FINANCIERA INDEPENDENCIA 3Q18 EARNINGS CONFERENCE CALL FRIDAY, OCTOBER 19 TH, 2018

Transcription

1 FINANCIERA INDEPENDENCIA 3Q18 EARNINGS CONFERENCE CALL FRIDAY, OCTOBER 19 TH, 2018 Operator Good morning everyone and welcome to Financiera Independencia s Third Quarter 2018 Results Conference Call. My name is and I will be your coordinator for today. At this time, all participants are in a listen only mode. After the speakers remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Mr. Carlos Gálvez, Investor Relations Officer at Financiera Independencia. Mr. Carlos, you may begin. Carlos Gálvez - Financiera Independencia Investor Relations Officer Thank you and good morning everyone. Thanks for joining us for our third quarter 2018 results conference call. Joining me today are Eduardo Messmacher, our Chief Executive Officer, and Jose Maria Cid, our Chief Financial Officer. Before we get started, you may have already had a chance to review our press release published yesterday which can also be accessed on the Investor Relations page of our Web-site at FINDEP.MX, under Financial Information. With that introduction, let me begin our prepared remarks by reminding you that certain statements made during the course of this conference call are forward-looking statements and are subject to assumptions, uncertainties, risks, and other factors that could cause actual results to differ materially from those described, including risks that may be beyond the Company s control. Now, I would like to turn the call over Eduardo, who will provide an update on the operations. Jose Maria will follow with an overview of our results for the quarter. Afterwards, we will be pleased to take your questions. Please go ahead Eduardo. Eduardo Messmacher Financiera Independencia S.A. Chief Executive Officer Thanks, Carlos. Good morning everyone. In addition to our financial results for our third quarter, I would first like to announce that on October 1 st we celebrated the 25 th anniversary of Financiera Independencia. It has been an honor to lead this great company for the past two years. I am very proud of being part of an institution that has brought financial inclusion to our customers and great professional opportunities to our employees. I would like to thank our shareholders and funders for your commitment to financial inclusion over the past 25 years. Over our history we have transformed our loan portfolio, we expanded globally, and enhanced our position as one of the best microfinance institutions in Mexico. We are thrilled of what this team has accomplished, particularly through the over 13 million loans we have granted since Page 1 de 5

2 I would also like to mention that, as disclosed around a month ago, we took and important operational decision in our transition towards our target business model. The designation of Arturo Casillas as our new Branch Chief Operating Officer for the combined businesses of Financiera Independencia and Apoyo Económico Familiar will allow us to capture synergies and efficiencies in our unsecured individual loans business, focusing in creating value and revenue growth. Our CEO of Financiera Finsol México, Mr. José de Jesús Martínez Schjetan decided to pursue new opportunities and left the company on September 28 th. We thank José for his time and commitment to the company and wish him success in his future endeavors. These changes are focused on delivering the strategy we outlined in 2017 of having a stronger corporate structure, with the local subsidiaries focused on operating the branch network. Before I begin with the financial results, I just want to remind you that for comparison purposes, previous year s figures are proforma, including the effect of Financial Information Norms C-16 and C-20 (Normas de Informacion Financiera o NIF) released in I am glad to announce that 3Q18 net income was MX$73.7 mm, 60.1% higher YoY and the third highest reported since 1Q15. This solid 3Q performance led to an accumulated net income of MX$182.3 mm, in line with our expectations for the first nine months of the year. Additionally: Loan portfolio grew 1.4% YoY and 3.0% compared to the 2Q18. Our portfolio in the US grew 26.1% YoY, reaching 20.1% of our total portfolio. Our portfolio of unsecured lending to individuals in Mexico grew 0.9% YoY. This growth was offset by a contraction in group lending in Brazil of 30.0% and in Mexico of 8.4% Our portfolio less than 30 days past due reached 89.0%, the second highest quarterly percentage in recent history, giving us a positive perspective on credit losses for the last quarter of the year. Our NPL ratio was 5.6%, 29 bps lower YoY and 22 bps lower than the 2Q18, well below the Company s target of 7.0% for These results follow the success as a Company on our focus on quality and profitability, thanks to investments made in processes and technology to increase efficiencies. Let me now provide some detail on our performance by region and during the first 9 months of Moving on to Mexico let me highlight the following: Independencia: net income increased to MX$20.4 mm, a 474.7% growth YoY, one of Independencia s strongest in recent history. This subsidiary s loan portfolio contracted by 3.9% YoY. However we have to highlight the shift towards loan products with a higher quality such as: the payroll and the revolving loans, which grew by 15.3% and 5.8% respectively. These products represent 76.7% of the total loan portfolio, up from 68.1% a year ago, with NPLs for the payroll and revolving loans of 2.7% and 6.9% respectively, compared to 7.2% of the whole portfolio. As we continue our work to improve our portfolio quality, NPLs ratio should gradually continue to improve. Page 2 de 5

3 Like in previous periods, Independencia continued with its focus on cost management and efficiencies as its personnel base decreased again by 10.7% YoY. AEF: This subsidiary continues to make progress towards improving its loan portfolio quality, efficiencies, and cost reductions. Loan portfolio grew 10.0% YoY and 5.8% comparing it to 2Q18. NPL ratio slightly increased 21 bps to 6.6%. Interest income grew 4.2%, below loan portfolio growth, due to the lower interest rate offered to our lower risk customers. AEF s Non-Interest Expense decreased 3.1% YoY continuing to improve its strategies on cost reductions. AEF s Net income of the first 9 months of the year was MX$59.8 mm, 2.7% higher than in the same period of previous year. Finsol Mexico: Just like we have said in the previous quarters, Finsol Mexico loan portfolio still has some residual effect on the strategy for early renewals, and it shows a contraction of 8.4% YoY due to tightening on loan approval policies to control quality. Despite the contraction of the loan portfolio, interest income just contracted by 1.9% YoY, while the NPL drop to 3.8% in 3Q18, 97 points lower YoY. We expect to start growing the portfolio over the coming months through new originations loans to new groups that will reflect a better origination standard. Moving on to the United States subsidiary: AFI: Consistent with its performance during previous years, AFI continued its rapid growth pace increasing its loan portfolio by 26.1% YoY, with an NPL ratio of just 1.9%, 76 bps lower YoY. AFI s net income of the first nine months of the year was MX$23.0 mm, a 43.9% increase versus the same period of last year, mostly related with a 25.0% increase in Interest Income in line with the increase of its loan portfolio. We keep our commitment to achieve scale in this business to reach efficiency and improve profitability. Our alliance with PayNearMe to facilitate payments from our clients at various locations and using Independencias s call-center to follow up clients that are overdue 5 days or less are helping this subsidiary to leverage efficiencies and revenue growth. We will keep finding strategies and technologies to lead AFI to one of the best microfinance institutions in California. Moving on to Latin America, the Brazilian subsidiary: Finsol Brasil: Although the uncertainties surrounding the presidential elections and the competitive environment in Brazil, our subsidiary drop the NPL to 4.5%, 38 bps lower YoY. However loan portfolio contracted by 30.0% YoY. Therefore our local management Page 3 de 5

4 continues working on proactive measures to improve client retention and portfolio quality for the rest of the In line with the group s initiative to focus on efficiencies and cost reductions, Finsol Brasil reduced its Non-Interest Expense 20.2% YoY. Nevertheless, delivered a negative accumulated net income of MX$17.6 mm, versus a positive net income of MX$8.9 mm in the first nine months of In summary, the Company s overall performance in the first nine month of 2018 was in line with the expectations for the year. Given Financiera Independencia s strategy to resume growth while balancing risk and improving efficiencies, we are confident that we are building the basis for our long-term and sustainable growth. We will continue vigilant and committed to our strategic focus of balancing risk and growth, the ongoing optimization of our operating and financial structures, and the decision to take advantage of technology to develop a strong platform that will continue supporting our long-term performance and ensure our success in the microfinance industry. I now turn the call over to Jose Maria so he can take you through our financials. Go ahead Jose Maria. José María Cid Financiera Independencia CFO Thank you Eduardo and good morning everyone. Financiera Independencia s consolidated 3Q18 results are consistent with expectations and continue to be in line with our strategy of loan portfolio growth, improved efficiencies and market diversification initiatives as described in previous quarters. Let me remind you that this year s income statements and balance sheet reflect the accounting changes to the Financial Information Norm or Normas de Información Financiera NIF C-16 and C- 20 required since the beginning of the year. As stated before, these NIFs consider changes to the provision for loan losses, which now requires considering the probability of default and the severity of the loss. For comparison purposes, we are providing 3Q17 proforma statements for the Company and its subsidiaries, and we will continue to do so each quarter of this year. Interest Income increased by 1.0% YoY to MX$1.3 bn, which compared to the loan portfolio growth of 1.4%, continues to reflect the evolution of the loan portfolio to an ongoing higher participation by subsidiaries and products with lower average effective rates, such as AFI and Independencia s Payroll products that increased their participation to 20.1% and 9.7% of the total, versus 16.2% and 8.6% in 3Q17, respectively. As a result, the Effective Lending Rate of the loan portfolio decreased to 64.9%, versus 65.4% in 3Q17. As their participation in the product mix from these products continues to increase, we expect a slightly lower effective lending rate with the benefit of a substantial lower risk. On the other hand, Interest Expense went down by MX$10.7 mm or 5.3% YoY to MX$190.9 mm mostly related to an 5.0% decrease YoY in the Company s debt with banks and other entities. As a result, Net Interest Income increased by 2.3% YoY to MX$1.1 bn. Page 4 de 5

5 On the other hand, and consistent with the strengthening of the Company s loan portfolio quality, Provisions for Loan Losses contracted by 8.1%, which reflects the improvement on loan portfolio quality. Therefore, Net Interest Income after Provisions increased 54.7 mm, 8.2% higher YoY to MX$725.8 mm. Net Commissions & Fees Collected increased 4.4% to MX$128.4 mm, pulling back the decrease in previous quarters triggered by the higher participation of revolving loans in the product mix. As we have said in our previous quarters, this line is expected to keep growing as a result of adjustments to the commission structure for several Independencia products. Market Related Income decreased to 1.5 mm, 89.3% lower YoY as the Company fully hedged its Brazilian Real exchange exposure from our intercompany loans to Finsol Brasil. As a result, the Company is no longer exposed to exchange rate fluctuations. We expect market related income to not have any important impact on our earnings for the remaining of the year. Non-interest Expense increased by 2.9% YoY to MX$818.4 mm, below inflation; explained by a 2.3% increase in operational expenses and by a 3.3% increase in personnel costs. Despite the marginal increase in None-Interest Expense, the Company s Efficiency ratio including provisions improved by 300 bps to 89.5%. As a result, net income for the quarter was MX$73.7 mm, a 60.1% growth YoY. Moving on to the Balance Sheet let me highlight that the Company s standing goal of loan portfolio quality continues to be met. During 3Q18 Loan Portfolio grew 1.4%, while our NPL Ratio reached 5.6%, 29 bps lower YoY and still well below our target of 7.0% for the year. This continues to reflect our improved origination standards, prudent risk management, as well as the benefits of our portfolio diversification. To conclude, let me reiterate that we remain fully committed to our strategic focus, business model and operating policies for our long-term performance and success in the personal microfinance industry. All considered, our objectives to strengthen quality and profitability continue to be consistently met. In spite of a prevailing uncertain economic environment, our portfolio indicators continue to strengthen vis-à-vis those for our industry and for the banking system as a whole. This is a reflection of our continued disciplined adherence to our renewed, quality-centric and diversified strategy. With this, let me finalize the briefing segment of our call and proceed to open the line for questions. Operator, please do so Carlos Gálvez - Financiera Independencia S.A. Investor Relations Officer Thank you very much for your time and interest in Findep. We welcome you to visit us in Mexico to see our operations and if you have any further questions, please don't hesitate to call. Have a good day, everyone. Thank you. - ENDS - Page 5 de 5