Nu Holdings Ltd. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022; filed April 20, 2023. This is an annual report, not a standalone Q4 filing. Financial statements are audited and prepared under IFRS as issued by the IASB, in U.S. dollars.
Business context
Nu operates a digital financial-services platform in Brazil, Mexico and Colombia, offering cards, accounts, personal loans, investments, insurance and marketplace services. At year-end, it reported 74.6 million customers, including 70.9 million in Brazil, 3.2 million in Mexico and 565,000 in Colombia.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | US$4.792 billion; +182.2% reported, +167.5% FX-neutral | US$1.698 billion |
| Gross profit | US$1.663 billion; +126.9% reported, +115.1% FX-neutral | US$732.9 million |
| Gross margin | Approximately 35% (34.7% in key metrics table; 35.0% in MD&A) | 43.2% |
| IFRS net loss | US$364.6 million | US$165.3 million |
| Adjusted net income | US$204.1 million (non-IFRS) | US$6.6 million (non-IFRS) |
| Operating cash flow | US$755.6 million generated | US$2.924 billion used |
| Cash and cash equivalents | US$4.172 billion | US$2.706 billion |
| Customer deposits | US$15.809 billion; +55% FX-neutral | US$9.667 billion |
| Interest-earning portfolio | US$4.0 billion; approximately double year over year | US$2.0 billion |
- Revenue growth reflected customer and card-volume expansion, lending growth and higher Brazilian interest rates. Interest income and financial-instrument gains were US$3.555 billion; fee and commission income was US$1.237 billion.
- Costs of financial and transactional services rose 224.2% to US$3.129 billion, including US$1.548 billion of interest and other financial expenses and US$1.405 billion of credit-loss allowance expense, up 192.3%.
- Reported credit-loss expense was equivalent to 12.5% of the credit portfolio under the company’s defined metric. The balance-sheet ECL allowance for cards and customer loans was US$1.351 billion. Brazil’s 90-day consumer-finance delinquency rate was 5.2% at year-end.
- Monthly average revenue per active customer (ARPAC) rose to US$7.8 from US$4.5; monthly average cost to serve remained US$0.8. Purchase volume reached US$81.0 billion, up 85% reported.
- Year-end total assets were US$29.935 billion and total liabilities US$25.044 billion. Deposits were the principal funding source; 95.5% were payable on demand. Cash and cash equivalents plus securities were approximately US$14.2 billion, with a further US$2.778 billion in compulsory and other central-bank deposits.
- Balance-sheet borrowings and financing were US$585.6 million, instruments eligible as capital US$11.5 million, and lease liabilities US$20.4 million. The filing reports no off-balance-sheet arrangements. Management said available cash and projected operating cash flows should cover ordinary working-capital and capital needs for at least 12 months.
Material changes versus prior period
- Revenue grew sharply, but gross margin fell from 43.2% to about 35%, as funding costs and credit-loss provisions increased faster than revenue.
- Net loss widened to US$364.6 million from US$165.3 million. A major unusual item was a US$355.6 million non-cash charge from accelerating vesting upon termination of the 2021 Contingent Share Award (CSA). No shares were issued under the award; its termination avoided potential dilution of up to 2%. Management cited expected aggregate savings of US$355.6 million over the following seven years.
- Deposits and the interest-earning portfolio expanded substantially, while customer activity increased from 76% to 82%. The average quarterly cost of funding reportedly improved to 78% of Brazil’s CDI rate in December 2022, from 98% a year earlier.
- Operating cash flow turned positive, although changes in securities, card receivables, loans and compulsory deposits materially affected cash movements. Financing cash flow was lower than in 2021, which included IPO and investment-round proceeds.
Outlook, management commentary and risks
- Management described 2023 as a continued investment and execution year, not a quantified financial forecast. Priorities include rolling out secured payroll-deductible loans in Brazil, expanding Nu Account and deposit products in Mexico and Colombia, growing customer monetization and improving operating efficiency. Management expects the efficiency ratio to improve over time and headcount growth to moderate.
- Management said personal-loan origination had been made more restrictive and products repriced in response to Brazilian credit conditions. It also cited Money Boxes and deposit-pricing changes as contributors to lower funding costs.
- Brazil’s new prudential framework for payment institutions was scheduled to begin in July 2023, with full implementation by January 2025. The filing estimates that, had the rules applied at year-end 2022, the Nu Pagamentos conglomerate would have required approximately US$1.0 billion of regulatory capital, US$261 million more than under then-current requirements.
- Interchange-fee limits effective April 1, 2023 cap prepaid-card interchange at 0.7% and debit-card interchange at 0.5%. Potential regulation of credit-card and overdraft interest rates was also identified as a risk.
- Key exposures include credit deterioration and reserve adequacy, deposit withdrawals and funding costs, interest-rate and foreign-exchange volatility, competition, regulatory change, data privacy and cybersecurity, third-party technology providers, and political and economic conditions in Brazil, Mexico and Colombia.
- Legal matters include approximately 8,714 active proceedings with consumer-protection agencies and small-claims courts; provisions for lawsuits and administrative proceedings were US$17.9 million at year-end. A Getnet interchange-fee lawsuit was dismissed in February 2023, with appeal possible; Banco Safra filed a similar suit in January 2023.
- The company reported remediation of previously disclosed material weaknesses in IT change management and user access controls. Management and the independent auditor concluded internal control over financial reporting was effective at December 31, 2022; the audit opinion on the financial statements was unqualified. The auditor identified ECL measurement and investment-unit goodwill impairment as critical audit matters.
Important facts for investors to verify
- Reconcile the reported IFRS loss with US$204.1 million of adjusted net income; adjusted income is a non-IFRS measure and excludes specified items, including the CSA charge.
- Track delinquency, stage migration, write-offs and ECL coverage as the loan and card portfolios grow; the auditor highlighted ECL assumptions and macroeconomic scenarios as a critical audit matter.
- Assess deposit concentration and liquidity resilience, given the large share of deposits payable on demand, alongside funding-cost trends.
- Confirm the financial and capital effects of the 2023 interchange caps and the phased Brazilian prudential rules, including actual required capital versus management’s illustrative estimate.
- Monitor execution and credit performance of secured lending and new Mexico and Colombia account/deposit launches, as well as the timing and terms of the BDR program transition.
- Review the CSA accounting impact and realized future savings, and follow legal proceedings and contingent exposures beyond the recorded US$17.9 million provision.