30 January 2019 Santander Consumer Finance 2018 Earnings Presentation
Disclaimer Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements. 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. 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, 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. The risk factors that we have indicated in our past and future filings and reports, including those with the Securities and Exchange Commission of the United States of America (the SEC ) could adversely affect our business and financial performance. 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 on which they are made and are based on the knowledge, information available and views taken on the date on which they are made; 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. 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 2000. 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 my differ materially from those of such subsidiaries. 2
Index 1. Macroeconomic environment 2. Strategy and business 3. Results 4. Appendix 3
Macroeconomic environment 01
Macroeconomic environment The Eurozone continued to slow down with a moderate growth in productivity Annual GDP Growth (real, %) 1 New car sales (millions) 2 14.1 14.5 14.7 14.6 14.1 1.9 2.5 1.9 1.7 1.5 2016 2017 2018 (e) 2019 (e) 2020 (e) 2016 2017 2018 (e) 2019 (e) 2020 (e) Unemployment rates (%) 1 Interest rates (%, year end) 1 10.0 9.1 8.2 7.8 7.4 0.0 0.0 0.0 0.0 0.3 2016 2017 2018 (e) 2019 (e) 2020 (e) 2016 2017 2018 2019 (e) 2020 (e) (1) Source: Santander Research Department (Eurozone indicators) (2) Source: ACEA. Forecast from MSI and market consensus (for SCF countries, including SC UK) 5
Strategy and business 02
Our Franchise SCF is the consumer finance leader in Europe STRATEGIC PRIORITIES KEY DATA 2018 YoY Var. 5 Support the transformation of manufacturers and dealers Gross loans 1 97,707 Deposits 1 36,531 +6% +4% Develop innovative products and digitalise the customer cycle processes Implement open e-commerce platforms in the businesses and sign new agreements with distributors Develop channels, business intelligence and digital value-added propositions Attributable profit 1 1,296 +12% RoTE 15.9% -58 bps Efficiency ratio 43.1% -106 bps Market share 2 Top 3 Countries 3 15 Active Customers 4 19.4-2% (1) EUR mn (2) Top 3 market share in main markets: New lending of auto loans as of 2017 (last available) (3) SCF countries including SC UK (4) Million (5) Constant euros 7
Commercial strategy and business transformation Solid business model: geographic diversification with leading positions, advanced captive car finance and strong foothold in consumer Present in 15 European countries 130,000 point of sale partners More than 100 agreements with car and bike manufacturers in 15 countries Awards and recognitions 19.4 million active customers E-commerce open platform Digital interaction Helping partners to start, run and grow their businesses Optimising efficiency on Direct business Top Service Austria 2018 by emotion banking Best Brands 2018 Germany by AUTOHAUS and asp Auto Service Praxis Mobile payments Analytics & digital marketing Meeting customer & market payment demands while leveraging dominant position in stores Integrating and monitoring all touch-points to track, interpret data and react in real time First position "Stars of Banking 2018" Special Banks category by Dziennik Gazeta Prawna Poland TOP EMPLOYER EUROPE 2018 (Austria, Belgium, Germany, Italy, the Netherlands, Poland) 8
Volume performance Increased new lending across most geographies specially in Nordics, Poland, Italy and France Total loans (Constant EUR bn 1 ) Total deposits 2 (Constant EUR bn 1 ) +6.0% 92.2 91.7 93.8 93.8 97.7 +3.5% 35.3 36.7 36.5 36.4 36.5 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Geographical diversification (% Total loans) Wholesale Market Funding 4 (EUR bn) Spain, 15% Germany, 35% Unsecured Secured +14.8% 3 Others, 33% 8.3 8.0 8.4 7.5 9.7 22.5 22.9 22.3 23.4 25.6 Nordics, 17% Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 (1) End period exchange rates as at 12M 18 (2) Excluding Repos (3) Austria, Belgium, France, Italy, The Netherlands, Poland, Portugal and Switzerland (4) Unsecured: short and medium term unsecured issuances and subordinated debt. Secured: ABS bonds placed in the market, Repos, Covered bonds and others 9
Results 03
Net interest income NII increased due to volume growth and lower cost of funding Net interest income (Constant EUR mn 1 ) Yield on loans (%) 905 914 927 937 944 4.61 4.60 4.55 4.51 4.45 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 NIM 2 (%) 3.63% 3.57% 3.61% 3.60% 3.56% Official interest rate 3 (%) 0.00% 0.00% 0.00% 0.00% 0.00% (1) Average exchange rates as at 12M 18 (2) Group criteria (3) Quarter average, ECB 11
Gross income The drop in fee income QoQ was offset by a one-off gain related to the insurance business recorded in Gains on Financial Transactions Gross income (Constant EUR mn 1 ) 2018 2017 YoY(%) QoQ(%) 1,131 1,139 1,125 1,157 1,189 Net interest income 3,723 3,551 4.9 0.7 Net fees 798 877-9.0-8.5 Subtotal 4,521 4,427 2.1-1.0 Other 2 90 35 160.0 - Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Gross income 4,610 4,462 3.3 2.7 (1) Average exchange rates as at 12M 18 (2) Other includes gains (losses) on financial transactions and other operating income 12
Operating expenses Costs remained virtually flat YoY even with business growth. QoQ increase mainly due to seasonal effects in Q3 18 Operating expenses (Constant EUR mn 1 ) 2018 2017 YoY(%) QoQ(%) 506 508 507 475 495 General expenses 1,817 1,790 1.6 5.5 - Personnel 870 843 3.1 5.8 - Other 948 946 0.1 5.3 Amortisations 168 179-6.2-9.9 Total 1,985 1,968 0.9 4.1 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Efficiency ratio (%) 43.1% 44.1% (with amortisations) (1) Average exchange rates as at 12M 18 13
Net operating income after loan-loss provisions (LLPs) LLPs increased YoY due to the positive impact of written-off portfolio sales and other releases in 2017. Q4 18 LLPs positively impacted by the sale of written-off portfolios 2 LLPs and cost of credit (Constant EUR mn 1, %) Cost of credit 0.30 0.36 0.37 0.40 0.38 2018 2017 YoY(%) QoQ(%) 120 124 Net operating income 2,625 2,493 5.3 1.7 Loan-loss provisions (360) (264) 36.1-62.4 Net LLPs 58 69 47 Net operat. income after provisions 2,266 2,229 1.6 16.0 NPL ratio 2.29% 2.50% Coverage ratio 106.4% 101.4% Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 (1) Average exchange rates as at 12M 18 (2) Mainly in Germany and Nordics. 14
Attributable profit Underlying attributable profit up YoY, backed by higher NII, cost control and lower provisions related to legal matters and claims Attributable profit (Constant EUR mn 1 ) 2018 2017 YoY(%) QoQ(%) 311 322 346 332 296 PBT 2,140 2,072 3.3-14.5 Tax on profit (577) (585) -1.4-22.0 Consolidated profit 1,564 1,486 5.2-11.6 Underlying attrib. profi 1,296 1,245 4.1-10.7 Net Capital gains and provisions 0 (85) - - Attributable profit 1,296 1,160 11.7-10.7 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Effective tax rate 26.9% 28.3% (1) Average exchange rates as at 12M 18 15
Concluding remarks SCF continues to deliver recurrent profits through the cycle European leadership with high geographic diversification. Strategy Critical mass and top positions in its geographies. Advanced captive car finance model and a strong foothold in consumer lending. Healthy risk performance and sound funding structure. 7% YoY increase in new lending. Auto loans (+11%) and direct loans (+7%) 1. Activity SCF has a diversified and stable funding mix, having banking licenses in most of the countries where it operates. Focused on capital optimisation while maintaining strong leadership, in an environment characterised by an excess of liquidity in the markets and low GDP growth. NII increased YoY and QoQ due to volume growth and lower cost of funding. Results The drop in fee income QoQ was offset by a one-off gain related to the insurance business recorded in Gains on Financial Transactions LLPs increased YoY due to the higher positive impact of written-off portfolio sales and other releases in 2017. (1) Average exchange rates as at 12 M18 in new loans 16
Appendix 04
Appendix Balance sheet Constant EUR million 1 Change 31-Dec-18 31-Dec-17 Amount % Customer loans 95,366 89,851 5,515 6.1 Cash, central banks and credit institutions 6,096 4,879 1,217 24.9 Debt securities 3,325 3,196 129 4.0 o/w: available for sale 1,898 3,196 (1,298) (40.6) Other financial assets 31 22 10 45.2 Other assets 2,890 3,496 (607) (17.3) Total assets 107,708 101,444 6,264 6.2 Customer deposits 36,579 35,330 1,249 3.5 Central banks and credit institutions 24,966 23,290 1,676 7.2 Other financial liabilities 771 994 (223) (22.4) Other liabilities 3,520 3,629 (109) (3.0) Total liabilities 97,117 91,861 5,256 5.7 Total equity 10,591 9,583 1,008 10.5 Other managed and marketed customer funds 8 (8) (100.0) Mutual funds 2 (2) (100.0) Pension funds 6 (6) (100.0) Managed portfolios (1) End period exchange rates as at 12M 18 18
Appendix Income statement Change Constant EUR million 1 2018 2017 Amount % Net interest income 3,723 3,551 172 4.9 Net fees 798 877 (79) (9.0) Gains (losses) on financial transactions 55 3 53 Other operating income 34 32 3 8.3 Gross income 4,610 4,462 149 3.3 Operating expenses (1,985) (1,968) (17) 0.9 General administrative expenses (1,817) (1,790) (28) 1.6 Personnel (870) (843) (26) 3.1 Other general administrative expenses (948) (946) (1) 0.1 Depreciation and amortisation (168) (179) 11 (6.2) Net operating income 2,625 2,493 132 5.3 Net loan-loss provisions (360) (264) (95) 36.1 Other income (125) (158) 32 (20.5) Underlying profit before taxes 2,140 2,072 69 3.3 Tax on profit (577) (585) 8 (1.4) Underlying profit from continuing operations 1,564 1,486 77 5.2 Net profit from discontinued operations Underlying consolidated profit 1,564 1,486 77 5.2 Minority interests 268 241 26 10.9 Underlying attributable profit to the Group 1,296 1,245 51 4.1 Net capital gains and provisions (85) 85 (100.0) Attributable profit to the Group 1,296 1,160 136 11.7 (1) Average exchange rates as at 12M 18 19
Appendix Income statement Constant EUR million 1 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Net interest income 880 872 894 905 914 927 937 944 Net fees 231 219 223 204 214 188 206 189 Gains (losses) on financial transactions (2) 2 (1) 3 4 16 1 35 Other operating income (1) (0) 15 19 6 (6) 13 21 Gross income 1,108 1,093 1,130 1,131 1,139 1,125 1,157 1,189 Operating expenses (498) (483) (482) (506) (508) (507) (475) (495) General administrative expenses (454) (438) (437) (460) (468) (461) (432) (456) Personnel (208) (211) (204) (220) (220) (219) (209) (221) Other general administrative expenses (246) (227) (233) (240) (247) (242) (223) (235) Depreciation and amortisation (44) (44) (45) (46) (41) (46) (43) (39) Net operating income 610 611 648 625 630 619 682 694 Net loan-loss provisions (60) (58) (89) (58) (120) (69) (124) (47) Other income (37) (35) (30) (56) 24 13 5 (166) Underlying profit before taxes 513 519 529 511 534 562 563 481 Tax on profit (147) (140) (160) (138) (146) (151) (157) (122) Underlying profit from continuing operations 366 379 369 373 388 411 406 359 Net profit from discontinued operations Underlying consolidated profit 366 379 369 373 388 411 406 359 Minority interests 56 62 61 62 66 66 74 62 Underlying attributable profit to the Group 310 316 308 311 322 346 332 296 Net capital gains and provisions (85) Attributable profit to the Group 310 316 223 311 322 346 332 296 (1) Average exchange rates as at 12M 18 20
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