31 October Spain. 9M'18 Earnings Presentation

Transcription

1 31 October 2018 Spain 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 ( 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 expected before summer 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 job creation, higher consumption and real estate and investment recovery Contribution to GDP growth (% YoY) Housing: sales and permits (k) New building permits Sales (e) 2019 (e) 2020 (e) Net external demand Domestic demand Current account balance (% GDP) Indebtedness (% GDP) % % 150% Public Private % % (e) 2019 (e) 2020 (e) 0% -0.5 Source: Santander Research Department and Bloomberg 6

7 Financial system: Loan and customer fund evolution The loan book decreased in Spain, closing of the funding gap and improving credit quality Total loans (EUR bn) 1,219 1,220 1,192 1,196 1,168 YoY (%) New lending in consumer credit and mortgage loans continued to grow (the latter at a much slower pace). However, the stock is still far from the previous cycle peak Sep-17 Dec-17 Mar-18 Jun-18 Aug-18 Total customer deposits (EUR bn) 1,007 1,017 1,015 1,048 1,028 YoY (%) In savings, the increase in deposit volumes continued with varied performance by product: migration from time to demand deposits, both in households & non-financial entities Sep-17 Dec-17 Mar-18 Jun-18 Ago-18 Source: Bank of Spain Loans to Other Resident sectors 7

8 Strategy and business 02

9 Our Franchise Santander España is committed to maintaining its leadership while accomplishing best-in-class integration of Banco Popular STRATEGIC PRIORITIES KEY DATA 9M 18 YoY Var. Integration of Banco Popular Bank of choice for SME and Corporates Gross loans 1 214,346 Customer funds 1 318,859 Underlying Attributable profit 1 1,306-2% +3% +18% Build long lasting relationships with our customers Leader in digital transformation to become a data-driven company Predictable, sustainable and profitable growth RoTE % -51 bps Efficiency ratio 56.0% -72 bps Loans market share bps Deposits market share bps Loyal customers % Digital customers % Branches 4,398 Employees 32,425-2% -3% (1) EUR mn (2) Underlying RoTE (3) Other Resident Sectors in Spain as of Aug 2018 (last available). Local criteria (4) Millions 9

10 Commercial strategy and business transformation Ongoing digital transformation, focused on omnichannel distribution strategy and customer experience Businesses Private Banking Transactionality increase 1 Double-digit growth in transactional indicators Business loan book c. EUR +1.5 bn YTD SME new lending +18%YoY Commercial paper +7% YoY Remaining market leaders and growing private banking loan book EUR +0.5 bn YTD 1 st financial entity to obtain the AENOR excellence certification in wealth management advice Credit card turnover +16% YoY and transactions +17% YoY PoS turnover +11% YoY and active customers +24% YoY New branch concept Mobile payments Santander Call Center Evolving branch concept in Spain with the 1 st Work Café, integrating banking, co-working spaces and signature coffee shops; with focus on service, to enhance the customer experience The only banking entity to provide all available mobile payments for credit cards, after the recent launch of Garmin Pay Santander Spain contact centre recognized as Best contact centre in Spain 2018, receiving the Gold CRC award to the best customer relationship centre in Spain (1) Santander only 10

11 Customers Digital transformation to enhance the customer loyalty and experience Loyal individuals (k) 1,302 Sep Sep % +54% 1,955 Sep-18 Loyal companies (k) 2,997 Sep % 521 Sep-18 Digital customers (k) 1 4,326 Sep-18 (1) Santander only Growth based on Banco Popular integration, better customer experience and business performance We continued to draw benefits from the 1l2l3 account, boosting activity, loyalty, transactions (UPLs, credit cards, insurance, etc.) and pay-for-value fee income Growth in the SME segment, taking advantage of Popular know-how, and corporates, with value-added products and services Business loan book rose by c. EUR +1.5 bn YTD Ongoing digital transformation (mobile platforms, process streamlining, instant payments and personalised experience) Leadership in mobile payments, offering the widest range of paying methods New mobile functionalities for individuals (i.e.: advised orders sign in private banking) and businesses (i.e.: new credit card capabilities or pre-authorised credits) 11

12 Total loans performance Higher volumes in SME and corporates, offset by outflows in CIB, institutions and mortgages Total gross loans (EUR bn 1 ) Sep-18 YoY(%) QoQ(%) Institutions Individual customers of which: - Housing mortgages Companies CIB Total Loans Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 (1) Excluding reverse repos 12

13 Total customer funds performance The new lower top limit in the 1I2I3 account, which cuts cashback rewards, did not impact retail deposits. Outflows in CIB and Institutions, mostly concentrated in high cost funds Total customer funds (EUR bn) Sep-18 YoY(%) QoQ(%) Pension funds Mutual funds Demand deposits Time deposits Total deposits Demand + Time deposit Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Mutual funds Customer funds Pension funds Total customer funds

14 Results 03

15 Net interest income QoQ positive performance in NII driven by improved customer NIM, with continued reduction in the cost of deposits and slightly higher yield Net interest income (EUR mn) Yield on loans (%) 1,126 1,068 1,037 1,058 1, Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Cost of deposits (%) NIM 1 (%) Official interest rate 2 (%) Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 (1) Group criteria (2) Quarter average 15

16 Fee income Fee income dropped QoQ due to seasonality and less favourable market conditions, which impacted securities and other fees Net fee income (EUR mn) M 18 9M 17 YoY(%) QoQ(%) Fees from services Mutual and pension funds Insurance Securities and Others Total 1,997 1, Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 16

17 Gross income The increase in NII more than offset the lower fee income QoQ. Higher gains on financial transactions in Q3 18 due to ALCO portfolio sales Gross income (EUR mn) 9M 18 9M 17 YoY(%) QoQ(%) 2,011 1,835 2,063 1,837 2,114 Net interest income 3,211 2, Net fees 1,997 1, Subtotal 5,208 4, Gains (losses) on financial transactions Other Gross income 6,015 5, Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Note: Contribution to the SRF recorded in Q2 18 (EUR 163 mn before tax) 17

18 Operating expenses Lower costs for the third straight quarter, reflecting operational synergies Operating expenses (EUR mn) 9M 18 9M 17 YoY(%) QoQ(%) 1,161 1,188 1,145 1,123 1,103 General admin. expenses Depreciation and amortisation 3,130 2, Total 3,370 2, Efficiency ratio 56.0% 56.8% Branches 4,398 4,499 Employees 32,425 33,347 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 18

19 Net operating income after loan-loss provisions (LLP) LLP remained flat QoQ. NPL and coverage ratios improved YoY LLP and cost of credit (EUR mn, %) Cost of credit M 18 9M 17 YoY(%) QoQ(%) Net operating income 2,644 2, Net LLPs 120 Loan-loss provisions (599) (428) Net operat. income after LLPs 2,045 1, Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Coverage ratio 47.7% 46.2% NPL ratio 6.23% 6.82% 19

20 Attributable profit Underlying profit rose QoQ underpinned by higher customer revenue, lower costs and contribution to SRF in Q2'18 Underlying attributable profit (EUR mn) M 18 9M 17 YoY(%) QoQ(%) PBT 1,753 1, Tax on profit (447) (432) Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Attributable profit (EUR mn) Consolidated profit 1,307 1, Underlying att. profit 1,306 1, Net capital gains and provisions (280) (300) Attributable profit 1, Effective tax rate 25.5% 27.8% Note: Contribution to the SRF recorded in Q2 18 (EUR 163 mn before tax) 20

21 Concluding remarks Growing attributable profit. Banco Popular's 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 expected before summer GDP growth backed by job creation, higher consumption, export growth, real estate and investment recovery and thriving tourism industry. Banco Popular legal integration completed. Strategy & Business YTD loan book: growth in SME and Corporates (EUR +1.5 bn) and private banking (EUR +0.5 bn) offsetting the fall in mortgage balances. The new lower top limit in the 1I2I3 account, which cuts cashback rewards, did not impact retail deposits. Santander España contact centre recognised as the Best contact centre in Spain in 2018, and received the Gold CRC award for excellence in customer attention in Spain. Customer spreads improved YoY due to the continued reduction in the cost of deposits. Results The increase in NII more than offset the lower fee income QoQ. Higher gains on financial transactions in Q3 18 due to ALCO portfolio sales. Lower costs for the third straight quarter, reflected operational synergies 21

22 Appendix 04

23 Appendix Balance sheet Change EUR million 30-Sep Sep-17 Amount % Customer loans 212, ,182 (8,935) (4.0) Cash, central banks and credit institutions 113,986 99,013 14, Debt securities 63,933 76,316 (12,383) (16.2) o/w: available for sale 44,618 57,550 (12,932) (22.5) Other financial assets 31,052 35,419 (4,367) (12.3) Other assets 21,251 26,680 (5,429) (20.4) Total assets 442, ,610 (16,141) (3.5) Customer deposits 253, ,829 4, Central banks and credit institutions 101, ,320 (7,013) (6.5) Other financial liabilities 39,246 46,751 (7,505) (16.1) Other liabilities 9,031 11,011 (1,979) (18.0) Total liabilities 426, ,739 (15,434) (3.5) Total equity 16,164 16,871 (707) (4.2) Other managed and marketed customer funds 92,125 87,313 4, Mutual funds 66,392 62,004 4, Pension funds 14,652 14,922 (271) (1.8) Managed portfolios 11,081 10,

24 Appendix Income statement Change EUR million 9M 18 9M 17 Amount % Net interest income 3,211 2, Net fees 1,997 1, Gains (losses) on financial transactions Other operating income Gross income 6,015 5, Operating expenses (3,370) (2,852) (518) 18.2 General administrative expenses (3,130) (2,665) (465) 17.5 Personnel (1,742) (1,398) (343) 24.5 Other general administrative expenses (1,388) (1,266) (122) 9.7 Depreciation and amortisation (240) (187) (53) 28.2 Net operating income 2,644 2, Net loan-loss provisions (599) (428) (171) 40.0 Other income (292) (190) (102) 53.7 Underlying profit before taxes 1,753 1, Tax on profit (447) (432) (15) 3.4 Underlying profit from continuing operations 1,307 1, Net profit from discontinued operations - Underlying consolidated profit 1,307 1, Minority interests 1 15 (14) (96.5) Underlying attributable profit to the Group 1,306 1, Net capital gains and provisions (280) (300) 20 (6.8) Attributable profit to the Group 1,

25 Appendix Income statement EUR million Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Net interest income ,126 1,068 1,037 1,058 1,116 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 2,114 Operating expenses (798) (893) (1,161) (1,188) (1,145) (1,123) (1,103) General administrative expenses (752) (843) (1,070) (1,107) (1,042) (1,059) (1,028) Personnel (399) (440) (559) (578) (587) (582) (572) Other general administrative expenses (352) (403) (511) (528) (455) (477) (456) Depreciation and amortisation (46) (50) (91) (82) (103) (63) (74) Net operating income ,012 Net loan-loss provisions (163) (144) (120) (175) (207) (196) (197) Other income (64) (64) (62) (25) (104) (86) (102) Underlying profit before taxes Tax on profit (146) (107) (179) (114) (153) (107) (186) 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: