Itaúsa S.A. (ITSA4) Earnings Call Transcript & Summary

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[Foreign Language] [Audio Gap] We're reducing, verifying, including in the last quarter, we have less activity than what we've seen in the first semester. The international environment did not help as well. Well, we've seen in foreign banks, foreign economies, we have a hike in the interest rates. There is deceleration. There is the war in the Ukraine that affects the prices of commodities. These are very challenging. Well, high inflation in Brazil, loss of sales, loss of purchasing power from the population. So we've gone through an environment that is very challenging. But fortunately, Itausa has in its portfolio, very solid companies with very strong brands, and we weathered this storm very well. 2023, we started as 2022 ended. We have an economy that's still in deceleration. The interest rates are still high. The foreign environment is complicated. We've seen all throughout the days of financial crisis in the banks in the United States and Europe. Therefore, our expectation is to have an economy this year still with low growth, interest rates still high regardless of the possibility of having a reduction maybe throughout the year and a result of the companies that is lower. They are more affected because of the economy that is less warm and the loss of revenue from the public, and that is a trend that continues.

So how do we see this whole scenario that you show? Let's see our main numbers. I think that you talked about resiliency of portfolio, the strength of our portfolio. And this is certainly reflected in our numbers. We have the net revenue that was recurring, a record in the -- about BRL 13 billion -- BRL 13.7 billion, a growth of 14% in regards to 2021. We had a return on net revenue -- net assets actually of 20% -- [indiscernible] Also, net revenue this time grew 10%, and we reached in December of 2022. BRL 72.8 billion, and the value of the assets that are part of the portfolio, BRL 102.2 billion, a growth of 31% in regards to the previous year. So this shows that resiliency is key in our portfolio. And I wanted you to tell us about your idea about the performance of our shares in the capital markets, which was also very volatile.

Well, I think that the results are very good. It was a record, as you said, Priscila. And we continue to -- for this to continue all throughout the years. I believe that we have a net assets very solid, BRL 72 billion, very solid. And the investors, they realize that. The quality of our company, the solidity, the leverage that our companies have and that has been reflected in the capital markets. We've had a great performance, much better than Ibovespa. The index, if you look at the last year and if you look at the 10 years, much better. So we've seen in the market a very consistent work of Itausa, the investments that were done over the last years and the diversification of the portfolio, and I think it's been very good.

Alfredo, regardless of us doing a great work with the capital efficiency, good results. We see the discount threshold -- we can see 19.2%, still a bit higher than what is fair. But why don't you get your outlook on that?

Well, I didn't comment before, but this is -- we have an improvement in the diversification, the quality of our portfolio in this discount that was already 25%, 26% already reduced and we still think it's a bit high. It should be lower. Of course, there is an inefficiency of the holding and the receiving of the proceeds. We have to pay the taxes, the state and the federal Taxes. Well, the discount is still high but still all throughout the years as the company's nonfinancial companies, companies of our portfolio, they start to pay more proceeds, which is our expectation over the next years. That should drop more the discount. And we realize that Itausa with a market value of BRL 82.6 billion in December. And our participation at Itau Unibanco represent a BRL 91.3 billion. Itausa has a discount just in the context of Itau Unibanco without considering the other BRL 11 billion that we have in the market value of all of other assets -- all the other investments, yes, these are listed companies. We have Aegea, we have the privately owned companies that they have the value, then there is a valuation that is higher. So the discount is higher than that. You have to consider listed and unlisted companies. Well, let's get into the details of the results of Itausa 2022. So I want to bring our next speaker.

This is the next block. So let's see the net revenue recurring of Itausa, as we reported yesterday, a net revenue of BRL 13.722 billion represents 14% in regards to growth in regards to the previous year. How do you compose that net revenue? We have a -- well, the results itself of Itausa, we have our administrative expenses, tax expenses, also capital gains with this FY that was very good with all the tranches of sales that we've done in the fiscal year, also the financial result with an important growth in regards to 2021, specifically because of our entire leverage strategy, that was used to do the capital allocation. The investments in CCE. I mean, everything that you know in the period, a very important growth in the period due to the hike in the interest rate, so of course, to get the reflection on that. It increases our financial expenses, the main thing, the main result of Itausa comes from our investments. And these are the results with the growth of 8%. And you can see here all of that -- well, we can see all the elements by our own results, it's an important growth we can see EUR 1.876 billion, that is positive. Here essentially, we had a higher result with the sale of shares of XP, we did an expressive sale with 41 million shares of XP that we sold that resulted in an impact in a result of over BRL 1 billion, BRL 1.6 billion of growth in regards to what we presented in the previous year in 2021. We had a small increase in administrative expenses. This is personnel, structure, technology and investment, important investment in IT and also expenses M&A, which is our core business at Itausa. Tax expenses increased, specifically PIS and COFINS where we received the investees their results, and we paid over all the capital gains of XP sales, and then we got to the result that is very important that contributed to the increase of our net revenue. So let's talk about the financial results. As I commented, we have an increase in expenses, financial expenses that is very important. We reported the negative result, BRL 209 million now we reported BRL 618 million a growth specifically comes from the interest rate expense that we had 2 emissions of debentures, one in the middle of 2021 should do the funding to the acquisition of AIG, which is the debentures and here, the other one that happened in the middle of '22 that we use part of the funding to acquire CCR, and of course, all the increase of the Selic rate in the period that impacted our financial expenses, partially mitigated, of course, with a higher profitability on the cash flow that we seen also in the interest rate hike. So talking about the investment results -- the investee's result. So the -- we have a growth of 8%. We are getting to 12.714%. This is a growth that is a great performance by Itau Unibanco. Alfredo is going to go over the main drivers here. But a growth that is robust of the credit portfolio and mainly the other lines of revenue. A very important performance here all throughout the year Copa Energia a growth in margins and capture of synergies of integration of the operations itself, NTS, we had a great receiving -- receivables of dividends, and that impacted our results. XP, we had an equalization of the number of months that we did the equivalence of patrimony assets in 2020 just from May onwards. So we have a normalization, I would like to say of the capture of the results of that investee -- that investment. Alpargatas and Dexco reduction of results, specifically because of the market conditions, the retraction of volume and also the impact in the costs because of inflation. Alfredo could you give us your [ onlook ] on the performance of the investees. These companies that we invested in the -- what would you highlight in terms of performance for 2022?

I think that in general, our situation is very solid. Our portfolio is very good, resilient, as you can see. Our investees -- investment companies, we have strategic and investment plans that are very good. The results display that. A few drops in regards to the previous year because for example, Dexco, we had a record year in '21. So it was very difficult to keep that rising. But in general, we had a great discipline in the capital allocation, not only of the holding, but all the other companies. We reduced debt. We brought work that is very disciplined in what we do. And we can do a deep dive maybe in the details of each of these showing what are the main points that we've seen in our investees -- investor companies. So we can start by Itau Unibanco, which is our biggest investment is a company that is very large, and it has a great performance. I think that we can highlight great growth in the credit portfolio. Demand for credit was good regardless of the economy having a deceleration in the second semester, the margins were better. The interest rates were better, higher that collaborated with a better result. I think that discipline in the capital investment, a great control of costs. In Brazil, Itau Unibanco in Brazil has had an efficiency level below 40%, which is very good. We wanted to get to lower levels, reducing costs. Also, we have an important cost reduction. So we have an important -- we managed more revenues reduction of costs. We have an agenda of transformation, cultural transformation and digital transformation in our bank. This is very important in terms of competitiveness in regards to the new digital banks, the fintechs and so on and so forth. And we see all of this being reflected in a great result. Taking into consideration the setting and a great control of payments, of course, the cost of credit has growth, but the control of failure to pay or defaulting did not really affect the results of the bank. I think it was a great year in the bank. We are well positioned, and we will continue to look at the great fruits that the bank is generating. In regards to Alpargatas, well, here, we start to face a few difficulties. The loss of revenue of our consumers, the Brazilian population as a whole really affected the results of the company's smaller proceeds, smaller revenues, but we have a strong brand, which is Havaianas and it has managed to overcome as possible these difficulties. We've had a few difficulties in the international area in sales, but that was corrected. We had a great performance in the international scenario. Well, it was a good performance. I think that the great news of the year was the acquisition of 50% of Rothy's which is a shoe and accessories company in the United States, it's a startup, and it has a growth that is accelerated. We've shown a great performance, and we managed to grow this is a digital company, but we've managed to grow with the numbers. So I think that in general, we were affected by the pandemic and we also had a few issues with logistics all throughout the year, difficulties in manufacturing. Well, a few operational aspects that, in general, influenced negatively our results. We are very confident. We believe this is a very good company with good penetration really in the market. So we believe that right now, the process is about rearranging everything and restarting with good capital generation and very good results, I'm sure. Well, another company that had good performance was Copa Energia, very good results. It was a very difficult scenario. Also, there was a loss of income and loss of consumption, but still it was a very positive year. I think that the company was able to capture all these synergies that they were planning to have in the integration with Copagaz and Liquigas, the company that was acquired from Petrobras. And I think that was very important. They had a record cash generation, almost BRL 1 billion last year. BRL 900 and something million, so that was great. We were leveraging that when we purchased, when we had the acquisition we had the acquisition with debt of EBITDA that was around sixfold and now it is twofold. So it's been very good. But we're leveraging that. We have good cash generation, and that allows us to think about all their investments in the energy sector. So I think the company did well in 2022. When it comes to infrastructure now CCR, Aegea, et cetera, I think these are more resilient companies. We're talking about long-term concessions -- concession contracts. I think -- well, CCR is the main company in Brazil for infrastructure, for mobility. We're talking about roads. We're talking about subways, airports. So it is very, very good, a very important company. Aegea is the main Brazilian private company for sanitation. We're talking about over 30 million people being serviced by Aegea. So again, a very important company with so many concessions all over Brazil. In December, Aegea got the Corsan contract from Rio Grande Do Sul in the south of Brazil, another sanitation company. Anyway, I think we have very good balance when it comes to concessions. And well, NTS is very important and it's south of Brazil when it comes to gas. They have very good profitability, also very relevant CapEx and good cash generation. So when it comes to infrastructure, again, I would say everything was very well done, and we're extremely satisfied.

Excellent Alfredo. We didn't really talk about Dexco so much.

I think Dexco also had a challenging year since we're on it after the second semester because of the interest rate change, -- there was a decrease in that sector. So that affected Deca, Ceusa, Portinari, a few companies working with ceramics in Brazil but we are very confident. It was still a very good year. It was the second best year in the history of the company in terms of results. We continue with the investment plan. We're going to also launch the first line of the first ceramics factory in Botucatu in the state of Sao Paulo. It's great to be the most modern plant in Brazil. And maybe in the world, lots of technology there. They are going to really improve efficiency when it comes to ceramic factories. And I think the great news for 2023 is that we're going to start with celulose. The joint venture of Dexco and Lenzing, which is from Austria and they produce soluble cellulose and also some other byproducts from cellulose and we're going to be operating fully. Everything has been sold. So that is surely going to leverage a lot in terms of equity, it's going to help a lot. So Dexco is looking at a very good scenario, of course, but it's difficult because of the interest rate. Well an [ LD ] is also going to contribute, right, with the currency and all that, of course, we know that the cellulose price is good. We're talking about soluble cellulose, which is what we work with in Minas Gerais and they have very good prices, better than regular cellulose. So again, it is about diversifying income. We're going to have that income in dollars, that's going to be significant, and it's a company that has everything that we need really to have good results for Dexco over the next few years.

Very good Alfredo. Let me just remind everyone, all the audience here today that we -- that you can send us your questions. So on Twitter, you can use the #resultodasItausa. We have a couple of questions already about XP, about the timeline for sales, about the resources of all the sales that have been so relevant ever since 2021. I think that's going to be an interesting topic actually to start talking about capital allocation and liquidity management.

Alfredo. As I was saying, we already have a couple of questions here from the audience about XP. People want to know the timeline for the remaining stocks, I mean, what was done with all the resources coming from those sales. So [ William Mora ] sent us a question on that. He is asking when we're going to sell the stock? And I think it's interesting, right? Alfredo to talk a little bit about that. What was the destination really of these resources.

Well, Priscila. We received those from XP after this fusion that we had, this participation really that we had with the capital at XP, and that was distributed to the shareholders. So it was 15.4% approximately of the capital of XP that was received by us. And at the end of 2021, we said that this was not a strategic position for Itausa. And we said that the allocation and the portfolio was mostly connected to services, industrial services and not so much financial services. So at that time we said that throughout the years we were going to get rid of those. We sold a little bit in 2021 and throughout 2022, it was more significant and the market allowed us to do so. So we sold around BRL 6 billion, approximately in stock -- in XP stock, so that was around BRL 122. That was the average price. If we look at what it is worth nowadays, it is around BRL 60. So we believe it was good pricing. Essentially, we had 4 different destinations for those resources throughout the year. We paid JCPs were our investors, we used a little bit of that for Alpargatas as well because of the acquisition of Rothy's, which I mentioned before, have the participation that we had in CCR, which was BRL 3 billion, so BRL 1.5 billion in this case was used for this sale -- the -- yes, the sale of XP stock and also a very important decision that we made. We reduced the amount of debt that we had. So we were concerned about that. It was a difficult scenario, both in Brazil, both in other countries. We were worried about the interest rates going up. So we tried to use those resources in that way. The idea right now is for us to continue working with these stocks right now. We'll continue with this policy so that whenever there is a change in the capital -- in the scenario, we have the right balance. We are looking at a low level for Ibovespa, other stock exchange markets in the world. So that is certainly going to be very useful. We'll see what kind of opportunities we have for capital allocation, and we'll see what variables we have to work with.

Right Alfredo. These are important factors for this fiscal year. {

So again, about what William was asking, we don't really have a fixed timeline. It's going to depend on the market, on what we need or [ urgent ] needs for Itausa. But again, it's going to depend on the results that we have, and this is what we have done with the stocks that we had.

Well, Alfredo, let me talk about debentures now. You were saying that one of the things that we've done was reduce the amount of debt. So it was BRL 1.8 billion in December, and that allowed for 40% reduction over the next few years. So we really we're able to zero what we had in 2023 and 2024, and we reduced BRL 1 billion over here in 2025. So we're looking at CDI plus 1.6%. That is very competitive. We're looking at a timeline of around 4.6 years. So the debt is going to be BRL 6.5 billion, but the net one is going to be BRL 3.8 billion. If we consider -- if we see that the main levers here are quite healthy. So here, this is 5% for -- indebtedness and as for the assets, the equity that we're receiving actually the proceeds that we're receiving. This level is BRL 3.4 billion So that is enough what we have right now at the company.

I agree and actually, going back to what William was asking, you see Priscila, the amount that we had over here. The amortization that we had in 2023 and 2024, that really allows us to have a lower pressure for the next few years. So we're looking at a better scenario. There is no pressure. We don't have to sell everything at once. We were concerned that, that could happen. So we sold quite a lot last year, and we were able to have this amortization level last year. Also over here in 2025, we were able to reduce that amount. So again, no pressure to sell those stocks at the moment.

Great. Well, Alfredo, I think it's time now to discuss one of the favorite topics for everyone. So we want to talk our dividends. We want to talk about proceeds. So Alfredo, in our previous session, we discussed dividends quite a lot, and there were so many questions about it. So let's take this opportunity to talk about this scenario a little bit more about the practice that we have for paying dividends. We usually pay them 100%. And due to the policy, it is also 25% over the net income that we have. So after we have our reserves, and we have a compensation policy that will have a compensation of BRL 0.03 per stock every quarter, and that is also complemented by additional bonuses in August and March, additional distribution actually. So besides that, Alfredo, could you maybe tell us more about the drop in payout. Could you explain why that happened recently?

Well, looking at this graph, I think it's easy to see that -- well, Itausa usually distributes around 35% to 40% of the proceeds. But up to 2019, there was an excess of capital at the time and there -- that capital was not being used in other investments or in credit. So the bank was very generous. So let's just say over these years in the graph. That's what caused the change in the curve and now the bank is distributing 25% to 27% in JCP. And this brought Itausa back to this level, around 31%. As you can see over here, last year, 2 years ago, 2020, well, we had the pandemic. So it was a little bit below around 25%, 26%. So this is the valley. And I believe this curve is going to go up again over the next few years as we have more dividends as we have more proceeds, I think this is a possible scenario. And also we're going to receive more proceeds from other new investments. So over the next few years, we believe that we're going to have a better distribution for our shareholders. Again, this is a valley in the curve. I believe that this is going to go back up. We're probably going to go back to this level of 35% to 40% over the next few years, which is a very good result, of course, very good for shareholders.

Well Alfredo, we also have to think about the flow coming from the nonfinancial sector, which has also grown a lot. After 2017, when we started diversifying the portfolio, what you can see here is a growth in these proceeds. Nowadays, it is close to BRL 500 million to BRL 600 million per year. It is very significant. And I think it is clear that historically, we have the certain consistency in this payout. And in this practice, in the orange bars, this is very visible. This is the amount that is sent that is paid, this is what shareholders are receiving. So there was a difference in 2021, 2022, it was a little bit more that was paid than what was received because of the flow coming from the stocks, the XP stocks. So it was a little bit above. But again, we believe it's very robust growth, usually what we have year after year, year-on-year, it would be 16%. And the nonfinancial sector, as you can see as well, grew around 900%. So this is really above the benchmark, the references that we have, CDI, et cetera. So nowadays, Alfredo if we work with the nonfinancial sector, the right way, we're also going to consider that different flow, right?

Yes, of course and we expect that interest rates are also going to go down. We're not going to have so many expenses over the next few years. I'm sure.

Very well for no now. Let's see a few figures. We had 12% growth, which is BRL 0.43 per stock BRL. 2.6 billion have been paid. We still have BRL 1.4 billion pending. That is going to be -- we have to define a date, that's going to be paid soon but in 2023. And another form of compensation is also the bonuses of the staff. We had a bonus at the end of the year of 10%. We delivered 1 new action for every 10, 1 new stock for every 10 that they had -- that the shareholders had. And an important thing here is we had a great fiscal benefit for these shareholders because the cost assigned to the stocks was much higher than Itausa. So when you update the average value of the stocks. This is what happens. You have to update the average cost, especially now for the income tax because you're going to capture this fiscal benefit now. Well, the dividend yield Alfredo, that is growing as you can see, the proceeds threshold that is growing for 2022.

It's important just to highlight what you've mentioned. When we do the payout of bonus as well, we're not simply giving shares. We are giving more cost, more capital for the shareholder. So it is a way to distribute the results. And as Priscila has said in this month and the next one in the -- when you deliver your income tax, you will get less income tax costs. So as you said in -- this is why we have to submit to the tax authority in the next couple of weeks here in Brazil, and you have to take that into consideration.

Well, Alfredo, we have great news for our investors, Yesterday, the Board of Directors approved the [ DE ] JCP declaration anticipated BRL 637 million with BRL 0.06 per share. This is going until August 31. This is what should be the fine up ahead, and we're going to receive these dividends this JCP, those that have shares of Itausa in '23, March '23. If you're not positioned at Itausa acquiring shares, you're still going to receive the JCP that was declared yesterday, if you buy shares by the 23rd. And now the next block, the ESG agenda. The thing that everyone knows that our proximity with the shareholders and transparency are things that are very important central here at Itausa and we've done a great effort and have dedicated ourselves in getting closer and increasing the transparency, increasing the content of quality for you guys. Last year, we had a lot of things in that sense. We've used social networks and we have 911,000 shareholders, natural persons that are part of our base of shareholders that -- this is a very young public that submits a lot of questions we have the social network. So we've really published a lot of content. We've had thousands of followers following up here, and we really talked about content on YouTube with a easy language accessible language with content that is today, we have over 14 million views, a great impact. And we've recorded Itausa cast with Alfredo every quarter to talk about the results. And besides Itausa cast, we try to use the askItausa to answer the questions of our shareholders. And we've done an institutional campaign of last year to better talk about who Itausa is, what are the brands that compose our portfolio, and we have our newsletter. I invite you all to register in the mailing, this is a monthly content, very direct, very objective where we have the main highlights of Itausa and the companies of our portfolio. Alfredo I wanted you to give us your outlook on the governance. We continue to implement improvements. What can you share with us.

Certainly, Priscila, besides everything that you've mentioned as part of the governance, transparency and data, videos, all of that is part of our governance with our shareholders. But we've tried to reinforce governance at Itausa -- Grupo Itausa and all the companies that we take part, we have a strong tradition of governance and we are promoting improvements --statutory improvements in our holding -- we've brought -- oh it's been 2 years. Independent council men and women, we've created 4 independent Boards. We have the statutory committees at the holding at the Board of Directors. Those committees are coordinated by the independent members of administration. So they have a lot of freedom, a lot of access to all the directors, and that has built up steam new dynamics for our governance and our day-to-day work. It's important that we created the Audit Committee last year -- in the second semester of last year. It is already working. And in the next -- in the next meeting at the end of April, one of the proposals is that it starts to become a statutory committee that will reinforce our governance, and we will improve the report of corporate governance from [ CBN ] the Brazilian SEC, it's much higher than the average of the market, 76%. So right here, 77%, you can see the average of the market is 58%, 59%. But we have a level of governance that is very high. And what this is everything that we want. We have 911,000 shareholders. So we need to really provide all the information, make everybody comfortable that the company is very well managed, the capital allocation is correct. And I believe that we are always evolving internally as well. This is a point of the holding itself. But for the second year, we are classified as one of the best companies to work. It's a very informal environment, very good environment, very open to work. So we have a very motivated team and that's important so we can work with the day-to-day of the company. Thank you very much.

And the things that you are mentioning are reflected in the main ESG indexes, we are taking part in the national and foreign indexes. This is -- we are one of the first holdings to get into the first in GPTW a decade, and now we have all the other indexes. We are part of IGPTWB3. We -- these are -- this is a portfolio of several indexes, and we are one of the few that have the certification by GPTW. This is a recognition. This is important for us, and we are always trying to improve. Well, now I wanted to share with you, and we've discussed independent [on]indiscernible] Itausa event, and now we're going to bring to your attention the evolution that we've had all throughout 2022 -- all the ESG strategy. We have subcontracted a consulting company that really supported us with the Board of Directors so leadership and bringing discussions and how can we leverage more of the ESG agenda in the holding. And we defined our 3 pillars of impact ESG impact a pillar of impact of ESG are holding impact ESG per portfolio, where we have a great potential for causing a positive impact. The social and environmental agenda and governance, which is the base of everything. And we are always bringing -- working, implementing the best practices for our investees. So can you bring us in news of the ESG Holding and the news of Instituto.

Well, the ESG theme is very important in the listed companies, not only in Brazil, but in foreign markets. We have a lot of demands of foreign investors, national investors as well, the institutional, the funds, pension funds, about this issue. This is a very recurring issue. And we have tried to meet the requirements of those demands. And the requirements of society as a whole in this issue. As Priscila has stated, we created this last year and we are implementing this year the ESG Itausa Institute. We have, as a principle of working in the environment, productivity and innovation areas. These are very relevant issues. Productivity is very high. While Brazil is a country that is not so productive. So we are trying to get partnerships with universities, with other NGOs in a way that we can through shares help the companies to improve productivity, which is something very relevant. Brazil needs to invest in the productivity stands from innovation. Innovation comes from productivity. So we need to help this innovation specifically in industry. I mean agriculture has a great result, a great technological innovation. But in industry, we still feel we're lacking. We're lagging behind. And environment we are positioning ourselves for preserving the environment for this -- always with partnerships. The idea of this institute is still being formed. We have the investment, we have to form a team, all the legal expenses to get this on working. The idea is on the next years, we are going to do a [ high couple ] of the investment that is about $50 million all throughout the years. It's a value good. We believe that in partnership with other projects, we can maximize this. This is an important step of Itausa for our agenda, ESG agenda.

Alfredo , still within the first pillar of the impact by the holding, we have our environmental commitment, trying to find the carbon neutrality as a holding. And upon the financials and the action plan that was implemented, we are trying to find the carbon neutrality and all the social aspects that is connected to our employees, all the initiatives that are ongoing for the health care, well-being, diversity and inclusion and for the development and education of our employees. ESG impact by portfolio. The other pillar, we're going to incorporate more ESG aspects in the analysis of new businesses. And moving forward, our agendas in the investees, we have representatives in all the sustainability committees of these companies, and we're going to look at 3 main agendas, reduction of carbon emissions, diversity and inclusion and strengthening -- continuous strengthening of governance, implementing the best practices of the market in our investees. Governance. We've instituted already Sustainability Committee. We had that issue at the Board of Directors. It starts to gain strength. These are Boards that are going to follow up on the ESG strategy. We've tried to do the work to bring more disclosure. ESG disclosure, mainly in our main integrated report publication, and we have news. We have ESG goals in the goals of part of the leadership -- and we have here news, Alfredo that I wanted to share with you. Culture. We are bringing forth elements, ESG elements and the new culture of Itausa. We are in the middle of this process. What can you anticipate?

It's an internal process. I think that this is going to be reflected in the day-to-day of the company, better management, better governance. We are working with a new culture in a company with all the aspects that we have of ESG, diversity, opening, hearing more collaborators, providing more space for the leadership to work with more delegation. I think this is a new environment. The holding is more complex. We need to adapt. A holding that is in the investments in Dexco and the bank. And today, we have a very strong portfolio. We had hundreds of meetings of the holding itself taking part on committees in the investees. So we need to change our culture, internal culture, so we can effectively have the agility have the commitment with all of our projects.

Alfredo, there is some news in the new area of intelligence and sustainability.

So we closed the cycle, very long, 5, 6 years of new investments, and then we'll get into a cycle of less investments. We're going to take a look at the whole scenario of how things are going to unfold in Brazil. And in the foreign markets all throughout the next years, we are reinforcing our team and the company's -- valuation of these companies. We want to have a better control and better management of our portfolio. That's why we are creating the sustainability and intelligence area with [ Marcelo ] that is a market executive that has a lot of experience in social environmental issues, and he's going to support Itausa. Yes, he's somebody very experienced and he's going to work with all of our projects of sustainability. The relationship with our investees and these issues, and he will manage our Institute, Itausa. Let's present Marcelo to our audience.

Hello, I am Marcelo Furtado, Head of Sustainability at Itausa. I have over 30 years of experience in nature, innovation. I am very happy to be here. I'm here to contribute with the ESG strategy of Itausa, specifically in the social environmental area and also contributing with the investees that already have an implemented strategy and we're going to work together to improve. Also, I am here to contribute with the new Itausa Institute, whether we're working with the social environmental projects or the productivity agenda. We are imagining an investment of BRL 50 million per year. And with that, we can make a difference. I believe that building a Brazil that is sustainable and fair is urgent. And ever requires dialogue, engagement, responsibility and purpose. I'm very happy to be here. And I would like to do this alongside you. Thank you.

Very nice. Welcome, Marcelo. We are very happy with your arrival. Certainly, you have a lot of challenges for this ESG agenda to help us develop and seeking this aspiration, I should say of the [indiscernible] review of the process that we've -- where we define as an aspiration, investment with responsibility, working as an agent of change or the building of businesses that create value have an impact in the sustainable development of Brazil.

I think it's a great aspirational theme. We're going to seek this. It's very beautiful and Marcelo is going to help us. Everybody is going to help us. And we are ready and in tune with these themes. They are very relevant themes for the future of Brazil and themes that affect the use and our base of shareholders, as you said, it's a youthful base of shareholders around 30 years of age. We have the responsibility because of the size of the group, all the companies that we've taken part and the holding itself. And we can provide a return and helping in the building of Brazil in the future.

I think we are getting to the time that we're going to go to the Q&A session. Beforehand, I wanted to bring our last block of final ideas.

Alfredo, before we get into the Q&A session, would you summarize the main issues that we've had and the prospectus for 2023.

I think that we had great work with -- well, we had a lot of difficulties in Brazilian economy, international economy, the political scenario, elections recently, I think that we've gone -- we've [ widened ] this forum, the economy is still challenging, nonetheless. It's a deceleration cooling down all throughout the world. This is a difficult scenario. We prepared Itausa very well. We reduced the indebtment on the short term towards 2025. We are still doing an active management of the portfolio of XP and the new companies that are in the portfolio, such as CCR all throughout this last year. So we continue to have a prudent management. We are evaluating the scenarios, and we are comfortable in the sense that in companies our investments. They're investing. They have recognized brands in the market, our infrastructure brands. Companies have a long-term portfolio that is very sustainable and very resilient to the national scenario in this case. And we are very optimistic in regards to our portfolio. I think that we've built all throughout the 5, 6 years, a very solid portfolio, diversified in regional terms -- cities and our companies are doing very well. The bank is doing well. We've surpassed this as a bank that is very competitive with the fintechs with the risk reduction that is very good. The credit portfolio growing [indiscernible] are investing and this is translated into an investment in our companies. And so the year of 2023 is a challenging year. We are still with a decelerated economy, interest rates high, inflation above what is expected and international settings are -- is difficult challenging, deceleration of the main company, the main countries, war, interest rates that are high. So in a general sense, I apologize. We are well positioned to represent these adversities.

Well, Alfredo, I think that this is the time that we can answer the questions that are coming from the audience. We have a lot of questions. So this is the last block. Alfredo, we have a couple of questions here. By the way, you're watching this session. And if you want to send a question, you can click on the Q&A button or you can tweet #ResultadosItaúsa and please answer the survey, the satisfaction survey that we have on the platform or you can also use the QR code. All you have to do is scan the QR code and tell us how we can improve the content for our next session. Well, besides the questions that we're receiving from the audience we're also going to have some market analysts here live. We're going to have Arnon Shirazi from Santander participating live with us. Hello, Arnon, you have the floor.

It's a pleasure to be here with you. My first question has to do with what Alfredo was saying on payout distribution, he was talking about 35% up to 40% for 2023. So we wanted to know how this is aligned with the investments of XP.

Arnon, thank you for your question. Our goal is to go back to 35%, 40%. Of course, the sales of the stocks is going to help, but I think this year, it's going to depend. We don't have that pressure, as I mentioned, but it's going to depend on the market conditions. There might be an increase in dividends, such as what happened in 2021 and also in 2022. So we do expect this to happen this year. We believe this is going to go beyond the level that we had for distribution last year. I think it is a possibility because we're going to have dividends from other companies as well.

We have a few questions here from the audience. [ Thiago Ramos ] says the following. Good morning, thank you for this call. Alfredo, could you tell us more about diversifying investments. Could you tell us what the percentage for each sector is going to be? And also, [ Evandro Rafael ] is saying does -- or is Itausa planning on more -- on having more acquisitions this year?

Thank you for those questions. I think we had an investment cycle that was quite important ever since NTS Alpargatas in 2016. And I think we have -- I mean we have concluded that with the stocks of CCR last year, we also have that process going on with XP that allowed us to revisit our resources, but we don't think it's the right time for new investments, especially considering the international scenario, also what's happening in Brazil in terms of politics, so -- or geopolitics also in other countries. So because of the interest rate, we believe that this is going to have an important reduction over the next few years. We are not planning new investments because of all those factors right now. As for the bank in our portfolio, we believe that it is going to be around 85%, which is what we have right now. It is a very important bank. Our participation is almost 38%, which is also very relevant for the total capital of the bank. So it is very difficult to diversify and try and compensate this large participation in a bank such as Itau Unibanco. Our goal is to have a portfolio of nonfinancial sector companies as we were discussing before. And that portfolio is going to have a very relevant role in this and we have to manage it the right way so that we can take advantage of the opportunities whenever we see them. Whenever we see that a certain cycle is over or we need a new process, we have to be more proactive. We need to stop one investment and start a different one whenever we see the right opportunity. But we have to look at the portfolio as a whole, and we believe it is very relevant with very important companies, and we're extremely happy with the portfolio that we have currently.

Okay. Let me turn it over to Gustavo Schroden from Bradesco BBI.

I wanted to talk about taxes. I think we're talking about a tax reform that is probably one of the main things that we're going to have with this new government, also PIS/COFINS, I wanted to know if that's important for you, also JCP dividends which is what we had in the first proposition for the tax reform around 2 years ago. So what scenarios are you looking at right now? How are you managing that? What kind of alternatives are you looking at? And what's the main impact or possible impact that you're looking at especially when it comes to JCP and dividends. I wanted to know more about that.

Thank you, Gustavo. That is indeed a very important subject that we've been discussing and following up on. We don't really have clear visibility on what is coming up ahead. We've been trying to monitor what's happening. But if we consider what was discussed in the past, in the most recent tax reform proposition. If we think about Itausa receiving dividends and then those taxes over those dividends, since we are looking at equity equivalents. What I'm saying is that dividend would not be taxed. I mean we're receiving proceeds from the investees. So the impact is probably for the shareholders. Whenever we pay dividends, there could be taxes there. As for JCP nowadays, that's a very important benefit for most companies. JCP is the bank really using that. So we have to see how that's going to happen if JCP is going to continue or not and how that's going to be compensated with the lower tax on [ RCS ]. It's not clear right now. Of course, if we no longer have JCP, if we have a reduction in income especially for the companies using that fiscal benefit, there might be an impact. But again, for Itausa, we wouldn't have PIS/COFINS, which is really a lack of efficiency and that would justify the discount that we have for shares in Itausa. So there is this perspective as well because of that lack of efficiency that would no longer be an issue, a concern. So that's what we've seen.

Just to add to that, Priscila, I think it is around BRL 500 million for PIS/COFINS per year. So evidently, if we think about the short term -- let me rephrase that. If we don't have JCP, we no longer have those BRL 500 million, which is very good for the holding. But thinking about long term, it is better to maintain JCP from a result standpoint for the indices. So we'll have to see what happens. Nowadays, we're talking about reduction of dividends, reduction of taxes, but we have to keep in mind that JCP pays taxes. It is taxed around 15%. So we don't see that discussion as being very important right now. But in the long run, for Itausa it is better to maintain JCP because we will have better income for our companies.

Great. Thank you. Let me turn it over to [ Matthew Zameral ] now from [ Inter ].

Congrats on the ESG program. Very nice to see the Itausa Institute. I think it's going to be very, very important for the holding for the strategy that you have. Well, my question has to do with what Alfredo mentioned before, on the discounts. How do you think the market is working with Itausa on the discounts for the holding? Is that -- if we think about the current prices, is that below the average value? Do you think the market is not working with the right pricing? Do you think it is a matter of cost and opportunity? Do you think it is connected with taxes? I wanted you to tell us a little bit more about that. Maybe the market is not so well aligned with Itausa right now.

Thank you for that question, [ Matthew ]. I think the market is learning to see Itausa in a different way right now. I think Itausa has been managing its portfolio in a better way with new investments. I think this has led to different discounts, right? But we have to show the market what the cash is or what the results are for Itausa. We are working with companies that have very good CapEx right now. We don't really see a reflection of those higher dividends of those companies in our portfolio so far. But as that happens, as time goes by, with all the processes that we have in place with the ending of some investments that are going to happen as well, we're going to have dividend level that is going to be higher, and that's going to be good for the holding. As time goes by, we're probably going to have a better dividend distribution and better payout. It's going to go back to probably 35% to 40%, and those discounts are going to be reduced as the portfolio helps with the distribution and the payout and also the dividend yield of our investors. Again, it's a valley, as I showed you. I think the market is still concerned about that and valuing Itau Unibanco mostly and looking at Itausa as a cheap way, so to say, to purchase the stocks, the shares. But I think we're very optimistic that as our processes mature, as our proceeds are more solid, we're going to have a better yield and lower discounts.

Let me turn it over to [ Murilo Brader ] from Nubank now.

Well, the investment cycle finished last year. When we think about the market value of the assets within the holding, there has been a change over the past few quarters. We see that within the portfolio of the whole, danger is a lower exposure to XP. As was highlighted before, it's not a strategic asset. So thinking about Itau, it's still going to be significant within the portfolio, as Alfredo was saying. So my question is, that new balance that you'll have with the new companies in the holding. Is that going to be a new policy? Or is Itausa going to focus on something else, something specific? Is there any -- are there any assets that are going to have a more important role within the portfolio of the holding? That's basically it.

Thank you, Murilo, for the question. I think we're still trying to have a more diverse portfolio. We're not trying to have a higher concentration on any sector. We don't want to have a higher share for those we work with already. We really want to have -- we really want to diversify. So what we have to do now is manage our resources correctly. In 2023 and over the next few years. Again, as I was saying, it is active management. We will end up selling a few shares or positions and acquiring some others depending on the opportunities that we have, depending on what our shareholders want, but we're not trying to focus on one type of company specifically.

Well, Alfredo, now I have a few questions coming from the audience watching us on the other platform. I think [ Miguel and Carlos, Alberto ] and a couple more people. [ Thiago, Benches, Leo, Daniel Silva, Rafael ], they're all asking about repurchase programs? Do we have any buyback, any repurchase programs right now.

Not right now. I think what we want to do right now is focus on the holding. So we want to use all the resources that we have, the additional resources that we have to deleverage. I think repurchasing would be an interesting alternative right now. But we don't really have any program to reopen that share program. Even though, yes, I agree that -- it could be the best investment that the holding would have. I mean repurchasing their own shares with an important discount with an important -- with a good price. But that is not our -- in our plans for capital allocation.

Well Alfredo, there is another question here about the following about global recession. [ Osvaldo Kavakami ] is saying the following. With all the problems going on in the United States, Credit Suisse, the other banks in America, in Brazil, many people are talking about an important recession coming up. I see the results at Itausa have been very resilient, but I wanted to know if effectively, if there is a recession as happened in 2008, for instance, is Itausa ready for it.

That's a great question. And it's hard to explain. It's hard to answer. What we've seen so far is that central banks are increasing their interest rates to go against inflation to deal with inflation, which is very high right now, 6% in some places up to 9% or 10% in some places in Europe. So there is still this perspective for interest rates. Of course, the financial prices over the next -- over the last few weeks has reduced that trend, let's say, but I think that it's probably going to go even -- it's going to go up even for a little bit more. So there could be a deceleration in America and Europe, possibly in Asia. I think overall, we'll have a lower level of growth or expansion because of that deceleration and also those inflation rates going up after the pandemic. We start to consider the geopolitical issues of war of China, the United States and several aspects, and we see an international scenario that is very challenging as well. Well, in Brazil, as I commented, we've gotten into the last quarter of last year. Industry and Commerce, with a slowing down of the economy that is more permanent. So we're going to understand that this is going to be a first semester that is still going to be difficult. Let's see how the economy is performing. And I think that we're going to have a low growth this year, possibly lower than last year. And still much sustained by the agri business, agricultural business that is growing. And I believe that we are going to have a GDP that is not so positive for this year and the next one. And the industry is suffering. The loss of revenue has stopped but the revenue has dropped a lot, and that affects sales of popular products. So I think that these are challenging scenarios, but we can see the companies that are well positioned. And I do not see the bank having big -- big delinquency issues. We've worked with the monetary conceding credit. The management of the bank is doing very well. So we're doing very well, and we've foreseen that scenario that it is a bit difficult. We deleveraged the holding which is we -- over the next years, we are ready to face the companies are not so much leveraged. The industry companies, Alpargatas, Copa Energia, they reduced their indebtedness. So we are well positioned. This is not something that is going to affect theirs significantly or affect our results significantly. We are very optimistic with our portfolio and the results of the portfolio will be presented next all throughout this year.

Alfredo, a lot of questions from our audience, if we have an interest in having an exposure in the energy sector, have we looked at the transmission companies, [ Kawan ] is asking [indiscernible] [ Emmanuel, also Leoni, Silva and Lucas Willar ] with this issue on the energy sector.

We've analyzed a lot of alternatives in a sector that has a reasonable offer of businesses for sale, but we haven't found anything that made sense for Itausa in terms of investments in energy specifically transmission. I think that the interest rate that is very high regardless of it being high on the short term, brings a lot of difficulties for you to find high returns on investment that are compatible to generate value for the shareholders in these sectors. We've evaluated several alternatives, but we did not see any that really made sense for Itausa to have in its portfolio. So we are not closed, but this sector of infrastructure with an interest rate that is very high, they suffer a lot in terms of valuation. So we need to be very cautious here because we want to generate value for our shareholders with investments that have a return that is high, compatible with the value generation that we would like to have. So we were cautious. We did not do. We analyzed a lot of things in the energy sector. We are open. If there is an increase, we might be more active in the purchasing of other participation M&As in the energy sector. But at this moment, we do not have anything in the pipeline.

Alfredo, a lot of questions on the utilities and sanitation, [ Romulo ], [ Rafael Kunude ], the profile -- well do we need to increase? Are we going to increase our participation in Aegea taking into consideration that deficit of the great deal of population that doesn't have utilities in basic sanitation.

Well, this is a very interesting investment. We -- this is one of the reasons why we invested in the basic utility sanitation was the social benefit in and of itself, connected to the environment, to the social environment and to meet the requirements, the demands of millions of people, they do not have sanitation utilities. This is important for the decision-making process, and we chose -- we did investments in Aegea. And these are small investments in my opinion. If it was possible, we would like to increase. The investment is a great -- this is a sector with great expansion, a lot of investments to be done yet. But this is a sector that generates a cash flow that is very interesting and can face a great deal of the investments that we've seen that are necessary. However, Aegea is the biggest private company over 30 million people being serviced. We have an investment in Corsan in December. Corsan, which is a state company, which is completely privatized. We have a great deal of opportunities but also these opportunities they bring a lot of investments. You need to have a relevant cash generation to do the investment. However, this is a sector that we appreciate, that we enjoy because of the return where the management is very efficient with one of the highest level of productivity amongst the private companies and also multi-state owned companies. So this is a sector that we like. We see it very well, but we have a lot of investment and this is not a sector that will bring cash flow for Itausa. That is very relevant due to the high level of investment that is necessary to meet the requirement of the legislation of the regulatory framework.

[ Bruno Benedetta de Freitas ] has brought a question about payout modification and also other people asking about the payout. And Bruno has -- well, they think that it's a wonderful work you're very didactic for the young investors. I want you to try and make me understand what it is, how can you explain better the rebates or allowances, the bonuses.

I'm going to try and be as didactic as I can. What is this bonus subsidy premium rebate? You look at the assets, you look at the balance of Itausa. You have the social capital, you have the reserves, you have all the math that you do in the net assets. When you do the bonus we incorporate reserves to the capital of the company. So for example, last year, we incorporated BRL 12 billion of reserves of previous revenues to the capital of the company. So when we do that, we are passing on to the shareholder. A part of this value of these reserves that is as if you're increasing your assets in shares in Itausa. That's why there is a cost attributed to the bonafide or subsidized shares -- each share receives a cost, it is published when you do the announcement of the delivery of the shares to the shareholders. And this cost is usually higher than the quota the stock exchange. So you have to incorporate that cost to your cost. So when you have 100 shares, you start having 110 shares, and those 100 shares say cost -- if the cost of the shares attributed was BRL 200, you have 100 shares, you now have 110 in the cost that you acquired, and you're going to have to add those BRL 200 of the attributed cost for each bonafide share to your cost. So your cost hikes up. So when you adjust your interest, your taxes, your costs are higher. And when you sell, you pay less taxes. I don't know if it makes sense. I don't know if I could be as didactic as possible. But this is as quickly as I could give you. But this is an increase in assets and better money in the participation of the shareholder in the capital of the company.

Yes. It's that and we published, we have a content in our YouTube, specifically about bondification. It's very didactic. I really highly recommend our audience, if we want to understand more about bondification about that. And if you still have any doubts, then you can seek our team, and they will help you -- Investor Relations team. And now we have also new shares with Itausa. Do you have a plan for a second tranche to exercise?

Well we can this year, we'll see. In the framework of the previous law that it was at the Congress, that incorporation of the reserves they will -- if approved, it will be taxed. That's why we've done those payouts, those bondification that increase of the capital to our reserves. If we realize that all throughout the year that might happen that you're going to have to tax that, and we're going to incorporate more reserves, and it's possible that we do that this year. It's possible that we will eventually have a payout bondification at the end of the year. If the decision of the Board of Directors is start to incorporate capital reserves. But there is no project for this. Well, this is nominally at a lower price that allows for small investors to share -- to buy higher -- more lots of shares, and there is no expectation, no studies in that sense.

We've gone over the time for the Q&A, unfortunately, but I wanted to show you -- I wanted to ask you a last question from [ Fabio ]. How do we know how much Itausa is investing? How do we get the information from Itausa? Well, if you can comment on the first -- on the main channels of Itausa I recommend. For those of you that get into our website of Itausa, you have all the contact with the Investor Relations. So all the content, all the news on new investments that we've done and also in our social networks, we always publish relevant content series channels on YouTube that we bring, relevant information explaining strategic, yet we have studies didactic very -- with an accessible language. Well, we don't try to sound too much like a teacher, but we want to provide information for the investors that are not used to the language of the capital markets -- so the last question from [ Guilerme ] -- the profile [indiscernible] so do you have any expectation the Board of Directors and the Board of CCR?

Yes, we are positioned -- we have 2 chairs at the Board at CCR. Two representatives of Itausa were nominated and the Board of Directors of CCR, there was a reformulation of the Board of Directors. There was a counsel of men and women that represented the sale -- the company that sold under the [indiscernible], and now we have 2 representatives at CCR and in committees of CCR. One is Roberto Setubal, he is the Co-President of the Board of Directors of Itau Unibanco and the other one is [indiscernible] also a shareholder of Itau -- member of the Board of management of Itausa. So we have 2 representatives at the Board of CCR. Also representatives at the committees of Roberto, we have people from Itau as well. They take part, not only CCR but other companies. All the seats that we can contribute, I just say, are occupied by representatives of Itausa. Whether if it's on the -- or the directors or the committees of the administration councils, or committees.

Well, with that answer, we got to the end of the event should your questions not be answered, please get in contact with the Investor Relations team with the social networks or e-mail. You can follow up on us, you can follow us, and we want to hear your opinion on this critical event, your suggestions are very much welcomed so we can improve our event. So there is a QR code. Please answer our questionnaire, so make your questions, submit your suggestions. We want to hear you, so we can improve day-to-day. Once again, thank you. Alfredo, pleasure to share the stage with you. Thank you for your participation, which is also a highlight for the event.

Thank you. Priscila. Thank you, everyone that took part in our event. I knew it was a bit long, but we want to provide a lot of information and be as didactic as possible. We have complex cases, but we try to use an accessible language and having the participation of the thousands of people that follow up on us. It's a pleasure to be here. We close this event with a message that is very positive in regards to Itausa. We are very confident in our portfolio regardless of the difficulties, internal and external in politics, and geopolitics. We understand that we are very well positioned, and we are going to go through this crisis. Some companies are doing better than others. So that's why there is a diversification of the portfolio. We are confident none the less that we are leveraged. We have strong brands, and we are well positioned with important relevant participation with our portfolio and we service millions of Brazilians that are impacted day-to-day by Itausa whereby the products of the bank, by the Dexco, Alpargatas. We have a great pride and enjoy in everything that we do with governance as well. And we will provide more emphasis with ESG all throughout while getting Marcelo to work with us with his experience and let's work with this agenda with our investor company. So we are in tune with everything that is happening, respecting our 910,000, 920,000 shareholders. We want to be very transparent with governance, trustworthiness and in that the resources are very well allocated by those in its investments and the distribution of proceeds and the deleveraging, we always try to have a management that is prudent, solid. And having this based on a governance by Itausa and the investor companies that is very solid, very strong. An optimistic message for Itausa regardless of a very challenging moment that we are living at the time.

Thank you, Alfredo. Thank you, everyone, for the team, for our communication, all the technical team that is part of the program and has made this content get to you with all the -- care. Thank you for your participation. Everyone that stood until the end. And we have the new results in focus. So I want to invite you all to follow up on our news and all throughout the social networks and all the published content and to let you know that this life is saved, recorded on YouTube. You can watch it again and invite more people to get updates on Itausa. Thank you very much for your participation and see you then next time on results and focus. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]