Ctt Correios Portgl Sa

Good morning and welcome to CTT first quarter 2025 results conference call. Please note that this conference is being recorded. For the duration of the call, your microphone will be disabled. However, analysts will have the opportunity to ask questions at the end of the presentation. To do so, simply click on the button to raise your hand and we will give you access to the microphone. If you are dialing from a phone line, press nine to raise your hands and six to unmute yourself. I will now turn the call over to Mr. João Bento, CEO.

Thank you. Good morning, everyone. Welcome to our first quarter results conference call. If you bear with me in the first slide, which is slide number four, we believe we had a very decent quarter where recurring EBIT growth was driven by recovery in financial services. Indeed, in terms of revenue, we've seen growth on all three blocks, logistics, bank and financial services, of around 9.5%, while EBIT grew almost 20%, a very significant growth. That was not even higher given the impact of last year's general election. Otherwise, it would have been even more significant. If we move to analyzing each business line, starting in slide number five, I'm sorry, with the express and parcels, we've seen continued growth in volumes, revenue and recurring habits, while with softer than expected volumes, although growing a solid 15%, which we see clearly above market growth. And this volume growth of 15% converted into revenue with a strong improvement, given a combination of price, average rate per object, and value-added services. Indeed, we convert 15% of volume growth into 23% of revenue growth. Habitat margin on the right. sorry, EBIT on the right grew 24.5% from 6.5 to 7 million euros in the quarter. Although the EBIT margin was affected by some operational issues, mainly related with capacity increase, since we keep very focused on providing very high quality, which is vital in this business. I will now invite my colleague, João Sousa, to guide us through the mail-in dollars and retail business areas.

Thank you, João. Good morning, everybody. As you can see on slide six on mail and others, we see revenue flat in mail and other segments compared to the previous year, supported by the price increases and also the continued positive contribution from business solutions and payments. And the same applies to address mail revenues. Of course, on this analysis, we are excluding these extraordinary revenues from the elections that we had in the previous year. So we felt this is a positive trend, continuing to see this baseline revenue stabilization in many others. So excluding these extraordinary elections revenues we saw in address mail revenues, we are practically flat reaching 9.28 million euros. And million other revenues, we are also flat with 170.7 million euros. In EBIT, excluding again the extraordinary effect of the election revenues, we reached 1.3 million in EBIT, representing more than 200% of increasing compared with last year. We also on this area continue to maintain a cost control that which help us to manage the recurring EBIT. On slide seven, coming for financial services and retail. In the first quarter, we continue to observe a very positive trend in public debt placements. Coming from improving by the market conditions like we saw in the last quarter of last year and also in the first quarter of this year. Coming also for the success of the digital channel that we are reaching records every month. And also coming from the growth and diversification of the savers entering over the past year. As a result of this, public debt placements grew by 64% compared with the previous quarter and by more than 400% compared with the same quarter of last year. We maintain in this area a commercial strategy to diversify our services. mainly coming from health care plans and insurance. And as a clear example of this success, as you can see, the health plans, we see an increasing of 26% of the number of clients compared with the previous quarter, falling more than 700% of increasing in the previous year. This translates in more than 123% of the revenue growth reaching 12.5 million euros of revenue and an increase of 126% in EBIT reaching 6.6 million euros. We can say on this area, we have continued to have a positive outlook for the future because public debt going to compare very well against the savings in banks. And also we are just launching in April the insurance for SMEs that we felt that we're going to have a very good success on this product also. Now I pass to Guy, our CFO.

Thank you, Jerome. Starting on page eight, where we can see the bank KPIs, we continue to see growth in business volumes and revenues in the bank. Business volumes grew 14% in the quarter. And you can see these details in the appendix, but with a very strong growth. progress in off-balance sheets and side deposits that grew 19%. And this drove our revenues, banking revenues, 8% year-on-year, with net interest income increasing 1.1%, despite compression in net interest margins. And this Good performance in off-balance sheet resulting of our partnership with Generali drove commissions 1.2 million year-on-year. This good performance in revenues was offset by the investments in commercial capabilities, both staff and digital channels that are front-loaded but will drive future growth in this platform. In the slide 10, we can see our financial key indicators where we see a stronger than expected first quarter with revenues growing 9.5%. Our EBITDA growing 17.2%, recurring EBIT 19.5%. Our net income will decline 25.9% pressured by specific items that are mainly HR restructuring, 50% of that amount, real estate phase two transaction costs and M&A. In slide 11, we can see the bridge of our revenues, where we continue to see E&P driving growth and financial services recovering as expected and guided. In E&P, we grew 23% in revenues. volumes grew 15%, although softer than expected, and revenue per unit, weight mix and value added services, driving revenues to further growth than volumes. In-mail declining 6%, if we include elections, that last year occurred in the first quarter, this year we'll have elections again, but on the second quarter. If we exclude that effect, the male revenues were flat given a good contribution of business solutions as once was highlighted financial services with a very strong performance and 123 percent of growth in revenues following the the 1.7 billion placements uh in the quarter and the bank with the growth in volumes driving growth of commissions and and net interest income On slide 12, we can see our operating costs that grew 8.8%. Express and parcels with volumes driving growth, but also investments in capacity and some increase in costs to sustain quality of service due to some operational costs, as Joan already highlighted. Mail and others declining 5.6 million, mostly the elections effect that also carries costs with them, namely with the terminal dues with foreign postal operators that accounted for 5 million out of the 5.6. And the financial services growing 3.2 million, completely due to the higher placements of public debt. and the bank increasing 2.3% staff and investments in digital channels. On slide 13, we can see the bridge of our EBIT. Our growth continue to come from express and parcels and now with this new performance of financial services as expected that now contributes also to our strong growth of 19.5%. We grew 1.4 million in EBIT. As you recall, seasonality in the first quarter plus these costs to sustain quality pressure margins, but we continue to see high single-digit margins for the full year. Mail was pressured by this one-off effect of elections, that we'll see the flip side of this on the second quarter, but the underlying performance was resilient, although with softer volumes in the first quarter. A financial service with 3.7 million of increase drove by these 1.7 billion placements that are above an average year that normally are between 1 to 1.2 million. And we continue to see resilience of the placements plus the investments that João mentioned. The bank, we see stable margins due to the investments in staff and the digital set and the digital, in the digital channels, offsetting the growth in banking revenues as the bank transitions to a new model of growth with these investments will fuel further future growth in the bank. On slide 14, we can see our consolidated free cash flow. The consolidated free cash flow reflects the seasonal payments in the bank where the working capital normally in the first quarter is pressured. We see an operating cash flow of 7.1 million and a free cash flow of 2.3 million. On the next slide, we see the same or similar numbers of cash flow but excluding the bank where we can see a strong progress on operational cash flow of 20.5% and also in free cash flow of 44.7% where the working capital also played a good performance in the quarter. Our leverage now stands at 1.7 times, growing from 1.3 last year If we account for the acquisition of CASEZA, this will stand at 2.1 times, so still very below the 2.5 that we impose, ceiling that we impose to ourselves, and that we expect to leverage down as when DHL transaction will be concluded. And with this, I pass you to João Bento for his final remarks.

Thank you, Guy. Before my final remarks, I'd like to go through the acquisition of CASEZA. I believe we bring good news on execution for this deal since it was concluded within the envisaged schedule. We will integrate CASEZA, eight full months of CASEZA this year. And that is good news. Also good news on the valuation front, because given the structure of the deal and because of good performance of Casillas since June last year, the actual price was 106.8 million rather than 103.8, a higher value, but for a much higher asset, which brought the... EV over EBITDA multiple from 5.5 to 5.2. So a very good deal from a strategic point of view and an even better price than when we signed the agreement. Moving to slide number 18, a couple of notes on the integration of CASEZA that started immediately. On the organizational structure, we've decided to keep it as mostly as it stands to maximize know-how transfer. On the commercial approach, we are integrating our commercial strategies, given that for relevant customers, an integrated offer of customs clearance and last-minute delivery is very important. In terms of operational synergies, we started already implementing the synergies that we have devised outside in, and we are now working together, analyzing for the potential synergies. And of course, we are already looking at international opportunities and the international position of CASEZA, aiming at finding options for CDT. And now moving to the last slide, slide 19, my final notes. Starting with the operational performance, operating performance, we believe that we brought another quarter of continued growth in E&P above market growth, which means that we keep growing market share. On mail, we remain focused on protecting profitability, and we also brought interesting news in spite of COVID, expected the volume decline, we've been able to offset that as was shown in the presentation of the business area. Banco CTD showing a continued growth in business volumes and revenues while investing in key platforms in retail stores and digital channels as was preferred by Guy, which will foster future growth. And one of the most relevant aspects of this quarter, a very solid recovery on financial services with public debt placements increasing by almost six times. And again, let me stress that we are now above what would be a normal year and with a good outlook for the year. This generated, allowed for generation of solid cash flow, both operating cash flow and free cash flow as already illustrated. We remain with significant flexibility in our balance sheet, even after the acquisition of CASEZA. And let me remind you that this will be offset by the end of the year when we close the deal with the HL, so clearly below our self-imposed conservative leverage limitations, limits. On the organic front, again, a word on CASEZA and the execution and the price, and also to let you know that we are working actively with the HL in the antitrust process, which is an European level process. And we remain with the expectation that this should be completed in the last quarter of this year. A final word on shareholder remuneration. Just to refer that we've concluded already after the closing of the quarter, our last share buyback at 25 million acquisition that rendered 4.62 million shares or 3.3% of our capital bringing the full amount of investment in our own company to 67 million euros and we will pay on the 15th of May 17 cents dividend per share in line with last year and in accordance with the announced dividend policy. We, given a significant contribution of financial services and an expected expansion of our EBIT margin above that shown last year, we reaffirm our guidance of more than 100 million euros of organic recurring EBIT, which I believe is a strong statement and we are fully committed and fully confident that we will achieve it. And with this, we'll remain available for your questions. Of course, myself, Gui and João Souza. Thank you.

We are now available to take questions. As a reminder, analysts that wish to place a question should click on the button to raise your hand and we will give you access to the microphone. Analysts dialling from a phone line should press 9 to raise your hand and 6 to unmute yourself. We will take our first question from John Safara from Santander. Please go ahead. Your microphone is enabled.

Yes. Hi, good morning. Hopefully you can hear me. So I have two questions. I mean, the first just is... Actually, I have three, sorry. And the first one on the, let's say, the lack of operating leverage in expressing parcels this quarter, margin was basically flat on above 20% growth. So if you could elaborate a bit on that. And then the second one on Banco CTT, I understand, from the presentation that obviously you're in a growth ramp up stage of investment in commercial and the digital capabilities. My question here is, I mean, when should we start to see Or when should the Banco CPP resume EBIT growth this year? I mean, if you could give some timing there in terms of your expectations on the profile of cost increase. And then the last question is on the impact of the elections. I'm not sure if this, I mean, obviously you will have a positive impact now with the elections. So also wanted to understand if you expect more or less a similar impact as last year. And also if this impact was embedded in your above 100 million euros recurring EBIT guidance. And those are my three questions. Thank you.

Thank you, João. I will address ENP and the elections, and Guy will answer the point. On ENP, indeed, we've seen a flat EBIT margin. I've referred, and Guy also, I believe, did so. Some operational issues mostly related with capacity increased. We are still investing on capacity. And I wanted to note that, and I will repeat it now, that quality is of utmost importance in this business. One of our distinctive qualities aspects in this business is that we provide more integrated services than our peers. And we also have significant high quality in Iberia. And we see this as crucial. So we didn't want to jeopardize. We are building a platform for future growth, which is unique. And sometimes we need to jeopardize. margin to make sure that in the long run, we do what needs to be done. And that's why I also wanted to include the comment in my last note that we see E&P margin for this year growing above the number that we've shown last year. So we keep quite confident. We also had, let's assume that, and it was also in my comments, softer volumes than one would expect, although we grew above market. So all in all, there was indeed a flat EBIT margin for E&P, but we keep very confident on the performance for the year. I will jump to the impact of the elections. So we are indeed expecting an impact this year similar to that of last year, both in revenues and margin. By the time we have guided, we didn't know that there would be an election, and so we That is something that will be also new. But yes, indeed, we are expecting roughly the same impact, both in revenue and on margin. And I will now move to Guy for the Banco CTZ question.

Thank you, João, for your question. We gathered the market in the end of 2023 for this new investment phase of the bank where we'll transition the growth model to be more lean to higher income per customer. And that entailed investments in capacity, namely commercial capacity. both in digital channels and stuff. That is what we are seeing now in the numbers. So those investments are front loaded. 2025 will be a transition year in terms of model. The growth will start with some meaning in 2026. We'll see growth in 2025, although within the guidance that we gave, that was 25 to 30 million of pre-taxes operational income, but will be a smaller growth rate than we have seen in the last couple of years. that kind of growth will resume in 2026. And so in 2025, we'll see growth, but a more stable profile of profitability. As we transition the model, all of this is embedded in our guidance that we gave the markets of above 100 million in organic growth in 2025.

we will now take our next question from flip light from kashir bank please go ahead your microphone is enabled hi hello everyone i have three questions the first one on real estate if you can give us an update on on the transactions made until today and what is still pending to do and if it will be completed during this year or next one. Second question on shareholder remuneration and after completion of the buyback plan, if you expect to launch new buyback or if at the stock price level, you see that as you mentioned before, there are no additional opportunistic opportunities to buy back more own shares. And last one, on specific items if you expect any additional cost during the rest of the year if the 9 million reported in this quarter will be a good indication for police. Thank you.

Thank you, Philip. On real estate, to... It's two-fold my answer. So first on the yield portfolio, that is this vehicle that we set up with the help of Sonai. We concluded the last phase of the transaction. So it was two phases transaction. The first occurred in the beginning of 2024. And now we concluded the remaining assets transfers to this vehicle. This was just as a reminder, these were assets that remained behind because some legal issues on the transfer that needed to be solved. before transferring them to the vehicle. And that was concluded in the beginning of this year. And for that, we also received further amount of 3.3 million euros. On the second half of the portfolio, or the remainder of the portfolio, better said, We continue to pursue the vacancy of these assets because these are assets that we foresee will remain vacant. So we are taking the operational steps in order to render these assets. These buildings vacant. The biggest one is here in Lisbon and something that will happen during next year. And the other is in the north of Portugal, the biggest one that will take some more time. After being vacant, or at the same time, we continue to pursue what will be the best use in terms of development of these assets, and we'll decide vis-a-vis the opportunities of the market, what to do in terms of monetization of these assets. But this is aligned with the two to five years timeline that we guided that will take place to pursue these development opportunities on this second portion of the assets. We continue to have the optionality in the first vehicle to tap in in more liquidity if we need. Because we still have 70% of the vehicle, so we continue to have ability to tap in and liquidate if needed, that we don't see presently. As well, I don't know.

Yes, on Cheryl, the remuneration and you went back, Philippe, what we want to stress is that we have provided a dividend policy which is clear might eventually be revised this year or in the next capital markets day because the company is now significantly transformed vis-a-vis where we were. And in that statement, we have always said that we remain available for additional remuneration through buybacks. It goes without saying that a buyback is a function of the context. The higher the valuation, the less obvious the buyback should be. We see a significant potential for additional valuation, and so we remain with that option available. There is presently nothing decided at the board level. But let me repeat again, we want to have a stable remuneration through dividend and an occasional additional remuneration through buybacks if and when it makes sense. On specific items, Guy will help us.

Thank you, João. On specific items, two things to be accounted. So the transaction costs, we still believe that will be some related with DHL as we conclude, we proceed with the discussion with regulators and we'll conclude the transaction more soon. towards the end of the year and that will entail some more transaction costs and some that are linked with with the closing and and we continue to see some space to restructure that we feel it's it's important it's imperative to to sustain profitability email So we'll have some more 3 to 4 million on restructuring of headcount, but continue to have 1 to 1.5 years of payback on this portion. The rest will be linked with transactions. not as much costs as we saw in this first quarter, but we should see some costs still flowing until the end of the year.

We will now take our next question from Antonio Soladas from IS Independent Research. Please go ahead.

Hi, good morning. Sorry. Thank you for taking my question. So the first one is on the bank. So the performance is struggling. You mentioned that it should improve in the coming years or in 2026. Nevertheless, taking into consideration that interest rates are coming down, I think that we are now through a very positive moment in terms of banks. So for me, it's really difficult to understand why the performance is not improving. This is more a comment. I don't know if you want to share with us what you think. You already mentioned about costs. So, nevertheless, it's really difficult to understand. Second question is on non-performing exposure that is increasing again, cost of risk is also increasing. It seems to be out of loans, so I don't know if you want to explain what's going on. And last, on the board, I don't know if the new board is already in place or not. And regarding the express and parcel business, maybe you can explain if we are now going for this kind of Lower volumes increasing, lower growth on volumes and higher average prices, because it's what we notice on this first quarter. So average prices performing very well and volumes not so well. I don't know if you want also to comment on this. Thank you very much.

Thank you, Antonio. I will start with the question on the bank. Let's see, we have this dual effect of compression in interest rates timed with our cycle of investments. So that's why we have some more pressure on margins. Nevertheless, I cannot relate with the comment that the effect of interest rates won't affect the other banks. I think in Portugal, we are seeing this. Nevertheless, we remain... with grossing volumes to transitioning to volumes more stable in terms of margin and stability. On cost of risk, we see a small pickup. The cost of risk is on 1%. So it went up from 0.8% last year related with auto loans, but nothing that is very worrisome or not within the normal volatility of the risk on this business area.

On the board, the board is not in place. The fit and proper process is still going on, and we hope that to be concluded, well, sooner than later. And of course, that will be communicated as soon as it happens. Coming to your last question, Antonio, of lower volumes plus high prices combination, let me stress that we are seeing a strong growth in volumes And again, so that expansion of the business through volume growth will continue. The fact that we have this in this quarter, this expansion from volumes to revenues. As I said before, it's not only a function of prices, it's a function of prices, a function of a higher average rate through consolidation, because while people buy more, sometimes they buy more from the same place and then the objects are consolidated or are simply more heavy objects. And also the fact that we are more than anyone else, including services and services like management of returns, customs clearance and so on. So it is indeed one important aspect of this quarter. We hope that volumes will be growing uh significantly and and that effect will probably be not as expressive as it was in this quarter but still um will allow us to keep exhibiting uh habit margins that are best in class and above clearly above the market and everyone else okay thank you very much okay

We will now take our next question from Joaquim Garcia Quiroz from JV Capital. Please go ahead. Your microphone is enabled.

Thank you for taking my question. Just a very quick one. Just regarding CAFESA, now that the acquisition has closed, what can we expect the impact to be from CAFESA this year? If you could guide us a bit on that, it would be appreciated. Thanks.

Thank you, Joaquin. So the basic numbers of Casillas have been disclosed when we announced the deal. We've just started, so the deal was closed less than one week ago. As I said, we are already working on, namely on the synergies. and on a commercial front. And so we believe it's a bit early days to disclose the impact that we expect for the year. So now the only thing that we know is that it's going to be eight months. And in the second quarter, we will guide on the impacts of CACESA because, of course, by then we will be much closer we will be able to provide a much robust indication. Thank you.

As a reminder, analysts that wish to place a question should click on the button to raise your hand and we will give you access to the microphone. And now we will take our next question from Pedro Loma Tunes. Please go ahead. Your microphone is enabled.

Good morning. So I think I only have one question on my part. So the question is, you had 6.7 million euros in the first quarter of expenses related to strategic projects and restructuring. I assume this is mostly related to CASEZA. So my question is, what can we expect in the short term in terms of, for example, in the second quarter, will there still be any of these kinds of expenses and moving forward a bit more in the long term, if we can expect some from the DHL joint venture. Thank you.

Thank you. As mentioned to Philip, we should expect not the same amount, but more expenses related with DHL and some with HR restructuring. We continue to see opportunities to... to restructure in terms of personnel, our male division that we think it's important to sustain profitability. And we are expecting to to have exits amounts related between 3 and 4 million euros that have a payback of 1 to 1.5 years in terms of returns of those redundancies, plus the DHL costs that I already mentioned. So this is what we should expect until the end of the year.

Thank you.

will now take our next question from john safara from santander this is the last question thank you yes thank you uh one last question on financial services um so considering the what we've seen lately on the arrival rates um i wanted to to have your view on the run rate in the next quarters from that placement. Are there any competing products out there that would suggest that probably the run rate decelerates in the next quarters considering where the arrival rates are now or even if they move lower? So just if you could share with us some thoughts on obviously the progression of financial services.

Thank you, João. Well, the quick answer is that we believe that this trend will continue. And there are several reasons for that. One is that we've built, as João Souza mentioned in his presentation, we've built a new customer base by introducing the digital channel. And we've seen that kind of increase with some significance. So that is one point. On the other hand, we see that in spite of the arrival coming down and the limit now being no longer a static limit, the difference to some deposits and to deposits will be the same. So the competitiveness will be significant. On the other hand, with the new government, we think that, also because that was included in the state budget, the protection of the competitiveness of this offer will continue. And we keep an expectation that, for example, the limit per savings account that was brought from 50 to 100 million euros will and shall improve because let me remind you that it used to be 350 and that was something that was about to happen when the government fell. So we, all in all, we keep for several reasons confident that this trend and the contribution of financial services will be relatively stable and certainly very strong throughout the year. Thank you.

Thank you. And as there are no further questions at this time, I'd like to hand the call back over to Mr. Julián, CEO, for any additional or closing remarks.

Thank you. Well, I'd just like to thank you again for coming. As we said, we've provided, we believe, a very decent quarter. And we would like to reaffirm once again that we are very confident that we're going to achieve the guidance that has been posted for this year, which, let me remind you, is also the guidance that we have provided in our Capital Markets Day back in 2022. And we see the year unfolding completely in line with that expectation that we will certainly fulfill. So thank you again for coming. We remain available through our IR team to your additional questions whenever you want. Thank you very much. Good morning.

He's cool.