31 October Mexico. 9M'18 Earnings Presentation

Transcription

1 31 October 2018 Mexico 9M'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 ( Note: The Information contained in this presentation shall not be used or considered under any circumstances as a petition for sale or buy in the terms of the Ley del Mercado de Valores. (Mexican Securities Market Law regulation). 2

3 Content 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 Deceleration expected in 2019, as new administration s programs get started Annual GDP Growth (real, %) Central Bank Monetary Policy (year end, %) (e) 2019 (e) 2020 (e) (e) 2019 (e) 2020 (e) Annual Inflation Rate (%) Average Exchange Rate (MXN/USD) (e) 2019 (e) 2020 (e) (e) 2019 (e) 2020 (e) Source: Deputy General Direction of Analysis, Strategy & Public Affairs. 5

6 Moderate but stable economic growth in 2018, with balance between components H1 18 GDP YoY Growth (real, %) H1 18 Aggregate Demand YoY Growth (real, %) GDP 2.0 Private Consumption 2.8 Primary act. 3.5 Minning -6.1 Gov. Consumption 2.0 Construction 2.0 Investment 2.7 Manufacturing 1.5 Exports 5.3 Services Source: INEGI.

7 Macroeconomic environment Domestic demand poised to improve, while foreign trade remains solid in the short term. Direction of new administration s policies still remains uncertain 2012/01 02/01/ / / /10 02/02/ / / /07 02/03/ / /01 02/04/ / / /10 02/05/ / / /07 02/06/ / / /04 02/07/ / /10 02/08/ / / /07 02/09/ / / /04 02/10/ / / / / / / / / / / / / / / / /07 Unemployment Rate (%, 3 month M.A.) Consumer Confidence (index, 01/2003=100) Exchange Rate (pesos/usd) Current Account 2018 (% of GDP) Turkey Argentina South Africa Colombia Mexico Chile Brazil Peru Source: INEGI, IMF M.A. Moving Average. 7

8 Financial system: Loan and deposit evolution Slower system consumer loan growth while deposits maintain momentum Total loans (Constant EUR bn 1 ) YoY (%) % 9.4% 9.6% 11.6% 10.6% Continued gradual deceleration in consumer loans due to higher interest rates and inflation Commercial loans remain as the main growth driver Sep-17 Dec-17 Mar-18 Jun-18 Aug-18 Total deposits (Constant EUR bn 1 ) Investments announced by major banking players reflect confidence in the sector YoY (%) 11.4% 11.5% 10.9% 11.9% 12.4% System deposit growth continued to accelerate Demand deposit growth, however slowed to 8% from 12% in Q2 18 Sep-17 Dec-17 Mar-18 Jun-18 Aug-18 (1) End period exchange rate as of Aug-18 Source: CNBV Banks as of Aug-18 (last available) 8

9 Strategy and business 02

10 Our Franchise Santander México: one of the leading financial groups in the country STRATEGIC PRIORITIES KEY DATA 9M 18 YoY Var. 4 Gross loans 1 31, % Boost payrolls & strengthen alliances & benefits of the Santander Plus offering to drive attraction & loyalty Consolidate our position in SME and recover leadership in mortgages Operational & IT transformation through digital platforms & investment plan Customer Funds 1 42, % Attributable profit % RoTE 20.0% 47 bps Efficiency ratio 41.3% 190 bps Loans market share % 14 bps Deposits market share % -20 bps Loyal customers 3 2, % Digital customers 3 2, % Enhance customer service quality across the Bank Branches 1, % Employees 19, % (1) EUR mn (2) As of Aug-18 (last available). Local criteria (3) Thousands (4) Constant euros 10

11 Commercial strategy and business transformation Fostering innovation and attracting customers Loyalty Mortgages Co-branded Card Innovative programme focused on customer attraction, transactionality, loyalty and digitalisation. New alliance with a retail corporate with significant market share in its sector mn customers since its launch in May % of which are new customers Distribution Network Transformation The only Bank in Mexico to offer tailored interest rate based on the customer s profile. Property appraisal bonus of 100% of the amount paid by the customer. Strong performance of Hipoteca Plus, accounted for over 50% of mortgage origination in Q3'18. Launched in April, Hipoteca Plus rewards new loyal customers who keep their payrolls and other financial products with the lowest rate in the market 8.59%. Digitalisation +895 k cards issued +322 k new customers Exclusively managed by Santander for the next 10 years. Attract new customers and successfully increased number of products to this new customer base. Corporate & Investment Banking Shift to an omni-channel banking experience to attract and retain customers Smart Red corporate model (self-service) Start to deploy full function ATMs Launched Agile Branch Transformed 203 branches out of 300 targeted for New branch layout is more efficient, user friendly and promotes use of digital and self-service channels. Upgrading online and mobile banking platforms to offer customers innovative and high quality services that satisfy their dynamic demands. Super Auto, car & motorcycle loan financing supported by a digital origination platform Super Cuenta Go for individuals and Cuenta PyMe for SME SME dedicated CRM platform dedicated & onboarding platforms to enhance the customer journey Full digital onboarding for new payroll customers, reducing the time to open new accounts New functionalities for our Supermóvil and Superwallet mobile apps including payroll portability, credit card activation, among others Completed upgrade of IVR system in the contact center Continuing to position our corporate global banking franchise as one of the top three players in Mexico Earnings contribution (PBT) of 15% in 9M 18 11

12 Customers Loyalty and digitalisation initiatives drive quality of retail customer base Loyal individuals (k) 1, % 2,294 Maintain strong focus on increasing loyalty, while attracting new customers through innovative products such as Santander Plus & Hipoteca Plus Sep-17 Sep-18 Loyal companies (k) +6% Focus on increasing penetration CRM platform for SME and an online onboarding process that enhances the customer journey Sep-17 Sep-18 Digital customers (k) 1, % 2,533 New digital SME account under recently simplified legal framework stablished by the Ministry of Economy Improving onboarding processes to new channels Adding new functionalities to the digital platform Sep-17 Sep-18 Mobile represents over 70% of digital transactions 12

13 Total loans performance Loan book up 11% YoY; high spread loans contributed to NII growth Total gross loans (Constant EUR bn 1 ) Sep-18 YoY(%) QoQ(%) Individual Loans Mortgage Consumer credit Credit Cards Commercial Loans SMEs Middle Market Corporates Government Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Total loans Source: Mexican GAAP criteria (excludes cross border loans) (1) End period exchange rate as of Sep-18 (2) SMEs commercial loan portfolio 13

14 Total customer funds performance Deposit growth driven by a customer centric approach for individuals and SME Total customer funds (Constant EUR bn 1 ) Sep-18 YoY(%) QoQ(%) Demand Time Total deposits Mutual funds distributed Total Customer funds Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Source: Mexican GAAP criteria (excludes derivatives positions) (1) End period exchange rate as of Sep-18 14

15 Results 03

16 Net interest income NII up 12% YoY driven by robust loan growth, particularly high-spread loans, and improved funding mix 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 (%) Official interest rate (TIIE) 3 (%) Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) Average exchange rate as of 9M 18 (2) Group criteria; (3) Quarter average. 16

17 Fee income Net fee income up YoY backed by strong growth in credit cards, mutual funds and insurance Net fee income (Constant EUR mn 1 ) 9M 18 9M 17 YoY(%) QoQ(%) Insurance Cash Management Credit Cards Mutual Funds Financial Advisory Capital Markets & Securities Total Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) Average exchange rate as of 9M 18 17

18 Gross income Gross operating income up 8% YoY reflecting strong growth in core revenue Gross income (Constant EUR mn 1 ) 9M 18 9M 17 YoY(%) QoQ(%) Net Interest Income 2,030 1, Net fee income Subtotal 2,604 2, Other Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Gross income 2,630 2, (1) Average exchange rate as of 9M 18 (2) Other includes Gains (losses) on financial transactions and Other operating income 18

19 Operating expenses Progress on strategic initiatives, with short-term impact on efficiency Operating expenses (Constant EUR mn 1 ) 9M 18 9M 17 YoY(%) QoQ(%) General admin. expenses Depreciation and amortisation Operating expenses 1, Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Efficiency ratio (with amortisations) 41.3% 39.4% Branches (#) 1,410 1,401 Employees (#) 19,483 18,217 (1) Average exchange rate as of 9M 18 19

20 Net operating income after loan-loss provisions (LLP) Healthy asset quality with all risk metrics improving LLP and cost of credit (Constant EUR mn 1, %) Cost of credit M 18 9M 17 YoY(%) QoQ(%) Net Operating Income 1,543 1, LLP (616) (663) Net LLP Net op. income after LLP NPL ratio 2.4% 2.6% NPL Coverage ratio 120.5% 110.3% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) Average exchange rate as of 9M 18 Cost of credit: Provisions to cover losses due to impairment of loans in the last 12 months / average customer loans and advances of the last 12 months 20

21 Attributable profit Attributable profit up 13% YoY driven by core earnings and lower LLP Attributable profit (Constant EUR mn 1 ) 9M 18 9M 17 YoY(%) QoQ(%) Profit before tax Tax on profit (194) (167) Consolidated profit Attrib. profit Effective tax rate 21.4% 21.0% Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) Average exchange rate as of 9M 18 21

22 Concluding remarks Robust performance with profitable loan growth and solid asset quality Market Environment & Financial System Economic deceleration expected in 2019, as the new administration s projects get under way Moderate but stable economic growth in Mexico during 9M 18, with balance between its components Private consumption poised to improve backed by the labour market and consumer confidence External sector remains solid, without signs of imbalances Significant uncertainties around policies of the incoming administration remain, resulting in medium and long term positive/negative effects Strategy & Business In the second year of a 3-year, MXN 15 billion investment plan to drive growth and innovation, to become a more customer-centric bank, and become the leader in profitability in Mexico Strengthen position in retail banking and consolidate leadership in key products and markets, while realising the potential of our investment and corporate banking businesses Improve technology and infrastructure, culture, talent, quality, processes and branding Maintain strong focus on profitability Loan book rose 11% YoY with high spread segments contributing to NII growth NII up 12% YoY driven by robust loan growth, particularly high-spread loans, and improved funding mix Results Healthy asset quality with all risk metrics improving Attributable profit up 13% YoY, supported by core earnings and lower LLP drives RoTE of 20.0% 22

23 Appendix 04

24 Appendix Balance sheet Constant EUR million¹ Variation 30-Sep Sep-17 Amount % Loans and advances to customers 31,445 28,647 2, Cash, central banks and credit institutions 11,463 8,795 2, Debt securities 15,583 13,821 1, o/w: designated at fair value through equity 6,628 7,287 (659) (9.0) Other financial assets 5,549 5,816 (267) (4.6) Other assets 2,907 2, Total assets 66,946 59,617 7, Customer deposits 34,303 30,880 3, Central banks and credit institutions 11,397 9,697 1, Debt securities issued 6,244 4,859 1, Other financial liabilities 7,323 7, Other liabilities 2,028 1, Total liabilities 61,294 54,287 7, Total equity 5,652 5, Other managed and marketed customer funds 11,233 10, Mutual funds 11,233 10, Pension funds Managed portfolios (1) End of period exchange rate, as of Sep-18 24

25 Appendix Income statement Constant EUR million¹ Variation 9M'18 9M'17 Amount % Net interest income 2,030 1, Net fees Gains (losses) on financial transactions (3) (3.3) Other operating income (74) (19) (55) Gross income 2,630 2, Operating expenses (1,086) (957) (129) 13.5 General administrative expenses (990) (870) (120) 13.7 Personnel (503) (438) (65) 14.8 Other general administrative expenses (486) (432) (55) 12.6 Depreciation and amortisation (97) (87) (10) 11.5 Net operating income 1,543 1, Net loan-loss provisions (616) (663) 48 (7.2) Other income (20) (14) (7) 48.0 Underlying profit before taxes Tax on profit (194) (167) (27) 16.4 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 Attributable profit to the Group (1) Average exchange rate as of 9M 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 (13) 4 (10) (19) (23) (28) (23) Gross income Operating expenses (303) (325) (328) (338) (345) (369) (373) General administrative expenses (276) (296) (299) (309) (312) (336) (341) Personnel (142) (146) (150) (173) (159) (169) (175) Other general administrative expenses (134) (149) (149) (136) (154) (167) (166) Depreciation and amortisation (27) (30) (30) (29) (32) (33) (32) Net operating income Net loan-loss provisions (221) (221) (221) (185) (203) (192) (221) Other income (4) (6) (4) (23) (3) (12) (5) Underlying profit before taxes Tax on profit (54) (57) (56) (49) (64) (68) (63) 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 Attributable profit to the Group (1) Average exchange rate as of 9M 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