Good day, and thank you for standing by. Welcome to the CTT first quarter 2022 results webcast and conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Bento. Please go ahead.
Thank you. Good morning, everyone. Welcome to our results presentation webcast. I will invite you to follow me through the presentation. Moving to slide four, which is in fact the first slide. Our key takeaways for the quarter are that we have a what we call a transitory slowdown in E&P and also the impacts of investment in capacity to enable foreseen growth that have impacted the quarter results. On mail, we've seen revenues penalized by a slowdown in e-commerce and adverse evolution of the mix of mail. In spite of that, the earnings momentum is improving following regulated price increase as we're going to see. That's why we had a much better month of March.
We keep in the bank a solid and, indeed, expanding balance sheet, which positions the bank for further revenue growth and offers the interest rate leverage to grab the momentum on that front. Transformation continues to deliver on sustainable market share gains, mainly in B2B, where we regain important contract in BPO, printing and finishing, and even mail. Of course, this is the part where we include the dividend amounting to 12% per share to be paid on May 20th, with ex-dividend on the 18th of May. All in all, notwithstanding the difficult economic environment with increased execution risks, we remain committed to achieving our full year EBIT guidance within the EUR 65 million-EUR 75 million range, which I believe is the most important message we have for you today.
Moving to slide five. It's been a significant transformation that we've been operating in the company by increasing exposure to growing businesses. I believe this is a very interesting slide in the sense that if you look at the final year that we've closed accounts before this management team became in place, we had mail representing 67% of our revenues and 118% of recurring EBIT. We have, in fact, produced a very significant transformation with mail representing just below 50%, 49% by year-end and representing near 28% of recurring EBIT. We have done so while growing the turnover and profitability of the company.
This quarter follows that trend although with a very significant impact on Mail decline. Moving to slide six. I'm sorry, I'll be coughing throughout the presentation. The quarter was marked by this e-commerce slowdown and challenging economic conditions. Even so, revenues grew slightly above 4% with a significant decline in recurring EBIT, although with an improving performance throughout the quarter. This means that on Express & Parcels, we had a roughly steady revenue behavior but a significant recurring EBIT decline. Decline on profitability for Mail.
Financial services performing reasonably well and with the recurring EBIT following for reasons we're going to see, and a very good quarter for the bank as we shall see later in the more detailed slides. Moving to slide number seven and talking about parcels on an Iberian perspective, which is the one we have more and more. Notwithstanding a transitory loss of momentum, we are delivering consistent market share gains in Spain, and we clearly kept our leading position in Portugal. We won several clients, and we lost none in the quarter. That's visible on the charts.
If you see the series regarding first quarters from 2018 to this quarter with a steady growth, of course, with a positive bump in Portugal last year because we were confined. E-commerce was at, let's say, extraordinary peak, but a consistent growth of 9% three-year in Portugal and 22% in Spain. The quarter reflects a combination of negative effects because indeed we fell 12% in Portugal, although growing 7% in Spain. This results from customers returning to physical retail. This is a trend that we have observed well. It's been observed globally. The macro context which has impacted significantly consumer confidence with the -30 points in Portugal and -36 points in Spain.
Still the longer series highlights very clearly the persistent growth trend in both markets. Also we have good news because moving to slide, sorry, we're going to see that later on. There is a convergence towards more e-commerce, more mature e-commerce markets and so a huge room to growth in both countries. Moving to slide number eight. What we see this very clearly with the behavior, well, between 2021 to significant growth on volumes, revenues, and recurring EBIT. As we said, a bad comparison with last quarter, sorry, with last year's first quarter because of the reasons that we have mentioned, this was a quarter under complex revenues.
Moving to slide number nine, notwithstanding the growth driver we continue to prepare the structure for the structural growth we see ahead. This is a very important point. E&P is a growth contributor and is remaining so. If you compare the performance in the first quarter last year with the first quarter this year, we have a number of effects that we'd like to comment with you. We have a negative contribution margin for Portugal with the slowdown in e-commerce, which forced higher externalization. We have this almost symmetrical positive effect regarding the contribution margin in Spain, because as scale progresses, we grab operational leverage.
Capacity improvement is rendering its benefit. We have also a positive effect regarding the change in the cargo operations operating model that we have. We have of course structural costs that are mostly associated with rent and associated facility costs related with capacity and quality improvement. This is extremely important, as you all know, for the parcels business. We have consequently because of that a very significant quality evolution in Iberia of more than 4%. We have also increased very significantly the automated sorting capacity in Iberia.
If we compare with 2019, when we came in and started the sorting program in Spain, we are now more than three times the capacity, automated sorting capacity and an impressive 38% higher than last year. Moving to slide 10 and zooming now in Portugal, E&P reflects primarily a difficult comparison with the same quarter last year, resulting from, well, change of behavior as I mentioned before, towards with a bias towards, well, physical retail and also a sharp decline in consumer confidence.
Nevertheless, we see a steady growth from quarter by quarter with the usual seasonal seasonality and the decline of 7.2% in volumes and the decline of 11.8% in revenues when comparing to the first quarter of 2021, but still a very significant growth when comparing to the before that of 55% in volumes and 30% in revenues. Moving to slide 11. Now the zoom is in Spain. We continue improving in volumes, in revenues, and in profitability with well an interesting behavior of course with the slowdown in growth.
with the increased capacity that I've already mentioned, we are now ready to grab not only the market growth but also market share as we've been doing right now. For that, slide number 12 is quite interesting because it shows that the e-commerce market will continue to grow and will continue to grow very significantly in Iberia. Portugal is where it is with the lagging behind almost everyone, actually lagging everyone in this chart. We have now 73% of first users planning to continue using digital channels after COVID and customers are now accessing 48% more industry digitally.
On the left we see the huge room we have to grow both in Portugal and in Spain. This is good news because we have being market leader in Portugal, we need the market to grow, and we are helping the market to grow. In Spain, we are also not only following the market growth but also grabbing market share. This is very obvious when you look to the right, at the right where you represent the percentage of e-buyers that are now buying online.
We believe that the fact that the pandemic brought a lot of new users to this new mode of commerce, e-commerce. Some of them are buying less now than they were one quarter ago, but they became e-buyers for good. This is very good news, and this is why we are so positive on the role that Express & Parcels will play, is playing and will play, namely for our equity story this year. With that, I will hand over to Guy to guide you on Mail & Others.
Good morning. Starting on page 13, where we show the evolution of our mail volumes that are consistently declining less over the last two years, with B2B big accounts recovery from competition, partially offsetting declines in retail and inbound after de minimis, although with a lower average revenue per object. In the next slide, we can see the progress revenue transformation that we are doing in mail, while being impacted by de minimis and adverse mixed effects on national mail. Business Solutions showing very good progress, even if we account for the special laptop project that brought this amount of revenues with the inclusion of NewSpring on our perimeter and with good underlying growth. Increased B2B competitiveness, especially utilities driving improvement in volumes in the B2B segment, although at a lower pricing than average.
In national mail, we continue to see the effects of e-commerce migrating to express and parcels from mail and the de minimis impact that started in the third quarter last year. That will continue to impact till the next quarter and then washing through our numbers. We also increased prices in March, on the last three weeks of March, that will be helping the profitability of mail going forward. We chose to detail our mail EBITDA evolutions, that should improve sequentially after the price increase, but with strong impact this quarter that will be detailing.
First, we had the EUR 5.5 million of de minimis impact, that continued to show through our numbers, especially this quarter when we compare with a very high e-commerce trend that we saw last year. The rerun of the legislative election helped slightly our numbers. A decline in domestic volumes, with e-commerce so low, that also affects mail, and with adverse mixed effects due to high price of higher weight classes that this kind of mail carries. EUR 1.7 million impact of lower mail network usage by E&P. We chose to preserve our external last mile capacity in Express & Parcels, due to the foreseen growth, but that had a negative impact on mail as we use less of the available capacity on this business unit.
We had unfortunately the direct and indirect impacts of fuel inflation that is very present right now in the market, especially after the Ukrainian situation. That's negatively impacting our numbers of EUR 1.3 million. A very good progress in Business Solutions to one-off effects, the NewSpring integration and the sale of computer equipment, but good underlying growth of EUR 0.6 million on Business Solutions. We chose also to show you the progress of EBIT on this division that has a sequential improvement with March benefiting from three weeks of price increase that benefited our numbers, and we hope this will continue to positively impact the following months. On page 16, we can see the Financial Services evolutions that have two separate performance.
Retail revenues continue to have a very consistent and strong growth driven by more focused retail approach. Our financial service revenues were hit by less public debt placements following the consumer confidence impacts and this more uncertain environment that is leading to the people to place less savings. On page 17, we can see the Banco CTT numbers that posted another quarter of consistent growth across all business lines, especially on consumer credit, as you can see on the left part of the slide, with auto loans growing 13.2% and our credit cards tripling in the period to more than EUR 300 million, in line with or ahead of our expectation. Mortgage is also progressing well with 12.3% growth year-on-year.
We continue to capture savings and off-balance-sheet savings while we continue the monetization of our ways. On slide 18, we detail ESG measures where we highlight our continued focus on this front. We chose to share with you some of the projects. In the environment dimension, we supported this partnership with Quercus to plant 6,000 trees. A big bet this year on the electrification of the fleet with the first acquisition of 71 electric vehicles that enable already to have two full CTT hubs electric, fully electric, so no fuel. We continue to install meters around our buildings to enable better energy savings.
In the social dimension, we supported the Ukrainian people through help held in our stores, where we collected more than 40 tons of help that we shipped to Poland. We initiated a third edition of CTT student mentoring program for underprivileged students, where the students are tutored by CTT employees. I invite you to start our financial review. Although this quarter, we already gave a lot of detail on the operational review. Nevertheless, on page 20, we can see our key financial indicators where we see a difficult quarter in business performance with challenging environment, with the combination of effects of the end of the COVID-19 pandemic this year, the logistics chains disruption from Asia, and the impact of consumer confidence with the rise in inflation and the situation around Ukraine.
CTT had a double-digit growth in revenues in the quarter on the back of a special laptop sale project. Excluding that effect, our revenues would grow 3.8%. Our EBIT declining 55.7% due to a strong impact on the mail division and the lack of growth on Express & Parcels. In the quarter, our net profit stood at EUR 5.4 million, the 38% decline, and our cash flow reached EUR 6.2 million in the first quarter. On page 21, we can see the detailed revenue evolution with the already mentioned 14.3% growth due to the mail performance on the back of Business Solutions and Banco CTT.
If we focus on Express & Parcels, we had a decline of EUR 2.1 million, 3.3% due to the transitory slowdown in commerce and a difficult comparable due to the end of COVID-19. The consumer confidence and disrupted logistics chains, all these effects have heavily affected volumes in Iberia. In Spain, we continue to grow, although at a lower rate, 3.9% in volumes and 7.1% in revenues. This is obviously a slowdown in growth while we saw the e-commerce market that is our strongest market in Spain, declining for the first time in years with a decline in demand, namely on the big marketplaces.
In Portugal, the e-commerce market is also suffering more than in Spain, with overall decline of the market of 13%. This context obviously impacted our operation in Portugal with volumes declining 7.5% and 9.7% in revenues on the E&P line. Mail & Others business growing EUR 24.9 million, positively impacted by the consolidation of NewSpring that accounted for 6 million of this growth and the special laptop project that accounted for EUR 21.5 million.
The remainder of the core mail revenues declining EUR 3.8 million with the inbound mail effect that I already shared with you, partially offset by the rerun of the judicial elections and for declines on the national mail. Financial Services maintaining a good performance on retail sales, but consumer confidence penalizing savings placements in savings with overall revenues declining EUR 0.2 million. Banco CTT growing 32.5% with expanding net interest margin driven by credit cards and auto loans. Also commissions that we are increasing as we are increasing the monetization of our customer base through off-balance-sheet savings and accounts and credit card commissions. In the next page, we see our OpEx that grew basically on the back of Business Solutions, mail and Banco CTT.
Focusing on Express & Parcels, we declined EUR 0.9 million or 1.5% as a result of 2.9% volume decline in Iberia that were partially offset by investments in higher capacity and last mile unit cost in Portugal, where we leverage less on the mailing port capacity to preserve our external last mile network to support future growth. On Mail & Others, excluding Business Solutions, we are growing EUR 6.6 million, EUR 3.3 million related with general election costs with foreign operators. EUR 1.3 million related with the fuel inflation that we shared in the previous slides. EUR 1.7 million in lower usage of mail network by Express & Parcels, and EUR 0.6 million in our carrier cost inflation. Financial Services increasing EUR 0.7 million.
50% of that increase coming from cost of goods sold in the retail in line with the revenue increase and increase in commercial costs on the financial service side. Banco CTT increasing EUR 4.9 million, EUR 2.7 million of cost of risk. That's 2.1% increasing from 0.5% last year due to the growth in the credit card book. That is a mix driven growth and increasing in retail activity and customer transactions. Slide 23 shows our EBIT performance that reflects the decline in mail revenues and the continuing investment in quality. In the quarter, Express & Parcels declining due to softer e-commerce evolution, mainly in Portugal, and the impact in capacity to cope with the expected growth in Iberia.
Mail, another heavily hit by de minimis and lower volumes in national mail and adverse mixed effect, coupled with effects of inflation and lower integration with the parcel network. Price increase only took place in the last three weeks of March, and this coupled with cost measures should improve profitability of the business unit going forward. Financial Services showing the effect of slowdown in placements and lower remuneration in public debt. Banco CTT growing EUR 2 million in the quarter, on the back of strong growth in banking product and contained cost of risk around 1%, as I already mentioned. On slide 24, we can see our cash flow evolution in the quarter declining to EUR 10.4 million, declining EUR 2.5 million versus last year. CapEx too at EUR 5.9 million, flat year-on-year.
Our free cash flow of EUR 6.2 million and our net debt is now EUR 64.9 million in the end of the first quarter. With that, I pass you through to João for his closing remarks.
Thank you, Guy. As closing remarks, we start by stating that we've built capacity to cope with future demand and we are doing that preserving operational flexibility to adjust if required. We see commercial and market initiatives improving customer intake and we have quite some of these with real impacts already felt in the last weeks, especially in E&P and Business Solutions. On profitability measures, namely in operational central structure, we have been intensifying them and we'll deliver measurable results as from the second half of this year, starting next quarter. On EBIT generation, it has improved, and this is something that I'd like all your attention. I've referred this before.
It improved throughout the quarter with 81% of the recurrent EBIT having been generated in March. I recall that we had the price increase on the seventh of March. Previously identified risks remain active and the second quarter will still be penalized by some macroeconomic factors when compared with March 32 run rates. Finally, notwithstanding a difficult environment, increasing execution risks, we remain committed to achieving the final year 2022 EBIT within the EUR 65 million-EUR 75 million range, which is probably our most important message today. With this, we remain available for your questions. Thank you.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound hash key. Once again, please press star one if you would like to ask a question. Your first question today comes from the line of Filipe Leite from CaixaBank. Please go ahead, your line is open.
Hi. Hi, good morning, João and Guy. I have four questions if I may. First one is actually a clarification regarding your presentation on page nine. You mentioned higher externalizations on Portuguese E&P from the slowdown in e-commerce. Can you give us more details regarding what externalizations
Are you talking about how such negative impact can be somehow mitigated in the upcoming quarters? Second question on outlook and how confident you are that you will be able to reach the full year target? Because as you mentioned, second quarter will continue to be tough. Doing some rough math, if we assume, for instance, no increase in second quarter EBIT, it will still imply a significant increase in second half EBIT, so more than 40% to reach the low end of your target. From what activity should we expect this strong growth in second half to reach the full year target?
Last two questions is a request of an update on first one on real estate and when should we expect the announcement of the deal? Last one, if you can confirm to us, as mentioned in the press, you are in the negotiations for the entry of a new partner at Banco CTT and if it's the case, when should we expect novelties on that front? Thank you.
Okay, thank you, Filipe. Guy will start with the first question.
Hi, Filipe. We, as you know, use both external partners for distributing last mile in express and parcels and our mail network capacity. Installed capacity where we blend the mail with express and parcels. This quarter, with the pressure on volumes, what we chose to do to protect our capacity to support growth in the future is to not offload as much parcels as we could to the mail network. That actually had a negative impact that we detail on mail EBIT. To keep a lifeline on the partners we have on express and parcels, because otherwise there will be with no volumes to distribute, and that would impair our ability to support growth going forward.
As we see, the slowdown on Express & Parcels as transitional, we thought this was the right thing to do, to continue to be able to support additional growth. Nevertheless, is a lever that remains available if it's required.
Moving to the outlook, Filipe, we are as confident as to have decided to leave the outlook as it stays. We are quite positive on E&P both in Spain and in Portugal, and we expect a significant impact of the price increase as we are already feeling and measuring in March. Of course, we have good expectations, very good expectations regarding the bank behavior throughout the year. I will leave the question on legal for Guy to answer, but I would reply the question of the bank. We have a process going on.
The process is progressing very well. We are on time with that. It's running well, and we will disclose well, relevant information as soon as we are in a position to do so. The idea is that the process is running well and will most likely have a positive outcome.
On real estate, we continue to progress well on resuming the transaction that we envisaged last year. We continue to committed to announce or to share with you news on this until the end of the quarter. We expect to announce the structure or a transaction within this quarter.
Okay, perfect. Thank you.
Thank you. As a reminder, if you would like to ask a question, please press star and one on your telephone keypad. Your next question comes from the line of Artur Amaro from CaixaBI. Please go ahead. Your line is open.
Hi, good morning, everyone. Just one question. I was particularly worried by the numbers with the EBIT performance on mail. I see that the main explanation, and I'm now reading, due to the decline in higher value and higher margin mail volumes. The costs associated with the capacity building of the distribution network for the structural growth of e-commerce. My question is on the first side of the explanation, I don't think that the higher value and the higher margin mail volumes will change dramatically in the next quarter. My main question is for how long or for how many quarters should we expect costs associated with this capacity building of the distribution network? Can we see the EBIT in mail improve significantly in the coming quarters? This is my question. Thank you.
Thank you, Artur. Just clarifying the capacity that we are building is on Express & Parcels side of things. As I explained to Filipe, what we do, we use the installed capacity of mail to distribute parcels. But this quarter we used less, deliberately used less of that capacity to maintain our external partners alive in order to support future growth. What we expect and what we already saw in the numbers that we share with you is a better performance of mail improving by price increase, by growth, additional growth on parcels that should resume, and our ability to continue to distribute parcels through the mail network in a higher percentage than we did. On commenting on the national mail adverse mix effect.
This is mail, mainly retail mail that is also associated with e-commerce. Last year we saw one additional effect that was people that, or businesses that were mainly doing business through the brick and mortar that was closed, using our retail network to send goods to their customers. Also the increase of e-commerce because part of e-commerce is actually registered mail, more bulkier registered mail as such, higher priced mail. This effect continues there. The other was more transitory and disappeared and will continue. It was still high in April last year, but then it normalized throughout the rest of the year. That our businesses that resume their brick and mortar activity and as such stopped going to our retail to send objects.
What we are aiming is to go after those businesses with our offer of Express & Parcels, in order to convince them to keep using the e-commerce channel as an additional source of revenues, that we think they can do with marginal extra costs using our offering. Nevertheless, it's a process that needs to take some time to be evolving.
Okay.
Arthur, Arthur, this is João.
Oh, sorry, João. Go ahead, João.
Just to complement on Guy's a good part of the commercial initiatives intensified that I've referred in my presentation are related exactly with this portion of the market. We are now even redesigning the way we use the retail channel as also a B2B channel, and we are seeing some initial results. One of the reasons why we are positive there is that part of the mix will improve because we are going to grab this chunk of e-commerce related of low size low sophistication e-commerce retailers that will improve margin.
Very well. Just to follow up, by looking at the first quarter figures in terms of EBIT and in order for you to reaffirm or to reach the previous guidance that you gave between EUR 65 million and EUR 75 million, it's wise to say that for the next three coming quarters what we should see is a recovery in the Mail and in the Express & Parcels EBIT. Correct?
Yes. Very much so.
Okay. Thank you very, very much, both of you. Very clear.
Yes.
Thank you. Your next question comes from the line of António Seladas from AS Independent. Please go ahead. Your line is open.
Hi. Thank you very much. Just a follow-up question related with this external capacity employment instead of your internal capacity at mail. Can you explain how much, what is the cost of it? What was the cost of it? What were the arguments to decide to do this instead of just employ your internal capacity? What I'm trying to understand is if in the second quarter, Express & Parcels still be weak. Do you continue to do the same or not? If you can clarify these issues and or share your how you decide? How do you take these decisions?
The direct cost, it's shown on the operational review on Mail. It's EUR 1.7 million. It's the direct cost, both of the decision of lower volumes, because overall volume should also be impacting this year, everything equal. We feel and I think it's very easy to understand, when you close an external partner network, it's very difficult to rebuild it. So it will. If we start to follow that path, it will be a path where we be impairing our external capabilities in the Express & Parcels. As such, when growth resumes, as we are already seeing in the second half of April, it will be very difficult to build again the capacity to support that growth.
As such, we took this management decision to keep external partners' capabilities alive, while in a way impacting the mail profitability. What we can share with you if that growth for any reason doesn't appear again, and that is not our base case scenario, we have that lever available, that is to internalize the volumes in the base network.
Okay. Thank you very much.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad.
Thank you. Thank you everybody for coming. It was not our best quarter, but we are very positive that we're going to have a great year. Thank you very much for coming.