CTT Correios de Portugal S A : Consolidated Results – Full Year 2022

CONSOLIDATED RESULTS 2022

Deliver the future connecting people and companies in a sustainable way

CTT - Correios de Portugal, S.A.

CTT - CORREIOS DE PORTUGAL, S.A.

2022 CONSOLIDATED RESULTS

• Revenues1 increased by 6.9% to €906.6m in 2022, an increase of €58.8m as compared to 2021, growing across all business units: Mail & Other (+€16.5m; +3.7% y.o.y), Banco CTT (+€27.1m; +27.4% y.o.y), Financial Services & Retail (+€11.8m; +24.2% y.o.y) and Express & Parcels (+€3.3m; +1.3% y.o.y).
• Mail & Other was positively impacted in 2022 by the growth of the business solutions (+€38.2m), including the consolidation effect of NewSpring Services as from 30 August 2021 (+€14.2m), and penalised by the strong decrease of the revenues from international inbound mail (-€12.6m), affected by the end of the VAT exemption on lower-valueextra-EU products (de minimis) that entered into force on 1 July 2021.
• Express & Parcels grew revenues, notwithstanding a challenging economic environment: +1.3% y.o.y (+€3.3m) to €259.0m in 2022 and +2,8% y.o.y (+€1.9m) to €71.2m in 4Q22. Portugal recorded a 5.1% growth in revenues in 4Q22 while in 2022 revenues reached €132.2m (-€3.0m;-2.2% y.o.y). CEP performance in Portugal in 4Q22 confirms the recovery that took place since 2Q22. In Spain, revenues grew to €122.9m in 2022, up by €5.6m (+4.8% y.o.y) as compared to 2021.
• Banco CTT continued to grow, with revenues and recurring EBIT increasing to €126.0m and €14.4m, respectively, in 2022 (+27.4% and +76.9% y.o.y, respectively). The favourable activity evolution was anchored on the growth of the bank's loan portfolio. This performance was underpinned primarily by the growth of the auto loan portfolio that reached a new peak in production in 4Q22 (€69.5m), totalling €262.4m in 2022 (+22.7% y.o.y).
• Financial Services & Retail revenues grew by 24.2% y.o.y. in 2022 to €60.7m (+59.0% y.o.y in 4Q22 to €21.2m). Revenue growth benefited from the increase in the subscription of public debt certificates, especially in savings certificates, as their attractiveness has been increasing since the beginning of the year due to a new interest rate conjuncture that places public debt as a more interesting investment alternative.
• Recurring EBIT stood at €64.5m in 2022, reaching €25.8m in 4Q22, thus confirming the improvement trend throughout 2022 (€20.1m in 3Q22, €12.0m in 2Q22 and €6.7m in 1Q22).
• Operating cash flow stood at €99.6m in 2022, up €37.8m (+61.2 % y.o.y) comparedto 2021.
• Net profit4 reached €36.4m, an increase of €2.0m (-5.2%y.o.y)vis-à-vis 2021.

Consolidated results

								€ million
	2021	2022	∆	∆%	4Q21	4Q22	∆	∆%
Revenues1	847.9	906.6	58.8	6.9%	235.0	243.8	8.9	3.8%
Mail & Other	444.4	460.9	16.5	3.7%	125.5	115.4	-10.1	-8.0%
Express & Parcels	255.7	259.0	3.3	1.3%	69.3	71.2	1.9	2.8%
Banco CTT	98.9	126.0	27.1	27.4%	26.8	36.0	9.2	34.3%
Financial Services & Retail	48.9	60.7	11.8	24.2%	13.3	21.2	7.9	59.0%
Operating costs (EBITDA)2	729.8	777.3	47.6	6.5%	199.8	201.4	1.6	0.8%
EBITDA3	118.1	129.3	11.2	9.5%	35.2	42.5	7.3	20.7%
Depreciation & amortisation	58.0	64.8	6.8	11.7%	14.8	16.7	1.9	12.9%
Recurring EBIT	60.1	64.5	4.4	7.4%	20.4	25.8	5.4	26.3%
Specific items	-1.8	8.4	10.2	»	4.0	12.6	8.6	»
EBIT	61.9	56.1	-5.7	-9.3%	16.4	13.1	-3.3	-20.0%
Financial results (+/-)	-11.1	-9.4	1.7	14.9%	-3.0	-2.3	0.7	23.8%
EBT	50.8	46.7	-4.1	-8.1%	13.4	10.8	-2.6	-19.1%
Income tax for the period	12.2	10.4	-1.8	-15.1%	1.2	2.8	1.5	126.1%
Non-controlling interests	0.2	-0.1	-0.3	-134.4%	0.1	-0.0	-0.1	«
Net profit for the period4	38.4	36.4	-2.0	-5.2%	12.1	8.1	-4.0	-33.0%

1. Excluding specific items.
2. From 2021 onwards, operating costs (EBITDA) include impairments and provisions; also, the impact of the leases covered by IFRS 16 is presented pursuant to this standard.
3. Excluding depreciation & amortisation and specific items.
4. Attributable to equity holders.

CTT - Correios de Portugal, S.A. - Share capital €72,675,000.00 - Lisbon commercial registry and fiscal no. 500 077 568 Avenida dos Combatentes, 43 - 14th Floor - 1643-001 LISBON - PORTUGAL

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CTT - Correios de Portugal, S.A.

1. Operational and Financial Performance

Consolidated revenues

In 2022, CTT revenues reached €906.6m, an increase of €58.8m (+6.9% y.o.y) compared to 2021, reflecting the growth in all business units, as follows: (i) Banco CTT (+€27.1m; +27.4% y.o.y); (ii) Financial Services & Retail (+€11.8m; +24.2% y.o.y); (iii) Express & Parcels (+€3.3m; +1.3% y.o.y), and (iv) Mail

• Other (+€16.5m; +3.7% y.o.y), including the consolidation of NewSpring Services as from 30 August 2021, which represented €14.2m.

Mail

The revenues of Mail & Other amounted to €460.9m in 2022, which corresponded to a growth of €16.5m (+3.7% y.o.y) compared to 2021.

The growth registered in this business unit was boosted by the business solutions segment (+€38.2m). This reflected (i) the full integration of company NewSpring Services, a company specialising in Business Process Outsourcing BPO and Contact Centre, in CTT's offer (as referred to above) and (ii) the growth of the business solutions base, largely explained by the revenue related to a laptop sale project that started in the last quarter of 2021 and still generated revenues in 1Q22 (+€16.3m).

In 2022, transactional mail revenues reached €341.7m, representing a decline of €19.6m(-5.4% y.o.y) compared to 2021, penalised mainly by the sharp decline in the revenues of international inbound mail (-€12.6m;-40.9% y.o.y) due to the end of the VAT exemption in low-valueextra-EU purchases ("de minimis") as from 1 July 2021. This decline had a special impact in the first three quarters of the year, with a recovery in 4Q22. Furthermore, the decrease in transactional mail revenues is also explained by the revenue decline registered in ordinary mail (-€4.5m;-3.3% y.o.y) and in international outbound mail (-€3.1m;-6.8% y.o.y), this latter partly penalised by the impact of the legislative elections in 4Q21 and 1Q22. Excluding this impact, the revenues from international outbound mail in 2022 would have decreased by €0.7m (-1.8% y.o.y). Additionally, transactional mail revenues would have decreased €17.2m (-4.8% y.o.y). On another note, in 2022, transactional mail benefited from the growth in revenues of registered mail (+€2.4m; +1.9% y.o.y) and priority mail (+€0.1m; +0.9% y.o.y) and was penalised by the decline in green mail (-€1.7m;-16.4% y.o.y).

The remaining business lines posted decrease in revenues: editorial mail (-€0.6m;-4.8% y.o.y), advertising mail (-€1.5m;-8.1% y.o.y), parcels of the universal service (-€0.2m;-2.7% y.o.y), philately (-€0.9m;-15.8% y.o.y) and other mail products and services (-€0.1m;-3.1% y.o.y).

As referred to above, in 2022, business solutions recorded revenues of €67.3m, an increase of €38.2m compared to 2021 (including the effect of changing consolidation perimeter amounting to €14.2m), with emphasis on: (i) the growth of Business Process Services; (ii) the growth of the document management business, which attracted new customers; (iii) the growth in the business associated with the solution of management of administrative offences and administrative proceedings, as new municipalities have joined it; (iv) the implementation of the new e-Carta hybrid mail platform, which allows small and medium-sized companies to digitalise their mail processes; and (v) the growth of digital components with the provision of services for sending documents (invoices) with Qualified Electronic Signature as per Decree-Law no. 28/2019, of 15 February, with CTT currently producing and sending several million digitally signed documents per month.

The average variation in prices of the universal postal service5 in 2022 was +5.84% y.o.y.

Mail volumes

In 2022, addressed mail volumes declined by 5.6% compared to 2021.

Mail volumes

								Million items
	2021	2022	∆	∆%	4Q21	4Q22	∆	∆%
Transactional mail	415.7	391.5	-24.2	-5.8%	102.2	92.6	-9.7	-9.5%
Advertising mail	39.9	38.6	-1.3	-3.4%	13.0	10.4	-2.7	-20.6%
Editorial mail	29.0	27.6	-1.4	-4.7%	7.5	7.2	-0.3	-4.4%
Addressed mail	484.6	457.6	-26.9	-5.6%	122.8	110.1	-12.7	-10.3%
Unaddressed mail	449.9	424.6	-25.2	-5.6%	116.7	109.7	-7.1	-6.0%

5 Including letter mail, editorial mail, and parcels of the universal postal service, excluding international inbound mail.

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CTT - Correios de Portugal, S.A.

In 2022, transactional mail volumes decreased by 5.8% y.o.y, mainly due to the declines in ordinary mail (-4.6% y.o.y), an intrinsic trend in the postal sector primarily due to the digital transformation of communications, as well as in international inbound mail (-28.3% y.o.y) and international outbound mail (-15.4% y.o.y). Excluding the impact of legislative elections in 4Q21 and 1Q22, the declines registered in 2022 in transactional mail and international outbound mail volumes would have been 5.7% y.o.y and 13.2% y.o.y, respectively.

It should be noted that the downward trend in international inbound mail observed since 2H21 continued in 2022 due to the entry into force as of 1 July 2021 of the abolition of the VAT exemption on postal items below €22 ("de minimis"), leading to the need for customs clearance of all items of extra-EU origin, which resulted in an increase in customs transit times due to a complex and one-by-one process, which, ultimately, led to the migration of this type of traffic to express networks.

In the opposite direction, registered mail volumes grew (+1.4% y.o.y) in 2022, driven by the dynamics of contractual customers, especially the government and Utilities & Telcos sectors, as did priority mail (+1.1% y.o.y).

In 2022, addressed advertising mail volumes decreased by 3.4% y.o.y. and unaddressed advertising mail decreased by 5.6% y.o.y.

In 2022, CTT continued to develop (i) the CTT Ads Creativity solution, in partnership with the Milford agency, for the strategic and creative development of communication campaigns, and (ii) the "CTT Ads Success Stories" campaign, with the aim of boosting the advertising offer for clients with online businesses, to promote trial of advertising solutions.

Express & Parcels

Express & Parcels revenues amounted to €259.0m in 2022, a year-on-year increase of €3.3m (+1.3%).

In 2022, revenues in Portugal recorded €132.2m, a year-on-year decrease of €3.0m(-2.2% y.o.y), and volumes totalled 33.1 million items, a growth of 1.1% vis-à-vis 2021. It should be noted that 1Q22 was impacted by a difficult year-on-year comparison, as 1Q21 was a quarter marked by the effect of the restrictions associated with the COVID-19 pandemic, particularly the second lockdown, which strongly boosted the e-commerce activity.

CEP revenues amounted to €118.9m in 2022, corresponding to +0.4% y.o.y. The annual comparison shows a steady recovery trend quarter after quarter and it should be noted that in 4Q22 revenues grew 8.7% y.o.y, maintaining the CEP activity a growth trajectory in terms of volumes per working day (+15.3% y.o.y). This growth was boosted by a very strong peak season, underpinned essentially by e-commerce (B2C) customers, particularly large global marketplaces and national and international e-sellers.

The logistics product line, which is a pillar of the development of the vertical integration strategy with CEP, recorded revenues of €3.4m in 2022, a growth of 8.9% y.o.y. based on attracting new customers and on the logistical operation of supplying computers and peripherals to Portuguese schools.

Revenues of the cargo product line amounted to €4.9m in 2022 (-40.2% y.o.y), a reduction related to the change in the operating strategy, which aimed at repositioning this product line within positive margin levels. This implied the exit of some customers as well as the withdrawal from some activity sectors without operating synergies.

The banking documents delivery product line recorded revenues of €4.3m (-3.4% y.o.y). Although still under pressure in a context of continued reduction of the capillarity of banking networks, as well as of lower collection/delivery frequency, it is worth noting that this product line registered a 5.3% growth in 4Q22 when compared to 4Q21.

In the end of 2021, CTT entered into a partnership with Zongteng Group and created the Open Lockers joint-venture to manage and develop the 24-hour Lockers business in the Iberian Peninsula.

Aiming at installing a vast network of lockers in Portugal, in 2022 CTT continued to roll out its 24-hourLocker strategy to both the general public and private premises (both residential and corporate), as well as the Click&Collect product. These lockers allow clients to pick up their parcels with maximum convenience, 24 hours a day, every day of the week (24/7). As at the end of December 2022, CTT's parcel locker network comprised 508 24-hour Lockers in various locations around the country, namely in hospitals, intermodal transport platforms, shopping centres, university campuses, physical retail

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CTT - Correios de Portugal, S.A.

networks, parking lots, gas stations or, in the case of private lockers, in condominiums and in office/business areas.

Revenues in Spain stood at €122.9m in 2022 (+4.8% y.o.y). The contribution margin6 grew by 28.0% y.o.y, driven by the increase in the average unitary prices. As a result, CTT Express reached break even in 2022 with a positive recurring EBIT in the individual accounts.

The inflationary context, the energy crisis and the contraction of consumption in the last months of 2022 have impacted the volume growth profile in Spain. In effect, the Express and Parcel activity in Spain is specially exposed to e-commerce (B2C) and, in particular, to large global marketplaces. CTT Express has been implemented a new commercial model and enlarging its commercial offer to be able to grow in new market segments, namely in national e-sellers and in B2B clients, aiming at underpinning its growth trajectory.

CTT Express closed the peak season with record numbers in terms of efficiency in the first delivery attempt, as a result of planning, process standardisation and the investment made with the entry into operation of new, automated facilities. The stability of the service and the response to the customers' needs made it possible to strengthen the confidence of existing customers and attract new ones.

Revenues in Mozambique in 2022 stood at €3.9m (+20.5% y.o.y). Growth was driven by a partnership with a freight forwarder in Africa.

Banco CTT

Banco CTT revenues reached €126.0m in 2022, an increase of €27.1m (+27.4% y.o.y) over 2021.

Revenue growth was due to the positive performance of net interest income, which totaled €74.4m in 2022, €18.6m above 2021 (+33.3% y.o.y).

The Cartão Universo consumer credit portfolio generated revenues of €21.6m in 2022, with a balance sheet volume, net of impairments, of €353.8m in December 2022, a growth of €61.7m (+21.1%) compared to December 2021.

The significant change in the overall macroeconomic and financial environment justified the need for Banco CTT and Universo, IME, S.A. to revisit the terms underlying the Agreement in the area of financial services they had signed on 1 April 2021. In this context, on 20 December 2022 the parties communicated to the market that they had agreed the terms for the termination of the Agreement with a view to ending the partnership by 31 December 2023. Hence, Banco CTT received a termination indemnity of €1.9m in December 2022. With the implementation of this agreement, Banco CTT will gain optionality in its strategic development and will release liquidity and capital that will reinforce its profitable development and growth.

Interest from consumer credit reached €45.4m in 2022, up €7.6m (+20.2% y.o.y) compared to 2021 and auto loans reached a loan portfolio net of impairments of €760.3m (+17.2% vs. December 2021). Auto loans production stood at €262.4m (+22.7% y.o.y).

Interest from mortgage loans recorded a year-on-year increase of 46.6%, a year-on-year growth of €1.8m. The 4Q22 was the most impacted, with a growth in interest of +167.7% compared to 4Q21, when Euribor rates were negative. In fact, reference rates for mortgage loans rose sharply in 2022, as a result of the increase in key interest rates set by the European Central Bank (ECB), due to the increase in inflation in the Euro area. The mortgage loan portfolio net of impairments totalled €658.6m (+10.7% vs. December 2021). Mortgage loan production amounted to €145.6m, a year-on-year growth of 9.4% (+€12.5m).

Commissions received in this business unit reached €45.5m, a year-on-year growth of €6.2m (+15.6% y.o.y). Worthy of note are the positive contributions of (i) commissions from accounts and cards, which amounted to €12.7m (+€2.0m; +19.1% y.o.y), (ii) savings products (off-balance sheet), which totalled €4.5m (+€0.9m; +24.2% y.o.y) as a result of a net volume off-balance sheet of €891.7m, 25.8% above December 2021, (iii) insurance amounting to €3.2m (+€0.8m; +35.1% y.o.y),

1. consumer credit (off-balance sheet) with an amount of €2.7m (+€0.9m; +53.5% y.o.y), and
2. payments, which totalled €18.5m (+€1.0m; +5.8% y.o.y).

6 Revenues less direct operating costs (excluding overheads, essentially buildings and fleet).

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