Raúl Galamba de Oliveira
Statement
“The new year began with real normalization expectations in what seemed to be the aftermath of a challenging 2021 in which the COVID-19 pandemic would fade out soon. Reality proved to be radically different...”
Raúl Galamba de Oliveira
Chairman of the Board of Directors
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João Bento
Statement
“After two financial years marked by singular events of significant impact – pandemic, confinements, supply chain disruptions, regulatory changes – the return to a certain normalcy was expected in 2022. By year end, however, the situation could not be more far from that expectation.”
João Bento
Chief Executive Officer
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After two financial years marked by singular events of significant impact – pandemic, confinements, supply chain disruptions, regulatory changes – the return to a certain normalcy was expected in 2022. By year end, however, the situation could not be more far from that expectation. In just a few months, we witnessed the emergence of inflation on a global scale, the outbreak of war in Europe and new tensions in world trade. Tight monetary policies added a further risk of recession in an economy that had not yet recovered from the pandemic crisis of 2020.
As in previous years, CTT's business was seriously affected. A record number of infections across operational areas in January demonstrated that the challenges of the pandemic were not yet over. As of February, economic uncertainty and the acceleration of inflation negatively impacted confidence levels of companies and the purchasing power of families. In parallel, there was a global slowdown in e-commerce, with a direct impact on one of CTT Group's main growth drivers at an Iberian level, the Express & Parcels business area.
In this challenging context, CTT once again confirmed its ability to adapt and deliver results, with important successes across all businesses. In the first quarter, the Mail business inaugurated the period of the new 7-year concession agreement. The pricing formula for 2024-2027 was also negotiated with ANACOM and the General Directorate of the Consumer, under conditions that support the sustainability and predictability of the operation. In Express & Parcels, robust commercial focus enabled to achieve sales growth in a very slow market, taking advantage of the increased quality of service provided, especially during the peak season, a key aspect for retaining and attracting new customers.
There was broad commercial success across other businesses as well. Financial Services, in particular, achieved record levels of public debt placement, particularly from the second half of the year onwards, supported by the growing attractiveness of savings certificates. The competitiveness of CTT's distribution network was again confirmed by the renewal of the contract with IGCP for three years, now including new services and a new digital sales channel. Finally, Banco CTT continued its growth path, having achieved all commercial objectives, both in terms of attracting clients and in the distribution of credit and savings products to households.
In aggregate terms, and despite the unfavourable economic context, CTT expanded its business by approximately 7% compared to the previous year, confirming its growth orientation built on a diversified portfolio that combines mature businesses with others of high growth. From the point of view of profitability, it maintained a recurring EBIT margin of 7.1% (at the same level as the previous year), attesting to the resilience of its business model. An efficiency improvement programme launched in the second quarter also contributed to this result, with further gains expected in the coming years. Finally, on the sustainability front, CTT's good performance continued, with new commitments announced on the environmental and social fronts until 2030, with intermediate goals for 2025 in line with the best practices of the sector.
As in previous years, the Company maintained in 2022 a dynamic set of strategic development initiatives, which included investment in the capacity and innovation of the Group's operating and technology platforms, along with continued efforts to seek opportunities for internal optimisation. Mention should be made, on this front, the business development programmes underway on the new NewSpring (Business Services) and Locky (locker network) platforms, the development of new private client and B2B portals, the preparation of a platform for the specialised management of the Group's real estate, the partnership agreement entered into with Generali for the distribution of insurance in CTT post offices and Banco CTT, and also the reversal of the partnership with Sonae for the management of the Universo credit card, which will provide Banco CTT with a high strategic optionality in a new market context that is more favourable to the banking sector.
Throughout the year, the Board of Directors exercised its mandate in defining the Company's strategy, as well as monitoring and supervising the Company’s business and risk management, particularly regarding the strategic development initiatives described above. For that, it also relied on the specialised Audit and Corporate Governance Committees, which fulfilled their duties with discipline and high standards. In the first half of the year significant focus was dedicated to the development of the "equity story", presented by the Executive Committee at the Capital Markets Day held in June, where the medium-term CTT strategy, financial ambitions and sustainability commitments were announced, which included, on the governance front, the drafting of a new Code of Ethics, currently in the process of implementation throughout the organisation.
With its strategic development framework for the coming years clearly defined, CTT’s management focus is now clearly on execution: fulfilling the aspirations of growth and innovation that ensure the future of the Company, and delivering results in line with the expectations of all stakeholders (customers, employees, shareholders and society). To achieve this goal, CTT counts on the commitment and motivation of its people, and on the sense of confidence earned from achieving stretched targets in challenging contexts. It is thus worth concluding this message with a note of recognition to the Group's people, and to its leadership teams and Executive Committee, for all the efforts and achievements, which year after year effectively build CTT's future.
Raúl Galamba de Oliveira
Chairman of the Board of Directors
The new year began with real normalization expectations in what seemed to be the aftermath of a challenging 2021 in which the COVID-19 pandemic would fade out soon. Reality proved to be radically different, and 2022 became, after all, rich in significant and unexpected external adversities on a global scale. The effects of the pandemic reignited – January registered the highest number of COVID-19 cases in CTT operations since the outbreak – and, despite its effective attenuation in the second half of the year, the impact on operations proved to be very strong.
This difficult start was compounded in February by the war in Ukraine, which caused severe disruption to the European economy, including a rapid rise in inflation, substantial uncertainty on the markets, reduced consumer confidence and additional disruption to international logistics chains.
CTT was one of the organizations in Portugal that reacted earliest to the effects of the war on the populations, having launched a campaign to collect, process and deliver donations in kind, which reached 40 tonnes and were transported using eight cargo trucks. Later, a stamp supporting Ukraine would be issued, with a brochure including a message of hope written by President Zelensky, the net profit of which was dedicated to the Ukrainian people and sent to an institution indicated by the Ukrainian Embassy in Portugal.
One of the indirect consequences of these events has been the global cooling of e-commerce throughout 2022. Portugal and Spain were no exception, with a significant contraction in the year's first half.
2022 has therefore begun in the context of major challenges of global scope, but this did not prevent the company from pursuing a route of profound transformation, preparing for a reality of ever-decreasing mail volumes. In fact, there was further growth both in revenues (+6.9%) and EBIT margin (+7.4%), and the company saw its capacity for transformation and reaction to very significant changes in the external context renewed. The year was characterized by a difficult performance in the first half as an immediate consequence of the abovementioned impacts, followed by a steady recovery until its end.
To illustrate this transformation and innovation capacity, one can mention the new rise, this time of one position, in the UPU postal development ranking. CTT ranks now 21st amongst postal operators worldwide, maintaining its "postal champion" status.
While completing three years of the current management team in place and at the final year of the present Board of Directors' term of office, it was considered appropriate, if not imperative, to share medium-term commitments with the market in a quantified manner, something the company had never done before. That was the framework for preparing and launching the Capital Markets Day (CMD) held in June.
Since it was impossible to anticipate that the CMD would occur in a context of more significant uncertainty than initially projected, given the outbreak of the conflict in Eastern Europe, the equity story was adapted to the new reality. It was then shared in a successful event where the business strategy, the ESG positioning, and the value creation ambition were all thoroughly presented.
One of the year's most significant developments was the entry into force of the new Universal Postal Service concession agreement, which formally came in place in February for a seven-year term, with 2022 forming a so-called transition period. The new agreement, made viable by the new Postal Law approved almost simultaneously with the negotiation process, laid down a significant price increase for 2022 for the first time in years– 6.8%.
It also determined that the prices of the universal postal service in the following two three-year periods would be set through a Pricing Convention in which ANACOM, the Consumer Directorate-General and, naturally, CTT, would take part. That negotiation process was initiated and concluded in 2022, with an outcome in line with CTT's expectations, by establishing a price formula that considers the actual decline in mail volumes and the actual inflation observed. It was a significant result, as it was a decisive element in ensuring the sustainability of the mail business in view of its inevitable and continued decline, given that the price remains the only source of funding for this public service.
The positive contribution of the price increase resulting from the new agreement partially mitigated the adverse effects of the sharp decline in international mail augmented by the end of the de minimis VAT exemption period for low-value items.
CTT's Business Solutions area (the "other" in "mail and other" of our reporting) complements the wide range of mail services, providing customers with tools to promote their physical and digital businesses while making them more efficient. In 2022, CTT's offer was consolidated, major existing contracts were renewed, and relevant new ones were signed. One of the offers whose development stands out in '22 is the school wallet solution, which surpassed 200,000 registered users and is currently present in 70 municipalities. With these solutions, CTT continues to expand its relationship with clients and increase its business portfolio, traditionally initiated with mail services, with significant revenue growth in this business segment during the year.
The development of e-commerce is one of the most relevant feeders of transformation for CTT and for its Express & Parcels business. Despite the global cooling of activity in 2022, we believe this area will continue to be one of the primary growth levers of the Group, with important milestones achieved during the past year. Portugal saw significant year-on-year volume growth of peak season parcels, while the volumes in Spain became close to the previous year's figures. Such counter-cyclical market behaviour was due, among other factors, to an improvement in the quality of service in both geographies due to the continuous work of our operations teams. We believe this factor is fundamental to strengthening CTT's relationship with its clients and one of the factors that will contribute the most to consistently consolidating and expanding market share.
At the end of 2022, the new operating centre of San Fernando, in Madrid, began its operations. It will be the basis for Iberia's integrated customs clearance service, offering customers a more complete and efficient solution for managing extra-EU inbound parcels.
Still on the Express and Parcels front, the launch of Locky - CTT's locker network brand – is worth highlighting its fast expansion. It has grown above 500 installed units and over 1,000 contracted by the end of 2022. The Locky offer allows clients to receive their parcels flexibly and conveniently. It is an investment aiming at adding new functionalities and providing more services to our clients while increasing the efficiency of deliveries.
In line with the established strategy, the launch of landmark initiatives continued to strengthen the company's leadership position in e-commerce, fostering the development of this ecosystem. Amongst the new products launched, one should emphasize the new Payshop online gateway, the partnership with eBay to support the internationalization of our SMEs – easing the delivery of their products abroad – and the partnership with FNAC to foster the circular economy.
Several initiatives contributing to the sector's development were also carried out, such as the already recurring CTT E-commerce Day & Awards - the most relevant event of the industry in Portugal. This initiative strengthens CTT's positioning, and value in this business area, recognizes and highlights the most outstanding initiatives in the market and presents the most significant e-commerce figures in Portugal. The expansion to an Iberian scope is already in preparation. Also worthy of note are the training and awareness promotion actions carried out, namely on how to launch online businesses, aimed at supporting the development of the Portuguese business fabric and promoting entrepreneurship in the e-commerce sector.
One of the most significant consequences of the context changes observed in the world economy throughout the year was the end of a very long period of low inflation and interest rates. The latter positively impacted the attractiveness of savings solutions through public debt, particularly regarding Savings Certificates. The evolution of these macroeconomic trends allowed the retail network, as the year progressed, to place successive monthly record amounts of public debt in October, November, and December, reaching a figure of more than 8 billion euros for the year. Such success rendered even more important what may be considered one of the main milestones of the year – the renewal for a three-year term of the public debt distribution agreement with IGCP, the public debt agency – which has added new services, including the possibility of selling through CTT's digital channels.
The renewal will enable this activity to continue to have strong relevance in affirming CTT's retail network as a unique service platform in the country. It aligns with its recent strategic statement, positioning it as a convenient service platform for savings, insurance, and citizenship services.
To improve the in-store experience, the retail network also has several digitalization and self-service initiatives underway. In that sense, we have increased the number of 24-hour in-store lockers to more than 50 locations, have conceived a new locker through-the-window solution, and continued the development of new equipment and new self-service processes aimed at facilitating the interaction and user experience in the post offices, thus improving customer satisfaction and quality of service.
The bank continued to consolidate its expansion path and demonstrated that it is an important growth driver for the Group. In 2022 it reached over 700 thousand clients, with a predominantly digital and progressively more frequent use of our channels, leveraged on the strength of CTT's trusted brand and an uncomplicated value proposition.
One of the year's main highlights was the announcement of the end of the Universo card partnership with Sonae Financial Services by the end of 2023 due to the latter's strategic shift. The agreement that regulated the termination of the process was closed in very favourable terms for the bank.
But the most significant aspect of the financial year for the bank's development was the agreement announced between CTT and the Generali Group to become partners in the bank through a capital increase that remarkably enhances its valuation. Alongside, life and non-life insurance distribution agreements were established through the Group's retail network – bank and non-bank stores and digital channels. This partnership allows for expanding the range of insurance products already offered to CTT clients in association with one of the leading European insurers, significantly boosting the increase of the insurance business.
The year was eventful in terms of the launch of new systems with a structural impact on both the future of operations and the expansion of the Group's value proposition. Concerning the former, of note was the entry into the process of Mobi, the new app to support distribution in the express network, a fully Iberian project currently being expanded to the mail delivery network.
In terms of customer experience, the definition of the digital vision for companies and individuals was concluded, and a test version of the CTT SuperApp was launched. At the same time, the B2B SuperPortal went into operation, having already allowed the fully digital onboarding of a few hundred new customers.
On the retail network front, work began defining the vision and requirements for the new B2C customer management and service provision system of CTT post offices. This is vital since it will significantly strengthen our relationship with customers in the retail network as part of the network's new positioning as a services platform.
In addition to many other initiatives to foster innovation, which include the 1520 project of scouting the start-up ecosystem, the establishment of partnerships with various university groups, as well as internal and R&D, CTT participates in the innovation investment fund - TechTree - having invested in three start-ups in the areas of augmented reality, digital insurance and IoT. Furthermore, three Recovery and Resilience Plan projects were approved for funding in electric mobility and robotics operations.
Finally, the year saw the creation of a new area of engineering and maintenance, which brought together skills in the development of equipment, systems, and processes of a highly operational nature because of successful embryonic experiments in the development of, among others, various types of parcel lockers, self-service kiosks for shops, new models of postal and logistical containers and new modules for vending stamps or for depositing parcels.
CTT's medium and long-term strategy is based on commitments that have people and sustainability at their core. The Capital Markets Day offered the opportunity to set out in a structured, objective, and quantified manner CTT's mid-term ESG commitments, as well as their strategic insertion in the company's development plan, considerably raising the relevance of this topic for the healthy development of the company and the corresponding creation of value.
In 2022, as far as people are concerned, an interesting set of results should be noted, with emphasis on the certification as a Family-Responsible Company, on the overcoming of the goal of 40% women in middle and senior management positions (parity is the goal for 2025), on the launching of a new trainee programme focused on operations and retail (in addition to the usual transversal trainee programme). All these express a solid commitment to developing new talent within CTT.
Also noteworthy is the agreement reached with the CTT Expresso unions regarding salary increases, as well as the attribution, close to the end of the year, of an extraordinary support of €200 to employees with a base salary below €2,500, given the concern with the impact of sudden high inflation.
As far as environmental sustainability issues are concerned, which in CTT is mainly centred on carbon reduction, it is worth highlighting that the threshold of 500 ecological vehicles, primarily electric, has been exceeded, as well as the pioneering launch, in partnership with EDP Comercial, of about 40 "solar communities". The intention is that, by 2030, the entire internal vehicle fleet, including delivery vehicles, be green. An intermediate goal has also been set to 50% of the fleet already in these conditions by 2025.
Regarding progress in circular economy matters, we note the improvement in the incorporation of recycled materials in our products and the partnership with "To be Green" for the transformation of masks and plastics into new products for everyday use, as well as the development of a recycling initiative, where old and damaged CTT mail trays are incorporated in the production of new units.
It will not be possible to bring CTT's transformation to the point to which we aspire without a significant cultural evolution that, while preserving and developing the most valuable traits of our secular condition, can also promote a culture of conquest, entrepreneurship, results and focus on quality and the client. With this reality and the future we aspire to in mind, a task was undertaken to review and rebuild a set of strategic concepts that are crucial to the company's culture; this resulted in a new purpose, a renewed vision and the corresponding mission statements - all founded on a renewed and very solid set of company values –, which should guide everything we do on a daily basis and in our medium and long-term strategy.
Thus, our purpose is "deliver the future, connecting people and companies in a sustainable way" and is based on five fundamental values: Proximity, Trust, Sustainability, Commitment and Customer Focus.
Along the same lines of behavioural alignment, a new Code of Ethics was drawn up and put into practice. It is intended to be a foundational element of the company's culture and behaviour for all those who relate to us.
Regarding the promotion of a greater focus and sharing of objectives, a strategic alignment routine using an OKRs - Objectives and Key Results - methodology was launched. Six high-level strategic objectives were defined, for which key results are being created to monitor progress: 1) improve the experience and increase the commitment of employees; 2) be one of the preferred partners in Iberia for express and parcels; 3) be one of the preferred partners of the Portuguese people for financial services; 4) grow the logistics and corporate solutions business, developing an Iberian offer; 5) accelerate the decarbonization of the offer in Iberia; and 6) ensure the sustainability of the mail business. With these objectives in mind, and in conjunction with the strategy announced on Capital Markets Day for each business area, we believe the company has its path well mapped out and the conditions in place to achieve the defined goals.
I will end by returning to culture and people, as nothing will succeed without motivated people, which is why we are very committed to improving the employee experience, developing a culture of leadership, actively managing talent, and strengthening CTT as a great employer brand.
We have ambitious goals for 2023 and continue to transform CTT at great speed. We have the confidence that stems from continuously overcoming unexpected challenges and the demonstrated ability to change the company for the benefit of all stakeholders - customers, employees, shareholders, partners, and society at large.
This is only possible with everyone's contribution, commitment, and enthusiasm. We are committed to delivering the future by connecting people and companies in a sustainable way, and we are sure to succeed in that because we are
committed to deliver!
João Bento
Chief Executive Officer
