Cielo S.A. (CIOXY) This autumn 2022 Earnings Name Transcript

Cielo S.A. (OTCPK:CIOXY) This autumn 2022 Earnings Convention Name January 27, 2023 10:30 AM ET

Firm Representatives

Estanislau Bassols – Chief Government Officer

Filipe Oliveira – Chief Monetary Officer

Daniel Diniz – Investor Relations

Convention Name Contributors

Tito Labarta – Goldman Sachs

Daniel Federle – Credit score Suisse

Operator

Good morning, everybody, and thanks for ready. Welcome to Cielo Fourth Quarter of 2022 Outcomes Convention Name. With us right here in the present day we’ve Mr. Estanislau Bassols, Filipe Oliveira, Daniel Diniz and different firm’s govt officers.

This occasion is being recorded and can be being broadcast stay by way of webcast and could also be accessed by means of Cielo web site at ri.cielo.com.br/en/ the place the presentation can be accessible.

Contributors might view the slides in any order they need. The replay shall be accessible shortly after the occasion is concluded. Keep in mind that the individuals of the webcast will be capable of register by way of webcast inquiries to Cielo that shall be answered quickly.

Earlier than continuing, let me point out that forward-looking statements are primarily based on the beliefs and assumptions of Cielo administration and the knowledge at present accessible to the corporate. They contain dangers and uncertainties as a result of they relate to future occasions and due to this fact, rely on circumstances which will or might not happen. Traders and analysts ought to perceive that situations associated to macroeconomic situations, industries and different elements may additionally trigger outcomes to vary materially from these expressed in such forward-looking statements.

Based mostly on the presentation printed on the corporate web site, this convention name is opened completely for questions-and-answers, which shall be preceded by a message from the CEO of the corporate, Mr. Estanislau. [Operator Instructions].

I’ll now cross to Mr. Estanis for opening remarks.

Estanislau Bassols

Good morning, everybody. Thanks all for becoming a member of our earnings name. Earlier than leaping to Q&A, I’d wish to share a couple of ideas about our efficiency and technique going ahead.

‘22 was an impressive 12 months for Cielo. It marked a turning level wherein many indicators advanced and present how the corporate remodeled itself during the last years.

I’d like to spotlight some milestones of this journey. The conclusion of the funding agenda marketed by the MerchantE transaction, rather more than money, this funding allowed us to purely concentrate on our card markets and in addition supplied for a really lien construction. Cielo Cateno turned our solely enterprise models.

The second level I wish to spotlight is that Cielo is a extra data-driven firm, with elevated capabilities, each by way of prices and pricing. In pricing, the corporate discovered loads during the last years and used its analytical capabilities successfully. As you noticed within the repositioning, we carried out each in massive accounts and SBB segments.

On prices, we consolidated our positioning as probably the most environment friendly participant among the many listed acquirers, with the price ratio reaching the bottom degree in 2022. We now have additionally advanced in our capability to grasp our buyer wants and due to this fact adapt our constructions to higher serve them and enhance our industrial effectiveness.

Via the 12 months we noticed evolution in lots of indicators of service high quality, resembling buyer satisfaction with Cateno elevated, discount of complaints to our ombudsman, discount of complaints to the regulator channels and that led to enhancements in our NPS.

Business productiveness additionally remained in an upward development and just lately concluded the growth of our industrial staff. The monetary metrics mirror all these achievements. Our backside line reached R$490 million, the best internet revenue reported by the corporate for the reason that first quarter of ‘19. The EBITDA margin was 40%, a degree that wasn’t seen for the reason that starting of ‘18 after we had a very completely different aggressive atmosphere as in contrast as much as in the present day.

In 2023 we need to expedite and enhance the visibility over these ranges. With this agenda, we should always enhance our margin and return, bettering course of to higher serve our purchasers and curb prices and enhance the profitability of our buyer base, together with potential alternatives to optimize costs.

Again on this agenda, we’ve 5 pillars that comprehend our high strategic imperatives. The primary pillar is to be the chief and acquirer the core of our enterprise. The principle imperatives of this pillar are: First, to make sure a sound monetary place and effectivity, aiming persistent and sustainable development. Second, ship the very best of Cielo to every buyer phase. The third, excelling course of to [inaudible] our clients; and eventually, guarantee high quality of merchandise and repair within the journey of shoppers from end-to-end. Properly, this was the primary pillar.

The second is improvements inside funds. We need to full and broadly serve our buyer wants and cost options. The third is distribution of economic service. We purpose to develop our product providing with monetary service, and the fourth half associated with that is value-added service. We intend to extend the worth of our buyer base, changing into a platform of service. Lastly, the pillar that helps all of the others, we’ve individuals, expertise and knowledge supporting the entire technique.

We need to be seen as a cutting-edge expertise in cost area. Ship extra to our purchasers with knowledge pushed providing choices, expedite the event of our staff and develop the adoption of agile strategies, looking for for efficiency features unfold within the firm. And we need to do all of this, taking good care of individuals, implementing the very best company governance batches and all the time, all the time on the lookout for extra sustainable methods of doing enterprise.

As you possibly can see, we’ve an formidable agenda and we’re utterly dedicated to it. Our staff has been efficiently working in a spectacular turnaround. We now have an undisputable positioning out there, 27% of market share. We’re presenting greater than 95% of Brazilian municipalities. We now have a robust footprint in each phase of the trade. We now have been leaders in profitability and effectively.

Our staff is engaged with a robust mindset and inclusive and collaborative tradition, which has seen as ESG as a aggressive benefit. And I ought to keep in mind you that we’ve even have Cateno, a novel story of diversification of revenues in our trade, which generated money earnings of $1.4 billion in 2022, properly above internet revenue as a result of amortization of the investments made to discover the Ourocard enterprise in Banco do Brasil. Money earnings is the related metric for buyers in our view, and I’m undecided that the market absolutely understands Cateno and its money technology potential.

Our function is to be probably the most desired platform, sensible platform in Brazil e-commerce. That’s what drives our efforts and folk to achieve our imaginative and prescient. We need to be seen as the neatest platform that integrates the worth chain of our clients, delivering a broad array of service and in addition personalized options.

These are the principle messages I wish to share with you. An agenda to go additional in operational transformation in expediting the digital transformation of the corporate.

Once more, thanks all for being with us. Now, we are able to transfer to Q&A session and focus on additional our fourth quarter earnings. Thanks.

Query-and-Reply Session

Operator

Thanks, Mr. Estanis. [Operator Instructions] Our first query comes from Tito Labarta with Goldman Sachs. Please go forward.

Tito Labarta

Hello! Good morning and thanks for the decision and taking my questions. A few questions. First, in your cost volumes proper, it grew 5% within the quarter. So I imply it appears excessive degree you are sustaining share, however wanting on slide 12 in your presentation, the SMB and Lengthy Tail phase solely grew 2% on the quarter. So plainly regardless of your efforts, you are still type of possibly shedding share in that phase. Are you able to speak a bit of in regards to the form of the aggressive dynamics? Will you be capable of acquire share there in some unspecified time in the future? Any feedback and any means to reprice in that phase in any respect? After which I’ve a second query on bills afterwards. Thanks.

Filipe Oliveira

Truly Tito, its Filipe. Thanks to your query. So speaking in regards to the TPV and SMB and Lengthy Tail. It is too early to say whether or not we misplaced market share or not. One factor that is necessary to note is that within the fourth quarter of the 12 months, it is pure that SMB and Lengthy Tail performs a bit of bit worse than massive accounts. Just because Christmas and Black Friday gross sales are largely concentrated in a really massive accounts.

So it’s pure to have this discrepancy in development between the 2 mutual segments. Nonetheless, if we’re wanting within the second query concerning the share, should you’re 2023, it’s a technique to at the least keep market share in SMB and Lengthy Tail. In fact their absolutions are variations in time, that are pure, however that’s not our technique in any respect.

After which, speaking about pricing particularly on this phase, we’ve seen a big enhance in costs, already pricing in the course of the course of 2022. However nonetheless need to have a look at the P&Ls and the ROE for important rivals. We nonetheless see that the profitability out there as an entire continues to be not in sufficient ranges in our opinion, and it is nonetheless not paying the shareholder its honest quantity. So we nonetheless see area for repricing within the trade as an entire.

Cielo by itself, we did some weighting within the fourth quarter. We’re nonetheless occurring to do some weighting within the first quarter of this 12 months. However we nonetheless consider that the market wants to maneuver ahead in repricing a bit of bit additional.

Tito Labarta

Nice, thanks for that. Possibly one follow-up there simply by way of the room to extend our ROE for the sector. I imply simply given some gamers are personal and that could be much less of a spotlight for them by way of bettering profitability, significantly in funds. I imply, do you see that as a danger? Have you ever seen any of those personal rivals being extra aggressive on pricing in any respect?

Filipe Oliveira

Many of the personal rivals right here in Brazil, they’re managed by banks which are listed, and people banks have been following an ROE agenda very intently out there and a lot of the market is ROEs fairly intently. So we consider that they in all probability do not need to be diluted. Truly they’re a significant shareholder in financial institution. So I do see a few of these gamers participating in repricing in the course of the course of 2022. We now have seen that, and we nonetheless see them dedicated to reprice in 2023, and we have not seen any alerts change from them.

Tito Labarta

Okay, nice, thanks for that. After which my third query on bills, simply truly significantly on Cateno, the place bills have been down within the quarter, you talked about some provision quantities in reimbursements. Might you give a bit of bit extra shade on that? Is the extent the place you are at now, it appears to be like prefer it was at BRL 21 million within the quarter. Is that the proper degree? Assist us take into consideration how that ought to evolve from right here.

Filipe Oliveira

Positive, yeah. So we do consider that the present degree is the proper degree. We now have seen some provisioning previously that has moved round and has confused a bit of little bit of your evaluation, however we do assume that the present degree is the proper degree.

Tito Labarta

Okay, nice. Thanks very a lot.

Operator

Subsequent query comes from Daniel Federle with Credit score Suisse. Please go forward.

Daniel Federle

Good morning everybody. Thanks for taking my questions. The primary on the ambitions for brand new merchandise, proper? It appears that evidently the corporate needs to discover alternatives exterior the core enterprise, largely like credit, merchandise or software program options. I’d you want to grasp, is that this doable to proceed seeing rising effectivity, rising profitability, even exploring these new merchandise, that is the primary query.

The second is extra like a follow-up on Tito’s query on this SMB phase. The corporate expects to not lose market share this 12 months proper, however we proceed to see internet disconnections. So are you anticipating to see internet disconnections lowering or probably changing into internet additions sooner or later? And when are you anticipating these turning factors?

Filipe Oliveira

Thanks to your query. The primary level, we’re working first. We enhance the merchandise that we have already got in our core and we do consider that having a platform the place the shopper can assess their data simply and examine that data with related markets, it’ll open the doorways for brand new merchandise.

So the primary wave is, develop the monetary companies. So by way of new monetary service options, a very good instance is the large answer the place the retail can discover a simpler and largely extra secure manner of receiving by means of the PIX utilizing Cielo. The second level is we’re working to have a platform of worth added service and in addition monetary service. However the way in which we’re doing it’s doing small pilots to ensure that what we’ve, what the shopper needs, what the shopper understand that they’ll acquire by means of us are in the very best level doable. So making these, by means of small pilots, we do consider that we are able to maintain our effectivity agenda and that is what we had already been doing so to be clear.

The second level in regards to the internet disconnection. Once we see the large shopper phase or the small to medium enterprise phase and examine the primary quarter with the fourth quarter, we’ve a internet acquire. Once we see the micro firms, then we are able to see that we’re shedding firms, sure, however that is a part of our technique of not subsidize the phase.

So we do consider that we are going to have – that we’ll maintain the main focus within the small to medium companies and that we are going to maintain shedding probably a part of small retailers in our base. However year-by-year, month-by-month, the remaining very small companies that we’ve in our base are extra assist than the final cohort. So we do see that it will transfer on a regular basis.

Tito Labarta

Okay, thanks very a lot

Operator

Excuse me! This concludes todays query and reply session. I wish to invite Estanislau to proceed along with his closing remarks. Please go forward sir.

Estanislau Bassols

Properly, thanks all for being right here. 2022 was an incredible 12 months for Cielo the place we’ve been engaged on the basics that may deliver 2023 to even a greater situation. So I am happy with being a part of Cielo, and I wish to thanks all for being right here.

Operator

That does conclude Cielo convention name for in the present day. Thanks very a lot to your participation, and have an important and good day!