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

Hello, and welcome to CTT's First Half 2026 Results Conference Call. This event is hosted by Mr. Guy Pacheco, CEO of CTT; Mrs. Joana Freitas, CFO of CTT; and by Mr. Joao Sousa, CEO of CTT. Please note that this conference is being recorded. [Operator Instructions] I'll now turn the call over to Mr. Guy Pacheco, our CEO.

Good morning to you all, and welcome to our first half 2026 conference call. I would invite you to start on Page 4, where we see our core business, CEP and Mail & Services continuing to perform strongly with temporary headwinds on Cacesa as players anticipate the new regulatory context of de-minimis. We had a very healthy organic growth of 6.3% with strong contribution from our CEP business. Also a strong contribution from Mail & Services that is disguised by the effect of elections that accounted for EUR 8.6 million last year. So if we account, we also had a strong contribution from Mail and bank contributing 7.4% to the growth. Our EBIT declined 8.4% despite a good contribution from our CEP business and a very strong contribution of Mail & Services with Cacesa giving this anticipation of the regulatory context, waiting on the evolution due to its high incremental margin. But all in all, the underlying business -- underlying engine of the group remains healthy and the pressure in Cacesa is temporary in nature linked to this regulatory transition. On the next slide, we can see accelerated growth of e-commerce volumes. With very strong growth, be it including or excluding DHL Portugal. So organically growing almost 21% and overall growing 24% in volume, so very strong growth. And with a very good news of diversification, we see on the right side of the slide, a strong diversification from crossborder non-EU Tier 1 to other kind of players, namely Iberian players and EU source e-marketplaces that continue to grow traction within our portfolio, and this brings resilience to our business going forward. So we are increasingly exposed to the structural growth of e-commerce demand in Iberia, and this remains very much so the underlying dynamic in our business. On Page 6, we see the financials of our CEP with, once again, a solid revenue growth above volumes with a sequential acceleration with organic growth growing 21.2%. Our EBIT also growing 5.4% with a very robust margin that is normalizing, although some mix and full inflation impacts were felt, and we are actively managing profitability with a number of implemented actions in terms of optimization of linehaul, handling, and last mile. On Slide 7, we see the our early validation on the JV of DHL synergies, where we continue to see significant synergies of EUR 17.5 million, a big portion of that coming from revenues, 40%, and then 50% coming out of operational efficiency and support functions. We know that the JV gives us more than scale, give us commercial reach, network density and operational specialization, which are key to building a stronger e-commerce platform in Iberia with this enlarged offering and more strength on operations. On Slide 8, we see the customs clearance activity that remains under pressure. The business environment remained very volatile with -- caused by regulatory volatility, changing in flows and airport shifts, but we are taking concrete actions to protect profitability. We are reducing our workforce and optimizing temporary workforce while actively managing our facilities and warehouse in order to protect the decline in revenues and strong decline on EBIT that you can see on the chart. We chose to spend a little bit more time explaining the trends around this business as we see this strong impact in the customs business driven by 2 regulatory changes, one affecting only the Spanish business that is the introduction of the G4 regulation and the anticipation of what has been implemented on the 1st of July, that is the end of de-minimis exemption where all goods below EUR 150 will be charged at EUR 3 per product fee per category. Noting that in November is to be expected an additional fee of EUR 2 per parcel that will bring still more volatility. So stricter regulation in Madrid and supply chain reorganization are in anticipation of the new regulation is what is driving the change of volumes as CTT or Cacesa has different market shares in all these airports. And we are seeing volumes moving from Madrid to Eastern Europe and Central Europe, namely Benelux. In Eastern Europe, we have strong market share in Poland. So that is good news. But in the Central European part, Cacesa is not as strong in the market, and that is driving the decline in share in those volumes. But we see this as temporary, and we see the market evolving to B2B clearance and fulfillment, where we have strong capabilities. And this regulatory reset is creating opportunities that we are already acting on with strong leads from a number of marketplaces in Iberia within this combination of clearance and fulfillment that bring us comfort that the reorganization of the business will evolve to a context where we will continue to have strong share and growth opportunities. In Slide 10, we see our E-commerce Solutions as a whole, so including the CEP and the non-CEP customs business. So still strong growth of 12.7% organically with a strong momentum of CEP offsetting the regulation anticipation of impact on Cacesa. In EBIT, not the same dynamics as the incremental margin of the customs business is putting pressure on margins and our EBIT is declining 26.9%, but I would highlight these very marked different dynamics between the 2 businesses and highlighting that we see on customs this as temporary in nature. And with that, I will pass the floor to Joao Sousa to guide you through the Mail and Financial Services.

Thank you, Guy. Good morning, all. As you can see on Slide 11, second quarter confirmed a strong acceleration in saving placements driven by higher subscription limits, attractive interest rates, and growing digital adoption. At the same time, health plans continue to scale, reinforcing the diversification in our service revenue base. Also, we see that in our insurance services. On the left slide -- on the left side of the slide on public debt placements, we can see that average public -- average monthly public debt placement reached EUR 547 million in the second quarter of 2026, up to 60% when compared with the last quarter and up to 40% year-on-year. Total subscription amount to approximately EUR 1.62 billion during the quarter, reflecting a very strong recovery from the customer demand for savings products distributing through our CTT network. And this performance is driven by 3 factors, higher savings certification. As you know, subscription limits was -- last year was increasing at attractive interest rates. And the customer continue to confidence in this kind of low-risk saving products. Also, I would like to highlight that digital channels continue to gain relevance. Digital savings subscription are representing around 12% of all transactions. And in May, it was -- May becoming the best month ever, surpassing EUR 20 million from this channel. The outlook of public debt placements looking ahead, looking -- remain very positive. We continue to see a strong customer demand for saving certificates supported by the attractiveness of this product through a customer placement. And at the same time, the launch of the new treasury certificates generates additional demand from customers seeing longer investment horizons. It's important to highlight that this -- we are not seeing a meaningful cannibalization between these 2 products. So we see an increasing and not a cannibalization. So on contrary, we see new customers coming to our stores or to our digital platforms. And so that's the way we see an outlook very positive until the end of the year for these saving products in our network. On health plans, we continue to see -- to perform pretty well. As you can see on the left side of the slide, the number of customers reached 55,800 customers, representing a growth of 13% versus last year and 90% versus 2024. This growth validates our ability to developing subscription-based services and create customer relationships behind our traditional postal services. We are doing this on the health plans and also in the insurance services and creating these new services in our retail network. In summary, we are seeing a strong acceleration in savings placements, supported by both our physical and digital channels and outlook for the next quarters remains favorable with strong demand for both savings certificates and now this new product that we launched on 6th of July. At the same time, health plans and insurance continue to grow, reinforcing the diversification of CTT services portfolio. On the next slide, Slide 11 -- sorry, Slide 12, where we see the Mail & Service revenues, despite the challenging cooperation base created by the May of '25, because we have the legislative elections, Mail & Services revenues delivered a very solid performance, because if you exclude the only one-off effect, revenues grew, savings placement accelerated significantly and business solutions and payments continue to expand. And in that way, profitability improved materially. As you can see, revenues reached EUR 127.9 million in the second quarter of '26 compared with EUR 130.4 million in the previous year -- compared with last year. However, this comparison is significantly impacted by the contribution from the Portuguese, which is one-off. If we exclude this, we can see this growth of 5% quarter-on-quarter. Growth was driven by savings placement, business solutions and the resilience of the addressed mail revenues. I would like to highlight this addressed mail revenues, that the addressed mail revenues declined 7.5% from EUR 88.9 million compared with EUR 82.2 million items. However, the revenue impact was sustainably lower. This means that excluding the election effect, addressed mail revenues would have declined only 0.9%, demonstrating a significant revenue resilience. This continued to demonstrate our ability to manage the structural decline in physical mail while protecting both revenue and profitability. Also, like we saw before, savings placement also continued to increase the revenues on our activity, increased 56.1%, reaching EUR 1.3 million in the second quarter of '26. And the total subscription increased 40%, approximately EUR 1.62 billion. Business Solutions, the revenues increased 7.8%, reaching EUR 19.6 million during the quarter. This becomes a huge asset to our diversification in this business unit. We see also a very positive outlook until the end of the year and also a very good way to continue to help to diversify this business area. On the right side, you can see that the profitability, recurring EBIT reached EUR 9.6 million, representing 37.3% year-on-year. Recurring EBIT margin improved from 5.4% to 7.5%. And if you adjust the election effect, the recurring EBIT growth had been 149%, highlighting the strong operational leverage that we have been doing in this segment. And so that we can see that this business area that can be very, very positive because even we increase the saving certificates, these revenues, you are seeing an increase of margin much higher than coming just from the revenues of the saving certificates. Sorry, and now I pass for Joana.

Thank you, Joao. Good morning, everyone. So talking now about the bank. The bank has seen a very robust quarter in terms of growth. In business volumes, you can see that all categories have had a double-digit growth, both deposits, off-balance savings, loan book accounting for nearly 40% of growth quarter-on-quarter. The current accounts, you can see the number is slightly growing, but there was a correction caused by the Bank of Portugal asking to eliminate accounts that were inactive for the past 24 months. So there's a slight difference on previous numbers that you may have seen. But we continue to see a very strong performance in the path for growth. It's translated also in the growth of banking revenues. Banking revenues went up 7.4% in the quarter, both in net interest income, in commissions. There's a slight decrease in the category other that has to do with transactions and operations that happened last year that are not recurrent, namely the sale of NPL portfolio and credit recovery in the 321 credit unit. Looking at recurring EBIT, we are continuing our strategy of reinvesting the proceeds of the business in creating technology and commercial capability for future profitability growth. So we do see a slight decrease in recurring EBITDA from EUR 5.6 million to EUR 5.2 million in the second quarter of '26. and maintaining our ROTE at around 12.1%. So I would say a quarter that continues to deliver on growth and investing for future improved profitability. On the next page, I think we now move to Page 15. You have our financial indicators. Here, you can see the full consolidation with the bank and no pro forma adaptations. I would highlight that we have a strong revenue growth quarter-on-quarter, 11.7%. We have the recurrent EBITDA decreasing over the year-on-year, but increasing -- improving versus the first quarter of this year, so on a positive trend sequentially. And also free cash flow at EUR 31 million, improving 35% versus the last quarter. And these will be my highlights for this stage. Continue on Page 16 and looking deeper into the revenues. Here, we can see that revenues grew at 6.3%. So a solid performance that was underpinned by CEP and by Mail & Services, if you isolate for the effect of last year's elections. So e-commerce Solutions grew EUR 20.2 million. That's a combined effect of a drop in revenues that we consider to be temporary in the customs clearance area of EUR 6.3 million and then a very significant growth, organic growth in the e-commerce, where greater volumes are translating into higher revenue and also underpinned by higher revenue per item. In Mail & Services, we have here the effect of elections, as I was saying, if we didn't have that, this would have grown some 5% instead of a decrease of 1.9%. So we're seeing the underlying drivers of growth to be quite resilient. And the bank contributing here with EUR 2.6 million or 7.4% increase quarter-on-quarter. On the right-hand side, you can see that e-commerce Solutions continues to be over half of our total revenue. So the growth engine of the group, representing already more than half of our revenues. And on Mail & Services, this decrease, again, if we had isolated for elections would be a slight positive of 0.6%, so also showing resilience and stability. On the next page, if we look at costs, we have adjusted the operating costs related to EBITDA to account for the pro forma incorporation of Cacesa and DHL to have a comparable basis. In that -- starting with that basis, costs grew 7.6% in the quarter. They were driven mainly by the organic activity of the CEP business and also influenced by fuel inflation. We can see that e-commerce solutions, we have a decrease in costs in the non-CEP business, so adjusting for capacity and putting in place cost reduction measures to counter the effect of the drop in revenues. And then the remainder is the EUR 26 million increase in costs has an impact of cost of fuel prices of EUR 2.4 million in the quarter and the rest essentially accompanying the organic growth of e-commerce. In Mail & Services, we actually can see a very positive decrease in costs. Cost optimization initiatives continuing to deliver, including headcount reduction and optimization of operations and the bank investing in its commercial capacities and digital transformation for future growth. In the lower right-hand side, you have the first half OpEx breakdown. Again, this number, they don't account for any pro forma adjustment of the inclusion of Cacesa. Just a small comment, for example, staff, if you account for like-for-like comparison, would have grown only 2%, which is essentially linked to the growth of minimum salaries. And so overall, a more stability in costs. On Page 18, looking at the EBIT performance, we can see that EBIT has been pulled essentially by our Mail & Services, starting here at EUR 28 million with the adjusted Cacesa and DHL pro forma incorporations. We can see on the e-commerce solution, this temporary effect that we're seeing in the custom sector, decreasing EBIT by EUR 5.1 million, positive influence of the e-commerce solutions of EUR 0.5 million. And then Mail & Services growing 3.7% and a slight decrease in the bank as we saw before. All in all, the margin remains at a robust level of 7.4% and we continue to see a recurring EBITDA that is improving and expected to improve in the rest of the year. On the next page, Page 19, just talking a little bit about our leverage ratio and our debt. In terms of cash flow, we've seen a significant improvement in the change of working capital. The values for the first quarter of this year were minus EUR 37.3 million. They have been improving on the second quarter. They're still negative, but we are seeing an improvement in this category. Operational cash flow also growing quarter-on-quarter, now standing EUR 8.4 million, but comparing with the second quarter of EUR 37.5 million. So we are seeing also a positive trend on the evolution of cash flow. And free cash flow stands at minus EUR 6.9 million at the end of the first half. But again, we're seeing a continued improvement. The first quarter was minus EUR 33 million, the second quarter, plus EUR 26 million. So we're seeing a positive trend there. In terms of the evolution of net debt, our net debt has decreased. We've had payment of dividends, our share buyback program, and the proceeds of the transaction with DHL that has taken us to a EUR 292.8 million net debt at the end of the period. And that means that our leverage ratio, net debt to EBITDA has now improved to 1.8x from 2.4x. So giving us significant strategic flexibility and allowing for space for capital allocation as we see. And with that, I will pass on to Guy.

Thank you, Joana. So on Slide 21, you can see our updated guidance, growth guidance that is underpinned by a strong core business growth despite the temporary customs volatility. CEP volumes and revenues continue to perform well. Mail & Services is delivering on gross profitability, and we continue to see a good cash flow generation. We are also guiding, I should say, with a lot of transparency. We are breaking our guidance in 2 parts. One, with a lot of ambition to grow our core with an overall growth of double-digit growth and high teens if we exclude the bank. And so guiding to what we consider here core, so CEP, Mail and Banco CTT to a growth of 7% to 12% to be in a range of EUR 105 million to EUR 110 million, and then highlighting that the current context and still the implementation of a new levy in the end of the year brings limited visibility to Cacesa. And as such, we are giving a broader range and also highlighting to the higher risk of execution. But all in all, providing a guidance that will be between EUR 115 million and EUR 125 million. This guidance is based in the assumptions of a flattish Banco CTT recurring EBIT as was previously guided. A continued strong performance from Mail & Services given the efficiency measures that we continue to implement and a good outlook on Financial Services. And we continue to see growth on the CEP volumes to -- that will lead to an overall high single-digit growth in the full year of 2026. And obviously, with some key risks that is the Cacesa or the customs part and still some volatility around CEP volumes on the post de-minimis world and continuous inflation pressure on fuels, and that continued to be driven by geopolitical instability, namely on the Middle East. On Slide 22, so we firmly believe that we'll continue to deliver our future growth, building in our strategic foundations. We had a very good quarter in our core with CEP and Mail revenues remaining very healthy with excellent trading momentum in Mail & Services and very strong growth on CEP that we continue to expect to grow during the second half of the year and with additional EBIT margin improvement. A tougher second quarter on Cacesa, but we continue to be actively managing profitability in order to preserve it. And we see amidst this temporary volatility, relevant opportunities to gain share in the B2B clearance and grow on the logistics fulfillment arena. Our recurrent EBIT guidance for the non-CEP, excluding non-CEP between EUR 105 million and EUR 110 million for overall guidance of growth between EUR 115 million and EUR 125 million. We remain very disciplined on capital allocation. We aim to continue to invest in our growth and improve profitability, looking for additional workforce and cost base optimization, something that we have been actively doing and our specific items on the quarter show the effects of those efficiencies that also showed through the Mail & Services numbers. We'll continue to optimize our portfolio, tilting it to a high-growth e-commerce value chain. And we want to remain with some flexibility from inorganic growth on the sectors that we have been previously mentioning. And we will keep shareholder remuneration discipline, including the recurring dividend, but also with opportunistic buybacks, and that's why we are increasing our current share buyback program with an additional EUR 10 million, taking opportunity to -- of the attractive prices and keeping still additional flexibility on our balance sheet following the proceeds of DHL JV. So we'll continue to use the flexibility of our balance sheet as a strategic optionality. And with that, I will turn the floor to your questions and answers that we will be pleased to answer.

We are now available to take your questions. [Operator Instructions] Our first question comes from Joao Safara.

So I have 3 questions, basically. The first one on Cacesa and just I wanted to understand a little bit better what I mean, what's happening here? I'm surprised that, obviously, with de-minimis and when I look to your second half guidance, we actually see an improvement versus the first half of the year. So that -- it would be useful to understand what drives your confidence there on this improvement, considering that, I mean, the uncertainty is still there or maybe I'm wrong, and we've seen some anticipation of this already in the first half of the year. And so that's what makes your EUR 7 million to EUR 12 million of EBIT contribution from -- well, from non-courier express & parcels, which is mainly Cacesa to -- I mean, to explain this. And so this would be the question on Cacesa, if you can help me there. And then the second question is on Mail. I mean, it was quite a strong performance, excluding the impact of elections. I understand as you're saying, there's -- well, a recurrent theme there here, which is the cost savings. And do you think this kind of, I mean, contribution to EBIT, assuming that addressed Mail revenues remain more or less the same is -- and also, obviously, excluding the impact of financial services. So just thinking about everything else other than financial services, if this is sustainable in the next quarters? And then also connected to this, we saw a 17% increase in other revenues. And if you could help us understand why this increase? And then the last question on Banco CTT. Your concern -- you confirmed you have received an unsolicited nonbinding offer. Was this the first one? Have you been approached by other players? Are you now basically more willing to accept offers than you were in the past? So if you could give us some color there also, it would be helpful.

Thank you, Joao. So on -- we -- our guidance actually is based on what is the normal seasonality of the business that, as you know, is very lean towards the peak season and the fourth quarter and customs business is not an exceptional on that regard. And we are seeing also improvement from where we are as we are expecting some normalization on the world of the post de-minimis. On the custom side of things, the effects were slightly anticipated more than on the last mile. But I also want to be transparent saying that, that was here the reorganization of flows between airports that are driven by stricter regulation in Madrid in terms of the G4 introduction and also cosmetic bans that are more a local issue with supply chain reorganizations as these players are moving to fulfill in Europe. And then the geography plays a role here. So Eastern Europe is easier to access from Asia and Central Europe is easier to distribute around Europe. And we are seeing that reorganization happening and happening before the actual de-minimis taking place because obviously, players are anticipating that already in the months ahead of the actual 1st of July. We are also seeing strong decline in their investment in marketing because they were expecting some operational volatility. And as such, they are refraining of having huge volumes during these uncertain times. Good news is operationally, everything, at least in our operations went very well and very smooth. And so we are confident they will resume normal course of business and volumes will improve, although being quite clear that there is a lot of lack of visibility and especially we still have the end fee in November. That's why we are also labeling this part of the guidance with more risk of execution. In terms of Mail, we are seeing 2 -- 3 positive things. So the Financial Services was a quite good quarter. And the dynamics with the introduction of the new product, the long-term product that caters to a different kind of demand is accelerating placements. So tailwinds there. Business Solutions and all the diversification areas of revenues are also performing well with good incremental margins, and that is also helping. And we see among what has some seasonality around Mail because third quarter tends to be a little bit more depressed in fourth quarter, more stronger, some resilience on the margins on that side, given everything that we are doing in terms of savings and also some positive impact of average price as the pricing formula and mix evolution continues to drive unit prices up there. In terms of Banco CTT, I will basically not add that much to the announcement that we made. So as you mentioned, we received an unsolicited offer of nonbinding for a potential transaction on Banco CTT. This is obviously leading us to evaluate the strategic alternatives that we have across our portfolio of assets. But that's what we can say for now. And we also confirm that we have a financial adviser engaged in order to look to these strategic matters. And I wouldn't have much more at this point.

If I can take the question also on the other that you were asking on the Mail. We do have a positive revenue growth linked to the payment of the social mobility allowance that is contributing to -- positively to that evolution. And also in fulfillment and others, we have the Decopharma business that only became part of CTT scope in August 2025. So that difference is also there. And also a positive evolution of central structure. So that's what's driving those changes. In terms of Mail, you're asking, is this contribution sustainable for the quarter? We have seen a good evolution in terms of registered Mail, a good evolution in terms of the price mix. So we hope to continue to see that and to carry on with our efforts in terms of also optimizing the -- not only the operational, but also the headcount there.

Our next question comes from Filipe Leite.

I have 3 questions, if I may. First one regarding CEP volumes and if you can give us additional visibility on the July volumes after the changes in the de-minimis regulation, just to understand the initial impact of these changes in your CEP volumes during this month? Second question also on CEP volumes because you are saying that to reach your guidance, revised guidance, you are assuming CEP volumes growing at least high single digits in full year. This came after a very strong first half with almost 19% or more than 19% growth in terms of volumes on CEP volumes. So this leads to a quite conservative assumption for second half with almost no growth if we consider this high single-digit expectation for full year. Is this related with the expected impact of the de-minimis? Or should we expect anything negative on second half to impact CEP volume? And last question, on public debt placement. And if you can give us additional visibility regarding your guidance, what level of public debt placement are you assuming for second half? If this compares with second quarter, if we should expect higher or lower debt placing in second half when compared with this already strong second quarter.

Thank you, Filipe. So on CEP volumes, as you know, we -- when we discuss de-minimis, we already mentioned and we continue to see some volatility on volumes on the coming months. We continue to see a very strong growth of demand in all the European accounts and Iberian accounts as we try to show in the slide with the mix or the diversification there. We see strong growth in international accounts, those 3 brands that are direct-to-consumer and also European marketplaces. Also in Chinese marketplaces like TikTok that are not cross-border and are more local to local, we continue to see there also strong demand. And this is what is helping us to offset the declines that we are seeing on the big 3 platforms as their GMVs and this is publicly numbers are declining between 30% and 40% that GMV. And we see July as the bottom of this as they refrain from marketing as they were anticipating some operational issues on the adaptation to all of this. And I remember that they need to deal with this country by country. So there is some complexity of the difference of interpretation of this new regime across the European countries. In July, we are expecting to have a decline between 2% and 3% overall. So that shows that the rest is performing well and offsetting most of the decline that we see as the Chinese normalize and we continue to have a strong demand on the other side, we see growth on the second half of the year. Obviously, not on the 20% that we are showing right now, but we see this progressively evolving. As we mentioned in the past, we have 2 similar events in the recent past, the first on the U.S. and the other on de-minimis on 2021, where the impact of the non-European marketplaces was felt between 6 to 9 months, and this is what we are expecting until resuming a normal path of growth. But likely, we continue to see strong demand on the other side. And this, all in all, will continue to contribute to growth. In terms of financial services, we see increased demand, as Joao mentioned, and we mentioned throughout our presentation. So this new product is adding up a new class of demand. So it's not cannibalizing the other placements as it seems that there is demand for these more long-term products. We are not giving specific guidance on the breakdown of the 2, but I can mention that we are assuming guidance -- growth in Parcels or CEP and growth on financial service placements year-on-year with the dynamics that you know.

Our next question comes from Joaquin Garcia-Quiros.

Most of them were already answered, but I have a couple of questions. One regarding the margin for especially the CEP part of the e-commerce solution. It has improved regarding the first Q, but still lower than it was last year. So if you can explain to us a bit of the moving parts here? And when can we expect to see levels of above 6% that we saw last year? And then on the Mail & Services recurring EBIT performed very well this quarter. Just wanted to know if you could share a bit if the good performance was more driven from financial services or from Mail. And I know you don't provide the breakdown, but just talk a bit on the Mail part of the business, if that was all from the efficiencies and if we can expect similar performance going forward?