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

[Audio Gap] To the investors, shareholders, that have a nice event. That is new. So before going the agenda, we have the simultaneous translation into English. If you wish to listen to the translation, click on the flag for English. Submit your questions, clicking in the message box in the platform and also over YouTube and LinkedIn comments and also using the X platform. [Operator Instructions] Please take part. We will start the agenda with our presentation and a brief update on the business environment, getting Alfredo's opinion on the scenario of the first quarter -- first semester, and then we will go through the results of the invested companies. We talked about the liquidity management, we also go through proceeds. The declared proceeds and also by Itausa and also updates where our capital allocation strategy and then the final to final ideas by Alfredo and then the Q&A. So first theme here, which is traditional for our talk, talking about the business environment. We talked about the perspective of reduction of the interest rates in an accelerated geopolitical complex that's still linger -- someone you to get your opinion on how did you see the perspectives on what to expect over the next quarters? Well, we had the first quarter very much aligned with what we've seen last year. economy, Brazilian economy growing very slowly. Interest rates very high, an economy that's decelerating -- so an environment that is not helping business. But fortunately, our portfolio has reacted well. Regarding this political economical scenario, we've had great results. We have a perspective for the pester similar to the first one. Economy is still growing very slowly even with a bit of a deceleration. We see the consumption of families being reduced due to the indebtedness, which is a lot, very high regardless of all the incentives that the government has placed in the economy over BRL 200 billion, we do not see the economy growing or giving a significant evolution signal. Second semester, we have the elections, which are always an uncertainty factor for the shareholders. And consumers who wins, if something changes, so our scenario is still of low economic growth. We've seen a reduction of the interest rates. It's possible that we might see some reduction in the inflation has dropped because of the low consumption. So there isn't an inflationary consumption by mother is the energy Iran war that affects oil but the economy itself is very slow. That should be kept for the second semester, but also for next year. Next year, we still have an economy that is very decelerated, inflation is still low, but above the threshold of 4.5% on which is the top of the threshold. So it's a scenario that is challenging. And we might see a little bit of increase in delinquency in the bank and even the clients of the company. So it's a scenario that demands a lot of caution. Is nonetheless has a resilient portfolio, well managed with companies with results. So our position is very good in this challenging scenario.

Fred. Let's look at how we close these results in any quarter. Well, let's see this challenging scenario that Alfredo has gone through, how it affected the results of Itau in the portfolio. Talk about that, our result was very resilient, very solid SP-3 Record results reflecting the quality and resilience of the portfolio. We have BRL 9.6 billion in revenue, 22% growth. We got an ROE of 21.2%, 3 percentage points above last year. Nonrecurrent about BRL 1.9 billion that stem from a controlled nonoperational company, Itautec the recognized gains in legal proceedings and administrative proceedings, the result is here.

Let me look at this effect. We get to the recurring net revenue, BRL 8.8 billion, double-digit growth 12%, an ROE, 19.3%. Our net debt, a bit of an increase in regards to the previous year due to the usage of cash that stem from the capital allocation that we've done. So the net debt is closing in the quarter in BRL 1.2 billion. The net assets almost BRL 94 billion and the value market value of our portfolio, BRL 190 billion almost, an important growth, almost 20%. So let's talk about our shares have more in a very consistent way we've performed above the market benchmarks in any time frame. So 10 years, our shares are valuing against 234% of Easifwe compare with CDI and the dollar, our performance of 437 also is very good. Other time frames, and also what we've performed this year in the accumulated until August, our shares have gone double of what Ibovespa has done in the same period 15.4%, very consistently we're showing to the market our capacity to generate value for our shareholders. And this reflects our remuneration or payout in good results and very consistent, very solid being reported to the market this year. Even though it has an important valuation in this time, we have potential of valuing when we see the discount, we have a discount comment of about 19%, we have the value of the portfolio, BRL 191 billion, [indiscernible] 177 are Itau Unibanco BRL 16 billion. All of the nonfinancial sector portfolio. It was at the end of June, and we have a discount of 19.5%. The threshold of discount which would be above what is fair, what is adequate, considering the quality of our portfolio, the results that we presented, but we've seen an evolution that is very expressive. We started in the year with a discount of $26.1 million and this discount has been 26.2%, has been reducing in the first semester, and we closed July whether that's kind of about 19.5%, this discount is below the record of what we've seen with Itau and so the recognition of the market that the company is performing well. And our portfolio has delivered good results and also recognizing that shares have important upsides with the end of the first plant efficiency. Regardless, the discount is still high in comparison to what we consider the target price of Itausa and our listed companies the discount in place is about 15.6%, which represents still an upside in our shares of percentage points. This is based in big fundamentals. First one. And of the fiscal inefficiency for next year, [indiscernible] the main cost is the payment of PIS and coax over the interest of our capital that we receive over the invested company especially Itani Banco do last year, that was BRL 860 million. So evolution an expectation that is very good. For next year that we're going to stop having an expense of BRL 260 million, proceeds, nonfinancial. We've seen a growth that is very expressive, proceeds had been BRL 1 billion last year. We still keep it in the holding, facing our costs of which a great part is due to the payment of the PIS Cofins tax. So there is a combination of the items, the big fundamentals. They generate a great perspective for our shareholders. The invested companies are nonlisted NDS open unlocking value if we have a bit of a recycling in our portfolio and also a liquidity event, including the IPO that will happen with IAG, very important for our shareholders. So, let's talk about the invested companies. How do we see the results of 2026. We had the bank reporting IFRS, the bank getting to the ROI of 22.8%, BRL 24 billion recurring IFRS, the delinquency is under control, efficiency level get into of the best thresholds to bank. Deco, very good with better volumes and better mix and better margins in the period. We also saw advances in the segment of utilities. But here, the invoice, even though we had an expressive growth in an advancement on the deleveraging of the company. We saw a drop due to the impact of the males price of soluble cellulose getting to our invested company, at delivering a result that is very consistent with an evolution 60%, getting to BRL 354 million as a reflection of all the turnaround process. Our volumes, the international market and international market, getting to a recovery that is very interesting and also report of the better mix of products. An increase of 38%, BRL 1.30 billion a reflection of all the operational efficiency, new conditions, a growth of volume and the rearrangement of tariffs. Solidity also to the company's results. Opening double digit, very robust, very consistent -- even though we've seen stable volumes, they are very consistent in having the maintenance of the spreads and an efficient commercial strategy NTS, and we have the ending of the contracts of the company that was delayed temporarily, but in worse conditions than the ones that existed in the legacy contracts that we've had in the company. Reflection of deflation IGPM on the tariffs that are charged by the company to a result that was a drop of 16%, but still robust revenue of BRL 1.5 billion reported in the semester. Operational growth very as expected, very good an evolution of 48% of the EBITDA as an evolution ramp-up, readjustments of the tariffs and new economies, so it's a solid growth. And is has reflected in the company, growing consolidated 80% in the period. So in general, all of our investment company is performing very well in a scenario that is very challenging. Going through the net revenue, we see the semester 22% growth, and we have BRL 157 million of nonrecurring effects at higher from the invested and here is the recurring result of BRL 8.8 billion, a great deal of it comes from the investor company, TauniBankop -- great Park, but the nonfinancial sector has contributed BRL 600 million in the results of equivalency and with a robust growth of 30% semester on semester. While the financial semester is growing -- so something that we've reinforced in the call is the rhythm of growth that is accelerated considering the ramp-up of these new conditions with a lot of growth that we will demonstrate quarter-on-quarter. We have the reducers of our result and the cost of the holding the result and the financial result that we can comment -- came about the investor companies in the nonfinancial sector. So growing 34%, getting to BRL 600 million of which we have big contributions of op Energia and Alpargatas. I believe that all the investment company companies are contributing positively to our results. Other one is just an accounting effect of amortization that was recognized in the acquisition of the investments and the infrastructure assets. So positive growth of the invested company. So talking about the composition of our own results, our own results are composed by the tax expenses, there is no big evolution in the period. We have a stable year-on-year. Talking about the financial results, we saw a worsening on the financial results in the period. But due to an explanation that has to do with the profitability of our cash flow because less cash flow in a period, we have a usage of cash flow due to the first capitalization that was done in the first quarter of IG, but also has an effect with the anticipation of the dividends that we've done last year with the taxation of the dividends. We have the opening of the cash flow when from the proceeds. And then there is an effect in the profitability that was mitigated by the smaller expenses in the period and a reflection of the liability management bringing a reduction of the expenses, considering that the average Selic rate of the first semester was higher than the first semester of last year. So a positive reflection of the financial management of the company. Liquidity management is something that we've demonstrated. Our results in the initiatives that are implemented in the last years, in 2022, we started a process of deleveraging prioritization in the reduction of our debt in the company, making lots of movements in the repayment of debt which led us to a reduction of 80% of our net debt which is BRL 1.2 billion in the period and also an increase of the average deadline of the debt, which is 7 years. An important growth to the scenario that we had in 2022 at the same time that we increased our debt, we could reduce the cost and now we are in a threshold that is 11.2% for this average deadline, which is very healthy. We have coverage which is very healthy, no amortization until 2022, gives us a lot of comfort and all this financial management was recognized by the rating agencies, and we continue to give us AAA for the risk of credit. Talking about the amortizations, there is no amortization or there is a big material until 2031. We have in 2032 in terms of liquidity, we're in a scenario that is very -- we closed a semester in BRL 2.20 billion. We have to comment that this cash flow does not include the value of Itautec and it doesn't include the capitalization that we've done in our invested company, IG, BRL 230 million. So the trend is that the cash flow increases with the 2 events that we've had in this event. And leveraging very healthy. We have the balance that is very robust and record results in the balance sheet, very robust, very healthy and prepare the company for any cycle of investment. When the scenario makes sense and also a project that is economically viable. Talking about the proceeds. I think that all the performance of our shares and the results of the portfolio in Itausa, it's also translated into proceeds that are very attractive to our shareholders. So BRL 2.8 billion in the first semester of billion declared in proceeds growth of 3% in regards to the previous year. Let's consider that the previous year is a threshold of proceeds that is very high. Growth that is very interesting for us. And it gives us a dividend yield of 10% which provides us amongst the companies. We are one of the companies that give a dividend yield that is very significant and one of the best in 3 of this BRL 1.8 billion, we have BRL 2.3 billion pending of payment. So $0.21 per share. And yesterday, the Board, we have the payment date, which is going to be August 20. These proceeds that are declared in March -- in June, we will pay this $0.21 per share. Let's talk about the nonfinancial sector. I commented that this is one of the fundamentals that lead to the [Audio Gap] year-on-year and it's a positive expectation that next year, we will reduce and the proceeds, they have a trend that is relevant. So positive results and also capital allocation in the last years, in the last cycle of investment since 2027 and we have billion, and we have capital allocation movements. And here in assets that are in our portfolio. We invested BRL 1.2 billion in 2 assets in IG, we received BRL 1.2 billion in investments when we see an opportunity to increase the participation in Alpargatas. We did an investment of BRL 100 million in Alpargatas. I mean we have to comment that the return of this portfolio that we created since 2017 got to a threshold of about 16% a year. So above Ibovespa CDI and close to the return had we invested the BRL 11 billion in the shares of Unibanco, we would have very similar results to this. The big results, which is finding assets relevant assets that would deliver levels of return that are similar to the portfolio. We got and it shows our assertiveness in the capital allocation process. Let's talk about the 2 movements. So starting by Ice, which is a company that we considered a lot of excellency, positive records turnaround of the concessions that they acquire demonstrated a record of growth, very robust. We see the company growing the EBITDA and it's a record which is very consistent of growth, and it has the higher growth by the base of assets that they have in the portfolio that is very expressive with an attractive return within what I just showed you, we have the important results of TRIA, this investment, an interesting return besides the positive the company allows for the utilities expansion, which is very interesting to lead us to do an investment in this company of BRL 1.2 billion with 2 movements of capitalization that happened this year, elevating our participation from 12.8% to 14%. We didn't have any relevant effects in a not expected for the next quarters. And all the funding of the operations are with our own results. We have the impact here and the second capitalization, probably we should use the resources that are going to get from the proceeds of Itautec in such a way that we're not going to have a big impact in our cash flow. It's important to say that along with this last capitalization, we also celebrate an agreement to guarantee the protection of the return is reference of the return of IPCA plus 15% a year that is given through adjustments or participation in certain conditions established by the agreement, but also in the occurrence of the IPO of the company. So a mechanism that also has an objective to protect our shareholders and to maximize the creation of return on this investment. Now looking at the other investment that we've done, we have windows in the market, Alpargatas also increasing our participation Pat -- everybody knows it's a very strong brand, Avalon's well known. It's a company that has presented after the turnaround process, the operational discipline, a lot of focus in achieving operational efficiency, presenting strong cash generation in the period, we realize that the company still has potential for growth and especially with an improvement of mix and with a penetration that is higher in the specialized channel. Internationalization is still in the agenda of the company. we've done a redefinition with the investment on the abroad with a focus in specific regions. We realize that there is a lot of potentials to capture this international value. This investment we've done purchases in the market of shares from last year, and we got to BRL 100 million of investment, making our participation to be 29..4% to 30.6%. Also, we didn't see a lot of relevant effects in the result. Now the funding was with our own cash flow. That cash flow that I showed BRL 2 billion with his leaving of cash flow with this investment. I think it's important that we mentioned that all this acquisition had an average rate price per share of BRL 10.8 per share -- so if we consider the -- for the closing of the company yesterday, we have an accumulated return on investment just in this investment, which is 24%, so it shows the assertiveness of this process of the capital allocation, making this acquisition at the price that is adequate, highlighting the return to our shareholders. With that, I get to the end of the presentation, but before we go through the closing arguments, I'd like to remember that Itausa publishes the news that are relevant for the holding the inside newsletter and also in the social networks. Follow us enroll in our YouTube channel, LinkedIn, sign our newsletter. And also I would like to ask at the end of this event, answer the question there, so we can improve our event every addition. Capture the QR code or click in a button below. Now, I'd like to give the floor to Alfredo. We gave beam on the main results, a lot of good news. So I want a year to do your summary of what you've seen and the highlights of Itau.

Congratulations on the presentation. Our investors and shareholders are very satisfied with our numbers. As I commented at the beginning, we are living through a scenario that is very challenging in the economy in Brazil and abroad. And our portfolio has been very resilient to face this. I'd like to say the strong results, they are still the main investment and with performance that is very superior to the competitors, good risk management, control of delinquency, cost reduction. The bank is also in a digital journey to face the new competitors. So our main asset, which is 1 Banco had once again An exceptional performance with the infrastructure IG investment, Motiva, NPS and Cope, we had solid results with a good cash generation. And obviously, these companies, they have a big debt due to the business itself that demands an investment in its concessions of trains in the case of Motiva, which is very big, but they are generating cash flow that is enough face in the financial expenses and facing the investments that are mandatory for the concessions. And the results would be industrial. Two companies that we have, gates, which is the second year, showing solid results. Parts growing in Brazil and abroad, strong cash generation and very good and a growth process, we have strong plans of growth in Brazil and abroad, a robust plan in the Board of Alpargatas. So it's a company that is generating a lot of cash flow and a lot of growth and benefiting itself and making Avana growing in a sustainable way. Decor as well. Mexico has been facing challenges, and we've had good going through this period after the pandemic in '22, '23. The market of construction has retracted but I think that this year, we've shown a good discipline. The company is deleveraging. We got to levels of leverage that were high, considering the economy growing a little -- the main market a bit retracted. So we could bring the debt -- net debt to EBITDA to a level 3, so high, and we hope to close this threshold in 2.5% this year. The company is recovering market is operating with better margins. We're in a good path, so that ACO can generate results and reduce the investment. So it's a solid portfolio. We have the challenges, interest rates is still very high, and so that affects the companies that have more debt had by its characteristics such as in Multiva, but we are very confident with the performance of all of them, specifically only bank. We believe that we are in a good moment, as I told you, with a good perspective of keeping profitability at a very healthy threshold. So in general, we got into the second semester in a good position, but knowing that 2027, everything is indicating that we're going to have a challenging year, both in Brazil and abroad. We are well positioned to face these challenges. We had the share performing above benchmarks. And we've talked about the remuneration for our shareholders, profitability medium to short term, long term, it as a very good getting to all the indicators, one of the shares that is more valued and we have a dividend yield that is very high 10%, very relevant for our shareholders. Itausa still with the practice of passing on the dividends and retaining the proceeds that we receive from the nonfinancial to say that the expenses are holding. And we're making these investments using our own cash flow in Alpargatas, which are assets that we consider very good that on the long term, are going to give results for value generation for our shareholders that is very relevant. We have a very good mix of allocation of resources and results. Let's get into the Q&A session answer the questions of the shareholders.

We start with the business analysts, the market analysts, and you can still submit your questions or you can see through YouTube, LinkedIn comments or using Visualase. So our first guest, Takata, UBI ergo, the floor is yours.

Good morning and everyone. So my question, well, talking about the dividends, you use the dividends for the initiatives. So do you think that for 2027 at the tax inefficiency and '28 onwards, you're going to have an additional dividend from the nonfinancial and two, do you study any type of buyback in Itausa.

Thank you for the questions. It's an interesting point. Very good that for Itausa over the next years, as Parisella commented, we should from 2027 have a reduction in the financial tax expenses of Itausa regarding the PIS, COFINS we pay the interest of our capital, which is our invested companies especially Itani Banco BRL [ 860 ] million, which is very significant that will stop to cease to be charged in 2027. These are resources that we can use in a very -- in various ways. One of them is replenish our cash flow. In 2027, we are doing these investments, increasing the participation in companies of our portfolio. So we are using our own cash flow -- and so next year, we will reuse these resources for a replenishing of cash of the holding to see new investments, new opportunities that appear in the current portfolio. In second year, would be payment of proceeds of dividends, but we will see if this is possible or not from '28 onwards, where we going to have more clarity of our cash flow, the investments done but it's possible not having any new investments, having -- being above the minimum of cash flow that we have for the holding. We could increase the proceeds paid for our shareholders above what we are practicing, which is the payment of the proceeds from Italy Banco. For 2028 onwards, we will be able to analyze it in a more efficacious way due to our cash flow. Well, repurchasing of shares. In regards to the repurchasing our shares, well, we are not studying it. The policy is to do this capital allocation in the investments that we have, increasing the -- studying the increase of participation of the other companies and of the other portfolio. So the allocation in this moment is replenishing of cash flow of the holding due to the new investments. We are not analyzing any repurchasing of shares per se of Itausa in the market. We did a repurchasing of this year for the long-term program because of the employees of Itausa repurchasing of BRL 5 million, very small to face the long-term investments of our directors.

[indiscernible] .

Congratulations on the results. I have a question in regards to the potential unlocking of values. The first one is the IPO of IHA, I which was scheduled for the first semester of this year. Obviously, the market is a bit difficult. We have the elections for the second semester. So I wanted to know what is the best estimation for this potential IPO? And the second question is related to this difficult moment that we're going through -- this challenging moment. 2027 should be a year of fiscal adjustments. In these moments, we have the opportunities. You have a strong cash generation, dividends of the investment increasing that one-off of Itautec reinforces the capital. So do you see besides Nigeria, then you have a payment in the second semester. Do you see any segment that you think that is interesting in other sectors, infrastructure something that in Brazil, we have competitiveness in regards to the world and mainly that the sector -- can I squeeze? Do you see any opportunities?

Fueled Investor the IPO of I still in the table, company is preparing for this moment internally from the administrative controls, governance, there are some aspects that need to be improved. But having the opportunity, of course, the company needs capital. The current shareholders, Itausa, NIC, the increases of capital in the company, but it's still with a leverage degree with the characteristic of the sector, it's a bit higher than what we would expect. So the IPO is an objective when the moment of the market is possible. As you said, this moment is difficult. The market is closed. The economy is very slow. The international scenario is difficult. But we continue to have a reality that the company I will face and will do whenever possible. The spot of new alternatives, as I commented. We are giving the priority to increase the participation of the companies of our portfolio. In the last 6 months, we have other alternatives that we are studying to increase our participation in the companies of the portfolio. So the priority is to increase the participation in the companies that we have investments. But our M&A team is still active. We are looking for alternatives. But with this level of interest rates and the risks of the economy, internal international, the geopolitical risks, all of that interfering with our economy, it's difficult to find opportunities that generate returning for the shareholders. The priority is to increase the participation in the investments that we still have, where we know the potential of the companies, and we know how they will perform. What are the risks, the qualities, the investments where we have more surety to increase the participation in the portfolio.

Well, now Rafael.

Good morning. Congratulations on the results. Thank you for the opportunity. is a complement to Nico. In 2017, we are seeing a scenario that is a bit more challenging. Some economists point to a higher risk of recession when we look at the financial sector, see a worsening, and we can see a credit cycle that is more challenging. So the question is in the sense of the diversification in this scenario. Would you consider increasing a bit more depreciation in the nonfinancial sector for the portfolio, trying to find diversification outside of the financial sector.