CTT - Correios De Portugal, S.A.

Hello and welcome to the CTT full year 2023 results call. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. Today, we have Joelle Bento, CEO, and Guy Patricot, CFO, as our presenters. I will now hand you over to your host, Joelle Bento, the CEO, to begin today's conference. Thank you.

Thank you, Laura. Good morning, everyone. Welcome to our 2023 year-end results presentation. Well, 2023 was another great year for CPP, another growth year with significant contributions from experts and partners and the bank as the main contributors for our growth. And if you join me on page four of the presentation, I'll start exactly with parcels. We've delivered for the first time more than 100 million packages during the year in Portugal and Spain, and we've set absolute records of volumes during the peak season in both geographies. Especially relevant is the fact that we gained significant market share in Spain, which is our main growth geography, with record volumes and significant margin expansion. Moving to mail, we had a significant price increase for the first time. not as much as for this year, but significant, and that combined with the mix enabled for what we call stable male revenues, and we've been able to somehow mitigate the pressure on costs by inflation through new measures on the corporate sector, productivity to enhance margin protection, and we see mail growing better and better from now on. Moving to financial services and retail, We, of course, had a very high, abnormally high, I should say, level of public debt placement that ended roughly at mid-year because the volumes were then forced down by the Treasury. With those, especially the strict ceilings that were imposed and also on the interest tax, rate, debt placements are restricting demand. We hope that the election will resolve at least the cap very soon. Our commercial focus now has shifted to this region of insurance and other services to cope with the lower placement of public debt. Finally, the bank with very strong growth on all aspects in deposits in line with the announced strategy. Steady growth also on loans and the bank is moving very solid steps towards the 2025 targets that have been announced. On the right-hand side of the page, we have a few notes on financials. Revenues went up 11% in the quarter, year-on-year. with the transformation units, Express and Passive, and the bank leading this trend. And while the bank grew 10% of revenues, Express and Passive continued to accelerate to an impressive 56% growth. on revenues in the quarter. The current KB is also performing well with minus 24% vis-à-vis last year because we have in the last quarter of 52 this abnormal high placement of debt. But all in all, the year ended with an $88 million or a 36% increase year-on-year, which is above the announced objectives and the guidance that was given to the market. Express and Talkers and the Bank are indeed the avid growth levers, and they underline the benefits of the diversification portfolio that CPT has built for this transformation process that we are managing. And finally, a strong operating cash flow generation of over 114 million euros in the year or 15% higher than the previous year. free cash flow of 94 million, or 40% higher than last year, and a very strong consolidated net cash position of 39 million, which represents a 69 million improvement versus last year. And if we account the bank in equity method, Net debt stood at 177 million, or rather, down 8 million euros versus last year. On slide number five, I'll go very briefly on this. We can see very well that how experts and professionals became the biggest contributor for revenues and also for recurring EBIT in the quarter. On the top right-hand side of the slide, we see this chart with the EBIT bridge from final year 32 to final year 33. where we can notice a small negative contribution from mail, so a lower EBIT this year than the previous one, but then very significant positive contributions from the bank and from Express and Parcels and also Financial Services and Retail with a very good first half of the year. Moving to slide number six, a little bit more detail on the impressive growth on Parcels. Slide number six refers to Portugal where this impressive growth has been steady quarter on quarter with very significant growth on volumes and also if you look at the right hand side on revenues. And this also led us to increase our already significant market leadership. Moving to slide number seven. we can see growth well beyond the market. In fact, CPD in Spain or CPD Express was the winner of not that relevant market share, sorry, market growth during the year, but CDP grew clearly or by far above the market with an impressive 127% higher, so clearly more than doubling on the last quarter. We have a number of interesting aspects that we'd like to highlight. The fact that we have onboarded relevant new customers, new large international resellers, and we are focusing on diversifying towards smaller clients, which during 2023 also grew significantly. One of the reasons why the performance was so well received by the market is that we have shown high quality and efficiency. We have maintained the quality of service with high delivery efficiency rates in spite of an increase in volume per working day. And finally, we are adding new services that are enhancing the portfolio. And I would call the attention to the one that has been, well, we started actually by the end of 2022, which is the Customs Clearance Facility in Spain. This is a unique of its kind. There's no... similar facility because we combine in a single step not only customs clearance but also sorting, which provides for an impressive efficiency not only on cost but also on quality that we provide to our clients. And combined with the handling of returns and the largest convenience points to the largest PUDO network with over now 13,000 PUDOs in Spain, which is the largest available network. We are providing these new services. This is very important because it provides additional thickness. The more services one provides to the customers, the higher fidelity it generates. So, a very significant growth, a very important one in Spain that was fooled by all client segments. And the final word on the Spanish and on the agrarian market on parcels, moving to slide number eight. We've seen the market growing steadily in Portugal since 2019. This is in fact because e-commerce adoption is growing at a significant pace and I'd say constant pace in the monotonic way. Not so much the case in Spain, that grew also very, very significantly, but with a small hiccup in 2022. So, we can see here that the Spanish market grew around 4%, and this is also a good indication on how much market share we gained. On the right-hand side, we can see that Portugal is now converging faster than Spain, but both countries, because the adoption of e-commerce in Portugal is around one-third of the average if we consider all countries, and Spain is below half of the adoption. And so there is still a lot of room for natural convergence, meaning that we're going to have and to see and to feel tailwinds in terms of e-commerce adoption, which will probably enable us to keep growing at very relevant rates. And with this, I would pass the floor to my colleague, Jean Sousa, to guide us through the results and the impacting results of expressing parcels and then also on-mail and financial services in retail.

João, up to you. Thank you very much, João. As you can see on slide 9, in express and parcel in Portugal, Portugal posted growth in express and parcel revenues of 13.2%, with revenues of 42.9 million euros. This is a result of the strategy we have been implementing to attract new customers, but also more traffic in the current customers, so we need to share in the customers we have in our customer base. But also, we are always looking for customer rotation through a good diversification of our portfolio in customers, meaning in dimension of the customers and also in the sector of sensitivity. So that way we can manage in a good way the rotation of the customers. EBIT in Portugal grew more than 35%, a result of 3.9 million euros in the first quarter, translating in the margin of 9.2%. This good performance in margin results in a continuous improvement in operational optimization. We are always looking the way that we can increase our market share and revenues, but in the same way also bring equality to our customers and also how we can optimize our operation in Portugal and both in Spain. On plan 10, we can see that in Spain, in the third quarter, we have revenues of 67 million euros. This means a growth of 170%. Also, this is a result of a growth in customers in all segments. As you know, we are always looking in Spain to grow in all segments in customers, so in that way we're not being dependent on just strategic customers. And you can say that in 2033 we grow in all segments from SMEs to be clients and also in strategic. Also, I like, like John-Bent was saying, the first phase of operation of customer service offers. So this is very good to speak with the customer, so bringing more services to our customers. And this also builds that loyalty with CDT Express in Spain. These revenues result in a growth in EBIT of 380% in margin. That means 3.8 million euros in the first quarter and means a margin of 5.5%. On slide 10, sorry, on slide 11, where we look for the male business, In 2023, the threshold reached a revenue of €356 million. This means a particularly flat value compared with the previous year. Most of these revenues or these flat revenues comes from the increasing price per item that help us to compensate the traffic drops. Because despite the continuous work that we are doing in a commercial way, trying to retain the customer traffic in mail, as you know, digitalization is always a good challenger for us. And the increasing pricing helps us to have this practical set ready in 2033. And I would like to highlight that in February of this year, we already made a pricing increase of 9.49%. That's also a number in 2034. On slide 12, we can see that reduced revenue revenues as price can miscompensate software volumes, what this means. In the regular model, we saw a volume change of 9%, but the average revenue per item grew 9%. And in the competitive model, the volume changed minus 7.2%, but the average revenue per item grew 6.6%. This also shows that the current universal service contract is predictable and can manage in a good way. We are always concerned to add additional custom measures to deal with inflation and against the backdrop of such as revenues. So we see in 2023 a reduction in costs from 22.1 million euros to a total of 428.1 million euros to deal with the inflation we saw in 2023. This results in a bit of 6 million euros in 2023. Part of this cost control measure comes from the reduction of 116 people in 2023 and approximately 200 in 2024 that helped us to achieve the results in 2024. On slide 14, we now look for the financial services, as João Bento will say, and everybody knows we have a very good first half of the year in 2023, and we see that the less attractive rates and the stream and cap have an impact of the placement in the second half of the year. In the first quarter, we had placed 333 million euros of public debt. This results in 18 million euros of revenues and 3.5 million in EBIT with a margin of 43.8%. We believe that the competitiveness of the project will improve through this year when we look for the reduction of the banking costs and even a possibility for future change of the project during the year. And for that, we already have our digital offer using by family and friends. So we already developed our digital offer for our app, CourseDTP. So right now we are just testing with some persons. And also for the first time, we're going to have a marketing campaign to show the importance of this product aligned with IGCP. So that's why we are true believers that we are prepared when the competitive industry of public tests change during the year to attack the markets, even from our stores or for our digital platforms. Even so, at the same time, in this business area, we have continuous focus on selling more insurance and health plans that help us to diversify our offer, like we have been then in the different segments in Express and Parcels. And now I pass the word to Guido Pacheco, our CFO.

Thank you, João, and good morning. On page 15, we can see the bank APIs. where we continue to post the static progress to our medium term targets for 2025, be it in number of accounts or business volumes. In accounts, we grew 45,000 accounts on the year, and that put us in the average trading per quarter on the top end of our guidance range. In business volumes, we grew more than 1 billion and that also put us above the top end of the guiding range and it sets a good performance on that front. On the next page, we can see more details on the bank loan volumes with a very impressive progress on customer resources. Customer deposits grew almost 38% above the market. That declined 1.5% during the year and completely aligned with our strategic focus on customer deposits. auto loans with a very healthy growth as well with growing 13.2 percent and mortgage volumes growing also more than 10 in 2023 on the next page we can see the financials of the bank where we see A very strong progress on revenues driven by volumes and expression of net interest margin that stood in 2023 at 2.9%. Revenues growing more than 17%. and that led to the expansion of our EBIT that stood above 25 million, growing 76% on the year and bringing a return on tangible equity of 8.8% for the full year and closing to our mark of being above 10% in 25. On page 18, I won't spend much time here. We think it was important for you to have the numbers that enable you to think around the aspects of the universal partnership, and we put here the main impacts for you to model it. On page 19, we can see our already announced commitments on ESG, forefront, as you know, climate change, caring with the people and diversity, the focus on local community, and leading ESG operating model on government. Page 20 shows our progress towards those targets where we continue to invest on the energy transition being it to our most important focus of all. Where our electric fleet is approaching the 20%, 2024 will be a key year on the expansion of that number. We are clearly in line to meet our target of 50% in 2025 and then 100% on 2030. Our carbon emissions, despite these very impressive volume expansion on parcels, continue to reduce. We are already below the 2025 target, but we commit to reduce to 55% until 2030, and our efforts of decarbonizing will continue, and we are very committed to progress towards our target. Then gender parity, we consider ourselves already to be within the range of parity. Nevertheless, we continue to progress on measures to promote the less represented gender in order to be more and more within this range. On recycling of reusable packages, also above our target, we reached 82.4%. And on volunteering, we continue to show progress, growing 42% year-on-year on the number of hours of our employees that engage on volunteering. Phase 21 to show the progress that we are making on the next taxonomy requirements that will come into force next year. We can see on the left part of the slide that the investments that we are making in urgent transition, to be more and more share of our revenues and of our costs aligned with the taxonomy. And on the right-hand side, the initial outputs of our materiality analysis where we show where we will focus in our energy going forward. Then, moving on to the financial review on page 23, we start with our main KPIs, where we can see that the fourth quarter last year was a very strong quarter on revenue progress, where we grew more than 10%, 10.6% to be exact. Our recurring EBIT unfortunately declined in 24%. That is the reason of a very difficult comparable as you know in financial services on the fourth quarter last year where we placed more than an average year of public debt. on our net profit reach on the year 60.5 million euros and a very steady progress also in free cash flow that that's to the 94.4 million let me just a couple of remarks on tax because we have a very dramatic decline on taxation and that can lead to some questions so let me take the opportunity to clarify. It's basically a 7.1 million of default tax coming from the Sennan-Lisbach operation that we made in preparation to our real estate transaction that we closed on the beginning of the year. And that explains the main difference on sequential difference between the two years. There is also an increase in the tax credit related to SIFI, that is the innovation-related tax shield that we get from innovation projects. Moving on to the next page where we see revenues. First quarter, a very impressive progress on parcels. 56% with volumes in Portugal progressing more than 14% beat on revenues and volumes. Spain continues to accelerate with more than double our revenues and more than double our volumes as well and that reached 127%. We continue to gain share in both markets with with the markets still progressing, although the e-commerce markets are growing less than Portugal. As João mentioned, the Portuguese market is converging faster than Spain. That means that we should have gained share with some meaning in Portugal. We growth across all sectors and a good progress on the diversification of customers in Spain. That is something that we always monetary very closely um mail another declining 4.4 million half of that decline comes from from business solutions The other half of a small acceleration on mail volumes, especially on the financial sector. That explains half of the decline. On the full year, the address mail declined 8%, almost in line with the progress on the fourth quarter. Nevertheless, on the year, we think we could based on the new pricing formula, achieve a very flattish average male revenues, which brings us confidence that we can stabilize this business unit going forward. On financial details, declining 13.2 million with placements achieving 313 million euros. That is a very difficult comparison with the 4.3 billion that we placed on 2022. Product remains with lack of compactness vis-à-vis the interest rates and time deposits in Portugal. And the cap is restricting placement. things that we see improving throughout the year, especially on the second half where the market is expecting interest rates to come down. We are looking to have the cap of the placements removed or at least improved and that should the financial debt placements to some normality coming forward. Bank of CPP revenue is going to 3.7 million. This is basically the fact that the consequence of higher volumes and higher yields, net recessive margins throughout the banking sector expanded as well in back to CTT and with the increase of volumes, we had a very interesting progress on revenues. On the next page, we can see our OPEX that grew 14.8%, mainly driven by parcels. The costs increased 53% below the progress on revenues of $36 million. We continue to see unit costs in Iberia coming down despite inflationary conflicts. The scale is bearing fruits and such operational gearing is there. We see a very interesting margin expansion, although in the first quarter there are some capacity issues in Spain that are some consequences of margin, but nevertheless a very positive quarter on the mail, increasing 0.5 million. We need to recall that wage inflation on the quarter was 2.6 million euros and because of lower volumes in financial services, the cost of the retail stores are less shared by that division. As such, there is 2 million euros additional cost that flow back to mail another and that explains it. how we were not able to decline more than other costs during the quarter despite the revenue decline. Financial services declining 5.4 million and that is basically linked to the decreased activity. Conversely, Banco CTT increased 1.2 million euros and that is based on increased activity. Cost of risk on the quarter declined 0.2 percentage points to 1.5% or 0.9 in the full year. I'm excluding the credit card effect, so after we should expect below 1% cost of risk going forward. On page 26, we can see our EBIT numbers. On the quarter, EBIT declined 24.3% with the anticipated decline of the financial services after the very strong fourth quarter last year. Excess and pass of unbanked CPT, the main contributors, growing 6.3 million, more than compensating the 4.8 million male decline. Higher volume declines and lower contribution from business solution and higher costs from retail network coming from financial services explain the decline. Financial services also declining $7.7 million after the abnormally high fourth quarter of 2022 with the lack of compactness of the product. In the full year, we posted a very interesting growth of 35.7% with full year EBIT reaching 7.6 million euros. On the next slide, you can see the detail of our cash flow, also a very strong cash flow generation, with 140 million euros of operating cash flow growing 15%, free cash flow also growing to 94.4 million, a growth of 40%. We have a net cash position of 39 million, including lease liabilities, consolidated cash, But if we account banks in equity method, we have 177 million euros of debt, including lease liabilities. On the next slide, we can see that we continue to have a very prudent balance sheet, and we have a steady progress of the leveraging on the last years. Considering the bank, we have a cash position We normally focus on the right side of the slide where we can see that we have still very conservative net debt to EBITDA of 1.44 times. And with that, I pass you to João Ben to the outlook and final remarks.

Thank you, Guy. Dan, we are, if you follow me on slide 30, we are seeing ourselves growing towards the 2025 Capital Market Day announced target. We saw 2023 beating the guidance that we gave and that upgraded twice. And this is going to be the trend. This growth trend will remain both for revenues and margin. And if you follow me on the right-hand side, on the EBIT charge, I would like to call the attention that we have different business lines in different colors. So how do we see these 88 million progressing towards the target, the 2025 target? Well, certainly, the mile will slightly improve for the reasons that we already mentioned. We see the price formula now as a great contributor to a stable profile in terms of revenues and the efficiency measures that we are introducing and increasing will certainly allow us to slide into the red bit of the column. As for the yellow, financial services and retail, in spite of the added contribution from insurance, we'll see certainly a convergence towards normal placement levels on public debt. So yellow should certainly shrink and then we have both both both greens the bank and experts and parcels steadily growing and and establishing themselves as they did in 2023 as as the great and the most important close levers for the company so we see a growing revenue and added trend towards the 2025 ambition Moving to slide 31, we wanted to stress that we can support this kind of growth and we will keep investing on our own business. We have a wide balance sheet capacity, as we've seen, and you already illustrated how we have been lowering our gearing, and we are now discriminating between the types of investments. So this chart on the left-hand side has a selective capex, whereby the baseline capex is lowering and probably rely at the 20% level, but the transformational capex will increase. The key areas of investment on the right-hand side will be, of course, the increasing sorting capacity across Iberia, because we need to keep investing on capacity. to support the growth on volumes and on market share that we keep pursuing. Also for the developing of the lockers network in Portugal and now initiating that in Spain. We have just closed the first deal to start expanding into Spain. But also and very significantly on investment in IT to drive customer experience and operations efficiency. Our activity is more and more based on technology and mostly on IT, and so we should see a profile of significant investment on IT going forward. The same for reinforcing quality of service in the sense that we, while commercial success on parcels is a direct consequence of quality of service and pricing, of course, but also on mail. And finally, because we need to revamp Banco CDT hubs and upgrade the core platform and digital channels. This Banco CDT x2 is a function of exactly those two new strengths in terms of upgrading the commercial and also the physical platform and the digital channels. Therefore, we see a comfortable balance sheet allowing us to support growth along these lines. Moving to slide 32, a note on shareholder remuneration. We see our dividend growing combined with opportunistic share buyback. This is a general trend that we have announced. Actually, again, on the capital markets day, we have announced not only a dividend policy, but also the main principles that should guide the shareholder remuneration. Mainly, we need to keep space to invest on business growth. We need to attractively remunerate our shareholders, and part of that is that we could combine a steady dividend associated with net results net income with opportunity to share by bank. And this is what you can see. There is a significant increase on the proposal to the general meeting of shareholders for the dividend. The 17 cents that we are suggesting is not only significant improvement, 36% increase on last year's dividend, but it also remains within the remuneration, the dividend policy that we have stated and we believe that this consistency and fact that we have a policy and we stick to it is relevant. On the other hand, We are, as you know, about to close the second share buyback with the further amortization of shares, and we see this trend, if we have available cash, to remain and to continue. And finally, if you join me on our last page, in a nutshell, I would like to share that we have been able to show very strong 2023 results. And moreover, we are providing a guidance that guides us towards the goals set in the capital market today. And so, going top-down on parcels, we were and we keep developing this trend, the top performer on X7 passes in Nigeria. with record growth driving market share gains both in Portugal and Spain, and a significant margin expansion, mostly in Spain. And so, great year for accessing parcels and the trend that we see present again for this year. On mail, we have approved a price increase, the highest price increase ever, and that combined with the mix It enables stable male revenues and with stable male revenues we will deliver an improvement on EBIT. Moving to the retail network, we are expanding our insurance distribution, as I said before. And João Sousa already highlighted, while public debt placement remains below regular levels, although we see, especially in the second quarter, all signs guide us towards an improvement on placement. And, of course, growth in Banco City declines, volumes and profitability will be the trend this year for the bank towards the recently upgraded 2025 targets. We have been able to exhibit the strong and steady cash flow, so this leads to improved financial flexibility, and this is important not only for remuneration but also for investment in growth. And talking about remuneration, this $20 million share buyback ongoing and the dividend of $0.17 to be proposed to the general meeting is, in fact, we believe, very good news. We had strong results this last year. We have beaten a guidance not to be upgraded twice and so we believe this was a great year. what shall we expect for this year? Well, on the back of a strong growth in agrarian express and parcels that we keep looking at in a very optimistic way, we expect recurring EBIT in 2024 to be above 88 million, assuming public debt placements of 3 billion euros. So thank you for that, and now we remain available for Q&A.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We'll now take our first question from Joelle Safara with bankers and sender. Your line is open. Please go ahead.

Yes, hi. Good morning. And congratulations on these results, which were a very strong performance. So my first question would be basically trying to get some more insights from your guidance. Namely, you mentioned that you expect mail to slightly improve if you could have any idea of what would be that kind of improvement, and also linking this with the cost savings that you mentioned in the presentation of 6 million euros. So my question here is just if on a set risk variables basis, just should we expect this 6 million delta for 2024, or this is the accumulated figure from 23. So if you could a bit help us understand that in the mail side. And then also two questions related to the guidance. The first on the pro forma added figure for Banco CTT, you've I mean, it was very useful. You showed us the 26 million excluding the credit card portfolio. I would also wanted to ask the pro forma figure without pay shock, if you could give us an idea. And then just finally, again, on the guidance. on expression parcels, are we expecting double-digit growth or not? And then related to this, and just as my final point, we've seen in the fourth quarter another quarter where, I don't know if it were market share losses to new offerings that are out there, but it seems that so you're placing only off of what is the public debt placements out there in the market. And considering this and also the run rate, and I understand that you expect the limits to be removed, but, I mean, it just seems a bit optimistic, the €3 billion placement, for 2024 just based on this, but probably I'm missing something that you can enlighten me. And those are my questions.

Thank you.

Thank you for your questions. Starting on mail, on slide 13 we showed the annual EBIT impact of the outcome reductions. On total it's 10 million. The 2023 numbers will flow to P&L on the full year of 24. On the 6 million part will flow during 24 and not the full year. We are not giving, as usual, guidance by business units. We expect expansion of EBIT on mail, as one mentioned. That will come from the savings, but please take into account that we also have some offsets of these because of wage inflation. We already agree. We agreed with the union with a 4.4% salary increase for 2024, and that will offset part of the savings, but between the operational gearing of lower volumes on mail plus the efficiency measures that we have in place, we expect expansion of ABs of mail in 2024. On the bank, so you have the number there of the credit card. On PayShop, we have on the full year of 23, 4.5 million euros of the EBIT coming from PayShop on the bank and payment business units that we reported on the full year of 23. Regarding the public theft market share that we refer and with our future prospects on the product, first on the share. Right now, we believe that the reporting of the subscriptions in public tax certificates, it's not the most transparent way because on the placement, IGCP also includes the capitalization of interest that is accrued to the stock We believe that that number is between 50 and 70 million euros per month and that explains why when you have a declining profile of placement, the market share of PPP is declining because that number our share also declines because of that effect. We are asking IACP to improve on the transparency of that report. Let's see if they can help us on that because the share we see is not the same as it's on the report. Regarding the product evolution, we think the expansion of the cap in a way was cost on this new government transition and such it was a decision that was not taken in time of the beginning of the year. The state's budget Two numbers regarding public debt. The first one is they expect placing 3.7 billion this year and they have an obligation to place up to 7 billion this year. The combination of the increase of the cap plus what we see a declining interest rate environment on the second half of the year should improve the competitiveness of all the products. And as such, we are hoping that we can start increasing the volumes of placement and, as such, meet the 3 billion threshold that we mentioned on the ground.

Just before going to the expression part of growth, a complimentary note. We... On top of the exclusion provided by GE, one, we have already received comfort by the IGCP that they will change their report, so this will become more obvious sooner than later. And also, in broad terms, we believe that the percentage of placements, new placements by TDT is very much in line with what used to be in the past. So that should be in terms of market share. So that's a few in terms of model. Regarding the expression parcel, the answer is yes. So we see ourselves growing in double-digit in both geographies. And this is our expectation. We are very confident on that.

Thank you. Just a follow-up for Guillaume on this. The €3 billion placement, this is for, I mean, this is compared with the, sorry, this is your placement, right? It's not the AGCP number.

The €3 billion, it's our placement. Okay.

Okay.

Perfectly.

Thank you. And we'll now move on to our next question from Joaquin Garcia with JP Capital. The line is open. Please go ahead.

Yes, hello. Thank you for taking my questions. I just want to have a bit more information on the expression parcel growth. Is that going to come all through volume or is price finally going to have a positive impact on 2024? And then for your dividend, you've decreased the payout ratio. I know it's still in your guidance, but it's lower than last year. Is there a reason to it? Are you working on any operation or something? which you need the money for this year, or is it just to be prudent and then, as you did last year, nothing appears, then you'll do a share buyback? Thank you.

Starting with the first one, I think it's important for us to understand that pricing in parcels is completely correlated with the weight of the packets or the size of the parcels that we distribute. We have been seeing in the last couple of years an increasingly smaller packages flowing to our network, and that is also a factor of the out of Europe, so of the Asian packets that are more and more a share of the market. and as such the parcels are smaller and the price per unit comes down not because of pricing effect itself, but because of the size of the parcels. That in a way poses some challenges in cost efficiency, although the smaller packets also drive efficiency in some parts of our cost value chain. But we are not expecting dramatic increase in price per parcels. If anything, probably still a dilution this year because of this big growth on the second half of the year was mostly an out-of-Europe packets and as such with smaller parcels. So the growth will come were mostly out of growth on volumes.

Okay Joaquin, regarding the decrease in payout ratio and if it is related with us needing that money for acquiring something, which was I believe your question. So, let's see. We are very proud that we've been able to announce the dividend policy and stick to it. So, first of all, we are within the dividend policy and this also is one source of credibility. The fact that we have lowered the payout this year within the dividend payment policy is because we had an extraordinary high net income and we thought that the absolute increase in the dividend was enough and also enables us to see a dividend that will be somehow steadily growing and not being very volatile. So this combination of an absolute increase That provides also by chance, by coincidence, a decrease on payout, but within the policy seems to be absolutely fair and we are very convinced that this was the right decision. As for the second part of the question, I will guide you back to the principles. We say that shareholder remuneration should be a combination that allows us to keep investing on business growth, on attractively remunerated shareholders, and the business growth includes Of course, capacity while investing on our own business and M&A if necessary. And we have space enough in the balance sheet within the leverage limits that we have established for ourselves. to also go for M&A. So there was no restraint or constraint that guided the decision of proposing a dividend of 17 cents, because with this dividend, or with a higher dividend, we can still, using our leveraging capacity and available cash, to do whatever needs to be done.

Perfect. Thank you.

Thank you. And we'll now take our next question from Filippo Leite with Kaiser Bank. Your line is open. Please go ahead.

Hi. Hello, everyone. Sorry. I have three questions, if I may. The first one on express and parcels in Spain. because despite this strong top-line increase in this quarter and fourth quarter, the EBIT margin, when compared with the previous quarter, the EBIT margin dropped. What was the reason for this decrease? And if you can share with us your internal expectations regarding margin evolution on this unit, specifically in Spain for this year. And also if you can share with us the current market share in E&P in Portugal and also in Spain. Second question on Banco CTT and how is the process of the capital increase from Generali and when will start the exclusivity distribution that you agree with Generali for life and non-life insurance products? And last one, also related with the bank, because looking at the balance sheet of the bank, we see 3.1 billion loans. $3.1 billion deposits and $1.6 billion loans. Can you tell us in what assets are invested the extra $1.5 billion and how much is it contributing to your earnings? Thank you.

Thank you, Philippe. I'll start with the EBIT margin. EBIT margin dropped. It is somehow normal that it drops during the peak season, but we had a couple of unique effects. One is that we have exceeded capacity in Spain. So the growth of volumes was not only higher, but also faster than we expected. And therefore, to keep providing quality, which is of utmost importance in extras and parcels, we have to put some money to be able to provide consistent capacity. And in fact, the delivering capacity in a peak season is extremely important for customer loyalty. A good part of the growth that we have seen in Portugal and Spain throughout 2023 is because we have delivered, we believe, unique during the 2022 peak season. So the fact that we wanted to make sure that quality would not decline, that is the main reason. We see positive margin evolutions on EBIT throughout 2024, both in Portugal and the bank.

Going to the bank, we... We see that generally, let's see, we are interacting right now with Banco Portugal. We expect the process to close in the coming months. I think we are very close to the final stretch of answering to the queries of Banco Portugal. We are already... the necessary steps to distribute the products of Generali, both in bank CTT, both on the CTT network. So we are already distributing their products, although still not within the framework of the exclusivity agreement. That will come after the closing of the transaction. Regarding Your question to be what is the assets that we are invested on, on Banco CTT resources. It's basically BCE and sovereigns. So we only invest in sovereigns or basically in sovereigns. and those two investments, the VCE rates are known and the ones are in line with 3%. ECB, sorry, I was using the Portuguese acronym.

Thank you. As a final reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We'll take our next question from Arthur Amaro with Courage FBI. Your line is open. Please go ahead.

Hi, good morning. Just one quick question. I've heard, and I think it's That's what happened that the market share, that there were market share gains in the Express and Parcel in Spain. If you could please quantify how much was the market share gain and what's the current market share. Thank you.

Thank you, Artur. The numbers, as you know, the public numbers or official numbers regarding market share of last year are normally known more towards the end of this year, so there is some lag on the numbers because it's basically a B2B market. Our estimates is that we grew more both in Portugal and in Spain in market share. we should be above 42% on the national express and parcel market in Portugal. And in Spain, we should be within the 6% threshold. And we think we are up to the seven, but there is some volatility on the numbers. So we'll be within the 6% on the top end of the 6%, almost on the 7%. It's our estimate that we need to spend the final numbers of the market.

Sure. Okay. Thank you very much. Very clear, Guy. Thank you.

Thank you. And we'll now take our last question from Antonio Saladas with AS Research. Your line is open. Please go ahead.

Hi, good morning. Thank you for taking my questions. I have three. The first one is related with mail volumes. Figures have been volatile for the last quarter, so coming down between 7% and 10%, 11%. So I don't know if you can share with us what you think is the underlying trend in terms of mail volumes address. The second question is related with parcels. Portugal and Spain, different strategies. So I guess that in Portugal, we are happy without gaining market share, just keeping the market share for 2024. And the question is why you are not more keen on gaining market share in Portugal as you are doing in Spain, since the Portuguese market is, as you mentioned, is going to continue to grow. And the last question is related to the bank. I'm puzzled because the capital ratios are very high, so around 21%. And there will be a capital increase. And meanwhile, you are just investing in, or you are mainly investing in sovereigns and ECBs. So my question is, do you want to keep these capital ratios about 20%, 21%, or you will return in the future to 15%, 16% that or the capitalization that we were used to see in the past. Thank you very much.

Okay, thank you, Antonio. So on mail volumes, the volatility across the year is normal because sometimes there are very intense campaigns by being it the tax authority or a given bank or a utility. So we are not that much concerned with – we are, of course, concerned for operational reasons because you need to be ready and agile in coping with that. But the underlying trend is what matters. And we got a decline between 60% for this year. So very much in line with recent years. On express and parcel, well, I would not agree with the idea that we don't want to go after market share in Portugal. The fact that the market is growing, will allow us to grow even without a growth in market share. But we want to grow and we are looking at growing also in terms of market share. But B2B and B2C and international parcels, for example, are very different segments. So all in all, we see a market share gain and that is part of the growth that we are aiming at in Portugal and very much so in Spain too. And for the bank, I will ask you to...

Hi, Antonio. Thank you for your question. As you might remember from the bank on the end of last year, we have this new morale requirement that will come into force in 2026. We need to start complying in the end of 2025 with those requirements. So we are thinking around the capital structure to meet those requirements, and we think we can optimize it from a shareholder perspective, but that needs to be duly negotiated with the regulator. It's what we are doing. So we are moving within these two boundaries. First, the requirement of monel, and the most optimized way of complying with that requirement on a shareholder perspective, we need to agree with them to how can we achieve those objectives.

Just a follow-up question. I understood that it's minus 6%. Is that right? Male volumes. Six to eight. Okay, six to eight. Okay, thank you. And on the bank capital ratios, should I understand that it means that your structure will be for core equity tier one about 20% and more for percent relational tier two? Is that what you are trying to say? To reach the 24-25 morale?

We are looking to issue morale debt. It's the appetite of the market for that and how much we can play. It's something that we need to take into account in that. constraints or space of solutions that I tried to mention. So, that will be our main aim in order to comply with the requirements. We need to comply for the additional requirements from REL. We are looking to optimize that in the future. in the perspective of CTT, of the shareholder, but we need to take into account all the constraints. So, first, the appetite for that debt for an issuer like CTT and the regulator appetite and the growth of the bank as well. Okay. Thank you very much.

Thank you. And we'll now take our final question, a follow-up from Joao Sassara with Banco Santander. Please go ahead.

Thank you for taking my last question. My question is on capacity constraints. Obviously, the 2023 volume growth, particularly in Spain, was a very pleasant surprise. My question here is, with your CapEx plan, what do you think is the... I mean, how much volume growth can you absorb with the investments you're going to do in 2024? Not to reach a situation where you have capacity constraints.

Thank you as well. So, as a general principle in life, the ideal capacity is never one that does not lead everyone to be close to the limit. But thank you for your question. So capacity constraints in parcels is a function of several things. One which is quite obvious is sources, and then for sources we're talking about very good money and technology. but also and especially so on routes and last mile routes. So that is mostly outsourced in Spain, as you know, not to say completely outsourced. And so the issue that the design for a higher capacity involves some investments, but also organization methods and things which are not related to investments. So we keep a reasonable level of investment below for that increased capacity, but you should not have a direct mapping between the additional capacity and the additional investment. We are taking all the main investment decisions for the next six seasons, and they are now, as we speak, sort of being built, and campaigns are being designed with our providers, and therefore, I mean, you should not expect a huge growth in investment related to that. Exactly.

Just a small clarification, if I may. On the last quarter, the most of the constraints were on last mile. We were already on summer doing more than 50% of the number of droughts in Spain. We need to scale it again for the peak that put some constraints and that is what drove most of the constraints. And as such, it's nothing that is so concerning for 2024. Nevertheless, we need to do additional investments that are within the guidance that we provide on the slides we share with you today. and that decisions that are made and that will be in place in time for the next PIC season.

And maybe final from that Guy is that all the interactions with the main and large customers which are the ones that impact more PIC season volumes are completed. So now we have agreed with them what should be the flows and volumes throughout the year including the PIC season.

Perfect. Thank you very much.

Thank you. I'm now happy to hand it back to João for closing remarks. Thank you.

Thank you, Laura. So, once again, thank you for coming. This was a great year. We are very positive. on our situation and as I mentioned in the entities convention this year, 2023 was probably a significant point in the sense that we have established ourselves as an e-commerce logistics company with a very healthy retail bank and now we are navigating a growth strategy towards the 2025 financial targets that we have set up in the capital market today. So thank you for coming and we'll try to interact with you now offline through our IR team in the forthcoming hours and days. Thank you.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.