XP - Earnings Call - Q4 2024

Transcript

Andrea Parize (Investor Relations Officer)

Good evening, everyone. I'm André Parize, Investor Relations Officer at XP Inc. It's a pleasure to be here with you today. On behalf of the company, I'd like to thank you all for the interest and welcome you to our 2024 Earnings Call. This year was a record-setting of results, and today it will be presented by our CEO, Thiago Maffra, and our CFO, Victor Mansur, who will both be available for the Q&A session right after the presentation. If you want to ask a question, you can raise your hand on the Zoom tool, and we will attend you on a first-come, first-served basis. We also have the option of simultaneous translation to Portuguese. There is a button below if you want to turn it on, the translation.

Before we begin our presentation, please refer to our legal disclaimers on page two, on which we clarify forward-looking statements, and additional information on forward-looking statements can also be found on the SEC filing section of the IR website. Now I'll turn it over to Thiago Maffra. Good evening, Maffra.

Thiago Maffra (CEO)

Thank you, André. Good evening to all. I appreciate everyone joining us for our Fourth Quarter 2024 Earnings Call. It's a pleasure to be here tonight. Let's explore and discuss our quarterly results as well as our strategy in place to accomplish our goals. 2024 was a positive year for us. Our results were aligned with our plan, bringing confidence that our ecosystem is complete and able to navigate through different weathers. This year, we also dedicated to increase our ability to deliver higher quality service to our clients, better segmentation, innovative products, sales team expansion, and all of it with strict cost control. Our business is supported by our more intelligent and sophisticated tech platform, creating opportunities to grow the secondary trading, and as a result, we delivered higher profitability to our shareholders.

As part of our culture, we celebrate our people's commitment, highlighting partners with more than 10 years working at XP. And last month, I completed 10 years in XP like many other partners. So it was special to see all the transformation we had during the last decade and imagine how many new growth opportunities we still have for the next one. Now, I will share with you the main highlights we accomplished during the year, starting with client assets that we achieved BRL 1.22 trillion, posting a 9% growth year-over-year. We also reached 18,200 advisors, representing 5% growth year-over-year, and client base achieved 4.7 million with 3% growth year-over-year. In 2024, gross revenues posted BRL 18 billion with a solid 15% growth year-over-year. We also delivered sound EBT growth of 26% year-over-year, reaching BRL 5 billion.

Happy to announce that we achieved the highest quarterly adjusted net income since our IPO, posting 1.2 billion BRL in fourth quarter 2024 and a total of 4.5 billion BRL for the full year, which represented 17% expansion year-over-year. On the balance sheet and profitability, we achieved 28.7% ROTE in 2024 with 376 bps expansion versus 2023, and our ROE marked 23%, 163 bps expansion. This ratio year-end was 17.7%, a comfortable level when considering the payment of 2 billion BRL in dividends, our secured loan book growth, and effects of higher interest rate curve in the end of the year. We will bring more details on this topic during the presentation. Regarding the adjusted diluted EPS, we posted 16% growth during the year. Looking ahead, EPS should grow faster than net income when we take into consideration the share buyback program we opened last year.

Our set of results confirms that we are on the right direction to deliver our 2026 guidance. We will see more details on the next slides. Let's see how our business evolved since we presented our guidance in December 2023. We'll go deeper in each pillar on the next slides. Since our total revenues reached 18 billion BRL during the year, representing 15% growth, to reach the top of the guidance is necessary to post 22% CAGR, and to reach the bottom is necessary to post 12% CAGR. When we take EBT margin in consideration, we posted 256 bps expansion, reaching 29% in the year. It corroborates that our plan is on track to achieve our target range of 30%-34% in 2026.

Now, on the right hand of the slide, there is a comparison from fiscal year 2024 with third quarter 2023, which was the reference that we set our targets for 2026. Analyzing the three pillars that comprehend total gross revenues, we see that core investments and new verticals are within the growth range, and Corporate & SMB is above. As a conclusion, gross revenues present CAGR of 17%. The same idea is related to EBT margin, with a sound expansion during the period of 283 bps at 29%, what reinforced our confidence to achieve our goals. Moving to the next slide. Now, in Retail investments, during 2024, the number one question to XP was net new money, and we have been addressing the question, demonstrating our capacity in delivering around BRL 20 billion per quarter in Retail.

This quarter, we posted BRL 20 billion in Retail with 67% growth year-over-year, despite the challenging macro environment. Comparing total net new money when Corporate is included, we posted BRL 26 billion, representing 37% growth year-over-year, and when we compare the full year, we presented BRL 103 billion in net new money with a 45% growth. Considering only Retail, excluding Modal's acquisition, it was a 33% growth year-over-year with BRL 81 billion. Our target remains the same for 2025, net new money around BRL 20 billion per quarter in Retail. We understand that our true differentials set us apart from peers and will contribute to our continuous growth for the next years. Moving to the next slide, we'll go deeper in our main levers, starting with our complete product platform, offering sophisticated instruments to our clients according to their objectives.

I'm happy to share our current fixed income capacity. XP is a fixed income powerhouse in Brazil, being the largest market maker for all fixed income instruments. It became a relevant growth engine in our ecosystem. It was built not so long ago. Actually, we doubled AUC size in the last three years. It is a big question if fixed income will perform as last year. But as you can see in this slide, traded volume to client assets ratio is steady during the years. AUC kept growing at a fast pace, and as a result, fixed income daily average traded volume skyrocketed, reaching 40,000 trades in 2024. To achieve this service level, we have to consider the powerful combination of the largest well-trained sales team in the country, diversified and innovative product offering, and risk management accuracy. Moving to the next slide, we see our new distribution channel model.

Since 2021, we built a multi-channel distribution channel in two main categories. The first one, B2B, which comprehends IFAs, wealth managers, and RIAs, and the second one, B2C, that contemplates internal advisors, self-direct model, and private bank. Those categories have demonstrated to be complementary, addressing client needs and support our commercial trusts, posting continuously AUC growth. Important to highlight that the new distribution channels we launched during the last years already represent 60% of total net new money. As you can see on the right hand of this slide, our proprietary tools provide more intelligence to support advisors with daily activities. We do this by providing data so advisors can manage clients' portfolios according to their objectives and simulate new strategies and performance.

On the back of these new technologies and services model, we have our IFA channel ready to accelerate even more in 2025, becoming adherent to this new concept to manage clients' portfolios, improving loyalty and satisfaction. The adherence to these tools and practice, it's very important, and one of the many examples that makes this clear is when we see that advisors who became adherent to our new commercial behavior increased their daily activities by 11 times. This shows a powerful combination of tools and a new mindset in relationship with our clients. On the next slide, we develop a segmentation with accurate value proposition. As we can see in this slide, we have from digital to private. Other part of our better understanding of this new segmentation is based in five different dimensions.

Number one, focusing on what clients are looking for in the relationship with XP, from transactions and banking for digital clients to integrated solutions for private clients. Number two, advisory model with three different approaches: objective-based, financial planning, and wealth planning. Number three, investment options with proper pricing, sophistication, and access depending on the client segment. Number four, banking experience, also with differentiated pricing and products, such as different credit cards, matching our clients' expectations. And last, client support with increasingly higher personalization and benefits. For example, faster SLAs and participation in events and experiences. Additionally, we are also preparing new initiatives to launch during the year with this rationale. One of them, it's a new credit card experience that we expect to result in higher cross-sale and share of wallet. We already saw that the new segmentation started to translate into better results.

One from many examples is our private bank, which is performing much better in terms of inflows and client satisfaction than in the previous years. We are excited with the last month's performance and expecting a solid 2025. Now, moving to the next slide, we have financial planning. As we saw before, financial planning is an important pillar in our strategy. We are the only institution serving clients with a complete financial planning program to clients with 300K and up. Not only client base satisfaction increases, but also their loyalty. As first results, we can see on the right hand of this slide that clients with financial planning program increases two times insurance conversion, increases retirement plans conversion from 30%-41%, and last but not least, increases our client net new money by 43%. We are just in the beginning, more to be done in the next years.

Moving on to the next slide, we will see more details in Retail initiatives. Now let's move to our cross-selling initiatives. You can see that credit card grew 11% year-over-year, marking BRL 13.1 billion in TPV during fourth quarter 2024. When we compare the full year, credit card grew 17%. When we look to our total penetration, we still see a good opportunity to increase our credit card client base since we have only 29% penetration out of the eligible clients, and the larger banks are running around 50%. We are excited about our new launches during the year, and we expect the card revenue to grow around 20%. Life insurance, written premium, presented 37% growth year-over-year in the fourth quarter and 44% growth for the full year of 2024.

This is other growth avenue for the next years since our penetration is about 2%, and other players present close to 17% penetration in this product. When we compare life insurance revenues, it grew 27% in their year, which means that we are starting to reap the benefits from our own insurance company. This is because it takes three years on average to see the positive impact in this business. The first two years are more concentrated commissions and provisions, and for 2025, we expect an even higher revenue growth pace than the one we saw in 2024, which was 41%. On retirement plans, our client assets keep growing double-digit posting 10% year-over-year in fourth quarter and market BRL 81 billion. XP has 5% market share and the market leader 27%.

As I said, in recent quarters, we are launching new initiatives as cashback, sales force expansion to keep gaining relevance in this offering during the next years. As keep seeing more inflows, we believe we could grow retirement plans revenue by a double-digit rate in 2025. Retail credit NII posted 79% growth year-over-year, marking 81 million BRL in revenues this quarter. Since our lending in this concept is backed with client investments as a collateral, our ECL to loans is lower than 1%, which represents one of the lowest levels in the Brazilian industry. We expect this revenue to grow around mid-teens for the year. On the concept of other new products compounded by FX, global investments, digital account, and consortium, they presented 103% growth year-over-year with revenues marking 213 million BRL this quarter.

It demonstrates how many opportunities we still have to capture through cross-sell in our retail client base. Not long ago, it was close to zero. And looking ahead, this concept should cross the BRL 1 billion mark per year. And moving to Corporate & SMB, as we have been talking about our complete ecosystem, wholesale is an important part of our growth engines. 2024 was a record-setting year for this segment. Now let's see how it performed on different divisions. Starting with DCM, it was a strong year posting 31% growth in volumes compared to fourth quarter 2023, marking BRL 9.3 billion, coupled with market share gains achieving 13%. As a result, we were top-ranked in DCM, Agribusiness Credit Notes, and Real Estate Funds. It is possible to gain even further market share since XP is the largest investment platform in Brazil, with dominance in secondary trading.

In corporate credit secondary trading, XP represents more than 50% of the local market. Regarding XP Institutional Broker-Dealer, it's another highlight. Given our distribution power and quality in execution, we are gaining market share continuously during the last years. In the end of 2024, XP posted 16% market share, which is getting closer and closer to the market leader. Other relevant growth avenue is corporate securities. A few years ago, it was a completely different story. Now, our capacity to originate, warehouse, and distribute corporate credit is in a new level. XP is a relevant player, and more important than only size is the benefit of our unique loop to recycle our expanded loan book to our retail and institutional clients. Our turnover on it is two or three times per quarter. This quarter, our corporate securities book increased at BRL 9 billion, mainly high-graded names marking BRL 32 billion.

It means that we distributed a large portion of this book last quarter, and we also originated a larger one. Our competitiveness is supported by relevance as the largest corporate credit broker in the country. On derivatives, we keep evolving our offering while increasing penetration in OTC derivatives. And this was another quarter that we kept our fourth-ranking position compared to 10th two years ago. As we presented last quarter, XP is the leader in interest rate swaps, a true differential of our ecosystem. On FX, XP also sustained a 15th-ranking position from 41st four years ago when we started. When we look Issuer Services and corporate, total revenues posted 45% growth. And when institutional concept is included, these three businesses grew 16% year-over-year. We are confident that our strengths will excel the challenging scenario, marking another solid growth in 2025.

Moving to the next slide, we will see XP growth potential. We acknowledge that our business evolved in a complete ecosystem, and more and more we have received questions regarding our growth potential. Therefore, I would like to share with you a rationale that supports our plan for the year. It is important to bear in mind that XP business model benefits from a natural growth from total AUC. Today, as we speak, roughly 65% of total assets are allocated in fixed income directly or through funds, which corroborates to expect growth close to SELIC rate for these client assets. Additionally, we incorporated net new money. Then, a combination of both translates to a potential double-digit growth in AUC and consequently should support revenues growth. Regarding new verticals, as I presented earlier, we are confident that we are at the very beginning of the potential cross-sell penetration.

During the year, we grew 32%, and we expect to keep growing at this fast pace in the next years. Another concept which supports our growth is related to float from our clients. By design, the performance will be at SELIC rate pace, pointing again to a double-digit growth. Next pillar is the issuer service, focused on DCM. It is true that in 2024, Brazilian industry had the all-time high DCM volumes, and it's too soon to affirm that's not going to be also a solid year for DCM in 2025. Just in case, if the total DCM volumes for 2025 materialize in lower levels than last year, our plan is still to expand our market share and benefit from a new level of Brazilian industry, which is way higher than years ago. Our distribution power is the most important differential to participate in many issuance mandates.

Coupled with that is our lower cost of capital, which Victor will present more details ahead. Finally, corporate revenues go hand in hand with issuer service, providing derivatives and credit to our clients. XP is becoming more relevant in wholesale business since our recycling mode results in higher distribution capacity to our retail and institutional channels. So, even considering institutional revenues with lower pace as part of this concept, both should post double-digit growth. Just as a reminder, we already expected a softer primary offerings volume in DCM for the first quarter 2025 due to the seasonality, but this should be offset by a higher activity in the corporate bond secondary market, but compounding all these factors that I just mentioned, the end game should be total revenues growing more than 10% during 2025. Now we'll hand it over to Victor so he can discuss this quarter financials. Thank you.

Victor Mansur (CFO)

Thanks, Maffra. Good evening, everyone. It's a pleasure to be here with you. Let's start with gross revenue. Total gross revenue posted 15% growth in 2024 and 4% growth quarter-over-quarter. Retail Fixed Income Corporate & Issuer Services were the highlights of the quarter. The strong performance in Retail Fixed Income reflects our growing ability to deliver fixed income products and enhance our market-making capacity. In Corporate & Issuer Services benefited from our warehousing strategy, which aims to meet client demand in the first quarter of 2025 while mitigating the expected weaker seasonality. When we compare the gross revenue breakdown on the right-hand side of the slide, in 2024, retail maintained 75% of total revenues, Corporate & Issuer Services gained space against institutional revenues. Let's move to the next slides with more details on the different segments.

Retail revenue posted BRL 11 billion and 791 million, a 14% growth in 2024, and market BRL 3 billion and 569 million in the fourth quarter 2024, presenting 2% growth quarter-over-quarter. As expected, fixed income was the highlight in the year and in the quarter, achieving BRL 3 billion and 447 million the full year, with 49% growth and BRL 985 million in the quarter, posting 5% growth quarter-over-quarter. Important to highlight, as Maffra mentioned earlier, fixed income is a relevant component of our ecosystem, and the results in retail are completely connected to our distribution capacity and our relevance in secondary trading. I also would like to highlight those new vertical products presented more than 30% growth in the year, which means we are on track with our plan presented in our Investor Day in 2023.

Moving on to the next slide, Corporate & Issuer Services became an important contributor in our ecosystem, posted BRL 2 billion and BRL 289 million, marking 45% growth in the year. In the quarter, posted BRL 599 million, which represents 9% growth quarter-over-quarter, marking a sound 45% growth in the year. Issuer Services delivered solid results again on the back of DCM activity, achieving BRL 1 billion and BRL 324 million, with 46% growth during the year and reached BRL 337 million in the quarter, a 5% growth quarter-over-quarter. On the back of a stronger quarter Issuer Services, Corporate division was able to capture cross-selling opportunities, mainly in derivatives. Corporate posted BRL 260 million in the quarter, with 14% growth quarter-over-quarter. Looking to the full year, it represented BRL 965 million, a 45% growth year-over-year.

We have been talking about our warehousing strategy and recycle mode for some quarters. To provide you with the clear view of what robust engine we have in the fixed income arena, the engine starts with origination investment banking, allocating a part of our issues in your book and the offering in our retail institutional clients. This was another quarter in which we not only distributed most of the previous quarter book, but also built a new portfolio of competitive products to meet client demand in the first quarter of 2025, mitigating expected seasonal impacts. This approach mirrors the strategy we executed in the second quarter of 2024, enhancing our competitiveness by offering high-return products compared to traditional time deposit and tax-exempt notes from large banks. Our security books achieved BRL 32 billion, representing 4% growth quarter-over-quarter.

Moving on to the next slide, we will explore our SG&A and efficiency ratios. We believe our competitive edge is driven by our ability to continually invest in our core business, new technologies, expansion of our advisor network, and product development while maintaining strict cost and expense control. Unlike our competitors, we are born digital, which positions us to sustain growth while improving efficiency. As a result, we grew 15% in total revenues and 10% in SG&A during the year. Total expenses posted BRL 5 billion and 927 million. Just a reminder, we incorporated Banco Modal in the second semester of 2023, creating a new baseline for the full year of 2024. So, when we compare 4Q24 and 4Q23, the SG&A grew only 2%. At the same time, we also launched several new products, introduced our financial planning platform, and hired close to 800 new internal advisors.

Looking to 2025, we have new rounds of investments to enhance our platform, improving our banking product offerings with better segmentation and the full year carry of the new internal advisors hired in 2024. Moving to efficiency ratio on the next slide. As we can see on the right hand of the slide, we improved the efficiency ratio in 157 basis points during the year, achieving 34.7%. We also improved this ratio in 78 basis points in the quarter. As mentioned in the previous slide, our goal for the year is to enhance our efficiency while continuing to invest in strategic areas. We expect our efficiency ratio to improve throughout the year. Let's delve into EBT now. As a result of our assertive strategy to provide new and innovative solutions, together with our strict cost control, drove an unprecedented EBT and EBT margin expansion through the year.

Along with these actions, we also organized our corporate structure, decreasing materially our cost of capital and funding, benefiting both wholesale and retail banking business, and also better positioning XP to compete in those markets. So, our EBT responded to those decisions during the year, presenting 26% growth and achieving 4 billion and 907 million BRL. In the quarter, EBT totaled 1 billion and 289 million BRL, posting 6% growth quarter-over-quarter and 30% growth comparing to the 4Q23. Our EBT margin margined 29.1% for the year, posting a strong increase of 263 basis points. In the quarter, EBT margin was 28.7%, 66 basis points higher quarter-over-quarter, and 430 basis points expansion compared to the 4Q23. For 2025, our efforts will be to expand our ecosystem, capture the benefits of a larger business, and target our commitment to 2026 to deliver EBT margin between 30% and 34%.

On the next slide, we see the adjusted net income. 2024 was a year with more ups and downs than average, even for Brazil. Remember that in the beginning of the year, macro expectations were different from the 2Q24 and way different from the last quarter of the year. We did what we said and delivered results aligning for our 2026 guidance released in December 2023, and the adjusted net income in the year achieved BRL 4 billion and 504 million, a 17% growth year-over-year, and in the quarter, it was BRL 1 billion and 210 million, excluding the one-off impact representing 2% growth quarter-over-quarter. As we talked during the last two quarters, it's important to remember that our estimates on normalized ETR was around 18, and it was the case.

Since in the quarter marked 17.9% and in the year 18.7%, we expect the effective tax rate to remain around 18%. Let's move on to the next slide to talk about capital management. As we have commented last quarter, we started to provide full view on capital and risk-weighted asset figures. Looking at our BIS ratio, it stood at 17.7% at the end of 2024. As a reminder, we distributed BRL 2 billion in dividends and have an ongoing share buyback program. As we previously highlighted, turnover volume in fixed income reached an all-time high, driven by our investments in secondary trading technology. We remain highly optimistic about this trend, which gave us the confidence to expand our books by BRL 9 billion of high-quality securities.

This strategy allowed us to capitalize on the widening credit spreads at the end of the year, enabling us to warehouse those assets at a more competitive level. Additionally, it's important to note that half of the volume was related to tax-exempt notes from quasi-sovereign banks supported by the launch of a new product in Brazil, the Development Credit Note. Similar to the second quarter, we expected to sell these assets in the first quarter of 2025, helping to offset the seasonally weaker DCM activity during that period. With that in mind, we are confident in our capital level, and there are no changes to our guidance. We continue to target a BIS ratio between 16% and 19%. It's also important to highlight that XP holds a higher proportion of CET1 capital at 16%, way above local peers.

Additionally, we expect the implementation of the new 4966 regulation from the Brazilian Central Bank to have a positive impact on our BIS ratio over 2025. On the right-hand side of the slide, we once again presented our RWA to total assets ratio at 30%. The observed shift in the breakdown between credit and market RWA was driven by the increase in our warehouse books. Since the third quarter, credit spreads in the trading book have been accounted for as market risk. Despite this, our business maintains a comfortable average daily VaR, reaching 16 basis points over equity, or BRL 32 million in absolute terms. Our capital strategy results in a conservative BIS ratio while supporting higher profitability and return to shareholders, as we are going to see in the next slide.

This slide summarizes our capital distribution for the past three years, reaching close to 10 billion BRL in dividends and buybacks. This year, our total payout ratio was 74%, with 3.6 billion BRL capital return. Looking to the next couple of years, we maintain our goal to deliver more than 50% payout ratio. Now, let's see our EPS and ROTE. Our EPS per share evolution continues to post a solid growth and achieved BRL 8.28, a 16% increase year-over-year. Same trend that we see in ROTE and ROE. ROTE achieved 29.2% in the quarter, representing 78 basis points higher quarter-over-quarter, and ROE posted 23.4%, with 40 basis points higher quarter-over-quarter. During the year, ROTE was 28.7%, at 376 basis points higher year-over-year, and ROE achieved 23%, with 164 basis points higher than last year.

And now moving to my last topic, the new corporate structure. We mentioned last quarter that we concluded the corporate structure in Brazil, where the bank became the parent company. As a result, as we can see in this slide, the cost of capital is 35% lower than before since we issued AT1 and T2 during the year. We could only capture part of this benefit in 2024, and we will only see the fully loaded impacts of lower cost of capital and also material lower cost of funding in 2025. Now, moving back to Maffra so he can do his final remarks, and then we go to the Q&A.

Thiago Maffra (CEO)

Thanks, Victor. So before moving to Q&A, I would like to reinforce four topics. First, our all-weather ecosystem, showing that our business goes way beyond equities.

2024 was a challenging year, but we presented solid results, demonstrating that our growth strategy is well-positioned to deliver our 2026 guidance. Second, our retail net new money during the year was BRL 81 billion, reaffirming that our target to increase BRL 20 billion per quarter is on track, also for 2025. Third, we understand that our two differentials are still intact. We are continuously evolving our product platform, our multi-channel distribution, our new segmentation, and our value-added service, supported mainly by financial planning. All of this sets us apart from other players for the long run. And lastly, our capital discipline translates into a conservative approach, more efficient, and with higher returns to our shareholders. During the last three years, XP distributed dividends and executed share buyback programs close to BRL 10 billion. And we will keep working to increase our profitability during 2025 and the next years. Now, Álvaro Guedes, we'll start our Q&A session.

Operator (participant)

Thank you, Maffra. We're going to start. So the Q&A, the first question is from Thiago Batista, UBS. Thiago, you may proceed.

Thiago Batista (Executive Director of Research)

Hi guys, are you hearing me? Yes. Okay, congrats for the results. I have two questions. The first one on the capital or the BIS ratio. This quarter, we saw a big increase in the risk-weighted assets, if not wrong, around 12% year-over-year, mainly on market risk. Can you comment about this movement? And the second one about the internal advisors. You mentioned, Maffra, in the first pages of the press release that they represented about 60% of all the net new money of the year, and they are about 15% only of your sales force. Can you comment on why those guys are so much more efficient than the overall sales force?

By the way, congrats for the beginning of the press release, the short three pages that you wrote. I think it was very, very good.

Thiago Maffra (CEO)

Thank you, Thiago, for your question. So I will start with the second part of the question, and then Victor will take the first one. Good evening again to everyone here. The 60% of net new money is not only from internal advisors, but internal advisors. Remember that we have three channels today. We have internal advisors, the IFAs, and the RIA model that's basically the wealth management and consultants. Okay, so when we talk about the 60%, it's what we call the wealth service channel here, okay, and the B2C. So the two together combine this 60%.

But about your question about the level of productivity, yes, when we compare the internal advisors versus the IFAs, it's very different. Okay, the level of productivity of the internal advisors, it's much higher. We have some hypotheses here, but the main one, I would say, that's the way we manage the sales team here. We have all the data, all the index, level of activity. So we control the sales process in a much more standard way than the IFA offices. Okay, but all the tools, all the intelligence, all the technology, everything that we developed for the internal advisors, we also provide for the IFAs.

Okay, so everyone here at XP knows very well that for me, the channel that I will focus more in 2025 is the IFAs, the B2B channel, because I believe we have a hidden potential here to unlock value this year, because it's basically how we get all the tools and all the techniques, the sales process that we have developed for the internal advisors and how we scale that for the IFA network. So that's my main goal when we talk about channels for 2025, and I believe we can help the IFAs even further to increase the productivity.

Victor Mansur (CFO)

Thank you, Maffra. Thank you for your question, Thiago. Just remembering here, since the third quarter of the year, credit spreads risk is allocated at market risk by the new central bank regulation.

So when we increased our book in BRL 8 billion and of corporate securities and quasi-sovereign government banks, we added risk at the market RWA, not at the credit RWA, since everything is booked in the trading book.

Thiago Batista (Executive Director of Research)

Clear. Thanks for the answers.

Operator (participant)

Okay, next question is from Eduardo Rosman from BTG. Eduardo, you may proceed.

Eduardo Rosman (Senior Analyst)

Hi, hi everyone. Congrats on the quarter. I have a question regarding competition with the banks and regulation. I think earlier last year, we saw the regulator adjusting, right, the rules on instruments with tax benefits such as the LCIs and LCAs, which traditionally give, you know, the large banks an advantage, right? These, I think, impacted their ability to supply the market, and we saw, I think, an improvement on the fixed income market outside, you know, these banking instruments, I think, and this naturally, I think, helps you, right?

But at the end of the year, we saw kind of a big reacceleration in the issuance of these banking instruments, you know, with tax benefits. So I wanted to know if you can explain to us what happened, you know, and additionally, we've been seeing some reports in the press, you know, talking about a potential relaxation of these rules. So if you could share your thoughts on this, if you think it helps, it happens or not, and if it does, you know, how that kind of might impact, you know, your business. Thanks.

Thiago Maffra (CEO)

Hi, Rosman. So I will start, and then you can complement me here, Victor. So to be honest, the scenario with high interest rate, it's very clear for everyone that it helps the banks a little bit, on the competitive side.

But in the—I would say—especially in 2024, competing against—if we go back one year or a year and a half—it was very hard for us to compete against the LCIs, LCAs, and so on, because we didn't have—I would say—the amount of these instruments that we need, and not even the right price or the same price as the banks, okay? But we have been working very hard to find ways to replicate, to do partnerships, to warehouse, to do revolving lines, to do repo. So I would say that we have developed ways, technology, and instruments to compete against the banks. So I would say that's not 100% the same, but today it's very close. It was a big problem. If we go back to 2023, it's not that big when we look today.

So I don't think that any change in regulation would have a big impact for us right now. And again, we expect this year, I would say that the 20 billion BRL that we are saying here is today, we see more as a floor than as like the target that should be the floor, and we should deliver like higher net new money during the year.

Eduardo Rosman (Senior Analyst)

Now, great, Maffra. Thanks a lot.

Operator (participant)

Okay, next question. It's from Guilherme Grespan, J.P. Morgan. Guilherme, you may proceed.

Guilherme Grespan (Equity Research Analyst)

Thank you, Maffra and team. Congrats on the results. Two questions on my side. The first one, actually, on the balance sheet. We saw 500 million BRL mark-to-market on the equity side. If I imagine it's related to securities on the fixed income or housing.

If you could just put a little bit more color on that. It was surprising to us. We understood in the past that there was a hedge whenever you basically warehouse the security. We thought you basically do a hedge against the inflation-linked bonds, and you're basically exposed only to the corporate credit risk. But by the comments, we understood that the mark-to-market impact here was the SELIC, the real rates in SELIC, moving up. So if we can explore just a little bit the dynamics of this warehousing exposure to macro dynamics, and if we should expect a reversal of this mark-to-market in the first quarter. And then my second question is just related on capital. You probably, when you look at return on tangible equity, it's running basically at 30%, right?

The risk-weighted assets are growing at 35%. So basically, the conclusion, top-down conclusion here we reach is basically you're not generating organic capital in this pace of growth of RWA. And when we try to do the math, I think there is a guidance of more than 50% payout for the next two years. It seems you're going to fall below the 16% range that you had before. At the same time, there was a, in the final remarks of this slide, a few CET1 numbers was not clear to us if you're revising the target or not. But just if you can help us understand the math and the moving parts behind the capital, because to us, we couldn't match kind of the payout that you're guiding to the capital generation we're seeing today. Thank you.

Victor Mansur (CFO)

Okay, thank you for our question, Guilherme.

Starting with the OCI, that is not, that does not concern the warehouse books. Those are balance sheet hedges. So just trying to give some color here. That's MTM of government bonds that goes against equity. But the bonds are hedging several assets and liabilities that are booked at amortized cost. So basically, we have a distortion in your OCI since one component is going to equity and the other one is not. To give you an example, real example here. Imagine that we have an inflation-linked loan booked at amortized cost. And the hedge is against an NTN-B at available for sale going to OCI. Our P&L is zero. But the first one is not going to the equity. The second one is going to the equity. We will take advantage of the new central bank regulation, the 4.966, that starts live in 2025.

We will harmonize those booking models for hedges and balance sheet and should eliminate this effect for the future. I don't know if it was clear. Yes, super important. So actually you have unrealized gains in the held-to-maturity of 500 million BRL as well. Exactly. At amortized cost. Yeah, my loan portfolio, issuances that I had against market and then you go. No, that's clear. That's important and super clear. Thanks. Okay, great. Going to the RWA question. It's important to reiterate that RWA growth has been driven primarily by the expansion of the wholesale banking franchise, which is relatively new. We are gaining market share and deliver higher hedged ROEs than our peers.

And most of wholesale banking business, as derivatives, the market making, warehousing, and you choose what business lines you first starting if dragging your capital, then you realize your gains over time. So as we are scaling the business, it's natural that the RWA grows. But if you compare the growth of the RWA to the growth of the business inside corporate banking, we are growing our revenue faster than the risk. And also, our bank will reach maturity at some point in the future. And the pace of evolution of the RWA will be more normalized than the growth of the revenue.

Thiago Maffra (CEO)

And just to complement Victor here, because you mentioned that if we were changing the guidance for payouts and for the next year, no, we are very comfortable that we are going to pay more than 50% this year and the next one.

Guilherme Grespan (Equity Research Analyst)

Okay, and just to confirm, the capital ratio is still 16%-19%, right? The target.

Victor Mansur (CFO)

Yes, it is.

Guilherme Grespan (Equity Research Analyst)

Okay, that's clear. Thank you.

Operator (participant)

Okay, next question is from Gustavo Schroden at Citi. Gustavo Schroden, you may proceed.

Gustavo Schroden (Equity Research Director)

Hi, good evening, everybody. Thanks for taking my questions and congrats on the good year, challenging year, and you developed good results. But before I make my question, just a follow-up on the first question about the IFAs and the internal advisors.

Maffra, you mean when you say that your main goal in 2025 is to focus on IFAs, you mean that the idea is to replicate all the tools and techniques that you applied for, that you applied on internal advisors and gaining productivity, aiming to have the same productivity in IFAs. That's the idea here. I'm trying to understand better what you mean when you say that the main goal is to IFAs and using the techniques and tools from internal advisors. My second question is it's about the take rate. So going back to your business, you were clear in saying that we should expect net new money at BRL 20 billion per quarter in 2025. So it's part of our equation.

So if you could share with us that what's the take rate implied in your expectations for 2025? I believe that as the fixed income gain share, it's put more pressure on the take rate. So how the company thinks about take rate, what should they expect in 2025? Do you think that this 1.33% is the best guess we can have? Thank you.

Thiago Maffra (CEO)

Yes, thank you for the question, Gustavo. Starting from the first question, just to make it clear, when I say my main goal, when we are talking about channels, okay, because I have other goals here. But when we talk about the three channels, the main one that they will put more effort this year is the B2B channel, okay? And why?

Because if we go back to 2021, one of my goals when we talk about channels was to diversify the channels. So back in 2021, I would say that the I don't have the precise number here, to be honest, but I would guess the IFA was about like 80%, okay? More or less here. And today is 40%, okay? But so I spent a lot of time working side by side with internal people here, with the leaders to develop the B2C channel and also to develop the corporate channel, okay? So I would say that these two channels, they are in a very good shape today, okay? Growing, we have the right leaders, they are performing well, the returns are very good.

Now it's time to put more effort in how we increase the productivity and how we deploy the same techniques, the same technology, the same sales management tools we have on the IFA channel. It was exactly your question. But again, just to make it clear, it's not my one goal for 2025 is talking about channels, okay? Not about everything at the XP. For the second question, if we look at the take rate for the past three years, it's around 1.28%, okay? The guys here they can help me, but it was 1.28%, 1.28%, and probably 1.29% this year, okay? It has been flattish for the past three years.

When we say that this year we are going to deliver more than 10% growth on top line and 10% for me is conservative here, we should deliver more, okay? It's considering the same take rate. We are not projecting higher take rates for the near future. Yes, we believe we are like close to the end of the cycle because of the changing mix. Because if we look at the last three years because of the high SELIC rate, volatility, and so on, what you see moving from higher ROA products to fixed income products with much lower ROA. We believe we are at the end of this cycle. We don't know if we are there yet or not, okay? But we are close to the end.

But we are not projecting that on the internal budget or on the numbers that we are showing here. So we are expecting flat take rate for 2025.

Gustavo Schroden (Equity Research Director)

All right. Super clear, guys. Thank you.

Operator (participant)

Okay, next question is from Tito Labarta, Goldman Sachs. Tito, you may proceed.

Tito Labarta (VP and Senior Equity Analyst)

Hi, thanks and good evening, Maffra. Victor, thanks for the call and taking my question. Also, two questions, if I may. You know, thanks for the revenue guidance on 2025. And Maffra, as you mentioned, you think it's conservative, but just, I mean, it does need to be a little bit higher to get to that 2026 guidance. Just to think about, you know, where the upside to that 10% could come from. I mean, you mentioned maybe you're getting close to the end of the cycle on the mix shift.

I mean, I guess, do you need to see equities do better? Do you think there's enough growth in just like the fixed income and the new verticals, you know, particularly given that, you know, the base is going to be higher in 2025 to get the growth in 2026? But just to think about, you know, where upside to that 10% growth, where could that come from? And do you need it to deliver on the guidance? And then second question, just on expenses, right? I mean, expenses growing around 10%, you're still guiding for some margin expansion. Is that 10% growth sort of the right level of growth? How much flexibility do you have there? Is there any other cost cutting that you could do to keep the growth a bit lower?

Or yeah, just how should we think about expense growth for this year? Thank you.

Thiago Maffra (CEO)

Thank you, Tito. The first question, the way we have been presenting the company, the way we manage the company is in on the three verticals, investments, cross-sell, and the wholesale bank. If we look at what we did last year, and again, it's important to remember, where we came from back in 2023 when we did our guidance and when we did our internal budget, FX, BRL was supposed to go to four and a half, interest rates going to eight and a half, nine. So, equities, Ibovespa was supposed to go to 150. And the environment in 2024 was completely different, okay?

How we managed to deliver, I would say, 100% of our internal budget and the guidance we gave, because we were prepared for a tough environment, okay? We are not expecting a better environment. We are, again, prepared for a tough environment for 2025. We are not projecting a better macro environment. We are working only with levers that we control here. If we look at the three verticals that I mentioned, investments grew 13% last year. Remember, our business here, the AUC grows close to SELIC rate because today 65% of the total AUC is in fixed income linked somehow to SELIC rate, okay? If we expect the SELIC rate of 14-15 for this year, we should grow our AUC close to that number.

On top of that, we have another BRL 80-BRL 100+ billion here in net new money. So another 8%-10% growth in AUC. So when we look here, it's hard to not do a math that we don't deliver another 13% here, growth, in the core investments as we did in 2024. Moving to cross-sell initiatives, we delivered 32%. We mentioned some. I would say not guidance, but some projections here for some of the business lines, credit cards, insurance, and so on in the presentation. So in our internal projections, it's almost impossible to not deliver the same numbers we delivered in 2024, okay? And when we go to wholesale bank, we are growing 45% when we take out the institutional business that's more mature, okay? So again, we are continuous to grow this year.

I'm not sure if at the same level, but close to this level. So when you do the math, remember to achieve the guidance, we have to grow a CAGR for the bottom of 12% and for the top of the range, 21%-22%, okay? So we delivered 17% last year and we are on the same pace for this year, okay? So, for us, we are on track to deliver the guidance. We don't see anything to change the guidance or to say that we are not going to reach inside the guidance. It can be in the middle, it can be on the top, or it can be more close to the bottom, but it depends a little bit, how it goes these next two years. But we are very confident that we are today, from the middle and up, okay, of the guidance.

Victor Mansur (CFO)

Thank you. Question. I will take the one about expenses. First, I would like to give you a color on how we manage expenses in the company. We have everything in a very low latency. So efficiency ratio management is a daily task for the company. We project every business line revenue, expense, cost for every segment that we have at the company. What we are committed to is to keep improving the efficiency ratio over the year. So if the revenue is larger, we have space to invest more in areas that are strategically for the company. If the revenue is going near the bottom of our 10% indication that we gave here, we will manage the expense to fit and deliver an efficiency ratio improvement over the year.

Tito Labarta (VP and Senior Equity Analyst)

That's very clear. Thanks, Victor. Thanks, Maffra.

Operator (participant)

Okay, next question is from Antonio Ruette, Bank of America. Antonio, you may proceed.

Antonio Ruette (Equity Research Analyst)

Hey, guys. Thank you for your time. So I have two questions, if I may. One for Victor Mansur. So if you could please help us to understand the headcount here. So we see an increase of about 200 on QoQ and headcount, but total advisors falling 200. So this means a greater contribution from internal advisors. And also following up on that soft guidance of 10,000 internal advisors, is this still up? How should this behave over the next quarters? So this first on headcount and B2C. And also a second one, a more strategic one, on new products. We note that a relevant part of the guidance focused on 2025 and even 2026 is related to deployment of banking products and cross-selling consortium and cards.

I would like you to explore a little bit the challenges of doing so, considering that many of your IFAs already distribute these products, not necessarily from XP. This would be great. Thank you.

Thiago Maffra (CEO)

Thank you for the question, Antonio. So the first part of your question, about the number of people, the headcount, okay, we have been deploying, I would say, about 50-80 internal advisors per month, okay? It depends, it varies a lot, month to month, but I would say 50-80 internal advisors per month, okay? So I would say for 2025, our goal is to add around 500-600 internal advisors, okay? So the 10,000 internal advisors, it was more an aspirational goal than a strict plan. So we are adding, I would say, 500-600 this year.

We can accelerate or not just accelerate, depending on the environment, on the KPIs. We have all the KPIs for all the cohorts. If they're doing well, we go faster. If not, we adjust some things and before we move on. But that's the number, okay? So out of the 200, I would say 100 and something, 150, 130, they are internal advisors and the other people, they're all around the company, okay? You mentioned there was something else about the decreasing number of total advisors. Yes, remember that I mentioned that the main difference of performance from internal advisors and IFAs was the sales management techniques, tools, and so on, okay, that we use. But for me, the second one, it's I would say the quality of the advisors, okay? So we have expanded really fast in the past.

And now we have what we call here a curve ABC, okay? So the best ones they are A, then we have the B tier and so on. And we have been very focused on having only the best ones, okay? So we are intentionally decreasing the number of IFAs in some case, okay? And the second point, and that more focus on IFAs, okay? Now we have we do the same methodology for internal advisors, but that's our daily business here. But we are also very focused on doing that on the IFAs. And the second one, talking about IFAs, remember that there was a change in regulation, I would say, mid-year last year, okay, that the IFA now they can be employees, okay? They can be under labor agreements in Brazil. They could not be employees in the past.

They had to be IFAs and partners. But with this change, we are starting to see some of the IFA offices changing IFAs from the independent model to the employee model, okay? Especially people that are not actually IFAs, they are like guys that work at desks, back office and some other tasks. Even these guys in the past, they were most part of them IFAs. And even some advisors in some of the IFA offices, they are becoming employees, okay? We have, I would say one big one that all the IFAs they become employees in the last two quarters. So that's why you see the number of IFAs decreasing, focus on quality of IFAs and they changing from IFA to employees. And about the, what was the second part? The, okay, the cross-sell products, if they when they produce outside of XP, right?

There are some ways to try to mitigate that. The first one, imagine that an IFA is much smaller than XP, okay? And when we launch a product and we do the partnership with the players to be a marketplace, we have much better agreement with these companies than the IFAs isolated. So, for example, insurance, life insurance, when we started, as you mentioned, a lot of IFAs, they already did life insurance, especially whole life insurance with all the players that you guys know very well, that are global. But today, all of them, they do with us, all of them, okay? For some reasons. First one, we have better agreements than they had before. So they make more money doing through us than directly with just partners.

Second one, we have better experience because remember, imagine that you were an XP client two years ago and you buy a whole life insurance. You had to go to the insurance company, open an account, wire money to this place. You could not see your life insurance policy integrated in your financial planning in XP app, so it was a mess. The experience for the client, the final client was a mess. The third one, imagine that you are an IFA, you have to open a new system, you have to go to five different insurance companies, you have to go there and put all the data, everything, and to get a code, okay? Then you get back this code and you have to go through a lot of different systems. Now we have one marketplace at XP, okay?

We have our own insurance company, but we have other players. Our concept here is always to be an open platform, no matter for each product. And you can do everything on what we call here the Hub. That's the tool for the IFAs to sell everything from investments to life insurance. You go there, you do one quotation, you do everything through the system and everything is integrated for both the IFA and for the customer, okay? And the fourth one, today we have agreement, exclusivity agreement with, for investments with 90-plus% of the IFA offices. And we have almost the same thing for all the other products, okay? When we do a investment in equities or when we do a prepayment agreement with an IFA, we have exclusivity for all today for all the products, okay?

So, of course, for some products that we don't have, we cannot ask them to do with us because we don't have, or of course, we have completely different financials for them. We will have to discuss. But again, remember the first point, usually we have better agreements, we have better experience, and we have exclusivity agreements. So, it's very hard for them like to do outside. Just to give you an example, in three months that we start consortium, we did like more than a billion reais in premium, in two months, three months, okay? So it's growing really fast.

Antonio Ruette (Equity Research Analyst)

That's super clear. Thank you for the comprehensive answer. Thank you.

Operator (participant)

Okay, next question is from Neha Agarwala, HSBC. Neha, you may proceed.

Neha Agarwala (VP of Product Governance Lead)

Hi, thank you for taking my question. Just a very quick one. You mentioned about changing the credit card proposition.

Could you just elaborate a bit on that? What are you changing for the credit card? Any new features you're adding? I believe you will continue to focus on your captive client base and not go open market. Thank you so much.

Thiago Maffra (CEO)

Thank you, Neha, for your question. Backwards, we are not going to open market, okay? So we are focused on our current customers here. So don't worry. This is the first part of your question, if you get the products we have today, we have basically two, what we call, one that's basically for small clients, okay, with clean credit, and we have what we call XP Infinite, okay? The one with Investback of 1% and so on. Now, what we are doing, remember, if you go back to the presentation, there is one slide that we talk about segmentation.

I know that's very common for banks, but as we are born more on affluent customers, we didn't have retail clients and private banking clients, okay, in the past. We used to do the same value proposition from the middle to the clients on the bottom and to the clients from the top, okay? We start to change that two years ago, and today we are much more mature. We can deliver different products, different pricing, different SLAs, different services. We have different financial planning, wealth management, and so on, for these different segments. And when we go to cards, it's the same thing.

This year, in 2025, I would say, early second quarter, we are going to release some new cards, okay, focused on, I would say the unique clients, that we call the XP Unique here, clients with more than BRL 3 million in AUC, and also another card for private bank clients, okay? So with different value proposition, different Investback, different benefits. So a more suitable card for these clients, okay? And we believe it's going to be a notch above the market, something that's really new, that there is no equal value proposition, especially for the private bank clients, in Brazil. Understood very clear. Would that require additional investment? Should we see OpEx or CapEx increasing because of these changes? Any material impact? Nothing material. Of course, they will have, as they have more benefits, they will have a little bit higher COGS.

But again, when we model that, the revenue expansion, the higher interchange that we have, better cashbacks from Visa and so on, you should not see anything meaningful.

Neha Agarwala (VP of Product Governance Lead)

Perfect. Thank you so much, Maffra.

Operator (participant)

Okay, next question is from Marcelo Mizrahi, Bradesco BBI. Mizrahi, you may proceed.

Marcelo Mizrahi (Equity Research Analyst)

Hi everyone, thanks for the opportunity. So my question is regarding the expenses. So, you guys said about to gain efficiency. So the goal is to gain efficiency in the next year or the next quarters, I don't know. But the point is in the last quarter, we saw a huge increase on the line of the bonuses. So the amount of bonuses was very huge comparing the last, especially in the last two years. So it's how can we predict that? So, expenses, we have to predict that.

Margins, EBITDA margins gaining, growing year by year, quarter by quarter or annually. Another question is regarding provisions. In the last quarter, we saw an increase on provisions again. To be clear, this is the level that is recurrent. Around BRL 100 million is the level that could be recurrent to the next quarters.

Thiago Maffra (CEO)

I will take this second. Are you hearing me?

Marcelo Mizrahi (Equity Research Analyst)

Yes. Okay.

Thiago Maffra (CEO)

I will take the second part of the question, for the second question about the provisions. Remember that in the past quarters, Q2 and Q3, we mentioned that the level was not very correct because back there we had some other positive impacts on the same line. It was in Q2 and Q3, something about BRL 40 million-BRL 50 million. We said that the correct level should be around BRL 90 million per quarter.

Okay. That was the speech in the last quarters. I would say that as we are growing the business and the loan book a little bit, we should be closer to 100, 110 in the next quarters, Q1, Q2, and so on for 2025. So not a big increase from 90 to 100, 110, but a small increase as the loan book is growing.

Victor Mansur (CFO)

Taking the expense questions, I think that you should also look at compensation ratio. Both compensation and efficiency ratio are at an all-time low. They should keep gaining margin over the year.

We may have one quarter or another quarter, if a slightly higher number, if you take third quarter, for example, where we have our annual event, it may have a bit more, but over the year, we should deliver again in both of those indicators. And about the expense, compensation expenses in the fourth quarter, as Maffra said, we reached 100% of our internal budget. And basically, that is a performance metric that we have. We have an S-curve in remuneration. And when we reach our goals, we need we pay more our team and our partners. Basically, that is it.

Marcelo Mizrahi (Equity Research Analyst)

Okay, okay, great. Thanks for your answer and thank you.

Operator (participant)

Okay, next question from Daniel Vaz, Safra. Daniel, you may proceed.

Daniel Vaz (Equity Research Analyst)

Hi everyone, good night. And thank you for the opportunity of making questions. Two on my end here.

On the waterfall slide that you showed us, the contribution by segment to reach the 10% growth in 2025, two points caught my attention. First, the DCM contraction that you expect for the market, this might be directly linked to your market share gains. Could you share with us what your assumption for the system contraction in issuances? And second, the growth above 10% in corporate and institutional, given that institutional business in Brazil has been struggling to grow and funds, we're not seeing so many good projections for net new money still in the funds. What is your breakdown that you are assuming between these two segments? Are you expecting any growth to institutional business in 2025? Thank you.

Victor Mansur (CFO)

Hi Vaz, thank you for your question.

Thiago Maffra (CEO)

Starting with the DCM activity, it's too soon to say that DCM activity will be lower over the year. We were seeing the pipeline a bit weaker for the first quarter, as it is expected. You have summer vacation, carnival, and then you go. And if you look at our presentation, we gave a color that we are housed at 8-9 billion BRL in corporate assets and tax-exempt quasi-sovereign government banks to have products to offer to our clients, even though if our primary offering was a bit weaker. So we expect fixed income to keep performing very well during the quarter. Okay, perfect. And institutional growth, as Maffra said, is a more mature line. And it's more trailing if Ibovespa volumes and the size of the industry of funds. So there's no surprise here.

If it's another tough year for institutional investors, probably this revenue line will behave the same as last year. What we are seeing that may take a catch for the next question also is when we analyze our clients' portfolios, we see that the movement that we call SELICization should be near to an end for this level of interest rate. So basically what that means, we suffered a lot over 2022, 2023, and 2024 with mix of change in mix of products. Basically clients moving from equity funds, hedge funds, equity trading to fixed income. This made a compression in our take rate for investments that we compensate by the growth in the fixed income platform. But now those lines should be stable or a bit lower. If the market improves a bit, recovering over the year.

And also the fixed income funds, the funds platform, they grow SELIC plus something. So we keep confident that we will keep delivering results in both of those lines. And if you look at the corporate business line, basically the one of the main products that we have at the corporate business line is cross-sell products, Issuer Services. And when you go to our DCM capacities, we are top three in the ranking, but we are top one in tax-exempt corporate bonds. And those bonds, they are issued in inflation. And the companies hedge the inflation, the inflation exposure against our market-making desk. So we expect that those tax-exempt corporate bonds keep a more sustainable pace of issuances over the year. And the corporate should keep tracking Issuer Services revenue. And we expect both of them to be flattish over 2025.

If corporate, that the only products not only inflation-linked should outperform. You have energy, you have foreign exchange, and other kinds of derivatives. And so it should keep the growing pace of 2025, 2024, sorry.

Daniel Vaz (Equity Research Analyst)

No, thank you. That's very helpful.

Operator (participant)

Okay, next question is from Renato Meloni, Autonomous. Renato, you may proceed.

Renato Meloni (Equity Research Analyst)

Hi everyone, thanks for taking the question. I wanted to go back to the slide where you're showing the growth, revenue drivers, right? And specifically here on the DCM. So going back to your last answer, you're saying you expect volumes of DCM still flat, but you still had a bar there showing like lower DCM volumes.

I'm still trying to figure out here what's the assumption there, or if you're also assuming that you're going to have lower fixed income take rates on this market this year, and then if you move to the next bar that you said, like compensating that for higher market share gains, how much market share gains you're embedding on this assumption here? What gives you conviction that you're going to keep gaining market share in a more competitive market? Thank you.

Thiago Maffra (CEO)

Yeah, I will take the first part here and Victor can complement me here, but I would say that the point here is, when we talk about the 10%, more than 10% there, as I mentioned, it's in my view more like a floor than the target, okay?

If we take into consideration that the DCM volumes, they are going to decrease, okay, of course there is some impact on the year, okay? But they are not as relevant because as Victor mentioned, we have a whole ecosystem around fixed income in the company. We have a 50% market share in the secondary market of corporate bonds, okay? Today we have a volume, traded volume from retail clients to institutional clients. That's much, much higher than three years ago. But so in our view, even though we have a slower primary market, that again, for us, it's too soon to say that the primary market, especially for us, remember that we are different from the banks. We are much more strong in products that are related to retail that are tax-exempt.

So that's why we believe if the market shrinks, we'll have more market share, okay? Because the type of products that we are the main issuers, and that we have a powerhouse to distribute, they will not decrease on the same pace or percentage as the market. So, and we are developing a lot of new business line here on capital markets, as Victor mentioned. When we look corporate, we grew when we take out the institutional business 45% last year, 45, okay? So we are not going to decrease to zero or decrease to 10% this year. If it's not 45, it's 30, it's 35, it's 40, okay? So because this business, they are very new. We just started many of them, okay? When we look energy, we started the business two years ago. So we are at the very beginning.

When we look at some kinds of derivatives, we just started. When we look at fixed income for Latin America, we just started, okay? So we have a lot of new business lines on corporate that gives us a lot of assurance that we are going to deliver numbers close or around what we delivered last year, okay? Despite a lower DCM, if it happens again, the Q1, it's not a proxy for the year, okay? Because every year Q1, it's a lower level of activity for DCM for the past three years. We already predicted that. That's why we, one of the reasons why we increased the books, as Victor mentioned, because we knew that now we need products to sell, okay, in Q1. The secondary market and all these other corporate products, they will more than compensate the lower level of primary DCM in Q1.

So we are very comfortable that we are delivering the same level when you look all these products combined, DCM, corporate, credit and so on. We are being able in Q1 to deliver the same level of revenues or even a growth.

Renato Meloni (Equity Research Analyst)

Got it. I don't know if Victor is going to do a follow-up.

Victor Mansur (CFO)

No, I think the last point here that is important to mention is the corporate restructuring that we just finished in the formation. Basically, we started that in 2024. It took us the entire year to conclude all the process. And the last approval from the Brazilian Central Bank was 19th of November. So basically, we didn't have one single quarter of the fully loaded benefits of this new structure in the company.

So over the year of 2025, our bank has a considerable more competitive capital and funding prices, which will allow us to compete for business that we couldn't before. Also helping to explain our confidence in the gaining of market share.

Renato Meloni (Equity Research Analyst)

Perfect. That's what I understood on the market share. And here on our side, should we assume that fixed income take rates will come down this year?

Thiago Maffra (CEO)

In our view, not. But why do you believe it's going down?

Renato Meloni (Equity Research Analyst)

They've been going up. I think part of that was also due to mark to market. So I have some concerns if that will continue at the same level or as the market comes down a bit, we'll also see some compression there.

Thiago Maffra (CEO)

Well, the part of the mark to market last year was a very small part of the whole fixed income business, very, very low. So, we don't have any directional or proprietary positions on credit spreads. So that's not our business. So, you don't need to project a lower take rate because of that.

Renato Meloni (Equity Research Analyst)

Okay, thanks. That's understood and very helpful. Thanks, guys.

André Parize (Head of Investor Relations)

Okay, thank you all for your participation. Today was a long call, one hour only in Q&A. So, I mean, we're going to be more than happy to answer further questions through the IR team. And, management is always available to see you in the next quarter.