Q4 2020 Xp Inc Earnings Call
Tim.
Certain statements in this presentation and the Q&A session may relate to future events on expectations and therefore constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95 information concerning factors that cause actual results to differ from part.
Looking statements can be found in our reports filed filed with the SEC and also in our website on the.
The SEC filing section now I will turn to Bruno will deliver our initial remarks.
Thank you very much again.
Thanks.
Yeah. My for thank you very much for joining on this one more time and the skull.
And.
Good afternoon, everyone.
Thank you all for attending our results call in a very special one for US it's our first year as the least of company.
So on slide five.
I will highlight the main takeaways from twin between.
Which was.
You all know a very challenging year for all of us were resilience and adaptation where key elements.
We understand it would be of waste to go through the pandemic and not learn from him.
We kept thinking about what we could learn from the.
The pandemic to become a better company and improve our business model going forward.
Now I'd like to share some key lessons, we have taken from the spend on.
So the number one.
XP from anywhere of.
A different way of working.
If not for the pandemic, we would not know how predictive and functional.
We can be of working from home XP from anywhere brings the total new way of corporate working going forward delivering a very interesting equation in our opinion.
First happier employees.
People can be closer to that they love not go into the rush hours wasting a lot of time in the traffic and.
I'm happier employees, usually mean happier clients as well and all of debt based on our more productive company.
Also our talent pool has expanded in mentally.
And that's.
How villa XP, as it's known or BOMA XP.
Was born.
Because of the financing.
Number two.
ESG initiatives.
We have the obligation to set. The example, we know that sort of had a better words than we inherent.
This was already a clear trend before dependent.
But it's accelerated when the pandemic hit, especially the poorer.
So ex decided to move forward speed of several initiatives, we already had in our road map such as the.
The abolition of yes. The G Board. He starts in June for instance for Moms and together for Amazonas ceding some ESG funds in our platform and several others.
This is a topic, we're going to be focused on and expect to lead by example, and contaminates others in a good way.
And number three the.
Digitization acceleration.
Our long term plan has been anticipated due to how people embrace technology during the lockdowns.
No other way around.
So we already plan to deal with the whole financial lives of our customers.
But we have decided to accelerate some initiatives.
Check credit.
Credit card and digital bank accounts that we will talk more later.
We have also delivered.
During the last year, our best historical numbers ever thanks to what we believe to be our main competitive advantage, our culture Dream Big open minded and entrepreneurial spirit.
We are basically.
Close to 4000 obsessed people no good way walking together driven by the same and the strong purpose to transform the financial markets and improve People's lives and.
And we believe this is a very powerful force.
<unk> us along our journey.
Now before I explain our long term strategy.
I would like to share a quick video about our results and what last year represented to us I hope it works for Linda.
Yes, I also hope it works so the scientists and auto care, if it's too loud. Please let me know.
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So this was all of our quick video and now we move to.
The strategy session.
So on slide seven.
We're going to talk about our long term strategy to address if not all most of the Brazilian financial revenue pool.
As you can see on the left side.
Since 2016, we have grown our revenue by a CAGR of 60%, reaching the $8 7 billion BRL in 2020.
But he still irrelevant compared to the size of the total revenue in the system.
The actual size of the revenue pool based on our internal estimates.
It's close to 800 billion BRL.
Ex peace participation in the revenue pool.
It's been one 2%.
And our strategy.
Is to keep increasing the size of our Tam.
At the IPO time back in December 2019.
Our addressable Tam was roughly 70 billion BRL.
Or less than 10 per cent of the total.
As of last year of Duane its whammy, we increased our 10 two.
Approximately 125 billion BRL.
Or let the 20% of total.
This year, 'twenty and 'twenty, one, especially with the credit card and depth Guard and also the digital bank accounts, our Tam expand too.
Approximately 180 billion yeah.
Or less than 25 per cent of the total less than one fourth of the total.
And this is more like the one fourth of the total is more than 20 times our revenue each one of the twins.
We know that it will take time in order to address all revenue pool, but the long term opportunity here and that's what we want to emphasize is massive.
We believe that through technology, and the acceleration of digitalization, we will be able to speed up things in our ecosystem.
This is why you keep hearing from me.
Other partners of the company repeating debt, we truly believe our journey is just beginning.
So now we move to slide eight where I will explain how the XP will complement the client journey.
And the Gilead Savi on in his letter to shareholders I don't know if you all had the opportunity to read it.
Already but connecting the dots and picking low hanging fruits with the focus on profitability execution and the experience of our clients. It's been our history since the beginning.
We have been focused on the asset part of our client's balance sheets.
Which is the most difficult market to penetrate investments.
We have done through education, and adhesion debt investments should be democratized for everyone independently of the client sites.
Now we are going to address the liability part of our clients step by step.
As we have started with the asset part and have built this unique ecosystem.
Throughout our history, we believe to have an important competitive advantage when addressing the liability the part of our clients.
We have an asset light model when compared to the incumbent banks.
And of differentiated distribution capability when compared to other platforms all.
Together should result in better prices and products to our clients.
And this is a game changer.
Almost 80% of debt revenue pool is related to credit included in that number of credit cards, and all types of credit products.
And the Brazilian markets credit the prices are still extremely high.
Probably one of the highest if not the highest in the world.
We do not believe that for example.
12% month interest rates in the is sustainable or a health products for the clients in the long run.
That 12% or 13 of 14% is exactly what several players charge nowadays in the revolving credit card business.
How come again.
Clients of our personal survive with the net interest rates that will double your debt in just six months.
And as I said, we believe to have an opportunity or an important competitive advantage here.
And we can use our profitability and scalability.
It will allow us to charge a reasonable aim of sustainable price for our clients.
When we think about the liability part of our clients.
We want to help them as we did with the asset part.
Take our credit card as an example, we created the invest back concept mixing expenses with the investments that was something it's the cashback, but with the important concept here invest back talk about investments when you are expanding that's new.
And our credit cards of course, there is no annual fee.
And the we're not talking only also because I talked about the credit card debt for retail plants, but we are not talking on about retail clients here. We're also talking about <unk>.
The clients when we.
I'd say, we are going to address the liability the parts of our clients that includes our corporate clients as well.
And we believe our differentiated IFA network will be a powerful origination channel in our ecosystem and also on the ship at the acquisition.
We made last year brings the technology true scale that origination and integrate with the capital markets.
If we can help our clients either retailer corporate.
The better deal with the liability part of their balance sheet, probably they will increase the asset marks over time.
They are both interconnected as I said.
We believe we can help our clients to deal with their expenses. The same way, we have helped them to deal with their investments using our education DNA and technology to do so.
Another important consideration is the.
Our intention to remain on an asset light business model. These doesn't mean, we're gonna became become a balance sheet items, we are not.
With the development and that's important is that to say the development of the Brazilian capital markets is.
Interconnected with the development of our unique ecosystem, when we talk about our ecosystem.
To build it we had to develop the Brazilian capital markets altogether.
We can use some of our of cash we have plenty to do so.
<unk> just seen some credit strategies here.
Using our own balance sheet, but only as the warehouse concept.
That's gonna be obtaining parts and then we recycle the products and more products in the capital market, which is good for the development of the Brazilian capital markets.
And we create the virtual cycle that keeps going by itself.
We also have two recent examples to share with you one of it we have already done when we released our kpis of the fourth quarter, the collateralized credit and.
And the credit card business.
That goes exactly those two products goes exactly in the direction and talking about to address the liability part of our clients.
Now before I go to the numbers on.
I'd like to pass on Tomorrow. So he can explain how our ecosystem.
Scale of product cross selling all of the base and through technology, bringing new products really faster the market's task to get feedback improve and keep evolving the client's experience some of it.
It's with you. Thank you Bruno Hello, everyone well.
On this slide we have two business line that didn't exist less than a year ago.
The scaling of this line from the scratch in such a short period of time, it was only possible because of our divested tech platform.
As we recently reported.
During the nation are collateralized debt credit, which volume has grown exponentially during 2020 attraction in the needles and absent needs due to its low interest rates and friendly experience.
Our credit model allows our book to be asset light in terms of capital requirements and we are confident that we can multiply esports volume by several times on the next three to five years.
Now I would like to spend more time on our XP designed finished credit card, which will be available to our customer base in the next months.
As for intervention, we truly believe this is an important is that true build our financial ecosystem.
Our goal is to offer all of the financial service, including GL accounts payments credit and become a one stop shop for all banking says.
<unk> will expand our customer base and our ability to cross sell other products, which will cut the less side, our clients have with the big banks.
On the first two months of operation our credit card has shown the penetration of almost 50, yet five zero percent of the <unk> customer base, our PPG in favor of art has reached already a 100 and then million reais.
One week March symbol <unk>.
Remember that they just measure the official launch will be next month. So we not even released the Bryan for the whole base.
All of these developments were made possible by our technology of <unk> and investments and I will discuss a few tech milestones on the next slide.
We have recently announced the successful implementation of Soma.
<unk> system that will allow us to the Levered technology improvements with more efficient.
<unk> ecosystem with fur all XP, Inc. Brands, and we expect to save about 60 minutes of work per employee each month and reduce up to 30% of the time to market of new products. As we mentioned we have many broad.
On our roadmap and having a proprietary.
<unk> system will give us much more.
The time to market on.
I'm confident that XP is one of the top tier technology pulp waste around the award and we are ready to support our business exponential growth in Memphis scale and excellence.
We will measure on the remarkable achievements for.
First the credit card itself, which took only three months for the first payment and six months until the first client to receive the card.
Second we just released our marketplace with about 25 stores and we expect to go up to over 50 stores in the next months.
Despite being on the beta phase our GM V. We reach over a million Reais in February.
Despite all of the less development Digest nation B share that we'll keep investing all of the energy and resources to improve and expand our financial ecosystem well beyond the investments now I will turn back from doing them.
Thank you Maher from.
So now we go to the Cape the actually we have on other video before we have the the Soma view you're right. It's the short video.
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Okay now we go to the Kpis.
So moving to.
For the next slide.
Well.
You can see our we have already released that so our custody of 606 billion as of December 2000, and twin increase of 61% year over year active clients $2 8 million almost.
An increase of 63% year over year, and then we have our net inflow.
One on the left.
The real numbers and on the right adjusted by the extraordinary outflows or inflows, which we had only in the first quarter and third quarter.
I think that's our non numbers so.
Nothing to say here, we can move to slide <unk>.
<unk>.
Yes on the slide 13.
We have our total growth revenue growing 58% year over year, reaching the $8 7 million BRL, when we compared to the $5 5 billion BRL of 2019, it's interesting to note bearing from 'twenty to 'twenty basically we added on top of the two.
2019 revenue.
The whole revenue, we had on 2018, which was approximately $3 2 billion.
Ral.
The the.
The main.
The mainline pushing up the revenue is the retail business.
Contributing.
The 81%.
Growth on on year basis the magnitude.
The first quarter when we look at the breakdown retail is by far the most relevant revenue line, representing almost three fourth of our business institutional 12%.
Issuer services and it's interesting to highlight because.
These number throughout the year, that's the only on the fourth quarter Okay.
The revenue break down here is the only for the fourth quarter and all of the entire year issuer services for the entire year has been close to 8%.
So this means that it's picking up and that talks a lot of not only with our leadership that we got last year in fixed income and hybrids for.
For the first time and all of the deals that we take for the market are generally in the deal. So we don't have a balance sheet business or.
Private placement debt go directly to our own asset management on all of those transactions are really capital markets transactions and we got a number of number one by <unk> in fixed income in hybrids and also the equity part ECM.
As probably you have noticed with the deals that are going into the market either ipos or follow on.
<unk> has taken a lead in several of them and participating as a global coordinator as well.
As of.
Business line that we believe is going to keep growing and on top of that we announced last year at the end of last year the acquisition of reuse of capital.
The debt.
Came to complete and enhanced our M&A team and now we have the whole suite of products in the investment banking to offer our corporate clients.
Moving to slide 14.
We talk about the retail revenue and take rate.
Retail revenue as I said the main revenue line.
Pushing the growth upwards.
Revenue grew 58% year over year retail revenue grew 71%, reaching $6 3 billion compared to $3 7 billion one year ago.
And the the key growth drivers were equities and futures financial products and fixed income all the.
The product lines.
<unk> worked really well in 2000 of twin.
When we look at the take rates.
It's pretty much stable.
The way, we do the math for the take rates and that's of change. So you might notice one difference because it was 1213 gesture explained we divide by the average AMC, we used to divide by.
The beginning.
The beginning of beards and end of year AUC, but when we talk about the last 12 months now considering we have quarterly numbers released of the market. We are taking five data points, which we believe is.
A better way to do to do the math.
And then we take the average of the AMC considering all of those data points in the middle of the way not only beginning in the end of period.
Is it stable, but it's worth mentioning that.
On September last year, we decided to force a part of our revenue so debt numbers. Despite.
For <unk> part of our revenues on online brokerage fees.
Remember that we decided to zero the online brokerage fees at risk of level and reduced by 75% at XP.
So these gifts.
Our sales of the house from the growth in the retail business has been.
Now moving to the next slide Thats, the new slide we wanted to share with you because.
We get a lot of questions from investors about the net income from financial instruments. When you look at our.
Accounting financials, you have that revenue line that is growing a lot of throughout the years and that's true that's the the black bar.
Representing the the.
The total in retail revenue.
And the total I mean, the black bar I'm, sorry, the Black bar is the retail revenue and the Blue one.
The total net income from financial instruments. So what do we want to show here is that these revenue line.
Is recurrence by nature, 75% of net income from financial instruments is allocated in retail revenue.
That's because it comes from our retail client base.
And several of different products, either equities either fixed income.
In the structured.
Products and also other financial products related to equity as well.
And all of that together as we keep growing our platform in terms of number of clients in terms of AUC.
It's our expectation that the net income from financial income the net income from financial instruments is going to keep growing altogether.
You can see by the the percentage number that is the total financial revenue.
As a percentage of total retail revenue, it's pretty much stable so.
Its between 45% to 50% in our fast it doesn't mean, it's going to continue like that going forward, but it's just to give a sense how recurring that business is our clients' business is the flow business that we have because we have built these unique ecosystem in terms of secondary market trading.
All different types of securities.
Now moving to the expense of spark Cogs and SG&A.
In cards, you can see that our growth of about 68%. So we had of compression here in terms of the gross margin from 68, 7% in 2019 to 66, 9% from 2020 and what explains that is basically.
The product mix impacts of loss for example in the fourth quarter of 'twenty, We had a lot of offers coming to the market usually.
The commission for a phase of these higher and that has an impact of direct the direct impact in Cogs.
Also the investment we have announced in our IFA network, we have been amortizing debt investments and that's going to keep in our in our Cogs going forward and also the long term incentive plan, where we have I have face with the RF Skus, we have allocated debt expanse.
As a non cash expense, but we have allocated as well in cost okay. When we go to the right side to look at our operating expenses. We went from $1 8 billion in 2019 to $2 6 billion in 2000, the twin 44% increase.
And that's a much less than what our revenue group.
You can see that as a percent the percentage of net revenue.
The operating leverage playing a role there so basically.
Year over year.
As a percentage of net revenues, we reduced the three.
330 basis points and on when you compare quarter over quarter is even higher.
Most of it because of product mix as well and operating of average debt I will talk.
More on the next few slides when we talk about our adjusted EBITDA.
Our adjusted EBITDA and our adjusted EBITDA margin, it's the Kpis of the management already falls the number because it gave us a sound for the how the operating.
The numbers of the business really are going.
And we decided to share that with the market as well, mostly because some investors, but we're looking at our lower effective tax rate and the results of our net of just net income.
We decided to segregate what is operating what is corporate fee structure. Okay. So the adjusted EBITDA went from one seven and we only adjusted by long term incentive plans, okay thats.
Basically the.
The only adjustment we have a year or.
So the $1 7 billion from 2019 went up to almost 3 billion, an increase of 74% year over year the.
For the reasons, we already explained but he is important.
Highlighting debt.
All of that happened despite our investments in new businesses.
As you know the <unk> the <unk>.
Digital bank debt is coming this year, the credit card and so forth and many others and also hiring.
Approximately 50%.
Additional people in 2020 compared to 2019, despite all of that which is 100% impacting our SG&A.
We were able to show the operating leverage of our business. So that's what the margin going from 32 seven to 35, 8%.
Shows and of course of the $38.
But if the sort of 35, 8%.
In 2020 is far from our mature state because we are not we earn the company that has an exponential growth.
It's natural to assume that we're going to keep reinvesting in the business as we keep growing our business, but it is important to say that we already see.
Our margin will decrease.
On a feeling from.
All of the investments we have made in the last three years in technology in our company. So we are adding there on a lot of force operating there a lot of investments in new business hiring a lot of people. This year, we are going to hire.
Maybe 1000 people more we don't know yet for sure, but we're going to hire a lot of people okay.
But having said that.
The the slope of the curve has changed so we can see already the benefit of.
Our technology investments and youre going to be able to fall of that.
On the near to the days or parts of the basis, if the wheel in our adjusted EBITDA margin as well.
Now moving to the adjusted net income and the margin.
We had $2 3 billion.
All of adjusted net income.
The records.
Also in the quarter, we also had a record 721 million.
Adjusted net income compared to 417.
In the fourth quarter of 19, considering that the performance fees in 2019.
Were higher than in 2020.
When we look at the growth year over year more than 100%, we were able to more than double our adjusted net income and expanding the margin considerably from 29% to 27, 8%.
In 'twenty, Duane and on the right side of what explains that growth and the margin is basically.
The growth of the business <unk> revenue is growing 58% the operating leverage playing a role and you can see that by the adjusted EBITDA growing more than the revenue, 74%, increasing more than 300 basis points in margin and our efficient corporate structure, especially after the IPO that gave us a lower effect.
The tax rate, especially the way our financials are released because again I have said that before.
All of the revenue that goes into ex being investing directly in Brazil, because it is done through funds. It's not that there is no tax there is 15% to 20% tax bracket, but the way we recognize that in our financials.
Net of tax so actually the way I like to think it's our revenue.
Is higher than the one we released in our tax is higher than the one we released but because of the weight of the accounting is done we released net of taxes and that number goes straight to the bottom line, which means.
In our financials at zero percent tax bracket.
But it is not the case the sales force from 15% to 20%.
Tax bracket there.
And that explains.
The additional more than 300 vision the basis points on top of the.
Adjusted EBITDA margin growth to our adjusted net income margin.
And before we go to the last topic I would like to move to our less the slide in the recession, we decided to show. These the slide just to explain because probably looking at the numbers of the sell side and we don't know the buy side, but.
These are share based compensation expense.
I believe it's worth explaining basically what happened in the first quarter of 'twenty. It's win was a onetime anticipation in the FERC for <unk>.
Nothing has changed related to the original.
The original plan of <unk>.
<unk>.
Out of the 5% in for five years going forward since the IPO that has not changed what has changed is that we anticipated a lot of the brands.
Because of the reward we have done in the controlling company and we wanted to have our main shareholders aligned with the company for the long term with the right incentives. There. So you should not expect at all what happened in 'twenty of training to be repeated going forward and we've made like a simple math here.
Looking on what we have approximately 14 million shares granted already which is two 5% or in other words half of what we.
Have approved before the IPO and the other half should be granted in the next three to four years going forward, which means that the dilution of these grants.
To be between six point at between six and eight Maxim.
Going forward and again Thats a non cash.
Expense, but we need to recognize.
And none of the grants has been vested yet.
And finally before we go to the Q&A.
Our last session.
Our we are.
Revising our guidance, we have shown on much higher.
Adjusted net margins in the guidance, we had given at the IPO time.
We have not considered at the IPO time.
On the.
Corporate restructured debt.
Explain which basically by itself reduce a lot the effective tax rate and also we had not factored in.
Our guidance at the IPO all of these new businesses that we plan to enter throughout our journey so on new guidance now.
The long term guidance, Okay, that's not a core for the guidance is from 24% to 30% of adjusted net margin that will be Pam, although it's not easy to forecast that because it will depend a lot where most part of the revenue so the mix where the revenue use we have companies.
As I said that goes from 15% to 45% tax bracket and some of the 15% to 20% as I explained it's shown net zero for centex bracket in our financials, so with that I conclude our presentation and the.
Leave for Q&A.
Okay, Bruno so we have.
Quite quite of few people here on the line.
All.
All of.
Oh outreach of our battle.
Two for us because the question because I see that before.
The call he was already there.
Hey, Tito Alright, Hi, Andreas Hey, Bruno Thiago can you hear me, yes, okay great.
Thank you for the call.
All of the information very helpful. A couple of questions. Maybe just first of all on the last point on the net margin guidance that you gave.
What tax rates should we assume because it does the 15% to 20% it was 9% of the quarter. So maybe that's my first question and then I'll have another question. Okay. Yes, that's hard because for example, let me give you. One example of Tito the 90% of that is saw in the fourth quarter.
If we had not been impact of the long term incentive plan.
It would be of approximately 18% okay.
So the 90% because when we increase than we anticipated some grants and.
And we've shown on the numbers of.
Of the fourth quarter.
I think it was 200.
<unk>.
180 in the per quarter.
In terms of share based compensation expenses.
That gives the tax shield.
The tax day <unk> seen in other words. It gives you a texture basically if we didn't have that.
The tax rate would be high but in other words the.
The tax debt, we have there in our financials now is not what we paid.
We because of the share based compensation plan.
We have this tax shield, but we pay more taxes than what is the middle east in our financials, it's a non.
Non cash win.
And if those.
The rsum.
Hughes.
The come faster than the tax is going to be there's going to be doing.
Right, Okay that makes sense for I guess the question of as that Normalizes right. You said you sort of it was the one time sort of acceleration.
As of yet normalizes, you should get back to between 15% to 20% tax rate or kind of.
Go above debt just to be clear.
At camp is down it can go below 15, as well because that depends on one on the.
The revenue breakdown.
If a lot of the the net income from financial instruments. So we have a part of that debt is he's done through XP, because thats, where the the cash from the IPO. The the follow on we did place okay.
If that part of the revenue is higher than other parts than the effective tax rate should be lower.
If other parts of the business have.
A more relevant stake in the breakdown of the revenue then the effective tax rate should be higher so it fluctuate. So that's why we we gave the large.
The guidance going forward, because it's not it's not easy to for example of credit card, if we scaled the business really fast.
And then we have a lot of revenue there that will bring down the.
The effect of that will bring up the effective tax rates and down yes, just the net margin.
So it's a it's not easy to support.
No I understand and I can understand that it's not easy for us.
Okay. So my second question on the.
On the take rate the revenue yield.
You showed in the slide there was stable.
Compared to last year, but in the quarter. It did come down a bit so just to understand maybe some of the volatility on a quarterly basis and I know this is also difficult to understand.
But just to get a sense of of what happened right is it just less trading because you had a lot about some of the early in the year and that came down a bit. If you can give some color on sort of the quarterly movements. We saw this year sure no no. It was not that I mean, the take rate.
On a quarterly basis marginally it was I think $1 32 in the third quarter. If you looked at the last 12 months, maybe you are taking only only the water and multiplying by four.
If you take the last 12 months in the third quarter was around 132, and it went down to $1 29.
And remember in the fourth quarter.
I think it should be even lower than one point of 29, because we foresee relevant part of our revenue with zero of the on brokerage fees in mid September at Regal.
And.
In the next few we reduced by 75% so all the here the.
The first nine months, we had the breath in the first quarter, we did it but.
But we more than compensated that.
Other revenues in our ecosystem and because of the growth and the appreciation of.
Of the custody in the fourth quarter you have this math effects.
If you look at the the.
The the revenue itself itself not only.
The retail I mean quarter over quarter, it went from a little bit less than <unk>.
One 7 billion in the third quarter to almost $1 85 billion in the fourth quarter. So the revenue for retail.
Hep in the FERC quarter.
The take rate it went down a little bit because of mainly because of those two effects.
Oh.
We didn't have a revenue line debt, we had in the third quarter.
Brokerage online brokerage for Regal and reduced by 75% XP and the growth of AC which increases the denominator and makes that number go down because of the market appreciation in the first quarter.
Right, Okay that makes sense, but I guess, so going forward. If we just look at the quarterly take rate because of the elimination of the brokerage fees at Ricoh and clear is that more representative of what to expect.
Moving forward I would say I would say again.
It depends on how the other business will perform because take the credit card as an example, again the credit card has no AMC attached to.
It has the revenue and it's basically repay revenue.
So because of the credit car retail revenue will increase no AMC.
Which means that only using debt factor take rates should go up.
We're going to have other.
Other forces impacting the take rate so usually when the market appreciation is really high take rate goes down a little of it when it's the market has the sell off and it goes down the great goes up because all of our revenue.
It doesn't have the volatility that the <unk> might have because of market appreciation or depreciation.
Okay, pointing is much more recurrence.
Several different aspects.
And I believe most people think.
So take rates will.
Will vary but.
The denominator plays an important role there.
And just to clarify the the revenues from the credit card portfolio flow into the retail revenues.
Correct, Yeah, so yes the the.
The way that the manager the income statement, we have those four lines in our revenues in the retail institutional issuer services, our digital content.
And then the debate by the client profile most of it.
If it's an institutional client either corporate or institutional was there if it's more retail originated revenue it goes into routine.
Great. Okay. Thanks, a lot of Bruno.
Sure.
Yeah.
In Q4.
Tito <unk> from Goldman Sachs now we will allow.
Out of <unk> from Bank of America Merrill Lynch.
Hey, Marty.
Hi, guys.
Thank you for for the presentation. Congratulations on the results. Let me ask you two questions Bruno as well.
The first one we saw it right you added $1 6000, I have faced this quarter I think this is the 25% increase in your IFA base.
But when we look at the net client adds of 132000 this seem to be weak relative to what you've been doing so when should we expect this big increase in my of face to start reflecting a number of clients in AUC.
And then my second question is related to your credit portfolio that was a big jump in your loan book.
It seems like you are growing this very well I was just trying to get a little bit of more color on what is the are all weigh on this business right. You show that you have zero npls.
Loan book is growing very aggressively so just trying to understand a little bit better about the the profitability of the loan book. Thank you.
Yes, Mike regarding the IFA question.
The there is a time to make that happen on why you mention in the in the fourth quarter.
Basically because of the the positive scenario, we have for the IFA profession in Brazil, especially with the banks closing the branch. So we believe this is kind of stay for a longer term.
We believe the numbers will come I think that.
When we have the full experience in terms of banking services and products, which will happen. This year with the digital bank accounts the <unk>.
Credit card debt as Mark mentioned, we are gonna allow.
The launch next month.
And we are ready.
So those numbers at my affirmation. This this year CTV. This year sorry. This month, the TPG north of 110 million BRL and the months. He is not over yet and we have not even started for real so all of that when we have all of that in our ecosystem.
The the dream that we have to have 100% of share of wallet of on.
Clients and basically double our company with our existing clients.
Inc.
It will be.
It will be of a reality not just to have 100% necessarily but to be able to have can cut completely the link with our we thought their banks.
In our existing clients so.
That's what I believe to be the trigger.
But again, it's really short theory, because that happened in the fourth quarter and then it depends on the market depends on the other circumstances to keep bringing on more clients and in the capacity of those clients.
Regarding the credit.
And the <unk>.
I mean, you mentioned the growth was really.
Very high growth that we have especially from the second semester just bear in mind as we put in our press release that in December we had a benefit too.
Two.
Increase.
Debt the credit portfolio because of the of tax exempt for.
I O F in credit in the last two weeks of December if I'm not mistaken. So that helped the December number the credit for origination in December was really high.
And we I.
I mean, when we look forward, we see a great market there.
Why is that number one because it's the underpenetrated market.
People that invest usually are.
The leverage in Brazil, a lot of especially when you compare to other other countries people don't have any type of debt and then when you add on top of that the.
The fact that the the macro environment with interest rates.
Two of single digits.
It's a favorable one for people to seek for higher returns and longer duration products and then number three of those products are like alternatives and the other are there on the type of products, where in Brazil. The allocation is really.
Non relevant at all so you combine those three things.
You have a great potential to increase and create these collateralized credit market for.
Many more people than only high net worth individuals, which once the history of back them.
So we're positive about the growth of our hour.
Our credit collateralized credit book.
But just remember that December was really hot.
Because of the tax ex Sam.
Your other question about the honor of way we are I.
The other way is not the way we look at it I'm going to answer you given the way we look at it.
I am not sure youre going to be able to model of that but we're going to try to help later on the way we look at it we have a lot of credit as a service what is that.
<unk> as a service is basically looking at our.
The custody.
From our clients on our platform and thinking about products that are products that those clients would like to buy and it makes a lot of sense not only.
From a suitability of perspective, but also from an allocation perspective as I said a lot of clients are not are located in several different products as alternatives. For example, and we can give the solution for the clients at a very reasonable cost for the claim for <unk>.
Basically we tell them because most clients they don't want to buy some product because they don't want to redeem from other investments they have and we gave that option and we do it through technology, it's very easy.
To get this credit in our apps and it makes a lot of sense, because it's underpenetrated because.
On the client doesn't have the allocation and that's what we've been doing when we look at the whole picture there.
We have other revenues embedded on that because they are related if you buy a long term fund.
Youre going to have to pay for the management fee of those funds and youre going to get the distribution of debt management fee over time. So we use this concept of credit as a service and why because of collateral credit demands.
The little capital.
In terms of Basel index and everything else.
Our what I can tell you debt our return on equity.
On that product is really high.
Really high.
High double digits, depending on the product okay.
So that's the way we look at the collateralized crap.
Credit.
For our business, but we do of course all of the calculation to June of the price, but remember that we have.
We are we have a little.
Cost of funding as well and we can distribute those products because we did for several other players in the market for that is something that we have experienced because of the bank is something new we can.
Raised capital either issuing CD on or.
The structured notes from the markets really fast okay.
Okay.
If I can just follow up on.
And thank you on the growth is fantastic you are 0.6% of AUC.
What do you think this number should be and non looking for our short term of late but what what do you think you can get to in the next five years.
When we looked at other markets too.
We went to the United States that number of stays between Q2 something percent.
Of the band, but in Brazil, I mean, we set of like 3%. We don't know we don't know because it's the brand new products. What do we know is that Brazilians generally speaking I really brazilians debt have money to invest really under language, we do not have the culture.
To leverage our investments or take bets and do whatever.
Most people that do that are the people that don't have the asset for us to do it if you take the just one example, if you think about the real estate market.
The United States is 120% equity, 80% debt in Brazil.
5% of equity I would guess, 95% I mean.
The 95% of equity and 5% net.
So.
Resilience with assets they are under language language.
And then I.
I don't know what the number in terms of the AC will be but we think <unk>, 6%.
Julien So we expect the growth there.
Thank you very much.
Sure My plenty of minor.
Yeah.
Sorry, I was on mute. Thank you Maya we will now.
And Sir Mr. Marcello Telles from credit Suisse.
Current Dennis.
Carlos.
Okay the himself.
Yeah, I apologize okay.
Thanks, Thanks, Bruno thinks on that and congrats on the on the results.
I have a couple of questions you saw some of my main questions have been answered the earlier, but can you comment a little bit of how do you see competition.
From other part of forms of course, you know you took a big step to try to retain.
Are your most important.
Face so where are we where are you in that respect I mean do you see the need to engage in other type of mutation of womens for Ford or do you think that perhaps the other day.
The environment the competitive environment is.
<unk> already start to go to the.
The normalize a little bit.
The the first question and the second question.
Jim you talked a little bit about the.
The.
Growth in net inflows.
You had a 36 billion of ice and that's full and that's the inflows in the quarter do.
Do you see room for debt growth.
Two accelerates.
Into 2021 2022.
Particularly with the inquiries for sure didn't ink because you had in your IFA network.
Thank you.
Sure Marcelo Thank you for the questions.
Regarding competition.
I mean, it shouldn't be accounts for the future because it's the massive opportunity as we presented in our long term strategy of chart foods, almost 800 billion BRL revenue pool and a lot of great players. Some of the players are trying not to move pet food others are trying to true game.
That's true in these parts of the game, we have built this company from scratch.
With nothing competing with the banks and we think it's a good thing competition. The good thing for the client, especially so we got to keep folks on the clients give the best experience products services.
Lowest price and that's it that's going on be it has to be the focus here.
But we I mean in terms of the I think competition has been more intense in the past, but again, it's the natural thing.
The police in my mind, when I think of what.
What we have built we XP has developed the profession.
Throughout the year. So we are by far number one you look of of what we on boarded in the fourth quarter. The 1500 eye of.
Phase of approximately.
That's the.
Two five.
For all of the two five times, our closest competitor just what we did in the fourth quarter. So again, it's natural debt.
The other platforms that want to build the distribution like that comes to our I finished work and try to show up here what do we have to do is to offer our eye of phase.
Better service better tools, they can be more predictive that we can increase the probability of them as entrepreneurs to be successful and that I can tell you.
I mean debt I I'm pretty confident we do debt.
And if you look maverick and complete the ear. If you want about all of the developments of the hub of our platform for the phase when we I think we are.
The IFA is of clients for us that we've treated the same way we treat other clients. So we are totally focused on dam to making them succeed side by side with us as we went on with our clients as.
As well, but again competition I don't see competition.
Creating a price pressure.
Your concern in north of that.
The concern, but I don't see competition, creating a price pressure.
On us I see of creating a price pressure on the banks.
Because we still see a lot of fixed income funds inside of the asset management of the bank's charging 100 basis points 150 more than 200.
300, 250, it still there is.
Our phone charging of debt.
Management fee of two by government loans, it doesn't make any sense and I think that's where the price pressure is we're market leaders. So for example, what we did with recall.
And XP and the equity market, because we wanted to because we looked.
On our mentality of giving back to the clients and increasing the connection.
For the clients can give us back some time.
The increase the loyalty of the clients, we're going to have more products now that we have all the technology in our company to keep adding products, where you're gonna do it sold throughout the journey.
It is important for us to shore of clients.
The whenever possible were going to keep giving back and that's why we did with Ricoh and with XP and then the other competitors in the equity market. They follow us I saw advisors.
Some of them.
My tears ex.
Exactly like ours.
But it's part of the of the competition game.
Well you mentioned the the net new money of the 36 37 billion net the wine and beer aisle in the fourth quarter.
I mean, I think that the answer to see that number go.
Loans faster.
It.
About the experience the whole experience of the claim.
So the digital bank I believe it's going to be important.
We will have to see but as I keep saying of the $10 billion.
For a 15 billion per month, that's net new money coming into our platform.
It's I mean, it's the number of debt, it's going to stay here for many many years in our beliefs.
Because of the transformation is going on and it takes time. It takes time to convince people to open on new accounts to bring the money.
I see its natural it's hard to say, it's gone because of the eye of phase that we on boarded these numbers is going to grow up really high.
We don't know for sure the time in the short term, but we know or we have a very.
Strong confidence.
In the long term debt, we're gonna get that debt wallets and debt mine because it makes sense.
It makes sense with all of that we are doing and providing to our clients. We believe it makes sense for our clients to bring more money into our platform.
The other clients to join us and leave the bank and that's what we've been doing and we're going to keep doing.
Just you add should bring this point answering them on your question.
On the the share.
We really believed that the.
Once we complete our G star accounts and they buy.
I would say by the end of the first semester.
And we truly believe that we will be able.
True, bringing more accounts will be able to bring more share of wallet and the chicken it's.
To our platform will increase so we we believe that adding new products, each dot com crowded and the other products, we bring more money we increased the cheapness, we bring more clients. So it's.
<unk>.
Virtual sequels.
Yes.
The big out of childhood without the Bruno for the sublease kind of what she is a big hospitals of key.
The numbers I, just sort of how it falls models for both of US not start getting the notebook economics non comparable.
No cause of the credit for himself on on the Mazo manage the Los Angeles basis points since the sequence of Gs.
Similar to the global portfolio Magic price of traditional of a supplement.
Part of what the cause of disease Costco.
Can I just say my interest is that makes the R. E D.
At least cash back for Ya bond debt of presence of <unk> basis points.
I will say stay how your sense of the interest for my thought on the states. It doesn't I should say per day.
No no no no no base for the data.
The E.
So the comments that the I see quite upset about Boston on a shopping cart so nice to kill TPG.
Of course, the school my thought of.
Well, what kind of step of pace on the so vast imagine you talked on the ph of your safe.
Most of his Oxford for you're supposed to pay all of Rachel video day, Jade you might put up so.
The debt.
It's Russell Microcap, though for myself Zama is you've got all of the stake.
The margin accretion of local debt and jetblue or for Mike on let's say as many of you must imagine the.
The cut on the ph of should stay in a place for Magic day, well I shouldn't say anyway or were you just imagine losses for both the dividends of three 5 million.
Yes.
The same thing that sort of stockpile.
But so if let's say five multiple of what's up with the MISO the history of losses, Okay I can do.
I can take the just one the go.
Yes, I'm sorry, the knife.
Asking Portuguese I apologize I should have asked in English.
I apologize for that.
For the English Guy here of the question was about.
The credit card.
We can expect liking expanding what we can expect like a contribution margin that was the question. So to answer a question when I mentioned, 50% of penetration on the eligible clients. It's only for the clients that are already in.
<unk> that size more part of the day the whole clients of XP because of the launches next month. So we not even released at the broad it when we had and we had so far this month of 110 million Reais. So you can expect as the number to increase really.
Yes.
On the next months and my point about the 50% is to show our borrower true cross sell products on our base.
That was my point, because we are not doing mark team, we are not like.
For active selling the card and the clients are coming at.
Once we released the card for example for any kind of 50% of them are the card that was my point.
About your other question was about the staging of course, you can imagine debt.
We.
Most of our clients they are like a tie.
High net worth clients when compared to Brazil, and the numbers are public. So you can you can see that the average spend for like car.
Hi, and credit card in Brazil. They are like between seven to 10000, Reais. So I would say that remark debt per month, yes. So I would say that's the range.
For the clients that we have today okay.
Okay.
And just on my first question regarding the the economic the update there.
Credit business.
So on the base bonds to 160 basis points of reasonable waterway assumption for now.
The other.
Let me give you that answer myself the yeah, it's a reasonable assumption it can be lower than debt because as I said, we look at credit as a service. Okay. So sometimes I mean, if you look only at that part of the business.
You are going to Miss the other parts of that is going to be parts of the revenue because of the credit as a service, okay and it's hard to model that.
No.
And the.
We I mean.
It's hard to open exactly how we do our our math here, but what I can tell you is that your assumption of around 200 basis points only in terms of the credit.
It's a it's not wrong, okay, but what I'm trying to say is that there was more than that.
And the Youre going to see that where are you going to see debt in our retail revenue.
We're gonna be of our take rate on the peer group.
Because we do have these credit as a service and we look at the return on equity.
That everything we are doing considering.
All of the products that the.
The credit is pushing and helping to increase the penetration and so forth as well.
Thanks for answers I appreciate it thank.
Sure.
Thank you have a good one.
We just have two more questions for anything that they will be.
Oh, let me before sorry, okay before.
Sal is asking about the the.
The numbers of the credit card.
Again, we cannot open the base points, specifically, but what we can tell is.
We of course, we have our business plan, Okay, and we have not as Marshall said the launch of yes, the credit card, but it's with the select.
Group of clients.
Its working on better.
And we have oriented these more than the $110 million of TPP. This month.
Our business plan, so far it's a more than one year advanced.
In terms of what we had when we decided to move forward.
I think that has to do with two facts number one the number of miles for mentioned the 50% penetration we were much more conservative in terms of the adoption of the credit card because usually credit card takes time to adopt to keep moving and so forth.
For the type of the clients that we are addressing because of the type of the clients. We are addressing probably the Q3 credit card alright, okay.
Number.
Number two.
If the spending.
Or I mean, we know our client spends a lot more than the average so we need.
Much.
Many of them much less I would say net.
Clients to make the same CPD.
But we also were surprised by so far but we're just at the beginning so it's hard for us to give any kind of.
Of the guidance here I know, it's going to be important for all of you to model the business and so forth, we're going to work on something.
I hope to Hell.
But what I can tell you that much ahead of the business plan.
We are optimistic about.
For the stickiness.
Of the car, especially leads to our brands and let's see how it plays.
Okay excellent.
40 centers of question from NUCYNTA. The question here at the <unk>.
Q&A.
That's an interesting one is asking about.
What the fuel Buena about I mean.
The recent market volatility may.
Maybe interest rates will go up eventually what do you think this could bring to ex peace business I mean, it could hurt structure of the business are of high interest rates are there is a level, which is healthy because we make more money and we still have a compelling.
Compelling investment alternatives for our clients.
Mhm, Okay. Thank you Jorge for for the question.
I will start answering.
Looking at our history.
We have grown through.
Very high interest rate environment in all of our history and here. We are so that's number one and the reason for debt is because.
We don't need the market to grow to keep growing it.
Niche convince the clients from the incumbent banks too.
My grades each of our platform and we believe we have all of the tools to do so and now even more as we keep adding.
New products and enhance the experience of our clients. So that's that's number one number two.
In the short term.
When there is volatility or interest rates going up that that is a part of the short term.
Because of fixed income because of floating revenue because of volatility itself remember debt.
We have several books for books in our business and we are always had for volatility and the tail risks.
Either.
The positive or the negative one.
In our history as well when we have like.
A lot of market volatility of like in Brazil in 2017.
That may 17th the Etame 10 mandate.
We made them on.
We when you look at.
The pandemic right after carnival in February of last year same team.
Yesterday same thing with the Petrobras gave and so forth. So we are always in the short term hedge it for pay of risks and volatility.
In the short term as something positive and as I said interest rates going up on.
During the size of our business is now our floating revenue would go up substantially depend on the growth of.
Of interest rates and fixed income also would be much more attractive for investors to trade into allocates and we could make money there as well thinking about the longer term.
Of course.
So you have Brazil on track.
On the reforms keep moving and growth is what we want as Brazilians as a company that wants to.
The best for the country of debt of one two generates well in Brazil, and so forth. So in the for our business in the longer term I also believe it's better to have Brazil.
Brazil developing itself the Brazilian kept the market is developing a lot of.
So I don't think interest rates of interest rates needs to go up from 2%. We all know that it will this year, we don't know by how much and how fast but again, if we do not come back to the.
The above 15% interest rates that we had in our past I think that doesn't change the picture at all and considering our size nowadays it might even in terms of the results in the numbers it might even be better.
Net.
From that perspective.
Yeah.
Okay. Thank you Jorge Kuri, Mr equity for of Morgan Stanley The last one would be.
From Carlos growth from HSBC.
He is asking you to.
Comment on ex and expected timeline for the conclusion of the transaction with E zone.
Okay.
That's the Carlos Thank you, but that's hard to say because it spending the.
The.
The creation of Newco, the ex parts of the way the company expanding approval by fed and Brazilian Central Bank the gum at any time.
We personally I mean, I personally don't share of reason why not but it depends on onset and Brazilian central bank and only after that.
Nucor is going to be created and we can move forward.
Of the merger proposal that we have agreed with the controlling shareholders to do so.
I think it's reasonable to estimate that we're gonna have everything concluded in the first semester. This year, but again, it's not a guarantee because I cannot speak for fad or central Bank.
What I can tell you that we are ready.
As soon as we have the.
This creation of Newco.
We will have to file in the FCC.
Some forms and then propose the the merge and have the general meeting of XP, Inc.
So now XP parts actually the new company created will have its own general meeting to approve the merger and we move from them.
From them.
That's that's the plan as soon as possible.
Okay.
Great. So we are running out of time, we have some other questions here, but I kindly ask you to.
Getting contact with us the IR team, we will be thrilled to talk to you about these results and especially about the long term opportunities on the XP. The balloon. The described in market of described so well.
Thank you very much for your participation. Thank you very much for all of your partnership during the during this intense year of a public company.
Would you like to true to conclude as well. Thank you. Thank you everyone Oh no.
No I just I just would like to thank you all for participating here and supporting us.
And say that it was.
A strange year test here of different year for all of us.
But also unimportant.
An important year in our in our life as a company because first year as at least the company.
We're still learning and improving there.
And most important I think we tested our company.
We have never tested before and the results are they are what you see in mix the personally even more confidence that our journey looking into the future it's going to be something else in the main.
Attribute or competitive advantages as Glenn said in the latter is our culture and I think when you have price like the one we did last year is when the culture of the company is really fast and I think our response.
Sure.
Employees partners response to the.
The challenge, we're really impressive so thank you all.
We are here to to answering the help thank you.
And can we really think of them off for everyone have a great everyone on.
On that.
Alright.