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.