CTT-Correios de Portugal

Earnings Release • Mar 7, 2018

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 full year 2017 results. As a consequence thereof, this document may not be disclosed or 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 supplements, 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 or revise any of the 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 is made as to, and no 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 advisors assume liability of any 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 incorporation into or construction of 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 subsidiaries or affiliates), nor a 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 responsible for informing themselves 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 Securities Exchange 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 data presented in this 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 directors regarding the financial 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", "predicts", "intends", "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 differ materially from those 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 results of our operations, growth strategy and liquidity, and the wider environment (specifically, market developments, investment opportunities and regulatory 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 uncertainties, many 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 differ materially from those 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 they guarantees of 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 statements, whether as a result of new information, future events or otherwise.

KEY HIGHLIGHTS: Growth in revenues despite pressure on profitability as a result of higher than expected decline in mail volumes and increase in operating costs, the latter mostly related to the growth businesses Slight growth in recurring revenues Supported by positive evolution of the parcels and banking businesses and the acquisition of Transporta +0.4% Addressed mail volumes decline higher than the guidance range [-4% to -5%] Softer decline in 4Q (-4.5%), after worse than expected path in 2Q (-7.6%) and 3Q (-7.2%) -5.6% Turnaround of Tourline underway EBITDA breakeven in 4Q17 4Q17 EBITDA breakeven Recurring operating costs under pressure Mainly due to an increase in costs related to growth businesses +5.6% Banco CTT revenues contribution within guidance High single-digit million revenues, driven by Net interest income (NII) and commissions growth. Operating costs below €35m €7.6m

Recurring EBITDA in line with the revised guidance €89.9m

KEY HIGHLIGHTS: Addressed mail volumes decline normalised in 4Q17, back within the

guidance range [ -4% to -5%], while parcels volumes growth accelerated throughout the year

Parcels volumes (Quarter change YoY)

KEY HIGHLIGHTS: CTT continues to capture the trust and savings of the population;

placement of credit products is growing rapidly (from a small base)

Banco CTT indicators – credit product placements ¹ , deposits & current accounts (€ million; thousand accounts)

¹Including credit placed by Banco CTT on its own Balance Sheet and the total gross outstanding balance of credit placed by Banco CTT branches (outside Banco CTT's Balance Sheet), in partnership with BNP Paribas Personal Finance (Cetelem).

KEY HIGHLIGHTS: The Operational Transformation Plan is on target do date; launched in

4Q17 to prepare the next wave of efficiency and quality at CTT

already resulted in an increase in non-recurring op. costs in 4Q17, impacting reported earnings

2017 financial and operational performance

€ million, except when otherwise indicated

		Reported		Recurring 1
Financial indicators	2016	2017	Δ%	2016	2017	Δ%
Revenues	696.8	714.3	+2.5%	695.1	697.9	+0.4%
Operating costs	594.8	633.1	+6.5%	575.6	608.0	+5.6%
EBITDA	102.1	81.1	-20.5%	119.5	89.9	-24.8%
Net profit	62.2	27.3	-56.1%	63.9 2	40.0 2	-37.5%

	Addressed mail (million items)	Unaddressed mail (million items)	Parcels (million items)	Savings & insurance flows (€ billion)	Banco CTT current accounts (thousand)
2017 volumes	736.6	492.1	33.3	5.7	226.0
vs. 2016	-5.6%	-1.1%	+23.5%	+22.2%	+204.9%

9 ¹ Excluding non-recurring revenues of €1.8m and €16.3m in 2016 and 2017, respectively, and non-recurring costs affecting EBITDA of €19.2m and €25.1m and affecting EBIT of -€13.6m and €4.3m in 2016 and 2017, respectively. ² Considers a theoretical nominal tax rate.

KEY FINANCIALS: Slight growth in recurring revenues driven by good performance in

Express & Parcels and Banco CTT, and by the Transporta acquisition

• Mail & other revenues decrease was higher than expected, given the impact of the 5.6% addressed mail volumes decline, only partially offset by 1.9% average price increase and mix effect (growth in registered & international mail revenues)
• Express & Parcels was the main driver of growth, resulting from strong parcels volumes evolution in Spain (26.1%) and in Portugal (21.5%), including Transporta acquisition (+€8.9m revenue impact since May-17)
• Financial Services revenues decreased as volumes and revenues declined in payments (-€2.4m) and transfers (-€0.6m). The revenues decline in the savings & insurance line (-€1.7m) was mainly due to lower insurance sales
• Banco CTT revenues of €7.6m were within the guidance range, close to evenly split between NII and commissions income

¹Including income related to CTT Central Structure and Intragroup Eliminations amounting to -€31.0m in 2016 and -€33.6m in 2017. ² Excluding non-recurring revenues and Altice revenues.

KEY FINANCIALS: The recurring operating costs increase resulted, in large part, from the Transporta

acquisition and the increase in costs of the parcels and banking businesses, related to growth in activity

• Staff costs (excl. Banco CTT and Transporta) increased mainly due to higher temporary staff costs at the Distribution (related to growth in E&P) and Retail (related to growth in Banco CTT) networks (+€2.7m impact), salary revision agreed with the unions, effective Jan-17 (+€2.3m), and a lower cut vs. 2016 in the benefit associated with the telephone subscription fee (+€1.9m)
• ES&S and other costs (excl. Banco CTT and Transporta) increased mainly as a result of an increase in distribution & transportation costs at Tourline, due to volumes growth and an increase of delivery routes (+€4.8m), unfavourable exchange rate differences, also with positive impact in Mail revenues (+€2.1m), and increase in energy and fuel costs in Portugal (+€1.8m)
• 2017 non-recurring costs include items related to staff contract terminations (of which €11.9m related to the Operational Transformation Plan and €1.1m in Transporta) and strategic studies (€9.3m, of which €3.8m in Banco CTT)

KEY FINANCIALS: CTT continues to be very dependent on Mail EBITDA, as the

contribution to profitability of the growth levers (parcels & banking) is still building up

• The decline in Mail recurring EBITDA was mainly a result of the increase in staff and energy & fuel costs and the decrease in Mail revenues (as a function of higher than expected volumes decline)
• The decline in Financial Services EBITDA was a result of worse than expected revenues performance, especially in payments and insurance

Cash flow
€ million; % change vs. prior year		Reported			Adjusted 1	(Excl. FS float & Banco CTT deposits and fin. assets)
	2016	2017	∆ %	2016	2017	∆%
From operating activities	268.2	291.1	+8.5%	23.7	44.3	+86.6%
Cash flow excl. FS & Banco CTT				43.6	67.3	+54.4%
Banco CTT cash flow				-19.8	-23.0	-15.9%
From investing activities	-185.6	-240.4	-29.5%	-20.8	-5.8	+72.1%
Capex payments	-29.5	-31.2	-5.8%	-29.5	-31.2	-5.8%
of which Banco CTT				-10.0	-5.4	+46.1%	Sale of former
Banco CTT financial assets	-164.8	-234.6	-42.4%				head office
Other	8.7	25.4	+192.8%	8.7	25.4	+192.8%
Operating free cash flow	82.6	50.6	-38.7%	2.9	38.5	>>
From financing activities	-72.4	-71.9	+0.7%	-72.4	-71.9	+0.7%
of which Dividends	-70.3	-72.0	-2.5%	-70.3	-72.0	-2.5%
Other	5.0	29.3	>>	0.0	0.1	-
Net change in cash	15.2	8.0	-47.1%	-69.5	-33.3	+52.1%

2017 capex reached €28.5m, within management guidance; cash capex payments stood at €31.2m

¹Cash flow from operating and investing activities excluding changes in Net Financial Services payables of -€1.1m (2016) and -€57.6m (2017), and the following items from the CF statement, all of them relating to Banco CTT financial activity: "Banking customer deposits and other loans", "Credit to bank clients", third parties' "Other operating assets and liabilities" regarding Banco CTT, "Financial assets available for sale", " Investments held to maturity", "Deposits at the Bank of Portugal" and "Other banking financial assets".

KEY FINANCIALS: Strong Balance Sheet with net financial cash equal to €163m at the

end of the year

Balance Sheet – 31 December 2017

Liquidity position (current assets / current liabilities) = 81%

1 Including Financial Services receivables of €9m and €4m as at Dec-16 and Dec-17, respectively.

2 Including €48m of Banco CTT own cash.

fuel costs put strong pressure on Mail EBITDA

-5.4%

-5.6%

-7.6%

-5.6%

vs. 2016

+1.9%

-1.1%

BUSINESS UNITS: Strong parcels volumes growth in Portugal, helped also by the Transporta

acquisition, and especially in Spain, drove slight like-for-like earnings & margin improvement in E&P

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 in 2017 (€8.8m in Cargo & Logistics and €0.1m in other).

³ Million items.

BUSINESS UNITS: Continued payments business weakness, as a result of volumes decline &

competitive price pressures, and lower insurance placements impacted FS revenues

FS volumes by type

Metric	Savings & insurance placements (€bn)	Payments (m ops)	Money orders & transfers (m ops)	Credit (€m; excl. Banco CTT)
2017	4.0	53.7	17.5	6.8
vs. 2016	+6.0%	-6.8%	-5.7%	-34.1%

BUSINESS UNITS: Banco CTT results were within expectations, with customer acquisition remaining

strong, consumer credit and mortgage products gaining traction, and NII accelerating throughout the year

¹ Partnership with BNP Paribas Personal Finance (Cetelem).

² Amount outside Banco CTT's Balance Sheet, representing the total gross outstanding balance of credit placed by Banco CTT branches, in partnership with BNP Paribas Personal Finance (Cetelem).

2018 OUTLOOK: Goal of slight growth in revenues and stable recurring EBITDA levels; the

Operational Transformation Plan to have a significant impact on dividend policy in the short term

REVENUES & VOLUMES	Slight increase in revenues, supported by continued growth of the parcels and banking businesses
	Decline in addressed mail volumes expected to be in the [-5% to -6%] range
OPERATING COSTS	Operational Transformation Plan initiatives with an estimated c.€20m impact on non-recurring operating costs in 2018
& EBITDA	FY18 recurring EBITDA around FY17 levels, contingent on mail volumes development and Financial Services evolution (the latter currently significantly under pressure)
	€35m of Capex, part of which related to the Operational Transformation Plan. Balance Sheet optimisation measures (sale of non-core real estate assets) with positive contribution to earnings & cash flow
CAPEX & DIVIDEND	The Board of Directors proposes a dividend of €0.38 per share for FY17, payable in May-18, subject to AGM approval
	During the period of implementation of the Operational Transformation Plan (2018-2020), the Company will revert to its previous policy of shareholder remuneration as a percentage of the generated yearly net profit

The outlook is based 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 Company in 2018

€ million
	2016	2017
Recurring EBITDA	119.5	89.9
Non-recurring items affecting EBITDA	-17.4	-8.8
Revenues	+1.8	+16.3
Staff costs	-10.0	-14.7
ES&S & other op. costs	-9.2	-10.5
Reported EBITDA	102.1	81.1
Recurring EBIT	94.7	60.2
Non-recurring costs affecting only EBIT	+13.6	-4.3
Provisions (reinforcements / reductions)	+15.1	-1.3
Impairments and D&A (losses / reductions)	-1.5	-3.0
Non-recurring items affecting EBITDA & EBIT	-3.8	-13.1
Reported EBIT	90.9	47.1

Completion of the sale of former head office in 4Q17

Non-recurring staff costs mainly include:

• -€11.9m related to the Operational Transformation Plan
• -€1.1m in Transporta

Non-rec. ES&S & other op. costs mainly include:

• -€9.3m of costs related to strategic studies (of which €3.8m for Banco CTT)
• -€0.6m fee on the sale of former head office

-€1.7m of provisions related to the optimisation of the Retail Network (Operational Transformation Plan)

-€1.1m of impairments related to Mailtec

€ million		Reported Recurring 1				Banco CTT under equity method
	2016	2017	2016	2017	2016	2017
Revenues	696.8	714.3	695.1	697.9	696.5	708.0
Operating costs	594.8	633.1	575.6	608.0	569.0	602.7
EBITDA	102.1	81.1	119.5	89.9	127.5	105.3
EBITDA margin	14.6%	11.4%	17.2%	12.9%	18.3%	14.9%
Depreciations, amortisations, impairments & provisions	-11.2	-34.0	-24.8	-29.7	-9.6	-31.1
EBIT	90.9	47.1	94.7	60.2	117.9	74.2
Financial income / (costs)	-5.9	-5.0	-5.9	-5.0	-5.9	-5.0
Associated companies - gains / (losses)	0.2	0.0	0.2	0.0	-21.2	-21.3
Earnings before taxes (EBT)	85.2	42.1	89.0	55.2	90.8	47.9
Income tax for the period	-23.3	-15.0	-25.4	-15.4	-28.9	-20.7
Non-controlling interests	-0.3	-0.1	-0.3	-0.1	-0.3	-0.1
Net profit attributable to equity holders	62.2	27.3	63.9	40.0	62.2	27.3

€ million	CTT			Banco CTT under equity method
	31-Dec-16	31-Dec-17		31-Dec-16	31-Dec-17
Non-current assets	452.6	678.5		393.2	408.3
Current assets	864.1	930.3		669.9	567.6
Assets	1,316.7	1,608.8		1,063.1	975.9
Equity	233.3	184.0		233.3	184.0
Liabilities	1,083.4	1,424.8		829.8	791.9
Non-current liabilities	269.5	282.7		269.5	282.7
Current liabilities	813.8	1,142.0		560.3	509.2
Equity and Liabilities	1,316.7	1,608.8		1,063.1	975.9