Good morning, ladies and gentlemen, and welcome to the Audio Conference Call about Earnings Results of B3 for the Q2 of 2020. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions to participants will be given at a time. As a reminder, this conference is being recorded and broadcast live via webcast. The replay will be available after the event is concluded.
I would now like to turn the conference over to Mr. Daniel Sonder, Chief Financial Officer of B3.
Hello, good morning. Thank you, everyone, for joining the call. I just want to take a moment to thank the Investor Relations and the finance teams as well as the communications teams. They do the hard work of preparing all the materials and putting together the information for you guys. And I hope everyone also is doing fine and taking care of themselves.
I wanted just to start with a brief statement. We had a good quarter in terms of revenue growth. We saw a recovery of asset prices in the markets, driven largely by actions both on the monetary and the fiscal fronts in Brazil and elsewhere that led to a recovery in sentiment regarding the effects of the pandemic. We also saw in Brazil the lowest ever interest rate and that has obviously changed investor behavior and has led new individuals to look at stocks and other riskier assets as an alternative for their portfolios as well as some funds to begin shifting their allocations into equities and other assets rather than just government bonds as used to be the case. We saw, therefore, both an increase in market cap as well as pretty high turnover in our Equity segment.
We also saw positive results, although not so sharp in the derivative segment. Our OTC business also grew and the one less than spectacular segment was the infrastructure for finance, where we obviously saw a sharp decrease in the sale of new cars and financings due to the quarantine and social distancing requirements. We I think we're able to manage our expenses well again and take the benefits of operating leverage in the company, and therefore, we printed good operating profit and net income at the end of the quarter. I also just wanted to briefly mention some of the other announcements that we made yesterday on the financial front. One was that we changed our guidance for CapEx due to some additional investments that we're making in products and in our operational robustness.
And also, we announced that the Board approved a new debt transaction of BRL3.6 billion that we hope to close by the end of this month. And this will add to our debt balance and allow us to move closer to our leverage target and also to continue to distribute healthy dividends and interest of capital and other forms of payout to our shareholders during this year and early next year. So those were my initial remarks. I'm sure you've had a chance to look at our earnings release. I'll ask Marcela to make a couple of comments as well, and then we'll open up for Q and A.
Thank you.
Thank you, Daniel. Good morning, everyone. Hope everyone is well and safe. So just briefly go through some of our highlights, operational and financial highlights for the quarter. So we had in the equity listed market, strong performance driven by higher volume that as Daniel described were mainly driven by low interest rates, asset size recovery, which drove market cap of listed assets up and also a new flow of investors, especially retail investors coming into the market.
So we had ATV for the cash equities market up 92% in the quarter. For the listed derivatives market, we saw a more modest volume growth of close to 3% ABV increase. On the OTC market, we had our clients continue to look for transactions to strengthen their balance sheet, and we saw the volume of reissuances of banking funding instruments up 30% year on year. Finally, in the infrastructure for financing, we felt differently from the other the pandemic, and volumes were down 41% in the SMG project. We had net revenues of $1,900,000,000 which is approximately 30% up versus last year.
And our net income reached BRL 890,000,000 with adjusted expenses kept relatively under control with growing only 10% year on year. With that said, we'll open up for questions from you. Thank you.
Ladies and gentlemen, we'll now begin the question and answer session for investors and analysts. Our first question comes from Thomas Paredo, BTG Pactual.
Hi, good morning, everyone, and thanks for the opportunity. So my question is regarding the products and services. So the company has been delivering on the road map of product, but I would like to ask an update on more structural and long term initiatives like the registration of insurance policies, registration of electronic bills, the duplicatas electronicas, the platform for the energy markets and the initiative to provide liquidity for instant payment. So if you guys could give us an update on which stage each initiative is and when do you expect them to be launched if there is already a timeline? And I know that the company doesn't give any guidance on revenues earned net income, but if you could share a ballpark of the total addressable markets in terms of revenues that you see for these initiatives, I believe they will be very helpful to help us think on the total potential that the company has in the long term.
Thank you.
Okay, Thomas, thank you very much. I'm going try to take some of the points here and Marcelo will help me 1 by 1 with some more details on the tax bill and so on. So on the insurance side, we have been working with the regulators and the market for quite some time, for over a year now. We selected that segment as an important adjacency that we want to have a role in because we believe that there is really an opportunity for a modernization and digitalization, if you will, of the infrastructure within the insurance sector that is relatively behind in terms of its development compared to what we see in the registration for bank instruments, for example, and obviously for all the other traded listed instruments. So I think this is one of those transformations in the Brazilian market and infrastructure that is overdue.
But frankly, that might take a while to consolidate. The regulator has taken a, let's say, strong position to push for the modernization in terms of the registration requirements and the information requirements, but it's also accepted a gradual approach where it will add step by step the insurance segments into that, starting with the, let's say, smaller segments where there are less number of policies and less impact. And therefore, it's starting from the, let's call it, the guarantee insurance, Seguro Valle Chia. So the large ticket insurance policies for projects and for execution of infrastructure contracts and building contracts and the like. So this is where we are.
Our platform was accepted as a proper platform for operation about a month ago.
We just repeat last week the approval for Suzette granting us the full authorization to operate in the market.
Yes. And we already have a test case with Montalayo that is operating. We are not going to be the sole players in this. It's possible that other platforms also enter this market. In fact, they have received the authorization from Suzette to do so.
And on your question about the market size, I don't have that information to share at this point. And this will be the case for the other markets as well. But I will let's say, I will take your point and review internally whether we can at some point share some more visibility on the total market opportunity.
We just usually say that all these new products, we don't have like a silver bullet one that is going to largely impact our revenues. While we do say that we see sizable opportunity for most of these new markets that we're entering of a revenue pool between, let's say, BRL 20 1,000,000 and BRL 50 1,000,000 for each one individually. But it doesn't mean that you can just multiply the number of projects then by 50 and get the total addressable market because our expectation is that some of them will succeed, some of them will surpass our fail. So overall, we take a portfolio approach in order to project potential new revenues from new segments that we entered.
The second one I want to mention is energy. And in energy, we have also just made some announcements of what we are trying to do. And the first step in that market is to really create information and a little bit more transparency. So we have deregulation of energy in Brazil took place about 20 years ago. And since then, we have had a greater number of players in the market who are offering energy outside of the regulated market and buying energy outside of the regulated market as well as a few brokers that do the job of finding buyers and sellers.
Our objective is to, at the first stage, really allow everyone to register and have visibility of all the transactions that take place. With that, eventually, we will have a curve of prices for different time periods of energy. And out of that, would grow the opportunity to trade in derivatives and so on and hopefully attract also players that are not, let's say, hedgers or users of the NFP themselves, but rather financial investors that have the opportunity to take a view on how prices will perform. That is the idea, but we are very early in that process, and we are in the process in the stage of really creating this first registration platform. So I don't know if Marcelo you want to add something on the energy side.
On the payments side, what we chose to do is obviously there is a huge transformation going on in the PayFac sector with a number of new players and a number of, let's say, new technologies and changes that are going on. And we chose to play the role that we think is the most fitted work for E3, which is to be the infrastructure to some parts of this process and really help the regulator and the market reach its goal, which is to make a fair playing field for all types of players. In particular, what I mean by that is that there are big players and small players. And when you talk about instant payments, which is what the Central Bank wishes to put in place gradually starting November, there is a issue, a technical issue with respect to the liquidity of the players. So when you have income payments happening overnight or during the weekends when the market is not closed, when the market is open, there might be an issue with some shortfalls and excess liquidity by other players.
And we are setting up a clearinghouse where we will be able to allow the people who have access to liquidity to offer that liquidity to players do not have excess liquidity. And with that, there will be sort of a seamless path to the end user so that even the small player can make payments or allow its clients to make payments at all points in time, 20 4x7. So that's essentially the role that we seek to play. There isn't a big economic to understand this ecosystem better and also to meet to understand this ecosystem better and also to meet the expectations of our regulator whose top priority is to make this happen. And we think that in the context of that all everything that E3 does and the know how that we have, we felt that it was the right thing to do, both strategically as well as from a, say, positioning with the regulator point of view.
And maybe you want to talk about the Picasso and these rules?
Yes. So the Central Bank issued new rules and requirements for what would be necessary from the platforms that wanted to act as underwriters and register of receivables. Those rules will come in place in November, and we are setting up our operations to be able to play in that market. So we continue to be interested in that segment. We are in the process of preparing ourselves to be compliant with the regulators in place.
Our next question comes from Marco Calvi, Itau BBA.
Hi, guys. Good morning. So my question is regarding the recent change in the BDI regulation. Can you share an update view on the recent regulation change? If you can discuss the main initiative the company has taken in order to accommodate this new regulation framework and what sort of effect should we expect in terms of increased volumes?
Thank you.
Thank you, Lombardo. We are very, very excited about this opportunity and the impact that it can have in the Brazilian market. I think I want to take the opportunity to salute the regulator, CVM, for really working hard to make those changes and to really help in moving forward what we think is a very, very important agenda. So the main point here is that the scenario for Brazilian investors has changed and people need to have in front of them the biggest number of good alternatives for asset allocation possible within the environment and within the frameworks that we are familiar with. So investing abroad in non Brazilian assets for Brazilian investors, both institutional and also individuals, is extremely cumbersome for a number of reasons, in particular FX and tax.
And I we have been for quite some time seeking to be the venue where Brazilian investors can't find non Brazilian assets in a much easier way. And this goes through the BDR program. So the regulator has done a number of changes, which we think over time will really be transformational. And we will look at some point and talk about how incredible it was that before 2020, you could not buy PDRs of so many stocks in Brazil. And let me just go through the asset classes that they have allowed for.
So the first thing is that they allow for BDRs of companies that have their main business in Brazil. So we're talking about XT, PagSeguro, Stone and a few others that have chosen to list abroad, but that have their main business in Brazil. Those EDRs will be allowed to be listed here as long as they are listed in a recognized market. And we are now working on the details of that, let's say, description, but obviously, the United States and NYSE and Nasdaq will be under such a classification. And so that's the first important thing.
The second one is that BDR non sponsored BDRs of non Brazilian issuers. So any company that is listed in a recognized market can have a BDR. This creation of this non sponsored BDR does not depend on any action by the original issuer. It just depends on a depository bank. The depository bank provides securities, hold them in custody in the U.
S. And issue the receipts in Brazil. Those now can be bought by retail investors as well. And we think there's big opportunity and that the broker community has also been very excited about this. And I'm sure that there'll be a lot of work done to inform and educate people about those assets.
Also, bulk of B3, which is a small subsidiary of ours, which has some very specific functions, is a custodian bank and is the custodian for over 500 BDRs already that has thus far only been available for institution investors and will be now available for retail as well, and we will continue to expand that activity. The 3rd asset type is DVRs of ETFs, so exchange traded funds linked to indices abroad. This is obviously an asset class that has grown immensely internationally and that we can now structure or the market can now BDRs with those underlying assets and offer them to local investors. And this provides for diversification even for small people and low cost investment strategies that we find very useful for all types of investors. And the final one is BDRs of global bonds issued by Brazilian companies.
So as you know, a lot of the Brazilian companies have passed for decades the global markets for debt financing, and the TPS has allowed that those securities be traded in Brazil as long as it's issued by a listed company in Brazil so that obviously investors can access public information and make their sound investment decisions. So those are the large asset classes, and we are now working to finalize the details. We're waiting for the rule to come out. We are working to finalize the specific, let's say, internal norms within V3. As you know, CPM writes the broad rule and we write the operational manuals for each one of these products.
So we are finalizing those requirements and should open up for business in the near future.
Our next question comes from Gustavo Schroeden, Goldman Sachs.
Hi, good morning, Antonio and Marcello. Thanks for taking my question. I have one question related to your CapEx budget. You increased by hopefully 30% your CapEx budget. And just curious because I saw that you mentioned that it is related to as you need to increase the capacity given the new level of volumes.
I want to understand if should we understand that this the current level is sustainable going forward? Because I thought that the current level, the high current level would be related to or part of this related to high volatility given the uncertainties on COVID-nineteen pandemic. But now when I see you mentioned that a new level of volumes, I wanted to understand if there is, I mean, can we understand that it
is a new level of voice
at B3? And how do you see individuals supporting this new level, let's say, in this way? Thank you.
Thank you, Gustavo. That's a very interesting point. So there were a number of things that are happening at the same time in the market, right? So we there are, let's say, monetary or short term effects that led us to see very, very high volumes in the past few months, both sharp downfalls, high volatility and then the fast recovery. But also there are structural factors with the addition of new individuals very quickly and a lot of activity in all types of assets, including mini contracts, also with new frequency traders joining into that market and so forth.
So there are a lot of drivers here. But the end result is that the marginal safety under which we operated for a while has been reduced. So imagine you have a line where you're kind of following the trend of operating volumes and number of transactions And you have another line, which is above that, which is the maximum capacity. The difference between one and the other is the margin of safety. Now the line on the bottom shot up.
And you might remember that in our last conference call, we invited my colleague Rodrigo Landrone, the CIO, to explain a little bit the magnitude of that shift. And just to remind everyone, back in 2019, if you compare the volume of a typical day in 2019 to the volume of our most intense days in March April, the growth was 100% in transaction volumes, number of messages and number of trades executed here. So you obviously can imagine that the margin of safety was reduced. So what we're doing is essentially raising that upper line, which is the total capacity of our system to a higher level. And that meets a number of objectives.
It meets the objective of being safe that we can deal with a weird day or a very stressful day like we had back in March, but it also meets the objective of being able to welcome more and more investors into more and more assets. And I just mentioned that the BDRs will be now listed. And from one day to the next, when the systems are or when the rules are up and running, about 500 new assets will be available for individuals to trade, which are not available today. So because those are just the BDRs, pardon me, that are already listed for institution investors. Not to speak of all the other ones that might come either through sponsored BDRs of the Brazilian companies that I mentioned or through BDRs or ETFs and so forth.
So we are excited to be able to have this moment in the Brazilian market and happy that the company is able to move forward some of its CapEx in order to adjust its platforms for that. I hope that was clear.
Yes, no. Perfect. Sound of the surface. Thank you very much.
Our next question comes from Carlos Gomez, HSBC. Mr. Gomez, your line is open.
My apologies. I was mute. So thank you and congratulations on the result. I wanted to ask you about another area of activity that we have not discussed. How are your efforts in mortgage registration And what potential do you see in that treatment right now?
Thank you.
Hi, Carlos. It's Nori. So we continue to move forward with our projects in mortgage registration. We've been we are in the face of pilot testing with new clients for our evaluation platform. And we are also developing a new product related to the automatic electronic evaluation system.
So we are moving forward with that. But obviously, current market conditions haven't helped a lot in terms of pushing market demand for this product and helping also our clients in the process of automating the process of mortgage registration and evaluation. But we continue to think that there is a big opportunity for us to pass with this product, the similar product, and we continue to work on that both here at V3 as well as through our subsidiary, Foncado DOCUMENT.
This concludes today's question and answer session. I would like to invite Mr. Daniel Swamder to proceed with his closing statement.
Sorry. Hi, everyone. Thank you so much for joining the call. Thank you for the questions. I hope this was a helpful time.
And if you need any further clarifications, please let us know. And again, thanks to all the team here for putting this together.
That does conclude the B3 audio conference for today. Thank you very much for your participation. Have a good afternoon and thank you for using Carusco Brazil.