Ctt Correios Portgl Sa

I'll now turn the call over to Mr. João Bento, CEO. Please go ahead, sir.

Thank you, Sergey. Good morning, everyone. Welcome to our first quarter results call. If you join me on page number four of the presentation, I would start to call your attention to the fact that we had revenue growth in all business areas except the financial services, mostly as a result of market expansion and share gains. both on parcels and the bank. In fact, the decline in financial services was more than offset in revenues, although not yet in margin, given the performance that we can see on the right-hand side, if you follow me, on excess in parcels first, with an amazing triple-digit volume growth in Spain and also double-digit growth in Portugal. That produced margin expansion, leveraging our increased scale Then on mail and others, we are benefiting from a very decent price increase, also good mix, and the effect of the elections that led to higher mail volumes. And we, of course, remain very focused on cost efficiency measures, given the fact that we believe that the mail business will perform better than before going on. Going forward, on financial services in detail, the commercial focus is now on distribution of insurance and related products, namely health insurance programs, and it's finally gaining traction. While public debt placements remain still in low levels, although we have a positive outlook for that. Finally, the bank performed with strong client engagement, and therefore growth in the business resources, and operational leverage driving significantly profitability in the quarter. Moving to slide number five, and with a bit more detail on the parcel business, we have seen volumes in Spain close to peak season levels, The peak season, well, continued throughout the quarter. This drove record growth on revenues, as we said, more than doubling year on year, if you compare the first quarter of last year with the first quarter of this year, both on volumes and on revenues, and also a very decent performance in Portugal, with great promising, again, in volumes and revenues with a significant growth. We have the parcels business on path for certainly another record here in Iberia. And if you follow me on slide six, we can then look at the margin, which expanded significantly, driven by operational gearing. We have, in fact, an impressive progress on the EBIT generation in Spain. We came from minus 1.5 million to plus 2.9 million. a very decent EBIT margin, already reaching 4.5%. And, in fact, we are benefiting from our prior investment on capacity and the resulting operational leverage when now volumes are as high as they remain being. In Portugal, likewise, we had an improvement on the EBIT margin from 6.5% to 7.4%, quarter to quarter, or year to year for the first quarter, with a continued improvement on the absolute value, margin growing almost 28% from 2.1 to 2.7 million. And here, again, grabbing market share and leveraging on the fact that we keep performing very well in distributing parcels using also the mail network. So we see a continued investment in expansion of capacity, since we are positive about the volume growth and the trend that we are feeling, to enable future growth and, of course, improved profitability. And with this, I would invite you to follow my colleague, Jean Sousa, to guide you through mail and recall.

Thank you, Joel. As you can see on slide seven, the increase of price and the type of needs are helping to offset some of the drop in volumes. We have a 10.5% drop in address mail volumes. If we take the effect of elections, it's minus 11.8 against the previous year. But the average revenue per item growing 18%. versus the previous year. It's also very important to mention that the price increase of 9.49% that was made in February is not fully reflected in the quarter. And we also have information from part of our customers, namely the public sector, that was a delay of the production in March, mainly because of these elections. So the election allowed us to have better traffic and more traffic in this quarter, but also was a backlog of production in May. that we are already seeing in . These allow us to achieve 100.7 million euros in revenue in this first quarter. That compares plus 5.9% against the same quarter in the last year. As you can see on slide eight, the elections allow us to have a positive effect in traffic and price per item, but they also brought an increase in costs in this period. We have 180.3 million euros of costs in this quarter that compares with 111.7 million euros with the quarter of last year, more 6.7 million, which results in 2 million euros in EBIT in this quarter that compares with 2.7 million euros in the quarter of last year. However, the cost-efficient program that we talked about in the last quarter is still ongoing, and we expect results in this year. Also, the effect of the price increase, we believe that when fully reflected will help to stabilize the margins in this business area. On slide nine, on the retail and financial service, we saw in this quarter a weak performance in the placement of public debt. mainly justified by the €50,000 caps that this series has per saver, and because the market still has the perception that the conditions are not yet very attractive compared with the other offers in the market. We believe that the levels of public debt should improve and revert to normal, mainly for two main reasons. The first one is the conditions. We believe that it's better than the market at the perception. And in that way, for the first time, IGCP allowed us to do communication campaigns, and we are doing right now. And we already see, it's every day, but we already see a positive path when we explain to the market that the conditions are more competitive than the market at the perception. And the second reason is we also believe that in the future the other offers in the market are going to lose competitiveness and with that this series of public debt is going to gain competition and allow us to increase the balance of public debt. At the same time, in association with the retail strategic that we have for CPP, that we already say want to be the largest and the best service platform in Portugal, we have greatly boosted insurance and health plans with very positive results, with a lot of attraction in the market. As you can see in the graph on the right side, we are looking for the health plans with very good attraction. And with this, we believe that we are creating a serious alternative for the future for retail business of CPP, And with performance control by CPP. That's guaranteed with also these services have a guaranteed revenue model that help a lot to control this business area. And with that, I pass for Pacheco.

Thank you, João. Good morning. Starting on page 10, we can see the revenues and profitability of our bank that continues to improve on the back of volumes as NIM compress as we guided with the double effect of cost of deposits going up and then one winding of carton universe. But still good progress, 6.3% growth and 67.1% in terms of earnings before taxes. That puts our return on tangible equity on 8.4%. On the next slide, we can see the enormous progress on customer deposits that continue to grow more than 100 million per month, driving customer acquisition and market share gains both on deposits and on customers. Auto loans also progressing well. The credit book increased 17 million in the quarter. and mortgage $9 million in the same time period. Yields stable and improving on the auto loans. Now moving to page 13 where we have our key financial indicators. We can see a strong quarter in revenue growth with 9% growth in year-on-year driven by parcels. although our recurring debit was heavily affected as expected by a difficult comparable in the financial service business unit, and our EBIT reached 16.9 million euros, declining 34.2% in the quarter. Our net profit reached 7.4 million, and our free cash flow 3.9%. in the first quarter of 2024. On the next slide, we can see our detailed revenue evolution, so the 9% I've already mentioned, with express and parcels growing an impressive 57% in one year, or 36.7 million. Portuguese operations continue with volumes and revenues growing more than 12%. And Spain continues with these fantastic levels of growth, more than doubling. 110% in grossing volumes and revenues. We continue to gain share across all market segments despite some pressure on price units. Melanada growing 6 million euros coming from mainly of the on-off effect of elections. If we exclude that effect, we saw some pressure in volumes. We believe that the fact of being a short quarter in a number of productive days and the general elections that drove the Portuguese state to completely stall the printing of mail conditioned our underlying performance there, despite the growth. April, we can say that shows encouraging signs of recovery both by recovering the delayed volumes from March and also because it has the converse, the symmetric effect in terms of productive days. Financial services decline in 23.2 million with placements just below the 300 million, 295 million euros. that, of course, compare badly against the 7.5 billion euros that we placed on the first quarter last year. As you all mentioned, we believe that both the removal of the cap that we expect and the increasingly being more competitive vis-à-vis alternatives as interest rates should decline, we remain optimistic. very confident that we'll reach our targets here. Lack of, bank CTP growing 2.2 million on the back of net interest income, completely driven by our volumes, as margins are pressured as expected. In next slide, we see our OPEX increasing 14.1%, driven by expression parcels and mail. In express and parcels, we increased 49.6% of our costs, or $31.8 million. We have year-on-year margin expansion, but sequentially we continue to have some pressure on unit costs. Spain, to cope with this big growth in last mile, had to invest some money to to grow its last mile capacity. That's something that we already saw in fourth quarter last year and continue to pressure January and February that we are now improving going forward. Portugal with some declines driven by Chinese trafficking in the density of the routes. Although we firmly believe that further investment and the efficiency measures that we have in place will allow the margin to improve going forward. Melanes are increasing 6.7 million euros. This is essential election costs on terminal dues on other countries for the mail sent to our immigrants and wage inflation. That plus the additional costs that flow from retail stores completely offset the efficiency measures that are in place. As elections will go away, and we firmly believe that we'll see a resume on the financial services performance, with efficiency measures in place, we think we'll normalize and improve the profitability of mail. Financial services decline in $8.1 million, basically linked with activity. And Banco CTT with a flattish performance in terms of costs. Of course, credit risk here helping on the comparison year on year. Next slide, 16, we can see our EBIT generation that was heavily affected by the financial services. As guided, we believe our profitability will be skewed to the second half of 2024, by the same reason, so as financial services will improve, our profitability will also improve, and allow us to show the growth that is coming from XRS and Parcels and Merc CTT, but now it's suffering from that comparison. Now, with our evolving decline, that affected the profitability with the wage inflation and the elections costs, as mentioned. In financial services, we see the comparison effect of that 7.5 billion placements on first quarter last year. In page 17, we can see our free cash flow that reached 3.9 million, 8.5 in operating. We have a big effect in terms of working capital driven by growth, the growth in exports and parcels, and some pending receivables from the Portuguese state, namely the elections that basically drove this negative working capital this quarter, although we firmly believe that this will be reverted and no big concerns here. Our net cash position increased to 63.9 million. If we include the bank, if we exclude the bank, we have 153 million of net debt, including these liabilities. And with that, I'll pass you to John Bento for his final remarks.

Thank you, Guy. So if you join me on slide 19, a note on our balance sheet. We just mentioned that we kept investing very comfortably on capacity expansion in parcels, Portugal and Spain, on IT, on technology, on machinery. And we have reinforced our shareholder remuneration, but all that with keeping a prudent gearing and preserving a very, I'd say, high flexibility in balance sheet. And looking at the declared gearing limits that we want to keep on 2.5 net debt over EBITDA, we can see that there is a significant expansion buffer for keeping investing in the business. Moving to slide number 20, to close. So in a nutshell, we have seen a strong performance on parcels on the bank that were partially attenuated by the abnormally weak debt placements. It's important to stress that we are very positive about the reversal of this trend in placing of public debt. And business by business, the world on parcels, we believe we are going towards another record here for sure. We are stabilizing revenues through price increase and the good mix on mail and others. So we see the result of our cost efficiency measures to produce better results throughout the year. On financial services and retail, we are now delivering on insurance distribution and health protection plans while we prepare for improved conditions on public debt products that hopefully should come sooner than later. And finally, we continue to see the bank growing, driven by higher engagement with clients and also with a significant rhythm of client acquisition. With that, and given the fact that we keep a solid balance sheet and we are capable of keep generating free cash flow, we see our continued investment in parcels in Iberia as a key lever for improving our competitive position and we affirm the guidance that we have that we have provided for finally 24 of recurring EBIT to be above 88 million, assuming that public debt placements will reach around 3 billion euros. And with that, we remain available for your questions.

Thank you, sir. As a reminder, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. Again, it is star 1 to ask a question. And we will take our first question from Philippe Leight from CaixaBank. Please go ahead. Your line is open.

Yes, good morning. So I have three questions, if I may. First one on profitability of mail, because despite the improvement on this quarter in terms of average margin, we are talking about a very low margin level of less than 2%. In the presentation, you mentioned that the price increase will help to stabilize margins. But when you talk about stabilization, are you talking about the same levels of last year? Or what level of margin stabilization are you referring to? Second question on working capital, just a clarification to confirm that out of the 12.3 million consumption during the quarter, 7.2 million was related with the elections and the remaining roughly 4.5 million consumption came from the underlying activity, including what you said, the growth of E&P or the breakdown is different. And last one, regarding your view or if you can share with us your thoughts on what is happening in France with the intention to tax severely the Chinese online retailers of so-called ultra-fast fashion. If you believe that Spain and Portugal can follow France on this decision and just to have an idea if you can give us the percentage of your parcels in Iberia that came from Chinese and other non-EU fashion retailers. Thank you.

Thank you, Philip. Starting with the profitability. So we, as we mentioned, we expect this year our absolute margin in mail to improve. This quarter, we still have the three effects, as I mentioned. We have wage inflation, that is 2.5 million euros on this quarter. We have the costs coming from elections that the overall margin of elections is lower than the normal margin of mail. And we have this activity effect that is still putting pressure on the retail costs that we share with financial services as we have an inelastic capacity there mail in this quarter is paying more than its fair share of costs of the retail. As elections will go away, as financial services will resume its performance and having its fair share of the costs of the retail, and we have a number of efficiency measures, we believe with the stabilization of volumes, But we are also seeing throughout April profitability stabilizing and improving. Regarding the working capital, I won't comment the specific numbers, but you are basically right on the two effects. So it's elections. Another receiver was because the government, as you know, on the region of the elections basically stops and also payments on the government side, namely on mail, also stops and something that is now normalizing but normally impacts the vicinity of the election. And also the growth in... We are exchanging growth of financial services that, as you know, it's prepaid, where we keep the revenues that we collect. And by growth in express and parcels, that are the payment terms that are different from this prepayment of financial services. Regarding the Chinese and Temu, I'll leave it to John to answer.

Thank you, Guy. Thank you, Philippe, for the question. So we are, of course, paying attention to the issue. And to be honest, we are not very much concerned. So there are a number of things that the Chinese decelers will do themselves, and they are doing themselves. And even recently, we've been with Chain, and Chain feels very relaxed with the number of measures that they are putting in place to fight the world's strength. One of the reasons that we remain relaxed is also because the prices are so low that even a significant tax increase would not produce a significant elasticity in demand, and also because there are other ways to increase fulfillment that is then within the European Union. And so there's also the issue of many European brands sourcing significantly in China, and therefore it would be very difficult for the EU to impose taxes that will not affect those European companies that source in China. It's an issue that we follow carefully, but in fact we don't see any major risk in the long run. We have now roughly 65% of our traffic coming from China, but this number was already higher than it is. So if anything, as volumes increase, we've been able, as you know, to grow the non-strategic large clients in Spain at a higher price than the Chinese. So it's very important. It's very significant. But we have a higher exposure in relative terms than we have today.

Okay, perfect. Thank you. We will now take our next question from João Safara from Bank Santander. Please go ahead.

Yes, hi, guys. Thank you for taking my question. Just two very quick ones. First on the financial service, if you can give us some color on the contribution from the health care plans that you now reported and it started to become relevant for you, if you can give us some numbers there. And then the second one, just on the state of your partnership with Generali and the approval of the transaction, if you could give us some timing on that front. Thank you.

Thank you, João. So starting with the partnership on generality, while we keep interacting with the Bank of Portugal, we have been given the expectation that a decision should be taken sooner than later. And we keep our previous statement that we see no reason for it not to be approved during this semester. And so that's how we continue. There's not much new information to share, although we see the process converging.

On the first question on the insurance and health care plans, we won't comment on numbers. That's why they were not on the presentation. But I think it's important to keep the idea that we are building fast a stock that will remain. That is something that will, a very different profile in terms of recurring revenues that we have with the public type services. And as such, we are incurring or building a very big, what can be a very meaningful base of recurring revenue that depends solely on us going forward. And as such, creating more and more independence from the public debt product that have its own dynamics and that we control less. And as such, it's something that we are being... seeing very encouraging signs of very fast takeoff that in a couple of years will give us a meaningful revenue that can offset the volatility of a necessity.

Okay, thank you.

Thank you. As a reminder, to ask a question, please signal by pressing star 1. The next question comes from Antonio Saladas from AES Independent Research. Please go ahead.

Hi, good morning. Thank you for taking my questions. It's about the bank mainly. Non-performing exposure increase in the quarterly basis, so I don't know if you can explain the reason. And secondly, the bank has been very, very keen about deposits, not so keen apparently about loans. nevertheless, is well capitalized and with the capital increase that you mentioned should occur until the end of the first half, it will be even more capitalized. So my question is, are you slowing or are you, why are you not more active in terms of loans? And because at some point in time, mainly if the interest rates come down, your margin should start to suffer. I don't know if in terms share with us what you think about the bank and how do you plan to deal with the net interest margin. Thank you very much.

Thank you, Antonio. On the non-performing, we have a slightly increase on cost of risk and we have something that we are monitoring closely and we have some pickup on the non-performing. We are taking a number of measures to reduce that exposure. Let's wait a little bit to see news on that front. On the overcapitalization, I think I see your point. As I mentioned on last call, we continue to work internally and with our regulators in order to have a more balanced mix between to cover our total capital ratio that we need to comply on REL in first half of 2036 to have a mix more beneficial for the shareholder or with less set on that mix. On the dynamics, we remain very prudent on the appetite for risk on the loans. We, namely on auto loans, we are not catering to other risk profiles in mortgage markets. We remain very active, but the market is more competitive and also more stressed in the number of deals, as you know. Going forward, as financial interest rates change, we remain with a very liquid balance sheet, and we, as you know, our credit book is less exposed to those swings as more than 50% of our credit book is fixed rate. And as such, we didn't benefit as much from the upside on the interest rate than that, but also will protect us on the downturn of interest rates.

Just a follow-up question. I think that's on the bank presentation one year ago or more. You mentioned about, maybe I didn't understand well, but you mentioned about refurbishing your stores, your banking stores to have a different approach to customers. I didn't see anything. I don't know if you are still thinking about how to do it or not, so

So we are, on that front, we are progressing. So we want to have 60 dedicated stores for the bank. We call it dedicated where it won't be only bank. We will continue to have this approach of sharing the space with the postal network. I dedicate it in the sense that the human resources inside of catering for the bank inside that store will be directly managed by the bank. We are ramping up here, namely this entails an overall of the shop interior that we are executing, so we'll start to see that coming coming online during the second half of this year. Although, in terms of human resources, we are already taking those actions. And I think you can see that through the strong traction that we are having on deposits. That we hope to see also in transformation of in credit going forward, but it's a process that we continue to implement and that we think it will be visible throughout the second half of this year.

Okay. Thank you very much.

Thank you. And if there are no further questions at this time, with this I'd like to hand the call back over to Mr. João Bento, CEO, for any additional or closing remarks. Over to you, sir.

Thank you. So thank you for your questions. Thank you for attending. We believe that we've been able to build a good first quarter in line with our expectation with the parcels and the bank performing very well. And we are now betting on an improvement on financial services and also an improvement on the performance of Melzo. All in all, a good semester that we believe positions us well for delivering the guidance that we gave. Thank you for coming, and of course our IR team remains available for, and all of us, to interact with you when necessary. Thank you. Good morning.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.