BR Advisory Partners Participações - Earnings Call - Q2 2025

Transcript

Speaker 0

Good day, everyone. Thank you for waiting. Welcome to BR Partners' video conference call to discuss second quarter 2025 earnings results. We inform you that this video conference call is being recorded and can be accessed in the company's IR website, where you'll find the full package of our financial disclosure. During the presentation, all participants will be in listen-only mode. Later, we will have a question and answer session. To ask questions, click on the Q&A icon at the bottom of your screen and type in your question. If you prefer to use the microphone to ask questions live, just let us know by message, and we will send you a request to enable your microphone.

We emphasize that the information contained in this presentation and forward-looking statements that might be made during this video conference relating to BR Partners' business prospects, projections, and operating and financial targets are based on the beliefs and assumptions of the company's management, as well as on information currently available. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties, and assumptions, as they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operating factors may affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements.

Today, we have the following officers present: Ricardo Lacerda, CEO; José Flavio Ramos, CFO; Marcelo Costa, Managing Director and Head of Treasury Sales and Structuring; Danilo Catarucci, Managing Director and Head of Capital Markets; and Vinícius Carmona, Investor Relations Officer. Now, I will turn the floor to Mr. Vinícius Carmona, who will start the presentation. Good day, everyone. Thank you for joining us in our conference call to discuss the first half year of 2025 results. Starting with the financial highlights, we recorded yet another quarter and a half year of resilience and high profitability, even when faced with a continuously challenging macroeconomic scenario. We have repeated the word "challenging" in our earnings calls a number of times in recent years, and with a lot of dedication, hard work, and discipline, we have managed to maintain our revenues at high levels and profitability well above the cost of capital.

Even considering that we are going through the worst moment in investment banking, specifically in M&A, which is our main activity in the last five years, this reflects the maturity of the other business units, as well as our capacity for strong growth when we enter a more positive cycle. Moving on to our numbers, total revenue amounted to R$139 million, up 9.3% QoQ, and down 1.9% YoY. In the half year, revenue totaled R$267 million, down 4.6% over the first half of 2024. Client revenues amounted to R$102 million in Q2, up 2.6% over the previous quarter, and down 8.9% compared to Q2 2024. In the half year, revenue totaled R$201 million, 3.8% down compared to the first six months of 2024. Net income was R$45 million in Q2, up 4.8% QoQ, and down 13% YoY. In the half year, net income was 12.9% lower at R$88 million.

ROAE reached 22.6% in Q2 and 21.9% in the first six months. Moving on, we once again stood out in the main awards in the market. M&A Advisor awarded us in the Financial Deal of the Year category. We were also considered the best investment banking in M&A by Finance and Law and received the award in London for Best Investment Bank in DCM in Brazil by Euromoney. We are honored to be recognized by the main market rankings, which shows that we are on the right track with excellent teams, and we are prepared for more. On July 3, we announced the listing of our company on NASDAQ through an ADR Level 2 program.

Recently, we have observed indeed growing interest from some foreign funds interested in our investment thesis, and we have decided through this mechanism to have a dual listing with the aim of increasing our reach and attracting foreign funds dedicated to small caps and emerging markets. We are all aware of the liquidity challenges we have faced since our IPO, as are you, our investors. If the program, if this initiative is successful, we can improve our performance in the stock market. It is also important to note that in the U.S., there are a wide number of independent investment banks listed, and we also seek to be compared and analyzed against these new peers, including seeking similarities in valuation. Finally, I would say that we are raising our corporate governance to the highest level, as we are now a listed company in the U.S.

as well, and therefore regulated by the SEC, the U.S. Stock Market Authority. Here, we bring two interesting graphs. In the first, we show the existing pricing gap between our stock and our peers listed in the United States. We know it is an arduous and difficult path, but we need to try to attract new investors and seek a new valuation perspective. In the second chart, we show the shareholding composition of our stock in December 2022, when we began to attract some foreign investors. Today, we see that we have a shareholder base consisting of 15% foreign funds, 22% local funds, and 63% individuals, totaling more than 50,000 taxpayer numbers. I would also like to take this opportunity to thank Brazilian investors for their trust, as they continue to believe in our story and support us.

As soon as we have new information about the listing date, we will notify the market. Now, on slide four, we present revenues from clients, which accounted for 73% of total revenues in Q2 2025 and continue to represent 75% in the half year, as it was in the first half of 2024. Considering the increase in the SELIC rate, we observe a still high level despite the reduction in activities compared to the results for 2024. On slide five, investment banking and capital markets, we can see a reduction in revenue levels over the last few quarters. This is mainly attributed to the reduction in investment banking activity, especially in M&A, as I just mentioned, but also in capital solutions that we used to call before restructuring. In 2024, we were involved in some very emblematic capital solutions deals.

When we analyzed the first half of the year, there was a 9% reduction in revenues, but with a more diverse revenue mix. Investment banking, despite having a very strong and promising pipeline, has had more difficulty converting transactions. Considering this macroeconomic scenario that is difficult, DCM interest is also feeling the effects of hiking interest rates, but we have been able to navigate well in structured credit and corporate finance, finding complex funding solutions for our clients, and therefore we were able to offset part of the reduction of IB. Now, despite being the worst quarter for M&A since 2020, we recorded R$74 million in revenue in the second quarter, with the strong performance from DCM, which is still a very healthy level of revenue considering the current situation in the country and also in comparison with the main competitors in this market.

It is clear that we are not immune to macroeconomic factors, but we also know how to deal with the adversities we face. We remain confident for the second half of the year and confident that we can continue to find a healthy balance of investment banking deals and debt structuring in DCM. On slide six, we have the breakdown of deals over the last 12 months in investment banking by sector and type of advisory. We can see that energy, telco, and retail are the highlights with M&A accounting for 56% of deals announced in the last 12 months. Among the most recent deals, we highlight our advisory to Vivint structuring a block trade and to Y10 Group in the acquisition of ZAS in the fiber optics sector. Slide seven shows the evolution of issuance volume in capital markets.

As we have been signaling since the end of last year, it was only natural that at some point the volume and number of deals would begin to fluctuate, given the prohibitive interest rate of 15%. Although we settled six transactions in the quarter, we were able to participate in larger and more emblematic structuring deals with better margins. We have participated in more select projects with a more moderate risk profile and direct alignment between issuer and investor. Despite the current interest rate level, we remain optimistic about new businesses in this second half of the year. Now, on slide eight, we have the performance of Treasury Sales and Structuring. Our Treasury posted very solid results for the quarter, with revenues once again exceeding the mark of R$20 million, reaching R$24 million in the quarter.

For the half year, the division posted revenues of R$41 million, up 13% over the first half of last year. The combination of a broad portfolio of flow products, among them foreign exchange and commodities, with a primary debt market that was very active in Brazil this quarter, all of this together allowed for the structuring of new swaps, which contributed to the division's strong performance. However, it is important to note that we have seen competition very much focused on high-grade clients, with compression of spreads in derivative prices, which posed an additional challenge for the division in Q2. What matters is that we managed to close another solid quarter. On slide nine, we have revenue from wealth management. Revenues from wealth management amounted to R$3.8 million in Q2 and R$7 million in the half year.

Wealth under management remained flat in the quarter at R$5.5 billion, and we should continue to grow throughout the year. It is also important to note that the pace of growth from now on should begin to slow down, as we are competing head-to-head in a highly sophisticated market and with very competent players. Over 12 months, we had exceptional net new money of R$1.7 billion. As for capital revenue, we recorded R$38 million in Q2, and we posted a significant increase of 33% QoQ and 24% YoY, explained mainly by the good performance of securities warehousing, where we had the opportunity to once again make a tactical allocation of our balance sheet and achieve a good result. There was also an effect of a higher SELIC rate, which positively impacted our cash remunerated at CDI.

On slide 10, we reaffirmed the company's ability to adapt to adverse situations and market uncertainties. You may recall that at the beginning of the year, we outlined a very challenging outlook, yet we still managed to maintain ROE above 20%, even with an average SELIC rate of 13.8% for the year. This is due to a combination of resilient revenues from clients, coupled with, and I want to stress this, coupled with disciplined cost control by the firm across all major expense lines. Net income was R$88 million in the first half of the year, with a net margin of 33%. Efficiency ratio was 45%, practically flat compared to 2023, which is an excellent sign and shows that we have a very flexible cost structure since revenues also decreased in the period. The reduction in the compensation ratio to 25.8% also highlights our operating efficiency.

Even though headcount was increased by 5% compared to the first half of 2023, personnel expenses dropped. As a result of this, ROAE reached 21.9% in the half year, well above the average SELIC rate and the company's cost of capital. As regards revenues for Managing Director, we experienced significant growth in the 12 months ending June 2023 compared to the 12 months ending June 2022. On slide 11, we present our shareholders' equity and funding. Shareholders' equity was R$807 million, with the bank's shareholders' equity also growing. In terms of funding, the balance and duration of liabilities underwent slight reductions, reaching R$4.8 billion in 769 days of duration. The funding balance remains with sufficient volume to meet the evolution of our product warehousing. On slide 12, we present our Basel ratio, leverage, and securities warehousing.

During the quarter, we had a new opportunity to showcase our capital as a service tactic. We have a light and flexible balance sheet with securities that are liquid in the secondary market, and this has allowed us to manage inventory in a way that deleveraged the bank in Q2. The warehousing balance fell to R$3.1 billion, bringing leverage to 2.9 times and increasing the Basel ratio to 21.4%. Once again, we have a wider bank and with room to continue leveraging as opportunities arise. Lastly, on slide 13, we announced dividend payment of R$0.36 per unit, totaling R$37.8 million to be paid on August 21. Thank you very much, and we are now at your disposal to discuss any questions, any questions that you may have. Thank you. We will now begin the Q&A session.

If you want to ask a question, click on the Q&A icon at the bottom of your screen and type your question to get in line. When you are announced, a prompt to enable your microphone will appear on the screen, and you must open your mic to ask questions. We recommend that you ask your questions all at once. First question from Mateus Guimarães with XP. Mateus, we will enable your mic so you can ask a question. You may proceed. Thank you for the opportunity to ask questions, and congrats on the results. I think I actually have two questions. One would be about this relief in the Basel ratio. How would you comment on that, and how should we think about this looking forward? Secondly, about Treasury, I think we saw a slight increase in VAR.

If you could comment on how we should think about this in the future. Thank you, Mateus, for the question. Speaking about capital, I think that we had a Basel increase for basically two reasons. The first you probably saw, we posted a better result in the business lines which are booked at the bank. Treasury in our capital line item, which includes remuneration of our capital, as well as our securities portfolio. And as Vinícius showed, we also had a reduction of our securities portfolio in a more opportunistic way. We are at a very healthy level. As we have been saying over and over, we want to have a tactical balance sheet. We will continue to use our capital in such a way that we can remunerate capital as we have been doing.

As for the Treasury piece of your question, as we have been saying, we don't carry a proprietary risk in our business. What happens is that sometimes when we hedge with a client and we zero the operation in the market, exactly not to carry a market risk, we sometimes carry small residues, but that's very, very small. Although we had an increase in our VAR, in percentage-wise, what this means regarding in comparison with our shareholders' equity, which is the metric banks use to measure risk, it is very, very low. From the standpoint of risk, this is negligible, irrelevant. Super clear. Thank you very much. Next question from Ricardo, the Bookbagel with BTG Pactual. We sent you a prompt to enable your mic. Good afternoon. I have two questions. You mentioned that we're living a more challenging moment, especially regarding M&A activity.

Looking at the first half of the year, you had an improvement in the stock exchange. The valuation of listed companies and the companies that are part of M&A have had an increase in the valuation, and that changed the purchase price of these deals. My question is, should we expect a recovery in M&A revenues in the second half supported by this improvement in the stock exchange that we saw in the first half of the year? Second question, the company had two additional provisions for the securities portfolio in recent quarters, one in Q4 and now another one of about $10 million in the second quarter. I'd like to understand what is the macroeconomic scenario that you are considering for these provisions, perhaps in terms of GDP growth, interest rates, the political situation. I just want to know what could trigger a possible reversal of these provisions.

Thank you. All right. Thank you for the question, Ricardo. As regards the M&A cycle, the answer is yes. We have seen a deterioration of the segment since 2020, 2021, with substantial reductions in the revenues of the main banks year after year, and the same happened to us. It is important to remember what we normally present. We are able to maintain revenue growth and profitability despite the fact that our main business is going through a very difficult moment in the cycle. We have seen an inflection point that happened now in Q2, beginning of Q3. In the end of June, we were a little more optimistic, and then we had the tariffs and sanctions imposed by the United States. This confusion from abroad does have an impact, but I believe that we should be seeing improvement in revenues starting in the second half of the year.

As regards to the second question, I'll leave it for José. Thank you for the question, and good afternoon, everyone. We have a credit process which is very robust. Our credit committee meets weekly at BR Partners, and we follow all market moves, as you cited yourself in your question. We didn't see any major deterioration in the credit portfolio, but what we do is one-off moves to adjust the ratings of companies. When there is a one-off credit rating adjustment following 4699, we increase the provisions. This is what happened. We are very conservative about the loan book at BR Partners. These are adjustments we make according to the scenarios and the ratings we assign to every sector and to every company in the different sectors. These are the adjustments that we make over time.

What can trigger an improvement in this would be an improvement in the whole scenario. As Ricardo mentioned, we currently have the tariffs imposed, so we're going to use all of our clients that can be impacted by the tariffs. If we need to adjust their internal rating, we'll make the provisions. Super clear. Just a follow-up question. Was there any specific sector that called for more provisions this quarter? Not really. These are one-off cases, not a specific industry or sector. Okay. Thank you. Next question from Pedro Leduc with Itaú BBA. Mr. Leduc, go ahead. Thank you for the call. Congratulations on the journey this year so far. My question is about efficiency. If we look at the first half of the year, revenue from clients relatively flat, dropping just slightly, expenses dropping markedly, particularly administrative and personnel expenses. This was quite relevant in the quarter.

Lower administrative expenses helping to sustain results. Still, revenue from clients is going forward, even with less administrative expenses. We know that there are some deals that require more expenses, perhaps a fee. Just to help us understand the trajectory for the second half, should we imagine revenue coming from the pipeline without the need for higher administrative expenses? When I think about the wealth management segment where funding achieved a certain maturity, at least for now. In the next journey, do you think it might be necessary to hire more people for funding, or is this a natural maturation of the business? Thank you, Leduc. Thank you for the questions. I think that firstly, regarding efficiency, efficiency is related to a little bit of everything you mentioned.

First, given the current scenario, we are provisioning a little less for compensation and bonuses as we are living a scenario which is very different than what was expected for this year. A lot of our competitors are downsizing their teams, and here we have a significant % of compensation being variable, and this is reflected in our provisions. We also had a reduction in selling expenses, the commissions that we pay. That really depends on how the deal was originated. We ended up having more expenses of such a type last year, this year a little less. I think that what matters is the end of your question, and the answer is yes. If we have an increase in conversion rates in our revenues, we can have significant operational leverage because we don't carry costs linked to them.

I frequently say that we have a pipeline that continues to be very robust. We had a negative effect of conversion rates, but we believe that we are moving to a better moment. We are more excited with M&A mainly, and with the conversion of revenues, we should see a more positive margin for the coming quarters. Thank you, Ricardo. In about wealth management, I'll leave it for José. Hello, Leduc. Good afternoon. In wealth management, we achieved the first level, as you mentioned yourself. We started from zero in one year. We got to R$5.5 billion. This quarter, we had an impact from the U.S. dollar. It happened in Q1 and now in Q2 as well. It was not a relevant impact. The portfolio grew a little bit.

We are working to convert the pipeline, and we didn't really change much what we expect for the end of the year. This is a business we build brick by brick, as you all know. We are working to put the bricks one by one, and the pipeline is good, and I believe that we are going to have good conversion and reach a relevant number in our strategy towards the end of the year. We like to be very transparent with the market and regarding expectations. We are always very realistic in what we see. It is important to say that we had a setup of our wealth division that was very satisfactory. We are very pleased with the quality of the team, the assistants, the clients, everything we've done so far.

We were able to have a substantial volume of funds rather quickly, and this was the result of the quality of the team we brought in and what they've done. At a second moment, we were able to add a little more volume based on BR Partners' clients that remained with us when we started offering this kind of service. Now we are in a very, very competitive market, and conversion becomes naturally slower. I have a number of clients with whom we have tried to do business, and if you know this market, you know it's hard. You call on them, and it is a long process that takes time, and it is a little dependent on our conversion of liquidity events for the clients.

We have a little bit of operating leverage considering the structure we have, but we will need to add more critical mass and hire more people. We're very comfortable that we are going to do this in a moment when we will be increasing revenues and achieving profitability in the wealth management division. Thank you. Congratulations. As a reminder, if you want to ask questions, click on the Q&A icon at the bottom of your screen and type in your question. If you prefer to ask live questions, just let us know by message, and we'll send a prompt to enable your microphone. Next question from Marcelo Mazzari, analyst of Bradesco BBI. Marcelo, we sent you a prompt to enable your mic. Hello. Congratulations on the results. Thank you for the opportunity. I would like to go back to IB activity.

You mentioned in the beginning a better outlook for M&A, but I would like to know your opinion about DCM, the outlook for DCM. Are you as excited as the same excitement you have for M&A? Do you have the same excitement for DCM? Do you think this line item could be stronger in the second half compared to the first half? Marcelo, thank you for the question. I would say that DCM started the year with a lot of uncertainty. In the first half of the first quarter, we had kind of a hangover of Q4 2024, and it performed actually better than what we were expecting in the end of last year. The market is very liquid, considering the interest rates, particularly for CDI operations. What's happening is that more and more of the deals are becoming refined deals or some investment that was contracted some time ago.

Of course, we feel a little bit of the effect of interest rates in the client that is a borrower. This kind of client is hesitant in borrowing money, or they're looking for other ways to get funding. In terms of level of activity, we understand that we maintain good vital signs, as we had in Q2 and particularly in the second half of Q1. The expectation of growth would be the expectation for the second half of last year. I don't believe in that. All of these news about high tariffs and all, they had a slight impact, but I believe that the market remains very active with many operations. I think that investors are more selective. You know the rates, they're very tight, but the market remains liquid.

I think that our trend is that we will continue at the same pace that we had in the first quarters of this year. To go back to this point in terms of some effect of advance of volume and flow, given the potential measures regarding IOF or now with the incentivized ones, do you think that there is a need for the provisional measure to pass so we can have a higher volume of incentivized items, or do you see a stronger pipeline in this kind of product? We have heard some clients trying to advance funding stemming from this risk of change. To be very transparent with you, in our case specifically, we haven't felt that much. Also, because this discussion about the income reform, as far as we have been, as far as we know, it will affect in a linear way.

From the standpoint of investors, renters, etc., this is not really dictating the price of the deals. Perhaps the bigger companies that have more need for refinancing, what we heard is that they are trying to bring this forward and enjoy the moment, take advantage of the moment. In terms of the investors, this is not impacting the price. As for the FDICs, this is potentially going to change. There are some issuers that are exchanging FDICs for financial debentures. Again, this turned out to be a cost for the clients that are getting funding. At least in our pipeline, in our origination, these effects that you mentioned have not really changed our dynamic. What has gotten in the way, to be very candid, is a very high real interest rate and the volatility resulting from that.

Things could be a lot better if we had a little less volatility and if the real interest rate were a little lower. This has made many operations unfeasible. This is having more impact than the political noise, of course, that always gets in the way, always. There is so much noise, political noise, that we don't really know what's getting in the way more or less. Cool. Thank you very much. Next question from Brian Flores with Citi. Brian, you can enable your mic. Hello. Good afternoon. Thank you for the opportunity. I'd like to ask two questions. One is a little more strategic. Given your ability to have profitability and revenue diversification, how are you thinking about capital allocation looking forward? Do you see any opportunity other than dividend payout to allocate capital? I'm thinking about some kind of target, a broker, brokerage house, something in DCM.

This is my first question. My second question is a follow-up question. Ricardo, I think you mentioned about an ROE for the year of about 2025. Any news on that range that you provided? Thank you, Brian, for the question. The answer is we are always evaluating, particularly ECM, which is something that has a lot of synergy and complements our business. It is something that we continue to evaluate from the standpoint of partnerships and also from the standpoint of a possible acquisition. There is nothing really in the radar right now. I think we have been very disciplined in capital allocation, focusing mainly on returning capital to our shareholders. I think that we continued with a very high level of payout in the first half. Also, given the expectation of tax impacts, we should continue with a very high level of dividend this year.

In our loan book that we carry, the securities we carry, which are actually our best investments here, you can even see in the capital results of the bank in this first half of the year, we had a substantial increase in the very attractive return. Although we are constantly evaluating these opportunities, and although we believe that the ECM path will be coming our way, we expect to do this through a partnership rather than with our capital allocation. As for the ROE, we have mentioned these 25%. Actually, we intend to keep it between 20% and 25%. We see the ROE is slightly below 25%, but this is still due to a more soft moment in the M&A cycle rather than through a pressure of expenses. That is related to Leduc's question. We had a reduction of expenses and an improvement in efficiency ratio.

Our expectation is that we'll work with an ROE close to 25% for this year. This is always the target that we are pursuing. I believe that it will be very close to 25%. Super clear. Thank you. Congratulations. Thank you. As a reminder, if you want to ask questions, you just need to click on the Q&A icon at the bottom of your screen and type in your question. If you prefer to ask live questions, just let us know by message, and we'll send you a prompt to activate your microphone. Our next question comes from Cesar Edmond, an investor. He sent us the following question. Do you believe that given the dual listing, you will need to increase capital with the shareholders investing more? No, that will not be necessary. The listing is seeking diversification of our shareholders' base and also increase the liquidity of our shares.

What we have seen is that recently we had an increase in demand from foreign investors and the demand for our share in particular. We have the highest ratio of foreign investors at BR Partners since we had our IPO. We are trying to make it easier for foreign investors to invest in our company. We are seeking funds that invest in small caps and in the financial service outside in Brazil that have a clear logic to invest in a company like ours. This was a move purely to facilitate this process. There is no need, there is no demand to increase the capital at BR Partners. We are very capitalized. On the contrary, we will continue to pay a lot of dividends and try to give back to investors the trust that they put in us, returning capital to them.

There's no need to use that as a company for now. Your second question? Our next question from Tomas Vecchiarti. What is the demand for restructuring services like? Have you perceived an increase in demand for this service? Yes, we have felt an increase. We see that there are a number of companies, particularly mid-sized companies with liabilities from R$500 million to R$1 billion, R$1.5 billion, which are approaching us for restructuring. We had one public known case, emblematic one, of a situation of Invapar. They hired us for the restructuring work, and we have an extremely robust pipeline with a number of deals and many deals coming in every day given this environment of hiking interest rates that we are seeing in Brazil. We expect this situation to continue for a while. The Q&A session has come to an end.

Now, I'd like to turn the floor to the management of the company for their final comments. Once again, I would like to thank you for the opportunity to be here talking with our investors' base that is increasing more and more. We have more than 50,000 investors in our investor base, a number of funds, new funds from Brazil and abroad. This is always an excellent opportunity. I'd like to remind you that we have been able to navigate this very difficult moment of our main business, which is the mergers and acquisitions business. We are very resilient. Depending on the way you look at it, there has been stability or a slight increase in revenues and also maintaining a very robust profitability close to our target of return on capital.

Despite the fact that we're investing a lot in some of the divisions, obviously, we're experiencing a market moment which remains difficult. I wouldn't say it's bad. I think that there are still many opportunities, but it is a difficult moment where we have to fight. The company has been able to show substantial resilience to continue to generate results for our shareholders. We thank you for your trust and confidence in us. BR Partners' video conference call referring to Q2 2025 results is closed. The Investor Relations Department is at your disposal to answer any further questions or doubts. Thank you very much to all participants and have a good rest of afternoon.