UniCredit S.p.A. (UCG) Earnings Call Transcript & Summary

Good afternoon, and good morning to those joining us from across the Atlantic. Welcome to the UniCredit 2021 Strategy Day held in Milan. I'm Magda Palczynska, and I'm the Head of Investor Relations. Over the next 75 minutes or so, Andrea Orcel, our CEO, will present the strategic vision and financial ambitions for UniCredit. We will then take a 15-minute break, after which he and members of our group executive committee will answer questions from our virtual audience. Our Q&A session will last around 90 minutes. At any time during the presentation, you can submit your questions either through the UniCredit Strategy Day app or by e-mailing strategy [email protected]. We will also take questions from our analyst community during the Q&A session live via video or audio. We will end the event at around 3:00 p.m. CET. Before we begin, please note the legal disclaimers in the presentation and press release, both of which are available on the Investor Relations section of the UniCredit website. And a reminder to please make sure you follow the instructions on your invitation for the best viewing experience. Thank you. And without further ado, we'll commence with a video. [Presentation]

Welcome to FUTUREFOCUS, UniCredit Strategy Day 2021. I'm here today to introduce you to the bank we want to build. A bank fit for today, fit for tomorrow and fit for the future. I'm going to talk not just about our plan for the next 3 years. I'm going to talk about our long-term plan to put UniCredit back in the top tier of European banks. That is our ambition. We will move out of a period of retrenchment and restructuring into an era of purpose, growth and value creation. We will build UniCredit into the bank for Europe's future. As we emerge from the initial disruption of the pandemic, we're at a tipping point in our history. It has prompted us to question the way we live and work, how we use technology and the way we treat the planet. Armed with this information, we have the chance to rebuild our economies and societies for the better so that we are stronger than we were before together. And I believe, as I have always believed, that the financial sector has a crucial role to play in this transition. Banks should be deeply embedded in their communities. They should act as engines of individual and collective growth, helping all deliver on their potential. Somewhere along the way, our industry lost sight of that purpose. We lost the trust of the people we're supposed to serve. But it's time to remedy this, to rebuild trust and be the engine of our company's collective progress once again. We can only do that if we're delivering for all our stakeholders. For our shareholders, we have to build a business that is financially strong and successful. The plan I am announcing today should leave no doubt about that, as we announced a return on tangible equity of around 10%, annual net revenue growth of 2% and a distribution of at least EUR 16 billion over '21, '24, in spite of significant investment in our future. We will also galvanize our people, giving them back a business that is growing and winning, a common objective and an environment and teams in which we can flourish. A business that they feel proud to work for, where they have been provided with the tools to really deliver on the -- for their clients. And we will keep our focus on our clients spread across the communities of Europe. They are who we exist to serve. We will ensure we understand them and their expectations, expectations that we're more than financially successful. But we provide the service and support they expect and we have good corporate citizens, too. If we do this, I believe we have everything we need to be the bank for Europe's future. Today, I will talk you through how we are going to optimize the business. The changes required to ensure our people and our banks can deliver together for all our stakeholders. I will then take you through how we need to be set up for our future, focusing on digital data and sustainability. After that, I will share our financials. How we're going to use 3 levers to achieve our ambition. Finally, I will take you through our regions one by one and the action to deliver on our goals. So let's start with what we have to work with UniCredit today. UniCredit is a bank with incredibly strong foundations across Europe in our clients, in our people and in our banks. We have 15 million clients, 14 million in retail where we're strong in the value-accretive affluent sector and 1 million in Corporates with a particular presence in SMEs. For our clients and for our best-in-class partners, we are the gateway to Europe. We have some incredible talent and a truly diverse and multicultural workforce. From management to the network, we are proud that 33% of our leadership team are female. But there is a lot more to do to reach parity, which is our ambition. This workforce reflects and knows the clients we serve. We understand their history, their needs, their challenges and ambitions better than anyone else because they are also our reality. And our institution is built on the strong foundation of 13 local banks. Banks that deliver cross-border payment market share of 2x the intra-country one, that enjoy unmatched heritage and an unmatched, untapped potential. We need to respect our local banks and their unique identities. But we also need to unify them to release the power of this collective, turning them into something much greater than the sum of their parts. But at the moment, we're not capitalizing on these raw ingredients. Our stakeholders, our clients, our employees and our investors are telling us so. In many ways, they are right. I've spoken to many of our different stakeholders in recent months, and some common themes have emerged. We're sometimes confused about what we stand for. There is a sense we have lost sight of our purpose. We're not delivering for clients to the standards we would want. Our employees are not set up to deliver excellence. We like the empowerment within clear guidelines and are often hampered by bureaucracy and internal resistance. We lack a clear strategy for sustainable growth, a clear path to stronger return on tangible equity, and our capital distribution is uncertain and just too low. Our current valuation does not reflect our inherent value and potential, potential that is great, but however, still untapped. These are not issues unique to UniCredit, but resolving them is central to our ability to transform. We need to move out of a period of retrenchment and restructuring into an era of purpose, growth and value creation. This does not require a fundamental change in who we are, just a change in how we go about our business and an investment into our future. [Presentation]

UniCredit Unlocked is our new strategic plan to unleash the potential within this business. It's built on the unique credit you have just seen in that video at its heart of 5 strategic imperatives and a new financial ambition. We will refocus on our regions and develop our client franchise, securing growth from both existing and new clients. Our best-in-class products will be developed in-house and through close partnership with leading providers. We will change our business model, moving to a capital-light business with targeted cost efficiency to fund investment and deliver operating leverage. We will deliver economies of scale from our footprint of 13 banks, empowering our regions to own their business within a clear risk and behavior framework. We will transform our technology with a new operating model that moves core competencies in-house, introducing a new way of working centered around clients, common platforms and common modular development. And we will embed sustainability in all that we do, leading by example in our own business, helping our clients through a just and sustainable transition and contributing towards a better society. We aim to reach a return on tangible equity of around 10% and an annual sustainable distribution totally at least EUR 16 billion between 2021 and 2024. We will deliver this through 3 levers. First, EUR 500 million of absolute cost reduction, net of EUR 600 million investment and EUR 450 million of inflation. Second, we generate organic capital of around 150 basis points per annum from increased profitability and a more capital-efficient model. Third, EUR 1.1 billion of incremental net revenues, mostly driven by fees. This will also mean we will have built the foundations to deliver on our longer-term ambition post 2024 because we view 2024 as just a checkpoint of a much longer journey. [indiscernible] is a new culture. A new way of working. But I want every UniCredit colleague and partner to embrace a culture that puts us back on the front foot, energize and embolden to deliver UniCredit Unlocked. I want us to win for our clients, for our investors and for ourselves. I want us to be proud to be part of UniCredit and to be part of an institution that is committed to success. I want us to win in the right way, putting the values of integrity of ownership and of care at the heart of our decision and everything we do. And I want us to do it together as one team acting as true partners to our different stakeholders. Many of the flows of our industries can come back to these 3 things not acting together in synergy. We must, therefore, cement our shared ambition, taking us from retrenchment to renewal. From a defensive posture to one-off positive sustainable growth. Two principles underpin our strategic plan, a plan to optimize today and want to build for tomorrow. Optimizing today is all about making sure our bank is fit for purpose and that our clients are at the heart of everything we do. Our assets are pan-European, 15 million clients and 87,000 people. It is my job to ensure that we have the right structure in place to connect them to our 13 banks and for region in a unified way across Europe. We're taking action to do this by changing our client segmentation, harmonizing our service model, simplifying our processes, establishing a common organizational structure group-wide and redefining our product factories, so they are best-in-class and deliver for all our clients. So let's move to optimizing today. Our client grouping is currently fragmented across our countries. We have already begun to change the way we segment our clients, approaching it the same way across all geographies and action critical if we are to effectively use data to better power our client delivery. In our corporate business, large, medium and small, we make 46% of our revenues and a healthy RoAC, but we're determined to improve. In Retail, we make 54% of our revenues with a very strong RoAC. These numbers exclude the impact of a group corporate center, but we will continue to compress. We have a unified client view and service model across all our banks, we will be able to respond to the needs of our 15 million clients in a targeted yet cohesive way. Put simply, this means we can ensure every client, whether in Germany or in Croatia, is offered the best products and the same very choice. We cannot serve our clients without our people, but we need to provide the right organizational structure for their benefit. We need a clear line of sight from management to the regions to the local networks so that they can serve their clients in the best possible way. We are moving from a command and control model in which multiple layers and sign-off of decisions are required where, for instance, in Italy, 83,000 decisions are taken by risk each year despite the business being better placed to make them to a model in which our people are trusted and empowered, where we can take ownership of decisions within clear risk and behavior parameters. We streamline processes, second-line controls and the ability to escalate to light steering group were necessary. A model that puts decision-making back where it belongs with the people who know their subjects best. This will unlock the talent within our organization, increasing speed and quality of decision-making. All this is already in flight, and we will accelerate into next year. It is not enough to only fix the framework in which our employees operate. We need to provide our people with a common ambition. We need to cement our purpose, empowering communities to progress. We need our people to have a clear vision of what UniCredit can be and their role in getting us there. We will do this with a new mindset, win the right way together, empowering them to deliver, encouraging an entrepreneurial spirit, so that we all feel part of something bigger. We will galvanize them behind the common objective. We will fully energize our people to on their clients, reinstilling in them a hunger to perform and a pride in this business. We will arm them with the tools to do their jobs to the best of our ability. We will inspire them and establish a collective mindset of ownership and action, focused on best-in-class service, innovation, products and delivery, all within a clear risk and behavior framework. We will take pride in the truly European nature of our bank and of our people and we will reclaim our market share. This work has already started. We have reduced the bureaucracy in our organization and asked our employees to take back ownership of our bank. While there is still a lot of work to do, the results already achieved in 2021 demonstrate that we are moving in the right direction at pace. Our banks are also complex. We have 13 strong individual businesses united not even by name. Our role here is to create 1 bank, much stronger than the sum of the part. We're moving from a complex solid model with a heavy corporate center and fragmented IT support to a simplified empowered organization with a lean corporate center that embeds digital and data across the business. And we are shifting from a bank with 5 business divisions including the Corporate & Investment Bank, but has not been fully focused on all of our clients to 4 coverage regions, Italy, Germany, Central Europe and Eastern Europe, all powered by 2 client agnostic product factories, which will deliver best-in-class products and services to an entire client franchise, our entire client franchise. 13 banks working as well. All 4 regions are critical to our success and have significant potential for improvement. Italy, close to half group revenue with a healthy RoAC of 10%; Germany, more than EUR 4 billion revenues and 7% RoAC with a superior quality of assets and products; Central Europe, EUR 3 billion revenues with a healthy RoAC at 11%; and Eastern Europe, EUR 2 billion in revenues at a strong 13% RoAC. The regional model will fully return client coverage to the banks, strengthening our client partnership. The model will respect the individuality of our local banks while also leveraging the strength that comes with uniting them for the benefit of our clients. Our people will have responsibility and accountability for the decision we make for clients within a clear risk and behavior parameter. And our organization will give our people the tools they need to succeed. Let me move to our product factories. Our product factories are Corporate Solutions at over EUR 5 billion of 2021 revenues and Individual Solutions making up just over EUR 3 billion of 2021 revenues. Together, this constitute close to half of our revenues, which we plan to grow further as part of our capital-light growth strategy. This means 3 things: First, our product shelf will contain a balanced mix of best-in-class solution developed internally or together with partners. Second, we will have a comprehensive offering so we can meet the needs of all of our clients. And third, we will leverage digital and data for a seamless client experience and also integrate our technology platform with partners to provide better service. These will serve all 4 regions. Let's move to Corporate Solutions, which will continue to provide its extensive expertise to our clients. This will now be enhanced and provided to all our 1 million corporate clients across all our regions. Our model is differentiated for a number of reasons. Firstly, we have a large, loyal corporate client base with existing long-standing relationships. We will focus on them. Secondly, we already provide high-quality products that we now need to better leverage. And thirdly, our cross-border positioning allows us to support clients in their trade, transactions and growth ambitions. This will bring advanced solution for corporates across verticals and turbocharge our high-quality revenue stream. In Corporate Solutions, we expect RoAC to improve from 13% this year to 17% in 2024. Advisory and Capital Market is going to grow fast from a low base. We're investing in the creation of top-quality content and advisory products targeted to our client base. Transaction and Payment is the biggest contributor to Corporate Solutions revenues. We will harmonize and enrich our international payments, trade finance and working capital offering, leveraging on our client e-banking portals. Client Risk Management will work on enhancing key execution and digital capability. Finally, specialized lending will increase profitability with an originate to distribute approach, help deploy recovery and resilience funds and support our clients in that transition to a more sustainable future. Our product offering is rich with scalable best practice solution and we are building it out on a trust country basis, responding to the needs of our existing core clients. Let's move to Individual Solutions. The principles behind our model for Individual Solutions are as follows: our model delivers an attractive choice for client. We benefit from the know-how and economies of scales of our best-in-class external partners. Our model involves limited risk taking, especially in insurance. We benefit from share cost with our external partners and IT integration. This is also a model that delivers strong results for all our stakeholders. We have a high retention of the value chain and partner with best-in-class providers. We have targeted scale and leading market share where it counts. For example, we have EUR 800 billion of total financial assets and a market share in Italy in unit-linked life insurance of circa 40%. And we have very high returns from this model, but we are well positioned to maximize. Individual Solution makes a significant contribution to group returns given its extremely high RoAC. Our insurance offering is a core priority. We will now benefit from simplifying our partnership and investing in improving our commercial effectiveness. We expect the strongest growth from protection up 19% per year from a low base as we enhance our product shelf are more specialists and Italy converges to other European markets. Asset management is based on a mix of internal competencies and solution from external partners. Our partners will support us with innovative solution, cash conversion and ESG products. We have an attractive client franchise that we can best serve with a combination of existing offering and that of our chosen partners. These ingredients will ensure higher penetration and will further boost our capital line revenue stream. Integration of our IT platform will enable a seamless client experience. As I said, our plan for UniCredit is not a short-term plan. It is a plan that build on our strong foundation and unlocks the potential of our group. It is also one that paves the way for the future, our future and the future of the clients and communities we serve, one that builds a bank for a long term, a bank for Europe's future. [Presentation]

In practical terms, this means investing EUR 2.8 billion in digital and data over the life of our plan. Our ambition for these areas are bold, and we are committed to executing on them as fast as we are able. Some of our projects are deliverable in the immediate future while others have a longer lead time, but all have our unreserved long-term commitment. But this is a journey. And there is a long road ahead of us. We will commit to being held accountable, and we will provide updates on our progress. We will seek to roll this out as quickly as possible and commit to finishing what we started. We are embarking on 4 key projects: improving the user experience across all devices; boosting our digital offerings such that areas like onboarding have less and less unnecessary manual intervention; driving the payment value chain, starting with a digitized FX offering that is consistent with our clients' day-to-day needs; and continuously strengthening our cybersecurity defenses. We can already see the impact from a number of these pilots. In Germany, smart banking is already rolled out and is a reality for all our 1.5 million mass market clients. 500,000 of them can now interact with an online branch. In Croatia, we launched Smart Invest, a product which leverages relationship bankers by helping profile and recommend investment management options live. This boost sales within a controlled environment, improves client experience and drive efficiency. And in the Czech Republic, we are using an artificial intelligent chatbot for recruiting, improving the quality of our hires and all but eliminating unconscious bias in the process. In Austria, clients are able to access preapproved consumer loans, both remotely and in branch in less than 5 minutes with only 3 steps for the relationship manager. This is about maximizing the innovation in each of one our local markets and partnering between our geographies to learn and share. This is what it means to come together as one to exploit our scale by leveraging best practices across the group. We compare the best of digital from Germany with the artificial intelligence learnings from the Czech Republic, crossing the technological innovation of investment management from Zagreb with a strides made in online customer service in Munich. And this is about investing in our business, in innovation and in the front line where it is needed the most, translating into close to 4,000 new hires over the course of the plan. Our ultimate ambition is to be a truly digital bank, powered by data in all that we do. What we have works. But if we want to progress, it needs to change and be made fit for the future. Digitalization has to be at the heart of our strategy. To do this, we're internalizing what we believe are the necessary core competencies, simplifying and streamlining. We're developing a new way of working where modular and reusable solution can be scaled across the group rather than be limited to each single bank. We will fund this with a higher overall spend that is strategically prioritized. We will organize ourselves through a product lens, creating agile, cross-functional teams dedicated to solving problems for our clients. Once we have cemented the above, we can use data and artificial intelligence to provide a new digital experience. And we will do this, all this whilst maintaining our investment and our commitment to cybersecurity as part of our focus on enhancing resiliency and protecting our companies and clients. We have a highly fragmented infrastructure with different countries relying on different technology setups. The vast majority of our work is done by external providers who add layers of bureaucracy and increase time to market. This also comes at a higher price, on average, 30% more than our internal colleagues. We will take back ownership of our core competencies, hiring product managers and developers into our organization under our control, supervision and risk framework. We are targeting a skilled streamlined workforce more cost efficient and more productive, a workforce that knows when to create products in-house and is able to do so and went to pick from the very best of our partners offering. This will reduce our reliance on high-cost external by 2/3 out to 2024. Currently, our way of working is in silos with each country developing products from scratch with limited reusability across the group. We want this enhanced team to work in a different way. We will reorganize into 3 global platforms: technology, data and business. These will be responsible for the overarching group technology development, and the countries will deliver the last mile products tailored to their requirement, but coherent with group architecture. In this way, product development can benefit from learnings in other countries as opposed to being built from scratch each and every time. This will enable us to deliver high-quality solution faster for our clients. So how do we do this? Currently, our IT expenditure is spread across an internal and an external workforce. We're going to direct our higher digital spend on internalized lower cost, higher output colleagues with the skill set we need. Secondly, we will better direct and prioritize the spend, leveraging the benefits of scale. And by centralizing the many contracts that we currently have in place, we can unlock significant buying power. We will have a digital and data strategy that befits a global organization like ours. Our new model will bring the function out of the historical silos and move to a product-based approach that leverages common platforms. One example of this is the mortgage offering. In Italy, we have 17 different steps and teams required to approve a mortgage. We are determined to simplify this process and are in flight to do so. Once this is done, we can digitize and replicate across the group. Another example is in Consumer Finance in Italy, which we piloted to great success last summer. We put a small cross-functional team together for 8 weeks. In that time, we launched the first end-to-end PSD2 enabled platform for new bank customers, giving us confidence that this way of working can and will be scaled. Data is where banks lose versus fintechs and this needs to change. Whilst fintechs have led in terms of technological advancement, incumbent banks have something fintech don't have, something you can't buy. Client relationships and experience, relationships we bring with them a pool of deep reach untapped data from years of working closely together with our clients. If banks can find a way to develop their technology, leverage their financial expertise and really understand how they can and should use their data, the opportunities are endless. We're no different in this respect. We do need to use our data more intelligently. With 15 million clients comes a huge amount of data. We should know our clients much better. And we will. We intend to offer a personalized service focused on behavioral choices and engagement at scale. Our banking will become simple with straight-through processing journey design. We will develop a global data platform powering broad and real-time data accessibility in the coming years. So we can provide smarter products and provide value-added services. We will be proactive, anticipating needs and focusing on data-driven advisory. And we will internalize the development and management of core data and artificial intelligence capability so that we can make decisions more quickly and more intelligently. We cannot be a bank for the future, a bank that wins in the right way together without a commitment to sustainability and a passion for investing in and supporting the communities within which we operate. This will be embedded in our culture and at the heart of all that we do. What does this mean in practice? It means holding ourselves to the same standards that we seek from our clients. It means demonstrating real, measurable, tangible actions and results such as reducing our greenhouse gas emission by 60% since 2008, targeting net-zero by 2030. 79% of the energy used on our premises is renewable. And we're targeting no single-use plastic items in our buildings by the end of 2022. We've contributed more than EUR 40 million to corporate citizenship and philanthropic initiatives and to the education of 100,000 young people, and this is far from being enough. We will invest EUR 100 million to ensuring equal gender pay, which means equal pay for equal jobs. As well as practicing what we preach in our bank, we will help our clients and communities to be more sustainable. This will inform all our choices from who we partner with to deliver aligned environmental and social goals, to how we mobilize capital and set targets to foster sustainable development. To that end, we have established an ESG advisory model for Corporates and Individuals to finance innovation for the environmental transition, partnering with key players to enrich and improve ESG offering across sectors. We've also developed strategic projects with key partners for specific social challenges. These cover job inclusion and female empowerment, financial literacy, entrepreneurial skills and basic education for vulnerable categories. Some examples include wind power energy, which focuses on the retraining of miners in Romania and start up your life, a used financial education program in Italy. Navigating this transition is a key part of empowering communities to progress. Our financial goals. UniCredit Unlocked is about creating a bank that is financially strong and successful. When this happens, we will win for all stakeholders and fulfill our purpose of empowering communities to progress. This is unlocking the true potential of UniCredit. [Presentation]

We have already started on this journey. Our clients are now grouped in the same way, and we are adjusting our service model. Our people have clear objectives, and we are driving the business forward. We have a new client-focused organizational structure with a refined management team. Our digital transformation is in flight. Our underlying return on tangible equity will be above 7% for the full year. And our CET1 ratio has been held constant, while absorbing around 100 basis points of regulatory headwinds and the capital required for our growth. This is the first evidence that our strategy, focused on capital-light profitable growth, is starting to deliver. The macro environment remains crucial given our footprint and business model. Over the next 3 years, we assume a conservative interest rate scenario as our plan, seeks to create alpha rather than beta. The combination of our countries is expected to deliver GDP growth, but it's 20 basis points above the Eurozone average over the course of the plan. This is held by our Central and Eastern European positioning. In many of our markets, loan should grow at a multiple of GDP, turbocharging our top line growth. In addition, we anticipate opportunities from the recovery and resilience fund allocation. Our countries have access to 50% of the overall fund disbursement. Please note, but our assumption exclude unexpected material adverse developments, such as the COVID-19 pandemic, a situation that we are closely monitoring. Our financial ambition to unlock UniCredit is based on 6 pillars: optimize, invest, grow, return, strengthen and distribute. These pillars will deliver sustainable performance and profitable growth through a cycle. 2024 is just 1 milestone and a step on our longer-term journey. Let's take these pillars one by one. Optimize. We optimize UniCredit by improving both our operational and our capital efficiency. Operational efficiency, EUR 1.5 billion of gross cost savings, of which EUR 400 million will come from Digital & Data loan. Capital efficiency. Contributing circa 130 basis points to CET1 over the plan. Invest. Thanks to the resources freed up, we will invest EUR 2.8 billion over the plan in Digital & Data as well as in our frontline and in ESG. Grow. We will grow our net revenue at 2% CAGR, largely from fees, and we will grow our net profit at 10% a year. Our EPS should grow at above 15% per year, helped by the assumed the impact of share buybacks. These growth rates are net of the optimization already in flight. Our underlying growth rates will be higher and our growth shall accelerate from 2022, which we consider a consolidation and investment year. Return. We expect to reach a return on tangible equity of around 10% in 2024 and aim to surpass it thereafter. Strengthen. Our financial strengths we rely on, a target CET1 ratio of 12.5% to 13%, a target 150 basis points organic CET1 generation a year on average. A gross NPE ratio declining to 3.5% and a net NPE ratio below 2%. Distribute. We intend to distribute at least EUR 16 billion over the next 4 years. Our significant organic capital generation alone gives us confidence in our ambition. Our high CET1 starting point provides us with a further buffer. We expect to return EUR 3.7 billion to shareholders in 2021, similar in 2022 and to progressively increase the amount from 2023 onwards, all while keeping within or even above our target capital range. Our distribution for 2021 to be paid in 2022 is the first sign of our tangible commitment. These are the 6 pillars with which we will tackle our financial ambition. We focus on 3 interconnected levers to drive returns. Firstly, we will target our cost reduction to ensure 0 impact on our revenue-generating capacity and the maintenance of a best-in-class control framework. Capital efficiency will be a key differentiator for us. We deploy our capital in order to maximize our return on tangible equity and grow on a sustainable basis. Net revenues measured as revenues less loan loss provision, ensure both that our growth does not come at the expense of sound risk management and that we increase our focus on our fee business. Two of the 3 levers, cost and capital, have lower execution risk due to them being largely under the control of management. The third one, net revenues is based mostly on alpha as we take a conservative view on the interest rate environment. These 3 levers interact. By managing them together, we can optimally balance growth, strength and profitability. Let's now go through them one by one. Cost. We see operational excellence as the continuous process of delivering efficiencies and self-funding our investments. It is already yielding results. Nonbusiness-related costs will decrease substantially over the plan compared to a mild reduction of business-related ones. And we will produce cost reduction on a consistent basis rather than back ended through front-loading efficiencies targeted under the previous plan and executing faster on the new ones. This, in turn, will free up room for investment in both Digital & Data and in our business. This overall cost plan will lead to a better client experience, improved working environment and higher revenues. Following such an approach, we will realize gross cost savings of EUR 1.5 billion. This will enable us to absorb EUR 450 million of inflation such as wage drift and fund EUR 600 million of investments still ending with a cost base EUR 500 million lower than in 2021. There are 3 drivers to our cost reduction. Team 23 savings from loading, digital and data rationalization and the impact of simplification and streamlining. We will book EUR 1.2 billion of integration costs related to these cost savings in Q4 2021. As a result of our cost efficiency, we will be able to self-fund our digital transformation. P&L investment in Digital & Data increased by EUR 400 million over the life of the plan. Our overall investment in cash term in Digital & Data is EUR 2.8 billion over the plan. This is not comparable with previous disclosure due to an accounting change. On a like-for-like basis, our overall investment is EUR 800 million higher than the run rate in the previous 3 years. We will also sell finance and reinvest into the business through targeted hiring in the front line amounting to EUR 100 million. Finally, we will invest EUR 100 million to ensuring equal gender pay, which means equal pay for equal jobs. Notwithstanding the above, our overall cost base in 2024 will be EUR 500 million lower than in 2021, with a cost-to-income ratio around 50%. UniCredit has a very strong track record on cost reductions, and we intend to maintain it. The combination of revenue growth and cost management, while investing leads to a sustainable business model with positive operating leverage of 4 percentage points. We are shifting our mindset to a focus of risk-adjusted returns and growth, while constantly trying to maximize our net capital generation, the CET1 we generate in here, minus the one we absorbed for growth. We're going granular in order to allocate capital more efficiently. We need to optimize to improve lower returns areas. We also need to empower the business to own the client and the process. This is a strategy that I have successfully deployed in the past and that I assure you, will deliver real results. It hinges on discipline and execution, something UniCredit is great at. But clearly differentiating between the areas of lower return and those of high return, we will drive our business mix to focus on capital-light revenues. We are already ahead of our European peer group when it comes to fees as a percentage of revenues by 10 percentage points on average. We target an even higher contribution by 2024. Of our EUR 1.1 billion delta in net revenue, EUR 800 million is in fees with 0 RWA, so this is genuine capital-light growth. Capital and revenues interact significantly. Knowing that, we're looking into our portfolio with an increased level of granularity. We need to improve lower return areas either by increasing our share of wallet or increasing our pricing. If this isn't unsuccessful, we should consider this investing, always mindful of our overall client relationships. As a result of all of this, we expect risk-weighted assets to decrease over the course of the plan. This will come hand in hand with an improved higher-quality capital-light profitability and a shift in the shape of our business. Together with active portfolio management, we will more than offset the impact of organic growth and expected regulatory headwinds. Active portfolio management includes securitization which this group has scarcely relied upon in the past and which is in flight. We will also actively manage our portfolio, reducing and even exiting low performing businesses. We will undertake a dynamic rebalancing of our loan book towards areas which were more capital efficient due to amongst other things, collateralization and areas which have higher risk-adjusted returns. We do not expect any significant impact from regulatory headwinds over 2021 to 2024. Beyond the plan, we see a fully loaded Basel IV impact of around 70 basis points. We intend to improve on that through a number of mitigating actions already in flights. Furthermore, the entire Basel IV impact will be offset in full by the fully loaded positive impacts DTAs. As a result, we expect to significantly improve our net revenue return on RWAs by around 35 basis points. In addition, organic growth from higher risk-adjusted return businesses had 10 basis points to these returns by 2024. As I said earlier, this is an area that I have experienced in and have delivered upon in my recent past. I believe UniCredit has significant scope for capital efficiency improvement, which we are determined to deliver. Let me now explain the net revenue lever in more detail. We're embarking on tangible steps to drive capital-light growth. We're not envisioning a revolutionary road, but rather incremental improvement relative to our starting point. Net interest income after loan loss provision is targeted to grow by EUR 400 million over the period. This will come from more capital efficient and higher-margin business and in areas where our market share has suffered in the last 2 years due to excessive risk aversion. Our recent consumer finance pilot in Italy reinforces our confidence in our ability to regain our share. This growth will be partly offset by headwinds from the full repayment of TLTRO and a slight increase in absolute loan loss provision as our loan book grows. We would note that our assumptions on interest rates are conservative. Fees will be driven by our detailed plan to enhance Corporate Solution and are expanding product shelf in Individual Solution combined with the related investment in our frontline and Digital & Data. We believe this growth is achievable, and it is based on reasonable assumption. Differently from the past, we are reenergizing the frontline and empowering and reinvesting in our people. As a result, revenue growth should accelerate over the course of the plan as the higher base of 2021 drops out, and we reap the benefits of our people taking back ownership supported by our investments. The delivery of the above is made possible by and is critically dependent on empowering our people and their shift in mindset to one of disciplined growth within a clear risk and behavior framework. We are one team. We are working together to deliver. As we have discussed, sustainability is a critical part of winning in the right way. It is not a talking point, but something embedded in our financial plan. In environmental lending, we expect incremental revenues of EUR 200 million as we grow our green loan book to support the transition. In investment products, we expect a conversion towards sustainable products so that about 40% of assets under management will be invested in ESG. We expect a significant issuance of sustainable bonds linked to the recovery and resilience fund. On social lending, we're expanding the scope to activities with high impact on society and disadvantaged areas. We have already provided more than 5,000 micro loans and reach more than 1.9 million beneficiaries with our social impact financing activities, thanks to our support of hundreds of initiatives. In the next 3 years, we target new ESG volumes of EUR 150 billion cumulative. This commitment is key if we are to fulfill our ambition of being the bank for Europe's future, a bank that is focused on empowering communities to progress. Our network is already empowered to drive the growth within our existing risk framework. In this respect, loan growth is focused on region or client segment with a lower cost of risk or margin capable of covering the necessary loan loss provision and still deliver an adequate return on capital. Our weighted average cost of risk should remain stable in the future. Our gross NPE ratio should continue to improve. Our net NPE ratio should also remain stable at a low level relative to both loans and our tangible equity. Finally, a large majority of our NPEs are classified as unlikely to pay, a subsegment where we are determined to improve our recoveries. The way we combined our 3 levers will deliver a return on tangible equity of about 10% in 2024. The return on tangible equity is now calculated based on our net profit after deduction of coupons on AT1 and CASHES and before the write-up of DTAs. Symmetrically, we also adjust the denominator for the CASHES contribution and DTAs. Our 2024 return on tangible equity represents a substantial step-up from the 2021 result, but we believe it is achievable. Let's now talk about guidance given our new net profit definition. Our 2021 net profit guidance of above EUR 3.7 billion was under the previous definition. Under the new definition, it would be greater than EUR 3.3 billion. We see 2022 as a consolidation year. And our net profit guidance is circa flat to 2021. Our business plan incorporates a conservative stance on our balance sheet, and we will start by operating with ample buffers over our capital and liquidity requirements. Our target CET1 ratio is now at 12.5% to 13%, well above our regulatory minimum with a buffer of between 350 and 400 basis points. We believe this to be prudent, particularly at the start of our transformation. Further, it does not hinder on our ability to return equal or more than EUR 16 billion until 2024. If anything, it gives us more confidence in our ability to do so sustainably. We now also target a leverage ratio of over 5%. By 2024, 45% of our capital will be allocated to countries where the sovereign is rated above single A, an increase of 4 percentage points over the plan. We are changing our business model to focus on organic capital generation. We look to balance the maximization of net profit with the minimization of capital consumption to achieve it. We further increased such capital efficiency through active portfolio management. In doing so, we are more profitable. And we're less constrained in our growth as we are more capital efficient using less capital for each additional euro of growth. This can be seen in the 2 graphs, where we -- where the shaded green area represents the organic CET1 capital generation net of the CET1 use for growth. This equates to a potential distributable amount to the bottom of our target CET1 range. In essence, we now generate 3 times the net CET1 and hence, distributable amount in comparison with the old plan without having to stress our CET1 capital ratio. We're building foundation for the future that support significant sustainable distribution while maintaining capital strength. Given our stability, improved organic capital generation and our strong starting capital position, we're committed to an increased distribution to shareholders. Specifically, our new distribution strategy leads to a guidance of EUR 3.7 billion for fiscal year 2021, significantly above previous plan. We intend to maintain a distribution of the same amount or more in 2022, a consolidation and investment year and progressively increase it from 2023 and beyond. This is supported by the generation of 150 basis points of net CET1 per annum through net profit and RWA actions, hence, without denting our existing CET1. This is obviously subject to maintaining our net profit in range, exceeding our minimum CET1 and leverage ratio targets and securing full supervisory and shareholders' approval. This distribution should be through a mix of cash dividend and share buyback. We will target cash dividends of about 30% of underlying profit in 2021 and a 35% payout ratio from 2022 onward relative to our new definition of net profit described earlier. As this distribution are predicated on returning our net annual capital generation to shareholders, we consider them ordinary, while obviously dependent on our execution. They do not rely on returning excess capital to shareholders. This is something we could consider to do when appropriate, subject to supervisory and shareholder approval. We intend to commence the incremental buyback after the April 8, 2022 AGM pending supervisory approval. This improved and sustainable distribution while growing the business profitably is what we mean when we say we will win for investors, today, in the next 3 years and beyond. As well as maintaining our robust capital position, we also have the option to undertake M&A within clear guidelines. As I have said and hopefully demonstrated, I believe that M&A can be an accelerator, but only at the right terms and conditions. We will continue to look at opportunities on the market through 3 lenses: strategic consistency, strengthening the business and being accretive to returns and distribution over a reasonable time frame. And we will only consider M&A where it meets all 3 criteria. We now turn to our regional business plan and our vision to leverage our pan-European identity in order to win for all our stakeholders. [Presentation]

The cornerstone of our strategy is leveraging our 13 banks to reap our inherent scale advantage while retaining their identity and empowerment. This is key in Digital & Data, but also for our client solution offering where we can invest in cutting-edge products and services at the level our individual banks could not do alone. We expect and demand that each one of our banks exceed their respective cost of equity on a stand-alone basis through their own measures, now supported by economies of scale from being part of his group. Our countries have varying attributes. Italy is relatively high return. Central Europe and Eastern Europe are higher growth. Germany is lower risk. The combination of this country brings us diversification benefits and optionality many other banks don't have. In my opinion, it creates an attractive portfolio in terms of sustainable, risk-adjusted returns and growth. Through this model, we can also serve clients cross-border, promoting an ecosystem as our partners gain access in 1 goal to a unique combined European client base. This is a key element that we plan to better leverage in the future with our partners. We have market share where it counts within our communities and client segments. There is also a limited correlation between average market share in the country and returns. For example, our market share in Germany is low overall and across the whole country. However, due to our particular strength in Bavaria and in Corporates, we make a RoAC above the cost of equity in that segment. Around 60% of our portfolio of countries has a RoAC in excess of 10% at the starting point in 2021. We're determined to move to 100% by 2024. In Italy, we have strong positioning. Our loan market share is above 10% in regions accounting for over 75% of GDP. We have an optimized network for our client segments, and it usually punches well above its weight. For example, in Lombardia, while we have a market share of branches of just 6%, we have a loan market share of over 10%. Our distribution power is a major attraction and reflected in product market shares. For example, we have more than 10% market share in funds and in loans in Italy and around 40% in unit-linked life insurance. The macro environment is supported with strong growth dynamic for financial services and Italy accounts for a significant portion of the Recovery and Resilience funds. Italy's business will undergo a very significant shift in direction, further improving the quality of its franchise and focusing on higher growth and more profitable areas. We will do significant work to optimize our capital deployment, including exiting certain unprofitable business. This means that to appreciate Italy's performance, we need to look at the deployment of capital growth of a disciplined execution of these optimization actions to understand the work that is being done to build on the foundations of this business. On this basis, gross capital deployed to the country grows by 1% per annum. Accordingly, gross revenues are expected to grow at 3% per annum, much higher and much higher quality growth. We're investing in the front line, fully funded by cost reduction at the center and will drive to an exit cost income ratio of 46%. These actions will deliver above EUR 2 billion of net income, up EUR 16 billion of capital, driving a healthy return on allocated capital of over 12% for the country. The actions underpinning this growth include investment in our clients, the network and the broader Italian society. We're enhancing our investment and insurance offering for Retail and SMEs. We will rebuild our natural share in high risk-adjusted return businesses and expect consumer lending to grow at 10% per annum over the plan. We are reshaping and strengthening our network to improve frontline effectiveness. For example, we are hiring 1,700 people in advisory and insurance talent. We're redesigning the network processes to a digitally native client experience. We intend to double our digital sales and accelerate the time-to-yes for our clients. In better serving our clients, we strengthen those communities in which we operate. Supporting local people, their businesses and their local economies is at the heart of our offering. For example, our Academy is a new physical and virtual location, which will act as a center of excellence to train and reskill our people. We have also committed to donating the funds generated through our Carta Etica, back to the grassroot of those communities because they are the reason we exist. Let me now move to Germany. Our strengths in Germany enables us to actively support the economy and society. We have a customer-centric model with 2 million clients. Our market share is over 10% in Bavaria, driven by our Mittelstand franchise and it's linked to export industries. This has been extended, so we have a strong position in Corporates throughout Germany, also reflected in the best NPS in small and medium corporate clients in the country. The macro environment is supportive. And of course, Germany is the largest EU economy with a focus on expert, and we have the full network to capture this. Our ambition in Germany is to lead in efficiency and sustainable profitability with returns well above the cost of equity. Allocated capital would grow by 2% a year after active portfolio management to offset regulatory headwinds. This drives net revenue up by 2% per annum. Even after hiring, the streamlining of the business model will drive the cost-to-income ratio to around 50% by 2024. The combination of these levers will deliver above EUR 1 billion of net income, up 16% per annum. On EUR 11 billion of allocated capital, this will increase RoAC by 4 percentage points to reach over 10% by 2024. The initiatives to deliver our plan include further strengthening our ESG advisory capabilities, partnering with our clients on their green transition. We have targeted ESG revenue growth of more than 20% a year over the plan with a large part of it replacing existing facilities. And investing in our private banking footprint to become a top-tier player across Germany. The review of our processes and products will enable the streamlining of our headquarters in Germany. Non-business cost will fall 9% a year over the plan. Let me now move to Central Europe. Central Europe includes some of our fastest growing, high potential and profitable businesses. Overall, we're #2 in terms of our clients and of assets. We have an 8% market share in retail, but we're determined to increase, 14% in corporate and around an 11% overall loan market share in the region. In Austria, we have the #1 position and are the Best Bank for SME and the Best Investment Bank. In the Czech Republic, we are the Best Private Bank. And in Hungary, the Best Social Impact Bank. The macro in our Central European footprint is supportive with GDP growth well above the European average. We have very strong connection between this region, Italy and Germany, which we will continue to capitalize upon. Our capital allocated to Central Europe will grow by 5% per year. Revenue growth is a key lever of the plan, and we expect good top line growth given the GDP and non-growth outlook of the region, our commercial initiatives and our focus on fees. We're investing in new hires, which are self-funded given the improved efficiency in Austria. Cost will fall 2% per annum, leading to a cost-to-income ratio comfortably below 50%. Together, this lever will deliver more than EUR 1 billion of net income, up 13% per annum, constituting a 1/4 of the group. On EUR 8 billion of allocated capital, this will increase RoAC by 3 percentage points over the plan to over 13%. Our initiatives focus on an improved client service model, driving client acquisition in both Retail and Corporate through digitalization. Our client base will grow by over 200,000 during the plan. In 2024, we plan to have 2 out of 3 customers digitally active and to perform over half of our sales digitally. In the last year alone, we have opened 10,000 digital paperless accounts in the Czech Republic. We will enrich our product offering, including advisory on the green transition. Further, we're simplifying and automating credit processes to support faster decision-making. And finally, the redesign of Bank Austria operating model is a key pillar supporting our plan. Let me now move to Eastern Europe. We are the leading bank in Eastern Europe, a high-growth region. Overall, we're #1 by assets with over 4 million clients. And in many countries, our market share is well in excess of 15%. We are #1 in Bosnia, in Bulgaria and in Croatia. And we are top 3 for Corporates in Serbia and in Romania. These are fast-growing economies with GDP growth of 3.7% on average over the plan. This is outstripped by loan growth of just under 6% on average. Our capital allocated to Eastern Europe will grow by 4% per year post active portfolio management. This will drive net revenues up 6% a year as we focus on higher risk-adjusted return products. We're investing in new hirings, partially funded by cost initiatives, which also have to offset inflation in the region. We do target a best-in-class cost efficiency and 40% cost-to-income ratio by the end of the period. Overall, the region will deliver around EUR 1 billion of net income, 1/5 of the group in 2024 with a CAGR of 9%. On EUR 5 billion of allocated capital, the RoAC should rise by 4 percentage points to over 16% by 2024, the highest of all of our regions. We have a number of initiatives which drive this growth. Our innovative service model for micro and small corporates is supported by an enriched product offering, including client solutions, green advisory and financing and liquidity management. This will support a 12% growth in net client. We're launching targeted campaigns to support the sales process and as in Central Europe, we're automating credit processes. Our retail client offering will be streamlined by 50%, enabling our colleagues to focus their commercial efforts. We will consolidate our existing position in Corporates and expect our growth in Retail to outpace the market. We intend to grow our net clients by almost 0.5 million, increasing the number of digital users by 30%. We expect meaningful growth from our proactive approach to the recovery and resilience funds. In summary, our financial plan applies the 3 levers in varying degrees in our regions, all see a marked and similar improvement in return on allocated capital, lending above or well above the respective cost of equity, leveraging group scale. Our business plan means that the regional capital allocation will shift on a net basis, resulting in a more balanced outcome. Italy benefits from capital efficiency, Germany from cost efficiency. While Central and Eastern Europe are mainly driven by net revenue growth with efficiencies in capital and operations, allowing them to show positive operating leverage. The differentiated impact of the levers underlines the strength and diversity within our model, our optionality and the value of unlocking UniCredit. To sum up. As outlined at the beginning of my presentation, we have a very clear set of strategic imperatives. They will enable us to deliver growth, a return on tangible equity of around 10% in 2024 and sustained attractive distribution to shareholders, winning for all our stakeholders. This shows our financial targets for 2024 across our main KPIs, which will enable us to distribute above EUR 16 billion between 2021 and 2024, grow and deliver around 10% return on tangible equity by that year. We are confident that as we successfully delivered on the levers discussed, we will unlock our full potential and have a compelling investment story built on very sound foundations. Our sustainability principle and our balance sheet solidity are and will remain the bedrock of that. A relentless focus on cost efficiency will allow us to accelerate investments, while actually decreasing our overall cost base, driving both growth and positive operating leverage. The self-sustaining path, when combined with disciplined capital efficiency, will generate high returns over the coming years within a well-managed risk profile. Finally, our net profit growth on an EPS basis will increase to a double-digit compounded average growth rate when coupled with a potential share buyback. UniCredit Unlocked is much more than the near future. It is about setting us up for long-term success. It is about releasing the potential of our bank to deliver for our clients, putting them back at the center and serving them with the best product and advice that we can source. It is about delivering for all our people, giving them a common ambition, the tools they need to excel and a belief in the institution for which they work. And it is about delivering for our stakeholders with a business model that will enable success for all. This is a plan to help us fulfill our potential and to realize our purpose, unlocking the energy of our people and businesses across Europe and empowering communities to progress. A plan to ensure we win. We win in the right way as we build the bank for Europe's future together. Thank you.