CTT Correios de Portugal SA (CTT), the national postal service of Portugal, reported an 11% increase in revenues for the Full Year 2023, with significant contributions from its Express & Parcels and Bank segments. CEO Joao Bento emphasized the company's successful delivery of over 100 million packages in Portugal and Spain, with a substantial market share gain in Spain.
Despite facing challenges in the Financial Services sector due to restrictions on public debt placements, CTT showed resilience with stable Mail revenues, supported by price increases and productivity measures.
The Bank segment displayed strong growth in deposits and loans, aligning with its medium-term targets for 2025. The company also focused on diversifying its offerings in Financial Services, notably through insurance and health plans.
Key Takeaways
- CTT's revenues increased by 11% in the quarter, driven by Express & Parcels and the Bank.
- Over 100 million packages were delivered in Portugal and Spain.
- Mail revenues remained stable due to price increases and productivity measures.
- Financial Services faced challenges, leading to a focus on insurance and other services.
- The Bank segment saw a 38% growth in deposits and over 10% in auto loans and mortgages.
- CTT generated strong operating cash flow and improved its net cash position.
- The company is on track to meet its 2025 financial targets.
Company Outlook
- CTT is confident in its growth trajectory towards 2025, with Express & Parcels and the Bank as key growth drivers.
- The company plans to invest in sorting capacity, lockers network, IT, and service quality.
- CTT aims to increase its dividend and continue share buybacks.
- Recurring EBIT in 2024 is expected to be above €88 million, assuming public debt placements of €3 billion.
Bearish Highlights
- Financial Services faced lower public debt placements in the second half of the year.
- EBIT declined 24.3% in the quarter due to declines in Financial Services and a lower contribution from Business Solutions.
Bullish Highlights
- Express & Parcels experienced significant growth in Portugal and Spain, surpassing market growth rates.
- The Bank segment showed impressive growth in customer deposits and loan volumes.
- Full-year EBIT grew by 35.7%, reaching €87.6 million.
Misses
- Despite stable Mail revenues, the volume of regulated mail decreased by 9%, and competitive mail volume decreased by 7.2%.
- Challenges in Financial Services and a decline in market share in the public debt market were noted.
Q&A Highlights
- CTT aims to grow market share in both Portugal and Spain, leveraging market growth.
- The company is considering issuing MREL debt to comply with regulatory requirements.
- Capacity constraints in Parcels are being managed with investments, but no significant increase in investment related to capacity is planned for 2024.
CTT's CEO Joao Bento provided a comprehensive overview of the company's performance in the Full Year 2023 Earnings Call. Despite some challenges, CTT is making strides in Express & Parcels and the Bank, with a focus on diversification and efficiency to drive future growth. The company remains committed to its financial targets for 2025 and continues to invest in its core business to support this growth.
Full transcript - CTT Correios de Portugal SA (CTT) Q4 2023:
Operator: 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 conference is being recorded. And for the duration of the call, your lines will be on listen-only. [Operator Instructions] Today, we have Joao Bento, CEO; and Guy Pacheco, CFO as our presenters. I will now hand you over to your host, Joao Bento, the CEO to begin today's conference. Thank you.
Joao Bento: Thank you, Laura. Good morning, everyone. Welcome to our 2023 year-end results presentation. While 2023 was another great year for CTT, another growth year with significant contributions Express & Parcels and the Bank as the main contributors for our growth. 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, it's -- we have 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 would call stable Mail revenues. And we've been able to somehow mitigate the pressure on inflation -- on cost 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, have a very high -- abnormally high, I should say, level of public debt placement that ended roughly at mid-year, and because the volumes were then forced down by the Treasury. And 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 distribution of insurance and other services to cope with the lower placement of public debt. And 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, well, at 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. So revenues went up 11% in the quarter, year-on-year, with the transformation units, Express & Parcels and the Bank leading this trend. And while the bank grew 10% of revenues, Express & Parcels continued to accelerate to an impressive 56% growth on revenues in the quarter, recurring EBIT also performing well with -- well, minus 24% vis-à-vis last year because we have -- in the quarter of last quarter of 52, this abnormal high percent of that. But all in all, the year-end with an 88 million or 36% increase year-on-year, which is above the announced objectives and the guidance that was given to the market. Express & Parcels and the bank are indeed the EBIT growth levers and they underline the benefits of the diversification portfolio that CTT has built for this transformation process that we are managing. And finally, a strong operating cash flow generation of over €114 million 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 represented €69 million improvement versus the last year, and if we account the bank in equity method, net debt to €177 million or, well, rather flattish, down €80 million versus last year. On Slide number 5, I’ll go very briefly on this, we can see very well that how Express & Parcels 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 a bridge -- EBIT bridge from last -- final year 2022 to final year 2023, where we can notice a small negative contribution from Mail, so lower EBIT this year than the previous one, but then very significant positive contributions from the bank and from Express & Parcels and also financial services and retail with a very first -- good first half of the year. Moving to Slide number 6. A little bit more detail on the impressive growth on Parcels. Slide number 6 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 is -- this also led us to increase our already significant market leadership. Moving to Slide number 7. We can see growth well beyond the market. In fact, the CTT in Spain or CTT Express was the -- well, the winner of not that relevant market share -- sorry, market growth during the year, but CTT grew clearly or by far above the market with an aggressive 127% higher, to clear 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 small clients, which during 2023 also grew significantly. One of the reasons why the performance was so well received by the markets that we have shown high quality and efficiency, we have maintained the quality of service with high delivery efficiency rates, in spite of an increasing volumes 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 clearing 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 sourcing, 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 point, the largest postal network with over now 13,000 postal in French is the largest value network. We are providing these new services. This is very important because it provides additional stickiness. 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 fueled by all client segments. And the final word on the Spanish on the Iberian market on Parcels, moving to slide number 8. 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 pickup in 2022. So, we can see here that the Spanish market do some around 4%, and this is also a good indication on how much market share we gain. On the right-hand side, we can see that Portugal is now converging faster than Spain, but both countries because Portugal is around -- it's around on the adoption of e-commerce in Portugal is around one-third of the average, if you consider all countries, and Spain is below half of the adoption. And so there's still a lot of room for natural conversions, meaning that we're going to have and to see and to fill tailwinds in terms of e-commerce adoption, which will probably enable us to keep growing at very relevant rate. And with this, I will pass the floor to my colleague, Joao Sousa, to guide us through the results and the impacting results of Express & Parcels and then also on Mail and financial services and retail. Joao, over to you?
Joao Sousa: Thank you very much, Joao. As you can see on slide 9, in Express & Parcels in Portugal, Portugal Postal growth in Express & Parcels revenues of 13.2% with revenues of €42.9 million. 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 a sharing the customers we have in our customer base. But also, we are always looking for customer relation through a good diversification of our portfolio in customers, meaning in nation of the customers and also in the sector of sensitivity. So that's where you can manage in a good way the retention of the customers. Everything possible growth more than 35%, or result of €3.9 million in the fourth quarter, translating in the margin of 9.2%. This good performance in margin results in a continuous improvement in operational optimization. So we are always looking at the way that we can increase our market share and revenues, but in the same way also bringing quality to our customers and also how we can optimize our operation in Portugal and both in Spain. On Slide 10, we can see that in Spain in the third quarter, we have revenues of €67 million. This means a growth 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 and customers. So in that way, we're not being dependent on just strategic customers. And you can say that in 2023, we grow in all segments from SMEs to be clients and also in strategic. Also, I like Joao Bento was assaying the first phase of operation of customer business offer. So this is very good to speak the customer in person bringing more services to our customers. And this also moves the loyalty with CTT Express in Spain. These revenues results in a gross in EBIT of 380% in margin, that means €3.8 million in the first quarter and means a margin of 5.5%. On Slide 10, sorry, on Slide 11, where we look for the mail business. In 2023, addressed mail reached a revenue of €356 million. This means a particularly flat value compared with the previous year. Most of these revenues all these flat revenues comes from the increase in price per item that help us to compensate the traffic drops, because despite the continuous work that we are doing in a commercial way, try to retain the customer traffic in mail. As you know, digitalization is always a good challenger for us and the increasing price helps us to have this practically flat revenue in 2023. And I would like to highlight that in February of this year, we already made a price increase of 9.49%. That's up in a numbers in 2024. On Slide 12, we can see that resilient mail revenues as pricing and mix compensates softer volumes, what this means, in the regulated mail we saw volume change of 9%, but the average revenue per item grew 9%. And in competitive mail the volume change, minus 7.2%, but the average revenue per item grew 6.6%. This also shows that the current universal service contract is predictable and we can manage it in this way. Saying this, we are always concerned to add additional custom measures to deal with inflation and against the backdrop of flattish revenues. So we see in 2023, a reduction in costs from €22.1 million to a total of €428.1 million to deal with the inflation we saw in 2023. This results in EBIT of €6 million in 2023. Part of this cost control measure comes from the reduction of 116 people in 2023 and approximately 200 in 2024 that help us to achieve the results in 2024. On slide 14, we now look for the financial services, as you -- as Joao Bento say, and everybody knows we have a very good first half of the year in 2023, and we see that less attractive rates and stringent cap have an impact of placement in the second half of the year. In the first quarter, we have placed €33 million of cost effect. This results in €18 million of revenues and €3.5 million in EBIT with a margin of 43.8%. We believe that the competitiveness of the product really grew through this year the way -- when we look for the reduction of the bank interest, and even a possibility of future change of the product during the year. And for that, we already have our digital offer using pipeline. So we already deducted our digital offer for our app for CTT. So right now, we are just testing with some persons. And also for the first time, we're going to have the marketing campaign, so to show the importance of this product aligned with the AGCP [ph]. So that's why we are true believer that we too believe that we are prepared when the competitiveness of product has changed 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 are continuous focus on selling more insurance and health plans that help us to diversify our offer like we are being in the different segments in Express & Parcels. And now I pass over to Pacheco, our CFO.
Guy Pacheco: Thank you, Joao, and good morning. On page 15, we can see the bank KPIs, where we continue to post the static progress to our medium-term targets for 2025, beaten a number of accounts or business volumes. In accounts, we grew 45,000 accounts on the year, and that puts us the average trading per quarter on the top-end of our guidance range. And in business volumes, we grew more than €1 billion, and that also puts us above the top-end of the guiding range and such 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. Our customer deposits grew almost 38% ahead of the market that declined 1.5% during the year, and completely in line with our strategic focus on customer deposits. Auto loans with a very healthy growth, as well growing 13.2% 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 expansion of net interest margin, but now that stood in 2023 and 2.9%. Revenues grew 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 2025. On Page 18, I won't to spend much time here. We think it was important for you to have the numbers that enable you to think around the access of the Universo 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. For France, 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 this 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 targets. Then gender parity, we consider ourselves already to be within the guidance -- the range of parity. Nevertheless, we continue to progress our measures to promote the less represented agenda in order to be more and more within this range. On recycling of reusable package 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 engaged on volunteering. Page 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 energy transition progressing and -- to be more and more share of our revenues and our costs aligned with the taxonomy. And on the right-hand side, the initial output 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 declining 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 reached on the year €6.5 million and very steady progress also in free cash flow that stood at €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 €7.1 million of deferred tax coming from the tenant lease act [ph] 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 our sequential difference between the two years. There is also an increase in the tax credit related with CFI that is the innovation-related tax shield that we get from innovation products. Moving on to the next page, where we see revenues. So fourth quarter, a very impressive progress on Parcels and growing 56% with volumes in Portugal progressing more than 14% be it on revenues and volumes. Spain continues to accelerate, we 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 the market still progressing, although the e-commerce market growing less than Portugal. As Joao mentioned, the market -- the Portuguese market is converting faster than Spain. But 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 monitory very closely. Mail & Other declining €4.4 million, half of that decline comes 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 Others & Mail declined 8%, almost in line with the progress on the fourth quarter. Nevertheless, on the year, we think we can -- based on the new pricing formula, achieve a very flattish over Mail revenues, which brings us confidence that we can stabilize this business unit going forward. On financial retails, declining €13.2 million, and with placements achieving €333 million that is a very difficult comparison with the €4.3 billion cap placement on 22. Products remains with lack of competitiveness vis-à-vis the interest rates and site deposits or term deposits in Portugal. And the caps restricting placements, things that we see improving throughout the year, especially on the second half, where the market is expecting interest rates come down. And we are looking to have the caps of the placements removed or at least improved and that should drive the financial debt placements to some normality coming forward. Banco CTT revenue growing to €3.7 million. This is basically the fact of the consequence of higher volumes and higher yields, net interest margins throughout the banking sector expanded as well in Banco CTT. And with the increase of volumes, we had 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 cost in Iberian and in Iberia coming down, despite inflationary cost context, the scale is bringing -- is bearing fruits and as such, operational gearing is there. We see a very interesting margin expansion. Although, in the fourth quarter, there are some capacity issues in Spain that not have some consequences on margin, but nevertheless, a very positive quarter on that. Mail, increasing €0.5 million. We need to recall that wage inflation in the quarter was €2.6 million and because of lower volumes in financial services, and the cost of the retail stores are less shared by that division and such, there is €2 million additional cost that flow back to Mail & Other, and that explains how we were not able to decline more Mail & Other costs to flattish 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, 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, and 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. Express & Parcels and Banco CTT main contributors, growing €6.3 million, more than compensating the €4.8 million decline. Higher volume declines and lower contribution from business solutions and higher cost 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 competitiveness of the product. In the full year, we posted a very interesting growth of 35.7% with full year EBIT reaching €87.6 million. On the next slide, you can see the detail of our cash flow, also a very strong cash flow generation with €140 million 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 of liabilities -- lease liabilities, consolidated cash, but with account banks in equity method, we have €177 million 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 deleveraging on the last years. Considering the bank, we have a cash position, we normally focus on the right side of the -- over the slide, where we can see that we are still very conservative net debt-to-EBITDA of 1.44% -- 1.44 times [ph]. And with that, I'll pass you to Joao Bento to the outlook and final remarks.
Joao Bento: Thank you, Guy. Then we are -- if you follow me on slide 30, we are seeing ourselves growing towards the 2025 Capital Markets Day announced targets. 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 also revenues and margin. And if you follow me on the right-hand side on the EBIT charge, I would like to call the intention that we have different business lines in different colors. So how do we see this €88 million progressing towards the target -- the 2025 target? Well, certainly mile will slightly improve for the reasons that we already mentioned. We see the price from 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 slightly improve the red beat of the column. As for the yellow Financial Services & Retail, in spite of the added contribution for insurance, we will see certainly the convergence towards normal placement levels on. But with that so yellow should certainly shrink. And then we have both greens, the bank and Express & Parcels steadily growing and establishing themselves, as they did in 2023 as the great and the most important close levers for the company. So we see a growing revenue and EBIT 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. With -- 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 relies at the 20% level. But the transformational CapEx will increase. And 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 development of the lockers network in Portugal and now initiating that in Spain, we are -- 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 CTT hubs and the upgrade the core platform and digital channels. This Banco CTT times two is a function of exactly those two new strengths in terms of upgrading the commercial and also the physical platform and the digital channels. And therefore, we see, I would say, capital balance sheet, allowing us to supporting growth along these lines. Moving to Slide 32, a word on a note on shareholder remuneration. So we see our dividend growing combined with the opportunistic share buyback. This is the general trend that we have announced. Actually, in the -- again, on the Capital Markets Day, we have announced not only a dividend policy, but also the main principles that should give the shareholder remuneration, namely 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 opportunities to share buyback. 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 €0.17 that we are suggesting is not only a significant improvement, a 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 is consistency and the 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 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 NHL, 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 growth set in the Capital Markets Day. And so going top round on Parcels, we are -- we were and we keep developing this trend as the top performer on Express in Iberia with record growth driving market share gains, both in Portugal and Spain and a significant margin expansion mostly in Spain. And so a great year for Express & Parcels and the trend that that we see present again for this year. On Mail, we have improved a price increase, the highest price increase ever. And that combined with the mix development, enables stable Mail revenues and with stable Mail revenues, we'll have to -- and we will deliver an improvement on EBIT. Moving to the retail network, we are expanding our insurance distribution, as I said before, and Joao Sousa’s already highlighted, why Correios 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 CTT 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 general meeting is, in fact, we believe, very good news. We had strong results this last year. We have beaten a guidance that we upgraded twice. And so we believe this was a great year. Finally, what shall we expect for this year? Well, on the back of a strong growth in Iberian Express & 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. So, thank you for that. And now we remain available for Q&A.
Operator: Thank you. [Operator Instructions] Thank you. We'll now take our first question from Joao Safara with Banco Santander (BME:SAN). Your line is open, please go ahead.
Joao Safara: 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, mainly 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 with the cost savings that you mentioned in the presentation of €6 million. So, my question here is just this on a set risk variables basis, just should we expect this $6 million delta for 2024? Or this is the accumulated figure from 2023? 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 EBIT 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 [Indiscernible], if you could give us an idea. And then just finally on -- again, on the guidance, the -- on Express & Parcels, are we expecting double-digit growth or not, okay? And then related to this, and just as my final point, we've seen in the fourth quarter another -- I mean, another quarter where, I don't know, if were market share losses to new offerings that are out there. But it seems that half of -- so you're placing only half 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.
Joao Bento: Hi Joao. Thank you for your questions. Starting on mail, so on Slide 13, we showed the annualized EBIT impact of the headcount reductions, so it's -- on total €10 million. The 2023 numbers will flow through P&L on the full year of 24%. On the €6 million, part will flow during 2024, not fully. We are not giving as usual guidance by business unit. We expect expansion of EBIT on Mail, as Joao mentioned that will come from the savings, but please take into account that we also have some offset of this because of work inflation. We already agreed with the unions with 4.4% salary increase for 2024 and that will offset part of the savings but between the operational gearing of lower volumes on Mail close the efficiency measures that we have in place, we expect expansion of EBIT of Mail in 2024. On the Bank, so you have the numbers there of the credit card. On Payshop, we have on the full year of 2023, €4.5 million of EBIT coming from Payshop on the bank and payments business units that we reported on the full year of 2023. Regarding the public debt market share that we refer and with our future prospects on the product. First, on the share -- we -- right now, we believe that the reporting of the subscriptions in public debt certificates, it's like -- it's not the most concurrent play because on the placement, IGCP also include the capitalization of interest that is included to the stock every quarter. We believe that number is between €50 million and €70 million per month. And that explains why when you have a declining profile of placement, the market share of CTT is declining because that number is broadly flat and when placements decline, our share also declines because of that effect. We are asking -- it will improve on the transparency of that report. Let's see if they can offer on that because the share we see is not -- it's not the same as its been on the cost. Regarding the product evolution, we think we move -- the expansion of the cap in a way was cost on these new government transition and as such it was a decision, although it was not taken in time of the beginning of the year. The state's budget has two numbers regarding public debt. The first one is they expect placing €3.7 billion this year, and they have an opposition to place up to €7 billion this year. The combination of the increase of the cap plus what we see, declining interest rate employment on the second half of the year, should improve the competitiveness of the product. And as such, we are confident that we can start increasing the volumes of placement and as such meet the €3 billion threshold that we mentioned on the gap.
Joao Bento: Yeah, Joao, just before going to the Express & Parcels growth, a complimentary note. On top of the Express provided by GE, one, we have already received comfort by the GCP 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 placement new places by CTT is very much in line with what used to be in the past. So that should be -- in terms of market share, so that will help you in terms of modeling. Regarding the Express & Parcel, the answer is yes. So we see ourselves growing in double digits in both geographies, and this is our expectation. We are very confident on that.
Joao Safara: Thank you. Just a follow-up for Guy 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 GCP number?
Guy Pacheco: The €3 billion is our placement, yes.
Joao Safara: Okay. Perfect. Thank you.
Operator: Thank you. And we'll now move on to our next question from Joaquin Garcia with JB Capital. The line is open. Please go ahead.
Joaquin Garcia: Yes, hello. Thank you for taking my questions. I just wanted to have a bit more information on the Express & 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? Do you have -- are you working on any operation or something for 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 you'll do a share buyback? Thank you.
Guy Pacheco: I'm starting with the first one. I leave the last one to Joao Bento. 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 changing on -- we have been seeing in the last couple of years an increasingly smaller packages flowing through our network, and that is also a factor of the -- out of Europe, so of the Asian packets that are more and more 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 price 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 a dramatic increase in price per parcels. If anything, probably still a dilution this year because of this big growth on the back of -- on the second half of the year was mostly an out of Europe market and as such with smaller parcels. So it's -- this growth will come mostly out of growth on volumes.
Joao Bento: Okay, Joaquin. Regarding the decrease in payout ratio, and this it is related with us as leaving 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 is -- 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 the 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 attracting the run rate shareholders. And that includes the business growth includes, of course, capacity of investing on our business and M&A, if necessary, and we have spent 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 on that guided decision of proposing a dividend of €0.17 because with this dividend volume, a higher dividend, we can still using our leveraging capacity and revolver cash to do whatever needs to be done.
Joaquin Garcia: Perfect. Thank you.
Operator: Thank you. And we will now take our next question come from Filipe Leite from CaixaBank. Your line is open. Please go ahead.
Filipe Leite: Hi. Hello, everyone. I have three questions, if I may. The first one on Express & Parcels in Spain, because despite with strong top line increase in this quarter and fourth quarter, the EBIT margin when compared with the previous quarter, the EBIT margin drop. What was the reason for this decrease? And if you can share with us what is your internal expectations regarding margin evolution on these units, specifically in Spain for this year? And I hope 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 (BIT:GASI), and when we start the exclusive 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, €1.6 billion -- sorry, €3.1 billion deposits and €1.6 billion loans. Can you tell us in what assets are invested extra €1.5 billion? And how much is it contributing to your earnings? Thank you.
Guy Pacheco: Thank you, Filipe. So, I'll start with the EBIT margins. So EBIT margin dropped, well, it is somehow normal that it drops during the peak season. But we had a couple of -- well, I'd say, unique effect. One is that we have exceeded capacity in Spain. So growth of -- volume growth was not only higher, but also faster than we expected, and therefore, to keep providing quality, which is of utmost importance in Express & Parcels. We have to put some money to be able to provide consistent capacity. And in fact, the delivering capacity in the 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 quality 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 margin evolution, positive margin evolutions on EBIT throughout 2024, both in Portugal and Spain.
Joao Bento: Going to the bank, we see that Generali, let's say, we are interacting right now with Banco de Portugal. We expect the process to close in the coming months. We -- I think we are very close to the final stretch of answering to the queries of Banco de Portugal. We already did the necessary steps to distribute the products of Generali, both in Banco 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 up after the closing of the transaction. Regarding your question to be what is the assets that we are invested on Banco CTT resources. It's basically BCE (NYSE:BCE) and sovereigns. So we only invest in sovereigns or basically in sovereigns. And those two investments, the BCE rates are known and the ones are in line with 3%. ECB -- sorry, I was using the Portuguese front.
Operator: Thank you. [Operator Instructions] We'll take our next question from Artur Amaro with CaixaBI. Your line is open. Please go ahead.
Artur Amaro: Hi. Good morning. Just one quick question. I've heard and I think that's what happened that the market share -- that there were market share gains in the Express & Parcels in Spain. If you could please quantify how much was the market share gain? And what's the current market share? Thank you.
Guy Pacheco: 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 estimate is that we grew both in Portugal and in Spain in market share. We should be above 42% of the national Express & Parcels market in Portugal. And in Spain, we should be within the 6% threshold. And we think we are up to the 7%, 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, but we need to stand the final numbers of the market.
Artur Amaro: Okay. Okay. Thank you very much. Very clear, Guy. Thank you.
Operator: Thank you. And we'll now take our last question from António Seladas with AS Research. Your line is open. Please go ahead.
António Seladas: Hi, good morning. Thank you for taking my questions. I have three. 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 trends in terms of more volumes address? Second question is related to the Parcels, Portugal and Spain, different strategies. So, I guess that in Portugal, we -- you 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 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. So, -- and meanwhile, you are just investing in -- or you are mainly investing in sovereigns and ECB. So, my question is, do you keep -- do you want to keep this capital ratio about 22%, 20%? 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.
Joao Bento: Okay. Thank you, António. So, on mail volumes, the quality across the year is normal because sometimes they are very intense expense by being the tax authority or a given bank or utilities. So, we are not that much concerned with -- we are, of course, concerned for operational business because you need to be ready in coping with us, but the underlying trend is what matters. And we guided a decline between 6% to 8% for this year. So, very much in line with recent years. On Express & Parcel, well, I would not agree with the idea that we don't want to grab -- we don't have the market share gains in Portugal. The fact that the market is growing, it 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 the 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 to Guy to--
Guy Pacheco: Hi António, thank you for your question. As you might remember, from the bank roadshow that we did over the end of last year. We have this new MREL 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 regulators. It's what we are doing. So, we are moving within these two boundaries, first, the requirement of MREL and the -- as the most optimized way of complying with that requirement on a shareholder perspective, we need to agree with it to how can we achieve those objectives.
António Seladas: Just a follow-up -- two follow-up questions. So on Mail, I understood that it's minus 6%. Is that right? Mail volumes.
Guy Pacheco: 6% to 8%.
António Seladas: Question on -- okay, 6% to 8. Okay. Thank you. And on the bank capital ratios, should I understand that it means that your structure will be for Core Equity Tier 1 about 20% and more 4% in additional Tier 2 is what you are trying to say -- to reach the 2204-2025 MREL?
Guy Pacheco: We are looking to issue MREL debt. It's the appetite of the market for that and how much we can place, it's something that we need to take in account in that constraints or space of solutions that I just mentioned. So -- but that will be our main aim in order to comply with the requirements of Tier 1 are the same. We need to comply for the additional requirement of MREL, we are looking to optimize that in the perspective of CTT and the shareholder, but we need to take into account all the constraints. So first, the appetite for that debt for an for an issue like CTT and the regulator appetite and the growth of the bank as well.
António Seladas: Okay. Thank you very much.
Operator: Thank you. And we'll now take our final question, a follow-up from Joao Safara with Banco Santander. Please go ahead.
Joao Safara: Yes. Thank you for taking last question. On -- my question is on capacity constraints. Obviously, the 2023 was -- I mean, the volume growth, particularly in Spain was a very pleasant surprise. My question here is with your CapEx plan, what do you think is the -- how much volume growth you can you absorb the investments you're going to do in 2024? Not to reach a situation where you have capacity constraints.
Joao Bento: Thank you, Joao. So as a general principle in us, the ideal capacity is never one that does not leave us every one 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 obviously sources. And then for sorts, 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 involve some investments but also organization methods and teams, 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 have already taken all the main investment decisions for the next season. And they are now, as we speak, shops are 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...
Guy Pacheco: 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 growing more than 50% of the number of routes in Spain. It was -- we need to scale it again for the peak that puts some constraints and that is what drove most of the constraints. And as such, it's not 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 shared with you today. And that -- decisions that are made and that will be in place in time for the next years.
Joao Bento: And maybe finally from that is that all the interactions with the main and large customers, which are the ones that impact more peaks in volumes are completed. So now we have agreed with them, what should be -- what should be the flows and volumes throughout the year, including the peak season.
Joao Safara: Perfect. Thank you.
Operator: I'm now happy to hand it back to Joao for closing remarks. Thank you.
Joao Bento: Thank you, Laura. So once again, thank you for coming. This was a great year. We are very positive on our situation. As I mentioned in the CTT's 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 markets today. So, thank you for coming, and we'll go to interact with you now offline through our IR team in the forthcoming hours and days. Thank you.
Operator: Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.
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