Please note this event is being recorded. I would like to turn the conference over to Massimiliano Belingheri , Group CEO, and Piergiorgio Bicci, Group CFO. Please go ahead.
Hi. Welcome, everybody, to our full-year result presentation. Thanks for joining us tonight. We'll walk you through the presentation that's been posted online with Giorgio. On page three of the presentation, we have the key highlights of today. Clearly, we report the numbers of a challenging year, but also a year that has shown, in the fourth quarter, the turn of a number of indicators, particularly in the growth of our factoring business in Italy. The reporting net profit is around EUR 250 million. The adjusted net profit is EUR 143 million. Loan growth went up by 5% and 7% in Italy. We had record volumes in Q4, which is the highest quarter in terms of volumes in general, but we reported, overall, the highest volumes on record of new volumes.
The off-balance sheet reserves have grown significantly since June, despite the accrual that's driven by the fact that collections have been relatively low this year compared to historical, due to the focus of the team on the reclassification of the past year. Liquidity remains plentiful. We have a loan-to-deposit ratio of 69% and continue to gather deposits nicely. Capital also is at good levels, 12.2%, which is above the dividend capital target, and the total capital ratio is 15.1%, both above the SREP ratio. We've increased significantly our CET1 year-on-year by over EUR 200 million, driven by the reclassification of the change in estimate on the LPI and €40 and the retention of earnings. We are fully compliant with the relevant requirements, which have been in place since the 1st of January of this year.
In terms of past due, we report a significant decline of the past due portfolio, as classified in June, and a reduction of over EUR 80 million, 19%, of the so-called contagion invoices in the second half of last year. That's important because, as you remember, we redid the classification on the June numbers, but only in August. And so this is actually the performance of the business over a shorter period than the six months of the second half of the year. The overall level of past due is at EUR 1.7 billion, which is nearly flat, due to the fact that the contagion effect on new receivable is still there, that will disappear, of course, once the contagion invoices get collected. In light of all the above, we have spent, as a management team, as a board, time to review our business plan.
We have an unchanged strategy and outlook for the business, but clearly, we have lost a year due to the reclassification and the focus on the past due on our growth, and we have revised our 2026 targets accordingly. So we expect now an adjusted net profit of approximately EUR 240 million and an RoTE of over 40%, and the cumulated dividends from 2023 to 2026 of over EUR 560 million, of which EUR 183 million we have already paid. This clearly assumes the Bank of Italy lifts its restrictions on our dividends. Other news which are relevant: we received a green light by Bank of Italy for opening our deposit gathering franchise branches. We are waiting for Bank of Greece for any objections and the launch of the deposit gathering activities that were expected at the end of Q1 or at the beginning of Q2.
Importantly, as communicated to the market, we have had, as other banks, a favorable outcome from the European Court of Human Rights towards municipalities in conservatorship, which means that for final judicial sentences , also towards those, the state is ultimately responsible for paying, and that's a strong underpinning of the credit quality of our book. In terms of the LPR, we have received news that the Polish Presidency of the Council of the European Union has prioritized the Late Payment Regulation in its work agenda, and we expect the revision of the guidelines of the Definition of Default by the European Banking Authority by 2025. I'll leave the floor to Giorgio to walk you through the full-year results, and then I'll take over again to walk you through, instead, the key strategic points for the business ahead of us.
Thank you, Max. Good evening to everybody. Now we are at page four of the presentation, and we have our balance sheet that is still a strong balance sheet with a very significant level of ratio that is at 6.3%, and we have maintained our ample funding capacity. The loan book grew year over year by 5%, and the loan-to-deposit ratio is now at 69% compared to 62% of the last year. It's important to highlight that we issued €600 million of senior bond to cover the MREL requirement. At page five, we have the P&L with a good year for the payments and also for the security services. As said before, it was a tough year for the factoring and lending, but the last quarter was an interesting quarter, so the expectation is that we have changed and we restarted our trajectory of growth.
The cost of funding reflects higher interest rates year over year and also the bond issuance. In terms of final result, the result compared to last year is €143 million compared to €183 million of 2023, but in that case, there was also around €19 million of capital gain thanks to the sale of some Italian government bonds. At page six, we have the factoring and lending business, so the interest income is stable, and we increased our SREP profitability with an increase of €61 million in our off-balance sheet reserves compared to June 2024. In terms of result, we suffered in terms of over-recovery for LPIs and also for the €40, but in this case, we have also increased our funds, so the expectation is to restart again during 2025. In terms of KPIs at page seven, as said before, the loan book grew by 5% year over year.
In terms of outstanding, Italy grew by 7% with a very important fourth quarter of 2024. The same occurred also in terms of volumes for Poland, Spain, Greece, and also France. In Spain, we suffered a bit in terms of outstanding because the government injected a significant amount of money in the last weeks of the year in order to repay, so the outstanding declined a bit. But it's very important that if we see quarter by quarter, the comparison between 2024 and 2023, the last quarter was a positive quarter, and in Italy, it was the highest quarter ever in terms of purchases. At page eight, we have the slide on the payments, and it's been confirmed the dynamics that we have seen over the year with an increasing number of transactions, very significant double-digit growth, and with an increase in terms of revenues by 7% year over year.
At page nine, we have the Securities Services with a big step up in terms of assets under deposit and with a growth also in the deposits that grew by 8% year over year thanks to the transfer of customer assets that started in the last quarter of 2020 and 2024. At page 10, we have the slide related to the cost. We maintained our cost discipline, and the increase is mainly related to the investments and also to the new contracts, so the contracts that have been signed for the banking sector in Italy at the end of last year. At page 11, just quick words about our building. Now we are fully all the people in Milan are in Casa BFF, and we made an investment for EUR 72 million, but the value at the moment is EUR 88 million, so with EUR 60 million of overall revaluation.
In the same time, we have sold our ex-previous headquarters in Via Domenichino, and we made an impairment related to our offices in Rome in Via Chianesi. It's important also to highlight that the newest headquarters is LEED Platinum and has been certified, and we have the coverage, photovoltaic coverage panels that can support the 65% of energy needs of the building. In terms of balance sheet, at page 12, we have said that we are stable, we have the right liquidity level. It's important to highlight that the negative carry of our fixed bond is going to decrease, and the expectation is to continue this trajectory also up to 2026, and our yield on floaters is now at 4.08%. At page 13, we have our risk profile.
It is important to highlight that, obviously, the comparison between 2023 and 2024 has been affected by the reclassification of the past due. In terms of late payment and non-performing loans, they are mostly towards public entities, so with no risk in terms of collection, but a delay considering the status of these debtors. It is very important for the municipalities, the sentence that obliged the Italian state to pay the sums due by municipalities in conservatorship. At page 14, we have the capital ratios. As said by Max a few minutes ago, they are above our targets. We are over the 12% in terms of CET1 ratio, and also in terms of total capital ratio, we are above the 15%.
It is important also to highlight that there was a reduction in terms of the RWA density, but on the other end, we had an increase in terms of the operational risk requirement due to the fact that we have added the 2024 year-end result with the step up in terms of with the reporting result, and we have lost the 2021 that was lower in terms of total result of the year. So we are in a good trajectory also on that side. Now I leave the floor again to Max for some important highlights and message about the new challenges that we have and what we have done until now. Thank you.
Thank you, Giorgio. We'll talk about the opportunities we have ahead of us. Certainly, it has been, as we said at the beginning, a complex year, but with the sense of recovery in factoring and lending in Italy and a number of growth enablers that should support the delivery of our revised 2026 targets. We saw already on page seven the recovery of Italy and the changing trends, which bode well for 2025. But importantly, we have launched a number of initiatives to actually help us deliver on the plan ahead. First of all, on page 16, we have reinforced our commercial team in the countries where performance has been less effective last year, so not only a change in leadership, but also a strengthening of our commercial sales force.
And that should support the growth that we have seen in the last few years, years where we've seen in the past moments also of reduction of our loan book and also strong acceleration depending on the dynamic from one side of our customer selling and the public sector paying. So we continue to expect the ability to grow at a 10% plus growth rate going forward. The second important point on page 17 is that the change back to the injunction process in Italy means that we go back to the operations as we were operating before 2020, where we used injunctions to proceed in the recovery of the receivable. As you may remember, we changed at the end of 2020 from injunctions to ordinary legal actions to protect our past due level, and then we also lived through a number of years so that lengthened the judicial process.
And also we entered that period, which then was impacted by COVID, when courts were closed for a period of time. There was a ban on execution on a number of jurisdictions. And clearly, last year, we were also focused very much on the portfolio reclassification. That effect has meant that our overall performance in terms of collection was not as effective as in the past. In the graph that you see, you see what is the collection level, so the LPI and €40 recovered year by year, starting from 2015, I think. We lost the numbers at the bottom. We'll correct that. And you can see in the blue bars our performance pre-2020, and the gray bar post-2020, you can see clearly marked difference in that.
We expect that moving back to injunctions, we should be able to go back to a level of collection over the previous year total LPI recovery cost, which is more in line with the historical long-term norm or also the pre-2020 performance. That's the second major impact on the stronger growth on the commercial side, better execution on collection, and that should drive our P&L result. In terms of balance sheet, on page 18, for the third important point, we expect clearly a reduction of the past due. Confirming our past due strategy as we outlined back in the summer, which is to collect the past and continue to operate normally on the new business. Why?
Factoring classification is linked to mostly the back book, i.e., the so-called contagion invoices, which had generated in the past a contagion of the book, which was at the time present, what we call the front book, and clearly the contagion also on new business. And so what we've seen is that our strategy of focusing on collecting the contagion invoices, continue to collect the front book, and continue to write new business also towards the debtors in past due demonstrates that actually we have a good turnaround, good turnover of our portfolio, and the problem over time should disappear by eliminating the contagion portfolio. How is that? On page 19, you see the numbers. You can see that in the second half of last year, we reduced the past due invoices, which were at EUR 1.7 billion in June, to EUR 790 million in total.
We reduced the contagion invoices from EUR 425 million to EUR 344 million, again, a fairly narrow period of time. As I said at the beginning, we did the full reclassification only with the June numbers presented in August, so let's say we only had September, October, November, and December to execute on our new collection strategy. And that allowed us, notwithstanding that, to actually more than half our original past due exposures. Then the total level of past due has been increased, mostly by the new purchases on debtor in past due and then some debtors that also are routinely coming in past due. So overall, we are at a level which is fairly in line with where we were in June, but with a new portfolio that importantly pushes further down the line any kind of provisioning risk and shows that actually we have a pretty dynamic movement in our portfolio.
Therefore, with the reduction of the contagion portfolio and the contagion effects should disappear, and we should have a significant boost of our capital position. In terms of strategy for the contagion portfolio, on page 20, we will continue to execute on the reduction of the contagion portfolio through using the legal injunction on the remainder of the portfolio, better execution thanks to a stronger team and more settlement agreements with the debtors, and we expect therefore to have a strong declining trend over time. We have potential upside that can materialize. First of all, the expected update of the EBA guidelines, which should happen in July 2025. That's according to the timetable at the approval of the last CRR. We are under discussion on new mitigants and their operational application, and then the positive ruling of the European Court of Human Rights should also help to accelerate collection.
There are a number of upside general factors in our numbers which should help us delivering on the release of capital. Importantly, we always have the option to sell this portfolio when we will be closer to the tender provisioning timing, but in the meantime, we continue to believe that it's the best course of action for us to continue to collect directly this contagion portfolio. In terms of past due, so we have a strategy, and we are delivering on that strategy. Part of the growth in earnings is also expected by the reduction of the negative bond carry portfolio, which are the fixed bond portfolio we have, as mentioned by Giorgio before. And finally, supporting the plan is also a change in the organizational structure that should help driving execution.
We have moved the report of group sales, the group collection in factoring and lending to my direct report. We've moved group factoring operations under technology and process improvement to actually link better our ICT department with the back office. And then Giorgio will take the role on top of his CFO role of being the head of the various countries to focus the business even more on execution and commercial relaunch and the collection improvement. At the same time, we've continued to strengthen our corporate function. We have a new compliance and AML director, which will join by March with a strong experience in a number of international banks, and Michele de la Peña will take a new role as our corporate secretary. So overall, we believe we have a strong team to deliver the updated plan numbers, which you see on page 22.
You can see that actually a lot of them are still where they were in terms of original plan, same return on tangible equity, more equity, a Cost/Income which we expect to be below 40%, and a 12% Core Equity Tier 1. Touch-tone telephone the targets have changed at the adjusted net profit, which we expect now to be in the region of EUR 240 million for EUR 1.27 per share of earnings and accumulated dividends of over EUR 560 million, an amount which is driven by the underperformance compared to the original plan of the business over that period. I conclude on page 23, the main takeaway for today. We clearly focus on a strong recovery in factoring and lending that's driven by the strengthened commercial team and a lot of focus on growth on the Italian international markets.
The move to injunctions in Italy should help us go back to the collection levels of pre-2020 and so get back to a better performance on that front as well. It should also help accelerating the reduction in past due together with the other initiatives to achieve that result. So overall, we've lost one year of growth. We still have a business which is highly profitable compared to our peers and the market with strong growth prospects and strong management teams to deliver it. Thank you.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone telephone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question is from Tommaso Nieddu of Kepler Cheuvreux. Please go ahead.
Hello and good evening. Thank you very much for taking my questions. Just two for me, please. The first one is on the loan portfolio growth. I mean, I do understand you don't provide year-over-year guidance, but I just wanted maybe to get some color on its growth expected this year. In the plan, I mean, we are still at 10% per annum. 2024 has been, let's say, a bit of an exceptional year, but should we expect 2025 to see a rebound of something close to, let's say, 20% and then 10, 12% in 2026 or more growth in 2026? And then the second one is on the average payment time of the public administration. It seems like looking at some market data that the public administration is accelerating their payment time in Italy.
Is it something you are seeing as well, or if not, maybe you can tell us what makes you different than the market? Is it due to public interest rates, regulation? Any help would be highly appreciated. Thank you.
Ladies and gentlemen, please hold the line. The conference will resume shortly. Thank you. Mr. Nieddu, please. Can you ask your question again? Thank you.
Yes, sure. So the first one was on the loan portfolio growth. And yeah, I mean, I know that you don't provide year-over-year guidance, but just maybe to get some color on the growth expected for 2025, because I mean, the plan, we are still at 10% per annum. 2024 has been exceptional. So just to understand 2025, where should we see the number rebound of something close to 20% and then 10-12% in 2026, or the other way around, maybe more growth in 2026? And then the second question was on the average payment time, because it seems that, looking at some market data, that the public administration is accelerating their payment time in Italy. And my question was if it is something you are seeing as well or not, and if not, maybe you can tell us what makes you different than the market.
Yep. On payment time, I always remember the chicken or the egg. If you take the average, not necessarily you get the right distribution, and we don't buy the average. We tend to buy clearly the part of the distribution which is not paid as well as the average. The usual example is I buy fairly little in Lombardy, buy more in Calabria. So we don't see at the moment a huge shift in payment times. If you look at our reported data, one thing always to bear in mind for a business which moves quite a bit in terms of volume and payments, sometimes the point-in-time data does skew the picture a little bit.
So as Giorgio mentioned before, for instance, if you look at our year-end results, you see a strong contraction in loans and receivables in Spain for a business which has actually grown quite a bit over the year and has been building up the portfolio. Then in December, the Spanish government injected 29 billion EUR of cash to try to accelerate payments. Yes, that has an impact on the level of loans we have outstanding at year-end, but not clearly on the average balance for the year. So those are the dynamics also worth mentioning. If you think that the 100 million EUR in Spain that we lost, simply the portfolio would have kept at the same level of last year, that's another two percentage points of growth.
So it gives you a sense of actually that we need to look at the long-term trend targets for us who have access to the monthly data to actually see really where the portfolio is going. Portugal to an extent had the same effect. Going to loan portfolio growth, we don't provide, as you correctly pointed out, targets in terms of intermediate years. And having only two years in front of us, well, at least I give you one year, then I give you the year-by-year target. We're clearly trying to accelerate as much as possible growth, also because the performance that we'll have at year-end 2025 will drive quite a bit of the performance in 2026. We, as indicated always, we try to buy as much as possible in terms of public sector receivable as we can from customers of high quality.
So we don't set our 10% growth target. Usually, we have a higher target, and then we clearly have a long-term target that we achieve or not over a period of years.
Thank you.
The next question is from Simonetta Chiriotti of Mediobanca. Please go ahead.
Hi, good afternoon. The first question is again on volumes. Just to understand if the volumes in the last quarter of the year have a contribution from the new contract that you announced with the nine-month results, so the large contract in Italy that you have announced. And also looking at slide 32, I've seen that there is basically this new segment in Spain in other 249 million of volumes that were not present before. And also in Italy, the other segment picked up in the last quarter of the year. These were tax receivables, if I remember well. So did you start again to buy that kind of assets? Thank you.
Yes. On other years, it's mostly tax receivables and some private sector exposures. We usually have a peak at year-end. When we talk about tax receivables, it's mostly VAT that we buy. In terms of Spain, we bought some tax receivables and a legal claim towards the public sector, which was, I think, partially done already in the nine months of the year.
And the.
Yes, we already had in the nine months the 400 and the amount you see here. 225 instead of 249.
Okay. And the new contract in Italy?
Yes. And yes, you see the effect also of the new contract in Italy, of course.
This is in the NHS segment, not in the public administration, is correct?
Correct.
In Italy?
Yes.
The next question is from Andrea Lisi of Equita. Please go ahead.
Hi. Thank you for taking my questions. The first one is on the dynamic of past due. It is clear what you said, that the stabilization in some way of the past due level was mostly related to the fact that you continue to do new business and there is a lack of contagion also on new business. So also on the basis of what are you experiencing in terms of recovery of the contagion portfolio, if you can in some way provide some color or give us an indication of the timing in which we should reasonably expect to observe a decrease in the stock of past due and consequently a benefit at capital level. The second question is on just if you can.
Ladies and gentlemen, hold the line. We lost the speaker's line again. Apologize. Ladies and gentlemen, the line of the speakers has now been reconnected.
Yeah. I repeat my first question and then I go to the others. As regards the first question, which is on the dynamics of past dues. In particular, I want to ask you if you can provide us a bit more color regarding when should we start to observe an actual decline in the stock of past due due to the real recovery and the end of the current period regarding the contagion portfolio and consequently a capital benefit from a reduction in risk-weighted asset. The second question is just if you can remind me on slide 17, you have shown that you changed over time the collection strategy and you are coming back to the previous one. Just to understand if you can remind us why you have switched from one to the other, which provided worse results in terms of collection.
The other question is obviously, I don't know how much update you can provide us, but if you can provide us some update on the interactions you are having with Bank of Italy? And also just to understand if considering also the focus that Bank of Italy is having on challenger banks, obviously you are really different from the others, but do you think that the 12% threshold for CET1 remains a good level to define the dividend policy? And really last one, if you can provide us a bit more color regarding the NII trend we should expect starting from this year with obviously declining rates, you have this trend of delaying that should in this moment really benefit the NII, and if this coupled with a recovery on volumes should lead to a material growth of an NII that suffered during 2024. Thank you.
I think we got your questions. So maybe in the interest of time and also not to challenge the technology today too much, I'll go through the answers. First of all, on the trend for the reduction of the contagion invoice on page 20, you can see that we have reduced by 20% that portfolio over the space of six months. And that's frankly, first of all, we have to identify it and then start actions on it, focus the team on it, start the injunctions on it. And we haven't seen the full effect. So in half a year, or if you want, even in a quarter, September to December, there's been a reduction which is quite substantial, and we think the trend can continue. On the other questions, it's good always to go back to history, page 17.
We started to use ordinary legal actions because we had agreed with the regulator that would stop the counting of the past due. Then new guidelines came out, which disallowed that, and therefore we moved back to an injunction process, and that's what we are doing now. There's no point for us in having a lengthier, less effective, and more expensive legal process if actually it's not protecting us from the past due. So we are better off actually suing more frequently the debtors and manage the past due in other ways. So that's the reason. In terms of Bank of Italy, we have completed, as we indicated in the press release, what was required to cover the remuneration, credit reclassification, and governance points which were raised by Bank of Italy. So we are waiting for them to come back on the balance.
On capital level, let's maybe go to the capital page. Let's not forget that we had on page 14 a 12% capital target when our RWA were €3 billion, and now on a loan book which has not increased dramatically, it's €5.2 billion, so the fact that we are absorbing significantly more capital for the same level of risk, which is new because of the public sector nature of the exposures, so we don't know what the regulator will decide in terms of SREP levels. In our SREP, we had an indication that we had an add-on for the implementation of the Definition of Default . We clearly now should be fully compliant, but we don't know what will be the outcome of this SREP process when it will be communicated to us, and in terms of net interest income trend, it's mostly driven by clearly the volumes in the business.
We tend to benefit in the first period of the declining interest rate because we have a slight mismatch of duration between assets and liabilities, and remember, we have a pretty significant fixed rate bond book. If you simply take the fixed rate bond book, which is €1 billion, if you have a 1% reduction in interest rate, by definition, our net income goes up by €10 million without much to say. In terms of factoring, reduction in interest rate tends to have a more muted impact. It depends on what is the price, and frankly, with our customers, we tend to benefit when interest rates go down because we usually buy with a fixed commission for a period of time, and the reduction in LPI rate is also deferred by six months.
Okay. Thank you.
The next question is from Manuela Meroni of Intesa Sanpaolo. Please go ahead.
Good evening. A couple of questions on my side. The first one is on your 2026 guidance and wondering if these include also the benefits from the late payment directive review or not, and the second question is on the favorable outcome from the European Court of Human Rights. I'm wondering if these have had some positive impact on your P&L or you expect to have it in the future and if you can quantify it. And then just, let's say, confirmation, when you give your guidance in terms of cumulative dividends up to 2026, you kept unchanged your.
Excuse me, Ms. Meroni, we have lost the speaker's line again. Please hold on. Thank you.
I've already heard the two questions, so that's probably easier for me to answer. The first on the impact of the Late Payment Regulation , no, there's not a single euro included in our numbers because it has not been enacted yet. On the European Court of Human Rights, we haven't booked yet the impact of that event because it was a January event. We communicated in the press release the impact of that particular sentence. What is relevant for us is more on the classification of the municipality's conservatorship and the ultimate risk level there. It's particularly important also because it's likely to prevent those exposures to ever go in kind of provisioning because once we get a final sentence through an injunction, it means that we can then enforce against the state and not wait for the conclusion of the conservatorship process.
For us, that's a good capital impact potentially.
The next question is a follow-up from Simonetta Chiriotti of Mediobanca. Please go ahead.
Yes. Thank you. So going back to the write-down of the past due portfolio, basically, there was a reduction in the contagion invoices, so in the backbook of EUR 80 million in the second half of the year. This amount can be considered a run rate? Can we consider this as a run rate? Or there were some, how to say, low-hanging fruit that were at the beginning of the process, and in 2025, we will have a lower run rate? I mean, any type of comment on the evolution, I think, would be helpful. Thank you.
Yes. I know it would be helpful, but it depends also on our counterparts. This is not down to us as well. I think what is a fact is that we started to have those conversations mostly starting from September. You see actual acceleration from the performance between June and September to September and December in the reduction of the contagion portfolio that's on page 20. Then the ability to collect the contagion portfolio depends on the other side as well being willing to pay. So we don't indicate a trend for that portfolio, but I think it demonstrates the validity of our strategy of actually collecting direct instead of selling that portfolio.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Massimiliano Belingheri and Piergiorgio Bicci for any closing remarks.
Thank you for attending us in our call tonight. Apologies for the technical problems. We have a busy year ahead of us in terms of continuing to grow our business, and we're quite confident on the targets we've given to you and look forward to the continued dialogue over the next quarter. Thank you very much.