CTT Correios de Portugal S A : informs about 1st half 2022 consolidated results

Consolidated Results

1st Half 2022

CTT – Correios de Portugal, S.A.

CTT – CORREIOS DE PORTUGAL, S.A.

1ST HALF 2022 CONSOLIDATED RESULTS

• Revenues1 grew by 8.2% to €446.4m in 1H22, an increase of €33.6m compared to 1H21 that reflects the performance of the Mail & Other business unit (+€24.0m; +11.0% y.o.y), Banco CTT’s growth (+€12.3m; +26.8% y.o.y) and Financial Services & Retail (+€0.5m; +2.2% y.o.y). Revenues of the Express & Parcels business unit declined (-€3.1m;-2.5% y.o.y).
• Mail & Other was positively influenced by the consolidation of NewSpring Services (+€11.9m), the record of the revenues associated to a laptop sale project started in 4Q21 (+€21.5m) and penalized by the sharp decrease in revenues from international inbound mail (-€10.8m) which continues to be impacted by the end of the VAT exemption on lower-valueextra-EU products (de minimis).
• Banco CTT maintained its growth path in 1H22, with its recurring EBIT having more than doubled in the period to €5.5m (+128.9% y.o.y). The growth of the auto loan portfolio was a key contributor to this performance, as its production reached the highest level ever in 2Q22 (€65.2m) totaling €125.5m (+37.3% y.o.y) in 1H22. The same happened with the consumer credit portfolio, driven by the partnership with Sonae.
• The Express & Parcels business unit in Portugal posted a decrease (-€5.6m;-8.4% y.o.y) to €61.5m, albeit is should be highlighted that in 2Q22 there was a growth of 1.9% y.o.y, which is a recovery when compared with the trend observed in 1Q22. In Spain there was a slowdown in its growth profile (+€2.3m; +4.0% y.o.y) to €59.5m. Moreover, on another note, it should be highlighted that the E&P segment registered a favorable evolution of its operational profitability, with EBITDA in both geographies registering a growth in the quarter.
• Recurring EBIT reached €18.6m in 1H22, a decrease of €10.1m (-35.0% y.o.y) versus 1H21 as a result of the decline in Mail & Other (-€11.3m), due to the decline in higher-value and higher-margin mail volumes. However, it should be noted that the recurring EBIT reached €12.0m in 2Q22 (-12.2% y.o.y), reflecting the expected improvement in the trend in 2Q22. In effect, the recurring EBIT registered in 2Q22 stood in at the middle of the range that was guided in the Capital Markets Day held in the past June.
• Operating cash flow stood at €19.0m in 1H22, down €18.9m (-49.8% y.o.y).
• Net profit4 reached €14.5m, a decrease of €2.6m (-15.3% y.o.y).

Consolidated results

• Excluding specific items.

• In 2021, operating costs (EBITDA) include impairments and provisions; also, the impact of the leases covered by IFRS 16 is presented

pursuant to this standard.

• 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

It should be noted that 1H22 was negatively marked by several factors, such as the international economic environment associated with the Russia/Ukraine military conflict, causing constraints in the global supply chain of goods, and the long-term effects of the COVID-19 pandemic.

Consolidated Revenues

CTT revenues grew by 8.2% in 1H22 to €446.4m, up by €33.6m compared to 1H21, reflecting the performances of the Mail & Other business unit (+€24.0m; +11.0% y.o.y), Banco CTT’s growth (+€12.3m; +26.8% y.o.y) and Financial Services & Retail (+€0.5m; +2.2% y.o.y). Revenues of the Express & Parcels business unit declined (-€3.1m;-2.5% y.o.y).

Mail

Mail & Other revenues amounted to €241.6m in 1H22, which corresponded to a year-on-year growth of €24.0m (+11.0% y.o.y).

The growth registered in this business unit was catalyzed by the business solutions segment (+€34.6m) reflecting the integration of NewSpring Services in CTT’s Business Solutions base offer in September 2021 (+€11.9m) and the €22.7m 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 1H22, mail service revenues registered a variation of -5.0%(-€10.4m) compared with 1H21, penalized by the strong decrease in the revenues of international inbound mail (-€10.8m;-53.5%).

It should be noted that in 1H22 addressed mail volumes, excluding international inbound mail, declined only by 2.2% in comparison with 1H21, which had never occurred in the last 5 years. The associated revenues grew by 1.0%. This situation resulted from the good performance of the business channel, which mitigated the decline in activity in the retail channel due to the reduced demand for e-commerce small packets, which resulted in pressure on the average price due to the mix effect between the business channel and the retail channel, with a higher unit value.

The growth in the revenues of registered mail (+€4.0m; +6.6% y.o.y), priority mail (+€0.2m; +5.8% y.o.y) and international outbound mail (+€2.9m; +14.7% y.o.y) should be highlighted, although without the additional revenue in the month of February due to the rerun of the legislative elections in the European constituency, they would have slightly decreased by €0.6m (-3.2%).

The remaining business lines posted decreases: ordinary mail (-€3.9m;-5.3% y.o.y), green mail (-€1.0m;-19.8% y.o.y), editorial mail (-€0.4m;-6.6% y.o.y), advertising mail (-€0.3m;-3.7% y.o.y), parcels (-€0.4m;-11.1% y.o.y), philately (-€0.3m;-10.3% y.o.y) and other mail products and services (-€0.1m;-8.7% y.o.y).

Business solutions recorded revenues of €41.8m (+€34.6m) due to the consolidation of NewSpring Services (+€11.9m) and the revenues related to the laptop sales project (+€21.5m) in 1Q22. Excluding these effects, the revenues have grown by 17.4% y.o.y, as a result of the continued focus on diversifying the offer and strengthening existing skills.

Also noteworthy within the business solutions segment are: (1) the growth of the document management business, with the attraction of new clients, namely utilities, banking and services and new municipalities for the solution of management of administrative offences; (2) the launch at the end of May of a new version of the e-Carta hybrid mail product, which allows small and medium-sized enterprises to digitalise their mail dispatch processes; and (3) the reinforcement of the IT equipment offer and the launch of a new stationery catalogue, consolidating CTT’s strategy of becoming the partner of reference, in a “one- stop-shop” logic, for national companies.

On 7 March, the new 2022 prices for postal services provided in the scope of the universal service came into force, set out in accordance with Law 17/2012, of 26 April, as amended by Decree-Law22-A/2022, of 7 February (Postal Law).

In 1H22, the average variation in prices of the universal postal service5 was 4.93% y.o.y.

• 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.

Mail volumes

In 1H22, addressed mail volumes posted a decline of 3.9% compared to1H21.

Mail volumes

Transactional mail volumes declined by 4.3% y.o.y, due to more marked declines in international inbound mail (-36.3% y.o.y). This downward trend has been observed since 2H21 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 containing goods, which resulted in an increase in customs transit times.

In the opposite direction, registered mail grew (+8.7% y.o.y), driven by the dynamics of contractual customers, especially the government and services sector, as did international outbound mail (+7.7% y.o.y), impacted by the effect of the rerun of the elections in the European constituency. Excluding this effect, there would have been a decrease of 4.4% y.o.y.

In 1H22, addressed advertising mail volumes increased by 2.4% and unaddressed advertising mail decreased by 6.3%.

A new CTT Ads Creativity solution was launched, in partnership with the Milford agency, for the strategic and creative development of communication campaigns. The “CTT Ads Success Stories” campaign continued, with the aim of boosting the advertising offer among clients with online businesses, to promote trial of advertising solutions.

Express & Parcels

Express & Parcels revenues amounted to €122.7m in 1H22, a year-on-year decrease of €3.1m (-2.5%).

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 Portugal in 2Q22, the CEP activity resumed the path of growth in volumes per working day by 3.5%, supported essentially by e-commerce (B2C) customers, with a particular focus on large global marketplaces.

In 1H22, the logistics product line, which is a pillar of the development of vertical integration with the CEP business, continued its double-digit growth (+19.4% y.o.y), based on attracting new customers, which in 1Q22 enabled the complete logistical operation of the supply of computers and peripherals to Portuguese schools to be carried out.

Revenues of the cargo product line amounted to €2.6m in 1H22, decreasing by 44.9% compared to 1H21, 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 closed the semester with revenues of €2.1m (-9.1% y.o.y) and remained under pressure in a context of continued reduction of the capillarity of banking networks, as well as of lower collection/delivery frequency.

CTT continued to roll out its 24-hour Locker strategy to both the general public and private premises (both residential and corporate), as well as Click&Collect. 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 June 2022, CTT’s parcel locker network comprised 350 lockers in various locations around the country, namely in hospitals,

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CTT – Correios de Portugal, S.A.

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 YunExpress, of the Zongteng Group, and created the Open Lockers joint venture to manage and develop the 24-hour Lockers business in the Iberian Peninsula, aimed at deploying a wide locker network in Portugal by the end of 2022.

Revenues in Spain stood at €59.5m in 1H22, corresponding to 4.0% above 1H21 and a 32.7% growth of the contribution margin6, anchored on an increase in the average price, which was higher than the evolution of unit costs, allowing this quarter to present again a positive recurring EBIT 7 . The implementation of a new commercial model and expansion of the offer will allow for the consolidation of the growth trajectory in the second half of 2022.

The Company maintains its strategy of investing in technology and innovation, as well as the start-up of new own delivery offices during this year that will allow the Company to move forward in its commitment to Iberian growth.

Revenues in Mozambique in 1H22 stood at €1.7m, 13.0% above 1H21. The growth achieved was supported by the partnership with a freight forwarder in Africa.

Banco CTT

Banco CTT revenues reached €57.9m in 1H22, an increase of €12.3m (+26.8% y.o.y).

Revenue growth was due to the positive performance of net interest income, which totaled €34.4m in 1H22, €8.7m above 1H21 (+33.7% y.o.y).

The Cartão Universo consumer credit portfolio generated revenues of €10.3m in 1H22, with a net balance sheet volume of €324.1m as at June 2022, a growth of €32.0m (+11.0%) compared to December 2021.

Interest from consumer credit amounted to €21.5m in 1H22, growing by €3.4m (+18.8% y.o.y) and auto loans reached a loan portfolio net of impairments of €698.8m (+7.7% vs. December 2021). Auto loans production stood at €125.5m in 1H22 (+37.3% y.o.y).

Interest from mortgage loans recorded a year-on-year increase of 11.9%, with a €629.3m mortgage loan portfolio net of impairments (+5.8% vs. December 2021). Mortgage loan production amounted to €72.0m, a year-on-year growth of €2.7m (+3.9% y.o.y).

Commissions received in this business unit reached €21.6m, up €3.5m vis-à-vis 1H21 (+19.1% y.o.y). Worthy of note are the positive contributions of (i) commissions received regarding accounts and cards, which amounted to €5.8m (+€0.9m; +19.2% y.o.y), (ii) savings products (off-balance sheet), which totaled €2.3m (+€0.7m; +42.1% y.o.y) as a result of a net volume off-balance sheet of €840.5m, 18.6% above December 2021, (iii) consumer credit (off-balance sheet) amounting to €1.4m (+€0.5m; +64.6% y.o.y), and (iv) payments, which totaled €8.8m (+€0.7m; +9.0% y.o.y).

Banco CTT’s good commercial performance continued to allow for growth in customer deposits to €2,259.6m (+6.4% vs. December 2021) and in the number of accounts to 581k (8k more than in December 2021).

The loan-to-deposit ratio reached 73.4% as at the end of June 2022.

Financial Services & Retail

Financial Services & Retail revenues amounted to €24.2m in 1H22, representing a year-on-year increase of €0.5m (+2.2% y.o.y).

There was a positive evolution in revenues in 2Q22, with a growth of €0.7m (+6.3% y.o.y) compared to 2Q21, as in 1Q22 these had fallen (-€0.2m;-1.7% y.o.y) compared to 1Q21.

• Revenues less direct operating costs (excludes overheads, essentially buildings and fleet).
  7 Individual accounts.

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