24 April Mexico. Q1'18 Earnings Presentation

Transcription

1 24 April 2018 Mexico Q1'18 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 Moderate and stable GDP growth despite policy uncertainty and temporary rise in inflation 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) 2020 (e) (e) 2019 (e) 2020 (e) Source: Deputy General Direction of Analysis, Strategy & Public Affairs 5

6 01/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /01 Macroeconomic environment Exports expanding rapidly as US manufacturing and investment improves. FX remains volatile and weak in real terms Exports (% annual change, 3M m.a.) Investment (% annual change, 3M m.a.) Total Machinery Construction Exchange Rate (MXN/USD) MXN/USD Real Exchange Rate (Index, avg =100) Source: INEGI m.a. moving average 6

7 01/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /01 01/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /01 Macroeconomic environment Falling inflation and strong labour market underpin recovery in real wages and consumption, subject to outcome of upcoming presidential election Annual Inflation (%) Job Creation and Unemployment Rate (%, 3M m.a.) Job Creation Unemployment rate Wage Settlements (% annual change, 3M m.a.) Private Consumption (% annual change, 3M m.a.) Nominal Wages Real Wages Source: INEGI, BANXICO m.a. moving average 7

8 Financial system: Loan and funding evolution System loan growth remains stable while deposit growth decelerates Total loans (Constant EUR bn 1 ) Consumer loan growth remained stable YoY (%) 12.0% 10.3% 9.8% 9.4% 9.6% Improving purchasing power from lower inflation Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Investments announced by major banking players Total funding (Constant EUR bn 1 ) reflects confidence in the sector Slight deceleration in deposit growth YoY (%) 11.4% 10.9% 11.4% 11.5% 10.6% Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 (1) End period exchange rate as of Mar-18 Source: CNBV Banks as of Feb-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 Q1 18 YoY Var. 4 Gross loans 1 28, % Boost payrolls & strengthen alliances & benefits of the Santander Plus offering to drive attraction & loyalty Consolidate our position in SMEs and recover leadership in mortgages Operational & IT transformation through digital platforms & investment plan Customer Funds 1 40, % Attributable profit % RoTE 19.6% 83 bps Efficiency ratio 40.9% 214 bps Loans market share % -17 bps Deposits market share % 32 bps Loyal customers 3 2, % Digital customers 3 2, % Enhance customer service quality across the Bank Branches 1, % Employees 18, % (1) EUR mn (2) As of Feb-18 (last available) (3) Thousands (4) Constant euros 10

11 Commercial strategy and business transformation Fostering innovation and attracting customers Co-branded Card Loyalty Mortgages +862 k cards issued +317 k new customers Exclusively managed by Santander for the next 10 years. Attract new customers and successfully cross sell products to this new customer base. Distribution Network Transformation 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 % new customers Launch of Select ME programme to accompany the empowerment of women. +6,000 active packages Digitalisation The only one in Mexico that offers a tailored interest rate based on the customer s profile. Property appraisal bonus of 100% of the amount paid by the customer. Hipoteca Preventa, a unique product in the market, for clients who want to buy a property in the pre-sale stage. Acceptance of appraisals from other banks in order to attract operations that are mid-contract. Global Corporate Banking Shift to an omnichannel banking experience to attract and retain customers Smart Red corporate model (self-service) Start to deploy full function ATMs Upgrading online and mobile banking platforms to offer customers innovative and high quality services that satisfy their dynamic demands. Super Cuenta Go for individuals Cuenta PyMe for SMEs CRM platform dedicated to SME customers Onboarding platform to enhance the customer journey for SMEs Super Wallet, a mobile app that enables customers to centralise their card management. Continuing to position our corporate global banking franchise as one of the top three players in Mexico Increased earnings contribution (PBT) from an average of 18% ( ) to 14% in Q

12 Customers Continuing to boost the quality of our customer base Loyal individuals (k) 1, % Mar-17 Mar-18 Loyal companies (k) 2,003 Maintain strong focus on increasing loyalty, while attracting new customers through innovative products such as Santander Plus % 61 Focus on increasing cross selling CRM platform for SMEs and an online onboarding process that enhances the customer journey Mar-17 Mar-18 Digital customers (k) 2, % 1,528 Mar-17 Mar-18 Improving onboarding processes to new channels Adding new functionalities to the digital platform Mobile represents over 50% of digital transactions 12

13 Total loans performance Increase in loan growth supported by strong performance in high-margin segments Total gross loans (Constant EUR bn 1 ) Mar-18 YoY(%) QoQ(%) Individual Loans Mortgage Consumer credit Credit Cards Commercial Loans SMEs Middle Market Corporates Government Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Total loans Source: Mexican GAAP criteria (excludes cross border loans) (1) End period exchange rate as of Mar-18 (2) SMEs commercial loan portfolio 13

14 Total funds performance Focus on individuals and SMEs continues to drive strong deposit growth Total deposits (Constant EUR bn 1 ) Mar-18 YoY(%) QoQ(%) Demand Time Total deposits Mutual funds distributed Total Customer funds Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Source: Mexican GAAP criteria (excludes derivatives positions) (1) End period exchange rate as of Mar-18 14

15 Results 03

16 Net interest income Sustained growth in high-margin loans and focus on profitability drive NII up 11% Net interest income (Constant EUR mn 1 ) Yield on loans (%) Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Cost of deposits (%) NIM 2 (%) Official interest rate (TIIE) 3 (%) Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 (1) Average exchange rate as 3M 18 (2) Group criteria; (3) Quarter average. 16

17 Fee income Good performance in credit cards, mutual funds and capital markets & securities drive net fees up 11% YoY Net fees (Constant EUR mn 1 ) Q1 18 Q1 17 YoY(%) QoQ(%) Cash Management Insurance Credit Cards Mutual Funds Financial Advisory Capital Markets & Securities Total Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 (1) Average exchange rate as 3M 18 17

18 Gross income Solid performance in core revenue partially offset by lower trading gains Gross income (Constant EUR mn 1 ) Q1 18 Q1 17 YoY(%) QoQ(%) Net Interest Income Net Fees Subtotal Other Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Gross income (1) Average exchange rate as 3M 18 (2) Other includes Gains (losses) on financial transactions and Other operating income 18

19 Operating expenses Execution of strategic initiatives impact near term efficiency Operating expenses (Constant EUR mn 1 ) Q1 18 Q1 17 YoY(%) QoQ(%) General admin. expenses Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Depreciation and amortisation Operating expenses Efficiency ratio (with amortisations) 40.9% 38.8% Branches (#) 1,401 1,389 Employees (#) 18,586 17,580 (1) Average exchange rate as 3M 18 19

20 Net operating income after loan-loss provisions (LLPs) Healthy asset quality coupled with improvements across risk metrics LLPs and cost of credit (Constant EUR mn 1, %) Cost of credit Q1 18 Q1 17 YoY(%) QoQ(%) Net LLPs Net Operating Income LLPs (200) (218) Net op. income after LLPS NPL ratio 2.7% 2.8% NPL Coverage ratio 113.5% 104.8% Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 (1) Average exchange rate as 3M 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 14% supported by strong core revenue growth and lower provisions Attributable profit (Constant EUR mn 1 ) Q1 18 Q1 17 YoY(%) QoQ(%) Profit before tax Tax on profit (63) (53) Consolidated profit Attrib. profit Effective tax rate 21.8% 21.1% Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 (1) Average exchange rate as 3M 18 21

22 Concluding remarks Final remarks Market Environment & Financial System Strategy & Business Moderate stable growth, spurred by strong external demand and resilient domestic consumption. Inflation is decreasing rapidly, from 6.8% in Dec-2017 to 5.0% in Mar-2018, and coupled with a strong labour market, this is expected to support domestic consumption in H2 18, assuming consumer confidence does not deteriorate further following the outcome of the upcoming presidential elections. Manufacturing sector expected to remain dynamic on the back of improving US manufacturing. Improved NAFTA outlook has resulted in appreciation of the peso, although uncertainty about international trade prospects, and the electoral process in Mexico will continue to cause volatility. Entering the second year of a 3-year, MXN 15 billion investment plan to drive growth and innovation, become a more customer centric bank, and become the leader in profitability in Mexico. Strengthen position in retail banking and consolidating leadership in key products and markets, while realising the potential of our investment and corporate banking business. Improving technology and infrastructure, talent, quality, processes and branding. Maintain strong focus on profitability. Increase in loan growth underpinned by strong performance in high-margin segments. Results Robust NII growth supported by acceleration in high-margin loans, profitability focus, and higher rates, along with increased net fee income resulted in 11% YoY rise in gross operating income. Sound asset quality with good performance across risk metrics. Attributable profit up 14% YoY, driven by strong core earnings growth and lower provisions results in a 19.6% RoTE. 22

23 Appendix 04

24 Appendix Balance sheet Constant EUR million 1 Variation 31-Mar Mar-17 Amount % Loans and advances to customers 28,238 26,053 2, Cash, central banks and credit institutions 11,497 13,117 (1,620) (12.3) Debt securities 12,227 14,396 (2,169) (15.1) o/w: designated at fair value through equity 3,877 6,201 (2,324) (37.5) Other financial assets 5,205 5,843 (638) (10.9) Other assets 2,610 2,628 (18) (0.7) Total assets 59,778 62,038 (2,260) (3.6) Customer deposits 32,235 30,189 2, Central banks and credit institutions 8,159 11,805 (3,646) (30.9) Debt securities issued 5,555 4, Other financial liabilities 6,770 8,696 (1,926) (22.1) Other liabilities 1,843 1, Total liabilities 54,562 57,152 (2,591) (4.5) Total equity 5,216 4, Other managed and marketed customer funds 10,601 9, Mutual funds 10,601 9, Pension funds Managed portfolios (1) End of period exchange rate, as of Mar-18 24

25 Appendix Income statement Constant EUR million 1 Variation Q1'18 Q1'17 Amount % Net interest income Net fees Gains (losses) on financial transactions (13) (43.3) Other operating income (23) (12) (10) 82.1 Gross income Operating expenses (340) (299) (41) 13.6 General administrative expenses (308) (272) (36) 13.2 Personnel (156) (140) (16) 11.4 Other general administrative expenses (152) (132) (20) 15.1 Depreciation and amortisation (32) (27) (5) 17.7 Net operating income Net loan-loss provisions (200) (218) 18 (8.4) Other income (3) (4) 1 (19.4) Underlying profit before taxes Tax on profit (63) (53) (10) 19.0 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 Q

26 Appendix Income statement Constant EUR million 1 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Net interest income Net fees Gains (losses) on financial transactions Other operating income (12) 4 (10) (18) (23) Gross income Operating expenses (299) (321) (324) (334) (340) General administrative expenses (272) (292) (295) (305) (308) Personnel (140) (144) (148) (171) (156) Other general administrative expenses (132) (147) (147) (134) (152) Depreciation and amortisation (27) (29) (29) (29) (32) Net operating income Net loan-loss provisions (218) (218) (218) (182) (200) Other income (4) (6) (4) (23) (3) Underlying profit before taxes Tax on profit (53) (57) (55) (48) (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 Q

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