CTT-Correios de Portugal

Earnings Release • Oct 30, 2018

CU

9M 2018 Results Presentation

30 October 2018

Disclaimer

DISCLAIMER

This document has been prepared by CTT - Correios de Portugal, S.A. (the "Company" or "CTT") exclusively for use during the presentation of the 3^rd quarter 2018 results. As a consequence thereof, this document may not be published, nor used by any other person or entity, for any other reason or purpose without the express and prior written consent of CTT. This document (i) may contain summarised information and be subject to amendments and (ii) the information contained herein has not been verified, reviewed nor audited by any of the Company's advisors or auditors. Except as required by applicable law, CTT does not undertake any obligation to publicly update information contained in this document. Consequently, the Company does not assume liability for this document if it is used for a purpose other than the above. No express or implied representation, warranty or undertaking reliance shall be placed on, the accuracy, completeness or correctness of the information or the opinions or statements expressed herein. Neither the Company nor its subsidiaries, affiliates, directors, employees or adviso kind, whether for negligence or any other reason, for any damage or loss arising from any use of this document or its contents. Neither this document nor any part of it constitutes a contract, nor may it be used for incorp any contract or agreement.

This document has an informative nature and does not constitute, nor must it be interpreted as, an offer to sell, issue, exchange or buy any financial instruments (namely any securities issued by CTT or by any of its subsi solicitation of any kind by CTT, its subsidiaries or affiliates. Distribution of this document in certain jurisdictions may be prohibited, and recipients into whose possession this document comes shall be solely responsibl about, and observing any such restrictions. Moreover, the recipients of this document are invited and advised to consult the public information disclosed by CTT on its website (www.ctt.pt) as well as on the Portuguese Secu Commission's website (www.cmvm.pt). In particular, the contents of this presentation shall be read and understood in light of the financial information disclosed by CTT, through such means, which prevail in regard to any d document. By attending the meeting where this presentation is made and reading this document, you agree to be bound by the foregoing restrictions.

FORWARD-LOOKING STATEMENTS

This presentation contains forward-looking statements. All the statements herein which are not historical facts, including, but not limited to, statements expressing our current opinion or, as applicable, those of our dire performance, the business strategy, the management plans and objectives concerning future operations and investments are forward-looking statements. Statements that include the words "expects", "estimates", "foresees", "pr "plans","believes","anticipates","will","targets","may","would","could","continues" and similar statements of a future or forward-looking nature identify forward-looking statements.

All forward-looking statements included herein involve known and unknown risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results, performance or achievements to diff indicated in these statements. Any forward-looking statements in this document reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the growth strategy and liquidity, and the wider environment (specifically, market developments, investment opportunities and requlatory conditions).

Although CTT believes that the assumptions beyond such forward-looking statements are reasonable when made, any third parties are cautioned that forward-looking information and statements are subject to various risks and u of which are difficult to predict and generally beyond the control of CTT, what could cause the models, objectives, plans, estimates and/or projections to be materially reviewed and/or actual results and developments to di expressed in, or implied or projected by, the forward-looking information and statements.

Forward-looking statements (in particular, the objectives, estimates and projections as well as the corresponding assumptions) do neither represent a commitment regarding the models and plans to be implemented, nor are the future performance, nor have they been reviewed by the auditors of CTT. You are cautioned not to place undue reliance on the forward-looking statements herein.

All forward-looking statements included herein speak only as at the date of this presentation. Except as required by applicable law. CTT does not undertake any obligation to publicly update or revise any forward-looking st result of new information, future events or otherwise.

1. Key Highlights

1. Key Financials

2. Business Units

STRONG 3Q18 PERFORMANCE, RESULTING FROM SOLID PROGRESS IN MAIL AND CONTINUED EXPANSION IN THE GROWTH LEVERS

KEY FINANCIAL INDICATORS REGISTER FURTHER ACCELERATION OF THE IMPROVEMENT TRENDS OBSERVED IN 1H18

Key recurring ¹ financials; $\epsilon$ million; % change vs. prior year

9M18 NET PROFIT IMPACTED BY RESTRUCTURING COSTS RELATED TO THE OPERATIONAL TRANSFORMATION PLAN, DESPITE A SOLID IMPROVEMENT IN THE QUARTER

Financial and operational performance
$\epsilon$ million, except when otherwise indicated		Quarter			9 months
Financial indicators	3Q17	3Q18	$\Delta\%$	9M17	9M18	$\Delta\%$
Recurring revenues 1	165.9	169.7	$+2.3%$	518.0	524.8	$+1.3%$
Recurring operating costs $1$	150.3	150.7	$+0.3%$	449.8	459.8	$+2.2%$
Recurring EBITDA 1	15.5	19.0	$+22.1%$	68.1	65.0	$-4.6%$
Reported EBITDA	13.5	14.8	$+9.3%$	59.3	45.8	$-22.7%$
Reported Net Profit	1.8	3.6	$+106.4%$	19.5	9.9	$-49.3%$
Recurring Net Profit 2	2.6	5.8	$+120.0\%$	25.6	21.7	$-15.0%$
$\begin{bmatrix} \blacksquare & \blacksquare \end{bmatrix}$ (million items)	Addressed mail	Unaddressed mail (million items)	La Parcels La Parcels	€ Savings & insurance		BCTT credit to clients
158.4 3Q18 volumes		105.6	9.1		907.8	52.5

$+7.9%$

$-30.1%$

$\rightarrow$

$-20.8%$

¹ Excludingnon-recurring items affecting EBITDA of €8.9m in 9M17 and €19.3m in 9M18.

vs. 3Q17

² Recurring Net profit excludes non-recurring revenues and costs and considers the effective tax rate of CTT for the period.

$-5.3%$

SAVINGS CAPTURED BY THE OPERATIONAL TRANSFORMATION PLAN INITIATIVES BECOMING VISIBLE THROUGH THE P&L

objective exceeded

Sale with €8.5m pre-tax capital gain expected to conclude in 4018

€20.0m

FY18 guidance

€16.3m 9M18 non-recurring costs related to OTP

¹ FY18 estimated recurring operating cost savings, taking into account initiatives implemented until 30 September 2018.

1. Key Financials

POSITIVE EVOLUTION IN THE GROWTH LEVERS MORE THAN OFFSETS THE DECLINE OF FINANCIAL SERVICES REVENUES

• The impact of 7.1% addressed mail volumes decline on Mail revenues was offset by 3.9% effective average price increase and very strong positive mix effect (growth in international inbound mail of €9.6m & registered mail of €3.4m). The €1.6m increase in lottery sales (partially suspended in 2017) also contributed positively
• Solid growth of E&P revenues in Portugal & other (16.7%, 9.2% excl. Transporta) & in Spain (11.6%). Banco CTT revenues grew mainly due to net interest margin expansion
• 47.7% decline in subscriptions led to €12.4m drop (-51.9%) in the revenues from public debt products, the principal driver of the decrease in Financial Services revenues

THE RECURRING OPERATING COSTS INCREASE IN GROWTH-RELATED AREAS, WHILE THE OPERATIONAL TRANSFORMATION PLAN INITIATIVES EXERT POSITIVE INFLUENCE ON MAIL COSTS

• Recurring ES&S costs increased by €13.7m of which €9.8m and €1.3m related to an increase in transport & distribution costs and fleet renovation, respectively, while €1.8m in savings were realised with a renegotiation of IT outsourcing contracts
• Recurring Staff costs declined €4.3m as the OTP initiatives more than offset the salary increase (€2.0m impact in 9M18) negotiated with the unions
• The large majority ( $€15.8$ m) of the non-recurring operating costs related to the OTP were indemnities associated with negotiated staff exits

THE 9M18 RECURRING EBITDA PERFORMANCE REFLECTS AN IMPROVING UNDERLYING TREND

• Solid EBITDA performance in Mail as the stabilisation of the recurring cost base & a strong pricing / positive mix effect more than offset the decline in volumes
• . FS EBITDA decreased due to the decline of public debt revenues with high incremental margin. Banco CTT 9M18 EBITDA declined mainly as a result of higher marketing costs, although it registered an improvement (1.4%) in 3Q18

OPERATING CASH FLOW GENERATION IMPACTED BY NON-RECURRING ITEMS

Cash flow			Balance sheet - 30 September 2018
$\epsilon$ million; % change vs. prior year			€ million; % change vs. 31 December 2017
		Adjusted (Excl. FS float & Banco CTT deposits and financial assets)		1,742	1,742
	9M18	Δ%	Cash & cash equivalents	€426m	€299m Financial Services payables $(+10.7%)$
From operating activities	6.7	$-81.0%$		$(-32.1\%)$
Cashflow, excl. Banco CTT	13.8	$-71.8%$
Banco CTT cash flow	$-7.1$	$+47.5%$		€771m $(+71.5%)$
From investing activities	$-20.2$	$+12.2%$	Banco CTT financial assets		Banco CTT deposits €814m $(+27.8%)$ & other fin. liabilities
Capex payments 1 (excl. BCTT)	$-17.5$	$+21.7%$	& credit
Banco CTT Capex payments	$-4.6$	$+8.6%$
Other	1.9	$-56.5%$	Other current assets $2\pi$		€201m Other current liabilities
Operating free cash flow	$-13.5$	$-208.0\%$	Employee benefits tax credit (€75m; -1.0%)	€209m $(+17.0%)$	$(-3.0\%)$ - Financial debt (€4m; -59.3%)
From financing activities	$-63.3$	$+14.7\%$	Other non-current assets	€185m	€267m Employee benefits 3 $(-1.0\%)$
of which Dividends	$-57.0$	$+20.8%$	$(E75m; -2.8%)$		∧Non-current liabilities (€20m; -31.5%)
Net change in cash	$-76.7$	$-24.5%$	PP&E	$(-7.4\%)$	Equity (€135m; -26.4%)
				Assets	Liabilities & Equity

• 9M18 cash flow from operating activities impacted by €25.3m of indemnity payments related to the OTP (of which €11.5m related to 2017 provisions paid in 2018). Excluding Banco CTT, the operating free cash flow generation was €6.5m in 3Q18

• Net financial cash = Cash & cash equivalents of €426m Net Financial Services payables of €288m Banco CTT deposits & other fin. liabilities of €814m + Banco CTT fin. assets & credit & other of €773m – ST & LT debt of €4m = €93m, of which €61m of Banco CTT's own cash

• Key Highlights

• Key Financials

• Business Units

MAIL: REVENUES GROWTH COUPLED WITH COST REDUCTIONS FROM THE OPERATIONAL

TRANSFORMATION PLAN ALLOW FOR THE EXPANSION OF THE RECURRING EBITDA MARGIN

FINANCIAL SERVICES: THE DECLINE IN THE HIGH INCREMENTAL MARGIN PUBLIC DEBT PRODUCTS

REVENUES IMPACTED PROFITABILITY

EXPRESS & PARCELS: STRONG ENGINE OF DOUBLE-DIGIT VOLUMES AND REVENUES GROWTH, DRIVEN BY

E-COMMERCE

Revenues		Operating costs	EBITDA
9M18; € million; change vs. prior year		$\epsilon$ million	$\epsilon$ million
$-$ Portugal & other 1	$E68.6m (+16.7%)$	$+12.7%$	$\rightarrow$
- Parcels	€48.9m (+6.9%)	108.2
- Cargo & Logistics 2	€11.9m (+77.6%)	$-109.2$ $97.6 - \frac{96.0}{2000}$
- Banking network	€4.7m $(+26.2%)$		2.2
$-$ Other 2	€3.0m $(+17.3%)$
$-Spain$	$£40.4m(+11.6%)$		2.0%
- Mozambique	€1.4m (+16.2%)		1.2
Total	€110.4m (+14.7%)		0.2 $0.2\%$ $\triangle$
Total excl. Transporta	€99.8m $(+10.2%)$	9M17 9M18	9M18 9M17
E&P volumes by region (mitems)		Recurring $---$ Reported	$-1.5$ ------ Recurring $--$ Reported $-\bullet-$ Rec. EBITDA Margin

Metric	Total	Portugal excl. Portugal Transporta	Spain	Mozambique
9M18	27.1	12.5 14.4	12.7	0.05
vs. 9M17	$+15.4\%$	$+14.6%$ $+10.1\%$	$+16.4\%$	$-11.4\%$

¹ Including revenues from intra-group transactions with companies of other business units and other operating income of Portugal, Spain and Mozambique. ² Including Transporta revenues (€10.4m in Cargo & Logistics and €0.2m in Other in 9M18).

BANCO CTT: REVENUES GROWTH DRIVEN BY AN EXPANSION OF THE NET INTEREST MARGIN, AS CREDIT

TO CLIENTS AND INVESTMENTS GREW SUBSTANTIALLY

¹ Consumer credit & credit cards sold in partnership with BNP Paribas Personal Finance (Cetelem). The 9M17 revenues included a fixed commission fee of €0.8m from an insurance provider for the launch of sale of insurance ² Amount outside CTT's Balance Sheet, representing the amount of credit placed in 9M18, in partnership with BNP Paribas Personal Finance (Cetelem).

CONSOLIDATED RESULTS

$\epsilon$ million		Reported	- Recurring 1 –		Reported with Banco CTT under equity method 2
	9M17	9M18	9M17	9M18	9M17
Revenues	518.0	524.9	518.0	524.8	509.8
Operating costs	458.7	479.2	449.8	459.8	437.1
EBITDA	59.3	45.8	68.1	65.0	72.7
EBITDA margin	11.4%	8.7%	13.2%	12.4%	14.3%
Depreciations, amortisations, impairments & provisions	22.9	24.6	21.6	23.4	20.7
EBIT	36.3	21.2	46.5	41.6	52.0
Financial income / (costs)	$-3.7$	$-4.1$	$-3.7$	$-4.1$	$-3.7$
Associated companies - gains / (losses)	0.0	0.1	0.0	0.1	$-12.5$
Earnings before taxes (EBT)	32.6	17.2	42.8	37.6	35.7
Income tax for the period	13.2	7.2	17.4	15.9	16.4
Non-controlling interests	$-0.1$	0.0	$-0.1$	0.0	$-0.1$
Net profit attributable to equity holders	19.5	9.9	25.6	21.7	19.5

¹ Recurring Net profit excludes non-recurring revenues and costs and considers the effective tax rate of CTT for the period.
² Payshop migrated to Banco CTT business unit in Jan-18 (proforma figures presented for 9M17)

BALANCE SHEET

$\epsilon$ million	CTT		With Banco CTT under equity method 1
	31-Dec-17	30-Sep-18	31-Dec-17	30-Sep-18
Non-current assets	678.5	961.6	413.4	405.5
Current assets	930.3	780.4	557.3	516.1
Assets	1,608.8	1,742.0	970.7	921.6
Equity	184.0	135.4	184.0	135.4
Liabilities	1,424.8	1,606.6	786.8	786.2
Non-current liabilities	282.7	271.2	282.7	271.2
Current liabilities	1,142.0	1,335.4	504.1	515.0
Equity and Liabilities	1,608.8	1,742.0	970.7	921.6

CASH FLOW STATEMENT

		Reported			Adjusted 1
					(Excl. FS float & Banco CTT deposits and fin. assets)
	9M17	9M18	∆%	9M17	9M18	∆%	Impacted by $E25.3m$
From operating activities	289.8	89.7	$-69.1\%$	35.5	6.7	$-81.0\%$	of indemnities payments related to
Cashflow excl. FS & Banco CTT				49.0	$13.8 -$	$-71.8%$	the OTP
Banco CTT cash flow				$-13.5$	$-7.1$	47.5%
From investing activities	$-212.7$	$-202.6$	4.8%	$-23.0$	$-20.2$	12.2%
Capex payments (excl. BCTT)	$-22.3$	$-17.5$	21.7%	$-22.3$	$-17.5$	21.7%
Banco CTT Capex payments	$-5.1$	$-4.6$	8.6%	$-5.1$	$-4.6$	8.6%
Banco CTT financial assets 2	$-189.7$	$-182.4$	3.8%
Other	4.3	1.9	$-56.5%$	4.3	1.9	$-56.5%$
Operating free cash flow	77.1	$-112.9$	$-246.4%$	12.5	$-13.5$	$-208.0\%$
From financing activities	$-74.2$	$-63.3$	14.7%	$-74.2$	$-63.3$	14.7%
of which Dividends	$-72.0$	$-57.0$	20.8%	$-72.0$	$-57.0$	20.8%
Other 3	43.6	$-24.8$	$-156.9\%$	0.1	0.0	$-100.0\%$
Net change in cash	46.5	$-201.0$	$-531.9\%$	$-61.6$	$-76.7$	$-24.5%$

¹ Cash flow from operating and investing activities excluding changes in Net Financial Services payables and the following items from the Cash flow statement, all of them relating to the Banco CTT financial activity: "Ba

² Including Investment securities and other banking financial assets held by Banco CTT.

³ These figures were not considered under Cash and equivalents in the Cash flow statement. However, they are included in Cash and equivalents on the Balance Sheet. These amounts correspond to the change in sight deposits Banco CTT / clearing of cheques of Banco CTT, and impairment of sight and term deposits.

NON-RECURRING ITEMS AFFECTING EBITDA & EBIT

$\epsilon$ million		Non-recurring items -
	9M17	9M18
Recurring EBITDA	68.1	65.0
Non-recurring items affecting EBITDA	8.9	19.3	€15.8m indemnities related to the Operational
Revenues	0.0	0.1	Transformation Plan
Staff costs	3.0	16.0
ES&S & other op. costs	5.9	3.4	€2.1m of strategic studies, €0.5m of which
Reported EBITDA	59.3	45.8	related to the Operational Transformation Plan
Recurring EBIT	46.5	41.6
Non-recurring costs affecting only EBIT	1.3	1.2
Provisions (reinforcements / reductions)	$-0.3$	1.1	€1.4m provision related to Spanish Competition Authority charge
Impairments and D&A (losses / reductions)	1.5	0.1
Non-recurring items affecting EBITDA & EBIT	10.2	20.5
Reported EBIT	36.3	21.2

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