Good morning, ladies and gentlemen, and welcome to the audio conference call about the earnings results of Victory for the Q1 of 2019. At this time, all participants are in a listen only mode. Later, we will conduct a Q and A session and instructions to participate will be given at that time. As a reminder, this conference is being recorded and broadcast live via webcast. The replay will be available after the event is concluded.
Now I would like to turn the conference over to Mr. Daniel Saunders, Chief Financial Officer of Bitrix.
Hello, everyone. Good morning. I'd like to welcome you all to B3's Q1 2019 earnings call. I'm here with Jorge de 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'll start the presentation on Slide 3, and I'd like to highlight some of the important achievements and figures of the Q1 of 2019. Once again, the quarter was marked by high activity in the financial markets in Brazil and the expansion of the business equities, which reached BRL16.8 billion and the number of accounts in our equity CSP, the depository, which reached €1,000,000 in March. That €1,000,000 accounts for equity. There are 2 other aspects that deserve mention.
First, the issuance of debentures by B3 totaling BRL1.2 billion, which was concluded this week and it is in line with our new guidance for financial leverage. 2nd, the revision of our guidance for depreciation and amortization following adjustments on the amortization curve of intangible assets recognized in the business combination with Safiq. 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 BRL1.4 billion in the quarter, an increase of 24% when compared to Q1 2018.
Our adjusted expenses reached $232,000,000 3.1 percent higher than in the Q1, which we will explain more detail later in the presentation. EBITDA adjusted for non recurring items was R971 1,000,000, an increase of almost 28% over the previous year. And this resulted in an EBITDA margin of 70%, once again demonstrating B3's considerable operating leverage. Recurring net income reached BRL736,000,000, a 64% increase, mainly explained by the increase in operating results and lower tax or lower income tax, pardon me. You.
And now, Reguero 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 4, where you will see the performance of the listed equity markets. 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 market.
The EBITD in the cash equity market grew 48% from BRL 11,000,000,000 in the Q1 of 2018 to more than BRL16 1,000,000,000 in the Q1 2019. This performance reflects the increase of the non rollouts from 77% 1 year ago to more than 104% in 20 19 in the Q1 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. To go within trading and post trading revenue line, the ABB of stock index future contract increased by more than 125%, reflecting the growth in trading of mini contracts, notably by individual investors and high frequency traders. It's 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 5, you will find details on the performance of the listed fixed income currency and commodity derivative market, where we had a 17.4% increase in revenue. 3 important factors contributed to this performance: the FX volatility, which positively impacted the ABV of interest rate in U. S. Dollars and FX rate contracts and the appreciation of the U. S.
Dollar against the real in the period, which had a positive effect on the average RTC of those same type of contracts. Next, in Slide 6, we present the performance of the OTC segment. In the fixed income revenue line, the increase in volumes of bank fund instruments, mainly certificate of deposits and real estate credit sales were offset by the decrease in treasury direct revenue due to reductions in our fees and the introduction of more aggressive banking products, both implemented in January 2019 to promote higher volume for this product. In derivatives, the higher revenues were propelled by the increase in volumes of super notes and FX limited swap agreements and by the appreciation of the U. S.
Dollar against the real in the period, which impacted the FX related derivatives. In Slide 7, we show revenues for the Infrastructure for Financing segment, which grew 31% over the Q1 2018, reflecting the effects of change in the business model of the contract system adopted in Sunflate of Brazil in 2018 and early 2019. The National Leasing System or FNG 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 8.
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 market. In the case of the data and analytics line, the solid performance reflects depreciation of the U. S. Dollar against the real, given that 60% of this revenue line is U.
S. Dollar denominated, mainly related to data in the listed markets. In the next slide, we show the company's adjusted expense, which reached BRL 231.6 million, a 3% increase year over year. The main factors were the increase in adjusted personnel expense as a consequence of the annual collective bargain agreement in August 2018 and third party services mainly related to consulting services we hired in the period. On the other hand, data process expense itself as a consequence of the decommissioning of 1 of our data centers.
Now I will hand over the presentation back to Daniel, who will show all the financial highlights. Thank you, Rosetta. On Slide 10, we demonstrate our financial investments with a solid cash position and a very healthy balance sheet. Which is an important part of the business of being a critical counterpart in the financial market. On the left side, we show the total cash amounted to BRL9.3 billion at the end of the quarter, composed of 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 D3's own cash amounting to $5,800,000,000 in the Q1 of 2019, which includes $395,000,000 of interest that were already paid out in early April 2019. On the right side, we see the company's debt profile and a moderation schedule. As announced last quarter, our guidance for financial leverage for 2019 is 1.5x plus tax prerecurring last 12 months EBITDA. In line with this guidance, this week we concluded the issuance of debentures amounting to BRL1.3 billion, bearing interest of 102.8 percent of BDI. Finally, our guidance for payout has a target between 120% 150% of IFRS net income.
And in Q1 of 20 19, our payout was 62 sorry, 65.2 percent of reported net income. With both, I'd like to conclude the presentation here and open up for Q and A. Thank you.
Ladies and gentlemen, we will now begin the Q and A session for investors and analysts. Our first question comes from Thiago Kapski with BNP Paribas.
The first one is related to the expenses. I mean, when we're looking to the adjusted expenses this quarter, it came actually pretty much in line with what you were guiding actually for the year, right? And the guidance was actually maintained the way it was. But when we look into the total expenses, they had some acceleration this quarter and particularly the revenue linked expenses. So if you could give us a little bit of color on these other expensive 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. And my second one is related to actually the regulatory framework and discussions in terms of capital markets. I mean, this quarter, we've seen, especially the Central Bank, a little bit more vocal, right? They even wrote a special section on the financial facility 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 chop 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. This is Joselio. I'll address the first question and then I will take the second one. So first, I will explain the difference between what we call adjusted expenses and the total expenses that you see in our income statement. So we decided to give guidance only on adjusted expense because this is a group of expenses where we have more control and we can manage in a better way.
And on top of that, we also gave specific guidance for other expense lines like depreciation and amortization that we adjusted this quarter, revenue linked expenses and so on and so forth. So when you look at the adjusted numbers, we are growing very much in line with inflation, actually slightly below that. And it reflects all the imports 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 2 of them. 1st, revenue linked expense that is pretty much connected to the performance of the financing segment that we recently renamed for Instituto for financing.
Here, what we have is the fact that we are testing a new model for the contract system in a pilot mode. And it is impacting both revenues up and expense up. That's why it grew significantly when compared to the 1st period of 2018. Regarding the second line, if we think 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 BZ to B3 at A3, our shares market price. And we had, in the Q1 2019, our share price growing significantly.
And as a consequence, the amount of provisions that we recorded in our books also moved up. And these are the 2 main highlights I will bring related to the expense performance in the quarter. Okay. Thiago, thank you for the question. You're absolutely right that the regulators have been talking more explicitly about the relevance of capital markets development for Brazil to recover its growth trajectory.
And we are obviously very excited about that because that has been our biggest thesis for quite some time as well. In terms of practical developments in that front, I would mention 3 things. 1 is, obviously, the use of capital markets by government agencies directly to divest from equity ownerships that they hold in several companies. And 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 BMDS, a reduction in the rate of growth in the 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. And that will now view, assuming that there is obviously growth in 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. And thirdly, there is a, let's say, a desire to try to simplify some of the rules pertaining to listing another requirement of already listed companies and new companies that want to come to market. The CVM recently mentioned that it hasn't pipeline a few of these measures.
There was a provisional measure of Namibia Privada that gives the regulators some additional freedom to implement more flexible rules regarding the capital markets. And again, this is something that we are working together with the regulators to make sure that more companies can come through in the Brazilian markets. And if they do with things that you asked about in this pipeline, we don't have a concrete timetable for any changes regarding that specific point that is definitely within the agenda of discussions among regulators, market participants and ourselves.
That's great. I think this was a good update. Thank you, everyone.
Our next question comes from Otavio Tanguinelli. Please proceed.
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. Well, first of all, welcome to the credit of the 3rd question I have on the call. And we do expect to be dividend payout the way we like to think about it. And obviously, that's a discussion that we have every single quarter. So it's subject to specific approvals and deliberations by the Board of Directors.
But in general, our stance is that we intend to distribute the entire cash generation of the company going forward. And also, we have guided for a leverage level that is linked to our EBITDA, so 1.5x 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 deeply risk. And thereby indexing level to EBITDA, we allow ourselves room for additional distributions beyond the cash that is generated by the company. So 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. And therefore, that's how we think about it. The way that we're going to use Intifantasto, which is obviously interesting from a tax perspective. And then we're going to use a combination of dividends and possibly buybacks to further distribute cash and obviously, aiming to be working in the most efficient way for our shareholders. Just this is Rogerio, Ricardo.
Just adding on what Daniel just 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. So 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 Edouard Denissell with Purao.
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? And also, if you can give us some color or some potential of your potential initiatives against the U. S.
Listing, I would appreciate any kind of different kind of listing or governance that you are thinking about to avoid this Brazilian companies to be listed in the U. S. That will be also very helpful. Thank you.
Okay. Thank you, Junsu. So first, starting with competition. There is no major news on each one of the fronts. So in the fixed income registration or bank funding issuance registration, the project led by ADPC from what we hear, continues to move forward.
And we don't know exactly when they expect to be operational. But 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 product 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 who have not operated for a while while we try to figure out exactly what the arrangement will be.
So and then as Rogerio mentioned in the feed base, we're actually testing a new business model, which also slightly the way that the connections are made and who is actually responsible for each part of the revenue collection in this business. But 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 their actual business model for that segment. And finally, in equities, 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. But we also don't know whether the new entrants is already operational or has engaged any client 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 live abroad. But 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. So 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 private 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 this in Brazil.
In fact, we have several initiatives in the company to stakeholders, to issuers in the earlier stages and to show the benefits of the lifting. And we'll have to see, I think it's a combination of also many, 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. So it's not a one shot formula.
Thank you so much. Just a follow-up on this last point. What are the discussions with the regulators in the ecosystem on the KOs? I appreciate it.
Pardon me? I didn't quite get it.
The discussions that you have with the regulators, your 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 is going to be in
the future? Yes. Because we are still ongoing, I'd rather not give too much details. As soon as we have something to announce, we will make sure that everyone is aware of that. But at this point, I'd rather preserve other discussions that we're having with the regulators.
For sure.
Thank you.
Ladies and gentlemen, This concludes today's Q and A session. I would like to invite Mr. Guilherme Alexandre to proceed with his closing statements. Yes, we have one more question from Thiago Capruneski with Societe Pactual.
Thank you for letting me make another question. Just taking the advantage of this time, if you could give us a little bit of a nut piece as well on the road map of products that you announced last year. I mean, there were a lot of initiatives to improve service and create more engagement with clients and everything. I mean, if you could take the opportunity to hear more about that, it would be good.
Thank you, Thiago, for the question. Yes, we are very focused on delivering on this road map. 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 option contracts on interest rates and FX. And this is evolving. It's a gradual process.
So we are seeing more and more clients getting engaged in the trade and exit of this project, but it is still very significant for us. Now we are focused on other products. We should have announcements for launching in the Q2 2019. So examples are we are reducing the settlement cycle from T plus 3 to T plus 1 T plus 2, sorry, in the equities business. We are also introducing new trading, functionalities and other types in the system.
We should also launch trading screen for 6 week lending and few other things in the different business. In the OTT market, we should also launch the registration of receivables. In the financing units, we also have many data and analytics initiatives as well. So 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 along. Definitely, the prioritization came from our clients. And the idea is to help the market, the Brazilian market, become more sophisticated and making sure that different client profiles, different brokers and banks will find industry all the products they need or the services they need. So 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 are talking about small potential revenue or EBITDA contribution. But in aggregate, after certain periods, definitely, it will help the Brazilian market to grow and as a consequence of our business and especially the clients' performance.
Just one last follow-up on that. Are you guys already seeing some sort of improvement? I mean, 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 insistent to track that?
You mean regarding the recent launches or
Yes. I think it could be overall, but I guess that the launches help, right?
Yes. Thiago, we are using a test here to track our relationship and to
send it along the line.
We won't disclose how that's going, but it's become obviously a measure inside the company so we can gauge the success of our initiatives and adjust the cost of action as we go forward.
Understood. Thank you. Thank you, guys.
Now we have a question from the webcast. Mont Sirena, Could you please provide more color on interruptions of services in the Panamax space?
This is Rogerio. Thanks for the question. Our services in Parana was interrupted in the Q4 of 2018. We are talking about the contract system. We've seen the infrastructure for financing segments.
We are working with our clients and also with local regulators to redeem our process. But so far, it has not happened yet. But we are still working with clients and regulators on that.
This concludes today's Q and A session. I would like to invite Mr. Benio Sandler to proceed with his closing statements.
I'd like to thank everyone for joining the call, And 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, and thank you for using Chorus Call.