Inter & Co, Inc. Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

There are 13 speakers on the call.

Operator

Good afternoon, and thank you for standing by. Welcome to Interimco's 4th Quarter Earnings Conference Call. Today's speakers are Joao Victor Menin, Inter's CEO Alexandre Riccio, Senior Vice President of Retail Banking and Santiago Stel, Senior Vice President of Finance and Risks. Please be advised that today's conference is being recorded and a replay will be available at the company's IR website. At this time, all participants are in listen only mode.

Operator

After the prepared remarks, there will be a question and answer session. For this session, we ask you to write down your question via the Q and A icon on your screen. Your name will then be announced and you will be able to ask your question live. At that point, a request to activate your microphone will appear on your screen. If you do not want to open your microphone live, Please write down no microphone at the end of your question.

Operator

In this case, our operator will read your question for you. Please note that there is an interpretation button at the bottom of your screen where you can choose the language you want to hear, English or Portuguese. Throughout this conference call, we will be presenting non IFRS financial information. These are important financial As financial information to the IFRS financial information are available in Interimco earnings release and earnings presentation appendix. Today's discussion might include forward looking statements, which are not guarantees of future performance.

Operator

Please refer to the forward looking statements disclosure in Company's earnings release and earnings presentation. Now I would like to yield the floor to Mr. Joao Witter Menon. Sir, the floor is yours.

Speaker 1

Thank you, operator. Good morning, everyone. I will start with a quick overview of our strategy Today, I will pass this to Sanjay and Santi to cover the operating and financial performance of Interimco. As in prior calls, I will close with some final remarks and then open it for the Q and A session. At our Investor Day held in Belo a year ago, we introduced our 5 year business plan known as the sixty-thirty-thirty.

Speaker 1

This North Star means that Interimco's goal for 2027 is to achieve 60,000,000 clients, 30% efficiency ratio and 10% ROE. When we announced it, it was received as a highly ambitious plan. I'm glad to say that the 1st year of our plan was a resounding success, much better than many in Aside from being an important direction to the market, the point of the plan was to engage and drive our organization In sum, as Armstrong family sat, a small step for men, one giant leap for mankind. We're both humble and proud of our progress. This is a first step toward profitability.

Speaker 1

But more importantly, it validates how sustainable our business model is. To illustrate there the progress in year 1, As you can see, we achieved 30,000,000 clients right on track, an efficiency ratio of 51%, Significantly ahead of schedule and ROE of 9%, also ahead of the plan. As you can see, Our metrics are stronger than expected, demonstrating our strong execution towards the plan. We have been able to combine growth, operational leverage and profitability, while staying true to our core principle of always putting the clients first by innovating and bringing new solutions in our financial supercap. Products that are organized across 7 verticals.

Speaker 1

These are banking, credit, insurance, investments, shopping, global and loyalty. This powerful engine that is our financial super app is continuously evolving and improving day by day. Our wide set of products and services complement each other, creating a flywheel that brings together a complete When I say clients connect to our solutions, I really mean For instance, we see strong acceleration in the adoption of new products. Today, We have more than 12 products with more than 1,000,000 active clients. At this pace, it is highly likely that by the end of this year, We will have a new product that we didn't even launch yet and with more than 1,000,000 active clients by year end.

Speaker 1

This is what happened this year, for example, with Interlooping and Milcroquin. This is the consequence of having what we believe is the best super app in the Americas. With over 30,000,000 clients, More than 4,000,000 individual daily logins per day and a run rate TPV of over 1,000,000,000,000 heads. With all that said, I have no reason to doubt that the only possible direction in our profitability and growth We have reached unsurpassed the inflection point. And in 2023, We presented 4 consecutive quarters of consistent growth in net income, EBT, ROE and many other matters.

Speaker 1

We are on the right track towards our long term plans And we are thrilled to announce that we are on track to deliver even better Tier 2 of our sixty-thirty-thirty plan. Now, Sanje will walk you through our business updates. Thank you very much. Sanje, please go on.

Speaker 2

Thank you, Joao. Good afternoon, everyone, and thank you for joining us today. I would like to discuss Four topics as we go along the presentation: 1st, clients and engagement second, the performance of the different business verticals 3rd, our innovation capabilities and 4th, our potential for further growth. Before going through the numbers, I'd like to quickly reflect on what we said a little over a year ago in our 633 Investor Day. At the event, we said our mission to deliver the city delivery was relatively simple, But not easy and that the most uncertain part of building Interimco was already delivered from 2018 through 2022.

Speaker 2

Moving to the results, when we look at clients, besides surpassing the impressive mark of We're happy to announce a 125 bps improvement in our activation rate, which now stands at 54%, the highest level in 8 quarters. Our efforts to boost activation include, but are not limited to, improving onboarding, personalizing the Super App, streamlining customer lifecycle strategy and offering high engaging new products such as Loop along with overall UX fine tuning. This combined with the lowest CAC Since 2020 brings us confidence in the future And in our ability to keep the fly moving with low CAC and high engagement, building stronger relationships for a seamless and complete experience. Moving to Page 13, we start talking about business looking at day to day bank. It makes us proud to see the robustness of our transactional business and that despite the materiality achieved, We see accelerated growth.

Speaker 2

The 4th quarter was of strong acceleration in RTBV, surpassing BRL250 1,000,000,000. We see a consistent growth in peaks, which grew 45% in 2023 and an important 36% growth in the credit card volume, continuing our focus on gaining Credit share against debit in cards. When we look at the full year, we achieved amazing BRL 851,000,000,000 in PPV with over BRL 1,000,000,000,000 PPV at the 4th quarter run rate. On a cohort basis, as presented in the right chart, we see another quarter of improvements on both new New cohorts performance shows the consistency of our client growth strategy I'd like to finish saying that the key cohort performance On top of the older cohorts that keep accelerating engagements puts us in a confident position for future revenue growth and margin expansion. The current clients alone can keep us growing for many years to come.

Speaker 2

Moving to Page 14, 3 verticals that are a great representation of the powerful numbers of financial super app ecosystem can generate. On e commerce, we reached 3,000,000 clients and surpassed 10,000,000 transactions in the quarter, another record. We also surpassed BRL1 1,000,000 of GMV And I'll pay later partnerships with our bank. Now we have nearly 150 merchants with which we offer these new payment methods. This is likely the agent that will feel the beginning of personal loans in turn.

Speaker 2

On insurance, we also had another great quarter, reaching more than 388,000 sales and 1,700,000 active clients. Combining this, We reached a record breaking net revenue in this vertical of BRL47 1,000,000. A successful product to highlight is Consortium, which grew 21% on a yearly basis, surpassing 38,000 sales. Finally, on investments, our cutting edge product offering resulted in an impressive 66% year over year client growth, the highest adoption amongst our verticals being on day to day bank. With increasing clients, our AUC reached BRL92 1,000,000,000 With $9,000,000,000 being third party fixed income products distributed within our Super App.

Speaker 2

We also innovated On Global, As we move to Page 15, we see another quarter of strong success and some early signals 2,000,000 clients and more than $360,000,000 in the UC and deposits, A 4x growth compared to 2022. The clients that are active in our global products have better profiles, We're more engaged and adopt 3 times more products than the average clients. To continue having this great success, Our branding strategy included some investments in the U. S. We became in 2023 The official financial institution of Orlando City and Orlando Pride U.

Speaker 2

S. Soccer teams We believe being in Orlando and connecting through soccer will not only bring awareness, but also creating an emotional connection between Inter and the Brazilian and Latin community living and traveling to Orlando. It is worth mentioning that per year more than 900,000 Brazilians visit Florida and that more than 400,000 Brazilians Jumping to our segments vertical, loyalty, we achieved 5,400,000 active clients in their 4th quarter, adding 1,500,000 in these last 3 months. And as we observe With our global clients, Loop clients also create better profiles, spending on average 60% more Positive engagement trends have been observed in gamification initiatives as well. As we move along, we're adding other ways to earn and earn points with one of the less additions being allowing our clients to convert their points into U.

Speaker 2

S. Dollars in their global accounts. This week, we We made available an option to pay with points for products in our marketplace. As you can see, our loop It allows us to unlock value from all the other verticals in our financial supernatant. Very excited to see the results of it.

Speaker 2

Moving to Page 17, we see that 2023 demonstrated our unique capability to combine innovation in a year focused on efficiency. We launched many products such as fixed credit, to optimize our clients' lives. As Santi will show you the financial performance section, we didn't stop innovating while continuing on the path to deliver operational leverage. We're confident that our value proposition is best in class and that our next moves will keep us in the frontier We need to keep delivering. Finally, and before I pass the word to Santi, I'd like to say that the best of all is we're still in the early stages in every market we operate.

Speaker 2

On one hand, We were able to achieve material market share in multiple segments. In the other, there is a lot of room to grow in every one of these markets. We remain confident that we're well positioned to reach our long term North Star and continue to drive growth and profitability in the years to come As we increasingly deepen our relationships with our clients, the team is ready and our financial super app is adaptable and capable to navigate into those challenges. Now I'll pass the word to Santi to present our financial performance.

Speaker 3

Thank you, Sandeep. Hello, everyone. Now let me move you through our Financial Performance section. Jumping into Page 20, here we can see strong acceleration on the credit side. We are growing our portfolio 2 consecutive quarters at 5% grew 7% 10% in the 3rd and 4th quarter respectively, therefore entering 2024 with strong momentum.

Speaker 3

The gross margin portfolio reached an impressive R31 1,000,000,000 mark, which is a result of growing 4 times more than the Brazilian market average. Therefore, Moving to interest rates on the top of the page, you can see personal, NGTS and real estate rates growing sequentially, while SME, Here we go a bit deeper on growth by loan growth. As you can see in the chart, we remain disciplined on growing the most profitable lines Our best credit products, FCGS and Home Equity presented the highest growth levels in significant scale within our portfolio. For credit cards, our successful approach of advertising credit limits to existing and strong performing clients to increase by nearly 40% of the portfolio while improving asset quality trends. Finally, on real estate and payroll, With balanced growth with rising, we ensure that profitability continues to improve.

Speaker 3

Jumping on to Page 22, We had a great quarter for asset quality with all the metrics improving this quarter. Starting with a 15 to 90 day NPL ratio, We saw an improvement of 30 basis points quarter over quarter. We also improved the 90 day NPL metric to add the NPL as the 3 formation metrics, Thank you, my cohorts, who continue to see strong performance and net quality in recent quarter cohorts. Jumping on to Page 23, We can see significant decrease of cost of risk from our service performance. This dynamic was driven by underwriting and protection processes producing cohorts with stronger performance.

Speaker 3

Overall, as a quality front, we see the strong work down on data underwriting and risk management is paying off, enabling us to start 2024 with a positive trend. On page 24, we can see once again our leading franchise, which has almost $15,000,000 clients trusting us with our deposits. Moreover, our transactional deposits represent 33% of our total funding, which is one of the best mixes of funding with 3 year financial entities. Funding accelerated 10% this quarter, reaching almost 44,000,000 KIs. At the product level, Finally, we experienced the average deposit balance per active client, Reaching 2,000 EIS with a 6% growth versus the prior quarter.

Speaker 3

On Page 25, we can see our cost of Funding continues to be one of our key competitive advantages. This quarter, we reported 59.2% of CDI cost, Once again, below the 60% mark that we aspire to have. In terms of the all in cost, the improvement was 100 bps going down from 8 We should continue to benefit from this dynamic with the structure of our balance sheet that makes Interimco very sensitive. In terms of revenues, we had a great year. We see record breaking numbers in all the quarters.

Speaker 3

Moving to the Unit Economics page on Page 27. This combined with a stable cost to serve, has to keep enhancing our gross margin per active client, which reached Sandeep on sale DIs on a debt basis, which is our 2nd best quarter ever. Finally, in terms of active class brand jewelry, which is a good measure for our workforce productivity, we are closing the year On Page 28, we present our NIM Evolution net of cost of risk. We do this because it helps Capturing a full picture of our repricing and risk management practices. In the Q4, risk adjusted NIM Reached the highest level in the year, the 2nd highest level since 2020.

Speaker 3

This strong expansion is a consequence of: 1, Improvement on repricing of legacy real estate and payroll loans 2, change in the loan mix towards the most profitable 3, lowering cost of funding 4, efficiency in the reserve requirements as a result of our new equity program. For 2024, we see a continuation of this dynamic plus the scale of new current branches such as fixed credit and buy now, pay later. Going on Page 29, we see the expenses that have been pretty severe. With most of the breakdown items remaining roughly in line with prior periods, we achieved a 1% reduction in the overall impact of the prior year. Moving on to Page 30.

Speaker 3

Here we can see our efforts on the operational levers in more detail. In the next chart, it's clear that in the Q4 of 2023, we were able to further increase the gap between the growth in net revenues, growth on expenses. On the center, we had another impressive quarter of improvement in our efficiency ratio, leading us to end 2023 in a record low level 51.4 percent. On the right side, we can also see the efficiency ratio net of cost of risk, which similar to the risk adjusted NIM On Page 31, as you can see in the chart, our net fees continue to cover a percentage of our SG and A base, which is currently at 70%. The last but certainly not least, we couldn't be prouder of what we achieved in terms of profitability.

Speaker 3

We delivered a record ROE of 8.5 percent, including our best ever net income of €160,000,000, Which on an annual basis translates to a $640,000,000 impact by net income.

Speaker 1

On

Speaker 3

a pretax basis, we reached $208,000,000

Speaker 1

Thank you, Sanjay. Thank you, Sharanjit. So since we launched our digital bank Back in 2016, we have been focused on creating a unique platform that attracted tens of millions of clients, For the past 2 years, we entered what we call the compounding phase. This is nothing else than While we are starting to see the benefits of our digital banking model, these benefits are: scalability, Strong weight on fee income, strong NIM risk adjusted margins, best in class fund mix and also highly diversified revenue base. We think that this year, this competitive advantage become fairly visible and allowed us to deliver even more than what we expected for our year 1 on the 6thirtythirty plan.

Speaker 1

We are highly proud of what we achieved this year, both from our business and financial performance and Could not be more excited for what's coming in 2024 and beyond. Thank you for joining our call today.

Speaker 4

We will now begin the question and answer session. Please note that in the interest of time, we will allow each participant Our first question comes from Mr. Thiago Batista from UBS. Hello, are you hear me? Loud and clear, sir.

Speaker 3

Yes. Okay. Okay.

Speaker 5

Thank you, guys. Thanks for the opportunity. I have one question about the peaks finance. I know that this product is still in a kind of early stage on Inter. But Can you comment your initial impression and how relevant this product can achieve?

Speaker 1

Yes, Jean Victor speaking. Thank you for the question. Actually, we are very excited with its credit. Just to put things on a context, we have 8% of the market share in PIX in Brazil. Everyone knows that.

Speaker 1

But most importantly, The UX UI for its credit is amazing. So most likely, we believe that we can Outpaced this market share for this product in Brazil going forward. 100% of our credit of our clients Use our app to transact. This is a good advantage for us. And last but not least, the economics for fixed credits Our mix, they are better than the current credit card scheme in Brazil.

Speaker 1

So we don't have the interchange, we don't have the MDR for the merchants. So it's a win win situation. I do believe that it's going to be a very profitable product for us going forward. We're very excited. The first readings on the delinquency are good, similar to the credit card.

Speaker 1

The rates are better. It's a way more efficient product. So I really think it's going to be a game changer for the payment industry in Brazil, mostly for the digital banks.

Speaker 5

Very clear, Jean. Thanks and congrats for the results.

Speaker 1

Thank you, Chop.

Speaker 4

Our next question comes from Mr. Tito Labarta from Goldman Sachs.

Speaker 6

Hi, good morning. Thank you for the call and taking my question. My question is that there were some margin pressure in the quarter, I think related to renegotiations and discounts that you did that Also help the cost of risk. Should we expect more of this going forward? How should we think about both I guess both the margin and the cost of risk Going forward from here.

Speaker 6

Thank you.

Speaker 7

Thank you, Tito Santeo for taking the question. So what we continue doing this Q4 was what we did in the Q3, which was to be a bit more Proactive towards renegotiating the non delinquent loans, and we did that Additional $30,000,000 we have an impact of additional $30,000,000 from the NII into the cost of risk. Remember that we had a similar impact In the Q3, no, related to the Q2, so it was $30,000,000 in the Q3 and now $30,000,000 plus $30,000,000 meaning $60,000,000 versus the Q2 now in the Q4. That impact drove cost of risk lower and it also impacted NIM, which is the reason why we incorporate this new metric, which we Well, the risk adjusted NIM that captures both variables together and we think is the proper way to see that we recorded a 5.0% Risk adjusted NIM, the highest in the year and the 2nd highest in the last 4 years. Going forward, We expect the level that we reach now to continue.

Speaker 7

We don't think we have more incremental changes in the levels, but we would expect to keep it As a percentage of the portfolio roughly at this size, we also incorporated new disclosure regarding the Stocks of the renegotiated portfolio, which is a feedback that we got from investors and research analysts and that's providing the press release For people to go a bit deeper on how that compares already to the market.

Speaker 6

Great. Thanks, Santiago. Maybe just one follow-up, we did see some improvements on the funding costs in the quarter. Is there room to improve that more from here?

Speaker 7

So in the Q4, there is seasonality, to be honest, so we took the level below 60%, But around 60% is the level that we want to operate at. As we always say, the structure of our funding base or our funding franchise, It is a key competitive advantage. We will try to defend that as much as we can. We do think that the worst moment of stress with the Selic being at almost 14%, Which could have had a shift towards the higher yielding deposits didn't happen. We continue having a Strong funding mix and a 60% cost of funding with Celix going down.

Speaker 7

We think we'll be in a downhill or in a with tailwind

Speaker 4

Our next question comes from Mr. Mario Pierre Re from Bank of America. Mr. Pierre Re, we are now opening the audio, so you can ask your question live. Please go ahead, sir.

Speaker 8

Hey, guys. Congratulations on the quarter. Quick question on efficiency. As you show, right, you have made Significant improvements to your efficiency ratio. A lot of that because you were able To keep your costs flat, especially personnel expenses.

Speaker 8

So going forward, how should we See, clearly, your target is for efficiency to continue to improve. But I wanted to understand from your perspective, is this improvement coming from revenue generation? Or can you do more to reduce your cost structure? Do you have any initiatives that should reduce costs? [SPEAKER JOSE RAFAEL FERNANDEZ:] Or we're just talking about maintaining costs relatively growing in line of inflation, but revenue generation coming through.

Speaker 8

Thank you.

Speaker 7

Hi, Mario. I'll start taking that one. So what we saw throughout 2023 was at the beginning, We had certain low hanging fruit, so to speak, which we went very aggressive towards capitalizing them. If we look at the graph of the index of expenses and revenues in the second half, both grew, But the growth on the revenue side was materially steeper than the growth on the expense side. That is what we expect to see In 2024, we will invest more to continue growing, but the growth will be at a much lower rate, half or less than half the growth in revenue.

Speaker 7

And for that, we have a fixed side and a variable side. The fixed side is mainly the personnel expenses. That is a number that we will also grow At the inflation plus a few percentage points, but not too far from that. And then on the variable side, those are expenses that are more tied to the volume growth and those We grow at a higher level, but the growth, the improvement in efficiency will mainly be driven by revenues Growing significantly higher than the expense growth.

Speaker 8

Okay. That's clear. And Santin, just to Like you showed that slide that you are almost halfway, to your target for efficiency. You know, and this was like a 5 year target. I do you think you are ahead of schedule on efficiency or was that the

Speaker 7

We're definitely ahead is the way we are ahead The most, we went a lot more aggressive on expenses and to be more specific, we have a project, This is a project AO, Corrugia in Portuguese. We launched this project at the end of April, and that was a Corrugia 1.0, Meeting every Friday morning, the senior leadership of Inter attacking all of the main line items in the We had our first meeting of Corrugia 2.0 of 2024, the 1st Friday of the year. So we are starting A lot earlier, obviously now it will be tough for not to deliver incremental improvements, but the focus is there because we want to continue being above the level. We We're not going to have 20 percentage points improvement like we had this year, but we think that the concept of the digital bank Like we have, has a strong competitive advantage from the cost side and that is something we want to continue delivering as we go along. So this is a We expect to continue excelling.

Speaker 8

Great. Thank you very much.

Speaker 3

Thank you.

Speaker 4

Our next question comes from Mr. Yuri Fernandes from JPMorgan. Mr. Fernandes, you have the floor now. We're opening the audio, so you can ask your question live.

Speaker 9

And thank you. Hi, Santi, Azuel and Chaudhry. I have one regarding recoveries, loan loss recoveries. It was a good quarter. We tracked this and it was R80 $1,000,000.

Speaker 9

It used to be tracking around R40 So just asking what happened there, like if this level is sustainable, if there was any kind of one time recovery, Because it was a good quarter for this line. Thank you very much.

Speaker 7

Hi, Yuri. Yes, so recoveries typically the 4th quarter has better performance as there is More money in people's pockets and we see that on the funding side as well as we mentioned earlier. So there is a bit of seasonality, but we are a lot more effective on the work being led by the underwriting team and recovery team, Mauro Angel has been Spectacular. We expect to continue improving that metric, but the growth in the 4th quarter did had Some seasonality. So we have to compare the quarters versus the prior quarter of the prior year in order to make it apples to apples.

Speaker 7

But we think this is a front where there's a lot to continue evolving.

Speaker 9

Thank you, Santi. If I may Different topic, but quickly one on the marketplace on Intershop. The net take rate was slightly down. Should we see this recovery Ahead is this like promotions, Black Friday, Christmas and should we see the net take rate moving up back again or what is the message [SPEAKER JEAN

Speaker 10

FRANCOIS VAN BOXMEER:]

Speaker 11

Jurij, Jean Vitor speaking here. Just to complement Santo on the previous question and then I'm going to answer about the Please. I think that most of the analysts remember that I have always talking about 3 key elements for the credit card. [SPEAKER JOSE MARIA ALVAREZ PALLETE:] So good underwriting, good productgood UX, good UI and good collection. And the renegotiation is a very important part of a good collection.

Speaker 11

We're doing that seamless for the client through our app in a very wise way. And therefore, we have been improving [SPEAKER PIERRE YVES LESAICHERRE:] The flow, the type that we make the collections, it's a win win situation. It's very important. Going to the marketplace, Now we also I mentioned in the past that we're always trying to do the best balancing, trying to find a sweet spot Between growth and profitability. And the good news are, we have been able to shift from one to the other quite easily.

Speaker 11

Every Single week, I have a meeting with Rodrigo. Rodrigo, both all of you know Rodrigo, the CEO of the marketplace. And then we can decide, We have a strong time of the year coming in. So should we put the take rate the cash back, sorry, [SPEAKER CHRISTOPHER MANDEVILLE:] Less competitive. Should we be more competitive because it's a low season?

Speaker 11

So, we use that quite often to adjust growth versus profitability. Having said that, I believe that I don't see a major change on the trends going forward for 2024. But [SPEAKER PIERRE ANDRE DE CHALENDAR:] If you have a good recovery on the retail in Brazil, we can't improve the growth, [SPEAKER PIERRE ANDRE DE CHALENDAR:] I mean,

Speaker 1

the GMV, but also the

Speaker 11

net take rate going forward. So pretty much stable for 2024. That's what we foresee for the

Speaker 9

That's super clear, Jean. Thank you and congrats for the results.

Speaker 4

Our next question comes from Ms. Neha Agarwal from HSBC. Ms. Agarwal, we're now opening the audio, so you can ask your question live. Please go ahead.

Speaker 10

Hi, congratulations on the results and thank you for taking my questions. A quick one on the revenue So you mentioned the cost to income improvement will be driven more by revenue growth. What are the main levers in your view that is going to drive revenue growth For 2024, what kind of loan growth could we expect for this year which will further translate into stronger interest income and fee income growth? And probably you can touch upon the BNP product that you mentioned on your platform, maybe that could be one of those new levers on the revenue side. And the second question very quickly, what kind of ROE should we expect for trade 2024?

Speaker 10

Something like a 12%, 13%, 14% Seems reasonable. Any color on that, if not a number would be very helpful. Thank you so much.

Speaker 2

Thanks, Neha. This is Alexandre speaking.

Speaker 8

I'll start with

Speaker 2

the BNPL and then I'll go through the growth part. So the BNPL is a new payment method that we incorporated into our marketplace. We see it as the Consumer Finance 2.0, so bringing more of the pool of revenues of the system into Inter and we see that Yes, super positive. We're fine tuning the model as we grow and believe this could be in the ballpark of 2,250,000,000 By the end of the year, the context of the partnerships is a driver to reduce risk. So in the end of the day, we get take rates that range from 20% to 30% from our partners and that helps Financing the delinquency that we may get in the model and with the clients.

Speaker 2

The nice thing about the BNPL Is that given the take rates from the partnerships, we can open it for a wider range of customers. So Several million customers that don't have a credit card can buy with the buy now pay later within the app. We're excited and it is one of the drivers of margin expansion as we drive through 2024. When you think about growth?

Speaker 10

Can I pause over there and just ask Something very

Speaker 1

quickly?

Speaker 10

So, Ed, it seems like for the BNPL product, you'll do part on your own balance sheet and part with the partners, Which allows you to get a fee income from the partners. Could you talk a little bit about what kind of proportions we can expect 10% on balance sheet, 90% with partners or more like fifty-fifty? And what kind of partners are we talking about? If you can name some, that would be helpful.

Speaker 2

Yes. So So Neha, in terms of balance sheet, it all goes to our balance sheet. So in practice, what happens is, for example, let's say somebody is buying a phone From Samsung for R1,000, instead of disbursing R1,000 Because Samsung is providing the stake rate of 25, 250 highs. So We have a collection balance of $1,000 but a disbursement of only $750,000 That's the mechanics of how it works. And we'll keep on expanding the partnerships so that the product can grow.

Speaker 10

Okay. So essentially, just the take rate, you're not the loan will still be everything will be in your balance sheet?

Speaker 2

Everything in our balance sheet, correct. Moving yes. And on the growth aspect, we expect to grow beyond 30% this year. We're excited like the last the Q4 was positive at around a 10% growth. So we're excited about 2024.

Speaker 2

The core portfolios will keep on growing. So home equity, FTTS, we're excited about those and Good start of the year so far. And it's also nice to mention the expansion on the non collateralized, right? Jean talked a bit about the fixed Credit and we launched them last year, so overdraft, buy now pay later, which we've discussed, Peaks Credit, as Ron discussed, we also have bill pay using the credit card limit and we're also allowing Customers to put cash in their accounts using their credit card limits. We have a potential of a 1,000,000,000 portfolio By the end of the year in these lines and they're definitely going to be a margin expansion product for us.

Speaker 2

So we're excited about it. Thank you, Nya.

Speaker 10

Super helpful. Thank you. Anything on the ROE front?

Speaker 7

I can take that one, Nijia. Hi. So, on ROE and net income, we don't provide guidance. But what we said last year on the Investor Day was that we agreed with a sell side consensus Of 5% for 2023, and we deliver that. What we can say now, like exactly a year after, Is that the flow or the curve of build up both in net income and ROE that we saw throughout the year should continue Into 2024, we can't get too much specific on that because they will become guidance and we don't intend to provide.

Speaker 7

But we see a continuation of the trend That we've had last year coming into what is year 2 of the sixty-thirty-thirty.

Speaker 10

Perfect. Thank you so much.

Speaker 4

Our next question comes from Mr. Pedro LeDuc from Itau BBA. Sir, We have apparently lost connection with Mr. Leduc, Mr. Pedro Leduc.

Speaker 4

Apparently, is no longer in the room. So we're moving on to the next question coming from Mr. Brian Flores from Citi. Mr. Flores, we're opening the audio now, so you can ask your question live.

Speaker 4

Please go ahead, sir.

Speaker 12

Hi, thank you. Thank you for the opportunity. Just a couple of follow ups on the answers that you provided. You mentioned you were excited about FTTS loans. So the contribution to gross loans is around 6%.

Speaker 12

This has been increasing steadily. So just wanted To get a sense on how are you thinking about this segment, any insights on the dynamics of the segment and how should we think about the contribution going forward? So I think this is my first question. The second one, Santiago, you mentioned that in terms of the strategic plans, you Intent to defend your deposit base. Can you share with us like what are any ideas on how to do this would be really helpful?

Speaker 12

Thank you.

Speaker 2

Brian, this is Alex speaking. May I ask you to repeat the question, please? We had a technical problem and couldn't hear you.

Speaker 12

Sure. No problem. The first one was on FGTS loans. The contribution is around 6% has been steadily Helping in terms of the total portfolio, so just wanted to think to get a sense on how are you thinking about this segment? Any insights on the dynamics would be really helpful.

Speaker 12

And then the second one was on how are you planning to defend your deposit base?

Speaker 2

Great. Thank you. So starting with the FTTS, it's a product that we like a lot, 100% digital underwriting, Good margin, high engaging product and we've been able to do continuous improvement also operationally to make it easier for customers To obtain their loans, we have a lot of returning customers. Having said that, we expect to keep on growing. It's at 6% of The portfolio as you mentioned, and we believe it could get to around 10% by the end of 2024 As we move forward, so we are excited about it.

Speaker 2

From deposit In terms of defending the deposit, it's all about defending the transactional business, right? So we've been consistent on keeping peaks Around the 8% market share, we're going to work heavily to increase this market share as we move towards 2024. And with the transactional business, we're going to be indirectly defending the deposit franchise, right? That is one of the strengths of Inter, The massive transactional platform we've been able to bring in, along with also the investment platform, it's super nice. But that's the defense.

Speaker 2

The defense is to keep growing on the transactional business. Thanks, Brian.

Speaker 12

Perfect. Thank you.

Speaker 4

The conference is now concluded. Inter IR area is at your disposal to answer Any additional questions? But first, I'd like to yield the floor to Mr. Joao Witter Menin for his closing remarks. Sir, the floor is yours.

Speaker 1

Thank you very much. So first of all,

Speaker 11

I would like to thank our employees For the great year we had on 2023, we work a lot. We work hard and we work with the right Strategy with the right focus, with the right North Star, which is our 6thirty-thirty plan. And I really feel that It's no longer different on 2024. I see a red for the 1st month, our team engaged, motivated To also deliver another positive year on our 6thirty-thirty plan. We were chatting this morning about the priorities for the year.

Speaker 11

And I would like Say that I have 2 priorities for 2024. The first one, to make sure that we also deliver another year ahead of the budget Of the six-thirty-thirty plan. And the second, guys, to make sure that I'm going to stick with the first one. So [SPEAKER PIERRE YVES LESAICHERRE:] That's about that. Be focused, engaged, motivated, and I'm sure that we can keep delivering good results, both [SPEAKER PIERRE YVES LESAICHERRE:] On a profitability basis, but also very important on a growth perspective as well.

Speaker 11

We are still a growth company. But Combining these two elements, we could deliver it on 2023 and we will deliver it on 2024 again. I'm sure about that. Thank you, all the employees. Thank you, all the shareholders that support us for a while, that will keep supporting us.

Speaker 11

See you soon. Thank you very much. Have a good day.

Speaker 4

The conference is now concluded. Inter IR Area is at your disposal

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Key Takeaways

  • Interimco outperformed its inaugural year of the 60-30-30 plan, attaining 30 million clients, a 51% efficiency ratio and 9% ROE—well above initial targets.
  • Client engagement intensified with a record 54% activation rate, lowest cost-of-acquisition since 2020, over 12 products exceeding 1 million active users and 4 million daily logins driving a TPV run-rate above R$1 trillion.
  • All seven verticals delivered robust growth: e-commerce GMV topped R$1 billion, insurance net revenue reached R$47 million, investments AUC hit R$92 billion and global solutions grew 4× to $360 million in assets.
  • Profitability surged and asset quality improved, with Q4 net income of €160 million (annualized $640 million), record 8.5% ROE, risk-adjusted NIM at 5.0%, and declining NPLs and cost-of-risk.
  • Operational leverage deepened, driving efficiency ratio to a record low of 51.4%, net fees covering 70% of SG&A, and funding costs maintained at ~59% of CDI, underpinning further margin expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Inter & Co, Inc. Q4 2023
00:00 / 00:00