After entering headlong into the machine war, Cielo changes weapons and focuses retail

After using all the weapons it had in hand to dig a space in the 'machine war', Cielo gave up digesting with its rivals at any price. The focus is now focused less on small entrepreneurs and more to the middle of the pyramid, exploring retail. In the crosshairs, there are tenants with revenues of R$ 120,000 to R$ 15 million per year, which in addition to being more profitable, are the first beneficiaries of the slow economic recovery of the country. The change of direction comes after the results of the sector's number one halved last year. With the strategy of growing market share and ending years of market loss, Cielo managed to beat 1.6 million active customers, but in return saw its net profit plummet almost 50%, to R$ 1.58 billion compared to 2018. The new level is as expected, for example, by competitor PagSeguro, Uol, which already has 5 million machines spread throughout the country. "We are fully convinced that we are on the right track. We knew the consequence of delivering a lower profit in 2019 and chose this", justified cielo's president, Paulo Caffarelli, at a press conference yesterday morning, the 28th, to comment on the company's results. The executive tried to minimize Cielo's new mantra, claiming that this is not a change of strategy, but the need to seek results after the company managed to return to the game. After adding 238,000 new customers last year, Cielo understands that it's time to roll up its sleeves and work what it already has indoors and seek rationalization. "This is basic in the management of a company the size of Cielo," Caffarelli explained. To grow in retail, the company created a new targeting, called a "retail turbine". One of the weapons to consolidate in the segment are precisely the 1,000 new sellers, nicknamed by Cielo de hunters, hired last year to strengthen their own company strength. The squad was responsible for attracting most of the new customers added in 2019. Of the 238,000, 175,000 came into the hands of the hunters. From a break, Cielo was able to strengthen its own sales team, which represented 83% of the attraction of new customers last year compared to 50% in 2018, thus reducing dependence on banking channels. It worked so well that Cielo even considers increasing the team with more hunters if necessary. On the other hand, the public of entrepreneurs can stay in the background. That's because Cielo is not willing to spend more ammunition with the main weapon to attract this public, which is the allowance of machinery. According to the company's vice president of finance, Gustavo Sousa, the level of subsidy in the sector jumped from 30% of the total price of equipment in 2018 to 70% last year. "The practice of subsidizing machinery is one of the most important weapons with entrepreneurs. With the current allowance of machinery, the account closes, but we will not increase it", explained the vice president of Cielo. Despite having turned the spotlight on the results, the company did not want to commit to performance guidance. Prefers, in Caffarelli's words, to have "freedom" to act, since it still needs "musculature" for the machine war, which is still far from over. It's, like him, a long-distance race. The executive also said that the company's management is unaware of any intention of the controlling partners to close the capital. Asked if this is already a closer reality in the face of the company's stock price on the stock exchange, he did not comment. For Citi, Cielo has a chance to deliver profit growth again when it completes the repricing process of its customer base, considering the prospects for double-digit expansion. The move has already reached 75% of the whole and the company's expectation is to complete it in the first quarter at most in April. In addition to Cielo's new directions, which helped reverse the performance of the number one shares in the machinery sector on the stock exchange were the new remuneration conditions negotiated with the partner banks, Bradesco and Banco do Brasil. In parallel to the announcement of results, last night, the company reported a review of the parameters adopted so far. Once anchored in the volume, now, cielo's remuneration for capturing customers for their machinery will have as its premise a minimum profitability to trigger the 10 basis point trigger on the financial volume of eligible transactions. The news pleased analysts and investors, as it will allow Cielo to save resources in 2020. A few years ago, Bradesco even disclosed a gain of R$ 300 million from the remuneration from the operation of machinery, called in the rebate market. "In addition to the controllers receiving this cash rebate, after achieving certain goals that mainly involved accreditation, the rebate could also be converted into a discount of the merchant's rate (MDR)," recalls the director of eleven's variable income, Carlos Daltozo, and analyst Tatiana Brandt. According to jpmorgan's Domingos Falavina calculations, the company spent around R$ 1 billion on remuneration to banks and, from the new policy, could cut spending to somewhere between R$ 400 million and R$ 500 million. Cielo did not confirm the numbers. Despite the market collection, the justification used by Caffarelli was that the company is in the midst of negotiations with other banks and that, at this time, this information is strategic. One of the contests is the dispute to be the 'official machine' of Caixa Econômica Federal, which structures a business holding company in the paymentarea and then take her to the stock exchange. "The reality of the market today is completely different. The revenues of the flags almost doubled, the discount rate to the shopkeeper has dropped almost 30% in recent years. The new remuneration allows us to have better results in the operation", detailed Caffarelli. Given the lack of confirmation, analysts focused on possible calculations in an attempt to measure the impact of change for the company. For Daniel Federle, Marcelo Telles, Felipe Cheng, Otavio Tanganelli and Juan Pablo Alba of Credit Suisse, the new terms of remuneration between Cielo and banks are slightly better than expected. "We estimate that the new agreement could significantly reduce rebate costs (bank bonuses) by 2020 – around R$ 230 million a year," they said in a report to the market. Despite giving up the fight for customers whose price does not pay off, Cielo still sees a challenging scenario for 2020, with heated competition and pressure on margins. It weighs, above all, the spraying of players in the segment. If in 2015 there were only three 'ladies of machines', today this number exceeds 325 companies, between acquirers and underpurchasers. The scenario reinforces Eleven Financial's view that the estimate of the inflection of Cielo's downward trend will come only in 2021. The weak results of 2019, despite the increase in customers and the volume captured in the machinery, weighed in the performance of the number one stock on the stock exchange. After opening the trading session down 5%, they reversed the signal amid the signals given by the company. With the scenario digested, Cielo's shares closed yesterday's trading session on the 28th, up 3.57%, quoted at R$ 7.25.