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CTT - 4Q17 Results Review - Mail volumes declines moderated in 4Q17. Express & Parcels delivered a positive evolution. Stable recurring EBITDA loss q/q in Banco CTT

8 Mar 2018


CTT reported yesterday after market close its 4Q17 results. 4Q17 revenues stood at €196.3mn, +10% y/y, or +1% y/y after excluding €16.3mn related to the sale of former head office (+2% y/y adjusted by the Altice impact, €2.1mn in 4Q16).

4Q17 recurring EBITDA declined 24% y/y to €21.8mn (-17% y/y, excluding the Altice impact). Recurring net income stood at €8.8mn in 4Q17, vs. €15.2mn in 4Q16.

Recurring revenues were 1% higher y/y (+2% y/y or +€4.0mn, excluding the Altice impact), reflecting lower revenues in Mail & others (-€0.8mm, excluding Altice revenues), and in Financial Services (-€3.1mn), but higher revenues in E&P (+€6.4mn, including +€2.4mn from Transporta), and in Banco CTT (+€1.7mn). FY17 revenues rose 2.5% y/y to €714.3mn, or +0.4% y/y excluding the aforementioned sale of the former head office (+1.8%, after adjusting by the Altice impact).

Recurring operating costs rose by 5.8% y/y in 4Q17 to €158.2mn (+5.6% y/y in FY17). Non-recurring costs stood at €16.2mn, including costs related to the Operational Transformation Plan and strategic studies. Reported EBITDA rose by 14% y/y to €21.8mn. On a recurring basis, EBITDA declined by 24% y/y to €21.8mn, or -17% y/y excluding the effect of the Altice revenues in 4Q16 (€2.1mn). Recurring EBITDA excluding Altice fell by 18% y/y in FY17.

Reported net profit stood at €7.8mn in 4Q17, vs. €16.2mn in 4Q16, or €8.8mn (-42% y/y) on a recurring basis (-37.5% y/y to €40.0mn in FY17). Net cash adjusted stood at €351mn in 4Q17 (vs. €337mn in 3Q17), or €163mn excluding Banco CTT (vs. €139mn in 3Q17). Capex reached €28.5mn in FY17.

Mail: Mail volumes declines moderated in 4Q17, with addressable mail volume declining 4.5% y/y in 4Q17 (vs. -7.2% y/y in 3Q17 and -5.9% y/y in 9M17). Registered mail volumes rose by 0.5% y/y in FY17 (vs. +2.2% y/y in 9M17), after an 8.8% y/y decline in FY16, reflecting mail originated in contractual customers of the industry and services sectors that offset the slight decrease in consumption from the government and the central and local public administration. Advertising mail volumes fell by 2.2% y/y in 4Q17 (vs. -9.5% y/y in 9M17), while transactional mail volumes declined by 4.3% y/y over the quarter (vs. -5.7% y/y in 9M17).

Revenues fell by 1% y/y in 4Q17 to €134.1mn. Recurring EBITDA fell by 18% y/y in 4Q17 to €19.7mn (or -15% y/y excluding Altice), on lower margins y/y (14.7% in 4Q17, vs. 17.6% in 4Q16). Recurring EBITDA was down 20% y/y in FY17 (-17% y/y excluding Altice), on higher staff and energy costs.

Postal Bank: the number of accounts and deposits continued to increase in 4Q17. Customer deposits finished the quarter at €619.2mn (+€78.8mn q/q in 4Q17, vs. +€116.1mn q/q in 3Q17, +€92.9mn q/q in 2Q17 and +€77.5mn q/q in 1Q17), while the number of accounts increased by 19% q/q. Credit to clients stood at €79.3mn as of the end of 4Q17 (vs. €42.4mn in 3Q17). 4Q17 revenues stood at €2.3mn (€7.6mn in FY17). The recurring EBITDA loss of €5.5mn was stable vs. 3Q17. Revenues rose by €0.5mn q/q.

Express & Parcels: revenues increased strongly in 4Q17 (+17% y/y vs. +9% in 9M17), driven by the favourable parcels volumes evolution in Portugal and Spain, as well as by the Transporta acquisition. The division recorded a positive contribution to the group’s 4Q17 EBITDA.

Financial Services: revenues fell by 22% y/y in 4Q17 to €13.6mn (vs. -13% y/y in FY17 and -10% y/y in 9M17), with declines in Savings & Insurance (-€2.1mn y/y), Payments (-€0.7mn y/y), Transfers (-€0.3mn y/y) and Credit (-€0.1mn y/y). Recurring EBITDA declined by 30% y/y to €6.4mn.

FY18 Guidance (on the assumption that the new quality of service requirements, still to be finalised by the regulator, will not result in significant extra cost burden for the group): CTT expects a slight increase in revenues, supported by continued growth of the E&P and Banco CTT businesses. The group guides towards a 5% to 6% decline in addressed mail volumes in FY18 (vs. -5.6% in FY17). The Operational Transformation Plan is expected to have c. €20mn impact on non-recurring operating costs in FY18. CTT sees FY18 recurring EBITDA little changed from FY17 (around €90mn), contingent on mail volumes and Financial Services evolution, with the later currently significantly under pressure. Capex should reach €35mn in FY18 (vs. 28.5mn in FY17), part of which related to the Operational Transformation Plan. Sale of non-core real estate assets is expected to have a positive contribution to earnings and cash-flow.

Dividend policy: FY17 DPS of €0.38 (a 12% yield), as reaffirmed by the group at the end of last year. The group reiterated that the implementation of the Operational Transformation Plan will have a significant impact on dividend policy in the short-term. Therefore, during the period 2018-2020, the dividend policy will revert to its previous policy of shareholder remuneration as a percentage of the generated yearly net profit. In the previous guidance, the group mentioned that the dividend could also be supplemented by the utilisation of distributable reserves.