Earnings Call: Q1 2025

May 27, 2025

Summary

Q1 net profit fell 33.2% YoY to CLP 39.6bn as global market volatility weakened investment returns, partly offset by stronger banking and healthcare operations. Loan growth, annuity demand and liquidity remained supportive, while pension reform and credit costs are key watchpoints.

Hello everyone, and thank you for joining ILC's first quarter 2025 results conference call. Before we begin, I will invite everyone to download the presentation prepared especially for this call from our website. This document provides an overview of the key events and achievements for the period, as well as the financial performance and context of each of our businesses. Today's call will be divided in five blocks. First, we will review the economic and industry context for the period, followed by ILC's consolidated results for first Q 2025. Next, we will analyze our subsidiaries' financial performance and key highlights for the period. After that, we will provide an update on our financial position, and finally, we will conclude with a Q&A session. Now, I will hand the call over to Juan Pablo Undurraga, CFO of ILC, who will review the period's context, ILC 2025 milestones, and our consolidated results for the quarter. Thank you, Pablo. On this slide, we present the macroeconomic context for the first quarter of 2025 compared to the first quarter of 2024. During the first quarter of 2025, we observed increased volatility in global equity markets. The S&P 500 declined by 4.6%, reflecting higher uncertainty, particularly in the U.S. Meanwhile, Chile equity outperformed with the IPSA posting a strong quarterly return of 14%. As a result of this market behavior, Pension Fund C, which we use as a proxy for the return on these reserves, delivered a 2.3% return in this quarter, down from 5.1% in the same period last year. Inflation in Chile reached 2% in the quarter, compared to 1.6% in the first quarter of 2024. Also, the Central Bank of Chile maintained the monetary policy rate at 5%, following a series of rate cuts that began in early 2024, when the rate stood at 8.5%. Regarding our milestones during 2025, significant events have occurred during the first five months of the year. First, as of March 2024, ILC was once again included in Chile's main stock market index, the IPSA, which comprised the 29 most relevant listed companies in the country. On April 24th, we held our annual shareholders' meeting, where a new board was elected, comprising five non-independent and two independent members. In this meeting, shareholders also approved a final dividend of CLP 600 per share, charged to 2024 earnings. In December 2024, we increased our stake in Banco Internacional and Baninter Factoring to 78.1% and 78% respectively, as part of a broader transaction that includes an option to reach full ownership by 2027. In addition, on January 2025, a voluntary tender offer allowed us to further increase our stake in Banco Internacional to 78.2%. On May 13th, Banco Internacional signed an agreement to acquire the remaining 49% of Autofin, consolidating full ownership and strengthening its position in auto financing. In the healthcare sector, on May 27th, RedSalud signed a binding agreement to acquire the Nuevo Sanatorio Alemán, a leading healthcare center located in Concepción in the Biobío region. The transaction involves the acquisition of 100% of the shares of GCI SpA, the company that owns the facility. Lastly, we are proud to highlight several recognitions earned by our subsidiaries. RedSalud led the health sector in the Praxis Xperience Index 2025. Banco Internacional ranked number 2 in the Ipsos ServiTest Small-Medium Enterprise Survey. Finally, Aidac was ranked number 4 by Great Place to Work. These milestones reflect our ongoing efforts to strengthen our presence, diversify our services, and deliver long-term value across all business segments. On this slide, you can see ILC's stock performance, which has delivered a strong return, significantly outperforming the IPSA both in 2024 and year to date 2025. In 2024, ILC's stock price increased by 10% compared to an 8% return for the IPSA. Including dividends, the total shareholders' return reached 27.4%, supported by a dividend yield of 7.1%. This positive trend has continued in 2025. As of March 16th, ILC's stock has delivered a return of 63% year-to-date, while the IPSA has gained 25% over the same period. A key milestone contributing to this performance was our re-entry to the IPSA index on March 24th, reinforcing the visibility and liquidity of our shares. This strong momentum reflects market recognition of ILC's growth strategy, execution across subsidiaries, and commitment to long-term value creation. On this slide, we can reaffirm the five pillars of our strategy, which we have consistently emphasized. These pillars form the foundation of our approach, driving both organic and inorganic growth opportunities. Our focus remains on achieving profitability in our operations, maintaining flexibility in the businesses we engage with, and ensuring a strong financial position. We work with ESG values and metrics across all our activities. This strategic framework directly supports our overarching purpose: to be leaders in creating social and economic value that improves people's quality of life. This slide highlights the consistent returns the company has achieved over time, aligned with our strategic goals. As can be observed, ILC has maintained double-digit profitability, showcasing steady growth and resilience. Now, ILC is entering a new phase where growth is expected to be driven primarily by its financial business. In the first quarter of 2025, ILC recorded a profit of CLP 39.6 billion, representing a 33.2% decrease compared to the same period in 2024. This decline was mainly explained by weaker performance from our financial subsidiary with exposure to international equity markets, which was impacted by the global market volatility we mentioned earlier. On this chart, we summarize the main variation behind ILC's consolidated profit of CLP 39.6 billion in the first quarter of 2025. Compared to the CLP 59.3 billion recorded in the first quarter of 2024, this represents a 33.2% decrease, mainly explained by lower contribution from financial subsidiaries with exposure to international markets. It's important to highlight that the first quarter of 2024 benefited from a very strong performance in global equity markets, particularly in the funds where Construyo and Aristas are invested. This creates a high base of comparison that amplifies the relative decline in the first quarter of the year. On the other hand, the health segment showed better operational performance, with RedSalud and Consalud delivering solid results due to greater service activity and continued progress in service diversification. In summary, although financial market volatility affected some subsidiaries, the strength of our healthcare and banking operations helped mitigate the impact, reaffirming the value of ILC's diversified business model. Now, I will turn the call over to Pablo, who will review the main operational events and key financial figures of ILC subsidiaries. Thank you, Juan Pablo. Now that we've reviewed ILC's consolidated performance, we will take a closer look at the performance of each of our main businesses. In this section, we will go by division to better understand the key drivers behind each business, the challenges faced in the quarter, and strategic progress that is in line with our long-term plan. Let's begin with Banco Internacional. Going to slide 14. As of March 2025, Banco Internacional's total loan portfolio grew by 16.2% year-over-year, positioning the bank with the third highest growth in the industry, which expanded by just 2.4%. The commercial loan portfolio grew by 13%. Meanwhile, consumer loans increased by 60% during the expansion of Autofin's portfolio and the bank's digital consumer loans lending platform. As a result, Banco Internacional's market share increased in commercial loans from 2.5% to 2.9%. In consumer loans, from 0.9% to 1.3%. Mortgage loans remained stable at 15%. In terms of client growth, the bank continued to expand its footprint. Banco Internacional increased by 60%. I mean, corporate clients increased by 60%, reaching over 8,200 companies. Retail clients increased by 60%, totaling more than 91,000 clients, including Banco Internacional and Autofin clients. With this, the bank has officially reached 100,000 total clients, an important milestone for the bank. Looking ahead, Banco Internacional remains focused on expanding its presence in the large corporate segment, strengthening the retail banking platform, and diversifying both its product offering and funding sources. In this line, as shown in slide number 15, Banco Internacional has continued to consolidate its funding structure, protecting our curative toward rated diversification and long-term stability. As of March 2025, the bank funding base shows an increased reliance on bonds and retail time deposits, which now represent 30% and 31% of total funding respectively. At the same time, the share of bank funding declined from 13% to only 11%, reducing dependence on short-term sources. During the quarter, the bank made 400,000 UF in subordinated bonds, and in April completed the issuance of the first AT1 bond in the Chilean industry for two million UF, with no maturity and a 5.6% annual coupon. It's also important to remember that in July 2024, the bank placed its first public bond in the Swiss market for 120 million CHF, further diversifying its international funding sources. Importantly, 90% of last year's loan growth was financed through stable funding sources, underscoring the consistency of the bank's funding model. Looking ahead, the bank sees three main opportunities. First, scaling the retail financing by improving client acquisition and retention. Second, expanding the corporate funding base. And third, developing digital financial products aligned with an efficient onboard process. Banco Internacional gross operating results increased by 13% quarter-over-quarter, reaching CLP 57 billion in Q2 2025. This growth was mainly driven by an improved spread in commercial and consumer loans, supported by the continued expansion of loans and by a strong contribution from Autofin, which added CLP 7 billion during the quarter. This positive evolution was partially offset by the end of the FCIC program, which was still in effect during the first part of 2024 and had provided some temporary funding events. On the cost side, operating expenses rose by 20% compared to the same period of the last year, totaling CLP 29 billion. This increase was mainly explained by Autofin's higher operating costs, consistent with its growth plan, and by greater expenses in system, IT, and operational risk management. As a result, efficiency ratio rose to 51.3%, which remains in line with industry average. Banco Internacional continues to focus on managing its cost base while sustaining profitable growth across its business lines. As shown on slide number 17, total risk expenses increased to CLP 11.9 billion in the first quarter of 2025, up by CLP 4.6 billion compared to Q2 2024. This increase was mainly driven by higher provisions and write-offs in commercial banking, as well as greater provisioning in Autofin, consistent with the expansion of its consumer loan portfolio. In terms of asset quality indicators, the NPL ratio rose slightly from 3.1% to 3.7%. The risk index remained stable at 2.1% compared to 2.2% in Q2 2024. The collateral coverage stood at 56.8%, well above the industry average of 53%. Finally, as of March 2025, Banco Internacional fully complies with Basel III requirements, maintaining a solvency ratio of 14.9%. This ratio will improve after the AT1 issues that we made in April of this year. Slide number 18. The chart shows Banco Internacional's profit and ROE evolution. Higher loan spreads and greater contribution from its subsidiary, Autofin, were offset by weaker performance following the expiration of the FCIC program, something that occurred in the industry as well, and increased risk related expenses. As a result, accumulated profit for the first quarter amounts to CLP 12.8 billion, 13.4% below the previous year's result. As of March, Banco Internacional reported an ROE of 13%. It is also important to mention that Autofin makes up 11% of Banco Internacional's profit and 8% of its total loans. The bank continues to show strong long-term growth and good business performance. Now, if we move to annuity market, as shown in slide number 20. In the first quarter of 2025, we continued to see a strong demand for annuities. The annuity rate reached 3.3%, slightly below the programmed withdrawal rate of 3.43%, which helped keep the annuities attractive. In this context, 67% of people choose annuities compared to 33% who choose programmed withdrawal. The average annuity rate reached, as I mentioned, 3.3%, slightly higher than first quarter 2024. Meanwhile, the programmed withdrawal rate for new annuitants grew up by 178 basis points to 3.43%. Because the lower spread, more people choose annuities. As I mentioned, the number of people selecting annuities increased by 13% quarter-over-quarter, while those choosing programmed withdrawals fell by 20%. Total industry premiums reached CLP 75 million, with Confuturo growing 16% quarter-over-quarter and increasing its market share during the quarter from 13.1% in 1Q 2024 to 14.2% in 1Q 2025. This is a strong result and reflects sustained demand together with impact of last regulatory changes. In the beyond, we see other changes as the new pension reform that we had since March of this year, which will decrease the minimum at most requirement to choose an annuity from three years to two years, allowing more people to access this option. Slide 21 shows Confuturo's sales strategy and cost control. In the first quarter of 2025, 44% of life annuity premiums came from the direct sales channel, well above the industry average of 33%. This reflects the company's focus on consolidating its own distribution model and improving customer engagement. Intermediation costs increased by 28% quarter-over-quarter, reaching CLP 2.4 billion, mainly due to higher premium volumes during the period. FCAs totaled CLP 8.4 billion, growing 8.2% compared to 1Q 2024. This increase was mainly driven by higher personal and IT costs, which supported long-term operational improvements. Despite this increase, Confuturo kept its FCAs over asset under management at 36 basis points, stable compared to the previous year and below the industry average of 100 basis points. On slide 22, we show the investment results of Confuturo's portfolio in the first quarter of 2025. The investment result was CLP 3.88 billion, which represents 17% decrease compared to the previous year. This drop is mainly explained by two effects. Impairments of CLP 2.3 billion were recorded in 1Q 2025, while in the first quarter of 2024, there had been a reversal of CLP 6.4 billion, which had improved results that year. It will be a weaker performance this year, I mean, this quarter, a weak performance of international equities and investment funds, which together fell by CLP 18 billion. These negative effects were partially offset by a stronger performance of local equities, which improved by CLP 10.4 billion, and a better result from the real estate portfolio, which increased by CLP 1.6 billion. Overall, as Pablo mentioned before, the quarter was mainly marked by global market volatility. In this quarter of 2025, Confuturo reported a net income of CLP 9.5 billion, which is a 65.5% decrease compared to CLP 27.6 billion in Q2 2024. This drop was mainly due to a lower investment result caused by the weak performance of international equities. As we saw earlier, the previous year had benefited from the reversal of impairment provision, which created a high comparison base. Confuturo continues to lead the life insurance industry in terms of number of pensioners and remains third in assets under management. The company is staying focused on its long-term investment strategy, especially by growing its portfolio of alternative assets, including private equity and real estate, to improve future returns and diversification. Moving to AFP Habitat. In the first quarter of 2025, AFP Habitat reported revenues of CLP 66 billion, a 5.6% increase compared to the same period in 2024. This growth was mainly driven by higher fee income from mandatory contributions, supported by a 7.7 nominal increase in the average taxable income per contributor. As of March 2025, AFP Habitat contributors had an average taxable income 22% higher than the industry average, reinforcing its position in higher income segments. This was partially offset by the 2.4 drop in the average number of contributions. On the other hand, non-operating income fell, reaching CLP 8.9 billion, down from CLP 25.1 billion in Q2 2024. This was mainly due to lower returns on the legal reserve, which totaled CLP 9.1 billion, compared to CLP 25.4 billion in the same period last year. The drop reflects the weak performance of banks, which hired exposure to foreign equities, such as the Funds A and B, which were affected by increased market volatility following the announcement of U.S. tariff measures. In contrast, conservative funds C, D, and E posted positive returns. As shown on slide 26, the weaker financial market performance seen in the first quarter also had an impact on our international operations. In Peru, revenues grew by 7.2% year-over-year, reaching CLP 10.1 billion, supported by higher commission income. However, returns on legal reserves were negative, reaching a loss of CLP 0.3 billion, compared to a positive result of CLP 0.7 billion in Q2 2024. Similar trend was observed in Colombia, in Colfondos, where revenues grew by 1.8%, reaching CLP 21.9 billion. But again, the other reserve returns fell from CLP 4.5 billion to a loss of CLP 0.3 billion, reflecting the broad impact of market volatility on portfolios with exposure to global equities. Slide number 27, we show the evolution of profits before taxes and encajes, I mean, legal reserve, for both AFP Habitat and AAISA. In the first quarter of 2025, AFP Habitat reported a profit of CLP 35.7 billion, a 5.8% decrease compared to Q2 2024. It was mainly due to lower returns on legal reserve, affected by the weak performance of funds exposed to foreign equities, combined with a high comparison base in Q2 2024. We exclude that effect. The lower result in AFP Habitat was explained by higher impairment expenses related to accounts receivable from insurance companies. Meanwhile, AAISA posted a profit of CLP 10.6 billion before taxes and encajes, up 17.5% quarter-on-quarter, mainly due to higher revenues, especially in Peru, where operation continued to grow. In summary, a history of resilience in terms of operational profit supported by higher revenues in key markets ongoing growth in distributors' income. Moving now to the health segment. This growth was supported by strong performance across all services line. In patient, revenue grows 14%, mainly driven by more complex surgical procedures, hospitalization, and critical care. Surgeries increased by 1.5%, and occupancy reached. Dental services 13.5% due to higher patient volumes and average ticket value. Together, strengths show more complex needs services with continued demand across medical, dental and in-patient care. Slide number 13. Here we can see RedSalud's EBITDA margin. 9% to 12.1%, 25%. This was mainly driven by a more complex patient mix and improved cost efficiency. Operational capabilities and its ability to deliver more. RedSalud continues to diversify its revenue source to reduce exposure. Over time, the share of revenue. Share from Fonasa has increased. So besides Fonasa reach 61% share of total revenue, this creates different support for RedSalud's strategy. Access and payers. Since Q2, we can see that RedSalud's growth has not only been consistent over time, but also increasingly diversified across its different care centers. In the first quarter of 2025, EBITDA increased by 13.5% quarter-over-quarter, reaching CLP 23.3 billion, with a margin improvement to 12%. Metropolitan clinics, partially offset by CLP 8.8 billion decrease from regional clinics. The distribution reflects a more balanced and resilient network with significant progress in operational efficiency across all segments. Now, moving to Consalud, we can see that the implementation of the Short Law in late 2024 has helped stabilize and gradually recover the average monthly contribution in Consalud after reaching a low of 5.0 UF per affiliate in Q2 2024. Mainly due to the GES price adjustment, contribution began to rise, reaching 5.7 UF in Q2 2025, back in line with pre-adjustment levels. In this context, the loss ratio reached 88.1% in Q2 2025, showing improvement from the previous quarter and a more balanced outlook for the industry. Slide 34 shows the evolution of Consalud's beneficiaries and market share. It is important to note a deceleration in the decline towards the end of 2024. The most significant drop in beneficiaries occurred in 2023 and early 2024, with a 20% decrease from December 2022 to December 2023. The decline shows in the second half of 2024, with only a 1.2% drop from September to December 2024, and 1.6% from December to March of this year. Despite the reduction in total beneficiaries, Consalud maintains its market share, still at 19% by March 2025. In this context, the industry loss of beneficiaries was mainly due to shifts towards the public insurance Fonasa. Finally, within slide number 35, we look at the performance of Vida Cámara during the first quarter of this year. The number of beneficiaries increased by 18% year-over-year, reaching 632,000 beneficiaries as of March 2025. As of the end of March 2025, the number of beneficiaries under group health insurance plans reached 595,000, a 60% increase compared to the same period last year. Beneficiaries under individual health insurance plans totaled 36.7 thousand, marking a 73% increase year-over-year, primarily driven by policies linked to preferred provider agreements with RedSalud. As a result, premium income rose by 73%, in line with the growth in beneficiaries. However, claim costs increased by 75.6%, driven mainly by higher outpatient coverage. This led to a loss ratio of 82.5% in Q1 2025, above the 76.8% recorded the same period last year, reflecting the impact of the higher service use. Now turning to slide 37, which shows I mean 38, which shows ILC's consolidated debt maturity profile and liquidity position. As of March 2025, net financial debt totaled $392.9 million, with our net financial debt equity I mean, debt to equity ratio of 0.34 times, below the 0.35 times reported at the year end 2024. ILC holds $142.2 million in liquid assets as of March 2025, primarily composed of cash, short-term investments, and conservative portfolio allocation, ensuring a strong liquidity buffer of upcoming amortizations. The company continues to actively manage its financial position, optimizing its investment structure to reduce carry costs and mitigate foreign exchange exposure. Finally, to sum up, I would like to summarize the key advances towards our strategic goals. As we have mentioned, between 2023 and 2027, we are focused on accelerating growth in the financial business, particularly through Banco Internacional and Confuturo. In this line, at Banco Internacional, we continue to strengthen our presence in the financial sector. As of March 2025, we reached 100,000 clients and post 16% year-over-year loan growth, outpacing the industry's 2.4% expansion. Regarding the annuity business, Confuturo continues to lead in a highly dynamic market, growing 16.6% in the quarter, nearly doubling the industry growth rate, which was supported by price-based valuation and strong operational performance. On the regulatory front, after the pension reform and Short Law of Isapres last year, we see a reduced uncertainty in both CrediArriesgos and Consalud. In the healthcare segment, Consalud continues to lead in coverage with a focus on expanding high complexity services. In the first quarter of 2025, it posted an EBITDA of CLP 23.3 million, with a 12.1% margin. Over the last two years, Vida Cámara has grown its beneficiary base by 53%. Finally, at AFP level, we reaffirm our commitment to creating value. This quarter, we want to highlight our strong performance, outperforming the IPSA by 38.2% year to date as the close date of May 16th. With this, we conclude the presentation. We will now open the floor up for questions. There is a question from Carlos Gómez. I will allow him to talk in order to ask his question. Carlos, please go ahead. Hello. Thank you very much, and thank you for taking my call. Gustavo referred to this, but could you elaborate further on the pension reform in Chile and also the pension reform in Colombia and how you see, let's say, the next five years for you? Thank you. Regarding the pension reform in Chile, the reform approved on March of this year, we are closely monitoring the progress of the pension reform while the final design has not yet been defined. We are confident in AFP Habitat's ability to adapt and continue delivering value in this scenario. Our scale, operational efficiency, and long-term investment approach position us well to navigate and contribute to the system evolution. Regarding the pension, it is a pension reform that affects AFP Habitat and also Confuturo. The market is expected to expand first, as individual contribution will increase by 4.5%, which implies a 35% increase in total contribution in a period of nine years. As we have mentioned in the past and also in the presentation, the minimum threshold to choose an annuity will decrease from three UF to two UF. Regarding the AFP business, various plan fees will be reduced as new administrators will be allowed to enter with the support of the Institute of Social Security. In this line, there will be also a reduction in the mandatory reserve requirement for Habitat. This could imply a release of up to 85% of current reserves. It will be beginning 74 months after the reform was published and applied gradually over four years, starting in 2027. We will assess the implication of these changes as the effective date approaches. The reform also introduced portfolio action or portfolio bidding process every two years starting in 2028, involving up to 10% of the affiliate's portfolio. However, the affiliates will retain free mobility and the right to opt out of the auction process if they want. It's important to know that new affiliates will also have the freedom to switch between AFP at any time, which is something good for Habitat. Finally, the proposal includes a new system of rewards and penalties linked to the deviation in investment performance, and now we don't have too much information on that. It should be defined by the regulator. While specific parameters are still pending, AFP Habitat has consistently ranked among the top-performing records, maintaining a strong and experienced investment team. We're still confident in that trend. To summarize, we're closely monitoring the progress of the reform. While the final design has not been defined, we are confident in AFP Habitat's ability to adapt and continue delivering value. Regarding the pension reform in Colombia, the project presented by the President of Colombia, Gustavo Petro, was approved by the Congress this year. It introduced four pillar systems, so the AFP contribution, three contributory, and voluntary savings. The new system integrates public and private regimes by directing contribution up to 2.3 minimum wages into the RPM, with any excess directed into the private system. The reform will be effect from this July. There's some considerations that are still pending, that we are seeing, we are watching closely. But if the reform passed, the context will be several aspects to consider. First, the lower claims ratio in the disability and survival insurance, because it will be managed by the state. I mean, it will be affiliate-based with a lower claim ratio for portfolios. Also, contributors earning between 1 to 2.3 minimum wages. However, they will direct their contributions to the public system. The reform introduced a 70 basis point fee applied to current pension funds. This fee will play a role in balancing the system, ensuring that the funds can cover their administrative and operational costs while continuing to provide similar benefits to contributors. There's another question regarding how is the bank managing the credit risk. As we have discussed in the presentation, the bank maintains a prudent provision policy and a conservative approach to credit origination, with a high collateral base focusing on clients with strong payment behavior. Risk evaluation and monitoring systems have been strengthened to ensure early identification and management of credit exposure. It's important to note that the higher risk expenses during this quarter were primarily linked to a few specific cases and do not reflect the deterioration of the total loan portfolio. We see the total loan portfolio quality remains sound and within the bank historical norms. Another question regarding Colfondos and how we see results evolving for the rest of the year. The results of the first quarter of 2025 reflect the expected impact of operational improvements and regulatory adjustments introduced through the Short Law aimed to restoring balance in the private health system and intended to cover the accounting liability associated with the implementation of the Single Factor Table, as was required by the Supreme Court. During the quarter, we observed a lower loss ratio, which was mainly linked to one first quarter, where the loss ratio used to be lower compared to the rest of the year. But also confirms that the measures implemented, such as price adjustments and cost control, are contributing to a more sustainable financial outlook for the industry. There is no more question. That is everything for today. Now, if you have further questions, feel free to contact our IR team. Thank you all for attending this conference call.