CTT - Correios De Portugal, S.A. (CTT) Earnings Call Transcript & Summary

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 call is being recorded [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.

Thank you, Laura. Good morning, everyone. Welcome to our 2023 year end results presentation. Whilst 2023 was another great year for CTT, another growth year with significant contributions from Express & Parcels and the Bank as the main contributors for our growth and if you -- if you join me on Page 4 of the presentation, 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 record of volumes in -- 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, we have a significant price increase for the first timer, not as much as for this year, but significant and that combined with the mix for what we 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 Center productivity to enhance margin protection and we see mail going better and better from now on. Moving to Financial Services & Retail, we of course had a very high -- abnormally high I should say level of public debt placement that ended roughly at midyear. And because volumes were then forced down by the treasury and with those, especially with 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 a lower percent of public debt. And finally the Bank with a very strong growth in -- on all aspects in deposits, in line with the general strategy, steady growth also on loans and the Bank is moving well with 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 if -- 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-a-vis last year because we have, in the quarter of last quarter of 52% this abnormal high percent of debt, but all in all, the year-end with an EUR 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 EUR 114 million in the year or 15% higher than the previous year. Free cash flow of EUR 94 million or 40% higher than last year and a very strong consolidated net cash position of EUR 39 million which represents a EUR 69 million improvement versus the last year and if we account the Bank in equity methods, net debt stood at EUR 177 million or rather flattish, down EUR 8 million versus last year. On Slide #5, I'll go very briefly on this. We can see the real 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 the bridge, EBIT bridge from the financial year '22 to the financial year '23, 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 & Retail with the very first -- good first half of the year. Moving to Slide #6. A little bit more detail on the impressive growth on Parcels. Slide #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 #7, we can see growth well beyond the market. In fact, CTT in Spain or CTT Express was 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 impressive 127% higher, so clearly 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 market is that we have shown high quality and efficiency. We have maintained the quality of service with high delivery efficiency rates in spite of an increase in volumes per working day. And finally we are adding new services that are enhancing the portfolio and I would call the attention to one that has been well -- we started actually by the end of 2022 which is the customs clearance 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 sorting 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 points -- the largest PUDO network with over now 13,000 [indiscernible] in Spain, which is the largest available network we are providing, these new services is very important because it provides additional stickiness, the more services one provides to the customers, the higher fidelity it generates. So very significant growth, a very important one in Spain that was fueled by all client segments. And the final word on the Spanish and on the Iberian market on Parcels. Moving to Slide #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 a monotonic way. Not so much the case in Spain that grew also very, very significantly, but with a small hiccup in 2022. So we can see here that the Spanish market we do some around 4% and this is also a good indication of on how much margin -- 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 it's around, one, the adoption of e-commerce in Portugal is around 1/3 of the average if we remove if -- if you consider all countries and Spain is below half of the adoption and so there is still a lot of room for natural convergence, meaning that we're going to have to see and to feel [indiscernible] in terms of e-commerce adoption, which will probably enable us to keep growing at very relevant rates. 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 Financial Services & Retail. Joao, over to you.

Thank you very much, Joao. As you can see on Slide 9, in Express & Parcels in Portugal -- Portugal posted growth in Express & Parcel revenues of 13.2% with revenues of EUR 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 the sharing the customers we have in our customer base. But also we are always looking for customer retention through a good diversification of our portfolio investments, meaning in by retention of the customers and also in the sector of activity. So that's where you can manage in a good way the retention of the customers. Every import will grow more than 35% will result of EUR 3.9 million in the fourth quarter. So it's weighting in the margin of 9.2% with good performance in margin results in a continuous improvement in operational optimization. So we are always looking the way that we can increase our market share and revenues, but in the same way also bring equality 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 fourth quarter, we had revenues of EUR 67 million. This means a growth of 107%. 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 in customers. So in that way, not being dependent on just strategic customers. And you can say that in 2023, we grow in all payments from the SMEs and for to be clients and also in strategic. Also, I'd likewise comment saying the first phase of operation of customer clinics offers. So this is very good to speaking with the customers' interest, so bringing more services to our customers. And this also builds the loyalty with CTT Express in Spain. These revenues results in a growth in EBIT of 318% in margins. That means EUR 3.8 million in the fourth quarter and in the margin of 5.5%. On Slide 10 -- sorry, on Slide 11, where we look for the mail business. In 2023, the addressed mail reached a revenue of EUR 356 million. This means particularly flat value compared with the previous year. Most of these revenues of these flat revenues comes from the increase in price, but I think that helped 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 increase in repricing help us to have this practical 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 number is 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 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 show that the current universal service contract is [ predictively ] and we can manage this in a good way. So in this, we are always concerned to add additional customer address to deal with inflation and then against the backdrop of flattish revenues. So we see in 2023, a reduction in cost from EUR 22.1 million to a total of EUR 428.1 million to deal with the deflation we saw in 2023. This results in EBIT of EUR 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 helped us to achieve the results in 2024. On Slide 14, we can now look for the Financial Services, as you -- as Joao Bento will say and everybody knows, we have a very good first half of the year in 2023 as we see that less attractive rates and stringent cap have an impact of placements in the second half of the year. In the first quarter, we have placed EUR 333 million of public debt. This results of EUR 18 million of revenues and EUR 3.5 million in EBIT with a margin of 43.8%. We believe that the competitiveness of the public debts will improve through this year, the way -- when we look for the reduction of the bank interest and even a possibility in future change of the product during the year. And for that, we already have our digital offer using [indiscernible]. So we already developed 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 a marketing campaign to show the importance of this product aligned with the GCP. So that's why we are true believer that -- we believe that we are prepared when the competitiveness of public debt changed during the year to attack the markets even for our -- from our stores or for our digital platforms. Even so, at the same time in this business area, we are continuously focused on selling more insurance and health plans that help us to diversify our offer, like we are doing then in the different segments in Express & Parcels. And now I pass word to Guy Pacheco, our CFO.

Thank you, Joao, and good morning. On Page 15, we can see the Bank KPIs where we continue to post a steady progress to our medium-term targets for 2025, meeting a number of accounts or business volumes. In Accounts, we grew 45,000 accounts on the year and that put us in the average trading per quarter on the top end of our guidance range. And in business volumes, we grew more than EUR 1 billion and that also put us above the top end of the guiding range. And as 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 with growing 13.2% and mortgage volumes growing also more than 10% in 2023. On the next page, we can see the key financials of the Bank where we see a very strong progress on revenues driven by volumes and expansion of net interest margin that's now -- that stood in 2023 in 2.9%. Revenue grew more than 17%, and that led to the expansion of our EBIT that stood above EUR 25 million, growing 76% on the year and driving a return on tangible equity of 8.8% for the full year and closing to mark of being above 10% in '25. On Page 18, I won't spend much time here. We think it was important for you to have the numbers that enable you to think around the exit 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 forefronts, as you know, climate change carrying 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 -- and the potential 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 target. Then gender parity, we consider ourselves already to be within the guide -- the range of parity. Nevertheless, we continue to progress on measures to promote the less represented gender 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 [indiscernible] tradition progressing to be more and more share of our revenues and our costs aligned with the taxonomy. And on right-hand side, the initial output of our materiality analysis where we show -- where we will focusing 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. Our net profit reached on the year EUR 60.5 million and a very steady progress also in free cash flow that stood at EUR 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 a EUR 7.1 million of deferred tax coming from the tenant leaseback 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 -- sequential difference between the 2 years. There is also an increase in the tax credit related to SIFIDE 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, growing 56% with volumes in Portugal progressing more than 14%, be it on revenues and volumes. Spain continues to accelerate. We more than doubled our revenues and more than doubled our volumes as well and that's 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 converging faster than Spain. But that means that we should have gained share with a meaning in Portugal with growth across all sectors and a good progress on the diversification of customers in Spain. That is something that we always monitor very closely. Mail and other declining EUR 4.4 million. Half of that decline comes from Business Solutions. The other half of small acceleration of mail volumes, especially on the financial sector and that explains half of the decline. On the full year, Others mail declined 8%, almost in line with the progress on the fourth quarter. Nevertheless, on the year, we think we could based on the new pricing formula achieve a very flattish addressed mail revenues, which bring us confidence that we can stabilize this business unit going forward. On Financial & Retails, declining EUR 13.2 million, replacements achieving EUR 333 million that is a very difficult comparison with the EUR 4.3 billion that we place on '22. Product remains with the lack of competitiveness vis-a-vis the interest rates and site deposits or term deposits in Portugal and the cap is restricting placements, things that we see improving throughout the year, especially on the second half where the market is expecting interest rates to come down. And we are looking to have the cap 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 EUR 3.7 million. This is basically the fact 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 have a 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 EUR 36 million. We continue to see unit cost 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 have some consequences on margin, but nevertheless, a very positive quarter on the mail, increasing EUR 0.5 million. We need to recall that wage inflation on the quarter was EUR 2.6 million and because of lower volumes in Financial Services, the cost of the retail stores are less shared by that division as such, there is EUR 2 million additional cost that flow back to mail and Other and that explained how we were not able to decline more mail and Other costs that to flattish during the quarter despite the revenue decline. Financial Services declining EUR 5.4 million and that is basically linked to the decreased activity. Conversely, Banco CTT increased EUR 1.2 million and that is basically on increased activity. Cost of risk on the quarter declined 0.2 percentage points to 1.5% or EUR 0.9 million in the full year. I'm 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 are main contributors, growing EUR 6.3 million, more than compensating the EUR 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 EUR 7.7 million after the abnormally high fourth quarter of 2022 and 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 EUR 87.6 million. On the next slide, you can see the detail of our cash flow. Also a very strong cash flow generation with EUR 140 million of operating cash flow, growing 15%. Free cash flow also growing to EUR 94.4 million, a growth of 40%. We have a net cash position of EUR 39 million, including lease of liabilities -- lease liabilities, consolidated cash. But if we account banks in equity method, we have earned EUR 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 on deleveraging on the last years. Considering the Bank, we have a cash position, we normally focus on the right side of the slide where we can see that we have still very conservative net debt-to-EBITDA of 1.44% -- 1.44x. And with that, I'll pass you to Joao Bento to the outlook and final remarks.

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's 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 will like to call the attention that we have different business lines in different colors. So how do we see this EUR 88 million progressing towards the targets -- the 2025 targets? Or certainly mail will slightly improve for the reasons that we already mentioned. We see the price forms are 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 bit of the column. As for the yellow Financial Services & Retail, in spite of avid contribution for insurance, we will see certainly a convergence towards normal placement levels on -- 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 growth 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 Guy 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 we lie at a 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 nonmarket share that we keep pursuing. Also for the developing of the network -- lockers network in Portugal and now initiating that in Spain. We are -- we have just closed the first deal to start to expanding into Spain, but also and very significantly on investment in IT to drive customer experience and operational 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, pricing, of course, but also on mail. And finally, because we need to revamp Banco CTT hubs and upgrade the core platform on digital channels. This Banco [ CTTx2 ] is a function of exactly those 2 new strengths in terms of upgrading the commercial and also the physical platform and the digital channels. And therefore, we see the, 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 a general trend that we have announced. Actually, in -- again, on the Capital Markets Day, we have announced not only a dividend policy, but also the main principles that should guide 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 interest -- sorry, net results, net income with opportunistic share buyback. And this is what we can see. There is significant increase on the proposal to the General Meeting of Shareholders to -- for the dividend. The EUR 0.17 that we are suggesting is not only a significant improvement, the 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, on -- 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 a nutshell, 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 to round on Parcels, we are, we were and we keep developing this trend as the top performer on Express & Parcels in Iberia with record growth driving market share gains, both in Portugal and Spain and the significant margin expansion, mostly in Spain. And so a great year for Express & Parcels in the trend that we see present again for this year. On mail, we have approved a price increase, the highest price increase ever. And that combined with the mix development enable 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 has already highlighted, while public debt placement 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 clients, volumes and profitability will be the -- well, 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 EUR 20 million share buyback ongoing and the dividend of EUR 0.17 to be proposed to general meeting is, in fact, we believe, a 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 EUR 88 million, assuming public debt placements of EUR 3 billion. So thank you for that. And now we remain available for Q&A.

[Operator Instructions] We'll now take our first question from Joao Safara with Banco Santander.

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 cost savings that you mentioned in the presentation of EUR 6 million. So my question here is just if on a ceteris paribus basis, just should we expect this EUR 6 million delta for 2024? Or this is the accumulated figure from '23? So if you could, a bit, help us understand that in the mail side. And then also 2 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 EUR 26 million excluding the credit card portfolio. I would also wanted to ask the pro forma figure without Payshop, if you could give us an idea? And then just finally on -- again, on the guidance, 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 EUR 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 for your questions. Starting on mail. So we've -- on Slide 13, we showed the annualized EBIT impact of the outcome reductions. So it's -- on total, it's EUR 10 million. The 2023 numbers will flow to P&L on the full year of '24. On the EUR 6 million, part will flow during '24, not fully. We are not giving a visual 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 union with 4.4% salary increase for '24 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. So on the Bank, so you have the numbers there of the credit card. On Payshop, we have on the full year of '23, EUR 4.5 million of the risk coming from Payshop on the Bank and payment business units that we reported on the full year of '23. 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 current play because on the placement, IGCP also include the capitalization of interest that it accrued to the stock every quarter. We believe that, that number is between EUR 50 million and EUR 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 placement declined, our share also declines because of that effect. We are asking IGCP to 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 it relates on the reports. Regarding the product evolution, we think remove the expansion of the cap in a way was cost on these new government's transition and that was the decision that was not taken in time of the beginning of the year. The [ space ] budget has 2 numbers regarding public debt. The first one is they expect placing EUR 3.7 billion this year and they have an authorization to place up to EUR 7 billion this year. The combination of the increase of the cap plus what we see a declining interest rate environment on the second half of the year should improve the competitiveness of the products. And as such, we are confident that we can start increasing the volumes of placement and as such meet the EUR 3 billion threshold that we mentioned on the [indiscernible].

Yes, Joao, just before going to the excess part of growth, a complementary note, we -- on top of the explanation provided by Guy, one, we have already -- we have already received comfort by the IGCP 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 placements, new places by IGCP 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 & Parcels, the answer is yes. So we see our sales growing in double-digits in both geographies and we see this is our expectation. And we are very confident on that.

Just a follow-up for Guy on this. The EUR 3 billion placement, this is for -- I mean, this is -- compares with -- sorry, this is your placements, right? It's not the IGCP number?

The EUR 3 billion, it's our placements, yes.

And we'll now move on to our next question from Joaquin Garcia with JB Capital.

I just want to kind of a bit more information on the Express & Parcels growth. Is that going to come all through volume? Or is price finally going to have a positive impact on 2024? And then year-for-year 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 -- would you need the money for this year? Or is just to be prudent and then as you did last year, nothing appears, then you'll do a share buyback?

Starting with the first one, I'll 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 size of the parcel. 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 dramatic increase in price per parcels. If anything, probably still a dilution this year because of this big growth on the back of the -- on the second half of the year was mostly an out of Europe packets and as such with smaller parcels. So it's -- the growth will come mostly out of growth on volumes.

Okay, Joaquin, regarding the decrease in payout ratio and if it is related with us needing 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 payouts, 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 our -- on business growth, on attractively run shareholders. And that includes -- the business growth includes, of course, capacity investing on our business M&A, if necessary and we have spent enough in the balance sheet within the leverage limit that we have established for ourselves to also go for M&A. So there was no restraint or constraint on that guided the decision of proposing a dividend of EUR 0.17 because with this significantly high dividend, we can still, using our leveraging capacity and developable cash to do whatever needs to be done.

And we'll now take our next question from Filipe Leite with CaixaBank.

I have 3 questions, if I may. The first one on Express & Parcels in Spain because despite the strong top line increase in this quarter and fourth quarter, the EBIT margin when compared with previous quarter, the EBIT margin dropped. What was the reason for this decrease? And if you can share with us at least your internal expectations regarding margin evolution on these units, specifically in Spain for this year. And also 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. And when we'll start to exclude distribution that you agreed 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 EUR 3.1 billion loans, EUR 1.6 billion -- sorry, EUR 3.1 billion deposits and EUR 1.6 billion loans. Can you tell us in what assets are invested the extra EUR 1.5 billion? And how much is it contributing to your earnings?

Thank you, Filipe. So I'll start with the EBIT margin. So EBIT margin dropped. It's -- well, it is somehow normal that it drops during the peak season. But we have a couple of -- well, I'd say unique effects. One is that we have exceeded capacity in Spain. So we -- growth of volume 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.

Going to the Bank, we see the Generali, let's say, we are interacting right now, 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 Pactual ]. We are already -- the necessary steps to distribute the products of Generali, both in Banco CTT, both on CTT network. So we are already distributing their products, although still not within the framework of the exclusivity agreement. That will come after the closing of the transaction. Regarding your question to be what is the assets that we have invested on Banco CTT resources? It's basically [ BCE ] and sovereigns. So we only invest in sovereigns or basically in sovereigns. And that are -- those 2 investments, the BCE rates are known and the ones are in line with 3%. [ VCB ], sorry. I was using the [indiscernible].

[Operator Instructions] We'll take our next question from Artur Amaro with Caixa BI.

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 & Parcel in Spain. If you could please quantify how much was the market share gain? And what's the current market share?

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 grow more both in Portugal and Spain in market share. We should be above 42% on 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 -- closer 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 sell the final numbers of the market.

And we'll now take our last question from Antonio Seladas with AS Research.

I have 3. The first one is related with mail volumes. The 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 do you think is the underlying trend in terms of mail volumes, addressed. Second question is related with 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 -- why you are not more keen on gaining market share in Portugal as we are doing in Spain, since the Portugal market is, as you mentioned, is going to continue to grow. And last question is going to the Bank and Parcel 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 CB. So my question is, do you -- do you want to keep this capital ratio above 20%, 21%? Or you will return in the future to 15%, 16% that were the capital ratios that we were used to see in the past?

Thank you, Antonio. So on mail volumes, the quality across the year is normal because sometimes there are very intense expense by being it the tax authority or given bank or utilities source. We are not that much concerned with -- we are, of course, concerned for operational business because you need to be ready and agile in coping with that. But the underlying trend is what matters. And we guided a decline between 16% for this year. So very much in line with recent years. On Express & Parcels, well, I would not agree with the idea that we don't want to grab -- we don't want to go after 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 Guy to answer.

Thank you for your question. As you might remember, from the Bank road show that on the end of last year, we have this new [ morale ] requirement that will come into force in 2026. We need to start complying in the end of '25 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 truly negotiated with regulators. It's what we are doing. So we are moving within these 2 boundaries, first, the requirement of morale and the most optimized way of complying with that requirement on a shareholder perspective, we need to agree with how can we achieve both objectives.

Just a follow-up question. So on mail, I understood that it's minus 6%. Is that right? Mail volumes?

6% to 8%.

Okay. 6% to 8%. Okay. 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% reservation of Tier 2 is what you are trying to say, to reach the '24-'25 MREL?

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 constraint or space of solutions that I first 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 requirements for MREL. We are looking to optimize that in the perspective of CTT and the shareholder, but we need to take in account all the constraints. So first, the appetite for that debt for an issuer like CTT and the regulator appetite and the growth of the Bank as well.

And we'll now take our final question, a follow-up from Joel Safara with Banco Santander.

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 -- I mean, how much volume growth can you absorb the investments you're going to do in 2024? Not to reach a situation where you have capacity constraints?

Thank you, Joao. So as a general principle in line, the ideal capacity is never one that does not lead us ever to want 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 sorters. And then for sorters, 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 -- or the design for a higher capacity involves some investments, but also organization methods and things 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 peak season. And they are now, as we speak, sorters 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.

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 53% 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 nothing that is so concerning for '24. 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 are decisions that are made and that will be in place in time for the next [ few years ].

And maybe finally on that, Guy, is that all the interactions with the main and large customers, which are the ones that impact more peak season volumes, are concluded. So now we have agreed with them what should be the flows for -- and volumes throughout the year, including the peak season.

I'm now happy to hand it back to Joao for closing remarks.

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 CTT's convention this year, 2023 was probably a significant point in the sense that we have established ourselves as a 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 Day. So thank you for coming and we will like to interact with you now offline through our IR team in the forthcoming hours and days. Thank you.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.