XP Inc. — FY2023 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone Q4 filing. Filed April 26, 2024. Financial statements are prepared under IFRS and presented in Brazilian reais (R$), unless otherwise noted.
Business context
XP is a technology-driven financial services platform principally operating in Brazil, offering brokerage, investment products, banking, credit, insurance, retirement plans, asset management and issuer services. At year-end, it reported 4.531 million active clients and R$1.122 trillion of Client Assets. The company reports as one operating segment.
Financial and operating performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue and income | R$14.860bn | R$13.347bn | +11% |
| Gross revenue and income | R$15.726bn | R$14.036bn | +12% |
| Income before income tax | R$3.936bn | R$3.445bn | +14% |
| Net income | R$3.899bn | R$3.580bn | +9% |
| Gross margin | 68.0% | 70.3% | Down 2.3 pp |
| EBT margin | 26.5% | 25.8% | Up 0.7 pp |
| Net margin | 26.2% | 26.8% | Down 0.6 pp |
| Operating cash flow | R$8.127bn | R$1.804bn | Higher |
Revenue from services rendered was R$6.532bn, up 10%; net income from financial instruments was R$8.328bn, up 12%. Retail gross revenue was R$11.791bn, institutional revenue R$1.516bn, and Corporate & Issuer Services revenue R$1.576bn. Management cited growth in client assets, fixed income, credit cards and debt-capital-markets activity; institutional revenue fell 21% amid lower trading and FICC-desk results.
Active clients rose 17% to 4.531 million; Client Assets increased 19% to R$1.122tn. Net inflows declined to R$105bn from R$138bn. Retail assets under management rose 4% to R$137.9bn. The annualized retail take rate was 1.28%, versus 1.29%. The loan portfolio reached R$28.6bn, including credit cards; the loan book excluding cards was R$21.0bn. Card payment volume was about R$40.9bn.
At December 31, 2023, total assets were R$249.0bn, total liabilities R$229.6bn and equity R$19.5bn. Cash and cash equivalents were R$9.210bn. The company reported R$2.199bn of borrowings, R$2.807bn of debentures, R$3.547bn of senior notes and R$305m of lease liabilities. Separately, its capital-management calculation included R$1.842bn of structured financing; under that calculation, net debt was R$1.144bn and gearing was 5.55%. These company-defined measures are not substitutes for IFRS balance-sheet amounts.
Investing cash flow was positive R$539m and financing cash flow was negative R$4.395bn; cash increased R$4.271bn during the year. Financing outflows included R$3.542bn of dividends and R$916m of treasury-share purchases. Capital expenditures were R$196m, or 1.3% of net revenue.
Material changes and unusual items
- Operating costs rose 14% to R$4.399bn, with higher IFA commissions and incentives, credit-card cashback and clearing costs. Administrative expenses fell 3% to R$5.461bn, including lower personnel and third-party-service costs.
- Expected credit-loss expense rose to R$361m from R$94m; the balance-sheet loan portfolio also expanded. This warrants attention alongside credit quality and provisioning.
- Other operating income fell to R$11m from R$257m, primarily because prior-year third-party incentives did not recur at the same level. Interest expense on debt rose 53% to R$617m.
- XP completed its acquisition of Banco Modal on July 1, 2023, issuing 18.7 million BDRs. The acquisition contributed R$343m of revenue and R$94m of net income for the second half; recorded goodwill was R$1.233bn.
- XP terminated XTAGE digital-asset trading operations in December and returned remaining client funds. The company stated the activity was not material.
- The company paid total dividends of US$720m in 2023. It also cancelled 31.3 million treasury Class A shares in April. The prior R$2.0bn share-repurchase authorization was completed in March 2023.
Outlook, risks and contingencies
XP said available cash and operating cash flows should cover ordinary working-capital needs and capital expenditures for the next 12 months. It expects capital expenditures to increase to support growth and expects expenses to decline as a proportion of revenue over the medium term as investments benefit the business. The filing provides no specific earnings or revenue guidance.
Management identifies competition and pricing pressure, Brazilian economic and political volatility, interest- and exchange-rate movements, market activity, client and institutional-counterparty concentration, IFA retention and conduct, credit losses, cybersecurity and technology availability, regulatory change, and legal and tax exposures as significant risks. The real appreciated against the U.S. dollar in 2023, while the filing emphasizes that subsequent exchange-rate movements can affect results.
At year-end, provisions for probable legal losses were R$98m, with R$22m of judicial deposits. Possible-loss contingencies totaled approximately R$1.827bn and were not provisioned. The company reported effective disclosure controls and internal control over financial reporting; PwC issued unqualified audit opinions on the IFRS financial statements and internal controls.
Important facts for investors to verify
- Whether growth in Client Assets and active clients can offset lower net inflows and weaker institutional trading revenue.
- The drivers and future adequacy of the increase in expected credit losses, especially as loans and card balances grow.
- Debt maturities and refinancing: the R$250m and R$200m U.S.-dollar term loans mature in August 2024; the first debenture series matures in June 2024.
- The financial and integration effects of Banco Modal, including goodwill and acquired customer relationships.
- The status and potential outcomes of the R$1.827bn possible-loss contingencies and the company’s ability to manage regulatory, cybersecurity and IFA-related risks.