31 October Argentina. 9M'18 Earnings Presentation

Transcription

1 31 October 2018 Argentina 9M'18 Earnings Presentation

2 Disclaimer Banco Santander, S.A. ("Santander") and Banco Santander Rio, S.A. caution 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 Santander 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 Santander 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 or Santander Rio, S.A. 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 and Banco Santander Rio S.A. give no advice and make no recommendation to buy, sell or otherwise deal in shares in Santander or Banco Santander Rio S.A. 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 GDP contraction within a high inflation and high interest rates scenario. Agreement with the IMF expected to conduct economic recovery in 2019 Annual GDP Growth (real, %) Interest rates (year end, %) (e) 2019 (e) 2020 (e) (e) 2019 (e) 2020 (e) Annual inflation rate¹ (year end, %) Average exchange rate (ARS / EUR) (e) 2019 (e) 2020 (e) (e) 2019 (e) 2020 (e) Source: Central Bank of Argentina, National Institute of Statics and Census (INDEC) and estimates by Santander Research (1) Based on update of GDP series published by INDEC in Q4 17 5

6 Macroeconomic environment Fiscal deficit convergence to accelerate after agreement with the IMF, reaching equilibrium in FX depreciation leading to trade balance surplus in 2019 Fiscal surplus / deficit (% of GDP) External sector (USD bn) 1.0% 0.0% -2.6% -3.8% -4.3% (e) 2019 (e) 2020 (e) (e) 2019 (e) 2020 (e) Exports Imports Trade balance Consumer spending (%,YoY) Employment 33% 26% 22% 21% 32% 30% 26% 25% 19% 18% 10% 09% 08% 07% 06% 7.6% % 8.6% 8.0% 7.2% % (e) 2019 (e) 2020 (e) 04% (e) 2019 (e) 2020 (e) Shopping Malls Grocery Stores Employment (millions) Unemployment rate, % Source: Central Bank of Argentina, National Institute of Statics and Census (INDEC) and estimates by Santander Research 6

7 Financial system: Loan and customer funds evolution Transactional and low risk financial system with high growth potential. QoQ customer fund deceleration mainly affected by mutual funds Total loans (Constant EUR bn 1 ) YoY (%) % 63% 60% 49% 52% Sep-17 Dec-17 Mar-18 Jun-18 Sep % 120% 100% 80% 60% 40% 20% 0% Loans / GDP: 15.8% Deposits / GDP: 18.0% Sep-18: Term deposits in local currency grew 43% YoY while current account grew 22%. Loan growth was driven by commercial portfolio (22% YoY), mortgages (113%), credit cards (39%), and personal loans (35%). YoY (%) Total customer funds² (Constant EUR bn 1 ) % 43% 38% 39% 42% 140% 120% 100% 80% 60% 40% 20% Liquid assets / Deposits: 27% BIS ratio: 14.9% Private sector NPLs remained at low levels of 2.27% (coverage: 124%) Financial system net income trend: Net Income 3 RoE % % % % 7M % 0 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 0% (1) End period exchange rate as Sep-18 (2) Total customer funds include total deposits and mutual funds (3) EUR bn Source Central Bank 7

8 Strategy and business 02

9 Our Franchise Santander Río: The leading private sector bank in Argentina by loans and deposits STRATEGIC PRIORITIES Profitable growth Customer experience & loyalty Continue transformation towards a fully digital bank Asset quality improvement Efficiency and productivity KEY DATA 9M 18 YoY Var. 5 Gross loans 1 5, % Deposits 1 8, % Attributable profit % RoTE % n./a. Efficiency ratio % n./a. Loans market share % -109 bps Deposits market share % 43 bps Loyal customers 4 1, % Digital customers 4 2, % Branches % Employees 9, % (1) EUR mn (2) ROTE and efficiency after inflation adjustment (3) Local criteria (4) Thousands (5) Constant euros 9

10 Customers Santander Río continued to improve in loyal and digital customers achieving 46% and 71% of active customers, and consolidated its leading position Loyal individuals (k) +8% 1,168 1,264 More customised products and services to improve loyalty 79% of our Select customer base is loyal (vs. 46% total individuals) Sep-17 Sep-18 Loyal companies (k) % 133 Sep-17 Sep-18 Reinforce assistance model through technology Loyal customers: SME 57% - Middle market companies 49% Digital customers (k) 1,907 +9% 2,084 94% of queries and 59% of total sales are made through digital channels Best digital bank in Argentina for 16 consecutive years Focus on customer experience Sep-17 Sep-18 10

11 Strategy Growth driven by our customer centric strategy. Transformation and digitalisation focused on customer experience and efficiency Reward and benefits programmes Miles fidelity programme cobranded with AAdvantage Strengthen the Bank positioning in high income segments Mortgages This product launched in 2016, is an inflation indexed mortgage Well positioned to capture market growth potential 7.4% market share¹ Building a digital bank New digital platform to support entirely digital processes Biometrics technology to identify customers New version of digital channels 95% of transactions through digital channels 68% of branch network under new model² Online and Mobile Banking Citibank retail business acquisition + CHE 71% of digital customers 38% of our active customers use Mobile Banking + 70 branches thousand customers + 85 thousand high income customers + 1.3% market share New CRM: Enables to offer the most appropriate products and services, in the best moment, through the most accurate channels 5% additional increase of branches sales (1) of UVA Mortgages since launch in (2) Excludes Citi branches. Source: Central Bank of Argentina American Airlines" and "AAdvantage" are trademarks of American Airlines, Inc. American Airlines is not responsible for products or services offered by other participating companies 11

12 Total loans performance Total loans grew 62% YoY driven by the peso denominated loans (+32% YoY) and the impact of the FX depreciation on the dollar denominated portfolio, which grew 107% Total loans (Constant EUR bn 1 ) Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Sep-18 YoY (%) QoQ (%) Individuals % 4% Mortgage % 14% Consumer Credit % 3% Companies % 15% SMEs % 2% Corporates % 18% CIB 2 130% 18% Total Loans % 11% (1) End period exchange rate as Sep-18 12

13 Total customer funds performance Total deposits increased 82% YoY partially explained by the ARS depreciation. Peso denominated deposits grew 44% while the dollar portfolio increased 146%. Mutual funds dynamic affected by market volatility Total customer funds 1 (Constant EUR bn 2 ) Sep-18 YoY (%) QoQ (%) Demand % 36% Savings % 19% Time % 16% Total deposits % 23% Mutual Funds 1.2 6% -13% Total customer funds % 16% Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 (1) Total customer funds include total deposits and mutual funds (2) End period exchange rate as Sep-18 13

14 Results 03

15 Q3 18 remarks Inflation adjustment on financial reporting The IAS 29 standard applies when the cumulative inflation rate over three years is approaching, or exceeds, 100% In Argentina, the adjustment is applied in Q3 18 to the full year results The adjustment consists on restating the unit currency at the balance sheet date. A gain or loss on the net monetary position is included in net income Most of the inflation adjustment is reflected on Other Operating Income, due to losses on the net monetary position Attributable profit reached EUR 67 mn in 9M 18 affected by the inflation adjustment in Q3 18 RoTE (in real terms) at 16% Results Gross income in nominal terms driven by higher NII within an environment of increasing interest rates. YoY variation affected by inflation adjustment At homogeneous perimeter and in nominal terms costs grew 36% (4 p.p. below inflation) Higher provisions but steps have been taken towards normalisation

16 Net interest income NII grew 49% YoY driven by spreads management and Central Bank notes in a higher interest rate environment Net interest income (Constant EUR mn 1 ) Yield on loans (%) Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Cost of deposits (%) NIM 2 (%) 7.16% 7.39% 6.44% 6.81% 6.69% Official interest rate 3 (%) % 22.5% 22.9% 27.2% 37,2% (1) End period exchange rate as Sep-18 (2) Group criteria (3) Quarter average Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 16

17 Fee income Fee income increased YoY driven mainly by payments & collections. Other fee income reflected higher FX activity. Credit cards and insurance impacted by regulation Net fee income (Constant EUR mn 1 ) M'18 9M'17 YoY (%) QoQ (%) Credit cards % 0% Account managment % 3% Insurance % -13% Payments & collections % 18% Other % 61% Total % 22% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) End period exchange rate as Sep-18 17

18 Gross income Gross income affected by the inflation adjustment (Other Operating Income). In nominal terms, gross income grew 52% YoY and 25% QoQ driven by increases in all revenue lines Gross income (Constant EUR mn 1 ) M'18 9M'17 YoY (%) QoQ (%) NII % 22% Fee income % 22% Subtotal % 22% Gain/losses on financial transactions % 56% Other Op. Income Gross Income % -2% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) End period exchange rate as Sep-18 18

19 Operating expenses Costs increased 43% reflecting the implementation of the inflation adjustment in Q3 18. In nominal terms and with homogeneous perimeter (Citi) costs grew 36% YoY, below inflation Operating expenses (Constant EUR mn 1 ) General and admin. expenses 9M'18 9M'17 YoY (%) QoQ (%) % 26% Personal % 24% Other % 28% Depreciation and amortisation % 125% Operating expenses % 35% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Efficiency ratio 57.8% 55.9% Employees (#) 9,362 9,346 Branches (#) (1) End period exchange rate as Sep-18 19

20 Net operating income after loan-loss provisions (LLPs) Higher cost of credit explained by the low- and medium-income individual segments, impacted by the unfavourable economic cycle in 2018 LLPs and cost of credit (Constant EUR mn 1, %) Cost of credit 1.85% 1.85% 2.06% 2.47% % 58 9M'18 9M'17 YoY (%) QoQ (%) Net Operating Income % -37% LLP's % 26% Net op. Income after LLPs % -69% Net LLPs NPL Coverage ratio 124.0% 102.8% NPL ratio 2.5% 2.3% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) End period exchange rate as Sep-18 20

21 Attributable profit Profit impacted by the inflation adjustment in Q3 18, while real term RoTE stood at 16%. Effective tax rate increased due to non-application of the inflation adjustment to fiscal accounts. In nominal terms 9M 18 attributable profit grew 17% YoY Attributable profit (Constant EUR mn 1 ) M'18 9M'17 YoY (%) QoQ (%) PBT % -86% Tax on profit % 6% Consolidated profit % - Attributable profit % Effective tax rate 46.8% 31.4% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) End period exchange rate as Sep-18 21

22 Concluding remarks Market Environment & Financial System Reduction of fiscal deficit will accelerate after the agreement with the IMF. Trade balance surplus expected for The new scenario implies higher inflation, higher interest rates and GDP contraction Although it has been delayed, the intermediation growth opportunity in the Argentine financial system remains in place. Achieving sustainable fiscal and external equilibrium will contribute to the medium and long-term growth Strategy & Business Focus on profitable organic growth Customer experience & loyalty Productivity and efficiency gains Improve asset quality Digitalisation. End to end processes, Openbank and 10 critical customer journeys 22

23 Appendix 04

24 Appendix Balance sheet Constant EUR million¹ Variation 30-Sep Sep-17 Amount % Loans and advances to customers 5,958 3,673 2, Cash, central banks and credit institutions 4,036 1,525 2, Debt securities o/w: designated at fair value through equity Other financial assets Other assets Total assets 11,079 5,701 5, Customer deposits 8,055 4,414 3, Central banks and credit institutions 1, Debt securities issued Other financial liabilities Other liabilities Total liabilities 10,429 5,193 5, Total equity Other managed and marketed customer funds 1,217 1, Mutual funds 1,217 1, Pension funds Managed portfolios (*) End period exchange rate as Sep-18 24

25 Appendix Income statement Constant EUR million¹ Variation 9M'18 9M'17 Amount % Net interest income Net fees Gains (losses) on financial transactions Other operating income (71) 2 (73) Gross income Operating expenses (426) (297) (128) 43.2 General administrative expenses (379) (276) (103) 37.3 Personnel (184) (136) (49) 35.8 Other general administrative expenses (195) (140) (54) 38.7 Depreciation and amortisation (47) (21) (25) Net operating income Net loan-loss provisions (131) (48) (83) Other income (53) (28) (25) 88.8 Underlying profit before taxes (31) (19.8) Tax on profit (59) (50) (10) 19.7 Underlying profit from continuing operations (41) (37.8) Net profit from discontinued operations Underlying consolidated profit (41) (37.8) Minority interests Underlying attributable profit to the Group (41) (38.0) Net capital gains and provisions Attributable profit to the Group (41) (38.0) (*) End period exchange rate as Sep-18 25

26 Appendix Income statement Constant EUR million¹ Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Net interest income Net fees Gains (losses) on financial transactions Other operating income (0) 2 (0) 6 (1) 3 (73) Gross income Operating expenses (84) (106) (107) (113) (120) (130) (175) General administrative expenses (78) (99) (100) (104) (110) (119) (150) Personnel (40) (47) (49) (53) (56) (57) (71) Other general administrative expenses (38) (52) (51) (52) (54) (62) (79) Depreciation and amortisation (7) (7) (7) (9) (10) (11) (25) Net operating income Net loan-loss provisions (11) (17) (21) (19) (27) (46) (58) Other income 0 (14) (15) (11) (9) (25) (19) Underlying profit before taxes Tax on profit (18) (15) (16) (20) (14) (22) (23) Underlying profit from continuing operations (14) Net profit from discontinued operations Underlying consolidated profit (14) Minority interests Underlying attributable profit to the Group (14) Net capital gains and provisions Attributable profit to the Group (14) (*) End period exchange rate as Sep-18 26

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