Welcome to the CTT first quarter 2022 results. My name is Caroline. I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only mode. However, you'll have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand over the call to your host, Mr. João Bento, the CEO, and Guy Pacheco, the CFO, to begin today's conference. Thank you.
Thank you, Caroline. Good morning, everyone. Welcome to our 1st quarter results webcast. Today, we are also including an update on our real estate portfolio optimization, as you've seen in the presentation that was distributed yesterday. If you follow me, starting on slide four, the overall impression we'd like to pass is that we have a very robust operational performance in Portugal and a strong cash flow, free cash flow generation in the quarter. This was a result of several factors, of which I would highlight on parcel a strong growth of volumes in Portugal, reaching almost 16% year-on-year. Although Spain had a challenging quarter, we see visible improvement in activity throughout the quarter and, as you're going to see, later.
On mail, it was a very interesting quarter with recovery in revenues, and with revenue growth and also cost reduction inducing an improvement, significant improvement in profitability. Likewise, for financial services, where we had exceptional high demand of public debt certificates, driving record high revenues, for the quarter. We continue to transform our retail network, as we've stated many times recently, towards a service network, which is important, also given the high rate of placements that we are observing. Results from insurance distribution with Generali, were also present in the quarter, although not yet very visible, but going forward, also looking very good.
Finally, the bank with the growth on all aspects, clients, volumes, and revenue with a solid performance and the improvement in profitability is clearly driven by this exact growth. With these factors, we move into the right-hand side of the slide. We see the main financials with revenues up 3% year-on-year. If we would remove or normalize to the special effects of the first quarter last year, revenues they've been, they have grown by 16.3%, quite substantially, and recurring EBIT of EUR 25.7 million also a very significant growth year-on-year. Also an important facet of this quarter results, a strong operation, operating cash flow generation of EUR 44 million.
Free cash flow of reaching almost EUR 40 million, and therefore, a consolidated net cash position with a significant improvement versus the well, the year-end results. If we account or while accounting Banco CTT on equity method, the net debt stays now at EUR 250 million, down 42 and a half million euros. Very good drivers in the quarter and very good finances as a result. Moving to slide five, and going into a bit more of detail. We see this robust performance across all segments, while we need to improve E&P in Spain. We've seen the numbers both on revenues and Recurring EBIT.
I would invite you to follow the bridge on the right-hand side, top right-hand side, where we see that apart from a slightly negative contribution in terms of growth of E&P, which is explained only by the Spanish performance, we have mail and others, financial services results, and the bank, all with positive contributions in this bridge that took us from EUR 6.7 to EUR 25.7 million of recurring EBIT in the quarter. One of the most relevant news being the performance in mail. Moving to slide number six, we see a continued recovery in volumes, revenues, and profitability. We have this on this chart on the left-hand side, exhibiting a monotonic growth in volumes, and again, an interesting step forward in the quarter.
With this translates to a revenue growth of 9.3%. Likewise for the margins with improvements in EBITDA and EBIT margins, as shown in the right-hand side of the quarter. A very promising quarter for mail. Moving to slide number seven, we see volumes, performance, inflation, and capacity expansion as the combination of factors that affected the performance in Spain.
Volumes still below target. Although, as you can see in that detail in the left-hand side chart, we are seeing an interesting trend throughout the quarter, with February performing better than January and March with a positive growth of already 10%, which gives us confidence that things in Spain are improving in right direction. With this volume performance, revenues stood, well, flattish with a minor growth and it's basically inflation and the capacity expansion that provides now a higher operational leverage potential in the sense that we have, well, more capacity than the volume that we had throughout the quarter. That affects margins, and therefore we saw a reduction in EBITDA and EBIT in the quarter.
Moving to slide number eight. We've seen improving traffic and revenue dynamics leading to this growth in mail that I've referred to. We are observing what I would call a low decline, 4.4% if adjusted for the elections impact of last year, or 5.2%, so low. And combined with an average return revenue per item, we see what as a factor or consequence of the new pricing power that the new concession contract provides.
We see a very interesting 10.3% revenue per item growth, which provides for the this improvement in mail revenues, which would be 1.4, or it was in fact 1.4%, if not considering the special effects of last year. A very significant growth without the elections impact that, by the way, doesn't seem to repeat this year. That would represent a 5.4% growth in revenues year-on-year. This is more visible, or visible with more detail, if we go to slide number nine, where you see, well, a balanced revenue growth across regulated and competitive mail segments. Indeed, we see for the first time for a long time, regulated mail growing revenues from EUR 56 to EUR 57 million.
Competitive mail also with a small 2.3% year-on-year growth. More than that, we see maybe for the first time in for a long time, a contribution of international inbound roughly neutral in the sense that we came from EUR 5 million of revenues to EUR 5 million of revenues in the quarter. It was in fact only the fact that we have a decline on business solutions revenues that accounted for the difference. Even so, if you look at the call we have at the left-hand side, laptop sales that we call box moving things with smaller margins last year accounted for more than EUR 21 million.
If we remove that effect even on business solutions like-for-like growth was significant, more specifically 6.5% year-on-year. Moving to slide number 10, we are highlighting a focus on transforming CTT's retail network in a services platform, on a platform of services to the citizen. This is important in the sense that we are focusing our portfolio of services. We are, of course, the service provider for the bank in terms of a physical network. We given the new partnership with Generali, the transformation of the retail network to service platform becomes even more relevant.
We are now providing a portfolio of financial services that goes from our credits, of course, in the bank, savings in the bank, savings in CTT, non-life insurance, money transfers, payments, and all that. In fact, it provides a portfolio of financial services that starts to be relevant. For that to be possible, we need to keep improving our what we call store experience or user experience at the store, in the sense that we need to improve efficiency in the usage of the space and the time in the store.
We are doing that by building customer journeys that are omni-channel, that include self-service so that people can start their journeys online, on their mobile or in a self-service mode while in the store or outside of the store. For that, we are also redesigning a number of processes. A more efficient retail network and the better user experience enables and provides for higher business activity. That is exactly what we have observed given the public debt performance that in detail we could see better if you follow me on slide number 11. In fact, it drove revenue performance and offers a very solid outlook.
e of the most, not to say the most significant factors of this quarter. We almost doubled a very strong last quarter of last year, where we had placed EUR 4.3 billion and we moved to EUR 7.5 billion and accordingly so for revenues. On the other hand, we have also declined 17.1% other retail stuff in the sense that we keep pursuing a repositioning of the network, as I said, towards services and as such, we need to discontinue and we are discontinuing certain retail products that includes, for example, scratch cards.
A very good performance of the retail network, of course, with a significant contribution from financial services. Now I will hand over to Guy for him to guide us through the bank performance and the financials.
Thank you, João. Good morning. On slide 12, we can see Banco CTT drivers. Banco continues its path of growth with auto loans growing 16.7%, the mortgage, 9.2%. We continue this good performance of opening new accounts, and that grew 6.3%. Our customer resources with a slight stabilization trend with now with a growth year-on-year of 5.7%, I should say in line with Portuguese banking sector. On the next slide, we can see the top line and return on tangible equity of the bank. On the middle, we have the revenues that grew 21.4%, mainly driven by the net interest income, both by factor volumes and higher yields.
The net interest margin now stands at 2.9% on the bank. The revenue performance and higher efficiency drove our return on tangible equity upwards that now stands on annualized basis of 6.7%. On slide 15, we start our financial review with the key financial indicators, where we can see what we consider a set of strong financials, with a robust performance in revenues that grew 3%. With the exception of the mail business unit, we saw all units contributing positively to growth. Our Recurring EBIT almost quadrupled in the quarter to EUR 25.7 million. Our net income reached EUR 16.1 million, and our free cash flow generations to EUR 39.7 million.
On slide 16, we have the group revenue evolutions that grew the 3% that we mentioned. In parcels, a positive contribution of EUR 3.3 million, 5.4% with this split or contrasting performance with Portuguese operations, continue to have a sustained improvement both on volumes and revenues. Volumes grew 14.7% and revenues 9.3%. In Spain, quite the opposite. We have declining volumes of 8.3%. Although, as João mentioned, with a continuous improvement throughout the quarter, that closed with March already accruing 10% of the growth. Revenues stood with a marginal growth of 0.6%.
On mail, a decline of EUR 19.1 million, completely explained by these two events last year, the laptop sales, and general elections rerun, that happened on first quarter of 2022. If we exclude that, we have strong underlying growth of other mail revenues, that contribute positively for our profitability, as we will see later on. In terms of financial services and retail, EUR 16.8 million growth driven by this exceptional high demand of public debt certificates that placements reached EUR 7.5 billion in the quarter. That more than offset the revenue decline on, in retail and drove the results of the quarter.
Banco CTT continued to grow on the back of net interest income, expanding by higher volumes and higher yields. Next slide, we see our OpEx that declined 5.3%, with E&P growing EUR 3.7 million, Portugal growing costs below volumes within its costs declining despite continuous inflation pressures. In Spain, a growth of 3%, as João mentioned, driven by higher overheads because we continue to expand capacity or we have these portfolio projects to expand capacity that come online this year. We continue to have higher unit costs that are driven for inflation. Of course, the compression of volumes doesn't help us on that front.
Mail and other, declining EUR 24.5 million, due to the reductions of direct costs coming from those two events, laptop project and general elections. We continue to achieve additional cost savings that help us to offset wage inflation, but this year is still significant, as you know. As such, a good performance here. Financial services growing EUR 4 million with increased activity. Banco CTT increasing EUR 5.1 million, mostly driven by cost of risk. That increased EUR 2.2 million. Cost of risk now stands at 1.4%, in line what we expected for this year and with stabilization trends versus the last quarter last year. Slide 18, we can see our strong performance in EBIT. That grew EUR 19 million in the quarter.
Express and parcels, declining by the split performance where Portuguese operations growth started to offset the higher overrides that we had last year, and contributing positively for profitability. Explain with this lag in resuming growth, although we have positive signs, but in the quarter still contributing negative. Mail and other improving EUR 6 million due to the robust address mail sales and cost efficiency. Financial services, completely explained by the express, the exceptionally high demand for public debt certificates. The bank growing EUR 0.9 million with net interest income driving the revenues upwards. On slide 19, we have the cash flow. A strong performance here as well, driven by operational performance.
Our operation cash flow standing is stood at EUR 44.2 million. Our CapEx of EUR 5.6 million in the quarter, declining 6.2% year-on-year. All of this led to a free cash flow of EUR 39.7 million. We have now a net cash position at the consolidated level of EUR 17.3 million if we account for IFRS 15 lease liabilities. Changing, starting on the final remarks, we included, as João mentioned, some slides that we extracted from the deck that we distributed with the announcement of our real estate transaction. As you know, we basically split our retail assets in two buckets, if you want.
One with the development assets, a set of 10 assets in good locations in Portugal that we see, our operations exiting those buildings and buildings that have development opportunities. As such, we are addressing a strategy for those assets, an asset by asset strategy that we think will take from two to five years to execute. For the remaining of the assets, so assets that we aim to continue using and for our operational activities, we decided to create a yield vehicle, that we call this set of assets, the yield portfolio, that will be carved out into a new entity that we could call CTT Immo Yield.
This entity will be converted by, to a SICAV, and then it will be selling a stake of 30.1% of this vehicle to a set of investors, external investors, and Sierra, that will be the manager and asset and property manager of this, you know, regulated vehicle. We continue to see the opportunity or we maintain flexibility to monetize these assets if you want in the future, always keeping a controlling stake of 50.1%. On slide 22, we can see the main figures of this transaction.
We are transferring the assets with a valuation of EUR 76.4 million, where we can expect an additional amount of EUR 2.6 million, depending on the monetization of some of the assets. We have agreed the sale of the stake of 30.1% for a fixed price of EUR 42 million. The base case investment cash yield for the vehicle would be 6.3%. This transaction has some one-off transaction costs, mainly tax of EUR 12 million and EUR 2 million to set up the vehicle. We continue to have this additional buffer of liquidity if we decide to sell additional stakes. Those additional stakes won't have additional transaction costs.
We continue to see inside of the vehicle upside for additional cash flows generation by the optimization of the properties and both used and in use with a more professional management of the portfolio. In terms of lease agreement highlights, we will be renting 75% of the gross lease area. We have basically two periods of lease agreements. One minority of assets with 20 years lease agreements and the rest with 12 years agreements, all triple net. We expect on year one the amounts of rents paid to the vehicle by CTT of EUR 9.5 million. On slide 23, we highlight what are, in our view, the benefits of this transaction.
First, in the crystallizing the value of our real estate, for the yield portfolio. We continue to see opportunities of adding value to this portfolio by a more efficient and professional management of the assets, with clear opportunities to have operations to enhance value. We keep flexibility for the future to tap in additional liquidity if needed. As such, I will pass you to João for his final remarks.
Thank you, Guy. Well, the overall message we would like to convey is that it's quite explicit. Obviously, we are upgrading our recurring EBIT guidance. Then this conviction stems from the fact that we have seen improving E&P performance in Portugal. Then we also see a trend of an early positive sign or positive signs that will enable profitability improvement in Spain, which is our main focus to resolve from now going forward. Also on mail, we saw improving revenue performance, and we see it staying as it is, driving profitability while we keep focused on costs and on the sustainability of the margins that we are now starting to recover.
We keep a strong emphasis on this idea of transforming the retail network idea and action towards the service platform with special focus on savings and insurance distribution. We see the bank delivering on volume revenue and profitability growth as it did during the quarter. Therefore, overall, we had a strong quarter with consolidated revenue and recurring EBIT growth. We generated strongly cash flow improving our financial flexibility. We delivered on this real estate transaction that crystallizes value and again, optimizes our capital usage and enhances our balance sheet flexibility.
With all this, summing up and the trends that we see and the dynamics that we are observing, we decide to upgrade our EBIT guidance to at least EUR 80 million for the year, which again, stays as an open-ended guidance in the right-hand side. We believe that was the right thing to do. With this, we remain available for your questions. Thank you all.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the first question from line, João Safara from Banco Santander. Line is open now. Please go ahead.
Yes. Hi, good morning. This is João Safara from Banco Santander. I have three questions. The first on Express & Parcels, more particularly in Spain. Just wanted to understand the mix evolving here in terms of B2C and B2B? Also, I mean, the weak volumes, is there what is the explanation for the weak volumes in first quarter? If there's any client that moved away from that, I mean, that moved away from your contract you had with them or any explanation would be very helpful. The second question is on the real estate strategy.
Just to wanted to understand what you intend to do with the EUR 40 million proceeds from this transaction. Thinking about also the longer term, how is this vehicle going to be used in the future? Will this be a platform to invest in, I don't know, new logistic, new network that you need? I mean, will this be, let's say, just a fund where you want that will remain with the same assets, or will this be used in the future to also to invest in other assets or mainly in logistics?
Just a last question, if you could give us some idea of, I mean, we saw a slowdown in the deposits v ersus the fourth quarter of the year. Just wanted to understand if there has been, let's say, withdrawals from the deposits into, public debt instruments? Is that what has been happening or is that just the fact that I think you're struggling getting more clients on board? That's it. Sorry.
Excuse me. Express & Parcels. Thank you, João, for your questions. Let's see. We continue to see after the first, the difficult two months as January and February, a strong demand for B2C, and we saw volumes increasing since then. We continue to see the market in more recent days strong in that area. What explains our losses of volumes on the first two months of the year, it's not any churn on any big clients, but bad dynamics on that portfolio of clients. We at least on the volumes treated by CTT Express in Spain, our biggest clients, be it Chinese or be it other big or European players, we saw reduction of volumes.
We continue to, although being B2C, to be very active in trying to diversify away from these big customers to the local Spanish companies with small, medium or big corporates that we are doing with some degree of success. We are gathering pace because we are building a sales funnel and starting to have decent hit ratios on those funnels. This is a process that we need to continue to develop in order to also to manage the price per unit, because as you know, this combines higher price per unit and also better margins. Nevertheless, also on the big accounts, we are seeing very positive trends in terms of volumes.
I think that we can expect at the scale which will be there, be it by big accounts or small accounts, for the next quarters. We'll continue to these efforts of creating less dependency of big accounts for at least for the minimum critical mass, I think for Spain. In terms of deposits, then I leave the real estate question for João. Of course, the banking sector in Portugal lost, in our view some deposits to the government competitions in terms of public debt certificates. As we see the overall market numbers, CTT, Banco CTT was less affected by that flow of money.
We increased our share of the national deposits, although we saw some declines on deposits, but not by losing customers or lower growth because we continue to add a significant number of accounts in our stores every week. That continues and actually as showing signs of improvement. We saw the banking sector losing 4% of deposits. We lost 1.6%. In our view, we gain share. Lost deposits to the government side issues. We remain active and of course we continue to vigilant to any issues on this issue or on this platform. On real estate, João.
Okay, João, thank you for your question. What to do with the proceeds? The portfolio of usage is quite obvious for us. We have restructuring the costs that we'd like to mobilize or to compare to pay fund, sorry. Through this, we have M&A for growth, and feeling up in our value chain and of course, shareholder remuneration. We have stated it quite clearly.
The main comment here is that we see what we are doing here as a capital optimization initiative and we are monetizing the value that's available but was not usable, and the proceeds will be for these three purposes. Structuring that will then deliver further efficiency, M&A, and of course, shareholder remuneration. You also asked what we're going to do with this vehicle. The vehicle is. Well, one of the things that Gui has mentioned in this closing the presentation is that with the professional partner, we will have helped actually optimizing our real estate presence for operational purposes and for business purposes.
We get also that it will obviously promote and facilitate and improve our ability to grow as a logistics operator and but formally the vehicle is a vehicle that can operate in real estate sector. This is the first purpose, but it will be available for other things. As Guy has stated, clearly, we are now freeing parts of the value of the assets. We do not intend to lose the majority. We will always consolidate this vehicle. In the, this initial investment that we have disclosed now and the remainder to keep the majority, there is further room for additional resources that we can mobilize.
Thank you.
Thank you. We will take the next question from line, Filipe Leite from CaixaBank. The line is open now, please go ahead.
Hi. Good morning, everyone. I have three quick questions. First one on working capital, because as in the previous quarter, you had a very strong quarter in terms of working capital. I would like to understand the reasons for this strong performance and if it's a seasonal move and we can expect during the rest of the year some kind of reversal of this strong performance in these two past quarters. Second question regarding real estate, just if you can give us the amount that will be paid by the yield portfolio to Sierra as a manager of the portfolio. Last one, if you can give us also an update regarding the wage increase being negotiated with the union. Thank you.
Thank you, Filipe. I'll start with wage increase and then I'll hand over to Guy. We have closed deals, agreements with both CTT and TVI Express at 4.6% and 4.9% respectively. We have already accounted for that starting from January, because the agreement applies to January. To January. It is already reflected in the accounts of this quarter, the contribution of those values that increase during this year. We see here a couple of positive things. One is that this increase is due to inflation, and the other one is that it was in both situations. With CTT, it was a longer process.
With TVI Express, it was a faster one, and it happened after the first CTT agreement. We struck agreement with all the unions, therefore it provides for the kind of labor stability that we like and we need for the transformation process that we are involving. I think it's good news in this front.
On working capital, Filipe. Last quarter, the reasons for working capital, it was a better management of accounts receivable and accounts payable that, as I mentioned in the previous call, we shouldn't expect any reversals on that front. The reasons for this quarter are part is the same trend, but another part has to do with the way we account revenues from financial services. As you know, we have this contract that has two steps in terms of remuneration, and we accrue revenues with our average expectation of what will be the blended remuneration for CTT throughout the year. As such, we, in terms of cash flow, we receive upfront more money than it flows through the operational.
That's why we have part of working capital is by that reason. We should expect that part of this working capital performance will reverse, but not its entirety, how to balance it. In terms of Sonae remuneration, we don't feel comfortable disclosing specific numbers, but you can assume that is in line with market practices.
Okay. If I may just a follow-up on working capital. Can you give us an idea of the amount related with this accounting, the way you account the financial revenues?
It's not an easy way to answer, but so you can assume that it's more or less half of the amount. Nevertheless, we see this year being a strong year in cash flow generation. I wouldn't be very focused on working capital.
Okay, understood. Thank you.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keyboard. We will take the next question from line, António Seladas from AS Independent Research. The line is open now. Please go ahead.
Hi, good morning. Thank you for taking the questions. The first one is related with the visibility on serving certificates, placement of serving certificates for the second half of the year. My feeling is that the visibility is too low. Nevertheless, I would like to know your opinion on this, or if you can share with us your opinion on this issue. The second one is related with the bank portfolio and the cost of credit risk is now stabilizing at 1.4%, 1.5%, which is okay, it's fine. Nevertheless, the NPE ratio is still increasing. I guess that the credit card universe of the portfolio is already coming down.
Maybe you can explain why is NPE still increasing, the ratio is still increasing, the economy is doing well, unemployment is low. If you can provide some color by the end of the year, what kind of cost of credit risk the bank should have without the credit card loans? Thank you very much.
Thank you, António. Regarding the first question on that certificate, what we are observing is that we saw now a slowdown on these levels. But through values that are much above what they were before. What we are seeing is that we see no reasons in our interactions with Treasury and IGCP. We don't see any dynamics to change things soon. Our expectation is that it will be not as strong as it was in the first quarter, but much stronger than it used to be before. That's the outlook and our assumption. On the cost of risk of bank, first, you are right.
We are seeing already a decline on the credit card portfolio. As such, mechanically it's putting pressure on the cost of risk. Regarding the end of the year without credit card portfolio, we see our cost of risk coming below the 1% threshold.
Regarding the NPEs, ratio NPE still increasing, they are increasing sequentially, quarter-on-quarter.
In our view, the same mechanics applies for the NPE of the reduction of the credit card portfolio, versus the NPE ratio quarter-on-quarter.
Okay. Thank you very much.
Thank you. We will take the next question from line, Joaquín García from JB Capital. The line is open now, please go ahead.
Yes. Hello. Thank you for taking my questions. Most of them have already been answered, but I just had a question regarding the increasing guidance for the year. I just want to make sure, does the majority or all of the EUR 9 million increase in Recurring EBITDA comes from the better than expected performance of the financial segment? Regarding the guidance provided for the year, do you still expect high, well, not high, but double-digit growth in Spain and low growth in Portugal after seeing the performance of this first quarter? Thank you.
Thank you, Joaquín. On guidance, why it improved. First of all, let me remind you that as we mentioned in our past conference call, our guidance has embedded an expectation that growth will happen in every and all business lines. This is very important to keep in mind. We had a guidance statement back in the previous conference call that provided for improvements related with the pending macroeconomic risks and financial service promise. That's why it was open on the right-hand side. Well, in the quarter now, we've seen the performance of financial services above our initial expectation and the confirmation of positive trends in mail and E&P Portugal.
We also developed confidence that Spain will improve, a reason why we have decided to raise the guidance. In a way, we have translated the above than expected performance in financial services, but the confirmation that mail and parcels is going okay, it also helped us in that decision. For BNP, I will ask João Sousa, our executive team colleague to answer.
We are confident on the double-digit growth in Spain for this year. When we look for Portugal, we believe that we're going to stay in this good momentum we are seeing. That's it.
Yes. Just complementing that, we saw single digit in Portugal, initially our expectations. Recent trends a re positive above that, so double digits.
Maybe I can give just a little bit more color about Spain, why we believe on this. We see the strategic, the commercial strategic we implemented last quarter, the last quarter of last year. We see now the results. We are seeing growth on SMEs and big clients. That's going to help us to create a differentiation in the portfolio of our customers and also some positive funnel in the, what we call strategic clients, so international clients. That's when we look for this funnel, that's what we believe in the number we are seeing right now.
Thank you.
Thank you. It appears no further question at this time.
Okay. If no more questions, thank you all for coming and for your questions. We remain, as always, available to you and our IR team, looking forward to meeting you soon. Thank you very much. Good morning.
Thank you very much.