"Pandemic, resilience, diversification, e-commerce, growth, concession, and sustainability are some of the words omnipresent for CTT in 2021."
Chief Executive Officer
The future is inevitable, but we can choose how we get there and what we want to deliver. We are motivated and working for a better, faster and greener future.
These are the goals we want to achieve. With the same excellence and commitment as always, we will guide our actions and our business to provide ever better solutions for people and companies. We are committed to achieving this future and delivering it to our customers.
Pandemic, resilience, diversification, e-commerce, growth, concession, and sustainability are some of the words omnipresent for CTT in 2021.
2021 was once again a year strongly marked by the pandemic, whose impact on the daily lives of people and companies, with greater or lesser intensity, remained very present throughout the year. Regardless of those disturbances, the company maintained the continuity of its services while guaranteeing the protection of employees, adapting operations to what turned out to be, apparently for an extended period, the new normal.
The most striking consequences of the prolonged pandemic were undoubtedly the sharp erosion in mail volumes, especially felt in the retail segment and the acceleration of the digital transformation of companies and the economy in general. On the other hand, there was a renewed favourable boost in parcel's volumes due to the continued growth of e-commerce.
Therefore, it may be said that 2021 consolidated a path of continuous transformation, albeit in a pandemic. This path translates into a constant search for the deepening of diversification lines and the strengthening of operational efficiency mechanisms, which are fundamental for short-term success. Above all, the company has returned to the sustainability of the growth trajectory.
Among the many notable aspects of the year, we must highlight the negotiation process of the new universal postal service concession contract, unilaterally extended by the Government at the end of 2020. The continuous follow-up of the process throughout the year leading to a new agreement went through critical stages, with particular emphasis on the interaction with the Working Group created by the Government to analyse the evolution of the universal postal service and, also and above all, on the developments associated to the process of direct award of the concession decided by the Government in September. The Council of Ministers then passed a Resolution that appointed a committee to prepare the specifications and assess the proposal for the new concession contract to be awarded directly to CTT, assuming the approval of a new Postal Law. Although approved at the end of 2021, this Resolution was only promulgated and published in February 2022, given the interposition of the electoral process. The new concession contract for the universal postal service entered into force still in February, following the waiver of approval by the Court of Auditors.
With the entry into force of the new concession contract, more balanced conditions are restored in the provision of the universal postal service and ensuring the Mail business sustainability. It has always been CTT's objective to continue to be the universal postal service provider, should sustainability conditions be in place. Therefore, the company faces a new cycle that begins with a sense of responsibility and satisfaction.
From the outset, the team I coordinate has given priority to the need to affirm a position of trust, a primary attribute of our brand, seeking to maximize elements of presence and proximity that I consider to be truly unique and, therefore, distinctive. Imbued with this spirit, we assumed and made public, soon after I arrived in office in 2019, the commitment to reopen the 33 post offices in the municipalities served by our presence through postal agencies. This process, which was also affected by the pandemic outbreak, was completed last November. CTT thus objectively and very tangibly reinforced its value proposition of proximity and capillarity and became closer to the Portuguese in these regions, favouring cohesion throughout the territory and boosting the economy in the interior.
Raising the level of abstraction with which we observe reality to the point of being able to identify cycles of social evolution, either associated or marked by trends or changes in behaviour, it is evident that the explosion of e-commerce is one of the most striking outbreaks of a "digital age" and the digitalization of the functioning of the society.
In this context, CTT continued to strengthen its position in e-commerce, supporting Portuguese businesses in their digital transformation and fostering the penetration and adoption of appropriate tools. Several initiatives were launched to enrich the portfolio of services and tools oriented to participating in the e-commerce value chain. In this regard, it is noteworthy the offer of a new service, in partnership with the Omnicom Media Group, aimed at small and medium-sized companies for the creation of online advertising campaigns, enabling campaigns in multiple digital media, from social networks to search engines, autonomously and intuitively. Along the same lines, and to allow our customers of e-commerce solutions to raise the levels of convenience to offer to their customers, a joint venture was set up to execute the creation and management of a parcel locker network with one of the largest Chinese e-commerce parcel logistics companies – YunExpress, itself a CTT customer. With a network of just over 200 lockers already fully operational, the goal was set to expand it to over 1,000 installations, ensuring more significant levels of operational effectiveness and efficiency and more environmentally sustainable deliveries.
Still, within the scope of the e-commerce offer, CTT also continued to develop other delivery solutions, consolidating some previously tested pioneering offers, a prime example of which is the instant delivery service (up to 2 hours), already in full operation with clients such as Worten, NOS and Zomato.
There are also significant facts in the Express & Parcels (E&P) business area: the turnaround process in Spain consolidated, largely exceeding the goal set for this year - to go from negative to positive monthly EBITDA before the end of 2021. CTT Express increased its market share, which is itself undergoing substantial growth. This was made possible by, among other factors, a significant investment in increasing capacity and automation – 16 sorting centres were opened, and 3 new sorters came into operation. As a result of these facts and various initiatives on the technology front, productivity progressed throughout the year, and operational breakeven was reached, with CTT Express making a positive contribution to the Group's EBITDA. In Portugal, it is worth noting the investment made in increasing parcel handling capacity – 5 new Sorting Centres and 3 new sorters – to correspond with high levels of quality to the expected growth in volumes, with emphasis on the prospects for the peak season. A partnership was also established and made operational with Santos e Vale to provide cargo delivery service, with a view to the turnaround of this segment and the contribution to the Group's margin, already observed in the last quarter of the year.
I cannot conclude this review of the annual performance in E&P without highlighting the progressively successful operation of Corre, our E&P partnership with the Mozambican Post Office. This is even more remarkable given the political and social developments in Mozambique, which went through a period of significant instability over the year.
The year we now report was also a year to affirm and deepen our condition as the preferred partner of companies when it comes to simplifying their physical and digital presence promoting their efficiency. With this in mind, we decided to strengthen this business segment of solutions for companies by acquiring NewSpring Services, a reference company in the business process outsourcing (BPO) and contact centre sector. The incorporation of New Spring into our offer portfolio led not only to significant productivity gains in contact centre operations already underway but also expanded CTT's capacity in important BPO areas, namely in the financial sector, where CTT's presence is already significant in mailroom projects, document management, and the like. The addition of CTT's highly structured sales force present throughout the territory to NewSpring's new set of competencies is not only promising, but it has already allowed the beginning of concrete results. However, the acquisition was only concluded in the third quarter.
To complete the overview of the main noteworthy aspects in the various business areas, it is essential to mention the renewal of the excellent performance of the retail network in the placement of public debt as the preferred form of saving by the Portuguese. By once again obtaining placements of around 4 billion euros despite the decrease in the average remuneration decided by the Treasury, the merit of the CTT network is reaffirmed as the best place for savings and financial services for retail. On the other hand, the year confirmed Banco CTT as a new source of profitability. The business growth continued at a good pace, strengthening its positioning as a proximity bank with a simple but robust and increasingly digital value offer. A most relevant partnership between Banco CTT and Sonae Financial Services was also started in 2021. Banco CTT became the sole lender of the credit originated by the Universo card, generating a portfolio of approximately €300m of new credit in the bank's assets.
The individual performance of each business area and an increasingly specialized vision and practice for the B2B and B2C segments, under which each client is viewed globally, aiming to maximize share of wallet with CTT, gave rise to a year with very interesting results.
I would like to begin by highlighting one of the most significant aspects: the repeated double-digit increase in Revenues - 14% - by more than €100m. Of even greater importance is the extraordinary performance in results - recurring EBIT and net profit - with growth of 45% and 130%, respectively. At the business unit level, it is important to emphasize the remarkable performance of the Express & Parcels business, contributing to around 60% of the revenue growth by growing close to 33%. This performance of E&P demonstrates how well the company has been able to take advantage of the e-commerce leap resulting from the progressive digitalization of the economy. In the specific case of Spain, the concrete results of the strategy designed for the turnaround have started to show their merit: revenues grew by approximately 62%, bringing the size of the business closer to that of Portugal, with a relevant gain in market share. But more importantly, as stated above, CTT Express reached the breakeven of accumulated operating profit, leveraged on the increase of scale and operating efficiency, making a positive contribution in terms of EBITDA for the first time in the recent history of CTT in Spain. It is also important noticing the extraordinary result of Banco CTT, which grew c. 20% in revenues, despite the challenging economic context and after the end of the moratoria. In the same defiant context, both due to the lower inflow to the network, for health safety reasons, and the remuneration rate reduction, Financial Services posted an exceptional performance with a strong increase in the placement of savings products. Finally, in terms of business diversification, I would also highlight the reduced reliance on the Mail business, with the contribution to recurring EBIT falling by 10 p.p.
With a remarkable stock market performance, a clear and explicit message of re-gathering with the Portuguese as a trustworthy brand and a high-profile environmental performance, the strength and credibility of the CTT brand was reinforced and once again received significant recognition: the Corporate Brand Award, with which we were distinguished in the 13th edition of the Marketeer Awards, the winning of the prestigious Prince Michael International Road Safety Award, reinforcing our position in the Portuguese market regarding our commitment to road prevention and safety, the Honourable Mention in the National Sustainability Award with the project "A Tree for the Forest", and, in the context of the capital markets, the notable Transformation Award in the Investor Relations and Governance Awards 2021 and the prestigious Equity Champion in the SME category in the Euronext Lisbon Awards 2022.
I reserve one last word concerning the year that has passed to cover the ESG topic. 2021 was a year of continuity and acceleration in progress on the environmental and social fronts. On the clean energy side, we continued with green investment, emphasizing the expansion of the ecological fleet - today, one of the largest electric fleets in the country - and the installation of photovoltaic energy production units for self-consumption. Still, on the environmental aspect, it is worth highlighting the already mentioned "A Tree for the Forest" campaign in partnership with Quercus, which has already planted more than 100,000 native trees since its launch. To encourage the circular economy and launch innovative and truly sustainable solutions, an offer of multiple-uses packaging for e-commerce was launched, allowing its reuse by e-sellers and e-buyers. Banco CTT also took the necessary initial steps in green solutions by launching a Sustainable Investment product with Zurich. This fund invests in the financial assets of companies and institutions that pursue and promote the Sustainable Development Goals. On the social side, proximity support initiatives, in particular through participation in contracts for the free distribution of goods - social donation in postage to the Aboim Ascensão Shelter, support for institutions such as the Serralves Foundation or the National Culture Centre and, through Payshop, the continued support to the protocols of the Portuguese Committee for UNICEF, the Life and Peace Community, the Portuguese Red Cross and Ajuda de Mãe. I would also like to highlight the re-launching of the volunteering project with EPIS, where mentors and volunteers support young people at risk of academic failure, a historic concern and initiative in CTT in which I started to participate as a volunteer.
2022 - the Future
After another year of growth, albeit atypical given the significant impact of the pandemic and the start of the new Universal Postal Service concession, we believe that a new cycle and a path to a more sustainable future is opening. The focus will remain on the idea of transformation and growth in a challenging context, but with significant opportunities, always maintaining our purpose of continuing, better than anyone else, to connect people and companies, committed to delivering.
In Mail, we believe that after the new concession agreement comes into force, CTT will be in a more balanced position. By continuing the process of integrating and optimizing the operational networks to increase quality and productivity, we will ensure the sustainability of the business.
In Business Solutions, we intend to leverage the increased capacity resulting from the integration of NewSpring Services, reinforcing our role as a supplier of a wide range of services to companies, focusing on specific solutions for SMEs, supporting them in the digital transformation process, with special emphasis on e-commerce, but also with customized solutions for large companies. We will continue exploring and developing BPO solutions, advertising, e-commerce services and back-office management tools.
In the Express & Parcels area, we want to continue to be a catalyst for e-commerce in Portugal, progressing in affirming our condition as a reference Iberian player, growing in both countries and broadening the scope of action in Spain. We want to have a wide offer of e-commerce services, being present throughout the entire value chain from the display of their products online ("Criar Lojas Online" - create online shops - and local trade app) to their promotion and advertising, payment solutions, multiple delivery solutions, including instant delivery, a unique and innovative network of pick-up and drop off points, which includes an extensive network of lockers, returns management solutions, all displayed in omnichannel, focusing on convenience and promoting impeccable user experiences for the addressees. We want to progress in consolidating an Iberian operational network, leveraging the increase in capacity carried out in 2021 to increase volumes and obtain unparallel service levels in the Iberian market. We will also seek to expand our presence in the value chain, investing in a strong presence in the fulfilment sector in Iberia.
In our retail network, we will proceed with the digitalization work by promoting hybrid and complementary interaction experiences with services (e.g., sending mail or parcels) that can be initiated digitally - web or mobile - and complemented with a physical presence in the post office, or through self-service solutions in the post office, ensuring greater convenience and proximity to customers. We will continue to expand the portfolio of financial products, leveraging the extraordinary capacity to place savings, as well as credit and insurance products.
Banco CTT will continue its path of sound positioning as a solid and straightforward bank for retail customers. It will continue a path of progressive monetization of its customer base, focusing on the growth and digitalization of this relationship. It will continue to expand the offer of savings and credit solutions, namely in easily accessible products - such as pre-approved digital credit or offers of buy-now-pay-later (BNPL) solutions, namely by combining credit skills with the tools originated in our payments area - Payshop. This new cycle of profitability should also see the bank opening its capital, as announced long ago, to accelerate growth, mobilizing strategic partners that may wish to join the bank.
The pace and scope at which we intend to transform CTT requires agility and focus unparalleled in the company's history. The transformation process will proceed in a progressively more emphatic manner, organized around four essential pillars - product/customer experience, operations, people and technology - which we consider fundamental to ensure success in achieving the ambition we set while responding to our customers' needs.
The clarification of the USO concession issue makes room for a journey of corporate development initiatives, where efforts towards optimizing the capital efficiency of our business – including real estate optimization – should acquire a new impulse.
I have left to the end our strong and meaningful statement of commitment to continue to be a reference in Portugal and Spain, and within the postal industry worldwide, around sustainability, in its environmental, social and governance (ESG) aspects. Acting in these various dimensions, we want to strengthen our commitment to reducing our carbon footprint, focusing on accelerating the electrification of our fleet and the sustainable generation of electricity for self-consumption, but also on the development and generalization of "greener" products and services. We will add to this agenda the reinforcement of proximity to the populations we serve and to the communities where we are present, a constant and historical concern of CTT, which, combined with a practice that is highly demanding in terms of corporate governance, allows us to face the future with unwavering confidence.
João Bento, Chief Executive Officer