CTT Correios de Portugal S A : informs about 9 months 2022 consolidated results

Consolidated Results

January-September 2022

CTT - Correios de Portugal, S.A.

TABLE OF CONTENTS

JANUARY TO SEPTEMBER 2022 CONSOLIDATED RESULTS ........................................................................	3
1.	OPERATIONAL AND FINANCIAL PERFORMANCE .............................................................................	4
2.	OTHER HIGHLIGHTS..................................................................................................................	12
3.	SUBSEQUENT EVENTS ..............................................................................................................	15
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...............................................................	19

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CTT - Correios de Portugal, S.A.

CTT - CORREIOS DE PORTUGAL, S.A.

JANUARY TO SEPTEMBER 2022 CONSOLIDATED RESULTS

• Revenues1 grew by 8.1% to €662.8m in 9M22, an increase of €49.9m compared to 9M21 that reflects the growth in all business units: Mail & Other (+€26.6m; +8.3% y.o.y), Banco CTT (+€17.9m; +24.9% y.o.y), Financial Services & Retail (+€4.0m; +11.2% y.o.y) and Express & Parcels (+€1.4m; +0.8% y.o.y).
• Mail & Other was positively impacted in 9M22 by the growth of the business solutions base (+€38.9m), due to the consolidation of NewSpring Services (+€14.6m) and penalized 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 has been experiencing an upturn in a challenging economic environment. In 3Q22, Portugal recorded a 4.0% year-on-year growth in revenues (in 9M22 revenues reached €94.3m (-€4.8m;-4.8% y.o.y). CEP performance in Portugal in 3Q22 confirms the recovery that took place since 2Q22. In Spain, revenues grew to €90.7m in 9M22, up by €5.8m (+6.8% y.o.y) relative to 9M21, and a positive trend was also observed in 3Q22 revenues.
• Banco CTT continued to grow, with the recurring EBIT increasing to €9.6m in 9M22 (+66.5% y.o.y). The growth path was anchored on the growth of the auto loan portfolio, where it should be underlined that production reached a new peak in 3Q22 (€67.4m), totaling €192.9m in 9M22 (+28.0% y.o.y). as well as in the growth of the consumer credit portfolio.
• Financial Services & Retail, which grew by 11.2% y.0.y in 9M22 to €39.5m (+29.1% y.o.y in 3Q22 to €15.3m) benefited, especially in 3Q22, from the 40.5% increase in subscription of public debt certificates, mainly 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 €38.8m in 9M22, reaching €20.1m in 3Q22 (€12.0m in 2Q22 and €6.7m in 1Q22), with an improvement in the trend throughout 2022.
• Operating cash flow stood at €59.0m in 9M22, up €7.6m (+14.9% y.o.y) compared to9M21.
• Net profit4 reached €28.3m, an increase of €2.0m (+7.6% y.o.y)vis-à-vis 9M21.

Consolidated results

								€ million
	9M21	9M22	∆	∆%	3Q21	3Q22	∆	∆%
Revenues1	612.9	662.8	49.9	8.1%	200.1	216.4	16.3	8.1%
Mail & Other	318.9	345.5	26.6	8.3%	101.3	103.9	2.6	2.5%
Express & Parcels	186.3	187.8	1.4	0.8%	60.5	65.1	4.6	7.6%
Banco CTT	72.1	90.0	17.9	24.9%	26.4	32.1	5.7	21.5%
Financial Services & Retail	35.6	39.5	4.0	11.2%	11.9	15.3	3.5	29.1%
Operating costs (EBITDA)2	530.0	576.0	46.0	8.7%	174.5	180.0	5.5	3.1%
EBITDA3	82.9	86.8	3.9	4.7%	25.6	36.4	10.8	42.1%
Depreciation & amortization	43.2	48.1	4.9	11.2%	14.6	16.3	1.7	11.4%
Recurring EBIT	39.7	38.8	-0.9	-2.4%	11.0	20.1	9.1	82.7%
Specific items	-5.8	-4.3	1.5	26.3%	-3.5	-2.2	1.3	36.8%
EBIT	45.5	43.0	-2.5	-5.4%	14.5	22.3	7.8	54.1%
Financial results (+/-)	-8.1	-7.1	0.9	11.6%	-2.7	-2.5	0.2	8.7%
Income tax for the period	11.0	7.6	-3.4	-30.7%	2.6	6.1	3.5	135.9%
Non-controlling interests	0.1	-0.0	-0.2	-118.6%	0.1	-0.0	-0.1	-164.2%
Net profit for the period4	26.3	28.3	2.0	7.6%	9.1	13.8	4.6	50.8%

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 & amortization and specific items.
4. Attributable to equity holders.

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CTT - Correios de Portugal, S.A.

1. Operational and Financial Performance

Consolidated revenues

In 9M22, CTT revenues grew by 8.1% to €662.8m, an increase of €49.9m compared to 9M21 that reflects the growth in all business units: Mail & Other (+€26.6m; +8.3% y.o.y), Banco CTT (+€17.9m; +24.9% y.o.y), Financial Services & Retail (+€4.0m; +11.2% y.o.y) and Express & Parcels (+€1.4m; +0.8% y.o.y).

Mail

Mail & Other revenues amounted to €345.5m in 9M22, which corresponded to a growth of €26.6m (+8.3% y.o.y) relative to 9M21.

The growth registered in this business unit was boosted by the business solutions segment (+€38.9m) reflecting the integration of NewSpring Services in CTT's Business Solutions base offer in September 2021 (+€14.6m) and the €24.3m growth of the business solutions base largely explained by the revenue related to a laptop sale project started in the last quarter of 2021 (+€21.5m).

In 9M22, mail revenues reached €290.6m, representing a decline of €13.4m(-4.4% y.o.y) compared to 9M21, penalized mainly by the strong decrease in the revenues of international inbound mail (-€12.6m;-48.4% y.o.y).

To be noted is the year-on-year growth of registered mail (+€3.8m; +4.2% y.o.y), priority mail (+€0.2m; +3.2% y.o.y) and international outbound mail revenues (+€2.8m; +9.6% y.o.y) in the period, which, excluding the additional revenue in the month of February due to the rerun of the legislative elections in the European constituency, would have slightly decreased by €0.7m (-2.5%).

The remaining business lines posted decreases: ordinary mail (-€4.0m;-3.7% y.o.y), green mail (-€1.4m;-18.4% y.o.y), editorial mail (-€0.5m;-5.0% y.o.y), advertising mail (-€0.4m;-3.0% y.o.y), parcels (-€0.4m;-7.1% y.o.y) and philately (-€0.7m;-17.7% y.o.y). Other mail products and services stabilized (+€0.02m; +0.7% y.o.y).

Business solutions recorded revenues of €51.7m (+€38.9m) as a resultof the integration of NewSpring Services (+€14.6m) and the revenue related to the laptop sales project (+€21.5m). Excluding these effects, revenues grew by 26.3% y.o.y. due to the continued focus on diversifying the offer and strengthening existing skills.

Worthy of note in the area of business solutions is (1) the growth of the document management business, which attracted new customers and new municipalities for the solution of management of administrative offences; (2) the launch of the new e-Carta hybrid mail platform, which allows small and medium-sized companies to digitalize their mail processes; and (3) the presentation of a comprehensive and simplified cybersecurity offer, aimed at small and medium-sized companies to improve their cyber resilience.

In 9M22, the average variation in prices of the universal postal service5 was +5.53% y.o.y.

Mail volumes

In 9M22, addressed mail volumes declined by 3.9% compared to 9M21.

Mail volumes

								Million items
	9M21	9M22	∆	∆%	3Q21	3Q22	∆	∆%
Transactional mail	313.5	298.9	-14.5	-4.6%	97.5	92.3	-5.2	-5.3%
Advertising mail	26.9	28.2	1.3	5.0%	7.8	8.7	0.9	11.2%
Editorial mail	21.4	20.4	-1.0	-4.8%	6.7	6.5	-0.2	-2.5%
Addressed mail	361.7	347.5	-14.2	-3.9%	111.9	107.5	-4.5	-4.0%
Unaddressed mail	333.1	315.0	-18.2	-5.5%	111.0	106.8	-4.2	-3.8%

In 9M22, transactional mail volumes decreased by 4.6% y.o.y, mainly due to the declines in ordinary mail (-4.0% y.o.y) and international inbound mail (-32.2% y.o.y).

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.

It should be noted that the downward trend in international inbound mail observed since 2H21 continued in 9M22 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.

In the opposite direction, registered mail volumes grew (+5.0% y.o.y) in 9M22 vs. 9M21, driven by the dynamics of contractual customers, especially the government and services sector, as did priority mail (+5.0% y.o.y).

In 9M22, addressed advertising mail volumes increased by 5.0% y.o.y. while unaddressed advertising mail decreased by 5.5% y.o.y.

The following projects were further developed: (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 €187.8m in 9M22, a year-on-year increase of €1.4m (+0.8%).

It should be noted that 1Q22 was impacted by a difficult year-on-year comparison, as 1Q21 was a quarter affected by the effect of the restrictions associated with the COVID-19 pandemic, particularly the second lockdown, which strongly boosted the e-commerce activity.

In 9M22, revenues in Portugal recorded €94.3m, a year-on-year decrease of €4.8m (-4.8% y.o.y), and volumes totaled 23.3 million items (-2.4% y.o.y).

CEP revenues amounted to €84.3m in 9M22, corresponding to -2.7% y.o.y. It is important to note that in 3Q22 revenues grew 4.0% over 3Q21, maintaining the CEP activity growth trajectory in terms of volumes per working day (+7.5% y.o.y), driven essentially by e-commerce (B2C) customers, with a particular focus on large global marketplaces.

The logistics product line, which is a pillar of the development of the vertical integration strategy with CEP, recorded revenues of €2.5m in 9M22 (+6.9% y.o.y), a growth based on attracting new customers, which in 1Q22 enabled the full logistical operation of supplying computers and peripherals to Portuguese schools to be carried out.

Revenues of the cargo product line amounted to €3.8m in 9M22 (-39.5% y.o.y), a reduction related to the change in the operating strategy, which aimed to find a solution to position this product line at positive margin levels.

The banking documents delivery product line recorded revenues of €3.2m (-6.0% 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 there was a 0.5% growth in 3Q22 compared to 3Q21.

CTT continued to roll out its 24-hourLocker strategy to both the general public and private premises (both residential and corporate), as well as Click&Collect product. These 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 September 2022, CTT's parcel locker network comprised 390 24-hour Lockers in various locations around the country, namely in hospitals, intermodal transport platforms, shopping centres, university campuses, physical retail networks, parking lots, gas stations or, in the case of private lockers, in condominiums and in office/business areas.

In late 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 to install a vast network of lockers in Portugal by the end of 2022.

Revenues in Spain stood at €90.7m in 9M22, corresponding to 6.8% above 9M21 and a 33.8% growth of the contribution margin6, anchored on an increase in the average price, which was higher than the evolution of unit costs. The implementation of a new commercial model and expansion of the offer will allow for the consolidation of the growth trajectory by the end of 2022.

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

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