CTT CORREIOS DE PORTUGAL, SA CONSOLIDATED RESULTS JANUARY TO SEPTEMBER 2013

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1 CTT CORREIOS DE PORTUGAL, SA CONSOLIDATED RESULTS JANUARY TO SEPTEMBER 2013 Sharp Slowdown in the Reduction of Operating Revenues. Transformation Programme proceeds with Growing Impact in Results. o Express and Parcels reverse Drop Trend of the last years; o Cost Reduction in Mail overcomes Drop in Revenues. Two-digit Growth in Operating Income (27%) and Net Profit (28%); EBITDA grows by 12.6% to 93.3M, with the contribution of positive non-recurring results (net savings of 6.2 M ). Recurring EBITDA grows by 10.6% to 87.1 M, with Mail contributing 68%, Financial Services 23% and Express and Parcels 7%. Net profit of 45.2 M (+27.7% than in 2012 when net profit totalled 35.4 M ). Operating revenues of M (-1.8%), with Mail contributing 71%, Express and Parcels 18% 2 and Financial Services 8% 2. Operating Costs reduced by 3.9% to M, more than the reduction in Revenues, despite the reintroduction of the Christmas salary bonus in % reduction in total staff (to 13,010), through retirements and non-renewal of fixedterm contracts, as a result of the Transformation Programme. Strong levels of financial standing preserved and liquidity levels grew. Quality and customer satisfaction stay at high levels is a quite unique year for CTT, during which a new Transformation Programme is being implemented and the Privatization Process is under way. In this context, the first nine months were a very active period, during which the Transformation Programme was intensively carried out (to a level beyond the target for the period), and the Privatisation Process intensified as of June, after the selection of the financial and legal advisors. The action priorities were defined as follows: Maintain leadership in the mail and parcels market and promote a regulatory framework that fosters Universal Postal Service sustainability; Maintain efficiency through continuous transformation programmes; Before revenues and non-recurring costs. Revenues used to calculate the weight per business segment do not include the central structure and intra-group eliminations. Excluding impairments, provisions and depreciations, and non-recurring costs. 1

2 Strongly consolidate and develop the express and parcels business to seize market growth, especially in e-commerce; Strengthen and promote a wider financial services platform by offering new and better products. To support this strategy, CTT counts on its competitive advantages such as the postal delivery network and the retail network with wide coverage, and a consumer-trusted brand with a strong reputation in the marketplace. With the new organisational structure in place at the beginning of this year, very relevant steps were taken in implementing the Transformation Programme pursuant to the above mentioned action priorities. All activities are aligned with the targets of i) reinforcing the profitability and value of CTT, a profitable company with a solid balance sheet and a high cash flow generation capacity, ii) ensuring the sustainability of the universal postal service, iii) guaranteeing high quality of service and proximity to the populations, and iv) promoting quality jobs, matching the work needs and the existing workforce at each moment. 1. OPERATING ACTIVITY BUSINESS AND REVENUE EVOLUTION Mail IT growing development and high levels of adoption are driving electronic substitution in communications, leading the progressive decline of the use of physical mail as a support of written communication. This structural trend, which drove to a -5.2% average annual drop in addressed mail traffic in the period, was amplified by the serious economic downturn and resulted in a -8.8% fall in By the end of the third quarter of 2013, a year-on-year -7.4% fall in traffic, though higher than the average until 2011, seems to indicate the possibility of an inflection in the deterioration trend, similarly to macroeconomic data already published. This traffic reduction occurred in domestic transactional mail, which from January to September 2013 had a decrease of -6.9% in comparison to the same period of 2012, as a result of the negative evolution of ordinary mail (-8.3%), priority mail correio azul (-0.8%) and green mail/correio verde (-1.5%), which was not offset by the rise in registered mail volumes (6.1%). The same trend was observed in editorial mail (-9.8%) and in international mail (-6.5%), both inbound (-5.9%) and outbound (-7.0%). Finally, advertising mail volumes also decreased: i) significantly the addressed relational marketing, with a year-over-year drop of -13.5%, and ii) very slightly in unaddressed mail, with a -0.7% reduction. The crisis led the customers to advertise less and the competition from other media to be even more aggressive. 2

3 On 1 April 2013 new prices for the Universal Postal Service came into force. The main differentiating elements were a clearer distinction in prices for private customers and zonal pricing for bulk mail. As far as these new prices are concerned, on 1 November 2013 new rates for the 1 st weight step of domestic ordinary mail will enter into force for the private customers segment, and also for the special regime of international economy mail. Worth mentioning is also the new Editorial Mail Agreement, effective since 1 June 2013, as well as the new direct mail postage rates, in force since 1 July These price adjustments aim to mitigate the effects in income of the drop in postal traffic. With regard to the provision of public services (SGEI) by the CTT Retail Network, a protocol was entered into with the Government for the creation of Citizen s Bureau areas in the retail network. Express and Parcels From January to September 2013, the Express and Parcels traffic grew by 8.9% and revenues by 0.3% to 95.1 M, thus breaking the drop trend of previous periods. A wide range of initiatives were undertaken as part of the deep strategic redefinition laid down for the Transformation Programme. In commercial terms, the following should be highlighted: i) activity reorganisation (including increased connection with the remaining CTT businesses); ii) the acquisition of new franchisees in delivery areas and the growth of our own network with impact on the acquisition of direct Customers and on a bigger control over the operations; and iii) the start of the implementation of convenience networks for the collection and delivery of parcels for the B2C market. In this area, important steps were taken in the design of competitive products suited to the evolving customer needs, with offers addressed to the various market segments, and to a greater integration of both Iberian operations. In Portugal, CTT handled 8.7 million items in the first nine months of 2013 (0.8% more than in the same period of last year) and maintains the leadership in the domestic market with a market share of 28.7% in the 2 nd quarter of 2013 (source: ANACOM). In Spain, in the first nine months of 2013 postal traffic was 9.6 million items, representing a 17.7% growth year-on-year. Average price per item decreased in Portugal, given the customers increased concerns with costcutting and their option for lower value or with extended delivery time products such as EMS Bank, which impacted the decrease in revenues. In Spain, where higher unit price products have a lower weight in the global mix, a less marked fall in average price per item also took place, and revenues grew despite the unfavourable macroeconomic environment. In Mozambique, the development stage of our activity and the strong growth of the country were responsible for the 36.6% growth in revenues. To be noted is also the start of the expansion of the Express and Parcels pick-up/drop-off network through a partnership entered into in the beginning of October with Worten, a major 3

4 Portuguese retailer (also with significant presence in Spain). This pick-up/drop-off network will allow CTT to provide, besides its widespread Retail network present all over the country, a more convenient network with extended opening hours in shopping centres and local supermarkets. CTT manages thus to have a global offer for final customers, with options of delivery at home, at the workplace, at a nearby CTT post office or at any Worten shop after labour hours. Financial Services During this period CTT Financial Services made significant progress in the expansion and consolidation of the product offer and in strengthening its position as reference financial operator in the Portuguese market. The revenues of this business segment grew by 1.1% on the same period to 44.1 M. It is important to mention that although this is a slight growth, it occurred at a time when the financial sector is in strong contraction due to the crisis. Special mention should be made to the evolution of savings products, which grew to 1.2 billion Euros, a 112% steep raise compared to the same period of last year. This performance is due to the competitiveness of the marketed products and the strong commitment of the Retail Network, supported by incentive and promotion programmes on savings placement. Besides these factors, it is also worth mentioning strengthening of communication, the trust in CTT Brand as well as the strong customers bond with the CTT Network. As far as Portuguese sovereign debt securities, e.g. Postal Savings Certificates, are concerned, placement rose substantially by 200.5%, as a result of improved remuneration conditions of the product (EURIBOR+2.75%) offered by the State as of 31 August 2012 and in force until Growth in capitalisation insurance and pension savings products (PPR) sales amounted to 414 million Euros, representing a growth of million Euros compared to January to September 2012, a significant strengthening of CTT s position within this competitive market. Worth mentioning is also the strong position of CTT in the service payment market, with 54 million transactions involving over 4.8 billion Euros in the CTT retail network. This clearly shows the reversal of the downward trend in terms of tax collection, the revenues of which grew by 2.1% and made CTT reach a significant 17% market share during the main period of collection of the Municipal Tax over Real Estate (IMI), in April (Source: Budget Implementation Summary Directorate-General for the Budget). Reviewed partnership agreements were concluded with Fidelidade (the leading insurance company in Portugal) to sell capitalization insurance products, with IGCP to sell Certificados de Aforro (retail Portuguese sovereign debt), with Western Union for international money transfers and with Estradas de Portugal to support (and increase customer convenience) toll payment. All these agreements contributed to increase the stability of the partnerships and to align CTT remuneration scheme (commissions) with the market conditions, creating adequate incentives to grow sales and all parties added profitability for both partners. 4

5 2. ECONOMIC AND FINANCIAL ANALYSIS Revenues The trends above mentioned drove to total revenues of M, a year-on-year decrease of -1.8% (-9.3 M ). This revenue reduction is the result of the sector structural pressures, the gradual liberalisation of the market and the recessive economic environment, which put pressure on large business customers to reduce costs and produced a lower level of economic activity. Consolidated revenues Million Euros Jan. to Sept Jan. to Sept % Total revenues % Business Segments % Mail % Express and Parcels % Financial Services % Business Solutions % Central structure and intra-group eliminations % Despite the adverse environment which contributed to the 2.9% decrease in Mail revenues, those of Express and Parcels and Financial Services grew by 0.3% and 1.1%, respectively. The lower values of the heading Central Structure and intra-group eliminations, of an internal nature, are due to cost-cutting and higher efficiency in central services and the consequent lower income resulting from their internal allocation. EVOLUTION OF OPERATING COSTS In Mail, during the 1 st nine months of 2013 the processing, transport and delivery structures were integrated and optimized, delivery activities performed by CTT staff were strengthened and outsourcing reduced, the Retail Network was optimized by reducing own branches (post offices) and increasing the number of partnership branches (postal agencies), maintaining its capillarity and proximity, and continuing to provide services to the citizens in an economically efficient and sustainable manner. The goal of these initiatives has been achieved: to reduce the company s See footnote3 on page 1. 5

6 fixed costs, adapting it to the declining mail volume and increasing its flexibility, without either damaging its proximity to the population or its quality of service. On 30 September 2013, CTT had 2,520 sales points, of which 624 were own branches (post offices) and 1,896 were partnership branches (postal agencies); it also had 304 Postal Delivery Offices and operated 3,019 vehicles. In Express and Parcels, specialised delivery networks were merged and optimised, outsourcing contracts were widely renegotiated and sorting centres centralised and optimised, new partners for international traffic were introduced, and in Spain, as it already happens in Portugal, commercial and operational activities were centralised and clearly split. As a result of the implemented measures, consolidated operating costs totalled M, M (-3.9%) compared to those registered until the end of the 3 rd quarter of 2012, reflecting CTT s cost-cutting measures that more than offset the added cost of reintroducing the Christmas salary bonus in 2013 (this alone represented a cost increase over 3%). STAFF Human resources management kept the priorities of i) maintaining a sound social environment, ii) continuous investment in training and qualification and iii) optimisation of the workforce, with a view to respond to the market evolution and challenges faced by CTT. The necessary headcount reduction was carried out by not replacing retired employees, reducing of the number of fixedterm employees and negotiating termination agreements with employees who wish to leave the company. Additionally, conditioned employees were re-evaluated to assign them to more adequate jobs in the CTT group companies and businesses. As a result of the necessary policy of adjustment of human resources to the evolution of the market as at 30 September 2013, the number of CTT employees (permanent and fixed-term employees) came to 13,010, less 894 (-6.4%) than on 30 September This includes 7,293 operations staff (of which circa 5,500 are delivery postmen) and 2,749 from the Retail Network. 6

7 CTT Staff r 2013/2012 Mail 7,538 7, % Express and Parcels 1,168 1, % Financial Services % Business Solutions % Retail Network 2,749 3, % Other 1,119 1, % Total, of which: 13,010 13, % Permanent employees 11,804 12, % Fixed-term contracts 1,206 1, % Particular emphasis should be given to the company option to insource the services of hygiene and safety at work. Concluding a long and demanding negotiation, an agreement was reached with all the trade unions that took part in the negotiations and a single Company Agreement was signed in March The signature of a single Company Agreement contributes to simplify the management, to better social climate and more stable collective labour relations, all of which are fundamental elements for the new challenges arising from full market opening. It also allows for harmonised working conditions. RECURRING EBITDA In the first nine months of 2013 the operating activity of the Group generated a recurring EBITDA of 87.1 M, equivalent to a margin of 16.8%, 1.9 p.p. higher than in the same period of The recurring EBITDA produced from January to September 2013 was 8.3 M (+10.6% above that of the same period of last year), although in 2013 it incorporates the payment of the Christmas salary bonus which was not paid to the employees in This evolution in operating income occurred because the decrease in income (when comparing the three quarters of 2013 with the corresponding period of 2012) was lower than the cost reduction achieved, even if it had to take into account the reintroduction of the Christmas salary bonus. EBITDA, including non-recurring revenues and costs was 93.3 M, which is 12.6% over that of 2012, thus allowing to reach a 17.9% EBITDA margin. In this period the management achieved non-recurring savings by reviewing some benefits granted by the company and adapting them to the market conditions. Despite being non-recurring, these savings are possible (in 2012, similar See footnote 1 on page 1. 7

8 savings of a lower amount were obtained) due to a strategy of continuous review of costs and their nature. Revenues and EBITDA 1 by Business Segment In terms of business segments, the mail business recurring EBITDA grew considerably given that the Transformation Programme envisaged cost and operational efficiency initiatives for this area, the results of which can be more rapidly achieved. In Express and Parcels and in Financial Services, the same Programme foresaw measures with impact focused on revenues and mediumterm results. Those impacts take longer to materialise and depend on market conditions. The results as at September 2013 show the growing impact of all the initiatives, targeting both costs and revenues, of the Transformation Programme. As this is a programme developed over time, new initiatives are already being implemented but the results are showing up this year but will also have important impacts in 2014 and This is the case of the IT transformation measures, which aim to improve the CTT offer and services and control IT and communications costs. RECURRING EBIT 1 AND NET PROFIT Operating income (recurring EBIT) increased by 3.6 M (+6.0%) to 63.9 M. EBIT margin was 12.3%, above that of last year (11.4%). 1 See footnote 1 on page 1. 8

9 Consolidated profit amounted to 45.2 M, which represents a positive evolution of 9.8 M (27.7%) vis-à-vis the previous year. This corresponds to a 8.7% net consolidated operating income margin. The net profit highest growth was due to the non-recurring income, which in 2012 was negative, while in 2013 it contributes positively to the results. Tax on accounted profits came to 19.6 M, corresponding to an effective tax rate of 30.2%. To summarise, CTT Correios de Portugal, S.A. consolidated income statement for the 1 st nine months of the financial year of 2013 is as follows: Million Euros Consolidated Income Statement Jan. to Sept Jan. to Sept Revenues 520,0 529,3-1,8 Sales and Services Rendered 509,7 520,2-2,0 Other Revenues 10,2 9,1 12,8 Operating Costs 3 432,9 450,5-3,9 Consolidated EBITDA 1 87,1 78,8 10,6 Amortisation, depreciation, provisions and impairments 23,2 18,5 25,7 Consolidated EBIT 1 63,9 60,3 6,0 Non-recurring Costs and Income 3,2-7,3 143,5. With impact on EBITDA 6,2 4,0 52,8. With impact on EBIT -3,0-11,3 73,9 Earnings Before Interest and Taxes 67,0 52,9 26,6 Net Interest Income -2,2-2,5 12,2 Gains/Losses from Associated Companies 0,0 0,2-90,5 Earnings Before Taxes (EBT) 64,9 50,6 28,1 Income Tax 19,6 15,1 29,8 Losses (Profits) Attributable to Non-controlling Interests -0,1-0,2 53,4 Net Profit attributed to the Shareholder 45,2 35,4 27,7 % The consolidated income for this period, despite being higher than that of 2012, reflects the reintroduction of the costs regarding Christmas salary bonus paid to most of the employees. In 2012 most of the employees did not receive any of the bonuses. The costs regarding the holiday bonus are included in the January to September 2012 accounts, the corresponding payment occurring only in 2013, but costs related to the Christmas bonus were not included in This fact is very relevant to realise the high impact that the on-going Mail-focused Transformation Programme had on the CTT cost structure. See footnote 1 on page 1. See footnote 3 on page 1. 9

10 CONSOLIDATED FINANCIAL ANALYSIS The comparison of the statements regarding the financial positions on 30 September 2013 and 31 December 2012 shows an increase in the net assets of CTT and its subsidiaries of M to 1,171.4 M, as a result of: an increase in liquid assets and short term cash investments (120.8 M ; +24.7%) and a decrease of tangible and intangible assets, and investment property of about 12.8 M since the investment effort did not compensate for the amortisation for the period. Thousand Euros D % 13/12 Non-current Assets Current Assets Total assets Equity Total liabilities Non-current Liabilities Current Liabilities Total Equity and Liabilities D % 13/12 Current Liquidity Ratio 136.1% 131.1% 5.0 p.p. Solvency ratio 29.2% 27.3% 1.9 p.p. Net Debt (M ) * Net Debt/EBITDA -2,4 x -2,4 x - Fixed Assets Coverage Ratio 240.0% 227.0% 13.0 p.p. Average Payment Period (days) * If negative, it means a positive cash position Consolidated Balance Sheet and Key Figures With regard to liabilities of M ( M than in December 2012), it is important to highlight the increase in the accounts payable heading ( M ) which results mostly from the increase in the creditors (mainly IGCP) totalling around 135 M. Liabilities with employee benefits at the end of the 3 rd quarter of 2013 came to M, 2.9% less than in December 2012 and include the global liabilities of CTT with future expenses associated to post-retirement health benefits (258.4 M ) and the long term liabilities with other employee benefits that amount to 36.1 at the end of the 3 rd quarter of At the end of the 3 rd quarter of 2013, equity totals M, having decreased 3.2% (8.7 M ) when compared to December 2012 by using part of the free reserves for the distribution of dividends relative to 2012 (50 M were distributed for a net profit of 38.6 M ). The company s 10

11 retained earnings can be distributed should the shareholders opt for a higher return than the net profit. 3. QUALITY OF SERVICE CTT continued to present high quality of service levels until September 2013, with the OSQI Overall Service Quality Indicator registering points, compared to a target of 100. Such figures were attained despite the negative impact that some labour strikes, particularly the national strike of 27 June. The quality targets defined by the EU Directive for the postal sector were largely exceeded in the Portuguese case (Source: International Post Corporation). Results are shown in the table below: Quality Level Target Minimum Score Priority Mail % Delivered on the following day (Mainland) % Delivered within two days (Azores and Madeira) % Delivered within ten days Ordinary Mail % Delivered within three days % Delivered within fifteen days Newspapers and Periodicals % Delivered within three days International Mail % Delivered within three days % Delivered within five days Parcels % Delivered within three days Waiting time at post offices % Customers assisted within 10 minutes CTT continued the effort to maintain integrated management systems that include environment and safety in addition to quality, and all existing ISO certifications were maintained, with special attention to ISO 9001 applied to the management system of the quality of service indices. In the field of the service certification process, expansion efforts were maintained aiming to obtain certification for all the post offices and postal delivery offices in Internal indicators, except for international mail, which are preliminary and were provided by the UNEX system of the International Post Corporation. 11

12 The Committed to Excellence level, set within the scope of the Excellence Model of the European Foundation for Quality Management (EFQM), was maintained for the entire mail delivery and retail network, both in the Mainland and in the Autonomous Regions (Azores and Madeira). The good operational performance levels achieved by CTT have resulted in a positive perception of service quality by customers. Customer surveys undertaken by the company show that almost 80% of the customers visiting CTT post offices have classed postal service quality as good or very good, thus strengthening the CTT brand image. 4. DIVIDENDS The General Meeting of 30 May 2013 approved the dividend distribution in the amount of 38,554,129 Euros related to the financial year of 2012, which corresponded then to 2.20 Euros per share. In addition, the shareholder approved the extraordinary dividend distribution in the amount of de 11,445,871 Euros (then 0.65 Euros per share). The payment to the shareholder was made in June REGULATORY INITIATIVES IN COURSE IN THE POSTAL SECTOR The initiatives in course in terms of regulatory framework fit within the new Postal Act (Law no.17/2012, of 26 April), which transposed into national law the 3th Postal Directive (Directive 2008/6/EC). The regulatory framework defined by this law, which marks the start of the full opening of the postal sector in Portugal, together with the guarantee of free competition in the postal market, also ensures the continuity of a high quality universal service and full national coverage, setting CTT-Correios de Portugal, S.A. (CTT) as incumbent till In the beginning of October 2013, the Council of Ministers approved amendments to the diploma that introduced the full liberalisation of the postal sector, as well as the amendment of the diploma concerning the basis of the concession of the universal postal service, in compliance with the Postal Law. This legislative initiative intends, namely, (i) to identify the future contributors to the compensation fund that will compensate the universal service operator for the unfair financial burdens arising from its obligations, by extending it to companies that offer universal service interchangeable products; (ii) to establish the rules and the process to determine the density of the postal network; and (iii) to set up rules for special prices and other applicable requirements to the universal postal operator. Regarding the universal service funding, and considering that the provision of reserved postal services as funding means has been abolished, the new legal framework foresees that this funding is to be made through a compensation fund maintained by the providers of interchangeable 12

13 universal postal products and services (the functioning will be defined by law-decree) and also contains guidelines regarding the calculation of the net cost of universal service. According to the same legal framework applicable to compensation of the net cost of universal service, its funding can only be activated when the net cost constitutes an unfair financial burden for the universal service provider. Within this context, on 11 July 2013, the regulatory authority (ANACOM) submitted to public consultation two decision projects regarding the methodology for the calculation of the net cost of universal service rendered by CTT as universal service provider, and regarding the unfair financial burden concept for compensation of the net cost of universal postal service purposes, as well as the underlying terms to its determination. Regarding the pricing regime, according to the provisions of Postal Law, ANACOM by the draft decision issued on 29 July 2013, defines the criteria of fixing the universal service prices to be complied with by CTT, as designated universal service operator. These criteria will revoke the rules of fixing prices laid down in the Universal Postal Service Price Convention signed between CTT and ANACOM on10 July 2008 (with the amendments introduced on 9 July 2010), which are temporarily in force. This draft decision takes into account in the price increase formula both the inflation rate and a traffic fall linked factor, in order to ensure the sustainability and profitability of the USO provider. 6. SGEI: CITIZEN S BUREAUX AREAS With regard to the provision of public services (SGEI) by the CTT Retail Network, it is to be highlighted the signature of a protocol with the Government for the creation of Citizens Bureaux areas in the retail network. A pilot will start on 1 December 2013 in Lisbon metropolitan area and will gradually be extended to all CTT counters. The Government intends to set up 1,000 Citizen s Bureaux areas, having CTT as main partner with its 624 post offices. The economic operating model as well as the operational issues and needed investment are still to be agreed by the parties. To renew driving licenses, request Social Security declarations, land registry certificates, or exemption from Municipal Tax over Real Estate, deliver IRS declarations, or enrol students in schools are some of the tasks that can be performed in these areas. 7. PRIVATIZATION AND POSTAL BANK The Privatisation Process started as scheduled in the 2 nd quarter of 2013 with the choice of the financial and legal advisors of the Government/ Parpública and CTT. On 25 July 2013, the Council of Ministers approved the Decree-Law governing the privatisation of CTT, published as Decree- Law nº 129/2013 on 6 September 2013, which rules the sale of CTT shares through either an 13

14 M&A process or an IPO. It also sets up the sale of a maximum of 5% of shares to employees of CTT and its subsidiary companies. The Council of Ministers, in the meeting of 10 October 2103, approved the conditions of public offering and the specifications of the institutional direct sale, as well as the special conditions of acquisition that the employees of CTT and CTT group subsidiary or affiliated companies. Parpública was thus authorized to sell a number of representative shares up to 70% of the Company share capital through the following operations: initial public offering (IPO) within the domestic market; direct sale to a number of financial institutions, which will be obliged to distribute the shares in the capital markets. From the IPO shares, a percentage of up to 5% will be reserved for purchase by employees. The sale price within this reservation will benefit from a 5% discount on the price set by the resolution of the Council of Ministers for the shares offered to the public in general. CTT is actively and closely cooperating with its shareholder to ensure the execution of the transaction, working with the commitment of a vast internal team and the support of the strategic, financial and legal advisors, and the collaboration and support of its auditors. Following an in-depth study and analysis with the support of strategic consultants on the opportunity and feasibility of the set-up of the postal bank, CTT submitted the necessary application to the Bank of Portugal on 5 August This project, which is consistent with the business structure of most European postal operators and is a longstanding ambition of the company, identifies and quantifies a market opportunity that, if authorized, will represent an option for CTT after its privatization, bearing in mind the privatization process governed by the Decree-Law approved on 25 July 2013 by the Council of Ministers. The Portuguese Government expressed the willingness to incorporate in the privatisation process of CTT the opportunity of the creation of a postal bank. This option will be evaluated in the scope of the initiatives foreseen for the expansion of Financial Services in CTT, given that there are products that can be offered by CTT without the need to create the Bank, as is the case of consumer credit intermediation/credit card activities. 8. FINAL NOTE This press release is based on the consolidated financial statements for the nine-month period ended 30 September 2013 of CTT Correios de Portugal, S. A. with limited review by auditor registered with the Portuguese securities market commission (CMVM). Lisbon, 25 October 2013 The Board of Directors 14

15 THIS PRESS RELEASE AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE IN, OR INTO, DIRECTLY OR INDIRECTLY, THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND POSSESSIONS), CANADA, JAPAN OR AUSTRALIA OR TO ANY OTHER JURISDICTION WHERE SUCH AN ANNOUNCEMENT WOULD BE UNLAWFUL. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN. Forward-Looking Statements This press release contains forward-looking statements. All statements other than statements of historical facts included in this press release, including, without limitation, those which reflect our current views or, as appropriate, those of our directors, with respect to financial performance, business strategy, plans and objectives of management for future operations are forward looking statements. Statements that include the words expects, intends, plans, believes, anticipates, will, targets, may, would, could, continue and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements included in this press release 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 these materials reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the our results of operations, growth strategy and liquidity. Any forward-looking statements speak only as at the date of this press release. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise. 15