B3 SA Brasil Bolsa Balcao
BOVESPA:B3SA3
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B3 SA Brasil Bolsa Balcao
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Good morning, ladies and gentlemen, and welcome to the audio conference call of B3's Earnings Results for the Third Quarter of 2021. [Operator Instructions] As a reminder, this conference is being recorded and broadcasted live via webcast. The replay will be available after the event is concluded.
I would now like to turn the conference over to
Marcela Bretas, Head of IR and Strategic Planning.
Thank you. Good morning, everyone. Thanks for joining our call. This quarter was very important to B3. We had several important strategic advances over the last couple of months that I'd like to share with you. So in October, we announced the acquisition of 100% of Neoway. Neoway is one of the largest data and analytics and artificial intelligence companies in Brazil. For this acquisition, we are paying BRL 1.8 billion, and it's in line with our strategy to diversify revenues and look for companies that have attractive growth opportunities within what we consider to be a first adjacency to our core business.
Neoway reinforces our product development capacity and accelerate our go-to-market for data and analytical products. And we are hoping to obtain over the next few weeks the necessary approvals to go on and close this transaction. So this transaction is subject to a shareholders' approval. We've called for an ESM in early December, December 9, and we hope you guys do join and participate in this meeting. And also, we are pending regulatory approvals from both, CVM and CADE, which is the antitrust entity here in Brazil.
Also in October, we announced an investment in a company called Pismo for $10 million, Pismo is a taxing company that offers a platform -- technology platforms in the cloud for financial services. It's a very interesting company and a very high growth one with differentiated product portfolio offering. And we think this acquisition will help us strengthen our relationship with a key supplier for future developments here at B3.
Finally, in October, we also obtained the regulatory approvals from CVM and CADE to close the investment in Dimensa. Dimensa is the company of TOTVS that we invested in BRL 600 million in exchange for a 37.5% stake.
Also, as a highlight for the quarter, we had the issuance in September for bonds amounting to $700 million with a 10-year tenure and a semi-year payment of interest in the amount of 4.125%. This issuance diversifies B3's sources of funding, and will provide funding for us to pay debt scheduled to mature in 2022. This issuance was -- B3 became the first exchange in the world to issue a sustainability-linked bond that has 2 sustainability targets linked to it. The first one is the creation of a diversity index here at B3 by December 24, and the second one is to increase the percentage of women in leadership positions here at B3 to a minimum of 35% by December 26. With this new debt issuance, B3 reviewed its leverage guidance for the year from 1.5x to up to 2x EBITDA of the last 12 months.
Finally, I'd also like to highlight 2 important operational developments for us. The first one was the amendment of the corporate law here in Brazil that now allows for super voting shares to be issued by companies that are looking to IPO here in Brazil. This is an important development for the local capital markets and will likely incentivize a number of companies that were considering IPO in other markets to list locally. B3 has actively participated in those discussions and think this is a very important development for the local market.
Additionally, in the end of August, we obtained the approval from the Central Bank to go ahead and establish our receivables platform that is in a trial phase as of now and will likely be launched by year-end.
Moving on to financial and operational results. In the third quarter of '21, we saw interest rates rising as a result of higher inflation. But even with this scenario, we saw growth in all of our segments' revenue line. We have achieved record levels in terms of capital raising here at B3 with close to BRL 50 billion being raised through 25 offers, of which 17 were IPOs and 8 were follow-ons.
Year-to-date, capital raise through IPOs and follow-on has reached BRL 127 billion here at B3. Revenues reached BRL 2.5 billion which is in line with what we observed in the second quarter of this year and with what we have in a small increase versus last year. When we disconsider provision reversals that we had in the second quarter of this year and the third quarter of last year, revenues were 7% higher than last year and in line with the second quarter. EBITDA has reached BRL 1.8 billion, a 9% growth compared to third quarter '20.
Moving on to highlights of volumes. In the listed segments, ADTV for shares, for equities reached BRL 31.5 billion in the quarter, almost 10% higher than what we had last year. And it's 5% lower than what we had in the second quarter, which is explained partly by the seasonality that we usually observed during the vacation months of the Northern Hemisphere.
In listed derivatives, ADV grew for all contracts in line with higher volatility that we observed in the market. In our OTC segment, volumes were up -- revenues were up 11%. We saw funding instruments issuances rising 3%, mostly driven by time deposits and fixed income stock was up 10%.
In the Infrastructure for Financing unit, volume was up -- revenues were up close to 11%, driven by higher -- stronger volumes of vehicle financing and also real estate financing activity. In the Technology & Data segment, revenues were up 19%, driven by the number of clients that we have in our multi-utilization service which are a reflection of a more active buy-side industry here in Brazil. And we also saw an increase in data revenues driven partly by exchange rates.
With that, I want to open up for questions. Thank you very much, everyone.
[Operator Instructions] Our first question comes from Ricardo Buchpiguel, BTG.
And congrats on the good results. I have one question here. In the past couple of years, we haven't seen turnover loss before the equity accelerating significantly or was that a different reason. But with a more challenging market environment, where that requires that turnover decreased sequentially. I understand that there is a lot of uncertainties involved, but could you please comment on our view for how turnover should behave in 2022 compared to the level we saw in this quarter?
Ricardo, thanks for your question. It's a tough one to answer. You are absolutely right. Over the last couple of years, we saw a sustained increase in the level of turnover velocity here at B3. That is explained by several different factors. So at first, when the -- early 2020 when the pandemic hit, that turnover velocity was driven mostly by volatility. But as volatility started to decline, we saw other factors coming in and playing a role in helping sustain higher than what we had observed historically in terms of turnover velocity. So one of the drivers of higher turnover velocity is more investors coming in our equities business.
So this is a trend that started in 2019. We started the year with close to 800,000 accounts at the depository, and we finished the year with BRL 1.6 billion -- BRL 1.6 million, I'm sorry. So this is something that was driven by a decrease in interest rates. And since then, this number has multiplied by almost fivefold. So now we are running with close to 5 -- 4 million accounts at our depository. And new investors that come in, they have an immediate impact on the increase in turnover velocity here at B3.
Additionally, we saw a sustained demand from especially local institutional investors as they navigated a scenario where real interest rates were at its lowest point in Brazil ever. So this sustained demand from both retail and institutional local investors over the last couple of years, has encouraged several companies to come in and go ahead with their capital raising plans. And then we saw a number of IPO and follow-on offers taking place at B3, both of which contribute to the increase of ADTV, both in the market cap line as well as in the turnover velocity side of the equation. We are seeing sort of a shift in terms of ADTV from the sectors that we typically had a higher weight in the ADTV to other new sectors starting to gain importance in those sectors such as retail, technology, et cetera. They typically come with a investor behavior that has a higher turnover velocity.
Also, we have worked and promoted a number of new products, such as, BDRs, for instance, and ETFs that have been major hits with our investors. So to give you a sense, BDRs in the beginning of 2020, they represented about BRL 20 million in ADTV, and now this number is closer to BRL 400 million. Combined with ETFs, we now have ADTV from these new classes of products that have gained importance over the last few months of adding up to almost BRL 2 billion in ADTV. And finally, I think it's worth mentioning that we implemented in February a new pricing table, this intermediary model that we've been talking about, that incentivizes 2 classes of market participants that also might have an important impact on turnover velocity, which are retail investors by the exception of the fees that they pay in our depository as well as daytraders for which we are offering deeper discounts for their transactions.
So if those 2 groups of clients -- if we are successful in our strategy and those 2 groups of clients increase the volumes that they trade here at B3 that also might play a sustainable part in keeping turnover velocity at higher levels.
Finally, we just had this change in corporate law that I mentioned, allowing for super voting rights. We'll still have to wait and see what the impact of this will be. But potentially, theoretically, what we could see is companies coming in with higher free float -- in order -- in their IPOs and follow-ons, allowing with higher free float that also tends to have an impact on turnover velocity.
So with that, all I'm saying is that structurally, we had some factors that played in to justify a higher turnover velocity. On the other side of the equation, what we'll have to balance is the increase we are observing in interest rates and how this will play out over the next few months, so we'll kind of have to wait and see. Sorry, if I can't be more precise in my answer.
Our next question comes from Carlos Gomez, HSBC.
First, I would like to know if you could give us an update on your legal contingencies, in particular, the one disclosed recently about the case coming back from 1999. We saw that you updated the amount. And we would like to, well, to know if you have any news and when you expect the court to take the course -- to take the case and to issue a resolution if you have any new information?
And second, I would like to ask about the change in leverage. I mean, you have taken more, you have changed the guidance. We're in the middle of an interest rate cycle everywhere, rates are going up. Is this the right time for you to be taking on more leverage? And congratulations on the results.
Carlos, thanks for your questions. So the first one, if I understood correctly, you want to talk about the case from [indiscernible] that we announced the reclassification last quarter. So this -- so in this case, we have no news since then. I think it's probably going to be a while before we have anything to report on that front. Our lawyers, their best guess at this point that it's likely going to take probably another 3 years -- 2 to 3 years for us to have a trial -- a new trial on this case. And it's unlikely that we'll have any news to report on that front in the near future.
On the leverage front, I think here, we -- there was -- we have some debt redemptions scheduled for next year. And I think 1 of the goals was to prepare ourselves ahead of an election year that is -- in the coming year, we'll have elections. And typically, what we see in election years is a more -- probably a more volatile market that could impact our ability to raise funds at an attractive rate. So we wanted to anticipate ourselves in case that scenario materialize, and we wanted to take advantage of a good market conditions that we observed and prepare ourselves liquidity-wise. And this increase in leverage should be temporary.
Okay. That's clear then. And on the first case -- sorry, on the legal case, can you remind us what the interest rate is accrued for the amount at risk?
It's sort of an inflation index plus 6% a year.
6%. Okay. So is the -- what is it, the São Paulo Court index or?
Yes. [indiscernible].
[indiscernible]. Okay.
Our next question comes from Ian White, Autonomous Research.
Just a few questions from my side, please. First of all, on Neoway, I wondered if you're in a position to provide any update on the synergy opportunities there at this stage. I think I heard from the call you had recently, this was something you were still exploring and there might be some guidance in the future. So anything else that could be said on that would be of interest, please?
And secondly, can you help me understand roughly what percentage of your revenue is inflation linked? Is it substantially just the Technology and Data contract? Or are there other areas where you have inflation linkages within pricing agreements, please? And finally, can you help me understand what has happened in other revenue within Technology and Data during the quarter? I think it was fairly healthy, year-over-year growth, but sequentially stepped down about 28% versus 2Q '21. So just keen to understand what's changed there, please?
Ian, good to hear from you. So on your first question regarding synergies arising from the Neoway transaction. We anticipate mostly synergies coming on the revenue front from potentially new products and leveraging on their established platform to accelerate our go-to-market for our Data and Analytics products. We are not providing at this time any guidance related to the level of synergies yet. We are working on trying to detail these new initiatives that would -- we could potentially develop in partnership with them. But at this point, we're still waiting for the antitrust authorities' approval. So we are somewhat limited in the work that we can do and the level of granularity that we can have. So we are working on putting together this plan and will detail this over the last -- over the course of the next few months.
But as I said, we expect important synergies coming from the complementarity of the data that we -- both companies have, B3 and Neoway. And from the platform that they already have in place as a distribution platform for our Data and Analytics products for B3, not only for the credit and retail segments, but potentially also for the data for capital markets and financial services that we are working on.
Moving on to your second question which was -- the second question, can you repeat that? Sorry, Ian.
Yes. Yes, sure. I just -- I was just wondering if you could help me understand roughly what percentage of your revenue is inflation-linked?
Sure. So directly inflation linked, we have part of the technology monthly utilization line is typically, annually, we adjusted by inflation. In our Infrastructure of our Financing unit, the services that we provide for the SNG and the contract system, typically also annually, we adjusted by inflation. And in other segments, we have the indirect benefit from inflation in the sense, for instance, for typically, volumes could increase in the listed segments with more inflation, right? So as we charge a basis point fee on the volume that is trade or the number of contracts that is negotiated that will tend to capture some increase in inflation in some form.
Also in the OTC segment, we have the stock of fixed income instruments here at B3 being sort of adjusted by nominal interest rates. So this should also capture in some form and we charge basis point fee on this as well. So this sort of captured the increase of inflation as well.
So I think for most of our revenue lines, we are sort of protected from inflation in the sense that volume -- either volumes or prices will tend to grow at least with inflation.
And finally, for your question, Fernando will address your question on the other revenue line in the Technology and Data services.
So it's mostly about the services. So we have a drop in auctions that we held -- that we hold in B3. So we have a platform for auctions, there was less auctions this quarter. And fines, which is -- we have a market participants that doesn't comply with some rules about our settlements. We have a fine and there was a decrease in that also in the quarter, but it's not something that is relevant.
Our next question comes from Kaio Da Prato, UBS Bank.
I have 2 questions here, if I may, please. The first is related to the average fees charged on the equity side. We saw a reduction again this quarter with the implementation of more incentives in June. Just what -- would like to have an update and understand if our pricing changes were already implemented now? And what are you expecting in terms of prices for the following quarters? And the second is related to the public hearing in CVM. Just wondering if you have -- if you expect any movement until the end of this year? Or if you have any update on the time line for the resolution, please?
So your first question -- I'll start by the second question with -- about CVM and the public hearing process. We do not have any insights in terms of timing here to share with you guys. So it will -- it's completely up to CVM's discretion. So we, unfortunately, do not have any update to give on that front.
Second question about the pricing for the equity segment. We -- as of now, we have not implemented the full model that we intend to do. We are still working on it, and it's still very much our intention to go ahead with the full model as soon as possible. But again, we are here not completely in charge of the timing of it. We are hoping to go ahead and complete the full model as soon as possible, hopefully, over the coming few months.
On regards to potential prices fluctuations you might see, it's sort of the characteristic of this new pricing table that margins will adapt and adjust according to volumes. So in a quarter in which you'll see higher volumes, you probably will typically see an average lower ticket and vice versa. So this pricing might fluctuate, and it's sort of the nature of the new pricing scheme that we are implementing.
Okay. Just a follow-up on this. Just to have the full implementation, what is missing on your side today?
So in order to have the full implementation, it is required that all market participants make some adjustments to their systems. So that we -- it's an ongoing process, those adaptations. And once it's finalized, then we'll be able to implement the full model.
Our next question comes from Tito Labarta, Goldman Sachs.
A question on the goodwill lawsuit. You released a Notice to the Market during the quarter, I guess, in 2017, potential financing is BRL 240 million. Just to understand -- or BRL 204 million, what is the impact or the potential tenancy on that one? And then just on the total goodwill lawsuits, what are the potential, if you can just kind of remind us the total of potential penalty from the goodwill lawsuit? And then there was another one related to the tax rate for the CME, also about [ BRL 1.1 billion ]. If you can give us what is the potential risk there? Would you provision anything for that? If you can just give us an update on that as well.
Tito, so this new goodwill notification that we received from the IRS is a total of close to BRL 200 million. It's just -- basically just penalty because for the time period to which it relates we actually had a net loss. So we hadn't compensated in that quarter any gains with the [ tax issued ] from the goodwill. So it's basically just a penalty and it amounts to close to BRL 200 million. The outstanding cases that we had prior to this, the amount to -- close to BRL 12 billion. And -- so that's sort of where we stand and no new development in the other cases that we have outstanding.
So Fernando will talk a little bit about the CME case.
Tito, so the CME case, we had a stake in CME, about 5% of CME. So we saw that a part of that in 2015 and some part of that in 2016. So there -- the case that we are discussing now, it's a case in the 2016. So it's about the FX variation on the investment that we had when we sold our stake in CME, we recognize a gain. And this gain, we included the FX variation, which was favorable to us. So the IRS is disputing that with us, and we are more than confident that we are going to also win this case because we did everything strictly by the law. We couldn't do any other way. So we just recognize these effects of variation on the investment, and we recognize that when we were paying the taxes. So that's about it.
We had another case. This is about the 2016 case, the 2016 sale, and the 2015 sale is also disclosed in our reference form. So if you want to check it out, it's there, okay?
All right. And so just on the CME, I think it was BRL 1.1 billion, right? That's the potential. I don't think that you don't think you'll lose, is that what you think?
Yes. No, we don't. We are pretty confident that we are also going to win this case.
Okay. Great. And maybe just one question on the receivables market. I think you said -- just remind us, when do you expect to start? And I know there's been some several issues there. I think on the interoperability and settlements of transactions? Do you think that will be a concern for you as you enter that market? How comfortable are you that those issues will get resolved? And what is the potential upside that you may see for you in terms of your revenues that may come from that?
Tito, we are in the pilot test phase of our platform, our intention is to launch it by year-end. I think we are pretty comfortable with the stage that we are in, in terms of interoperability and how the platform is working. I think the market seems to have overcome the difficult technical difficulties that we had in the past.
For us, it's -- it could, potentially in the future, become an important revenue opportunity, but it's likely that it's going to take some time to build volumes over there. So we are -- at this point, as you know, we don't disclose guidance in terms of what we see as revenue potential, but -- and this will probably likely be a gradual process of buildup, but we are optimistic about the potential size of this market in the future.
Our next question comes from Antonio [ Jouet ] from Bank of America.
My first question here is on revenue diversification. If you could comment on the multiple business lines that you are adding? And if you have appetite for further M&A activities, specially on data and just short to midterm after Neoway?
And a second question here, if you could comment on the behavior of the retail investor after the strong addition in traders over the next years -- over the last years. How did they behave over these last 3 months with a greater market uncertainty, especially in Brazil?
So starting with the strategic view that we have on Neoway transaction and overall our strategy to expand. After the merger between BM&FBOVESPA and Cetip back in 2017, we designed a medium-term strategic plan for B3, in which we decided that there were basically 2 pillars for our strategy going forward. The first one was to strengthen and maximize the potential of our core business.
And the second one was to selectively look for growth opportunity in what we consider to be first adjacencies to our core businesses, diversifying our revenue streams. So the acquisition of Neoway is in line with the second pillar as well as is the case for the investment in Dimensa.
So in these 2 cases, what we saw were markets that were very close to our core business, serving potentially very similar clients and offering new products that we see a great growth potential going forward. So data -- for sure, Data and Analytics, it's an important avenue for us to pursue in terms of future growth, as you probably see other exchanges around the globe have been very active in growing the data revenue lines. It provides a new source of revenues that is typically less transaction-oriented and it's high growth. So we think that in B3, we have very unique data that we could lever on and offer products to the market that could really add value to our clients' credit activities, their assertiveness in their sales and marketing efforts, in their KYC and AML practices. So we think those products could really add value, and that could be a very strong demand for this.
So definitely, data is an important avenue of growth that we want to pursue. And we'll -- we have several organic initiatives within B3 in line with this strategy. And eventually, we might consider doing M&As when we think that this will either bring us an expertise that we don't have in-house or provide a faster go-to-market or bring in a complementary data or help us in our product development efforts. So that's what we did with in the case of Neoway.
Moving on to your question relating to volumes. And if I'm not -- if I understood correctly, you're asking about the volumes of daytraders in a scenario where you see more volatility. Was that it?
Yes, and especially, in Brazil have a certain macro and which we added a lot of investors over the last years. So how are they behaving now?
So for now, we continue to see an increase in the number of both retail and daytraders here at B3. It's -- as we disclosed, the number of accounts, depository grew 4% sequentially. So we continue to see this trend playing out despite the scenario of higher interest rates.
[Operator Instructions] This concludes today's question-and-answer session. I would like to invite Marcela Bretas to proceed with her closing statements.
Again, everyone, thanks so much for your time and for listening to our call. Your continued support to B3 is very important to us. The full IR team is available if you have any follow-up questions, we'll be glad to talk to you. Thanks so much, and have a nice day.
That does conclude B3's audio conference for today. Thank you very much for your participation. Have a good afternoon, and thank you for using Chorus Call, Brazil.