Cielo S.A. (OTCPK:CIOXY) This fall 2022 Earnings Convention Name January 27, 2023 10:30 AM ET
Firm Representatives
Estanislau Bassols – Chief Govt Officer
Filipe Oliveira – Chief Monetary Officer
Daniel Diniz – Investor Relations
Convention Name Members
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 at present we now have Mr. Estanislau Bassols, Filipe Oliveira, Daniel Diniz and different firm’s govt officers.
This occasion is being recorded and can also be being broadcast dwell through webcast and could also be accessed by means of Cielo web site at ri.cielo.com.br/en/ the place the presentation can also be accessible.
Members could view the slides in any order they need. The replay will probably be accessible shortly after the occasion is concluded. Keep in mind that the contributors of the webcast will have the ability to register through webcast inquiries to Cielo that will probably be answered quickly.
Earlier than continuing, let me point out that forward-looking statements are based mostly on the beliefs and assumptions of Cielo administration and the data presently 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 could not happen. Buyers and analysts ought to perceive that situations associated to macroeconomic situations, industries and different elements might additionally trigger outcomes to vary materially from these expressed in such forward-looking statements.
Primarily based on the presentation printed on the corporate web site, this convention name is opened solely for questions-and-answers, which will probably 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 prefer to share just a few ideas about our efficiency and technique going ahead.
‘22 was an impressive yr for Cielo. It marked a turning level by which many indicators advanced and present how the corporate reworked itself over the past years.
I’d like to spotlight some milestones of this journey. The conclusion of the funding agenda marketed by the MerchantE transaction, way more than money, this funding allowed us to purely give attention to our card markets and in addition offered for a really lien construction. Cielo Cateno grew to become our solely enterprise items.
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 realized lots over the past 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 associated fee ratio reaching the bottom stage in 2022. We’ve additionally advanced in our capability to know our buyer wants and due to this fact adapt our buildings to higher serve them and enhance our industrial effectiveness.
Via the yr we noticed evolution in lots of indicators of service high quality, reminiscent of 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.
Industrial productiveness additionally remained in an upward pattern and just lately concluded the growth of our industrial crew. The monetary metrics replicate all these achievements. Our backside line reached R$490 million, the very best internet earnings reported by the corporate for the reason that first quarter of ‘19. The EBITDA margin was 40%, a stage that wasn’t seen for the reason that starting of ‘18 after we had a totally totally different aggressive setting as in contrast as much as at present.
In 2023 we wish to expedite and enhance the visibility over these ranges. With this agenda, we should always enhance our margin and return, enhancing course of to higher serve our shoppers and curb prices and enhance the profitability of our buyer base, together with potential alternatives to optimize costs.
Again on this agenda, we now have 5 pillars that comprehend our high strategic imperatives. The primary pillar is to be the chief and acquirer the core of our enterprise. The primary imperatives of this pillar are: First, to make sure a sound monetary place and effectivity, aiming persistent and sustainable development. Second, ship the most effective of Cielo to every buyer phase. The third, excelling course of to [inaudible] our clients; and at last, 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 wish to full and broadly serve our buyer wants and cost options. The third is distribution of monetary service. We goal 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 now have individuals, expertise and information supporting the entire technique.
We wish to be seen as a cutting-edge expertise in cost house. Ship extra to our shoppers with information pushed providing selections, expedite the event of our crew and develop the adoption of agile strategies, in search of for efficiency features unfold within the firm. And we wish to do all of this, caring for individuals, implementing the most effective company governance batches and all the time, all the time searching for extra sustainable methods of doing enterprise.
As you may see, we now have an bold agenda and we’re fully dedicated to it. Our crew has been efficiently working in a spectacular turnaround. We’ve an undisputable positioning out there, 27% of market share. We’re presenting greater than 95% of Brazilian municipalities. We’ve a powerful footprint in each phase of the business. We’ve been leaders in profitability and effectively.
Our crew is engaged with a powerful 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 now have even have Cateno, a novel story of diversification of revenues in our business, which generated money earnings of $1.4 billion in 2022, properly above internet earnings 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 totally understands Cateno and its money era potential.
Our objective is to be probably the most desired platform, good platform in Brazil e-commerce. That’s what drives our efforts and folk to succeed in our imaginative and prescient. We wish to be seen as the neatest platform that integrates the worth chain of our clients, delivering a broad array of service and in addition custom-made 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 will transfer to Q&A session and talk about 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 stage you are sustaining share, however trying on slide 12 in your presentation, the SMB and Lengthy Tail phase solely grew 2% on the quarter. So it appears that evidently regardless of your efforts, you are still form of possibly shedding share in that phase. Are you able to speak slightly in regards to the form of the aggressive dynamics? Will you have the ability to achieve share there sooner or later? Any feedback and any potential 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 in 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 vital to note is that within the fourth quarter of the yr, it is pure that SMB and Lengthy Tail performs slightly bit worse than massive accounts. Just because Christmas and Black Friday gross sales are principally 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 trying within the second query relating to the share, when you’re 2023, it’s a technique to no less than preserve 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 through the course of 2022. However nonetheless wish to have a look at the P&Ls and the ROE for foremost rivals. We nonetheless see that the profitability out there as a complete remains to be not in satisfactory ranges in our opinion, and it is nonetheless not paying the shareholder its honest quantity. So we nonetheless see house for repricing within the business as a complete.
Cielo by itself, we did some weighting within the fourth quarter. We’re nonetheless happening to do some weighting within the first quarter of this yr. However you understand we nonetheless consider that the market wants to maneuver ahead in repricing slightly 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 enhancing 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
A lot of the personal rivals right here in Brazil, they’re managed by banks which can be 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 most likely do not wish to be diluted. Truly they’re a serious shareholder in financial institution. So I do see a few of these gamers participating in repricing through the course of 2022. We’ve seen that, and we nonetheless see them dedicated to reprice in 2023, and we have not seen any indicators 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. May you give slightly bit extra shade on that? Is the extent the place you are at now, it seems prefer it was at BRL 21 million within the quarter. Is that the correct stage? Assist us take into consideration how that ought to evolve from right here.
Filipe Oliveira
Certain, yeah. So we do consider that the present stage is the correct stage. We’ve seen some provisioning up to now that has moved round and has confused slightly little bit of your evaluation, however we do assume that the present stage is the correct stage.
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? Plainly the corporate desires to discover alternatives outdoors the core enterprise, principally like credit, merchandise or software program options. I might you want to know, is that this potential 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 yr proper, however we proceed to see internet disconnections. So are you anticipating to see internet disconnections decreasing or doubtlessly changing into internet additions sooner or later? And when are you anticipating these turning factors?
Filipe Oliveira
Thanks in 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 consumer can assess their info simply and evaluate that info with related markets, it is going to 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 superb instance is the large answer the place the retail can discover a simpler and principally extra protected 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 now have, what the consumer desires, what the consumer understand that they will get hold of by means of us are in the most effective level potential. So making these, by means of small pilots, we do consider that we will hold 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 consumer phase or the small to medium enterprise phase and evaluate the primary quarter with the fourth quarter, we now have a internet achieve. Once we see the micro firms, then we will 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 hold the main focus within the small to medium companies and that we are going to hold shedding probably a part of small retailers in our base. However year-by-year, month-by-month, the remaining very small companies that we now have in our base are extra assist than the final cohort. So we do see that this may 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 a tremendous yr for Cielo the place we now have been engaged on the basics that can carry 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 at present. Thanks very a lot in your participation, and have a terrific and good day!