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By Aluísio Alves and Guillermo Parra-Bernal
SAO PAULO Dec 15 Cielo SA is analyzing how
recent and potential changes in Brazilian tax and financial
transaction rules could hurt profit in coming years, executives
said on Thursday, signaling concern with a package of policy
proposals aimed at reviving the recession-hit economy.
Chief Financial Officer Clovis Poggetti told investors at an
annual meeting that net income could slightly suffer with a
Senate decision to set a 2 percent floor for municipal tax ISS.
The bill, which takes effect in early 2018, has yet to be signed
by President Michel Temer.
Estimates pointing to a decline of 1 percent to 2 percent in
annual profit for every 1 percentage-point increase in the ISS
tax "make complete sense," Poggetti and other executives said in
the city of Barueri, where Cielo is based. Cielo is Brazil's No.
1 payment processor.
Asked about speculation that the Temer administration wants
to cut the timetable for Cielo and other card payment processors
to settle receivable prepayments with retailers to only two days
from 28 days currently, executives said they will wait until a
formal proposal is made public. Cielo shares have fallen almost
9 percent this week on reports pointing to that change.
The situation underscores the threat that regulatory noise
poses to financial companies which, like Cielo, process
transactions for consumers and companies alike. Still, Cielo is
putting profitability at the forefront as a way to defend from
the impact of Brazil's recession and mounting competition.
"That headline noise emerged this week, and we are waiting
for the government to make a formal statement on it before
gauging any potential impact," Victor Schabbel, Cielo's investor
relations director, said at the same meeting.
Shares rose 0.1 percent to 26.05 reais on
Thursday, bucking five straight daily declines. Cielo is down
5.3 percent this year, compared with a 36 percent jump in a
broad index of financial stocks trading in São Paulo.
Cielo's income from prepayment of receivables, a key source
of revenue for real sector companies that accept payments with
cards, has grown dramatically over the past couple of years.
That has irked retailers, who claim card processors are
withholding proceeds from their sales longer than they should.
Government officials believe reducing the timeframe for
receivable prepayments would help companies mitigate the impact
of Brazil's harshest recession in eight decades. The segment has
represented between 25 percent and 40 percent of Cielo's profit
in recent quarters.
Analysts at UBS Securities estimate that the reduction in
receivable settlement periods would remove roughly 30 percent of
prepayment revenues, bringing Cielo's earnings per share down by
(Editing by Meredith Mazzilli)