CTT - Correios De Portugal, S.A.

Good day and welcome to the CTT nine-month 2022 results conference call with Joao Bento, CEO, and Guy Pacheco, CFO. Today's call is being recorded. I will now hand the call over to Joao Bento, CEO. Please go ahead, sir.

Thank you, Diana. Good morning, everyone. Welcome to our third quarter webcast. I believe we have a set of good news today. starting with the first slide, which is slide number four, with the key takeaways from the quarter. As you've seen, we have a positive revenue trend across all business areas in this quarter, with the financial components performing better than the G61, financial services in detail, and the bank performing very well. And this positive revenue trend occurs in a challenging economic context, reason why we value that even more. And the result is that we have a third quarter recurring EBIT of just over 20 million euros, a significant year-on-year performance growth versus last year. As for the cash flow, we have also exhibited a strong operating cash flow generation in this quarter. of 40 million versus 3.5 in the equivalent quarter last year, on the back of efficient working capital management, in particular with improved collections from important clients. Moving to parcels, we have positive news for different reasons in Portugal and Spain. While in Portugal, volumes grew 5.8% in the quarter, so resuming a good start In Spain, it was the revenue per parcel, so pricing dynamics that resulted in growth while the volumes remained relatively flat. Then we had an outstanding performance in the public debt placement in the sense that with the existing context for interest rates the offer became very interesting and therefore an outstanding performance from the financial services business area. And finally for the bank, volume growth across all business segments in the bank resulting in both revenue growth and a very significant expansion on return on tangible equity that is benefiting from repratting all short-term interest rates so a business portfolio that is hedging itself very well and and providing a very good performance in the quarter moving to slide number five which is second five uh while the the the title says the most important thing solid operational financial performance in the quarter as anticipated uh revenue growth for the year is now for the quarter it was in line with with the figures for the year with an 8.1% growth in revenues and an outstanding growth in terms of the recurring EBIT, with 20.1 million euros in the quarter. As I said, this was mostly driven by the financial component, financial services and the bank. with significant growth in revenues, but mostly on recurring EBIT. The numbers talk about themselves, revenue growth across all areas, and very significant contributions in recurring EBIT in all the areas, except in Brussels. Moving to the detail in slide number six, regarding EMP Portugal, as previously referred, obtaining in the volumes, while EBITDA was penalized by operational constraints and inflation, which are pressuring operational costs, and also suffering from operational constraints regarding hiring of people for the magnetic during the summer. In any case, we've seen volume growth resuming, and the chart in the left-hand side is quite representative of the new trend, generating, therefore, a slight growth in revenues for the quarter. Moving to slide number seven, we have, as we said, a good performance of parcels in Spain for different reasons. So this federal resolution of the average revenue per item drove, in fact, significant profitability. On the left-hand side, we see a sluggish volume performance, which in itself is significant because e-commerce in Spain is declining in absolute terms. And with this revenue per item, Improvement revenue evolved very positively, 12.5%, to 31 million euros in the quarter, which then leads to an impressive evolution of EBITDA of about 300% versus the year-on-year, the similar quarter last year. Moving to mail, in slide number eight, where we see stable trends in address net volumes, which is interesting, while inbound continues under pressure, now with a decline which is lower in relative terms, but still considerable. So we can see on the right-hand side, on the address net volumes chart, declining, start stabilizing at around 4%, so slightly lower or significantly lower this decline than before, and apparently steady. But on the left-hand side, we see inbound, although at lower level than before, still declining quite significantly. As we've seen this before, this is very much associated to the fact that e-commerce parcels are no longer using the mail networks globally. Moving to slide number nine. an increased detail on the behavior of male. We have a regulated price increase affecting almost 60% of revenues, while competitive segments, that is male, where we have competition, showing volume and revenue growth. So these are both good news, since for the regulated pricing, we have now a price increase that somehow provides for a different, more positive behavior than before. And in profit competitive mode, we've been able to do growth on revenues. And then we have this already mentioned impact on inbound mail that is now starting to decline. And with this, I will pass the floor to Guy to guide us through the financial aspects of the business in the port.

Thank you, João. So starting, good morning, starting on slide 10 where we can see our financial services in detail that have a strong revenue growth driven by a very strong performance in public debt placements that grew 40.5% and a similar growth in financial services revenue. This is on the back of the increased attractiveness of our short-term product certificates default that right now have a very interest rate and assets are driving an increased demand, strong demand that we still see during this month. On retail and product services, also a small growth of 1.7%, where we continue to have the impact of the renewed commercial dynamics on that segment. On the next page, we can see the Banco numbers. Banco CTT has a revenue growth and return on tangible equity expansion driven by growth and volumes. In fact, we have the double-digit growth in every credit line, so on auto loans, 18.2%, on mortgage, 11.3%, and on credit cards under the SONAI partnership with 41.1%. Our customer resources also increasing 20.9% both on deposits and both on balance sheet, off balance sheet saving. Our return on technical equity now stands on 4.7%, clearly in line to the path to the double digit that we aim in the medium term. On slide 12, we should also, on ESG, we choose to show the breakdown of our carbon footprint to see the challenges that we have in the past to be carbon neutral in 2030. Of course, being a logistic company, our challenge is reducing the emissions that account for 72% with our own seats or subcontractors. And that's what we are doing. We are moving aggressively to green vehicles. On the next page, we see our ESG long-term commitments. So on our environmental, it's net zero by 2030. On social, having gender parity in 25 on top and mid-management and trying to have a positive impact on our local communities, dedicating 1% of our EBIT to that end, and on governments having incentives linked to EHE, at least for 50% of our top and mid-managers. In terms of highlights of 2022, we stated a few. I'm only going to focus on the five 100% electric cuts on the country. We increased 90% electrical vehicles and we just launched this partnership with EDP where we'll be building 40 solar energy communities that will enable us not only to reduce our carbon footprint, increase our own production that will stand at almost 20% of our electric bill and also providing real benefits for the local communities that can benefit on their energy bills. We also are in line with the commitment to invest 1% of VEBIT with already 0.6 million invested in social initiatives. Then moving on to the financial review and starting on slide 15 where we have our key financial resources. What we consider a very strong quarter with growth in revenues, EBIT and cash flow. An healthy growth in revenues of 8% with all business units contributing positively. Our EBIT increasing 82.7%. And in the quarter, our net profits reached 13.8 million, growing 50% year-on-year. And our cash flow reaching 28.1 million in the third quarter. On slide 16, we can see the detailed revenue evolution. As I mentioned, a growth of 8.1% with the biggest contribution coming from expression parcels and banks. In the third quarter, expression parcels growing 7.6% in revenues and 2.6% in volumes. In Portugal, volumes recovering to growing 5.8%. and our SEP revenues grew 12%. In Spain, the volumes remained flat, although with a sequential improvement in the volume trend, with our Chinese customers improving the overall number of volumes, although our big accounts still fighting some pressure on volumes. Our price was also supporting the revenue growth with 12.5%. Mail another growing 2.4%, positively impacted by the consolidation of New Spring and growth in business solutions that contributed with 4.3 million euros of growth. Revenues on mail declining 1.7% or 1.8%, sorry, 1.7 million or 1.8%, mostly coming from inbound revenues. We continue to see stabilizing trends as well as shares with you on the back of mail pricing lever in the regulated part and ringbacks on the competitive net. Financial services also growing 29.1% with the extraordinary performance of public services as I mentioned with an increase of 40% in placement. Banco CTT continuing the strong passive growth, also growing 21.5% with expanding net interest margin and commissions on the back of the increased monetization of the bank customer base. Slide 17 shows us our OPEX that grew 3.8%, mostly driven by parcels and Banco. In expressing parcels, we increased 5.1 million or 8.7%. Especially in Portugal, fuel inflation impacting unit costs and the constraints on the base network of hiring people to face holidays during the summer prevented us to reuse the base network as much as we normally do in order to have increased efficiencies by synergies between the networks. We also have the additional investment in capacity, what were our previous trends that are still impacting OPEX. In Spain, productivity gains offsetting the inflation impacts and that sets a good performance there. Melanother declining 3.8 million, despite of having 3.9 million increase on business solutions, and that's coming from the new spring consolidation. The remainder of the business unit declining 7.8 million in OPEX, namely due to the change of our headquarters in this one. Financial services growing 0.9 million euros, basically linked with increased activity, and Banco with an increase of 4.9 million, out of which 3.1 are related with cost of risk. In the third quarter, 22, our cost of risk is moving 1.5% and increasing from the 1.1% in the third quarter last year The cost of risk remains volatile, namely on the credit cards. We have implemented measures to improve our collection process with already some benefits in the quarter, and we expect those benefits to continue to fall in the coming quarter. On slide 18, we have the evolution of our EBIT that will go 9.1 million euros with mail and financial services and bank CCT contributing positively. In the quarter, expense and cost was declining 0.6 million due to Portugal's performance with inflation and investment incapacity, and lower price per item impacting margins. In Spain, good performance on price per object coupled with higher efficiency driving margin improvement, and in Melanada, improving 6.4 million due to the cost reductions, especially the impact on the exchange of quarters, of headquarters in Lisbon. Financial services growing 2.6 million on the back of that extraordinary performance on placement, and bankruptcy growing 0.7 million due to strong growth in banking product, although still impacted by higher cost of risk in the third quarter. In page 19, we can see our cash flow evolution. We are in a very good quarter in cash flow. Our operating cash flow reaching in the nine months is 59 million, with working capital management improving during this last quarter. Our capex is standing now at 19.9 million, growing 1.5 million euros versus last year. And the free cash flow in the nine months is reaching 31.9 million euros. Our net debt now stands at 63.2 million euros. And with that, I'll hand you over to Juan for his final remarks. Thank you, Guy.