Cielo SA

BOVESPA:CIEL3

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to Cielo's Fourth Quarter 2017 Results Conference Call. This event is being recorded [Operator Instructions]

This event is also being broadcast live via webcast and may be accessed through Cielo's website at www.cielo.com.br/ir, where the presentation is also available. Participants may view these slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation via the webcast may post their questions on our website.

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of Cielo's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Eduardo Gouveia. Mr. Gouveia, you may begin your presentation, sir.

[Eduardo Gouveia, executive]

Good morning, everyone. Thank you for joining us on this conference call to discuss our 2017 results. Today, I have here with me, Clóvis Poggetti, our CFO; and Victor Schabbel, our head of IR.

I am very happy to begin this call by saying that the recovery of retail sector and Brazil economy is really happening. Despite coming in a very low pace, we note that the signs of improvement can be seen in both the CBA index and Cielo's number.

Since August, Cielo Broad Retail Index has been recording increasing retail sales after 2 years of shrink figures. On our side, after seeing the worst in that outcome by the end of 2016 and the weak start early last year, we finally had the first signs of material improvement in third quarter, which were confirmed now in the fourth quarter.

As we're going to show in this conference call, Cielo's volume kept growing in the last couple of quarters, and more importantly, the pace accelerated. Some of the figures might not point in that direction due to the effect of migration from multivan to full acquiring model. Excluding this effect, as we are going to show, our volumes not only grew, but also accelerating the last quarter of 2017.

On top of it, credit volumes has also been doing better, a sign that the economic environment is really improving. Also, the pressure that we had in our POS base, mainly at the beginning of 2017, seems to be easing with the number of terminal loss on a sequential base coming down. This overall more positive dynamic contribute to Cielo's net income result, which was again over BRL 1 billion in the quarter, allowing the company to report a BRL 4.1 billion net profit for the full year.

Although the natural competitive scenario that we have in our industry, we are confident that Cielo will continue to be not only the largest, but also the strongest acquirer operating in our market, with a unique cash generation, solid balance sheet. Even though other sellers that we might have to face, we will continue to work hard to deliver better and better results through superior product differentiation and increasing efficiency. The idea is to do more for our clients in a better way, adding value to the merchant and their customers without forgetting about our commitment to cost control. This has been our commitment in the last quarters and will continue to be our commitment for the next and the next quarters and years.

In summary, we are working hard to deliver more. In our view, in an improving economy environment, there will be opportunities for new products and solution to be more easily implemented, helping our customers to perform better, better and sell more.

On our side, the greater product differentiation partnership with our merchant, the better will be our performance and results. That's why 2 of our 4 pillars are clients and digital transformation. There is still a lot to be done and we are only at the very beginning. We are excited about what is yet to come.

With that said, I now would like to hand the call to Clóvis, who will discuss in more detail the trends seen in the last quarter. Clóvis, please.

[Clóvis Poggetti, executive]

[Audio Gap]

-- multivan modality and are now on full acquiring mode. With this accounted, as we can see in this chart on the right, we recorded, for the first time in 5 years, growth of credit volumes higher than that of debit volumes. Here, the main factor responsible for the acceleration of credit volumes is the environment itself since we will have the effect of model migration strongly impacting us most throughout the first quarter of 2018. This is due to the fact that during the fourth quarter, we have rolled out our multivan volumes for full acquiring in only 20% of our Amex customers and 70% of our Hiper customers.

In the next slide, the graph on the left, we try to isolate in a simple and clear way the effects of the model migration process. For this analogy, we only considered the volumes captured in the Visa and MasterCard brand. Through this analysis, we can identify the consistent recovery of our volumes, and we got to 2 basic conclusions. The first one is that during the end of '16 and early '17, due to the combination of a more challenging macro scenario and the process of market opening through the adoption of the Multivan model, we had the company's most difficult time in terms of volumes performance.

The second conclusion we reached is that as of second quarter last year, we started a gradual recovery process, which was followed by a volume-led credit expansion process, which also supports our view that the scenario is actually improving. This, by the way, is consistent with what we have seen in our broad retail index.

The right-hand side graph shows a slow rate of decrease in our POS base, having contracted by 1.6% in the quarter compared to the previous one. As this was the third consecutive quarter where we saw the rate of decrease of POS terminals slowing down, we expect that soon, we will start to see sequential expansion in terminal numbers.

After we have discussion in more detail our original performance mentioned in volumes and terminals, we will now discuss net revenue yield evolution on the next slide. As we have been saying over the previous quarters, while prices did have an impact on lowering yields, it was not the most important factor. Actually, of all factors pressuring the yield, price was the one with smaller influence.

On an annual basis, comparing the fourth quarter of '17 against the fourth quarter of '16, revenues that are not impacted by volumes, of which rent is the most significant, was mostly responsible for the drop. The lower rent revenues and the volume expenses throughout the year brought a 9 basis point negative contribution to our yield. Moreover, the increased participation of the large accounts segments over retail and the increase of importance of debit on our volumes brought another 6 basis points yield reduction.

As far as these contributions, we had the product, Receba Rápido, as the primary cause for a 4 basis point yield increase in this year. As such, lower price represented 6 basis points in the year, being a portion, though not the most relevant one, behind the 17 basis points drop in the yield in '17.

In the quarterly comparison, the rent component remained the main factor responsible for the yield reduction, although revenues were stable in the quarter, having grown marginally. The volume dilution, which seasonally much stronger in the fourth quarter compared to the third, however, led to a negative contribution of 4 basis points. Following the mix effect, here characterized by a greater participation of large accounts in comparison to retail ones, was that in credit, grew in a very similar way, contributed negatively with 3 basis points. The Receba Rápido, or Quick Receivables rather, added 2 basis points. Thus, the 7 basis points drop in the quarter had the price influencing only by 2 basis points.

It is important to highlight that in this analysis, once the growth is more sequential quarter-by-quarter, we choose not to include here the effects of the new brand remuneration structure in order to assure more completeness. The general message is that price was not the main component, although it had in a way contributed to the drop of our yield both in the quarter and in the year.

On the next slide, we highlight expansion recorded in our EBITDA margin. Due to the strong cost control that we had implemented over the last quarters, we were able to record a 5% year-on-year decrease in our total expenses, although we had a small increase in the quarter of 3% related to seasonality. As a result, the company's EBITDA margin increased by 60 basis points year-on-year and by 1.1 percentage points quarter-over-quarter. As I recall, we were able to deliver net income 3% higher than the fourth quarter of '16, with net margin expansion of nearly 2 percentage points.

In the next slide, we briefly highlight the major contribution of Cateno. Following a trend seen in previous quarters, volumes continue to accelerate, which positively influenced our revenue performance in the quarter. In the face of cost and expense efforts with optimization of customer services, invoice and invoicing, for example, we were able to present a robust profit growth in Cateno, which expanded 24% year-on-year. As a result, Cateno's contribution to Cielo's cash income was 13.9%, up from 10.1% in the previous quarter and 4.2% in a year earlier.

Now for the sake of the time to keep a short and direct call with more time for the Q&A, let's move to the next slide, where we present our guidance. We expect, for 2018, a growth of 5% to 7% in our volumes. To do so, we must adjust the 2017 data by the volumes of Elo capture in the multivan mode. Once this adjustment is done on a comparable basis, we should grow between 5% and 7%.

On the total expense side, we should show growth in line or below inflation. Therefore, as we had the increase of the brand fees as of third quarter last year, we must adjust the entire year of '17 for the BRL 130 million incremental in this line. From there, we should grow between 2% and 4%, our total cost and expenses.

And finally, CapEx should be higher than '17 since our POS base should grew again some time in 2018 in the same way that we share of higher-value added terminals, such as LIO, should also increase our investment needs. With this, our CapEx must total between BRL 300 million and BRL 400 million in the year.

With all said, let's move now for the Q&A section.

[Operator]

[Operator Instructions] Our first question comes from Jorge Kuri, Morgan Stanley.

[Jorge Kuri, analyst]

Two questions, if I may. Can you comment on the regulatory news items that came out in the press over the last couple of weeks. First, there was a piece about the government thinking about putting a cap on debit MDR or switching it to fixed fee rather than a percentage of value. What do you think is driving that? What do you think the likelihood of that is? And then there was another piece on the banks wanting to eliminate installment purchases. And can you comment, what's your view about that? Is that happening or not? We've heard from the banks that, that's not the case. But if you have any color on exactly what's driving those commentaries and what is really happening and what type of products are really being discussed, that will be great. And then my second question is on your guidance for volumes. Given the volumes that you achieved last year, which were a little bit ahead of the guidance and around 7%, according to adjustments that you made, is it fair to say that your guidance this year has upside? It does seem that last year was a significantly more challenging year for your business, and you could -- and the economy. And so you can potentially do a little bit better this year. What do you think is holding you back?

[Eduardo Gouveia, executive]

Thank you Jorge. About regulatory, we began to see some movement with the regulators and conditions by our backs. That is very initial discussions. We don't believe in the end of the installment, consider the installment without the interest rate. It's not -- the decision does not make sense. We are discussing about a new way to do the sales [ elimination ] using a much shorter payment for the merchant with interest rates for the users. Then again, it is now beginning of the process, we are discussing with the regulators, that you don't have anything, nothing about concrete, this, inside the regulatory landscape.

[Clóvis Poggetti, executive]

And also complementing here what Gouveia mentioned. We also don't have anything concrete about, for example, something that was highlighted by some articles in the press in terms of capping MDRs or interchange fees for certain transactions like that. So there is nothing really concrete being discussed. As Gouveia said, we only have preliminary discussions about the way that regulation might help develop the market, increasing the penetration of cards in general in the industry. But this will be something more for the medium to the long term than anything for the shorter term.

[Eduardo Gouveia, executive]

It's important point indeed to mention. If the penetration in Brazil continues to -- its own development in Brazil, we are thinking about 30% of penetration in consumption in Brazil, and we believe these, kind of the new products that you can offer to improve the sales, it can increase the penetration and increase the development of this industry. About the volume, about the guidance of volume, we have not changed about Elo, the brand Elo. Until this year, we have been -- the last year, we had the Elo passing through the Cielo for the acquiring process. And this year, 2018, we use the part of this debit mainly of Elo brand here in Cielo. We are very conservative in the guidance, but we believe that you have another process to see the Elo brand passing in this market.

[Clóvis Poggetti, executive]

Jorge, I will take the advantage of your question to bring forth this point. It's very, very important in order to avoid a misunderstandings. And exactly what Gouveia just said, we have 2 different and tough years to compare, '17 and '18, okay? In '17, given that the multivan, the change from the VAN to full acquiring mode started on the fourth quarter. So the point is that we had, for 9 months, volumes that we may say captured by the other players, but that appeared in multi-years because we were processing these, okay? And then the point is that for 2018, we are considering the 12 months of the full acquiring mode. So that's why what we say is take the volumes for 2017, eliminate exactly the volume that were captured by other guys, the multivan volume that is, let's say, stated in our release. And then you get -- you have, let's say, a base to take into consideration in applying this 5% to 7%. Of course, something that is very important also to take into consideration is we are considering market for 2018 growing 9%. If you believe that this 9% may be conservative, of course, our 5% to 7% can also be considered conservative, okay? And the point is why the difference between the 9% to something between 5% and 7%? There is, let's say, effects of the competition and new players still getting in what can be considered fair in terms of share for them. But also, the point that goes back to the fact that the mode -- the full acquiring mode start in the fourth quarter, we still have, let's say, some market share to lose. The point is that we start the year, January 2018, and what cannot be considered the fair share of Elo, okay? So this effect in terms of losing a little bit more and reaching the fair share for Elo, is also included, the effect, in our 5% to 7% guidance that we are giving to you all, okay?

[Operator]

Our next question comes from Craig Maurer, Autonomous Research.

[Craig Maurer, analyst]

Could you discuss, when it comes to the newer competitors you're dealing with in the market, which of those competitors do you see having achieved some solid footing, versus those which you think are still essentially unprofitable, except for prepayment? Like, we've heard First Data is doing pretty well down in your market, but I'm just trying to better ascertain what the competitive landscape looks like.

[Victor Schabbel, executive]

Thanks for your question, Craig. Here, it's Victor. Well, we have basically 2 types of new entrants in our market. One that is basically trying to attack the clients that we are used to work with. So the small and midsized merchants, right? So they are basically trying to replicate what the incumbents already had in the market. So trying just to approach these clients offering price, right, in terms of a way to basically buy market share. But for those trying to do it, the challenge has been on the distribution side, right? So in order to attack these clients that are already quite well served by the incumbents, without an appropriate distribution channel and also a supply chain for you to offer the appropriate maintenance and all the logistics support that the client need, it's quite tough. Those are the ones facing greater difficulties, right? So probably not making money. If making any, probably mostly driven by the prepayment, which as the banks come back, probably will see some pressure on the yields. The other type is basically the ones that are trying to sell terminals for very small clients, most of them individuals in the informal market, without providing any support. Those found out a niche to explore. By selling the devices, they basically avoid delinquency, avoid the fact that they need to provide the support in case a rental were to be offered. And these ones are being more successful for now. The incumbents obviously are going for this segment as well, selling terminals as well, in order to explore a market that was not explored before. So these are basically the 2. I think the latter is being more successful than the first one that I mentioned. But even the latter will now face greater pressure coming from the incumbents going forward.

[Operator]

Our next question comes from Tito Labarta, Deutsche Bank.

[Tito Labarta, analyst]

A couple of questions also. First, on the outlook that you gave. So volumes, I understand. Maybe trying to understand the relationship with revenue trend. We saw a lot of weakness in revenues in 2017, so we saw the decline. Now this year, do you think the relationship holds? Or should it be a better outlook for revenues this year, we can grow a bit more in line with volume? And then the second question in terms of Stelo, which you recently announced you're buying the 100% of this. How relevant, do you think, that business will eventually be for you? Do you think it would be -- just give some color on that, on how important you think that will be.

[Clóvis Poggetti, executive]

Tito, we got your first question. Could you repeat the second one, please?

[Tito Labarta, analyst]

Sure. The second question would be about Stelo and the recent acquisition of the remaining 70%. Just how quickly do you think that will grow? And how relevant will it eventually be for you?

[Eduardo Gouveia, executive]

Tito, it's Gouveia. We expect that improvement in rental revenue we saw in the last 3, 4 months. This rental having fled to a little bit more better in the last month. Then when compare improvement in the rental revenue with the volume in the mid space, we regard the -- see in the next quarters an improvement in the relation between volume and revenue of rent.

[Clóvis Poggetti, executive]

And I would also add, Tito, the mix effect. Let's say comparing '17 to '18, given that credit should perform better because of the market situation, and also in our case, the fact that now in the first -- in the beginning of the year, we start gathering Amex and Hiper. So the proxy between volumes and revenues in '18 should be better compared to what we had in '17.

[Victor Schabbel, executive]

And moving to your second question, Tito, about Stelo. Until we get all of the regulatory approvals that are needed for us to consolidate the company 100%, Stelo will keep operating based on its strategy. In the previous months, Stelo has been working with its partnering banks selling devices in a basically trial that they have been carrying out in a couple of cities in Brazil. So the idea is to explore the banking channels going forward. And given the demand that the banks have been saying that they have, this is a business for -- reach something like 100,000, 150,000 clients a year, right? After we get all the regulatory approvals, then we will be able to consolidate the company and think about other channels and other alternatives. Until then, Stelo will be running as it is, okay?

[Tito Labarta, analyst]

Yes. It's very helpful. Maybe just one follow-up, I guess, on the revenues. I understand that the relationship should be better this year. So is it safe to assume that we should see revenue growth this year, maybe in the low single-digits? Is that a fair assumption?

[Victor Schabbel, executive]

Well, in terms of the revenue growth, although we don't provide a guidance for that, it should be -- it's likely below the volume growth that we expect, given the natural compression that we have every year in terms of MDRs. So the good news is that after a year, that where we had greater pressure on prices than the normal or than the pressure that we had in previous years, now we should resume having a much softer pressure in terms of prices, benefiting from the mix, as Clóvis highlighted. So if we are talking about a 5%, 7% growth in volume, our revenue at Cielo Brazil should follow a path similar, but below this threshold. So you are right. So something like low single digits makes sense.

[Operator]

Next question comes from Mario Pierry, Bank of America Merrill Lynch.

[Mario Pierry, analyst]

I have a question related to your Receba Rápido product, the one that you paid the retailer in 2 days. We see that, that is already about 7% of your regular purchase of receivables. So just wanted to understand here, if you could discuss the profitability of this product. How big do you expect this to get? And which clients are being offered this product? And my question is why wouldn't everybody switch to this product instead of the regular receivable payment?

[Eduardo Gouveia, executive]

Mario, it's Gouveia. Yes, thank you for the question. We see the opportunity. We talked a little bit here about the -- we have the payment business and we have Receba Rápido. Depends on the kind of the customer. For the small guys, to have the Receba Rápido, in a simple way, automatically process, it's a little bit too big to sell. Then we believe that the combination of this 2 products will increase our revenue of quick-paying business. Then we are putting a lot of focus to sell the new way to penetrating the -- even the small one of -- the small customers of this type. Then we believe that is the only process to offer for some kind of this new kind of customer. And we believe that we will increase the total volume of this operation as well.

[Mario Pierry, analyst]

So do you think, Gouveia, that this product could eventually eliminate, completely eliminate, the receivables?

[Eduardo Gouveia, executive]

No, no, no. It's a complement. We believe that the sum about the quick-paying business for us, Receba Rápido is bigger than one product where you're having -- the last year. It's a complement of offer that we are putting now, our portfolio.

[Victor Schabbel, executive]

Sorry Mario. Just to complement here. It's just another product, right, that we are offering to serve specific needs of certain type of clients that we have, right? So for example, if you simplify, right, this analysis. If you look at the very big merchants, usually, they don't have needs to prepay anything. If they do, it's -- sometimes, it's in specific situations. Then you move down in our pyramid. You have the medium-sized merchants. These are guys that more often require money and go for the prepayment, the regular one, to prepay certain amount, the sales of the previous weeks, the sales of the last month and something like that, just to boost the working capital needs because they know that this has a cost for them, right, the prepayment rate that they have to pay. And then you have the smaller guys, the very small clients, that want to have a very simple and straightforward operation. They are not sophisticated and they want to receive the money fast. For these guys, the Receba Rápido, or Quick Receivables product, makes a lot of sense, right? Because it's incorporated into the service that we are offering and they receive the money quickly in a very simple way, right?

[Mario Pierry, analyst]

Okay. And how does the profitability of this product compare to the regular purchase of receivables to you?

[Eduardo Gouveia, executive]

It's better. It's better.

[Victor Schabbel, executive]

It's more refined.

[Eduardo Gouveia, executive]

It's more refined, yes.

[Mario Pierry, analyst]

Okay, because -- okay. And then on the question on all the regulatory noise that we've been hearing, you mentioned, right, that you think it's unlikely that they kept the debit MDRs and things like that. But what about the payment cycle? Has that been discussed again about reducing the payment cycle in Brazil from the 30 days?

[Victor Schabbel, executive]

No, Mario. What we have been seeing is that the market has basically been working on a market-oriented solution, right, for the basic payment cycle. As you have more players working with payment into base through products like us with the Receba Rápido, you're in a -- sort of a way, you are already basically addressing the working capital constraints that impact mostly the small and less sophisticated clients, right? These are the ones that are mostly hit by the 30-day settlement period, right? So they need money. They don't have the appropriate sophistication to deal with, all the managerial skills needed to run a business. So these are the guys more impacted by the settlement period. Those moving up in our pyramid, for example, they are more sophisticated. They have other sources of funding, they are less exposed to the settlement period. So the market itself, the industry itself, has been working to address the situation of the 30-day through products, right? So it has been more like a market-driven solution than a regulatory one.

[Operator]

Next question comes from Carlos Gomez, HSBC.

[Carlos Gomez-Lopez, analyst]

I wonder if you could give us some guidance for your Cateno business, which seems to be doing particularly well. And whether you have been taking conversations to perhaps expand it to other financial institutions. Second, you are now seeing a decline of POS of 15%. What is your expectation for 2018 and 2019?

[Victor Schabbel, executive]

Can you repeat just the second question? We got your first about Cateno, but we unfortunately didn't get the second.

Okay, let's just start with the first one then.

[Eduardo Gouveia, executive]

About Cateno, we are seeing a good results the last year. We saw improvement in some process of issuing cards and [indiscernible] this business. Then, we worked hard to control cost in Cateno and improve the revenues and the process of this company. We work in the strategic planning of Cateno, and we believe that you have new lines of business of discovering. Cateno, for us, is a good business that we like seeing in our results.

[Clóvis Poggetti, executive]

And just to build up on Gouveia's comments, it's worth it to remember that we think that Cateno are delivering exactly what was promised when we announced the deal. That was exactly having a positive contribution from a cash based profits in '16 and in '17 accounting based concept. And despite all the, let's say, challenges in terms of the market because Cateno was also affected in terms of the top line, given the efforts in the costs and expenses, the bottom line is accordingly to what was -- as they expected previously. So something that we are very proud of and I would like to highlight here.

[Eduardo Gouveia, executive]

It's good in Cateno that exposing the issue gives us. And joined with [indiscernible]. The new thought to have Cateno here with Cielo is something to mitigate risk of the business.

[Victor Schabbel, executive]

Unfortunately, we got Carlos disconnected, so we couldn't hear the second question. We are going to move forward.

[Operator]

Our next question comes from [ Gabriel de Nobrega ], UBS.

[Unknown Analyst]

I actually have a follow-up on the Cateno business. We have seen that over the -- in past quarters, this business has actually represented a growing share of your net income. I just want to understand if you have a level in mind that it could reach. And my second question, it's relating to your prepayment business. We have seen that volumes actually -- sorry, that revenues actually decreased in this quarter. And as we move into 2018 with the lower interest rate and also an improvement of the economy, how are you evaluating these new trends on this business line?

[Clóvis Poggetti, executive]

Well, with regard the first questions, Cateno, there is no specific margin. The idea is to, let's say, benefit the most we can, and doing already that in the best way possible. And the second question?

[Victor Schabbel, executive]

Yes, on the prepayment side. Victor here, I'm going to answer you generally. So we should probably keep seeing the penetration of our prepayment business between mid-teens to high teens in 2018. Probably as you said, with lower rates and the banks coming back, offering more credit to clients, there should be some gradual decline in our spreads, so this is something to be expected. But this gradual decline of spreads might be offset by the fact that these penetration that we are going to sustain will be on a bigger base, right, as the credit, as we saw in the fourth quarter is accelerating, is doing well. And given the share that we should lose in Elo, which is mostly valid, should outpace that in our case, right? So we are going to see credit growing probably well through 2018. And this should definitely help offset the lower rates in the prepayment business.

[Operator]

Next question comes from Alexandre Spada, Itaú BBA.

[Alexandre Spada, analyst]

I have 2, actually. First one is as per the numbers shown in the presentation, one of the key components of the revenue contraction in 2017 was the mix between large and small merchants. So do you believe this trend of seeing the mix becoming more concentrated in those larger merchants will be reverted in 2018? Or do you think it's fair to assume that because of Cielo's strong franchise and because of the behavior of the competitors, it is more likely that Cielo's mix will continue to shift towards the large merchants in 2018? And then I'll come back with the second one.

[Eduardo Gouveia, executive]

Thank you, Spada. We believe that you have a gradual improvement in this mix, large account and small account merchant. And if the market continues to increase and be better in the future, it will be better for us. And we saw some banks issuing their results, and showed to the market that they improved the credit line for the small business. And we believe that we will have, in 2018, a gradual improvement in the mix between small account compared with big account.

[Alexandre Spada, analyst]

Okay. And if allow me a second question. I just want to confirm if I understood correctly the cost guidance. So you said that in order to reach the total cost and expenses expected for Cielo Brazil and Cateno, we should start from the 2017 number, deduct BRL 130 million approximately and then add 2% and 4%. Now the question is should we annualize the 130 million and add on top of the 2% to 4% to reach of the total number for 2018? Or that's not necessary?

[Clóvis Poggetti, executive]

Well, so let's start with the first one, you are correct. Okay. So to make it clear to everybody, the cost and expenses that we post in '17 eliminates BRL 130 million. That's exactly how much we have in terms of the -- because of the new strict price for one local brand, okay? And then you apply the 2% to 4%. So that part is correct. The second one is, well, should we, let's say, take the BRL 130 million, given that it is for 1/2 and multiply by 2, the answer is no. Because as we mentioned in our previous question, we start generate, let's say, above what can be considered our fair share for the Elo brand. We expect, okay, that's natural to lose a little bit volume in terms of Elo, reaching in a certain moment this year, what can be considered fair in terms of the market share to Elo. That's why it's not correct to take the same, the 2017, which you multiply by 2, take that as the cost.

[Alexandre Spada, analyst]

Okay. But anyhow, we should add something that will be related to those incremental fees you are paying, right? It's not simply plus 2%, 4%. It's plus whatever it will be this number.

[Clóvis Poggetti, executive]

If you had mentioned what is going to be posted and stated and comparing post -- to '17 with what is going to be posted, figures will be slightly different, okay? What we are trying to help you all and what we are guiding is, let's say, what can be in a more regular basis.

[Alexandre Spada, analyst]

Yes, I understand, so apples-to-apples. But then, the real number will have something else, right? That's the point.

[Victor Schabbel, executive]

It is exactly perfect. The problem -- the reason why we did that way, Spada, is because since this is related to brand fees regarding these specific brands, and we are going to lose share in these brands, we are also going to spend less with these brands going forward. So the amount that we have spent in the second half last year cannot be analyzed and cannot be used as a pure reference going forward. That's the problem. So the best way for us to help you guys out was, okay, let's exclude the BRL 130 million from 2017 and think now about the 2% to 4% growth with something extra coming from the brand fees.

[Eduardo Gouveia, executive]

Below the inflation also.

[Alexandre Spada, analyst]

So let's say if you lose 20% of the Elo volume, it should be, like, BRL 130 million times 2, minus 20%. Can we think about it that way? Just thinking about it on modeling, for our modeling procedures now.

[Eduardo Gouveia, executive]

Yes.

[Victor Schabbel, executive]

Yes.

[Operator]

Next question comes from Gustavo Lobo, JPMorgan.

[Gustavo Mendes Lôbo, analyst]

I have 2 questions. So the first one is regarding marketing expenses, it is most -- a good part of the decline in expenses in 2017 was related to marketing. And we are seeing that you are losing market share in small merchants, which could potentially put more account to become clients, if there were more marketing expenses. So just trying to understand what should be the trend for this line in 2018. And then I have second question afterwards.

[Eduardo Gouveia, executive]

Thank you, Lobo. We are not saving the money in the marketing media line. It's more related by past partnership with bank and campaigns. Again, we are continuing to invest in our position, and we changed a little bit from the mass media to more online media, performance media, and we got a lot of good results in the brand perspective we are doing. Again, we are not saving money in our marketing. It's more related by campaign with the partnerships.

[Gustavo Mendes Lôbo, analyst]

Okay. Understood. And my second question is regarding Merchant E-Solutions. So what's the strategy for this unit in 2018? Should we expect any big improvement in the results? Or is a potential divestment in the agenda at this point? If you could just share a few thoughts on Merchant E, it would be great.

[Victor Schabbel, executive]

Lobo, thanks for your question. Victor here again. So there is no big news there. So Merchant E, as you know, was bought for us to bring the platform down here to Brazil. After that, we organize the company in the last couple of years, moving it from the West Coast of Atlanta, changing a little bit the structure to better reflect its market positioning, but that's it. Merchant E continues to move forward there. There is no, let's say, big change to what we expect or to what we have been doing there, okay? There is no big news there.

[Operator]

This concludes today's question-and-answer session. I would like to invite Mr. Eduardo Gouveia to proceed with his closing statements. Please go ahead, sir.

[Eduardo Gouveia, executive]

So thank you all for the conference call of the fourth quarter of Cielo. Thank you for the participation and go ahead with us. And we are very confident that we have a good year this year. Thank you.

[Operator]

That does conclude the Cielo's audio conference for today. Thank you very much for your participation. Have a good day, and thank you for using Chorus Call.