Good morning, ladies and gentlemen, welcome to the audio conference call about the earnings results of B3 for the first quarter of 2019. At this time, all participants are in a listen-only mode. Later, we will conduct a Q&A session, instructions to participate will be given at that time. If you should require assistance during the call, please press the star key followed by zero. 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 like to turn the conference over to Mr. Daniel Sonder, Chief Financial Officer of B3.
Hello, everyone. Good morning. I'd like to welcome you all to B3's first quarter 2019 earnings call. I'm here with Rogério Santana, Head of Investor Relations, as well as the finance and investor relations team, and I'd like to thank all of them for preparing the documents you have in front of you. Additionally, on behalf of the entire executive team, I'd like to thank you for your continued trust and support. I start the presentation on slide three, and I'd like to highlight some of the important achievements and figures of the first quarter of 2019. Once again, the quarter was marked by high activity in the financial markets in Brazil and the expansion of the business opportunities for our clients. In this context, there are two numbers that we want to highlight.
The ADTV in cash equities, which reached BRL 16.8 billion, and the number of accounts in our equity CSD, the depository, which reached 1 million in March. That's 1 million accounts for equities. There are two other aspects that deserve mention. First, the issuance of the ventures by B3 totaling BRL 1.2 billion, which was concluded this week, and it is in line with our new guidance for financial leverage. Second, the revision of our guidance for depreciation and amortization, following adjustments on the amortization curve of intangible assets recognized in the business combination with Cetip. Regarding our financial performance in the last quarter, our revenues grew across all segments. As mentioned in our last call, starting from this quarter, we are adopting a new revenue segmentation aiming to better reflect our business model, services and products.
Net revenues reached BRL 1.4 billion in the quarter, an increase of 24% when compared to first quarter 2018. Our adjusted expenses reached BRL 232 million, 3.1% higher than in the first quarter, which we will explain in more detail later in the presentation. EBITDA, adjusted for non-recurring items, was BRL 971 million, an increase of almost 28% over the previous year. This resulted in an EBITDA margin of 70%, once again demonstrating B3's considerable operating leverage. Recurring net income reached BRL 736 million, a 64% increase, mainly explained by the increase in operating results and lower income tax payments. Rogério will give more details about our performance by segment.
Thank you, Daniel. Hello, everyone. I would like to ask you to move forward to slide four, where you will see the performance of the listed equity market. Revenue in this segment grew 39% year-over-year, mainly driven by the 42% growth in revenues from trading and post-trading services in the cash equity and equity derivatives markets. The ADTV in the cash equity market grew 48%, from BRL 11 billion in the first quarter of 2018 to more than BRL 16 billion in the first quarter of 2019. This performance reflects the increase in after-hours volume from 77% one year ago to more than 104% in the first quarter of 2019, reflecting not only higher market volatility but also higher exposure to equity from individuals and local hedge funds. In addition, the average market capitalization increased by 12% over the same quarter of 2018.
Still within trading and post-trading revenue line, the ADV of stock index future contracts increased by more than 125%, reflecting the growth in trading of mini-contracts, notably by individual investors and high-frequency traders. It is worth mentioning the increase in revenues from our equity depository, reflecting the higher number of accounts, as Daniel mentioned in the previous slide. Moving on to slide five, you will find data on the performance of the listed fixed income, currency, and commodity derivatives markets, where we had a 17.4% increase in revenue. Two important factors contributed to this performance. The FX volatility, which positively impacted the ADV of interest rates in US dollars and FX rate contracts, and the appreciation of the US dollar against the real in the period, which had a positive effect on the average RPC of those same type of contracts.
Next, in slide six, we present the performance of the OTC segment. In the fixed income revenue line, the increase in volume of bank funding instruments, mainly Certificates of Deposit and Letra de Crédito Imobiliário, were offset by the decrease in Tesouro Direto revenue due to reductions in our fees and introduction of more aggressive incentive programs, both implemented in January 2019 to promote higher volumes for this product. In derivatives, the higher revenues were propelled by the increase in volumes of structured notes and asset-linked swap agreements, and by the appreciation of the US dollar against the real in the period, which impacted the asset-related derivatives. In slide seven, we show revenues for the infrastructure for financing segment, which grew 31% over the first quarter 2019, reflecting the effects of changing the business model of the Contract System adopted in some states of Brazil in 2018 and early 2019.
The national leasing system, or SNG, was positively impacted by the 7.2% increase in the number of vehicles financed in Brazil. Additionally, we had the annual price adjustment by inflation implemented in January 2019. Moving on to slide eight, we can see the performance of the technology data and services segment, which grew 13.4% in revenues. The growth seen in the access and technology line is related to the entry of new clients in the OTC markets. In the case of the data and analytics line, the solid performance reflects depreciation of the US dollar against the real, given that 60% of this revenue line is US dollar denominated, mainly related to data in the listed markets. In the next slide, we show the company's adjusted expense, which reaches BRL 231.6 million, a 3% increase year-over-year.
The main factors were the increase in adjusted personnel expenses as a consequence of the annual collective bargaining agreement in August 2018, and third-party services mainly related to consulting services we hired in the period. On the other hand, data processing expenses fell as a consequence of the decommissioning of one of our data centers. I will hand over the presentation back to Daniel, who will show other financial highlights.
Thank you, Rogério. In slide 10, we demonstrate our financial robustness with a solid cash position and a very healthy balance sheet, which is an important part of the business of being a credible counterparty in the financial market. On the left side, we show the total cash amounted to BRL 9.3 billion at the end of the quarter, composed by B3's own cash, as well as third-party cash, mainly related to collateral pledged in cash by our clients. In the light blue bars on this chart, you will find B3's own cash amounting to BRL 5.8 billion in the first quarter of 2019, which includes BRL 395 million of interest that were already paid out in early April 2019. On the right side, we see the company's debt profile and a maturation schedule.
As announced last quarter, our guidance for financial leverage for 2019 is 1.5 times gross debt to recurring last 12 months EBITDA. In line with this guidance, this week we completed the issuance of debentures amounting to BRL 1.2 billion, bearing interests of 102.8% of CDI. Our guidance for payout has a target between 120% and 150% of IFRS net income. In first quarter of 2019, our payout was 65.2% of reported net income. With this, I'd like to conclude the presentation here and open up for Q&A. Thank you.
Ladies and gentlemen, we will now begin the Q&A session for investors and analysts. If you have a question, please press the star key followed by the one key on your telephone phone now. If at any time you would like to remove yourself from the questioning queue, please press star two. Our first question comes from Thiago Batista with BTG Pactual.
Hi, good morning, Daniel Sonder. Good morning, Rogério Santana. Good morning, everyone. Thank you for the opportunity to make questions. I have two actually to make. The first one is related to the expenses. When we look into the adjusted expenses this quarter, it came actually pretty much in line with what you were guiding actually for the year, right? The guidance was actually maintained the way it was. When we look into the total expenses, they had some acceleration this quarter, and particularly the revenue-linked expenses. If you could give us a little bit of color on these other expenses lines that are not included, how you guys are expecting for these lines to behave for the rest of the year so we can get a better sense of how to model these lines. That would be my first question.
My second one is related to actually the regulatory framework and discussions in terms of capital markets. This quarter, we've seen, especially the central bank, a little bit more vocal, right? They even wrote a special, let's say, section on the financial stability report. They also came to the press, basically mentioning that promoting or helping the capital markets would be important for the whole economy and even help the GDP recovery. Just wanted to get a better sense of, if you as a company, how you see that and how the discussions with the regulator are in terms of helping the capital markets, if there's some opportunity that you can see actually in this regard and maybe even in terms of the dual listing, for example, of Brazilian companies. I think those would be my questions. Thank you.
Thank you, Thiago Batista. This is Rogério Santana. I will address the first question, then I will take the second one. First, I will explain the difference between what we call adjusted expenses and the total expenses that you see in our income statements. We decided to give guidance only on adjusted expenses because this is a group of expenses where we have more control and we can manage in a better way. On top of that, we also give specific guidances for other expense lines, like depreciation and amortization that we adjusted this quarter, revenue-linked expenses, and so on, so forth. When you look at the adjusted numbers, we are growing very much in line with inflation. Actually, slightly below that. It reflects all the efforts of the company to make sure that we have the adequate cost discipline in our culture.
When you analyze the behavior of the other lines that are not included in the adjusted numbers, I will highlight two of them. First, revenue-linked expense, that is pretty much connected to the performance of the financing segments that we recently renamed it for, infrastructure for financing. Here, what we have is the fact that we are testing a new model for the Contract System in a pilot mode. It is impacting both revenues up and expenses up. That's why it grew significantly when you compare to the first years of 2018. Regarding the second line, if we see in the group others, and is related to provisions. You probably remember that we have a large provision that moves up or down according to the B3SA3 , our shares market price.
We had, in the first quarter 2019, our share price growing significantly, and as a consequence, the amount of provisions that we recorded in our books also moved up. These are the two main highlights I would bring related to the expense performance in the quarter. Thiago, thank you for the question. You are absolutely right that the regulators have been talking more explicitly about the relevance of capital markets development for Brazil to recover its growth trajectory. We are obviously very excited about that because that has been our set base pieces for quite some time as well. In terms of practical developments in that front, I would mention three things. One is obviously the use of capital markets by government agencies directly to divest from equity ownerships that they hold in several companies.
That is a very strong direction that the current administration is taking, and we are pleased about that, obviously. I think it will likely strengthen those companies as well as bring additional volume to those stocks that are traded here. The second practical action is, particularly with regard to the National Development Bank, the BNDES, a reduction in the rate of growth in their portfolio and there was a significant drop in the disbursements that the BNDES is doing and a change in the direction of the types of companies that they seek to support with their lending. That will now view, assuming that there is obviously growth and projects and economic recovery that will bring those companies to the capital markets for both equity and debt. We are already beginning to see the signs of that, but it's obviously an encouraging move by the government.
Thirdly, there is, let's say, a desire to try to simplify some of the rules pertaining to listing and other requirements of already listed companies and new companies that want to come to market. The CVM recently mentioned that it has in its pipeline a few of these measures. There was a provisional measure, the Medida Provisória, that gives the regulators some additional freedom to implement more flexible rules regarding the capital market. Again, this is something that we are working together with the regulators to make sure that more companies can come to list in the Brazilian markets. If the delisting that you asked about is in this pipeline, we don't have a concrete timetable for any changes regarding that specific point. It's definitely within the agenda of discussions among regulators, market participants, and ourselves.
That's great. I think it was a good update. Thank you, everyone.
Our next question comes from Otavio Tanganelli with Credit Suisse.
Hi. Thanks for taking my question. I have a question regarding the dividend payout ratio. For this year, we do have the guidance ranging from 120% to 150% of net profit. What should be the sustainable payout ratio that we should be working with going forward, considering the strong cash generation profile of the company? Thank you.
Thank you, Otavio. First of all, welcome to the coverage of the three of us. Good to have you on the call. With respect to the dividend payout, the way we like to think about it, obviously that's a discussion that we have every single quarter, so it's still subject to specific approvals and deliberations by the board of directors. In general, our stance is that we intend to distribute the entire cash generation of the company, going forward. Also, we have guided for a leverage level that is linked to our EBITDA, so 1.5 times total debt to EBITDA. Which means that if we have growth in EBITDA, that would give us room, again, subject to review, to further increase our nominal debt level and therefore have more cash available at hand for distribution.
We think that 1.5 times total debt to EBITDA is a very prudent level that is compatible with the business that we're in and with the perception that we want to have from our counterparties, which take it serious. That by indexing the debt level to EBITDA, we allow ourselves room for additional distribution beyond the cash that is generated by the company. I think that's basically how I would try to help you in terms of modeling it. We do not want to accumulate much additional cash in the company, therefore, that's how we think about it. The way that we're going to use interest on capital, which is obviously interesting from a tax perspective.
We're going to use a combination of dividends and possibly buybacks to further distribute that cash, and obviously aiming to do it in the most efficient way for our shareholders.
This is Rogério. Just to add in on what Daniel said, it's important to remember that we will have, for a few more years, a difference between our accounting earnings, accounting net income, and the cash earnings of the company due to the amortization of intangibles and goodwill. As a consequence, we will have additional cash generation when you compare to the accounting numbers.
Very clear. Thank you.
Our next question comes from Eduardo Nishio with Plural.
Good morning. Thank you for the opportunity. Just a question on the competitive environment. If you can give us an update on the diverse business lines you have, competition, ABBC, for instance, on the means and loans also. If you can give us some color on your potential initiatives against the U.S. listing. I would appreciate any different kind of listing or governance that you are thinking about to avoid this Brazilian companies to be listed in the U.S. That would be also very helpful. Thank you.
Okay. Thank you. First, starting with competition, there is no major news on each one of the fronts. In the fixed income registration or bank funding instrument registration, the project led by ABBC, from what we hear, continues to move forward. We don't know exactly when they expect to be operational. We are keeping track of that, and we are staying very close to our clients and trying to make sure that we have the proper products and commercial approach to ensure that we remain the preferred venue for doing such registrations. In loans, as you know, we have different arrangements depending on the state. In some of them, we are part of a bigger sort of connection chain where there are registration companies involved. In some states, we have not operated for a while we try to figure out exactly what the arrangement will be.
As Rogério already mentioned, in a few states, we are actually testing a new business model which alters slightly the way that the collections are made and who is actually responsible for each part of the revenue collection in this business. Again, it's still not, let's say, a stable environment in the sense that we can say that we could assert that there will be no further changes in either states where we operate or not or the actual business model for that segment. Finally, in equity, as you know, we have an ongoing discussion with a potential entrant that has to do with fees in the depository. Those are ongoing, and we don't have a lot of information that we can share given that those proceedings are confidential.
We also don't know whether the new entrant is already operational or has engaged any clients to actually begin their activities once the discussions are settled. That's kind of the status in each one of the fronts. Your last point was regarding listings outside of Brazil. We have held discussions with our regulators regarding adjustments that should be considered for companies that have certain structures that have led them to look abroad. It's also important to mention that the listings abroad are, at least at this point, very limited to a particular segment, which is the tech segment, where, in fact, the United States has been able to create a very positive and attractive ecosystem for listings from all over the world.
We see companies from other jurisdictions also seeking to list in the U.S. because the U.S. has created over several years, decades perhaps, a community of funds and investors and people that have an appreciation for these kinds of businesses. That's not to say that we will not try to do our best to attract similar companies to list in Brazil. In fact, we have several initiatives in the company to stay close to issuers in the earlier stages and to show the benefits of local listings. We will have to see. I think it's a combination of also many factors. The development of an investment culture in these segments locally, some rules that need to be adjusted, and the engagement of the exchange with the issuers to make sure that they understand the advantages that we also offer. It's not a one-shop formula.
Thank you so much. Just to follow up on this last point. What are the discussions with the regulators? Can you give us some details? I appreciate it.
Pardon me? I didn't quite get it.
The discussions that you have with the regulators, I'll say your suggestions to change, what would be any different structure governance to today's kind of Novo Mercado that probably limited some fintechs to be listed here in terms of dilution? If you can give us some thoughts about what could be the future.
Because it is still ongoing, I would rather not give too much details. As soon as we have something to announce, we will make sure that everyone is aware of that. At this point, I'd rather reserve all the discussions that we're having with the regulators.
For sure. Thank you.
Ladies and gentlemen, as a reminder, if you would like to pose a question, please press the star key followed by the one key on your touch-tone phone now. This concludes today's Q&A session. I would like to invite Mr. Rogério Santana to proceed with his closing statement.
It seems we have one more question.
Yes, we have one more question from Thiago [Batista] with BTG Pactual.
Hi. Thank you for letting me ask another question. Just taking advantage of this time, if you could give us a little bit of an update as well on the roadmap of products that you announced last year. There were a lot of initiatives to improve service and create more engagement with clients and everything. If we could take the opportunity to hear more about that, it would be good. Thank you.
Thank you, Thiago, for the question. We are very focused on delivering on this roadmap. As you remember, the first delivery happened in December 2018 when we launched some new products like single stock futures, new weekly options, some enhancements to existing options contracts on interest rates and FX. This is evolving, and it's a gradual process. We are seeing more and more clients getting engaged in the trading of these products, but it is still very key for us. Now we are focused on other products. We should have some announcements for launching in the second quarter 2019. Examples are we are reducing the settlement cycle from T+3 to T+2, sorry, in the equities business. We are also introducing new trading functionalities and other types in the system.
We should also launch a trading screen for securities lending and two other things in the different business. In the OTC market, we should also launch the registration of receivables. In the financing unit, we also have many data and analytics initiatives as well. There are many products and initiatives. We are very excited about that. We have aligned the prioritization of each of them with key clients. It's not something that we designed alone, definitely. The prioritization came from our clients, and the idea is to help the market, the Brazilian market, become more sophisticated in making sure that different client profiles, different brokers, and banks will find in B3 all the products they need or the services they need. It's an ongoing development. We have initiatives for 2019. We have initiatives for 2020 as well.
When we look at product by product or service by service individually, we're talking about small potential revenue or EBITDA contribution. In aggregate, after a certain period, definitely to help the Brazilian market to grow and as a consequence, our business and especially the client performance.
Just one last follow-up on that. Are you guys already seeing some sort of improvement? I don't know if you track NPS or any sort of customer satisfaction or anything like that. Do you already see an improvement with these initiatives, or is it still very incipient to track that?
You mean regarding the recent launches or?
Yes. I think it could be overall, but I guess that the launches helped, right? It should help, right?
Yeah, Thiago, we are using NPS as here to track our relationship and success among clients. We won't disclose how that's going, but it's become, obviously, a measure inside the company. We can gauge the success of our initiatives and adjust the course of action as we go forward.
Understood. Thank you. Thank you, guys.
We have a question from the webcast, [Monsurena]. Could you please provide more color on interruptions of services in Paraná State?
This is Rogério. Thanks for the question. Our services in Paraná were interrupted in the fourth quarter of 2018. We are talking about the Contract System within the infrastructure for financing segments. We are working with our clients and also with local regulators to resume our services, so far, it has not happened yet. We are still working with clients and regulators on that.
This concludes today's Q&A session. I would like to invite Mr. Rogério Santana to proceed with his closing statement.
I'd like to thank everyone for joining the call. Please feel free to contact our investor relations team if you need any further information or access our website where we have put a lot of operational and financial data as well. Thank you. Have a good morning, everyone.
That does conclude the B3 audio conference for today. Thank you very much for your participation. Have a good afternoon. Thank you for using Chorus Call.