Good day, and welcome to the CTT Ninth Month 2022 Results Conference Call with João Bento, CEO, and Guy Pacheco, CFO. Today's call is being recorded. I will now hand the call over to João Bento, CEO. Please go ahead, sir.
Thank you, Diana. Good morning, everyone. Welcome to our 3rd quarter webcast. I believe we have a set of good news today. Starting with the first slide, which is slide 4 , with the key takeaways from the quarter. As you've seen, we have a positive revenue trend across all business areas in this quarter with the financial component performing better than logistics one, financial services and retail, and the bank performing very well. This positive revenue trend occurs in a challenging economic context, reason why we value that even more. The result is that we have a 3rd quarter recurring EBIT of just over EUR 20 million, a significant year-on-year performance growth versus last year.
As for the cash flow, we have also exhibited a strong operating cash flow generation in this quarter of EUR 40 million versus EUR 3.5 million in the equivalent quarter last year on the back of efficient working capital management, in particular with improved collections from important clients. Moving to parcels, we have positive news for different reasons in Portugal and Spain. While in Portugal, volumes grew 5.8% in the quarter, so resuming a growth path. In Spain, it was the revenue per parcel, so pricing dynamics that resulted in growth, while the volumes remained relatively flat.
We had an outstanding performance in the public debt placement, in the sense that, with the existing context for interest rates, the offer became and is becoming very interesting, and therefore, an outstanding performance from the financial services business area. Finally, for the bank, volume growth across all business segments in the bank, resulting in both revenue growth and a very significant expansion on Return on Tangible Equity, that is benefiting from repricing of short-term interest rates. Business portfolio that is hedging itself very well and providing a very good performance in the quarter.
Moving to slide 5, which is the second slide, the title says the most important thing, solid operational financial performance in the quarter as anticipated. Revenue growth for the quarter was in line with the figures for the year with an 8.1% growth in revenues and an outstanding growth in terms of the recurring EBIT, which with EUR 20.1 million in the quarter. As I said, this was mostly driven by the financial component, financial services and the bank with significant growth in revenues, but mostly on recurring EBIT.
The numbers talk by themselves, revenue growth across all areas and very significant contributions in recurring EBIT in all the areas except parcel, express and parcel. Moving to the detail in slide 6, regarding E&P Portugal, as previously referred, a turn in the volumes, while EBIT, though, was penalized by operational constraints and inflation, which are pressuring operational costs and also suffering from operational constraints regarding hiring of people for the main event during the summer. In any case, we've seen volume growth resuming and the chart on the left-hand side is quite representative of the new trend generating therefore a slight growth in revenues for the quarter.
Moving to slide 7 , we have the, as we said, a good performance of parcels in Spain for different reasons. The sales evolution of the average revenue per item drove in fact significant profitability. On the left-hand side, we see a flattish volume performance and which in itself it's significant because e-commerce in Spain is declining in absolute terms. As with this revenue per item improvement, revenue evolved very positively, 12.5% to EUR 31 million in the quarter, which then leads to an impressive evolution of EBITDA of above 300% versus the year-on-year similar quarter last year.
Moving to mail in slide 8, where we see stable trends in addressed mail volumes, which is interesting, while inbound continues under pressure, now with the decline, which is lower in relative terms, but still considerable. We can see on the right-hand side, on the addressed mail volumes chart, decline starting to stabilize at around 4%. Slightly lower or significantly lower this decline than before, and apparently steady. But on the left-hand side, we see inbound, although at lower levels than before, still declining quite significantly. As we've seen this before, this is very much associated to the fact that e-commerce parcels are no longer using the mail networks globally.
Moving to slide 9, an increased detail on the behavior of mail. We have a regulated price increase affecting almost 60% of revenues, while competitive segments, that is mail where we have competition, is showing volume and revenue growth. These are both good news since for the regulated pricing, we have now a price increase that somehow provides for a different, more positive behavior than before. In probably competitive mail, we've been able to grow revenues. Then we have this already mentioned impact on inbound mail that is now starting to decline. With this, I will pass the floor to Guy to guide us through the financial aspects of the business in the quarter.
Thank you, João. Good morning. Starting on slide 10, where we can see our Financial Services & Retail that have a strong revenue growth driven by a very strong performance in Public Debt Placements that grew 40.5% and a similar growth in financial services revenue. This is on the back of the increased attractiveness of our short-term product, Certificados de Aforro, that right now have a very attractive interest rate, and as such are driving an increased demand, strong demand that we still see during this month. On retail and product services, also a small growth of 1.7%, where we continue to have the impact of the renewed commercial dynamics on that segment. On the next page, we can see the Banco CTT numbers.
Banco CTT has a revenue growth and return on tangible equity expansion driven by growth on volumes. In fact, we have double-digit growth in every credit line. On auto loans, 18.2%, on mortgage, 11.3%, and on credit cards under the Sonae partnership with 41.1%. Our customer resources also increasing 20.9%, both on deposits and both on balance sheet off balance sheet savings. Our return on tangible equity now stands on 4.7%, clearly in line to the path to the double digits that we aim in the medium term.
On slide 12, we choose to show the breakdown of our carbon footprint on ESG, to see the challenges that we have ahead of us in the path to be carbon neutral in 2030. Of course, being a logistics company, our challenge in reducing the fleet emissions that accounts for 72% with our own fleets or subcontractors. That's what we are doing, we are moving aggressively to green vehicles. On the next page, we see our ESG long-term commitments. On our environmental, it's net zero by 2030. On social, having gender parity in 2025 on top and mid-management, and trying to have a positive impact on our local communities, dedicating 1% of our EBIT to that end.
On governance, having incentives linked to ESG at least for 50% of our top and mid-managers. In terms of highlights of 2022, we stated a few. I only going to focus on the five 100% electric hubs on the country. We increased 90% our electrical vehicles, and we just launched this partnership with EDP, where we'll be building 40 solar energy communities that will enable us not only to reduce our carbon footprint, increase our own production that will stand at almost 20% of our electric bill, and also providing real benefits for the local communities that can benefit on their energy bills.
We also are in line with the commitment to invest 1% of EBIT with already EUR 0.6 million invested in social initiatives. Moving on to the financial review and starting on slide 15, where we have our key financial details. We can see what we consider a very strong quarter with growth in revenues, EBIT, and cash flow. Healthy growth in revenues of 8% with all business units contributing positively. Our EBIT increasing 82.7%. In the quarter, our net profits reached EUR 13.8 million growing 50% year-on-year. Our cash flow reaching EUR 28.1 million in the 3rd quarter. On slide 16, we can see the detailed revenue evolution.
As I mentioned, a growth of 8.1%, with the biggest contribution coming from Express & Parcels and Banco CTT. In the 3rd quarter, Express & Parcels growing 7.6% in revenues and 2.6% in volumes. In Portugal, volumes recovering to growing 5.8%. Our SEP revenues grew 4%. In Spain, the volumes remained flat, although with a sequential improvement in the volume trend with our Chinese customers improving the overall number of volumes. Although our big accounts still fighting some pressure on volumes. Higher price per parcel are supporting the revenue growth with 12.5%.
Mail & Other growing 2.4%, positively impacted by the consolidation of NewSpring, and growth in Business Solutions that contributed with EUR 4.3 million of growth. Revenues on mail declining 1.7% or 1.8%. Sorry, EUR 1.7 million or 1.8%, mostly coming from inbound revenues. We continue to see stabilizing trends as well, share with you on the back of mail pricing lever in the regulated parts and win backs on the competitive mail. Financial services also growing 29.1% with extraordinary performance of Public Debt Placements. As I mentioned, with an increase of 40% in placements.
Banco CTT continuing the strong path of growth, also growing 21.5% with expanding net interest margin and commissions on the back of the increased monetization of the bank customer base. Slide 17 shows us our OpEx that grew 3.8%, mostly driven by Parcels and Banco. In Express and Parcels, we increased EUR 5.1 million or 8.7%. Especially in Portugal, fuel inflation impacting unit costs and the constraints on the base network of hiring people to face holidays during the summer prevented us to use the base network as much as we normally do in order to have increased efficiencies by synergies between the networks.
We also have the additional investments in capacity to replace what were our previous trends that are still impacting OpEx. In Spain, productivity gains offsetting the inflation impact and as such a good performance there. Mail & Other declining EUR 3.8 million, despite of having EUR 3.9 million increase on Business Solutions, and that's coming from the NewSpring consolidation. The remainder of the business unit declining EUR 7.8 million in OpEx, mainly due to the change of our headquarters in Lisbon. Financial Services growing EUR 0.9 million, basically linked with the increased activity. Banco with an increase of EUR 4.9 million, out of which EUR 3.1 million are related with Cost of Risk.
In the 3rd quarter 2022, our cost of risk stood at 1.5% and increasing from the 1.1% in the 3rd quarter last year. The cost of risk remains volatile, mainly on the credit cards. We have implemented measures to improve our collection process with already some benefits in the quarter, and we expect those benefits to continue to flow in the coming quarters. On slide 18, we have the evolution of our EBIT that grew EUR 9.1 million with Mail and Financial Services and Banco CTT contributing positively. In the quarter, Express and Parcels declining EUR 0.6 million due to Portugal performance with inflation, and investments in capacities and lower price per item impacting margins.
In Spain, good performance on price per object coupled with higher efficiencies driving margin improvement. In Mail & Other, improving EUR 6.4 million due to the cost reductions, especially the impact of the change of headquarters in Lisbon. Financial Services growing EUR 2.6 million on the back of the extraordinary performance on placements. Banco CTT growing EUR 0.7 million due to strong growth in banking products, although still impacted by higher cost of risk in the 3rd quarter. In page 19, we can see our cash flow evolution. We had a very good quarter in cash flow. Our operating cash flow reaching EUR 59 million in the nine months, with working capital management improving during this last quarter.
Our CapEx is standing now at EUR 19.9 million, growing EUR 1.5 million versus last year. The free cash flow is, in the nine months, reaching EUR 31.9 million. Our net debt now stands at EUR 663.2 million. With that, I'll hand you over to João for his final remarks.
Thank you, Guy. Well, in page 20, we review our final remarks regarding guidance. The economic context remains not only volatile but very challenging in particular for parcel demand and inflation being very significant, it was already flagged by us and all our industry players. Nonetheless, the quarter and the cumulative results in the first nine months confirm the anticipated recovery trend that we have announced and predicted during the Capital Markets Day that are anchored on the measures that we have announced and are implementing. Therefore, we remain committed to continue to undertake all the necessary initiatives to deliver on the guidance that have been identified and have been reiterated.
It depends, the outcome depends very strongly on economic conditions in Iberia that are not evolving in the best sense. With this, we would be open for Q&A. Thank you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We will take the first question from Marco Limite with Barclays. Marco, the floor is yours.
Sorry, I had mute on. Thanks for taking my question. My first question is on the Q4 trends and October rates for parcel volume growth, both in Portugal and in Spain. Given that you have mentioned macro somehow softening, have you seen what can you tell us about October's trends for parcels growth? Second question is about your medium-term EBIT guidance of EUR 100 million-EUR 120 million by 2025. Just wondering if what were the kind of macro conditions or the macro drivers you were baking in that guidance and if that macro conditions have kind of deteriorated compared to your assumptions. A third question is slightly more technical.
When I look at the mail P&L for Q3 results, clearly EBITDA was strong, thanks to some cost savings you achieved from your headquarters cost savings. I also see a special item below the EBIT line. I was just wondering if we should read that as a one-off cost, sort of, yeah, one-off cost in order to achieve those cost savings, which are structural. Thank you.
Thank you, Marco. I was also muted. Concerning the first question, growth in Portugal and Spain in parcels in October, it's we are observing a similar trend as we are. Well, I wouldn't provide any additional color on that. As for the midterm, EBIT guidance and the macro assumptions, it is obvious that, well, they have been worsening. Let me recall that we had an interval. You should probably start looking using that interval in a frame, in an environment where the micro guidance have been are not evolving in the better direction. As for the cost saving, I will pass the floor to Guy.
Yes. On the cost saving, so on the 3rd quarter, we book a saving related with the movement or moving our headquarters to this, for instance, smaller place that has a cash saving. Part of that booking is the cash saving that we will have this year that will recur next year, fully cash during not in so concentrated but linear distributed through the year with an equivalent amount. On the specific items, you are right. It's the extraordinary expenses that we had to move between headquarters that will not recur. As such, we book that as a specific item.
Thank you.
We will take the next question from Filipe Leite with CaixaBank BPI.
Hi, hello everyone. Good morning. I have three questions if I might. The first one is actually a clarification regarding the potential agreement at Banco CTT, and the expected financial product distribution agreement. Just to clarify, if it will include or not the public debt going to be sold by CTT, I mean, you will continue to sell despite this agreement or not? Second question, regarding E&P in Portugal, the reason why, if you can explain to us the reason why EBIT dropped so significantly in this quarter despite top line increase, and what should we expect for this quarter, 4th quarter and next year in terms of EBIT margin for this Portuguese E&P operations?
Last one, considering your stable balance sheet position, and the completion of share buyback, if you are considering further share buybacks for this year or for the next one? Thank you.
Thank you. Well, concerning the potential agreement with the bank, we've made an announcement tonight. We don't intend to detail anything else prior to a final communication. Regarding the specific question you have, I can be absolutely clear on that. The placement of public debt is something that will remain within CTT network, and was not and will never be a matter for Banco CTT, and this is an important fundamental pillar, I'd say, with our partnership with IGCP. Regardless of what's going to happen soon about this agreement that you've mentioned, it has no relation with the public debt.
On the EBIT decline in E&P, there are at least three fundamental aspects we can mobilize. One is that inflation is very strong on the cost side, in particular for line-hauls, because not only of wages, but also of petrol costs. We've been investing in capacity. We have now in fact suffering a little bit for that. We need to improve volumes to be able to regain part of those margins. There is this very specific thing that happened throughout the summer, which even well Guy already alluded and myself, that is we have a strong need for holiday replacements during the summer.
Regardless of the management we do, we try to spread holidays in the distribution network across the year. There is, there's always a significant concentration during the summer. In this particular year, with basically full employment, it was very difficult for us to replace. At some stage during our August and September, we had close to 200 positions to fulfill. With that, we could not use as much as we would prefer and predicted the base network to distribute parcels, and which is a very significant impact on costs and therefore, as I related the margin. With this I will pass to Guy again.
Just complementing, so on, we earn those effects. We still have also some pressure on average revenue per item that is pressuring margins. Going forward, we have a number of initiatives to correct things and we see EBIT margins in Portugal resuming levels close to high single digit. On share buybacks, that was your last question. We remain vigilant. We have a strong balance sheet. We continue to see our opportunities mainly between having additional shareholder remuneration and building on strengthening our competitive positioning.
As we mentioned on our Capital Markets Day, we continue keen to invest on reinforcing our competitive stance in Iberia, if there is opportunities that we can fill or pursue, in order to reinforce mainly on Express & Parcels our competitive positioning. We remain vigilant vis-à-vis what is the share price. Maybe we can announce another share buyback in the near future, but no commitment at this stage.
Reminder to ask a question, press star one. We will take the next question from Artur Amaro with Caixa Banco de Investimento.
Hi, good morning, everyone. Just one question. If you can give a little color, some detail on to explain what the better operational performance of the mail business in this quarter. There's a 70% increase in terms of EBITDA in this business. If you can give some explanation on this matter, please. Thank you.
Thank you, Artur. There are basically three fundamental reasons. The first, please remind that the 1st quarter last year was the 1st quarter we had a full impact on inbound mail declines that was heavier than we expected. As such, since then we have been redimensioning our network to accommodate the new reality. At the same time, this year, we have better performance in terms of volumes that are stabilizing and price leverage there to help us on the revenue side. On this quarter, we started to see the effects of the measures of cost cutting that we announced during the 2nd quarter, flowing through the P&L.
The most emblematic of those is the change of our headquarters that contributed with EUR 3.4 million in the quarter. Is the comparison with last year because last year was still very depressed by the effect of the new effect of inbound and no time to react to that new reality. It's stronger performance on revenue and the cost savings that we are implementing.
Okay. Thank you very much, Guy.
Once again, to ask a question, press star one. We'll now take the next question from António Seladas with AS Independent Research.
Hello, good morning. Thank you for taking my question. They are both related with the bank. The first one is related with the cost of risk. You already mentioned that it's related with the problem with the collection at Sonae, at Universo Card portfolio. I don't know if you can provide more color because it was 1.1$ or 1% one year ago, 1.3% at the end of the 2nd half, and now 1.5%. Is there any idea what will be the top of the level, or it's 1.5%, it's a figure that you believe is sustainable in the medium term? Second question is related with net interest margin, that according to your slide, was flat year-on-year year-to-date.
Which is interesting because interest rates have been increasing, and so, banks are benefiting. I was expecting slight improvement at Net Interest Margin. I don't know if you can explain why it's not improving the Net Interest Margin. Thank you very much.
Thank you, António. I'll start with your last question. You are right, but please take into consideration two things. First is that it will take time for the repricing, mainly on our mortgage credits to kick in fully, and it will be as it is rather 12 months. It's the repricing will still take time to kick in. Nevertheless, the underlying net interest margin is increasing, but we have the dilutive effects to account for this quarter of the securitization we did in June. As you know, the securitization has some dilutive effects on net interest margin. But the underlying is increasing.
It will take time to show, especially because of the securitization as repricing mainly of the mortgage credit kicks in. On cost of risk, it's something that we already mentioned last quarter. We had an increased cost of risk, mainly on the credit cards, versus the previous quarter. Last quarter, we had a sequential improvement, was 1.7%, now stands at 1.5%. We see those measures that we are implementing continue to improve. We see during next year a cost of risk between around 1.3%-1.4%. It's where we see cost of risk moving. Decreasing from the current levels as the corrective measures that we are putting on the collection processes take full benefit.
Can I ask you if it's related with the new portfolio or is the portfolio that you built or are both portfolios?
It's within the Universo partnership. It's important because it's on collection, it's on all, of course, the new credit cards are more exposed.
Okay. Okay, thank you very much.
There are no further questions, so I return the call back to the speakers for closing remarks.
Okay. Once again, thank you all for coming. I believe we've shown a very good quarter. We remain attentive with the concerning and declining economic outlook. As we said, as I've said before, we are going to do all it takes to try to execute all the measures we have to fulfill the guidance. Thank you for coming, and good morning.
Thank you for joining today's call. You may now disconnect.