B3 Sa Brasil Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the B3's Earnings Results presentation for the fourth quarter of 2024, where André Milanes, B3's CFO, will discuss the results along with Fernando Campos, Investor Relations Associate Director. We would like to inform you that all participants will be in listen-only mode during the company's presentation. After the company's remarks are completed, there will be a Q&A section when further instructions will be given. As a reminder, this conference is being broadcast live via webcast. The replay will be available after the event is concluded.

Hello, I'm Fernando Campos from B3's Investor Relations team, and welcome to another B3's earnings event, where André Milanese, B3's CFO, and I will analyze the results of the 4Q 2024. André, we will start by providing an overview of the quarter.

Thanks, Fernando. We had a quarter with consistent results in line with the resilience of our business model. It was a quarter marked by many political events in Brazil and globally that brought significant volatility to the markets in which we operate, which reflected in consistent volumes in our business. With this, we had revenues growing by 7% compared to the fourth quarter of 2023, but slightly below the third quarter of 2024, which was impacted by five fewer business days in relation to that quarter. Fernando, can you talk a little bit more about the operational aspects that explain the dynamic that we saw on revenues?

Sure. Regarding operational performance, let's start with our listed derivatives, which continue to show solid numbers, although below Q3 2024, mainly due to the lower volatility in the short term of the interest rates in reais contracts. Again, the performance of Bitcoin futures stood out with an ADV of 206,000 contracts and 43 million reais in revenue for the quarter. In OTC, we saw double-digit growth in almost all operational metrics compared to the same period last year. Besides the fixed income market, which we have been discussing in other results and has been benefited from the positive scenario for private credit in Brazil and diversification of portfolio risk, it's important to highlight the performance of OTC derivatives. which saw an increase of 17% in issuances and 29% in outstanding balance, reflecting the volatility that Andre mentioned. This volatility also helped the volumes in equities, where we saw an ADTV for cash equities totaling 25.6 billion, with a turnover of 145%. It is worth noting here, again, the performance of BDRs, ETFs and listed funds, which combined for 15% of the ADTV. Regarding other segments, in infrastructure for financing, continue to benefit from a positive vehicle financing market, In tech, utilization continued to grow following the funding industry, mainly in fixed income. And finally, in data, revenue grew by 5%, with advances in Neway and Eurotech. André, can you talk a little bit more about the financial performance and other advancements?

in terms of expenses for the quarter it is worth mentioning a few things first we have some seasonal impacts mainly in technology spending which is more concentrated in the last quarter when we have more projects being delivered Second, in personnel, we had some extraordinary expenses with severances due to changes that we had in the management of the company during the quarter. And third, on revenue linked expenses, we had significant growth, which was in line with the high volumes that we saw both on Bitcoin Futures and on Treasury Direct. It is important to emphasize that our adjusted expenses in 2024 were below the midpoint of our guidance, which reinforces our commitment to disciplining costs. If we excluded the effects of Neurotech, since it was only acquired by May 23, the growth that we delivered in terms of adjusted expenses would have been below the inflation for the period, which it is a very strong message in terms of cost control. Regarding our results, the recurring EBITDA for the quarter was 1.6 billion reais, a growth of 10% with a recurring EBITDA margin of 67% above the 65% margin that we saw in Q4 23. On the tax line, B3 concentrates the use of some tax benefits such as Lei Dubein in Q4, and as a result of that, our effective tax rate for the quarter was slightly below that of prior quarters. Thus, as a result of that, the recurring net profit was 1.2 billion reais, a growth of 14%. Regarding the distributions, considering the price of our shares during the year, we ended up prioritizing buybacks in our total return to shareholders. We spent 3.7 billion reais, we employed 3.7 billion reais out of the 5.3 billion return to shareholders in buybacks. The 340 million shares that were acquired during the year, which represented around 6% of our share capital, out of that 220 million shares were cancelled during the year. and we already have a new program in place with a limit of 380 million shares, which accounts for approximately 7% of our share capital. Regarding our capital structure, It is worth reminding you that we've completed in January the ninth issuance of the ventures of the company in the amount of 1.7 billion reais with a term of six years and a cost of CDI plus 0.59%. In the agenda of new products and strategic advancements, I would like to call the attention to the fact that during the last quarter, B3's clearinghouse started to accept the ventures as collateral. The launch that we also had of the Treasury Direct guarantee, an important feature for this product and which also will help to unlock credit in the economy. And finally, the migration of corporate debt trading to our new platform called Trademate, which is aimed to increase our footprint in the growing private credit mark in the country. And finally, last week, our board of directors approved the merger of Newey and Neurotech into B3 which will now be submitted and approved by a general meeting which is scheduled to take place in mid-March. The tax benefit resulting from this merger amount to approximately 800 million reais and will be collected most of that during the next five years. Thank you very much.

Thank you. The floor is now open for questions. If you have a question, please press the raise hand button. If you are connected via phone, dial star 9 for raise your hand. If your question has already been answered, you can leave the queue by clicking on put your hand down or dialing again star 9. Our first question comes from Maria Gages from Safra. Please, Mrs. Gages, your microphone is open.

Hi, guys. Good morning. Thank you for taking my question. I would like to ask about your equities margin. I understand that there was a mixed effect related to higher volumes of options exercised in December. But I wanted to make sure if there was any price impact in the quarter as well. I mean, if you had a comparable ADTV base in fourth quarter related to the third quarter, would your margin be remain stable and also if you are planning to make any moves related to the equities pricing strategy for 2025.

Thank you.

Hi Maria, Fernando here, good morning. I think here, if you see, and now we opened the numbers in our operational database for the options exercise volumes. So we did have kind of extraordinary volumes during the month of December, mainly in December, which was a period of high volatility. We had election, we had news here in Brazil that kind of moved the market a lot. So it was a month that we saw almost no recurring volume there in option exercise. And then we did have a new program for market makers that also had some impact on that. It's hard to predict how this will perform during this year. We don't have anybody. Regarding pricing adjustments, we do have for this year the implementation of the new tariff system, which will equalize tariffs for different kind of investors. Actually, for each investors, you will have a discount based on the volume that you trade. So that will be implemented during the year. but that shouldn't have any kind of impact on margins when we ran a backtest last year and we announced that last year. I don't know if Andrea wants to complement.

I think in summary, if I may just add we don't have any planned changes that should impact margins. These margins should fluctuate in line with volumes and mix of transactions. As Fernando mentioned, we did have some, let's say, extraordinary volumes of options exercised during the last quarter, which has put some pressure on the margins. Whether that's going to be the case for other quarters, it will depend a lot on market conditions, on volatility, etc. So margins should be much more a function of you know, the mix of clients and products than any changes that will be introduced by the company.

Super clear. Thank you.

Our next question comes from William Barranjard from Itaú BBA. Please, Mr. Barranjard.

Thank you, André Fernando, for the presentation. I have a quick question here on the merger. You commented last in the presentation of NOE and Neurotech with B3. So if you could elaborate on potential synergies, this movement will generate, if so, both in revenues, expenses, if there's anything you could share with us on this front. And also, if you have a best guess on which quarter you will start using the tax benefit, yeah, this would be helpful.

Thank you. Thank you for your question, William. Uh, I think the main I mean, there are synergies that will intend to capture as a result of that of that merger. Uh, if you look at from a back office standpoint and other things, some of them we have already been capturing regardless of the merger itself. I think the main benefit that will be unlocked with the merger is gonna be the tax synergy that we have on the goodwill and intangibles amortization. As we did mention during the presentation, we're talking about roughly speaking around 800 million reais of tax benefits, which will be collected or amortized over mainly the next five years. If the merger is approved by our shareholders during the general meeting scheduled to take place in mid-March, the 14th of March, the merger will be effected as from 1st of April. So you should see those benefits already impacting our cash flow for the second quarter of this year.

Great. Very, very clear. Thank you. Wonderful.

Our next question comes from Arnon Shirazi from Citi. Please, Mr. Shirazi, your microphone's open.

Hi, all. Good morning. Thanks for the opportunity of making questions. My question is related to equity DTV for 2025. Of course, it's very difficult and eventually impossible to predict the level, but for budget proposals, you should have a number that you estimate for 2025, which is the expectation for this year. Thank you.

Hi, Arnon. Thank you for a question. Always easy questions coming from you, right? But anyways, look, it is really difficult to provide an estimate. And of course, we do have our internal estimates, but it is for that reason that For instance, we don't give guidances on volumes or on revenues coming from the equities market. What I can tell you is that we feel that it seems that we've reached a kind of a bottom here. The scenario is not that encouraging for equities, given the high level of interest rates that we will have throughout the year, potentially. But on the other hand, there seems to be some stability in terms of volumes. The diversification of the ADDV itself has also been helping, as we highlighted. Today, or last year, last quarter, around 15% of the volume already came from other instruments that they're not cash equities. So we're talking about BDRs, ETFs, and real estate investment funds. We do believe that these products have the potential to keep growing. Some of them do not have the same correlation that we do have for equities, for instance, with high interest rates. So I think we see... this environment of some stability with, you know, potentially some upside risks that always comes when you have some volatility. So I think that's kind of our view at the moment and expectations for the year.

Perfect. Very clear. Thank you.

Our next question comes from Lidsey Shima from Goldman Sachs. Please, Mrs. Shima, your microphone's open.

Hi, good morning, and thank you for taking my question. So you announced a sizable buyback program again this year. Just wondering how to think about the combination of dividends versus buybacks throughout the year, and then also kind of just what the overall payout ratio that you're targeting for 2025 is. Thank you so much.

Thank you for your question, Lindsay. Look, typically the way we deal with that, we tend to split our cash generation return to shareholders and do half of that through ILC, which are tax deductible dividends, as you guys know, and dividends, and the other half typically through buybacks. At moments where there are some, let's say distortions in the company's valuation, according to some metrics that we follow, we might tilt that equation more towards buyback or in moments where, according to those metrics, maybe valuations are above average, we could do the opposite. So tilt that equation more towards dividends and IOC. I mean, IOC, we will always be paying that at the maximum amount to enjoy or to collect the tax benefits that comes from those tax deductible dividends. So in summary, that's the way we have been doing. Half of it through buybacks, tilting that equation more towards one or another, depending on market conditions and the company's valuation. We are at a moment, and that has been the case for 24, and in our view remains at least for now the case for 25, where this equation is more there is a higher weight towards buyback around 70% of that distribution being done through buybacks. And that's why we've announced another sizable program. Of course, that could change during the year. And the main reason for that change would be the share price. And in terms of our expectations for the payout ratio this year, we've announced a guidance of 90 to 110. The reason for that, so you will see that this is a... slightly lower figure than we had been announcing in previous years. And the main reason is because the difference between our cash generation and our net profit has been reducing as a result of the the end of the amortization of intangibles. So we will plan to keep returning the most part of our cash generation in nominal terms, but in percentage terms that we tend to see that figure getting closer and closer to the 100% of the net income.

Our next question comes from Eduardo Nishio from Genial Investments. Please, Mr. Nishio, your microphone is open.

Hi, good morning. Thank you for taking my question. I have a few questions on your crypto products. If you can give us a little bit more color on your pipeline of new cryptocurrencies products you are developing. Also, the timeline, any regulatory challenges on that. Profile of clients, if you can. If it's more retail, institutional, any kind of globalization you have with other products. And if you can tell us the advantages of trading like futures at B2E compared with international exchanges, I would appreciate it. Thank you.

Thank you for your question, Nishio. So we do have plans of launching other derivatives in the crypto family this year, most likely futures on Ethereum and Solana. We also plan on launching Bitcoin options by the year end. So we are expecting to have those products in place during this year. The timeline, the definite timeline is subject to the approvals of regulators, etc. We do expect the approval process of these new products to be to be, let's say, facilitated, given the discussions we already had during the approval of the Bitcoin future, but we cannot predict that timeline. Regarding... I think we haven't seen reductions in existing products migrating to the Bitcoin future. Whether we could see that happening between the Bitcoin future and other products, I don't know. I think we do believe that there is some demand to be captured. And it is for that reason that we are planning on launching those products. But I think at this stage, it's really difficult to... to say whether this is going to be moving away volumes from the Bitcoin future, for instance, to some of those new products, we will see. But at the end of the day, what we want is to give the investors alternatives that best suits their needs or their wishes. So we will keep

uh innovating and and launching uh new products and and providing new opportunities to to to the investors thank you if if i will can you elaborate a little bit more on on the advantages of trading futures at b3 compared with other exchanges you mean compared to other exchanges international yeah

Look, I think we have a very similar, I don't think there are great differences between trading. I think it's just easier for the local investor to trade in Brazil than it is to trade offshore. You don't have to make an FX to send money abroad and this kind of things. You can leverage on collateral that you already have here. So there are a lot of advantages. If that's the question you're making of trading locally, then trading offshore. If that's not the point, you can just let us know.

No, no, that's it. Thank you. And congrats for the product. It's been a great one. Thank you.

Our next question comes from Caio Prato from UBS. Please, Mr. Prato, your microphone's open.

Hi, Andre, Fernando, good morning. Thanks for the question. Just one on my side, please, and it's more related to competition. So during the B3 day by the end of last year, you mentioned that management mentioned about the the company can be even more active and creative in launching new products as probably one of the competitors in the street is looking to add new products in derivatives, for instance, and which we can be even faster in asking regulatory approval at some point. So my question is more in this sense. So in addition to the crypto that you just mentioned now in the last question, if the company is already working in some of these potential new products or improvements of existing ones, such as dollar controls or some of these things, and also regulatory approvals and what we can expect going forward from that. That's it. Thank you.

Thanks for the question, Kyle. And you are absolutely right. That's what we are currently working on. You can expect a much more active pipeline of new products that we will be trying to launch this year. The crypto family examples I gave you are just examples of that. We have already submitted some requests of other products, which we will not comment on for the moment, but we will provide you guys with more visibility as we move along in that agenda of new products. during the year, but you can expect a lot of activity on our side in relation to that this year.

Just to complement on Andrea's answer, just yesterday we announced the reduction of the contracts for Igbo Vespa option. So I think those kind of initiatives you can expect to be announced during the year. Small ones like this one, aim it to the retail investor, but others like Andrea mentioned that we cannot disclose at this time.

And the weekly options on the index as well. Exactly, yeah.

Okay, well, that was so recent, right? Okay, thank you. Thank you very much.

Our next question comes from Antonio Huachi from Bank of America. Please, Mr. Huachi, your microphone is open.

Hey guys, good morning. Thank you for your time. So if I could follow up on a point that you guys mentioned in the presentation, so that's TradeMate. If you could provide any detail related to that. So in terms of market share, what's the current size of it? What percentage of traded fixed income does it represent? And also, how can we see TradeMate in your P&L? Thank you.

Thanks for the question, Antonio. As you know, TradeMate today is a platform that is used to trade government bonds and now private, let's say private securities. the market share of electronic trading, especially on both, I would say, is not that big still. Our ambition is for that to become a larger portion of the overall trading activity. We do believe that these platforms will help to increase liquidity in the market, to make the process of settling and those trades between counterparties on the fixed income market easier, more efficient. So that's part of our ambition with that project. uh regarding revenues you we already have some revenues coming from the platform so as kind of a software licensing of the platform which is included in our in our technology uh revenues uh but we do believe that over time as we see this market increasing we could start to see other revenues coming from this activity, from the secondary market. But so far, it is more, at the moment, more a software revenue generated by the platform, but we do believe that this will change over time.

Okay, thank you.

Our next question comes from Yuri Fernandes from JP Morgan. Plus, Mr. Fernandes, your microphone's open.

Thank you. Thank you, André, Fernando. Just a follow-up here on the fixed income. When we look to your volume for most products, like debentures, CDs, we see... many products growing like 20, 25% over a year, your revenues are growing nine and you have some of those new initiatives to improve your fixed income. So can you help us understand a little bit why, you know, like we are seeing a lower growth of revenues on the fixed income side versus the balance of some products? And if you can provide an outlook, how do you are seeing the products, how are you seeing the industry on fixed income? And then a second question is just on also follow up on the crypto, on your incentive plan. If you plan to end this at some point, like what would need to take for you to remove, you know, the rebates for the crypto?

Thank you. I'll start with the one on fixed income and Fernando will help me here with the one on the incentive. On the fixed income, I think, as you know, the fixed income market for us has a different dynamic. A significant part of the revenue comes from the inventory of assets. So it is a revenue that is less dependent on the flow, which is, let's say, very different, for instance, from the revenues that we have on the cash equities market. where it is pretty much all about the flow here. The size of the inventory of the pool of assets matters more than just the inflow, but of course, as you see inflows growing, that typically represents higher inventories and therefore higher revenues. You have to remind, for instance, to remember that even though we saw record volumes on corporate bonds last year, we are still seeing the effects on the reduction of the inventories with the termination of the leasing debentures, for instance. So even though we're seeing volumes growing more than 20%, the inventory of corporate bonds, for instance, was not growing that much. So it has a different dynamic. You will see a more resilient growth and performance over time. So if you see some deceleration, you will still see revenues growing at a lower pace. On the other hand, when there is some acceleration on the inflows, you have revenues accelerating, but not necessarily at the same speed. I think it is important to say that these changes that we are seeing in the market in terms of finally seeing the local DCM market becoming the primary source of funding for companies is something that first adds more resilience to our results because we are seeing, you know, these bonds being issued for longer tenors, which means that they will remain in our custody in our depository for longer and therefore generating more revenues over time. The sophistication that we are seeing in that market opens new opportunities to be explored. We discussed a little bit about the secondary market, but we are also seeing a lot of opportunities for products involving data, for instance. Recently, we've announced the launch of a new fixed income index. Next step will be to develop products that will be based on that index, such as ETFs or even other kind of contracts. We are discussing potential changes in regulation to allow short selling of bonds, which will also be important to develop more liquidity in the market. Over time, we do believe that as this market evolves, there will be room for a credit derivative market. So I think we are very, in summary, very excited with the opportunities coming from the fixed income market. I think we've seen the market really reaching a different level and that opens several opportunities for B3 to explore and help with products that will make this market to continue to develop and evolve. So very excited with the opportunity, with the outlook for the fixed income market.

So regarding the incentives, if I got your question right, incentives for the Bitcoin futures, they will last until April next year. It was a two year incentive program that was when we launched the product. So it was in April this year. So two years, April next year. So it's a one year open contract. for each contract traded by a retail investor. So you give that back to the broker. Regarding other cryptos, if you're going to do incentive programs there, it's usually we do when we launch a product. Well, we always have incentives. I don't know if we have anything. We don't have anything prepared yet. Since we don't have the approvals, but you're almost certain that we will have some kind of incentive programs for other cryptocurrencies futures.

Just a final follow-up here on the crypto, on Bitcoin. Why the RPC is growing for this? This used to be, I don't know, R$2, R$2.50, and now it's running at R$3.50. Can you provide some explanation? I'm just trying to understand the economics, because if you are able to reduce the rebates and keep this RPC, this can be a big win for you.

Yeah, sure. So in the first months, there was a kind of a step over kind of price schedule. So it was when we launched, there was a huge discount that we removed during the subsequent months after the launch. So it was something that was already planned with the brokers and given the success of the program. And then now fluctuates for two different reasons. First, the price of the Bitcoin. So it's linked to the Bitcoin price. So if the Bitcoin price goes up, so you're going to see the price goes up a little bit. And also, since we charge in Brazilian reais, It's also in the Bitcoin futures is in USD. It's a contract that is indirectly linked to the USD as well. So we saw the USD growing. So we did see an impact on the RPC for Bitcoin futures. We don't have any kind of changes in tariffs planned. So you can see moves regarding, like I said, the Bitcoin price and the FX fluctuation as well as in the same modes that we have nowadays with the FX contracts and interest rates and USD contracts.

No, super, super clear, Fernando. And interesting. Thank you very much.

Our next question comes from Carlos Gomez from HSBC. Well, this is Mr. Gomez. Your microphone's open.

Thank you very much. I wanted to return to the issue of competition. It's not your business, but you surely have an idea about how the timeline is for any competitor to set up. And when it comes to linking with you, perhaps using your clearinghouse, have the potential competitors taken any steps or do you have any idea about when you would be involved in negotiations as to putting together your systems? Thank you.

Thank you for your question, Carlos. I mean, we don't have a timeline. I mean, this is something that potentially we need to discuss with this new initiative, this project. What we have been hearing is that some of them are saying that would be ready and operational by uh by the beginning of of of next year uh it seems to us a little bit optimistic but i mean that's that's a question that you potentially should should direct to to those to those uh initiatives uh regarding your point about connecting to our to our clearing house. One of the initiatives aims to use our depository. We have been having some initial discussions in that regard, but it's not something that, you know, it's already set up or working, but we had already initial contacts regarding that connection.

In the previous attempt for somebody to set up exchange, there was a very long period discussion and eventually actually legal action and arbitration to decide on pricing. Has that stage already been reached? I mean, you already know what the financial terms would be of any connection or that's something that still remains to be discussed?

I think we do have some benchmark, let's put it this way, given the prior discussions in the past, but we haven't yet sat down to discuss an agreement or anything like that.

Okay. Thank you very much.

Just as a reminder, if you wish to ask a question, please use the raise hand button or dial star nine if you're using a phone.

Wait, I will pull four questions.

This does conclude today's Q&A session. I would like to invite André Milanes to proceed with his closing statements. President, you may proceed.

I would just like to thank you all for joining our fourth quarter results. It has been a very interesting year. where we were able to show the resilience of our business model. We finally saw the company, the numbers demonstrating the power of our diversification strategy with the top line and the bottom line growing back again this year. We are now very excited with all the opportunities that we are seeing in front of us for 2025. I'd like to thank you all for your support and wish you a very, very nice day. Thank you very much.

That thus concludes B3's presentation for today. Thank you very much for your participation and have a nice day.