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Brazil's Cielo cutting costs to face fiercely competitive market

By Carolina Mandl and Christian Plumb

By Carolina Mandl and Christian Plumb

SAO PAULO, July 15 (Reuters) - Brazil's largest credit card processor, Cielo SA, is tightening its belt amid fierce competition with rivals like PagSeguro Digital Ltd and StoneCo Ltd to boost profitability and free up money for new products.

Cielo has hired consulting firm Gradus to implement a cost cutting program this and next year, Chief Financial Officer Gustavo de Sousa told Reuters on Friday.

The program is the latest in a series of measures Cielo has taken to reverse a slump in margins after it cut prices to take on rivals like Rede, GetNet, PagSeguro and Stone. Earlier this year, it cut its payout ratio to 30% from 70% and canceled its 2019 profit outlook.

"Our goal is to apply a zero-based budgeting strategy, with some results already emerging in 2019," he said, without providing a target for savings. "Discard the idea that costs grow in line with inflation."

Sousa said the expected savings are likely to help profitability, all other things being equal. They may also provide more room to spend on new products and enter additional markets, which could also eventually boost profit, he said.

Cielo's operating expenses grew by 46% in the first quarter from a year earlier, mainly as the company hired 1,000 salespeople.

Sousa said the company has no current plans to further expand its salesforce even as it focuses on merchants with annual sales of between 120,000 reais and 15 million reais, raising the floor of that range.

"Smaller clients should acquire card reader machines online or at branches because it is cheaper," said Sousa, citing merchants with annual sales below 120,000 reais.

Asked about layoffs, he said there are no changes planned in the company's workforce of 3,250.

Cielo has been luring 1,600 clients per day, but first-quarter net revenue remained roughly flat from a year earlier. Higher sales per client would help boost results.

Shares of Cielo are down roughly 14% this year, while shares in its U.S.-listed competitors, PagSeguro and StoneCo, have surged. (Reporting by Carolina Mandl and Christian Plumb; Editing by Steve Orlofsky)