CTT - CORREIOS DE PORTUGAL S.A. (CTT) Q1 2026 Earnings Call Transcript

hello and welcome to ctt's first quarter 2026 results conference call this event is hosted by mr gui pacheco ceo of ctt and by mr joan souza ceco of ctt please note that this conference is being recorded for the duration of the call your microphones will be disabled we will have a q a session at the end of the presentation and analysts will have the opportunity to ask questions to do so simply click on the button to raise your hands and we will give you access to the microphone if you are dialing from a phone line press star 9 to raise your hands and star 6 to unmute yourself

myself I'll now turn the call over to Mr Guy Pacheco CEO good morning to you all and thank you for attending our first Q conference call I would invite you to start our presentation on slide number four where we show a quarter of resilient growth with 4.3 percent growth with our growth areas performing well, parcels and Banco CTT showing growth acceleration. Although, as anticipated, our profitability was impacted by a number of congenital impacts, namely the Middle East crisis and new regulation introduction in parcels, concentrated peak volumes that spilled over to the first quarter and the storms that affected the central Portugal due to the hurricane increasing. And with that our EB declined 35.3% year on year on a comparable basis. These events were contained in April and they probably showing strong signs of improvement with SEP volumes accelerating, e-commerce solutions recurring EBIT also improving sequentially, and the public SEP placements showing signs of strong recovery and should improve further with revision of the limits that government announced last week. On page five we can see the e-commerce solutions volumes where we continue to see strong volume uh evolution with another quarter of acceleration on growth we posted a very strong nine 14.3 percent in the first quarter and and april shows strong signs of improvement with almost 30 percent growth on april this growth is supported on mainly on non-asian customers uh with with strong uh volume acceleration and with this we we continue to see a very strong iberian structural opportunity that remains unchanged since since the last quarters um on page six we can see e-commerce solutions revenues growth that remain very solid. SEP revenues increased 14.4 percent on the back of of strong volume growth that we saw. E-commerce solution revenues consolidated growing on a performer basis 10.2 percent. The non-SEP revenues, namely on Casesa, were impacted by this discontinuing of low gross margin business like handling and the impact of the introduction of the new G4 regulation in March. Our margin adds the impact of these specific events and as such we are the challenging margin in the first quarter. Regulation peak volumes and Middle East crisis introduced volatility in in the volumes throughout the quarter as shown in the inter-month detail that we shared in the previous slide and that poses a number of capacity management issues that affected the the margin in the first quarter all those issues were resolved and as such Profitability in April is showing strong signs of sequential improvement and normalizing. With that, I would pass you over to Joao to take us through the public debt numbers.

Thank you very much, Guy. Good morning, everybody. As we did in the last call, last results call, we started to smell another section with our growth and diversification areas. As you can see in this slide on the left side, we show the performance of public death placements. This first quarter performance was impacted by two manufacturers. So the lower footfall in our stores do the several storms that affect Portugal during the quarter that led to several stores being closed for a long number of days. and also a demanding of this quarter versus the quarter of last year when we compared because the quarter of last year was still benefiting from the cap increase that we see in the quarter, the last quarter of 24 and also the improvement remuneration conditions. The good news is that we already saw a sequential improvement in april and in addition the upgrade limits at the end of april already translating to a strong growth in the first days of may uh we can highlight that these first days of may we see two times of uh public place there um sorry public public place the depth placements in a daily basis and even in the in our app we see a best day ever like a record in a in our app in a public place that placement on the left hand side we see our diversify diversified services we are doing so the health plans and insurance here we we We highlight health plans that even with these lower footfalls in stores, we see the customer base continue to increase. Both health plans and insurance providers are evolving very positively and helping us to build a customer portfolio with recurring revenue and great predictability for CBT. On page 8, we see the revenues decline from 128.7 million in this quarter versus 132.2 in the last quarter. This performance reflects two main factors. So the declining mile, that is a well-known trend that we are managing with improving in pricing and with managing churn with the big customers. but more important the reduction in revenues from the saving certificates that i explained before but it is not a trend this is a specific impact that we already solved or is already solved and we are seeing already a positive positive trend in the other end positive in this chart you can see business solutions and payments another important pillar in our diversification strategy energy continued to grow. This area continues to support the overall performance of this business unit. In terms of profitability, recurring EBIT email services was impacted by lower revenues from these saving placements. Recurring EBIT stood at 4.2 million in this first quarter versus 7.9 million in the last quarter, represented a decline on 46.6% and And the margin was 3.3% on the first quarter versus 6.0% on the first quarter of 25. Nevertheless, we maintain a positive outlook on these mill and others because continued growth of business solutions. And we already see this recovering savings placements in April and these first days on May. And with this, I pass through to you.

Thank you, João. On page 9, we can see Banco CTT operationals, the Banco continues to accelerate sequentially its volumes growth, showing early signs of success of the new strategy that we are being implementing, with volumes growing almost 14%, especially on the loan book with growth of almost 16%, percent and off balance sheet savings that continue to overperform with 23.2 percent growth. Banco was one of the or the bank that grew most within the retail banks in Portugal for the ones that post results so very very strong performance here. Current accounts continue to grow 3.5 percent reaching almost 712 000 customers uh on banking revenues we we continue to see net interest margin improvement that now stands at 2.2 percent and the banking revenues driven by net interest income and commissions uh reaching almost nine percent in terms of of recurring a it a flattish performance or a marginal improvement as we continue to invest in reinforcing our commercial and digital capabilities to refuel or to reignite the bankrolls going forward on On page 11, we can see the beginning of our financial review with our key financial indicators. Please bear in mind that these are not performance or include the impact of the acquisition of Casesa. And we see 14.1% growth on revenues or operating costs, as mentioned, with the additional costs due to capacity management. and impacts of weather growing 17.7 percent recurring a bit reaching 15.3 with a decline of 24 percent and our net profit was 4.5 million euros with 17.6 percent decline our free cash flow was heavily impacted by seasonality and that is due to to the repayments of the capacity installed for to face peak and the additional and the capex that normally is back and loaded and as such we we saw this reversal that we expect as previously commented to to reverse during the year on page 12 we see revenue growth continues to be pulled by solid performance of e-commerce solutions where we see SAP with very strong performance and overall growing 10% or 15.1 million. On mail we saw the decline of financial service placements that account for 3 million of this decline. The remainder is the net effect of good performance on business solutions and still decline on volumes of mail. Banco CTT growth of 3 million driven by volumes that drove net interest income and commissions and overall growing 4.3% on a pro forma basis on the first quarter. Our e-commerce will continue to be the catalyst or the core catalyst of our revenues and accounting more or almost half of our revenues in the first quarter. On phase 13, we can see the evolution of our costs that, as mentioned, were mainly driven by temporary e-commerce capacity challenges. E-commerce solutions grew 19.8% with high volatility due to supply chain disruptions and peak season 2025 spillover to January due to an abnormally concentrated peak around Christmas required a significant additional effort to maintain quality and as such we continue to prioritize quality for our customers because we think that is what protects value in the long term and these ads contain the impact on the first quarter. Mail and services declining 0.8 million, showing lower activity in mail and financial services, with some cost impacts resulting from the storms in Portugal, and the bank a 2.9 million increase due to the investment on growth and commercial expansion. Our core cost of risk now stands at 1%, with a slight increase from 0.9% last year. Overall, our revenues grew 7.5%. In slide 14, we can see our recurring EBIT bridge, where we see a first quarter showing compression in our margins due to these slighted events where we see early signs of recovery with a strong April in terms of operationals. Our EBIT is declining 35% on our co-operable basis due to these impacts, namely on e-commerce solutions where the capacity management issues and regulations impacted the performance with 4.7 million euros decline. and in in mainland services the impact of lower public debt placements also affecting performance with a 3.7 million euros of decline the bank showing a flattish performance in line with guidance and with the phase of investment that we are now undergoing the recurring EBIT performance is set to improve in the rest of the year. The second quarter started strongly with parcel volumes also posting strong performance and recovering on profitability. On mainland services, we see financial services benefiting from not only higher interest rates, but especially from the increase on limits. The government increased limits on the current series from 100 000 euros per person individual limit to 250 000 euros and we as one mentioned we see early signs of of of elasticity due to those changes and the net interest margin in in the bank will have tailwind from in from interest rates uh but the investment the investment will continue as as guided. In page 15 we see cash flow and now the net depth, our leverage ratios due to the working capital performance now sits at 2.2 times, still below the self-imposed limits of 2.5 times. We expect working capital normalization throughout the rest of the year that will help the leveraging that coupled with the with the proceeds from the JV with DHL that we expected to close this month we see leverage immediately below 1.7 and and with with the reversal to input improve further throughout the year and with this I would move to my final remarks we continue to to believe firmly in in the future growth of this company continue to building building open our strategic foundations we have been building this commercial franchise strong commercial franchise throughout iberia and that continues very strong especially in in the dynamics of revenues where we continue to see resilience growth in in the e-commerce solutions the first quarter was affected by anticipated Edwin's with limited impact throughout the quarter and we see April trading showing strong signs of recovery for the rest of the we see normalization underway with this recovery on the on margins on the of e-commerce and continuous strong volumes mail and service is stabilizing on the back of recovery and and better performance of financial services with the revisions of saving certificates and BancoCTT will continue this is path of accelerating growth with no changing design in our strategic stance in terms of investment with is we we are reiterating guidance not withstand withstanding a volatile environment in regulation and increasing execution risk but we remain commitment committed to achieve our full year guidance that i remind it's a growing guidance. We deliver it to be driven by e-commerce execution throughout the rest of the year and tailwinds on financial services. We expect, as mentioned, our leverage trajectory to improve after DHL closing in May. We started very strongly in our second quarter. We see second semester also with strong fundamentals but subject to the new regulations. We are preparing according to our scenarios but we'll need to adjust according to reality but we remain very committed to achieve our full year guidance.

And with this I would be ready to take your questions and we are now available to take your questions as a reminder analysts that wish to place a question should click on the button raise your hand and we'll give you access to the microphone and at least dialing from a phone line should press star nine to raise your hand and star six to unmute yourself our first question comes from joao safara joao please ask your question hi good morning and thank you and joao and welcome joanna to the team

um so i mean i have i have two questions i think they are they are related and the the first one is is just if you could well help us understand or try to identify the several impacts you you mentioned you mentioned uh big seasons spillover volatility volatility weather So, I don't know if there is a way to sort of give us an idea of exactly what are these impacts? What is the contribution of each of these impacts? And also, the question here is also because it seems that, and we've seen that as well, in uh it's true with different perimeter but we've seen that as well in the first quarter of of 25 that there was uh because of quality some some deteriorations of margins so here basically what i wanted to understand is a bit if if this is something that we should expect going forward and in in the first quarter um in the sense that okay i understand the weather So definitely that is a one-off, but maybe the other impacts might happen on a recurrent basis. So this is my question, and so I don't know if you can help me understand this a little bit better. And then just on the performance of Casesa, I mean, is it fair to assume that Casesa did relatively worse than the rest of the business? And the reason why I'm saying this is because we've seen some volume grow in the quarter, which was quite strong, 14%. that should have triggered some some operating leverage and and and then i mean i don't know or maybe it was just that the base forecast says margin in the first quarter 25 was was too high um i don't know if there's something there that you could also help me understand a little bit better and that's it thank you thank you joan for your question um i will start with the first one so you are right when you see when you say that there is some seasonality effects on the first

quarter and it's it's easy to explain why uh that is uh the the market is still uh very exposed to asian volumes and and on the first quarter uh we have february typically with the chinese new year And normally we have very low volumes around those weeks because production in China stops and as such that impacts the supply chain. and that is the reason why the first quarter normally has lower margins because it's difficult to just for one week or two adjust capacity to then resume with significant volumes uplift in March and as such normally we have lower margins in the first quarter. That trend this year was aggravated further by specific impacts, that was the peak and the war, and that's why, because we add in every month, so in January, February and March, a high volatility from one to three times the volume, week on week. and that poses tremendous challenges in terms of managing capacity because when it's low, you are under capacity and having margin loss because of that and when it grows, you need to put extra labor and hire people at higher costs in order to face that extra growth. On average, growth was resilient, as you saw, but with this volatility impacted. And that volatility was driven in January because of the spillover of the peak. February normally is slow because of Chinese New Year and no news there. But when we were expecting a strong recovery after the New Year's in China, as every year happens, we have the Middle Eastern prices that impacted all the flows that come through the Middle East, and that took some time to recover. Luckily, the supply chains were agile enough recovering, but we had a huge amount of volumes coming on the end of March that once again impacted margins. So, good news is the business remains strong. We had this volatility that impacted margins temporarily. As I mentioned, we continue to protect quality of our customers in order to keep loyalty of them. And that's what we see in the long term generating more value. but unfortunately we had these impacts on the quota margin. In terms of the storms, they were more contained on the mailing services impacts, not on the parcel division. Casesa, in terms of margin, in terms of top line, we discontinued some legacy business they had from their past in Iberia, remember that Casesa used to be an Iberian division, and they had some handling services that were non-core and low margin, that we discontinued throughout last year. But in March, the Spain Customers Authority was the first in Europe to introduce a new EU regulation that is G4, and that posed a number of problems in the Madrid airports, not only for us, but to every customs broker in the market. with with the inability to clear volumes that by due to namely constraints on on the Customers Authority side in IT that was unable to respond to the clearance requests and that adds a double impact on margin in in revenues and in margin because we had more costs of storage in the airport side of of due to that since then things are improving as normality within with tax tax authority resumed and and we are seeing things going back to normality our next question comes from philip late at caixa bank flip please unmute yourself and ask your

question yes hello can you hear me now yeah we can yes good morning okay perfect so good morning everyone i have four questions if i may first one is regarding dhl the joint venture with dhl because you as you mentioned it's expected to be closed this this month just to confirm what will be the next to see the final net proceeds for ctt and also if we can already assume that DHL will not take any stake in CACESA a second question on e-commerce solution because you mentioned profitability improvement in April and he was just explaining that but in terms of numbers can we assume that the a bit margin in April stood already close to the almost 10 percent reported in the second quarter of last year or the the sequential improvement as as you mentioned in presentation means that probably in second quarter we will still have an EBITDA margin or for this division below the close to 10% reported last year. Third question also on e-commerce and is actually a clarification because you mentioned new regulation affecting parcel volumes but just to confirm that this new regulation will be implemented only in June or july right so my my question is just to understand how this regulation that will be implemented only before summer already impacted the volumes in first quarter and last a clarification on banco ctt and on recent news that apparently you you hire a financial advisor to evaluate your your options on the bank just to confirm how is the process and if there is any official process open

to to divest part or the entire stake that you have in the bank thank you the so philip thank you for your question uh starting on the hljv so it it will be closing on on the next weeks we still cannot confirm the final number although we are not expecting material differences from the number we announced we announced a number that is a non-debt basis and we'll have a cash adjustment according to the accounts of april we are still finalizing that number so it's still but we are not expecting a material adjustment due to that in regarding the margin we see a special improvement uh the last last quarter margin was was close to 10 percent we we see conversions to that number uh still early days to commit to to a specific number but we see signs of normalization in them in terms of the bank i want comment news but i can say that we didn't hire any advisor at this point so no nothing else to comment on that on regulation um uh you you are right to to ask that clarification so from first of july onwards we'll have the minimum removal, but that is encompassed in what the EU calls the European Union tax reform, where there are several changes. Those changes are not material in terms of taxation or any kind of levy charged to the to the goods like it will be from first of july onwards but there are changes in the amount of information exchanged between the the the platform the commerce platform and and tax authority and that is increasing materially because one of of the aims of tax of european unions is also to increase transparency in what arrives and enters the european space and as such the number of information collected increased materially and that's what driven the the chokes uh on on the on the it systems from custom side because the number of information increased by almost 100 times per parcel and those throughput issues pose temporarily issues on Cassese business in Spain that is as you know the big chunk of Cassese numbers and profitability.

Just if I made a follow-up on DHL.

On Cassez, right? I forgot to mention that. Cassez will not be on the primitive.

Okay, thank you.

We continue available to take questions. Analysts that wish to place a button to raise your hands and will give access to the microphone. Analysts dialing from the phone should press star nine to raise your hand and star six to unmute yourselves as we don't have any other questions at this point i will turn now uh the call back to to our ceo keep a shake for additional and closing remarks so thank you for attending uh we have a new management team in place we are very excited to to take on this new challenge.

We see encouraging signs of recovery and encouraging start of this quarter with our April numbers and we remain very committed to deliver our commitments to the market. Thank you all and see you next time.