Hello, welcome to the CTT full year 2022 results conference. My name is George, I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be in listen only mode. However, you will 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 question. If you require any assistance at any point, please press star zero and you will be connected to an operator. I'd like to hand the call over to your hosts, Mr. João Bento, CEO, and Mr. Guy Pacheco, CFO, to begin today's conference. Please go ahead, gentlemen.
Good morning, everyone. Welcome to the 2022 final year results presentation. I would invite you to follow me through the presentation. If we start on slide number four. Our main highlight for the year is, of course, that we've been able to meet the guidance in a quite challenging macro environment. Looking at the top bottom left corner, we're starting with parcels in Portugal. We've observed a steady recovery of volumes along the years, starting from a decline of 7% in the first quarter to an improvement of 12% in the fourth. A steady, monotonic improvement. While in Spain, delivers were slightly different because volumes were lower.
In fact, the whole of the Spanish e-commerce market became well, depressed last year. Our focus on revenue per item growth and scale drove profitability. On mail, we still felt the impact of the maintenance cancellation and the elections of the previous year. Apart from those effects, there was a mild traffic decline, which is also a consequence of a very solid commercial performance and the significant retain of large clients. We've observed a positive contribution from business solutions to this Mail & Others business area. Moving to our retail network and mostly on public debt, we have observed record levels of demand of Savings Certificates.
We've been able to beat records in October, November and December consecutively. Significant revenue growth on financial services and retail, given the federal interest rate environment that, as you are aware of, persists. We are also repositioning the retail network towards a service, network to drive future growth, as announced during the capital market today, with a slight impact on the product numbers, as you're going to see later on. Finally, moving to the bank, it has delivered, growth, interesting growth, both on volume and profitability, remaining with a prudent balance sheet leverage by the new interest rate environment, which provides an interesting outlook.
This is what was a very important deal for the bank, given the deal that we've struck with Generali and therefore bancassurance is the new growth avenue that should grab relevance starting this year. On financials, on the right side of the slide. The main highlight is the fact that revenues grew 7%, 6.9 more exactly, year-on-year, with a positive revenue trend across all business areas in the quarter, especially in financial year in financial services and the bank. With that again, we've been able to meet the guidance with the recurring EBIT of 64.5 or 65, representing a 7.4 growth year-on-year.
A strong performance in terms of cash flow generation, amongst other things, because of improved collections. Against the backdrop of a share buyback and dividends paid, we have consolidated a net debt and with bancassurance equity accounted, the numbers stay at EUR 29.8 million and EUR 192.6 million respectively. Given the fact that we have this new interest rate environment, the reduction in net employee benefits liability reduced significantly EUR 54 million to roughly EUR 150 million. With this, I invite you to move to slide number five, which provides us a bit more of detail on the quarter financials and in the ERMs.
Again, so, with a positive contribution from the financial area of the business portfolio, outpacing and more than offsetting the slight decrease in the logistics part, of it, a significant improvement on the recurring EBIT in the quarter, 26.3%. This is the composition of business profile and figures that enable us to reach these finally a few numbers of EUR 906.6 million of revenue and EUR 64.5 million recurring EBIT that I've already stated. Moving to slide number six and getting into the details of the business area, starting with parcels in Portugal.
Again, as I said, a steady recovery in volumes and revenues, but profitability pressured by inflation, namely labor, fuel inflation and also investment in capacity that we've done before and now starts to be present in our cost structure. If we look at the chart in the left, it is a very interesting graphic depiction of the steady growth in volumes that I've mentioned earlier in the call from -7.2% to +11.6%. Volume growth remains. Deflation effects once while we are able to pass most of them to the customers will also improve significantly our profitability profile.
On slide number seven, as stated before, in Spain, things were a bit different in the sense that the market context has placed significant pressure on volumes. We've been able to grow average revenue per item and also improve further efficiency on the cost side. This drove profitability in a way where we've been able to offset a decline of around 11% in volumes to well, a flattish revenue performance in the quarter.
Looking at the right-hand side, because we've stated from the beginning of this management team addressing Spain that EBITDA was the metric, in which we were trying to well, monitor improvement, we observe a very significant profitability improvement in terms of EBITDA of almost 30% in the year. Moving to mail on slide number eight. Again, a bit more detail on top of what I've said before. A stronger average revenue per item, especially on back of premium mail, but well-adjusted mail revenues. Also significant fact that we would like to highlight, which is a softer volumes but also a mild decline.
Looking at the right-hand side chart, without last year's election effect, we observe a very mild decline of 3.5 on mail, which is a decline rate that we didn't observe for quite some time. This is also visible on slide number nine, which shows that again, elections apart, the decline was interesting both in volumes and in revenues. On the bottom part of the slide, there is a call about the inbound mail and the de minimis impact. It's now starting to flatten, but it was in absolute terms, still relevant. We believe that this is in fact, probably the last time it happened, since it's now starting to improve.
We've observed that, even in the beginning of this year. All in all, a low decline, especially without the elections, both on volumes and on revenue that is explicitly shown on the right-hand side of the chart. I will now invite Guy to guide us through the financial part of the portfolio. I'll be with you later in the call.
Thank you, João, and good morning to you all. Starting on slide 10 with some highlights on the financial service and retail, where we are focusing in transforming CTT retail network in a powerhouse of services to the citizen. We have been developed developing the distribution of public debt in this new interest rate environment. We've been able, as announced, to renew the distribution agreement with the IGCP, where the key commercial conditions were maintained. The novelty is that we this new contract includes the ability to distribute debt through the online channels that we think it's key to ensure the future of this business line.
Despite of the dramatic increase in demand, we were able to keep the market share of distribution vis-à-vis the direct channel that the IGCP still maintains. Good progress on that front. On the right side of the chart, we can see the citizen services that are mainly around the new distribution agreement with Generali, where we'll be distributing non-life insurance products to the CTT side of things. This distribution already started the pilot in March, we expect when the rollout until the end of the second quarter. The bank distribution is still pending regulatory approvals and that will follow suit after those. We'll be maintaining the existing services to the citizen, we continue to evaluate new distribution agreements for other services to leverage our retail capabilities.
On the next slide, we can see the fantastic performance of public debt. Treasury Certificates remain very competitive vis-a-vis other saving alternatives. We place almost EUR 4.3 billion in the quarter, a very similar number with last year's. That shows how strong were the placements on the fourth quarter. Retail products and services declining both by the factor of increased demand on financial service, also because we are discontinuing some retail activities to focus on services providing. On page 12, we can see Banco CTT's strong performance. Our credit book is now around EUR 1.8 billion with strong progress in all lines. Auto loans grew 17.2%, mortgage 10%, and the credit cards 21.1%.
The customer resources, even despite this competition from the state, still growing 12.1%. Our return on tangible equity with a solid progress, clearly in line to meet our mid-term targets and close this year with 5.5% return on tangible equity. On slide 13, we highlight these two key events that happened on, related with the bank. The first is the end of the agreement with Universo. The partnership will be closing in the end of this year. The net exposure of the bank will gradually decrease during 2023, and the book will end in the end of the year. We put some key indicators to let the financial community read around the effects of this.
The second is the partnership signed with Generali that will bring EUR 25 million of additional capital in exchange of 8.71% stake. This capital corresponds to 210 basis points in our CET1 ratio. Banco CTT will gain with this, after these two events, strategic options in the management of its portfolio by releasing liquidity and capital that will strengthen its balance sheets and profitable growth. In ESG, slide 14, we can see a solid progress, especially on the environment front, where we doubled our green fleet and clearly in line with the target of reaching 50% in 2025. We also almost doubled the reusable packaging.
In gender parity already with a strong starting point, we will be converging to the 45% of top and mid-management gender parity. On social, we already met the target of contribution to social impact initiatives. Now moving on to the financial section, financial review section, starting on page 16, where we can see our key financial indicators, where we see a strong fourth quarter with growth in revenues, recurring EBIT and cash flow. Also a similar pattern in the full year. In the quarter, we grew 33.8% in revenues with the exception of Mail, all other business units contributing positively.
Our recurring EBIT increasing 26.3% in the quarter, in the full year, our net profit reaching EUR 36.4 million, with a small decline of 5.2%. Our cash flow reached EUR 67.4 million, growing 48% in the full year. On slide 17, we can see the detailed revenue evolution, with revenues growing, as I already mentioned, with the biggest contribution coming from Banco CTT and financial services. On the fourth quarter, Express & Parcels grew 2.8% or EUR 1.9 million. In Portugal, volumes with a sustained recovery and growing 11.6% in the quarter and revenues growing 5.1%. In Spain, quite different performance.
Volumes still declining 11.2%, which we think with the information we have, this is, you know, in line with the market performance that continues to be pressured, especially on e-commerce, where we have the biggest exposure. Higher revenues, average revenue per parcel enabling us to sustain the decline and revenues are declining slightly 0.4% in the quarter. Mail & Others declining EUR 10.1 million. No performance in 2021 was impacted by general elections, João already mentioned, and that accounts for EUR 5.9 million. If we exclude that effect, revenues will have declined 3.5% due to stronger volumes declines that were partially offset by a stronger price effect of 6.3%.
Financial services also growing 59% because that extraordinary performance in placements, the EUR 4.3 billion that I mentioned before. Banco CTT also growing 34.3% mainly through the net interest margin expansion. That stood at 2.6% in the quarter. Our OpEx in page 18 grew 1.6% driven by parcels and Banco. In Express & Parcels, we saw OpEx increasing 5.5% in the quarter. That is mainly to the inflation impacting unit costs and investment putting pressure, investment in capacity, putting pressure on margin, it is especially an effect seen in Portugal. Mail and Other declining EUR 8.1 million, out of which are EUR 4.1 million of direct costs associated with the general election.
That's that we mentioned on revenues as well. The remainder of the EUR 4 million are resulting of lower revenues and the efficiency measures that we are putting in place and that we announced in the second quarter last year, that we continue to have good progress on that front. Financial services growing EUR 1.3 million linked with increased activity. Banco CTT increasing EUR 6.7 million, EUR 4 million of which related with cost of risk in the fourth Q 2022. Our cost of risk stood at 1.7%. That is an increase over the 1.1% of seen in the last quarter of 2021. In slide 19, our EBIT evolution, where we grew EUR 5.4 million in the quarter.
We with the financial services and Banco CTT contributing positively. Express and Parcels declining EUR 1.6 million, essentially due to the Portuguese performance. Mail & Others declining EUR 2 million, that if we adjust for the positive impact of the election last year, it will be almost flat. Financial services growing 6.5% and Banco CTT growing EUR 2.5 million due to the increase of banking products. In slide 20, we can see our cash flow evolution, produce strong cash performance with EUR 99.6 million of operating cash flow. The improvement in working capital management through this last part of the year helping on this front.
Our CapEx total EUR 37 million, below our initial guidance and our free cash flow reached EUR 67.4 million, which drove our net debt position to stand now at EUR 29.8 million in the end of the year. With that, I'll pass you to João again for his final remarks.
Thank you, Guy. If you join me on slide 22, we are proposing and the board has approved it yesterday to the general meeting, an increase in recurring dividends to be paid of EUR 0.125 per share. It complies with dividend policy that we stated in capital markets today. Let me recall those main principles. We are committed to improve shareholder remuneration while maintaining financial flexibility subject to, one, investing, keeping the ability to invest in business growth. Two, to implement an attractive remuneration policy and finally, to combine, well, this kind of recurring dividend-based remuneration with opportunistic shareholder remuneration based on share buyback.
These EUR 0.125 do represent a payout ratio of 47.7%, therefore within our stated policy, which is, I recall, between 35% and 50%. It represents a dividend yield of 4.1%. Moving to the final page 23. Well, the main message I would like to convey is that we continue to grow and to transform the company. We did that in 2022, notwithstanding a very challenging environment. I recall that we started the year thinking that this would be, well, for the first time for this management team, a rather normal year because COVID seemed to be fading out.
Actually, January was the worst COVID month for CTT in terms of infected people and people that could not come to work. On February, the war in Europe exploded. Despite that, we've continued to grow and to transform the company. The guidance is if you follow me on the left side of this chart, mid-single digit decline in mail volumes. We foresee a mild decline in mail volumes. Low to mid-single digit growth in Portugal for parcels, with the improved revenue per items on parcels. We'll be working on pricing on cost structure and also on the commercial front to improve volumes. We want to resume double-digit volume growth in Spain.
In Spain, the motto is growth in volumes. A robust growth envisaged for financial services, for reasons that we don't need to comment further. For Banco CTT, we are expecting an improved return on tangible equity, further to what happened this year. With all this, a mid-single-digit revenue growth then derives into our guidance statement of recurring EBIT in financial year 2023, expected to grow at least 10%. CTT remains growing and that is a growing increase because 10% is more than we had last year. That can be observed on the right-hand side. A trend that let me state is quite unique in the sector.
We have announced a growing guidance for last year. We met that guidance. We are now announcing a further growth regarding this year and last year. There are also risks. We highlight the high political, geopolitical uncertainty and the macro risks that we believe continue to be relevant and persistent: inflation, cost of energy and raw materials. Regarding outside uncertainty, this is a week where we have a few very exciting examples that things are not always as predictable as possible. I would like to close this presentation before moving to Q&A. As I started my last slide, this has been a great year.
We continue to grow and transform the company in a challenging environment. We are guiding further growth for the year. Thank you.
Thank you, Mr. Bento. Ladies and gentlemen, if you'd like to ask an audio question, please press star one on your telephone keypad. Please also ensure your mute function is not activated so I can hear through your equipment. Once again, please press star one for questions. Our first question is coming from Mr. Filipe Leite, colleague from CaixaBank. Please go ahead. Your line is open, sir.
Hi, good morning, everyone. I have three questions, if I may. First one, at Express & Parcels, if you can explain the different trends in terms of revenue per item that we saw in Portugal and Spain. What is so different between these two markets that could justify the different performance of Portugal, which is decreasing, and in Spain, which is increasing? I don't know if it's the competitive landscape, the mix between B2B or B2C, or if there is any other explanations for this different performance. Also, why are you targeting a volume growth in Portugal below the double digits that you expect for Spain?
Second question, regarding outlook and if you can provide us more granularity regarding each area and specifically what should be the recurring EBIT growth implicit in your guidance for Mail and Express & Parcels. I mean, excluding financial services, what should be the growth of recurring EBIT implicit in your guidance? Last one, on working capital, if you can elaborate a little bit more on the reasons for so strong performance in fourth quarter and expectations for this year. Thank you.
Thank you, Filipe. Starting with the revenue per item, difference between the two countries. You are mostly right. In Portugal, we have a lot of B2B, or much higher percentage of B2B than in Spain. In Spain is almost e-commerce dedicated company. We are seeing a trend of growth still in Portugal, much higher in e-commerce, that is driving mix downwards. In Spain, although the trends are the same, we have been working in terms of gaining market share in smaller customers and moving away of these big e-commerce retailers or not depending as much on the e-commerce retailers, and that is driving the average unit revenue upwards.
In terms of volume performance expected for 2023, we continue to see both countries growing although with the macro environment that is affecting both countries, we are seeing a smaller growth performance in Portugal. Given that we don't have the market share lever, and in Spain, we continue to have that ability, and that we think, giving a more stable performance of the big retailer accounts, it's possible to continue to grow with a visible contribution to growth on the smaller accounts. In terms of guidance, we are expecting, we are working towards having all business units growing a bit. Of course, inflation is still there and affecting more the logistics side of our business.
We have, in time, launched a number of initiatives that we think will help us contracting most of those effects. As such, we think we could grow in all business areas. Of course, that growth this year will be slightly geared more to the financial business units, be it financial services or the bank. We expect all business units growing. In working capital performance, we've been doubling down our efforts to be more efficient on the collection front. We were able to collect a number of backlogs. We think that that improvement is, it's sustainable, but it won't be... in a way it's a one-off that won't recur this year.
We don't see a part of the normal seasonality of working capital, but normally on first quarter, it is slightly more challenging. We don't see any reversal of that working capital performance. I think I covered all your questions.
Yeah. Thank you. Thank you. Thank you, Matteo. We now move to Mr. João Safara from Banco Santander. Please go ahead.
Yes. Hi, good morning, and thank you for taking my questions. I have a few, but I just wanted to start with financial services. You recently signed a, well, an exclusivity agreement for another three years. My question here is, I mean, we also seen some comments from ANACOM saying that obviously it's not the optimal solution to have just one provider of, well, one distributor for this kind of product. What is your take on that? I mean, obviously for the next three years, it seems that you, I mean, the agreement is done.
I would like to have a bit of your view on that, on any potential risk that could be of having competition on the placement of the financial, on the Savings Certificates and public placements. Also regarding with this is, we had a spectacular month of January in terms of subscriptions. I understand it's very difficult to have really visibility on this. I mean, if things continue as we've seen in January, it should be even a better year than in 2022. I mean, Guy has just confirmed that you see growth in all the EBIT lines. Is there anything that...
I mean, is there any specific indicator that you're seeing that corroborate this in terms of ongoing strong momentum of public placements, obviously other than the fact that Euribor rates are higher? Just a last one related to this and to the deposits is how much. What is your strategy in terms of the deposit remuneration for 2023? Are you seeing more competition in the market on gaining these deposits and potentially also in having a lower growth for your deposit base? I think that's it. Thank you.
Thank you, João. Starting with the agreement that we've signed. A couple of points here.
Sorry.
First, well, this is a relation that has been studied and preserved in market conditions, under market conditions. We have an exclusivity agreement in terms of the placing in the retail network. Competition there is not an issue for these three years. We have something which is new, and we have highlighted in when we communicated it to the market, which is that now as we stressed, we are able to develop also placements through a digital channel.
Our strategy here is that and is always been like that, and we are steadily progressing on that line, is that the partnership and the dependency, let's call it, I mean, the partnership between CTT and IGCP shall rely on better user experiences and on the unique positioning of return network. There is no other alternative return network with this kind of capillarity and spread throughout the country. We are very positive and cool on the fact that this is a growing partnership that is mutually interesting. Moving to the spectacular performance of public debt in January.
Well, what I'd like to say here is that I would reassure what he said about our guidance. We have this guidance based on an assumption that all businesses are going to grow. Of course, if the financial services performance, well, throughout the year is well above expectation, then what you should expect, and the market should expect, is that the EBIT performance will be better than we have guided. That's why we have an open-ended on the right-hand side of the interval, by saying that it's at least 10%. There is a, I would say, there is the positive outlook risk here.
Regarding the question or the sub-question about the trend, if something is to be projected to the future, the trend is that we've been growing month by month the ability to place. Banks have started to react with alternative products, but we see that for a long period, it's going to be very difficult to match the competitiveness of Treasury Certificates. The trend now is not yet of stability. It has been of growth, and therefore, we have, we are quite positive on that. For the question about the remuneration of deposits and bank policy, I will hand over to Guy.
Thank you, João. On deposits, we expect as you have already mentioned, you know, increasing competition in the sector. The retail banking is suffering some competition from the government side, and we see rates starting to increase. As we are a retail bank, we'll also gradually increase our remuneration through the year, and that's embedded on our, in our guidance. Of course, Banco CTT continues to grow. We are, you know, focusing new clients and attracting new money from those and from the existing customers. We expect the market remuneration to increase. We'll be acting accordingly to the market evolution.
Okay. Thank you.
Thank you very much, Mr. Safara. Ladies and gentlemen, once again, if you wish to ask a question or have any follow-up questions, please do press star one at this time. Our next question is coming from Mr. António Seladas, calling from AS Independent Research. Please go ahead.
Hi, good morning. Thank you for taking my questions. I have two questions. One is related with the bank, second one is related with parcels in Spain. Maybe starting by parcels in Spain. You mentioned that growth should resume in this year. I just want to know if there's already any signal that growth is already improving. Because my sense is that the weakness in parcels in Spain last year was related with a general trend of weakness on parcels. My question is, if there's already signals that this weakness on parcel, on e-commerce that we saw last year is reverting. Second question is related with the bank.
Bank will have a capital increase and probably at some time or maybe by the end of the year, not very different in terms of time. We'll sell the portfolio of credit cards. We'll be over-capitalized or, well, we'll be well capitalized. My question is, if you would like to share with us where the bank plans to grow. Thank you very much.
Thank you, António Seladas. On the weakness on parcels in Spain, as you know, we started last year with a big concentration on big customers in Spain, and that was the way we structured the strategies for the time around to acquire fast volumes to give us the scale we needed, and we successfully did that. Those big accounts with the macro context and e-commerce trends on Spain were heavily pressured on volumes. We see that stabilizing since the end of last year and beginning of this year. That will enable our already in place strategy to grow on smaller accounts that have been growing, but that growth is being overshown by the decline on those big customers.
As these big accounts start to stabilize trends, we are forecasting that the growth we are obtaining in smaller accounts to start to show. As for, as such will be driving the growth we are giving you on the guidance. On the capital, João might want to.
Yes. Let me just add something on Spain to what Guy already mentioned. In fact, our expectation is the market in Spain is not going to reverse, coming to your point. It's basically, our ability to grab market share, as Guy said, especially through these, lower sized, customers where there is a huge opportunity to grow. On the bank, very short-term and medium long-term, obviously that in the short-term, the environment is now very favorable and therefore, the bank should take advantage of the, well, the additional liquidity.
The additional capital, as you said, not excessive, as guides the bank towards revising the well, midterm business plan and that we shall come to the market later on in the year, sooner than later with what would be the well, the new outcome of the planning process that is now taking place. In any case, a more favorable environment in terms of financial margins and interest rates goes well with additional liquidity and additional capital.
Exactly.
Okay. Thank you very much. Should we expect that by the second or the third quarter you mentioned something about the bank? Yes. I understood well.
That's right. You understood well, António.
Okay. Thank you. Thank you very much.
Thank you, Mr. Seladas. Ladies and gentlemen, as a final reminder, if you wish to ask any questions, please do press star one at this time. We'll now go to Marco Limite calling from Barclays. Please go ahead.
Hi, good morning. Thanks for taking my questions. Can you please update us on what we should expect in terms of price increases in Portugal for parcels? I understand there is a bit of a mixed shift from softer B2B and stronger B2C, but what are you expecting in terms of price increases, especially in B2C volumes? Similar question, price increases for the mail volumes, given that you are entering into a three-year kind of framework in 2023. What is the expectation there? Third quick question, what we should expect in terms of wage increases if there are, you know, discussions going on with unions? Fourth question, what's the latest update on the real estate project? Thank you.
Thank you, Marco. On price increase in parcels in Portugal, there is B2C and B2B. On B2C, we have already increased prices on the first of March, this is in line with inflation. You know what inflation is, that is already, it's done. For B2B, we have again different segments. For very high, very large clients, and for mid-sized clients, we are, you know, basically trying to offset the cost of inflation. We are segmenting that, we've started already increasing prices. One should expect that the compound increase in price between the smaller companies and the larger companies doesn't match inflation.
Would you like to add something, João? Okay, I'll be. On my price expectation, well, it's pretty stable from now on. As you know, we have this new tariff agreement in place. We have agreed the price increase for this year. While the agreement comes strictly in line with our expectation and claim, it offsets decline of volumes and inflation with an additional, well, demand on productivity. We should expect prices in mild increase in line with volume of inflation or slightly below that, which is our responsibility for improving profitability.
It's basically, it covers 86%, if I'm not wrong, of decline and inflation, and therefore, I mean, we feel very relaxed and it's very easy to predict what's going to happen, from now on. On the wage increase and the relation with the unions, we cannot be absolutely, I mean, objective here, but I should say that the negotiations that started early this year are going well in the sense that the expectation is that we will be able to strike a deal within our budget assumptions.
It's always a bit unpredictable, but so far the move is positive and our expectation, again, is that it's going to be within budget or even below budget. On the real estate, well, this is a very complex project, and that's why it's taking so long and we keep working on details and tax issues and administrative issues, licensing. There's been progress on potential investors that are now looking at the final terms that have been agreed. Well, we should, well, keep the market informed if something relevant happens and when it happens.
Mr. Limite, is that your question, sir? Okay, thank you very much. Ladies and gentlemen, as we do not have any further questions at this time, I'll return the call back over to your host for any additional or closing remarks. Thank you.
Well, thank you. Thank you for your questions. Thank you for coming. Well, I'd like to close as we started. It's been a tough year. We take pride of how we've managed to well, surface the year with a difficult beginning, first half, a significant recovery. It provides a good basis for 2023, which is reflected in the positive way in which we have stated the guidance of at least 10% and with improvement across all business areas. Therefore, well, again, thank you for coming and let's keep in touch. Thank you.
Thank you much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you much for your attendance. You may now disconnect.