CTT (CTT.LS), the national postal service of Portugal, reported a robust third quarter in 2024, with significant revenue growth and a positive outlook for the fourth quarter. CEO Joao Bento highlighted a transition period in Q3, marked by a 17.3% increase in revenue and a 28.6% rise in EBIT, excluding Financial Services.
The company’s Express & Parcels segment achieved record volumes, contributing to the strong performance, while Mail revenues grew despite a decline in addressed mail traffic.
The bank segment also saw substantial growth, with a notable increase in clients and deposits. Looking forward, CTT expects a strong Q4 with projected logistics revenues between €70 million and €90 million.
Key Takeaways
- CTT reported a 17.3% growth in revenue and a 28.6% increase in EBIT, excluding Financial Services, in Q3.
- Express & Parcels volumes reached record highs with a 46% year-on-year growth, and an EBIT margin of 8.7%.
- Mail revenues grew by 8.9% to €82.4 million, despite a 7.5% decline in addressed mail traffic.
- The bank segment added 29,000 new clients and saw a 46% increase in deposits, resulting in a record return on tangible equity of 12.4%.
- Operating cash flow was €29.1 million, with free cash flow at €8.5 million. Net debt stood at €2.7 million, and the cash position was €154.8 million, excluding lease liabilities.
- CTT anticipates a strong Q4, with projected revenues of €80 million to €90 million, and Mail revenues showing improvement in October.
- A proposed Mail price increase of 6.9% for the next year is pending regulatory approval.
- The company aims to maintain a stable or slightly growing dividend, with a payout ratio between 30% and 50%.
Company Outlook
- CTT expects a strong fourth quarter, projecting logistics revenues to reach a minimum of €70 million.
- Mail revenues are improving, with signs of recovery seen in October.
- Public debt placements are expected to rise significantly.
- Cash flow normalization is anticipated, particularly in Financial Services, where revenue is expected to recover to historical levels.
Bearish Highlights
- There was a flat consolidated EBIT performance reported for the quarter.
- Mail segment experienced a decline of €3.5 million due to volume and operational expenses.
- Financial Services saw a decrease of €1.3 million.
Bullish Highlights
- Express & Parcels segment reported growth of €4.2 million, with margin expansion.
- Bank segment grew by 7.2%, driven by strong resource dynamics.
- Management expects normalization in Mail and continued recovery in Financial Services.
Misses
- Operating cash flow was negatively impacted by working capital delays, primarily due to receivables from a major customer.
- The increase in lease liabilities was due to fleet renewals and capacity expansions in Spain.
Q&A Highlights
- The current pricing structure is expected to remain unchanged for the upcoming regulatory period.
- A price increase of 6.9% for the next year is proposed, pending regulatory approval.
- The impact of VAT on intra-European transactions will continue to affect working capital.
- The bank’s strategy will focus on enhancing resources and savings, leveraging new shareholder support.
CTT’s strong performance in Q3 and optimistic projections for Q4 demonstrate the company’s resilience and strategic focus on growth areas. The company’s commitment to maintaining a stable dividend and improving its service offerings, despite some operational challenges, positions it favorably for the future. Investors will closely watch the regulatory approval of the proposed Mail price increase and the continued recovery in Financial Services.
Full transcript – None (CTTPY) Q3 2024:
Operator: Welcome to CTT Nine Months 2024 Results Conference Call. Please note that this conference is being recorded. [Operator Instructions]. I will now turn the call over to Mr. Joao Bento, CEO.
Joao Bento: Good morning, everyone. Welcome to our third quarter results presentation. Q3 was a transition quarter towards what we believe is going to be a great final quarter since Financial Services is now normalizing and Express & Parcels will keep beating all-time records. So, if you — if we concentrate — I’m with Slide number 4. If we look at the charts on the left and if we set aside Financial Services, we’ve observed in the quarter 17.3% growth on revenues that then is amplified to a 28.6% growth on EBIT. Looking into more detail on the right-hand side to each business area and starting with the logistics bucket, we see Express & Parcels achieving record volumes since we had during this summer, volumes above last year’s peak season. And then this very high growth of 46% year-on-year delivering up to now represents more than €98 million. And I recall that we celebrated last year, the first time that CTT has distributed 100 million parcels. We have achieved almost that in the first 9 months of the year. We have also improved our EBIT margin in the quarter, up to 8.7% and we have a very sound outlook for another record-breaking peak season in the fourth quarter. Moving to Mail & Others. We’ve seen price increase and the mix compensating softer volumes. This happened mostly in August and September. But we are expecting a strong fourth quarter given that it has almost 7% more working days. We expect some mail backlog, especially from the state agencies to recover. We will also benefit from increased cost sharing from financial services that will perform and is performing already much better. And we’ve seen good early signs in October as we will detail later on. Moving to the Bank and Financial Service bucket. We would like to call your attention to the wide adoption of our app for subscription of savings certificates that was inaugurating during this quarter. It represents now almost 5% of all placements on a daily basis. And the most significant fact in the quarter in terms of financial services was postponed to October, but we’ve seen a very significant increase in limits — sorry, a very significant increase in placements since the limit for each account was increased in early October. Moving to the bank. We’ve seen continued client growth with 29,000 new clients this year and the focus on client engagement produced significant growth in business volumes. And I will illustrate that with a 46% year-on-year growth on deposits, which is a very high beat of the market growth that was just under 8%. And all-in-all, the bank produced a record return on tangible equity at 12.4% in the first 9 months of the year, which is already above the target that we have announced in the Capital Markets Day. Moving to Slide number 5 to give you a little bit more detail on the performance of Parcels. We have observed a 34.2% growth vis-a-vis the same quarter last year. And since we had also a slight 4% improvement in revenue per item, well, this puts us in a very good position for a very strong peak season in the last quarter. But moving to Slide number 6, leads to an even higher growth on revenues of 36.2% vis-a-vis the third quarter of last year and with an improved EBIT margin reaching almost 9%, which confirms our claim that volume growth would produce operational leverage. And therefore, for the simple fact that we are improving volumes, we are also improving the profitability of this business. And with that said, I would move to Slide number 7 and pass the floor to my colleague, Joao Sousa.
Joao Sousa: Thank you, Joao. Good morning, everyone. As you can see on Slide 7, in Mail, this quarter, addressed mail traffic fell by 7.5% compared with the same period of last year. However, the average price per item increased 10.1%, offsetting the decline in traffic through the pricing and also the type of product that we are selling to the customers. Going for the Slide 8, where we see the revenues of mail address, mail revenues, we see we reached in this quarter €82.4 million, marking an 8.9 increase of the revenues year-over-year. But what we like to say here, we see a positive outlook for the fourth quarter. Why? For two main reasons, more working days. So, in the fourth quarter of ’24, we’re going to have 6.8% more working days than the previous year. And also, the first days of October show us an October momentum. So, with an increasing of the address mail revenues per working day, mainly come from the backlog of the public administration, like Joao already was saying that we’re expecting in the third quarter and was postponed for this fourth quarter. So, with this, we see a positive outlook in Mail for the fourth quarter of this year. On Mail and Others, just an additional note that Business Solutions and Payments are performing well in this segment with a year-over-year growth of 13% and 19.1%, respectively. As you know, on this mail, costs, it’s on Slide 9. Costs, it’s an important matter. So, inflection, elections and lower financial service increased the costs, so offsetting the cost savings that we are implementing on this area, reaching 2.8 million in the first 9 months of the year in EBIT, but if you look for a normalized public debt placement, we could add more 2.8 million recurring EBITDA. On Slide 10, you can see a little bit detail what we are doing since the first — the beginning of the year on the cost side. We are seeking for additional gains on the distribution model. We are increasing focus on revenues per employee on our stores. And we continue a cost reduction program that’s already exceeding the 20 million target we designed in the beginning of the year and communicated on the Capital Markets Day. And we also understanding for the future that we have to leverage; one is it’s the pricing format that enable us to recover in the past inflation and also with the outlook we have for public debt that with the normalization of the public debt that helped to managing these fixed costs on mail. Coming for Slide 11. Unfortunately, like Joao was saying that the postpone of the changing of the cap like we were expecting was postponed from the third quarter for October. And as you can see, after October 7, we saw more than 120% of increase in a daily public debt placement following the cap adjustment. So that’s like we expect. And even so on the third quarter, we saw a growth on placements already grow by 33% comparing with the second quarter, supported by marketing efforts. So I explained to the market the advantages of this solution for savings and also the introduction of the app that was well received in the market in the summer. So with this, I’d just like to leave two positive notes also in the public debt placement, sorry, for the fourth quarter that with the change of the cap and also we believe that this is going to increase the competitiveness of this product for this quarter. And we also expect in November to launch the last feature of the app that the customer can now subscribe and do all the process in our app. So that allows that with more than 500 stores we had and the digital app give more flexibility and feasibility for the customer to adopt this product. And now I pass to Guy.
Guy Pacheco: Thank you, Joao. So, starting with the bank KPIs on Page 12, where we can see that the bank continues to capture a lot of resources — customer resources in the market. Customer deposits grew 46% until September year-on-year. That is significantly above the market that according to Bank Portugal grew 7.9%. On the loan volumes, we continue to see this growth above 8%, 8.2% on auto loans and the mortgage growing 8.7% year-on-year. The bank will continue to invest in commercial capabilities, be it digital and physical in the stores to continue to increase the client engagement to maintain and accelerate these trends going forward. On the next slide, we can see the financial KPIs. So on the first nine months, revenues grew on the bank 2.5%. If we exclude the effects of universe that left the perimeter in the end of last year, we would have grown 14.5% during the first nine months as we witnessed some compression in net interest margin that now stands at 2.2%. And when we look to profitability, our profit before taxes increased 25.9% year-on-year. That led to, already mentioned by Joao return on tangible equity of 12.4% and as such, within the guidance for ’25. On the Page 15, we can see our key financial indicators where we see a quarter of very strong revenue growth fueled by Parcels of 14%, our EBITDA growing 12.2%. And because of the investments in fleet electrification and capacity, our recurring EBIT is flattish at €19.6 million, and our net profit declined to 16.2% year-on-year. On Slide 16, we can see our revenue detail. Our revenues grew 14%, completely driven by Express & Parcels that grew 36.2% year- on-year or almost €32 million on the back of strong cross-border volumes and market share gains, both in Portugal and Spain and with the slight price increase per unit that drove growth to the 36.2%. On Mail, flattish revenues on the Mail division, 0.5 million of the 2.6 million come from Mail. The 2 million is coming from Business Solutions and Payments that are performing well as Joao mentioned. Financial Services is heavily affected by volume still, although sequential improvements, we still suffered from a year-on-year decline of 51% in volumes and 27.2% decline on revenues that still had a difficult comparable. On the bank, 2.3% growth, driven by essentially commissions and some growth on margin. On Page 17, we can see our operating costs that increased 15.3%. On E&P or Express & Parcels, our costs grew 33%, completely in line with activity. And in Mail, it’s where we had this big cost increase of €6 million due to wage inflation and the lower contribution for financial services that we expect to normalize going forward. On financial service, costs decreased €1 million, completely driven by the lack of placements and the bank pretty much in line with the investment in staff costs being fully offset by the reduction on impairments. Our cost of risk now stands at 0.7% in the quarter. On Slide 18, we can see the evolution of our recurring EBIT. So flattish performance at consolidated level, but with a strong contribution of the Express & Parcels, growth in volumes and margin expansion that now stands at 8.7% drove this 4.2 million growth. In Mail, a decline of 3.5 million, driven by volumes and OpEx dynamics that we already detailed. And in Financial Services, 1.3 million decline impacted by activity. Bank grew 7.2% in the quarter, driven by the strong dynamics in Resources. And going forward, we expect normalization on Mail with further cost-cutting initiatives and recovering on volumes. And in Financial Services, we already see a new dynamic following the reset of the cap that bring us very strong confidence in the ability to normalize the past numbers of this business unit as we always expected, but unfortunately, later in the year as far as what was our initial expectations when the year started. On Slide 19, we can see our cash flow that operating cash flow stood at €29.1 million, heavily affected by a negative evolution of the working capital. Our working capital was affected by a delay in receivables from one of our biggest customers that since then has been delayed — been solved, sorry, and this is expected to normalize going forward. We also have €7.3 million impact on VAT recoverables. This is a new dynamic because of the increase of the intra-EU operations with the increase of integration between our Iberian operations, so that is expected to stay. The first one will revert and already revert on October. Our free cash flow as a result of that stood in €8.5 million. Our net debt is now €2.7 million with a cash position, if we exclude lease liabilities on 154.8 million. We also witnessed in the quarter an increase of our lease liabilities that has to do with the renewal of the fleet, new electric cars and new facilities to increase capacity in parcels, mainly in Spain. And with that, I will pass the floor to Joao Bento.
Joao Bento: Thank you, Guy. So I invite you to close the presentation in Slide 21. We deploy a bridge from where the third quarter results left us up to the end of the year. It makes explicit what needs to be done in the fourth quarter, both in logistics plus Bank and Financial Services. As you might remember, we have decided to isolate guidance in the last quarter between Financial Services and the rest. And given that, we have a very strong peak season ahead of us and we are projecting another record for Express & Parcels. And also the fact that Mail revenues are showing already in October clear signs of improvement. And finally, the public debt placements will be significantly higher following what has been the behavior in the performance in October. We reiterate the guidance based on a strong outlook for the fourth quarter that will leave us clearly inside the announced €80 million to €90 million range with a minimum 70 million for logistics. And with this, we will leave the presentation and make ourselves available for Q&A. Thank you.
Operator: We are now available to take questions. [Operator Instructions]. We will take our first question from Joao Safara from Santander (BME:). Please go ahead. Your microphone is enabled.
Joao Safara: Yes. I hope you can hear me. I have a couple of questions. So the first question is, I mean, regarding the quality service indicators. You’ve agreed on 7 quality service indicators that, I mean, reading in the press seem a good achievement. But my question here is how this will impact your CapEx going forward? And if this new service indicators are achievable, which wasn’t the case on the previous one with additional CapEx. So that would be my first question. And then the second question on cash flow. Apart from the VAT, which seems to be — will seems to be here this year and wasn’t last year. And I mean, when we compare last year’s cash flow, roughly €90 million versus what you have until now, €8.5 million. I mean, there’s a big difference. So even if you recover the cash flow on the fourth quarter with the working capital, I mean, it seems to me that there will still be a significant difference. My concern here is that if this is something that may impact your dividend, and how do you see this going forward? I understand this year, there was more CapEx. Also, there’s more lease expenses, which will probably continue to be the case as you grow in Express & Parcels. So, if you could give us a bit of — I mean, some reassured message here on the cash flow because it seems that it’s been clearly an underperformer this year.
Joao Bento: I’ll take the first one, and well, a couple and then pass to Guy. On the new KPIs, we don’t see any reason for additional CapEx. The KPIs came reasonably in line with the expectation. The overall guideline was that they should convert to European levels. They are slightly above European average. But well, coming to the second part of your question, we believe they are — generally speaking, they are achievable. And in fact, it changes completely, well, the way the role the quality indicators play in our concession agreement. As for the cash flow, Guy will give you the answer.
Guy Pacheco: So I should say that there is two parts to your question. The first is working capital. For sure, this will normalize. And this is a one-off effect on our receivable and the other is a change of trend that, in a way, will stabilize going forward because we — the integration of the networks has increased and won’t continue to increase in such exponential way as we saw this year. The second part of your question is related mainly with the dynamics of financial services. As you know, financial services is a highly cash flow — has a high conversion on cash flow because almost all the revenues that come from public debt converts to cash flow because we have costs that are already here and are shared with Mail. And as such, there is few incremental costs to that revenue. And please remember that we are lacking more than €23 million year-on-year of that revenue that is pretty much cash flow. And that’s the main reason. Going forward, we expect the financial services to normalize as we already are seeing. We have €9 million year-to-date of revenues on this area, and we used to have more than €20 million in a normal year. And we see that normalization already during October, and that’s what we would expect going forward. And as I said, between these two effects, there are more than — there are already almost €40 million of cash flow here, and that’s the main reason.
Joao Safara: Just a question on the dividend. So I understand, as you were saying, obviously, last year is not a good comparison. This year is also not a good comparison. I mean, going into the future, what would be the levels of cash flow, the ranges that you would expect this to be the normal for this company going forward? It can be a wide range, but just to have an idea.
Joao Bento: Let’s see, Joao, it will be growing. It should be above the 45 million range, and we need — but it will depend pretty much on your forecast on growth. We expect that the growth will be — continue to be strong and especially next year with a combination of a strong or a resilient growth on Parcels & Bank and the resurgence again over the financial services that, as you know, followed a very strong year with a bad year, but we expect that normalization to happen to the levels we are seeing in October, and that will put us within what we always said between the 3.5 billion and 4 billion placements per year. And as I said, we will have financial services growing again and such cash flow would normalize to the above 45 million. And last year, we also had a one-off on the cash flow generation due to the financial services outperformance.
Joao Safara: And just a final follow-up. Regarding the dividend, can you just remind us what — I mean, how would you set the dividend going forward? I mean, obviously, you started from a low base, but has this any relation with the cash flow that is being generated in a specific year or just from this level, you would grow independently of the cash flow that is being generated in a specific year?
Guy Pacheco: Yes. Let’s see, we have the policy in place up to between 30 and 50. Of course, we will try to keep that aligned with cash flow generation. That’s why, in a way, we — last year, we reduced the payout to almost to the minimum range of the guidance — of the policy, sorry, in order to encompass what we already was expecting that this year will be less rich in terms of cash flow. So, we aim to have a stable, slightly growing nominal dividend. And as such, we would play within the range in order to reflect the cash flow profile. And as such, what I would expect, although we didn’t decide on dividend that this year will be more on the maximum of the range vis-a-vis the minimum last year.
Joao Safara: Okay. Thank you very much.
Operator: [Operator Instructions]. We will now take our next question from Filipe Leite from CaixaBank BPI. Please go ahead. Your microphone is enabled.
Filipe Leite: Hi. Hello everyone. I have three questions, if I may. First one on Mail because the first period of the concession contract will end next year, 2025. I would like to understand what negotiations or changes should we expect for the second period of the contract, if the price formula will be revised or renegotiated or what will change in this second part of the contract? Second question is on Mail, because the reference period of the mail price formula for both CPI and volumes is June, I believe that is June. Do you already have a view or an expectation regarding the price increase for next year? Should we assume double digit or high single digit in terms of Mail price increase? And last one, just a clarification or a follow-up on Joao question on cash flow and working capital because he said that expect working capital to normalize. This should be something to see already this year. I mean, should we expect a full reversion of the working capital consumption in 9 months already in fourth quarter to reach a neutral level in this year?
Joao Bento: So we are, in fact, heading to the second period of the tariffs or price increase. We will gather again the so-called tariffs committee between ourselves, ANACOM and the General Director for Consumers. We believe that the formula that we have agreed upon has produced interesting results. We don’t see any lack of comfort neither in the regulator nor the grantor, the government. So in principle, of course, we don’t know what will be the result, but our proposal is that we should start — our starting point should be the same formula. And as of today, we don’t see any reason for it not to be kept in place for the second period. As for the price increase for next year, you are right. We compute volume declines and inflation for the period between the second semester of last year and the first semester of this year. And the value that we are proposing for next year, it needs to be then confirmed by the regulator and approved by the grantor is 6.9%. Guy will take the follow-up on cash flow.
Guy Pacheco: On working capital, so we have three effects, the receivables that will revert. We have the VAT and some still CapEx working capital. We expect the CapEx working capital also to revert. But the VAT is a change that is here to stay. Why? Because we now have to claim the reimbursement of VATs of the intra-European transactions. And as those transactions will remain, this will be — and this has a lead time to collect that reimbursement. That will stay, but not increasing as we saw because this is also related with the change of injection. So, we have witnessed our main customers starting to inject all their volumes in Madrid. And as such, these international flows increase within our group, and this trend is here to stay. So, we have 7.3 million that won’t revert and most of the rest will revert.
Filipe Leite: Okay. Thank you.
Operator: We will now take our next question from Antonio Seladas from AS Independent Research. Please go ahead. Your microphone is enabled. Seladas, please go ahead. Your microphone is already enabled. [Operator Instructions].
Antonio Seladas: So I have just one question related with the bank. Now with the new shareholder, should we expect any change on the direction of the bank on the strategy of the bank? So namely more aggressiveness on loans, there’s anything that we should expect or the bank will remain as it has been until now. Thank you.
Joao Bento: Thank you, Antonio. We should expect a reinforcement of the strategy around resources and savings because we will have with us in the capital, one of the leading insurers in Europe. And as such, what we’re expecting is an acceleration of the placement of the off-balance sheet products, and in a way, a maintenance — the same guidelines that we saw in the bank until now, but with reinforcement of this line of the savings. Also, in our view, bodes well with the new environment on interest rates. So having more depth of products on the savings side will help us to achieve the increase of volumes that we have.
Antonio Seladas: Okay. Thank you very much.
Operator: [Operator Instructions]. In case there are no further questions, we will move on. Okay. As there are no further questions at this time, I would like to hand the call back over to Mr. Joao Bento, CEO, for any additional or closing remarks.
Joao Bento: Okay. Well, I’d just like to thank you for coming. And as I said in the beginning, it was a very decent quarter, a transition quarter for the last one for which we have great expectations and confidence so that we reaffirm our guidance, both for the ex-Financial Services part and altogether, to end up in the interval between €80 million and €90 million of EBIT. So, thank you again for coming. Our IR team remains available for you as usual. Good morning.
Operator: Thank you. This concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
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