morning, and thank you for joining us today. I will walk you through our results in 2023. Substantially over delivering on 2024 sustainable targets as well as on our guidance given to the market in March 2023. Poste ltaliane has been able to generate sustainable profitability even in complex environment, thanks to its well-diversified and resilient business model. We have delivered a revenue increase of over 5% year-on-year, nearing EUR 12 billion, alongside a record 2023 operating profit of EUR 2.62 billion, more than doubling 2018 EBIT. We have also approached breakeven our main part and distribution division ahead of guidance, our key ambitions since the start of our journey back in 2017. TSA inflows from our loyal retail client base remained positive in a very challenging year for the foreign industry. 2023 net profit is at EUR 1.9 billion, corresponding to an earnings per share of $1.48, up a remarkable 22% year-on-year. This strong results allow us to propose a dividend per share of $0.80, up 23% year-on-year and equal to over EUR 1 billion cash distributed to our shareholders. Let's move to the financials on Slide 4. In 2023, the top line came in EUR 12 billion, up expenses to support business growth. Total costs came in at EUR 9.4 billion, thanks to actions to mitigate inflation impact. Our best ever operating profitability of EUR 2.62 billion -- [Audio Gap]Cost discipline. Finally, net profit at EUR 1.9 billion is up EUR 22.1 million year-on-year where you can see the healthy underlying revenue progression across business lines. In main parcel and distribution revenues were ahead of guidance, thanks to main repricing of setting volume decline as well as growing parcel volumes. In Financial Services, revenues were up in the quarter and full year boosted by postal saving fees and NII. Insurance Services revenues were in line with guidance with the year-on-year comparison impacted by specific items within 2022 results, which Camillo will comment on later. Nevertheless, there is no doubt that 2023 has been a strong year for our insurance business with positive net flows, outpacing a challenging market environment and keeping our lapse rate well above --[Audio Gap] To grow double digit, benefiting from continued increase in card usage, our leadership in e-commerce payments and higher exposure to nondiscretionary spending compared to our peers. Our energy business is up and running with more than 500,000 contracts signed to date, materially outpacing our original plan. The successful integration of lease is also supporting the positive progression of revenues. Let's go to Slide 6, EBIT evolution by segment. Main Pass distribution shows a materially improved operating in profitability, and I'm pleased to say that the division is finally at breakeven for the full year ahead of our guidance, which is something that we have always stated to be a priority for the group as a whole. Looking at the future, we're now entering another chapter where we will further invest to generate growth across the logistics value chain and in the new businesses, such as Covid logistics and cross-border e-commerce deliveries. In Financial Services, the resilience operating progression continue to be mostly driven by NII increase, supported by higher interest rates, stable retail deposits and low cost of funding. In addition, we have fully achieved our 2023 guidance on postal saving fees, thanks to a very strong commercial performance. Insurance Services EBIT is in line with our plan, mirroring the revenue dynamics I just described. Payment and Mobile, constant double-digit growth is driven by a strong revenue trend more than compensating energy business start-up costs. Moving to Slide 7. The excellent performance I've just described enabled us to propose a dividend per share of $0.80 for the full year 2023, materially upgrading our most recent guidance of $0.71 and up 23% year-on-year. We will be distributing more than EUR 1 billion to our shareholders associated on 2023 results. The dividend upgrade is driven by strong financial performance and increased visibility on cash and capital generation. Our proven business model leverages on diversification and a fortress capital position. With the balance of the 2023 dividend we plan to pay in June, we will have distributed around EUR 6 billion to our shareholders since listing with a dividend per share growing at an annualized rate of 11% since 2016. Let's move to a more detailed overview of the financials with Camillo Greco, our CFO. Over to you, Camillo.

[Camillo Greco, executive]

Thank you, Matteo, and good morning to everyone. Let's start on Slide 9 with Mail, Parcel & Distribution, where segment revenues grew 3%, reaching EUR 3.7 billion in 2023. Mail revenues at over EUR 2 billion was slightly up for the full year and ahead of our guidance, thanks to ongoing repricing actions and a favorable product mix. Parcel revenues were flat at EUR 1.4 billion with increasing volumes compensating the reduced contribution from the Covid Logistics mandate as well as the sennder Italia, the consolidation and other one-off items. Adjusting for these items, passive revenues are up 6% in Q4 and 4% in the full year. Strong commercial trends have led to increased distribution revenues in both the last quarter and full year 2023. As Matteo anticipated, we have brought the main partner and distribution division to a full year breakeven compared to our guidance of minus EUR 0.1 billion loss, thanks to a positive commercial performance and effective cost management. As a reminder, 2023 EBIT was impacted by one-off items such as the extraordinary bonus for our employees of around EUR 133 million and the capital gain on sennder for EUR 109 million. We also took a conservative stand on early retirement incentives to retain some flexibility going forward, booking EUR 171 million compared to EUR 76 million in 2022. Let's look at volumes and tariff on Slide #10. Parcel volumes further accelerated in the quarter, up 12% and 7% in the full year, supported by healthy B2C growth. Looking at pricing, the slight reduction in parcel tariffs in the full year is related to increasing volumes with lower pricing and subsequently lower unit costs, mainly inbound volumes from China and secondhand products, which have a higher use of PUDOs. Moving to mail. Continuous repricing actions, coupled with the favorable product mix have offset the structural decline in lower margin and recorded items. Tariffs increased by 4% in Q4 and by 6% in the full year. Moving to Financial Services on Slide #11. Gross revenues for the year were up 6% to almost EUR 6.1 billion, mostly driven by NII and a strong commercial performance, particularly in postal service in the fourth quarter. Net interest income came at EUR 2.2 billion for the full year, up 17% and EUR 469 million in Q4, up 8%. This was supported by higher interest rates, stable retail deposits and lower-than-planned cost of funding. Postal saving distribution fees amounted to EUR 538 million in Q4, up 34% and to over EUR 1.7 billion in the full year, in line with our guidance on the back of a strong commercial performance in the final quarter and amended 2023 agreement with CDP to take into account the different interest rate environment. In Q4, transaction banking fees were impacted by lower current account repricing applied from April 2023, leading to EUR 190 million in revenues, down 9% in the quarter, but stable for the full year at EUR 764 million, supported by the growth of other banking services fees, compensating the reduction in payment slip fees. Asset Management delivered another positive result reaching EUR 144 million revenues in 2023, up 21%, supported by strong net inflows. Finally, EBIT came in at EUR 153 million for the full year, down 3%, impacted by nonproportional location of distribution costs. Moving to Slide #12. 2023 TFAs reached EUR 181 billion, up 5% -- sorry, up EUR 5 billion since the end of 2022, supported by retail net inflows in a challenging environment and positive market effect. Let's look at each component. Postal saving outflows improved by EUR 11.1 billion in 2022 to EUR 7.2 billion in 2023, thanks to the revamped poster book term deposit offer with EUR 8 billion in new liquidity raised through our Super Smart offer, a positive interest accrual effect further mitigated the outflows by EUR 4.9 billion. Insurance net inflows were at EUR 3.4 billion in 2023, with the product mix mirroring customers' increased demand for capital guaranteed products. We significantly outperformed the market in 2023, a year that saw life insurance reporting significant outflows. Retail deposits were stable at EUR 57 billion, confirming the stickiness and loyalty of our customer base with assets under custody increasing by EUR 2.6 billion in 2023. Mutual funds recorded strong net inflows at EUR 2.4 billion. Moving to Slide 13. We have restated last year's Q4 figures according to IFRS 17 standards, leading to an unfair life revenues comparison year-on-year, which we already anticipated. In particular, 2022 benefited from volatile components arising from a sharp increase in interest rates, resulting in a higher additional CSM release. Revenues amounted to EUR 425 million in Q4 and to EUR 1.4 billion for the full year, in line with our guidance. We continue to have positive net inflows in Q4 with a lapse rate of 4.3%, less than half the market average in a tough environment for life insurance investment products. CSM release was EUR 1.3 billion with CSM stock after release at EUR 13.7 billion. Non-Life net revenues were up 35% in the full year, supported by higher GWP in protection and net insurance consolidation, which represents an enabler to accelerate the growth of our protection business. In fact, protection GWP were up 59% to EUR 188 million in Q4 and up 59% to EUR 809 million in the full year, of which EUR 191 million from net insurance. Combined ratio was at 84% for the full year, in line with our guidance of below 88%. Full year 2023 EBIT of EUR 1.36 billion is in line with our guidance. Let me remind you that stated 2022 EBIT pre IFRS 17 adoption was EUR 1.35 billion. On Slide 14, we show the CSM evolution in 2023. Normalized CSM growth stood at 5% with positive contribution from new business and expected return more than compensating the yearly release. Group CSM at the end of the year was at EUR 13.7 billion, providing strong visibility on the division's sustainable profitability going forward. Let's look at solvency ratio evolution on Slide #15. Poste Vita Group's Solvency II landed at 3.5%, up 53 percentage points since Q3 and well above the managerial ambition of circa 200% through the cycle. The improvement was mainly related to the positive impact from economic variances due to the decline in interest rates and BTP spread in the last quarter. Capital generation continues to positively contribute to the Solvency II ratio with 7 percentage points, and we have already accrued the foreseeable dividend to be paid to the parent company based on a 75% remittance ratio, which was increased from 50% at the end of Q1. Solvency II ratio continues to be strong and is currently between 290 and 3.5%. Moving to Payment and Mobile on Slide #16. 2023 is yet another positive year for the division. Both revenues and EBIT grew 12% in Q4 to EUR 399 million and EUR 122 million, respectively. Let me remind you that Q4 comparison with 2022 is on a like-for-like basis as lease was consolidated from September 2022. Revenues for the full year grew at a remarkable 28%, reaching over EUR 1.4 billion in 2023. Looking at the details. Card payment revenues continue to grow double digit by 11% to EUR 198 million in the quarter and 23% in 2023 to EUR 717 million. Other payments grew 8% in the quarter and 63% for the full year, mainly driven by increased payment transactions directly managed by Poste Italiane as a payment service provider. Telco revenues grew 2% in Q4 and 4% in the full year 2023, supported by the fiber offer. Finally, our new energy business has been successfully growing with over 100,000 contracts signed since launch, above our guidance for the full year 2023. From this quarter onwards, we will show energy revenues net of commodity prices, dispatch and pass-through charges as we believe this provides a better representation of the underlying business trends. Energy net revenues amounted to EUR 17 million in 2023, with gross revenues at EUR 157 million. Yet again, thanks to strong revenue growth, EBIT reached a record high level, growing 16% to EUR 440 million in 2023. On Slide #17, we look at our workforce evolution. Since December 2022, the average headcount decreased to around 119,000, including M&A as we continue to renew our workforce with 7,000 new hires in the year. HR cost per FTE are up nearly 4% year-on-year to EUR 44,700 related to planned salary increases and commercial incentives, but the value-added per FTE is growing at a faster rate of over 9% year-on-year at over EUR 81,000 per FTE. Moving to group HR costs on Slide #18. Before the application of IFRS 17, ordinary share costs were higher year-on-year with increased variable compensation, reflecting the strong commercial results, while continued FTE reductions partially mitigate the planned salary increases. The adoption of IFRS 17, which requires cost borne by insurance services to remunerate the network to be accounted for in CSM and released over the term insurance contracts resulting EUR 473 million lower HR costs on a reported basis in 2023. In 2023, ordinary HR costs on revenues improved from 42% to 41% as a result of revenues growing more than ordinary HR costs. Moving to Slide #19. Excluding the fact of IFRS 17 and net M&A, non-HR cost increased by EUR 178 million in 2023, below our guidance. In particular, culture up EUR 147 million, mainly driven by variable costs, reflecting business growth and EUR 55 million inflation impact. D&A was up EUR 13 million due to higher CapEx. Finally, the businesses that we have acquired contributed EUR 179 million of additional costs. More in general, 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 recap.

[Matteo del Fante, executive]

Thank you, Camillo. As we report record EBITDA at EUR 2.62 billion in 2023, more than doubling since 2017 and revenues up to EUR 12 billion. I can proudly say that in these last 7 years, we have fulfilled our ambition to become Italy's leading omnichannel platform company grounded in our historic principles and values and delivering long-term sustainable profitability and shareholder remuneration. We have also delivered on full year breakeven in net partner distribution ahead of our guidance. For our shareholders, we have delivered 7 years of consecutive dividend increases, underpinned by strong commercial performance, effective cost management and a solid capital position. In this regard, we will be proposing an $0.80 dividend per share for 2023, accounting to over EUR 1 billion in dividends for this year. Poste Italiane reported its best ever EBITDA in 2023 while transforming the company and preparing the company for the future. We will review our past accomplishments and look ahead to 2024 and beyond during our Capital Markets Day on March 20. And I really look forward to seeing you all at our headquarters here in Rome on March 20. Thank you, and Giuseppe Esposito, over to you for the Q&A.

[Operator]

Thank you, Matteo. Let's begin with the Q&A session. [Operator Instructions] The first question we have is from Gianluca Ferrari, Mediobanca.

[Gian Ferrari, analyst]

The first one is on CSM. If I'm not mistaken, the CSM release ratio fell down from more than 10% last year to 8.6% in 2023. So I was wondering what drove this volatility in the release ratio. And also, if you can provide the sensitivities to a 50 basis points decline in interest rates. And the second, and I will limit to two, is if you can provide an update on the renewal of the labor contract, the agreement with CDP and a comment on the antitrust investigation.

[Matteo del Fante, executive]

Okay. Thank you, Luca. I will start from the last question and then let Camillo answer on CSM and sensitivity. Okay. On labor contract is the work that we have opened formally the table already a few weeks ago with the unions and works are moving ahead well and the track record of our relationship with unions hopefully, will allow us to reach the right agreement in the not-too-distant future. And I would say that on a similar note, we are rediscussing our multiyear agreement with CDP and progress have been made, and I'm also confident that we will find a satisfactory agreement in the not-too-distant future. Then I think you asked about antitrust. And if you're referring to the recent inquiry by the antitrust under the move from a couple of competitors in the energy space, I think it's quite clear the case from our side. The basis for the request is a competition law dated 1990. So it's a law of 34 years ago when post offices were clearly very different in terms of activity than today. Today, the public sector component of activity in our post offices is extremely residual compared to the overall activities we perform in the office. But nevertheless, in the next generation, you plan, there is a specific law is the free #59 of 2021, which says that competition law of 1990 should not be applied to the players involved in next-generation new investments. And obviously, we are very involved with the Polys project. So we're clearly in that space. So as usual, we're very market, we decided 3 years ago to enter this market with the agreement of all the regulators and draft energy, telecom regulator and obviously, the government. Because since 2017 when the Italian market started the liberalization process, there have been 7 postponement. And finally, it looks like 2024 is going to be the final year of liberalization. And we think market forces are always positive for final consumers. So we are optimist, but obviously, we will respect the activities of the antitrust authorities.

[Camillo Greco, executive]

Yes. So two answers. The first answer, the release of CSM in 2023 went down as a result of the increased duration of our liabilities in the Poste Vita portfolio. And the second answer on sensitivity on interest rates, I'll give it to you on 100 as opposed to 50 and saying that an upward parallel shift of 100 basis points in the retest curve would provide an additional 14 basis points on the portfolio yield and a decrease of 13% in case of downward parallel shift. And I also say that our effort to continue to solidify visibility on NII has continued throughout the last quarter. And as of now, we have circa 70% of the portfolio at fixed rate.

[Operator]

The next question is from Azzurra Guelfi at Citi.

[Azzurra Guelfi, analyst]

Two questions from me. One on Mail and Parcel and one on dividend. I'll start on the dividend. Dividend has been increased sizably versus the previous guidance and year-on-year. My question is, is it mainly driven because the profitability is better and this is your main driver when you think about your dividend policy, or is it -- like what basically the question is, what are your main driver when you think about dividend? Is it the profitability, the cash flow payout? If you can give us some color on that because that is a welcome surprise from today? The second one is on Mail and Parcel. When we met last time on the third quarter results, you indicated roughly EUR 100 million of early retirement, the early retirement has been higher. And if I clean your mailing parcel from the early retirement and the one-off that you mentioned, the EBIT is actually around EUR 150 million. And this is mostly driven, I guess, from the efficiency, but also on the revenue repricing. What do you think is the next big thing in terms of repricing and movement in the pricing both on Mail and Parcel and the efficiency as well in these two areas?

[Matteo del Fante, executive]

Azzurra, very happy to answer your questions. On dividend, the company back in 2016, '17, if you remember, had a time of privatization a payout policy of 80%. We moved away from a payout because we felt with the first plan in 2018 that there was too much weight on the capital gains, which you remember the time were very relevant on our operating profit results. And we move into fixed dividend with an increase annually that over time has actually been improved. And today, we obviously look at cash flow, and we want to have the highest possible visibility on cash flow of dividend from mainly Poste Vita, obviously, BancoPosta and increasingly also Postepay. That visibility has increased. So the increased visibility on cash flow, together with a higher profitability and a strong capital position because let's not forget that the company has very needed that has pushed us into this decision, which we proposed yesterday to the Board of increasing by 23% over last year, leaving the payout still at a very conservative 53%. So still in areas where we feel we're not pushing the envelope too much. And then on Mail and Parcel, I'll leave it to Camillo.

[Camillo Greco, executive]

Yes. Obviously, it goes without saying that this is going to be -- what we are going to discuss on March 20, say the future of the division. But certainly, with respect to the efforts that have been put in place in 2023, we have had a return of material volumes from China. Amazon has continued to perform well. We have been working with Pluri you remember we acquired last year in growing into medical logistics. So there are a number of things that are progressing in parallel, I should say. Last but not least, we're also doing an effort on international we historically have been less present as a result of our dealing with DHL. So there are a number of things that are happening simultaneously in parallel. I also wanted to make another point on early retirements. We have guided to EUR 100 million being the midpoint of EUR 51 million, EUR 149 million, and we ended up slightly ahead of that just because we felt that it was the right thing to do also in light of the ambitions we have with the plan, but we are in line with that guidance.

[Operator]

Okay. Next question is from Ashik Musaddi of Morgan Stanley. Okay. Then we move to the next one is from Manuela Meroni at Banca Imi.

[Manuela Meroni, analyst]

Yes. The first one is on the NII. Could you provide some qualitative indication on the expected evolution of the NII? I saw that you have increased the duration of your investment portfolio to 5.4 years. So what I would like to understand is the resilience of the return of your investment portfolio also in a declining interest rate scenario and considering that the majority of your investments are at fixed rates. The second question is a follow-up on the previous question and it relates to the renegotiation on the renewal of the labor contract and the agreement with CDP. I'm wondering if you plan to, let's say, close the negotiation or at least have a clear framework of what could be the outcome of the negotiation by the 20th of March.

[Camillo Greco, executive]

Okay. Emmanuel, with respect to the NII. So this year, we ended up at the top end of our guidance of EUR 2.2 billion and a net yield is around 2.44%. And we believe that we have not yet peaked in terms of evolution of the net yield, and we think that going forward, there will be more to come. Obviously, will be discussed in 20 days, but to give you a bit more of a flavor in addition to the 70%, 30% split that we gave in terms of fixed and variable, also say that you might have seen that there is a negative EUR 10 million of capital gain in Q4 in financial services that has to do with the fact that we have continued to prolong the duration of our portfolio were sure we have greater visibility on NII going forward also in the other years of the plan.

[Matteo del Fante, executive]

Yes. And with respect of the timing of the labor contract, I mean they usually take months and we started the negotiation -- the former contract has closed -- has ended legally and technically 31st of December 2023. So my best guess, call it, 90% likelihood that we will not reach an agreement formally by March 20. We don't need to rush if works moving ahead reasonably well and the 7 years of track record of good negotiation with the leadership of the unions, which we still see in progress. But unfortunately, the time frame is too tight to be able to deliver it for that date, which is less than a month at this point down the road. The average back and see contractual vacancy is in 9 months. So being able to sign it in 3 months is basically impossible. As far as the CDP agreement, it's probably easier to have an agreement before the 20th of March. But as we have proven this year taking the market by surprise in the last quarter is ongoing focus that we have with CDP. And so even in that space, I'm not concerned of not finding the right agreement to keep our focus on postal savings there, which we've proven last year and revenues and renovation for our company and our shareholders to come on the back of our focus.

[Operator]

Okay. We try again with Ashik Musaddi at Morgan Stanley.

[Ashik Musaddi, analyst]

Just a couple of questions I have is, first of all, can you just give us some color on insurance growth? I mean, given that flows have started becoming again positive. I mean, you never had outflows, but flows are positive in the guaranteed channel and the whole industry as far as I understand, is improving as well. So can you just give us some color about how you are thinking about the insurance, say, inflows or say, top line growth in the coming quarters? The second question is around NII outlook. I mean, clearly, interest rates have been moving all around. First three quarters last year it was different. Fourth quarter was different. This year is a bit different. So how should we think about modeling the NII would be helpful to know as well. And lastly is, I mean, you touched base on this dividend as well. I mean, first of all, thanks a lot for such a strong growth in dividend, but I just want to see if we can stretch a bit more on that. I mean what needs to happen? I mean, insurance sector is now moving towards a 75% payout ratio. And this is what we have seen for the last, say, 2 weeks, whoever have reported. So what needs to happen for you to consider moving to those levels? I completely agree that I'm being a bit greedy asking this question, especially given the big surprise you have done today, but I still thought I'll ask it.

[Matteo del Fante, executive]

We like bearing questions, Ashik. What does it take? It takes additional visibility, which is basically the next plan. There's nothing more and nothing less than this. In terms of NII outlook, I think Camillo already gave some indication. But let me say that we worked a lot in the last 2 years to give maximum resilience to our NII over the next 3 to 4 years. To the point that today, we're in the position with an outlook on interest rates going slightly down from current levels to have a positive outlook on our NII over the course of the plan, both in terms of average yield and amount of assets. And so the sum of the two obviously makes it an upward NII trend. In terms of insurance growth, Camillo, more or less the output?

[Camillo Greco, executive]

Well, I mean, obviously, we have been investing a lot in P&C also with the acquisition of net insurance. And you might have seen that growth written premium in excess of EUR 800 million for the year. So I think EUR 1 billion is inside. So we expect that the business will continue to grow strongly in that part of the insurance division. And naturally, our leadership in life products, we also will continue to deliver results. I also point out to the fact that as I said in my script, the CSM has increased year-on-year at an annualized growth of 5%, and that's a level that we think that we should target also for the future.

[Operator]

Okay. Next question is from Elena Perini, Banca Imi.

[Elena Perini, analyst]

Yes. I've got 2 questions on the insurance business. The first one is related to your growth in the P&C business. You have a very good combined ratio at the moment around 84%, in line with 2022. Do you expect an increase relating to the expansion of the business? The second question is on your solvency. I would like to know if you have any update on the potential adoption of the internal model? And if the level of the solvency ratio could drive or is driving now the payout ratio to the holding company. If you can elaborate a bit on this because you had a very strong number at the end of 2023, more than 300%. We know about the volatility of the standard formula and I don't know if together with the internal model, there should be more limited movements to the economic variances.

[Matteo del Fante, executive]

Alina. I think most of your questions will go in terms of answers in the plan. So the easy answer would be better with us another 2 or 3 weeks, and we will go into the details of the answers. But I can try to give you a feel. In terms of growth, we're very happy with the P&C growth, which comes, as you have seen also from the consolidation of the acquisition of net insurance and the impact or the non-impact on the combined ratio is -- we don't see any reason for a major change going forward. But we're also aware that 84% is extremely good. So one should be expecting a normalization towards market levels with the business growing over time. Solvency and internal model, we're going very slowly on the internal model because we know that we have found now a good equilibria of ALM and the sensitivity of interest rate has gone down significantly compared to a few years ago. So we will state our position on internal model in our Capital Market Day. Payout is also on the table, it's true. The 305 is clearly a very positive number, and that has an underlying assumption of 75%. So clearly, the question on the table is, can we go above 75%? And all this, again, is something that I believe on the positive will be addressed on the 20th of March.

[Operator]

Okay. We move to the next question is from Farooq Hanif of JPMorgan.

[Farooq Hanif, analyst]

Congratulations on your results today. Just you've kind of answered some of the questions, and you probably won't answer some more. But just looking at maybe another way of asking about cash and dividends is if you kept your current dividend level, just theoretically, it feels like you would accrue positive cash at the Holdco. But this year in 2023, you had, I think, higher CapEx. Just kind of wondering, like at this kind of dividend level, what would -- in a normal way, if you take the fund from operations, your short your dividends on subsidiaries, minus kind of regular CapEx and the and the current dividend. Would you be in a position right now to be accruing surplus cash at this level just as a way of trying to get some insight into your flexibility? And then second question is a very quick one. I mean, I note that you've not really been impacted by a lot of net cap. I was wondering whether why that is in your P&C ratio and whether reinsurance is a problem? Or are you kind of immune because of your business mix and the kind of products you write?

[Matteo del Fante, executive]

I'll take the dividend and Camillo the net cap. I think what you stated is basically the way we look at it. So sustainability in terms of cash as the starting point. And capital is the second element and profitability going forward. So we have a track record now of over-delivering and never being caught by the market with a promise that we then are not able to fulfill. And the last thing we want to do is to make that mistake of overpromising in the words of dividend, which we all know is a disastrous scenario. So we're very cautious. But all in all, on the 20th of March, you will see the final position we will take. There are good reasons to be positive on the topic. From now, if you can bear with us to the 20th of March. Please, Camilo.

[Camillo Greco, executive]

And on the second question, we confirm we don't have exposure to natural catastrophes. And that's driven by the fact that at this point is not a risk we are looking to ensure other than margining directly through net issuance.

[Operator]

Next question is from Alberto Villa, Intermonte.

[Alberto Villa, analyst]

Just a couple of questions from my side. One is on the, let's say launches of new government bonds by the Italian treasury that are draining retail liquidity. I was wondering if there is any sort of impact on your, let's say, saving deposits or deposits in general. I also noticed that you are still doing much better than the rest of the industry in terms of lapse ratio, but we have had an acceleration in the fourth quarter. So I was wondering if there is sort of maybe time lag compared to some of the other insurance players on the Italian market? Or if you expect lapse ratio to remain very much below the rest of the industry going forward? And the second question is a little bit trying to turn around the labor control renewal issue. I was wondering if the one-off you distribute to employees this year in 2023 will maybe allow for a delay in the renegotiation maybe putting forward to 2025, the effect of the renewal of the labor contract.

[Matteo del Fante, executive]

I'll start with the last question. That's not a strategy to delay. We're working with the unions to sign a contract that provides coverage from 1st of January 2024. But certainly, our effort, which I remind you, had also a tax benefit for our colleagues for our employees. So it was equivalent to EUR 1,000 growth, which was a meaningful gesture from the company is giving us less pressure and in a way, is put in the negotiation in good terms. On your first two questions, so the BTP Valor and the lapse, I think we are always back to try to make the market understand that our client base is very different in terms of savings from the banking sector. We have the lower and the less wealthy side of the spectrum. So that means that in terms of the BTP Valor, we are way underexposed or way under involved in the distribution of the BTP Valore than the private sector. If I look more generally at the asset under administration, we have a market share, which is a fraction of the market share we have bank deposit or we have in life insurance. So our clients bring deposits to Poste and it's either postal savings guaranteed by the state or life contracts guaranteed by Poste in Class 1 mainly. And the average ticket of those life savings is, again, less than half of the market. And that also is one regional bettor for the structurally lower, less than 50% last rate than the market. It's not that we are better than our insurance peers. So we've seen PR in a kind of a different market in terms of clients. And that has the consequences of not being able to go have speedy and have aggressively on managed assets, which, as you know, are growing in our space, but are clearly residual compared to capital guaranteed assets. So I hope I managed to leave you a feel.

[Operator]

Okay. Next question is from Gianmarco Bonacina, Equita.

[Gianmarco Bonacina, analyst]

Two questions for me. The first one on Insurance Services. You mentioned the base effect on your performance, the mid-single-digit EBIT decline. Can you quantify what has been the underlying performance, if you were to normalize the base, which maybe could be more, let's say, better indication in terms of forward performance of the insurance EBITDA? The other one is on the Mail and Parcel because it was mentioned before that if you add back the one-offs, so the sennder, the one-off bonus and the early retirement, you would have an EBIT of plus EUR 150 million, even though I guess you will always have some, let say, level of early retirement. Can you maybe give us an indication of what we should expect for the next couple of years if the 2023 level is maybe too high, so maybe it's more in the EUR 100 million region level?

[Matteo del Fante, executive]

Okay. So the first question on CSM. So we have guided, I think, another question to normalized growth of 5%. And I think you should take that as a benchmark also for EBIT evolution in the year ex the impact of the additional release in the 22 include driven or portfolio of inflation-linked bonds. In terms of the "normalized made partner and distribution EBIT", your second question, Gianmarco, you have to bear with us until the 20th of March because there are moving parts, which you mentioned, and it would be difficult for us to say more than this to be entirely honest. The good news is that we got there, at the breakeven that we see a transformation taking place that will allow us to keep growing in the space of parcel with a different business model, which we will explain on the 20th of March. And as we stated in the past, the goal is to stay at the breakeven level in the future, plus or minus and use the time of the plan to finalize the parcel taking over mail process around a breakeven scenario. And then once you have completed that transformation from a mail company into a parcel company, then you are a big boy in the logistic game, and you can start playing in the market. And the next plan is the last step of the child becoming adult in the logistics market of the future.

[Gianmarco Bonacina, analyst]

Just a quick follow-up, if I may. But given that your earlier indication was for EUR 100 million overall the timing, would it be fair to say that this year, EUR 170 million is a little bit, let's say, higher than what should be a normal level?

[Matteo del Fante, executive]

It's premature that $171 million tells you one thing for sure that we had strong results and we had the opportunity to be a bit more conservative and increase the fund at EUR 280 million for this year because we had the room to do it. So it's just confirming, Gianmarco, our conservative approach to our accounts and our business.

[Operator]

Okay. We have one more question from Michael Huttner at Berenberg.

[Michael Huttner, analyst]

Fantastic. Just three numbers questions, and they'll be really quick. If you have an update, if you can, on the Solvency now on the net inflows now. There were EUR 100 million I think, in Q4. And also on the total amount of the fund for early retirement. And I really thank you for listening, it's your business model, it's really lovely to hear and very clear.

[Camillo Greco, executive]

So I think, Michael, you answered the question about the size of our early retirement fund, which is post accrual EUR 171 million, EUR 280 million, so that I got. And then the first question, I'm not sure I got. Just want to get confirmation of what you asked.

[Michael Huttner, analyst]

Just to know the solvency today and also the net inflow trend in year-to-date.

[Camillo Greco, executive]

Okay, sorry. So, yes. So January and February, at least the first weeks of February have been positive and certainly in line with what we will present on March 20th.

[Matteo del Fante, executive]

Yes. Certainly, I can close saying that with the visibility we have today, 29 of February is -- we're closing the first 2 months of the year on a very positive note across segments. But we will give you more evidence, preliminary evidence also of this on the 20th of March. Thank you, everybody, for the time and the attention. Thank you very much.