25 July Spain. H1'18 Earnings Presentation

Transcription

1 25 July 2018 Spain H1'18 Earnings Presentation

2 Disclaimer Banco Santander, S.A. ("Santander") cautions that this presentation contains statements that constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of Forward-looking statements may be identified by words such as expect, project, anticipate, should, intend, probability, risk, VaR, RORAC, RoRWA, TNAV, target, goal, objective, estimate, future and similar expressions. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance and our shareholder remuneration policy. While these forward-looking statements represent our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro-economic, industry, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. Numerous factors, including those reflected in the Annual Report on Form 20-F filed with the Securities and Exchange Commission of the United States of America (the SEC ) under Key Information-Risk Factors - and in the Documento de Registro de Acciones filed with the Spanish Securities Market Commission (the CNMV ) under Factores de Riesgo - could affect the future results of Santander and could result in other results deviating materially from those anticipated in the forward-looking statements. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements speak only as of the date of this presentation and are based on the knowledge, information available and views taken on such date; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the presentation. No investment activity should be undertaken on the basis of the information contained in this presentation. In making this presentation available, Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever. Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this presentation should be construed as a profit forecast. The businesses included in each of our geographic segments and the accounting principles under which their results are presented here may differ from the included businesses and local applicable accounting principles of our public subsidiaries in such geographies. Accordingly, the results of operations and trends shown for our geographic segments may differ materially from those of such subsidiaries. In addition to the financial information prepared under International Financial Reporting Standards ( IFRS ), this presentation includes certain alternative performance measures as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority on 5 October 2015 (ESMA/2015/1415es) as well as Non-IFRS measures. The APMs and Non-IFRS Measures are performance measures that have been calculated using the financial information from the Santander Group but that are not defined or detailed in the applicable financial information framework and therefore have neither been audited nor are capable of being completely audited. These APMs and Non-IFRS Measures are been used to allow for a better understanding of the financial performance of the Santander Group but should be considered only as additional information and in no case as a replacement of the financial information prepared under IFRS. Moreover, the way the Santander Group defines and calculates these APMs and Non-IFRS Measures may differ to the way these are calculated by other companies that use similar measures, and therefore they may not be comparable. Please refer to the quarterly financial Report for further details of the APMs and Non-IFRS Measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFR, see Section 26 of the Documento de Registro de Acciones for Banco Santander filed with the CNMV on July 4, 2017 (available on the Web page of the CNMV - and at Banco Santander - and Item 3A of the Annual Report on Form 20-F for the year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission on March 31, 2017 (the Form 20-F ). For a discussion of the accounting principles used in translation of foreign currency-denominated assets and liabilities to euros, see note 2(a) to our consolidated financial statements on Form 20-F and to our consolidated financial statements available on the CNMV s website ( and on Banco Santander s website ( 2

3 Index 1. Macroeconomic environment and financial system 2. Strategy and business 3. Results 4. Appendix 3

4 Macroeconomic environment and financial system 01

5 Macroeconomic environment The expansionary cycle in the Spanish economy is expected to continue in the coming years, with interest rate rises not anticipated before 2019 Annual GDP Growth (real, %) Interest rates (official rate, %) (e) 2019 (e) 2020 (e) (e) 2020 (e) Annual inflation rate (%) Unemployment rate (%) (e) 2019 (e) 2020 (e) (e) 2019 (e) 2020 (e) Source: Santander Research Department 5

6 Macroeconomic environment backed by employment creation, higher consumption and real estate and investment recovery Annual GDP Growth (real, %) Contribution to GDP growth (% YoY) Spain Eurozone (e) Investment (excl. construction) (% GDP) (e) 2019 (e) 2020 (e) Net external demand Domestic demand Housing: sales and permits (k) Q4'17Q1'18 Source: Santander Research Department New building permits Sales

7 Financial system: banking system volumes Loans to Households & Non-Financial entities are decreasing at a slower pace than 2016 In savings, the flow from deposits to mutual funds continues Loans to customers (EUR bn) Total funds (EUR bn) YTD Mutual Funds YTD +3.2% 1,410 1,381 1, % 1,517 1,476 1, % 1,196 1,174 1, % 989 1,017 1, % Dec-16 Dec-17 May-18 Dec-16 Dec-17 May-18 Households & nonfinancial entities in Spain Non-monetary financial institutions in Spain Public sector in Spain Other non-resident sectors in Spain Source: ECB and Bank of Spain. Other Monetary Financial Institutions. 7

8 Strategy and business 02

9 Our Franchise Santander Spain is committed to maintain its leadership while accomplishing a best-in class integration STRATEGIC PRIORITIES KEY DATA H1 18 YoY Var. Gross loans 1 218,191-8% Exemplary integration of Banco Popular Customer funds 1 318,387 +5% Bank of choice for SMEs and Corporates Underlying Attributable profit % Build long lasting relationships with our customers Lead digital transformation and become a datadriven company Predictable, Sustainable and Profitable growth RoTE % -126 bps Efficiency ratio 58.1% +204 bps Loans market share bps Deposits market share bps Loyal customers % Digital customers % Be the best bank to work for based on our SPF culture Branches 4,469 Employees 32,398-1% -3% (1) EUR mn (2) Underlying RoTE (3) Other resident sector in Spain as of Apr 2018 (last available) (4) Millions 9

10 Commercial strategy and business transformation Digital transformation in place, focused on omnichannel distribution strategy and customer experience Commercial offer Businesses Digital transformation SMEs growing both in activity and balance sheet Launch of the 1l2l3 commercial offer for retail customers in Banco Popular Outstanding 1l2l3 Profesional performance in both networks with >120k opened accounts Insurances +13% YoY credit growth EUR +0.6 bn YtD balance increase Mobile banking New investment platform SO:FIA for digital customers to manage funds, pension plans and stocks +35% monthly stock operations 1 Mobile banking leadership The new portfolio of protection insurances has resulted in a +30% YoY 2 increase in insurance premiums and a market share increase of +120 bps Launch of My offers, a B2C mobile platform within the main banking app to offer products and services from our partners with personalised discounts Our retail mobile banking (app and tablet) 2 nd in AQmetrix ranking 3, improving from 13 th position in Note: (1) accesses in May-18 compared to the yearly average with the previous broker (2) Santander only (3) AQmetrix ranking measures the level of banking capacities development in Spain

11 Customers Reinforcement of customer loyalty and experience, through the digital transformation Loyal individuals (k) 1, % 1,922 Sustained growth in UPLs (+20% YoY) and enhancement of customer transactionality through continuous credit card turnover growth (+21% YoY 1 ) and recovery of deferred payments during Q2, with a +16% YoY 1 increase. Jun-17 Jun-18 Loyal companies (k) 335 Jun-17 2,964 Jun % Jun-18 Digital customers (k) +43% 1 4,249 Jun-18 SMEs growing both in activity and balance sheet: credit +13% YoY, commercial paper +9% YoY and balance sheet growth of EUR +0,6 bn Development of international trading business based on smart contract blockchain technology, with the launch of the We.trade platform Enhancement of mobile capacities (e.g: launch of Mis Ofertas, cash withdrawal with PIN) and growing in mobile customers 15% YtD. Intensification of international digital solutions with the launch of One Pay Fx and We.trade platform 2 nd position in Aquametrix ranking emphasising our banking capacities development 11 Note: (1) Santander only

12 Total loans performance Loans driven by higher volumes in SMEs, offset by outflows in CIB and institutions Total gross loans (EUR bn 1 ) Jun-18 YoY(%) QoQ(%) Institutions Individual customers of which: - Housing mortgages Companies CIB Gross loans (excl Reverse repos) 0 Provisions (7) Net loans Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 (1) Excluding reverse repos (2) Outflows in Popular s volumes due to Blackstone agreement 12

13 Total customer funds performance Slight increase in mutual funds QoQ. Sustained migration from time to demand deposits. Outflows in CIB and Institutions, mostly concentrated in high cost balances coming from Popular Total customer funds (EUR bn) Jun-18 YoY(%) QoQ(%) Demand deposits Pension funds Mutual funds Time deposits Deposits excl. Repos Mutual funds Customer funds Demand + Time deposit Pension funds Total customer funds Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 13

14 Results 03

15 Net interest income Positive performance in customer NII while ALCO results are impacted by portfolio sales. Customer spread improvement due to the continued reduction in cost of deposits Net interest income (EUR mn) Yield on loans (%) 844 1,126 1,068 1,037 1, Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Cost of deposits (%) NIM 1 (%) Official interest rate 2 (%) Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 (1) Group criteria (2) Quarter average Note: Includes Popular Spain from Jun-17 15

16 Fee income Fee income remained stable QoQ in spite of the negative market momentum impacting CIB. Loyalty is the key lever driving the improvement in transactionality and boosting production levels Net fees (EUR mn) Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 H1 18 H1 17 YoY(%) QoQ(%) Fees from services Mutual and pension funds Insurance Securities and Others Total fee income 1,344 1, Note: Includes Popular Spain from Jun-17 16

17 Gross income Total revenue impacted QoQ by SRF contribution and lower gains on financial transactions Gross income (EUR mn) H1 18 H1 17 YoY(%) QoQ(%) 2,011 1,835 2,063 1,837 Net interest income 2,095 1, Net fees 1,344 1, ,475 Subtotal 3,439 2, Gains (losses) on financial transactions Other Total 3,900 3, Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Note: Contribution to the SRF recorded in Q2 18 (EUR 163 mn before tax) Note: Includes Popular Spain from Jun-17 17

18 Operating expenses Costs increased YoY mainly due to Popular Spain integration, but QoQ the optimisation measures started to feed through to synergies Operating expenses (EUR mn) H1 18 H1 17 YoY(%) QoQ(%) 893 1,161 1,188 1,145 1,123 General expenses 2,102 1, Personnel 1, Other Amortisations Total 2,268 1, Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Efficiency ratio 58.1% 56.1% Branches 4,469 4,511 Employees 32,398 33,534 Note: Includes Popular Spain from Jun-17 18

19 Net operating income after loan-loss provisions (LLPs) Lower LLPs QoQ driven by seasonal factors in activity. NPL and Coverage ratio improved YoY LLPs and cost of credit (EUR mn, %) Cost of credit H1 18 H1 17 YoY(%) QoQ(%) Net operating income 1,633 1, Loan-loss provisions (402) (308) Net LLPs Net operat. income after provisions 1,230 1, Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Coverage ratio 49.0% 56.6% NPL ratio 6.24% 10.52% Note: Includes Popular Spain from Jun-17 19

20 Attributable profit Attributable profit decreased YoY due to Popular restructuring costs. On a underlying basis, lower profit QoQ, mainly due to SRF contribution, partially offset by cost savings and lower LLPs. Underlying attributable profit (EUR mn) H1 18 H1 17 YoY(%) QoQ(%) PBT 1, Tax on profit (260) (253) Consolidated profit Underlying att. profit Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Net capital gains and provisions (280) Attributable profit (EUR mn) Attributable profit Effective tax rate 25.0% 28.6% Note: Contribution to the SRF recorded in Q2 18 (EUR 163 mn before tax) Note: Includes Popular Spain from Jun-17 20

21 Concluding remarks Growing attributable profit with Popular integration on track Market Environment & Financial System The expansionary cycle in the Spanish economy is expected to continue in the coming years, with interest rates rises not anticipated before GDP growth backed by employment creation, higher consumption, export growth, real estate and investment recovery and buoyant tourism. Commercial core balance sheet increased during the H1 18, both in investments and deposits. Strategy & Business Investment growth driven by commercial dynamism in SMEs and Corporates, Private Banking and consumer lending, that offsets the mortgage balance decrease. Retail deposits increased across segments with special focus on retail while preserving the downward trend in the cost of deposits. Extension of our 1l2l3 strategy to Popular customers, both through the Cuenta 1l2l3 for retail customers, and the 1l2l3 Profesional. Customer spread improvement YoY due to the continued reduction in the cost of deposits. Results Fee income remained stable QoQ, in spite of the negative markets momentum impacting CIB. Optimisation measures started to feed through to synergies. 21

22 Appendix 04

23 Appendix Balance sheet Change EUR million 30-Jun Jun-17 Amount % Customer loans 217, ,802 (13,048) (5.7) Cash, central banks and credit institutions 104,762 77,572 27, Debt securities 65,645 79,694 (14,049) (17.6) o/w: available for sale 46,618 61,183 (14,565) (23.8) Other financial assets 34,316 35,384 (1,068) (3.0) Other assets 20,209 23,094 (2,885) (12.5) Total assets 442, ,547 (3,861) (0.9) Customer deposits 253, ,534 9, Central banks and credit institutions 97, ,719 (10,597) (9.8) Other financial liabilities 41,520 43,545 (2,024) (4.6) Other liabilities 10,004 10,891 (887) (8.1) Total liabilities 426, ,610 (8,119) (1.9) Total equity 16,195 11,937 4, Other managed and marketed customer funds 91,289 85,519 5, Mutual funds 65,574 61,768 3, Pension funds 14,745 14,946 (201) (1.3) Managed portfolios 10,970 8,805 2,

24 Appendix Income statement Change EUR million H1'18 H1'17 Amount % Net interest income 2,095 1, Net fees 1,344 1, Gains (losses) on financial transactions Other operating income Gross income 3,900 3, Operating expenses (2,268) (1,691) (577) 34.1 General administrative expenses (2,102) (1,594) (507) 31.8 Personnel (1,169) (839) (330) 39.3 Other general administrative expenses (932) (755) (177) 23.5 Depreciation and amortisation (166) (97) (69) 71.8 Net operating income 1,633 1, Net loan-loss provisions (402) (308) (95) 30.8 Other income (190) (128) (62) 48.1 Underlying profit before taxes 1, Tax on profit (260) (253) (7) 2.7 Underlying profit from continuing operations Net profit from discontinued operations - Underlying consolidated profit Minority interests 0 10 (10) (96.0) Underlying attributable profit to the Group Net capital gains and provisions (280) (280) - Attributable profit to the Group (124) (19.9) 24

25 Appendix Income statement EUR million Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Net interest income ,126 1,068 1,037 1,058 Net fees Gains (losses) on financial transactions 230 (42) Other operating income (31) Gross income 1,539 1,475 2,011 1,835 2,063 1,837 Operating expenses (798) (893) (1,161) (1,188) (1,145) (1,123) General administrative expenses (752) (843) (1,070) (1,107) (1,042) (1,059) Personnel (399) (440) (559) (578) (587) (582) Other general administrative expenses (352) (403) (511) (528) (455) (477) Depreciation and amortisation (46) (50) (91) (82) (103) (63) Net operating income Net loan-loss provisions (163) (144) (120) (175) (207) (196) Other income (64) (64) (62) (25) (104) (86) Underlying profit before taxes Tax on profit (146) (107) (179) (114) (153) (107) Underlying profit from continuing operations Net profit from discontinued operations Underlying consolidated profit Minority interests Underlying attributable profit to the Group Net capital gains and provisions (300) (280) Attributable profit to the Group

26 Thank you. Our purpose is to help people and business prosper. Our culture is based on believing that everything we do should be: