Earnings Call: Q4 2024

Mar 19, 2025

Summary

FY24 net profit was CLP 148.2bn after the Short Law accounting effect. Banking, annuity and healthcare operations posted growth, while Consalud’s IFRS liability and lower revenues weighed on results; pension reform and diversified funding shape the outlook.

Hello, everyone, and thank you for joining ILC fourth quarter 2024 results conference call. With me is Rosario Letelier, Chief Development Officer of ILC. Before we begin, I invite everyone to download the presentation prepared 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 into five blocks. First, we will review the economic and industry context for the period, followed by ILC's consolidated results for the full year 2024. Next, we will analyze our subsidiaries' financial performance and key highlights for the year. After that, we will provide an update on our financial position, and finally, we will conclude the call with a Q&A section. Now, I will turn the call over to Rosario, who will review the period's context, ILC's 2024 milestone, and our consolidated results for the year. Thanks, Gustavo. As you can see on the slide, we present the macroeconomic context for year 2024 compared to 2023. First, looking at the market returns on the left side of the slide, you can see the performance of the IPSA index, S&P 500, and the Pension Fund C, where all these experienced positive annual returns on year 2024. IPSA posted a lower return compared to 2023, 3% versus 17.8%. Meanwhile, the S&P 500 and the Pension Fund C, which is approximate to AFP Habitat legal reserve return, showed similar returns for both years. Inflation on 2024 stood at 4.5%, exceeding the 3.9% shown in year 2023. This increase was primarily due to volatility in energy and food sectors. Regarding monetary policy, you can see on the right side of the slide the monetary policy rate performance in 2023 and until January 2025. The Central Bank of Chile has continued reducing their monetary policy throughout the year, bringing it down from 11.25% in early 2023 to 5% by the end of the year. This also during year 2024 showed a reduction of 300 basis points. Lastly, in macroeconomic terms, Chilean economy grew by 2.6%, compared to 0.5% in 2023, which has been consistent with lower growth in the past years. Slide six outlines the key aspects of the pension reform approved in the Congress on January 29, 2025, after being presented in November 2022 and several months of discussion. On the right part of the slide, you can see some highlights or main changes this reform has. First, there's a gradual increase on the Guaranteed Universal Pension, which is the PGU, to reach 250,000 Chilean pesos per month for the most vulnerable part of the population, the 90% most vulnerable part of the population. There was also established a mixed contribution pillar. 10% individual contribution paid by the employee will be complemented by an additional employer contribution. The total will be distributed in an individual pillar, where it stands the previous 10% of taxable salary paid by the worker, an additional 4.5% taxable salary paid by the employer, and after 30 years of the reform's enactment, this will be increased by 0.15% annually for 10 years, reaching a total of 6%. On the other hand, the solidarity pillar will have a 1.5% gross salary paid by the employer, which will be directed to a state-backed loan with protected returns for 30 years. After this period, it will decrease annually 0.15% for 10 years. This is part of which will go to the individual pillar as I mentioned before. Finally, the BNSP will incorporate a framework that consider women's longer life expectancy, establishing a contribution of 2.5% of the gross salary. This will be paid by the employer, and currently the BNSP stands at 1.38%. In terms of industry changes, there will be a new entity, the Administrador del Fondo Autónomo de Protección Previsional, which is an autonomous state-owned entity that will collect the solidarity contributions mentioned before, plus state contributions that will finance the defined benefit payments. There's an opportunity for other fund management entities to enter into the fund management business, allowing them to subcontract support from the IPS, which is the Social Security Institute. Pension funds and these new entities must report support functions and account administration separately. There will be a bidding process every 2 years for 10% of the current portfolio and also the new affiliates that incorporate the system, starting 33 months after the reform support. This process will be awarded to a bidder offering the lowest commission, which must be maintained for 5 years, and affiliates will have an option to withdraw 30 days before and after the transfer. So there's a right to opposition to be moved into this diversion fund with the bidding process. There's also changes in reserve requirements for pension administration, shifting from 1% of the AUM to 30% of the annual commission revenues. This will be implemented from the second year and gradually over the period of 4 years, since the law is fully. There will be a replacement of the 5 risk-based funds to 10 durational funds, starting 24 months after the reform enactment. Finally, there will be a reduction in the minimum pension funding requirement for immediate and deferred annuities, decreasing from 3 Unidades de Fomento, which is the current minimum requirement, to 2 Unidades de Fomento. Now, we'll go over the significant events that have occurred during this year. First, we signed a shareholders' agreement with Banco Internacional minority shareholders in order to acquire up to 100% by May 2027. In December 2024, we completed the purchase of additional shares, increasing our ownership to 78.1%. Afterwards, we carried on a public tender offer directed at minority shareholders, raising our total stake in Banco Internacional to 78.2%. Next, on July 2, Banco Internacional completed the first bond issuance in the Swiss public market. This 3-year senior bond, maturing on July 27, carries an annual coupon in Swiss francs at a rate of 2.8%, equivalent approximately to 4.4% in Unidades de Fomento. The proceeds of this placement will be used to fund the bank's lending operations and also as a source of diversifying the funding source of the bank. Both Confuturo and Banco Internacional approved capital increases plans this year to support growth in the bank and insurance business. In April, Confuturo shareholders approved a plan to increase capital by CLP 74.5 billion and subscribed in June CLP 18.9 billion. Similarly, Banco Internacional shareholders approved a capital increase plan of up to CLP 57 million, with CLP 14.3 billion subscribed by the end of the year. Of that part, ILC subscribed CLP 11 billion, which is the proportion of the stake we have in the bank. In 2024, we would like to highlight that the bank grew 16% in loans year-over-year, outperforming our industry, which grew 3.9%, and Confuturo achieved a 15% market share in 2024, growing 6% in real terms. In pensions, we highlight two developments. One is the alliance between Prudential General Fund Managers and AFP, strengthening our position in pension fund management, and the creation of the new insurance company, Igual. Finally, regarding the health sector, we have successfully overcome the health crisis while diversifying products and revenue streams, and initially, we achieved a 59% growth in the supplemental insurance beneficiary over the past two years. This year, we also would like to highlight that ILC has achieved a major milestone in sustainability, ranking fifth place globally in the financial non-bank industry in the Dow Jones Sustainability Index. Our score improved to 73 points, placing us in the 99th percentile, which is an important milestone to our sustainability strategy. This year, ranking reinforced our role as a leader in sustainability within the financial non-bank sector. As you can see in the slide, we reaffirm the five pillars of our strategy, which we have consistently emphasized. These pillars form the foundation of our approach, drives our organic and inorganic growth opportunities. Our focus remains on achieving profitability in our operations, maintaining flexibility in the business we engage in, ensuring a strong financial position, and as we mentioned before, also we work with ESG values and metrics all across our activities. These frameworks directly supports our purpose, which is to be leaders in creating social and economic value that improves people's quality of life. As you can see here, slide 11, we show that the company has had consistent returns over time, aligned with our strategy and the goals that we set in our strategy plan. ILC has maintained double-digit profitability, showcasing steady growth and resilience. As we mentioned previously, the company is now entering a new phase where growth is expected to be driven primarily in the financial business. In 2024, ILC reported a profit of CLP 180.6 billion before accounting adjustment related to the application of the Short Law, maintaining a performance in line with historic levels from 2023. After this effect, ILC reported a net profit of CLP 148.2 billion for the year, which is shown in the last column of the graph. Regarding net income composition for 2024, the company was primarily driven by the contribution of Confuturo, AFP Habitat, Banco Internacional, Vivir Seguros, and RedSalud. Confuturo achieved higher annuity premiums and improved investment performance, driven by better investment fund results, along with the release of impairments in fixed income assets. AFP Habitat experienced revenue growth aligned with increase in average taxable income of its contributors, and additionally improved due to the financial market performance. This resulted in high returns on legal reserves. In the healthcare sector, RedSalud improved its results through a better mix of inpatient services and higher income from dental services. This was offset by Consalud, CLP 49.5 billion loss, which is mainly explained by the effect of the accounting under IFRS of the liability related to the Short Law of ISAPRES, and also due to lower revenues because of the GES reduction and decrease in its beneficiary base. This was partially offset by reduced inpatient costs. Lastly, Vivir Seguros showed high results, mainly explained by the performance of Contract SIS number seven, which explains the main result of this year for Vivir Seguros. Overall, as I mentioned before, ILC achieved a total profit of CLP 148.2 billion for 2024, where the main contribution came from its financial subsidiaries and RedSalud, consistent with the strategy we have for the upcoming years. Now we turn the call to Gustavo to review the main operational events and key financial figures of ILC's subsidiaries. Thank you, Rosario. Moving to slide number 15. As of December 2024, Banco Internacional loans grew by 16% compared to the previous year, marking the second highest growth in the industry that expanded by just 3.9%. The commercial loan portfolio grew by 12.7%, with increases in loans to company operating in the trade and investment sectors. Meanwhile, the consumer loan portfolio increased by 62%, mainly due to the growth in Autofin portfolio and digital consumer loans, reflecting the expansion of the bank's digital services. As a result, the bank achieved a market share of 1.6, 2.8, and 1.2 in total commercial and consumer loans. The bank recorded an outgrowth of 17.4% and 67.7% in commercial and personal banking clients, reaching 8,086 thousand clients respectively. Looking ahead, Banco Internacional is focused on three key areas: expanding its presence in large corporations, further developing its retail banking segment, and diversifying its products and funding sources. Now, if we move to the next slide. Banco Internacional has made significant progress in developing its funding structure, reflecting a strategic shift towards greater diversification and more stable funding base. In 2024, the composition of funding sources saw a higher reliance on bonds and retail time deposits, while demand funding decreased from 19% to 14%. We strengthened the access to local and international markets, ensuring liquidity and diversification. In 2023, we secured a 255 million IDB loan through the IDB, reinforcing the long-term funding. In July 2024, we successfully issued our first bond in the Swiss market for CHF 100 million, further expanding international funding sources. Liquid reserves remain invested in Chilean government securities and certain bank instruments, ensuring financial stability. Looking ahead, we see three main funding opportunities. We will continue scaling the retail financing base by enhancing customer acquisition and retention. We will continue expanding the local and international corporate portfolio to strengthen funding sources, developing digital financial products with a streamlined onboard process, increasing accessibility and efficiency. If we move to the next slide. Slide 17 presents Banco Internacional operating performance for last year. Gross operating results grew by 11%, reaching 190 billion Chilean pesos in 2024, driven by higher loan spreads in commercial and consumer loans. Operating expenses increased by 36%, totaling 105 million Chilean pesos, mainly due to the full year consolidation of Autofin in 2024, compared to just 4 months in 2023. That implies an efficiency ratio rose close to 1,000 basis points, reaching 55.3%, impacted by a base effect from the recognition of goodwill related to the Autofin acquisition last year. Risk provision expense of 3 billion Chilean pesos for consumer loans, which last year was recorded as SG&A expenses in 2024. But if we adjust for these effects, efficiency would stand at 53.7% in 2024 compared to 47.9% in 2023, which reduced the gap between both years. Overall, despite the higher loan spreads and strong loan portfolio, these gains were partially offset by the end of FCIC support and the increased consolidation expenses, as I mentioned. On the next slide, on slide 18, we can observe risk expenses have decreased during the period, mainly explained by lower provision for commercial loans. Total risk expenses decreased to 3.8 billion in 2024, down from 27.6 billion in 2023. During the period, we experienced the release of additional provision of 3.4 billion Chilean pesos and the full year consolidation of Autofin in 2024, compared to only 4 months in 2023. Provision expenses over gross operating income reached 12.5% last year compared to 16% in 2023. As of December 2024, the NPL remained steady at 2.9%, in line with the same period of the previous year. The risk index reached 1.9% compared to 2.5% from the industry. In terms of collateral coverage, Banco Internacional continues to lead the industry, achieving 68% as of December 2024. Other thing to highlight, additionally, the Banco Internacional fully complies with Basel III standards, maintaining a solvency ratio of 14.8% as of December 2024, reflecting a strong capital position in line with regulatory requirements. If we continue the presentation, we will move to the next slide. Slide 19 shows the evolution of Banco Internacional's profit and ROE over time. While the bank has shown growth in profit historically, for 2024, there was a decrease in profit compared to the last year. The higher loan spread, lower risk expenses, and increased contribution from Autofin were offset by lower results due to the end of FCIC and the high comparison base, given the recognition in 2023 of intangible assets related to Autofin acquisition for 5.2 billion, which is quite similar, the difference between both years. Despite the short-term decrease, Banco Internacional continues to maintain a strong long-term growth, with profit reaching 50.5 billion Chilean pesos and ROE of 13.9% for 2024. It is important to highlight here that Autofin accounted for 6.7% of Banco Internacional's total profit and 7.7 of its total loans. Now, if we move to shifting to the annuity market, seen on slide 21, the annuity market grew by 4% in real terms compared to the last year, with the preference for annuities over programmed withdrawals averaging 56% during the whole year versus 54% in 2023. In this scenario, Confuturo's premiums grew by 6.2% in real terms, reaching a 14.8% market share compared to 14.5% in the previous year. Regarding annuities, industry changes, the pension reform 2025, as Rosario Letelier mentioned before, reduced the eligibility requirements for annuities from three UF to two UF, improving access for more individuals. As we have seen in the past, these adjustments help promote market growth and expand annuity coverage in the country. If we move to results, slide 22 shows Confuturo's investment portfolio performance for the year. The investment result grew by 18% year over year, reaching CLP 479 billion. This increase was primarily driven by improved results from alternative investment funds, along with impairment releases. Looking ahead, we remain focused on alternative investments, particularly in private equity and real estate, as key drivers to further diversify our portfolio and enhance long-term returns. Slide 23. In slide 3, we can see that Confuturo posted a profit of CLP 86.3 billion in 2024, compared to CLP 70 billion in 2023. This increase was mainly due to a higher annuity premium income, along with improved returns from the alternative investment portfolio and fixed income impairment releases. Overall, Confuturo's ROE for 2024 was 14.6%, higher than the 12.4% recorded in the same period of 2023. Now, regarding our pensions, especially in AFP Habitat. As shown in slide 25, revenues increased by 5% in 2024 compared to 2023, reaching CLP 251 billion for 2024. This growth was mainly driven by fees related to mandatory savings, supported by a 7.9% nominal increase in the average taxable income of Habitat's contributors compared to the previous year. The average taxable income for Habitat contributors as of the end of 2024 was 21.6% higher than the industry average. This was partially offset by the 3.4% year-over-year decrease in the number of contributors. Moreover, the better legal result of AFP Habitat was mainly due to the higher performance of funds with higher exposure to equity and foreign investments. With both things, as we can see in slide 26, AFP Habitat accounts profit of AFP Habitat. AFP Habitat has maintained a stable profit over time, with profits reaching CLP 140 billion for 2024, 6.5% higher compared to the previous year. This increase was primarily driven by higher fees aligned with the increase in taxable income and return on legal reserves due to the better performance of financial markets. Then moving to AAISA, which is the holding company of AFP Habitat Perú and Colfondos. We highlight the revenue growth in both subsidiaries. AFP Habitat Perú reported a 32.1% increase in revenues, reaching CLP 37.9 billion, primarily driven by higher fees from larger average taxable income, partially offset by a lower AUM following the seventh pension fund withdrawal, which occurred in May of last year. Legal reserve return in AFP Habitat Perú decreased by 40% year over year, reflecting a lower nominal pension fund return, mainly due to financial market performance. For its part, Colfondos in Colombia saw a 44% revenue increase, reaching CLP 87.9 billion, driven by a lower BNSP, a higher average salary base, and increased revenues from unemployment insurance. Legal reserve returns in Colfondos grew by 22% year-over-year, reaching CLP 16.2 billion. Slide number 28 highlights the profit evolution of AAISA, driven by group performance in AFP Habitat Perú and Colfondos. AAISA profit grew by 20% in 2024, reaching CLP 37.4 billion. The result was primarily due to higher fee revenues supported by larger taxable salary base and increased pension contributors, with higher returns on legal reserves contributing more profitability, partially offset by higher operating expenses. All these factors reflect continued business expansion and a resilient pension market in the region. Now, if we move to healthcare in slide number 30. The slide highlights the increase in RedSalud's EBITDA margin, which grew from 10.8% in 2023 to 11.8% in 2024, meaning an increase of 100 basis points. This improvement was primarily driven by a better mix in the inpatient sector, reflecting a shift toward more complex procedures. Higher activity in the dental services contributed as well to the revenue growth. Improving efficiency in managing medical fees and personal expenses, leading to cost optimization. Despite increases in certain costs, such as clinic materials, overall efficiency gain supported margin expansion. This trend reinforced our focus on enhancing operational performance and optimizing the service mix to drive growth in the healthcare sector. The other thing to highlight in RedSalud is RedSalud continues to diversify its revenue sources. The revenue breakdown by insurer shows a growing share from the public insurer FONASA, which has gained increasing relevance in 2024. By 2024, FONASA represented a 48% share of RedSalud's revenue, reflecting RedSalud's strategy to diversify its income sources and reduce its dependence on the private insurer ISAPRE. Now, slide number 32 represents RedSalud's EBITDA evolution for 2024. EBITDA increased by CLP 15.1 billion, reaching a total of CLP 87 billion, up from CLP 71.9 billion in 2023. This growth was primarily driven by a better mix of services in inpatient sector and increased dental services activity, alongside improved efficiency in personal expenses and medical fees. This resulted in a CLP 7.7 billion increase in EBITDA for hospital in the metropolitan region, a CLP 5 billion increase for outpatient and dental centers, and a CLP 4.2 billion increase for regional clinics. In addition, the EBITDA margin improved, as I mentioned, from 10.8% in 2023 to 11.8% in 2024, which was mainly driven by better operational efficiency, mainly in the inpatient sector. Now, if we move to slide number 33. This slide tries to highlight the recovery of average monthly contribution in Consalud. The mandatory health insurance, which was supported by the implementation of extraordinary premium in late 2024. Contributions saw a decline in early 2024, mainly due to the impact of adjustments to the GES pricing. This situation stabilized following the implementation of the single factor table and the 7% minimum contribution in September 2024, as well as the extraordinary premium during November 2024. By 4Q24, we see the average monthly contribution recovered to CLP 280.7 billion, which, as I mentioned, was supported by those effects. Despite fluctuation, the loss ratio ended for the last quarter in 86.3%, reflecting this financial stability. For slide 34, this slide illustrates the evolution of Consalud's beneficiaries and market share. Here I want to highlight the deceleration in the decline towards the end of 2024. What we want to highlight is the most significant drop in beneficiaries occurred in 2023 and early 2024, with a 20% decrease from December 2022 to December 2023. The decline showed in the second half of 2024 was only a 1.2% drop from September to December 2024. Despite the reduction in total beneficiaries, Consalud maintained its market share stable at 19% by the end of the year. The industry-wide loss of beneficiaries was mainly due to shifts towards the public insurer, FONASA. Lastly, slide number 35 shows Vida Cámara performance for 2024 in terms of growth. Premium income rose by 27% due to an increase in beneficiaries. The number of Vida Cámara beneficiaries reached 621,000 as of December 2024, reflecting a 20% year-over-year increase. Vida Cámara contribution margin for health and life insurance increased by CLP 8 billion compared to 2023. All in all, Vida Cámara reached a profit for 2024 of CLP 5.7 billion, compared to CLP 2.6 billion recorded last year. That was our subsidiaries performance for 2024 compared to 2023. Now, we move to slide number 37 regarding ILC's debt and liquidity structure. The company reported a net financial debt to equity ratio of 0.35 times, I mean, compared to 0.32 times in 2023, mainly due to the payment related to the acquisition of Banco Internacional. ILC maintains CLP 136 billion in liquid assets to meet future obligation and manage its cash reinvestments into reducing financial carry. We have also hedged the foreign bond from foreign currency exposure. Slide number 38 shows ILC's stock price, which is something that we watch very closely. In 2024, ILC's stock price rose to 27.4%, including dividends, outperforming the IPSA 8.3% return. This positive trend continues this year with ILC reaching a 27% return year to date. An important milestone for us occurred last week when S&P announced that ILC will rejoin IPSA Index. Starting March 24, 2025, ILC will once again be part of the IPSA Index, which is Chile's leading stock market index, which includes 29 most relevant stocks in the country. Now, in order to wrap up, in summary, ILC continues to advance its strategic objectives strengthening its presence across the key sectors. We have reinforced our financial business expansion, mainly in Banco Internacional and Confuturo. Regulatory certainty has improved in AFP Habitat and Consalud, supporting stability and growth. In the healthcare, we have focused on overcoming the challenges. We diversify our revenue streams and enhance efficiency in RedSalud and Vida Cámara. All in all, our commitment to creating social and economic value remains at the core of our strategy, ensuring sustainable progress for all our stakeholders. With this foundation, we are well-positioned for continued growth and value creation in 2025 and beyond. With this, we conclude today's presentation. Now we will open the floor for questions. We have a question regarding the pension reform, how it will impact our AFP business as well as the annuity businesses. I don't know if you want to address or Yes, of course, please complement anything that I may leave aside. As I mentioned before, we went over the main impacts the reform will have in the industry, and also in the affiliates. In our case, in Habitat, we believe that we are in a strong competitive position regarding all the track record the company has. We also believe that the implementation all across the years will give time to adapt to these changes. Also in the case of Confuturo, it will be an opportunity, as we have seen in the past 2 to 3 years, to see a bigger market in the annuities business because of the decrease on the minimum requirements. Since the individual capitalization and all the savings will increase because of the reforms, this will lead to a higher AUM that the pension fund or the annuities company will have to administrate at the time they pension. So all in all, we see opportunities in this business. Thank you, Rosario. There is another question regarding how our perspective of ISAPRE, how it could negatively impact our performance. Okay. As we went over the past calls, the ISAPRE reform aims to give financial stability to a sector, and that is the key point of the whole reform, is to allow this stability for the upcoming years with a combination of the reimbursement that took place since the end of 2024, combined with a new premium and a special premium, that again, aims to give financial stability to the sector. So all in all, what we see for the ISAPRE for the upcoming years is to be part of this stability that the pension, I mean, sorry, that the ISAPRE reform aims and this is what we have seen in the past months since the enactment of the reform. Thank you, Rosario, for your answer. There is a question from Roberto Cad from MetLife. The question is about the reduction of Encaje. What is the amount you are expecting to receive at ILC after taxes and proportional ownership in Habitat, and in which year? As Rosario mentioned in the presentation, the reduction of Encaje will begin in 2027, I mean, 24 months after the publication of the law, and it will be gradual in a four-year period. Our estimation for that is we took the figures that we have right now, because it will appear in two years from now. That meant a release of close to 85% of the current amount totaling around CLP 350 million net of taxes at the Habitat level. If we think in 40% of that at ILC level, it is CLP 140 billion. To complement Gustavo's answer, the proceeds of or the uses of that release will be analyzed in due time. As he mentioned, this will be in two years, more or less from now. At that point, we will analyze, and ILC will analyze what is better use of that proceed at that point. Thank you, Rosario. There is a question about how we outlawed Consalud. I think it was mostly addressed by Rosario, if we plan to put capital into the company. Also regarding Banco Internacional, there are two questions. One regarding Banco Internacional, should we expect to see more debt issuance like we have done in 2024? As I mentioned before, Consalud, what we expect for 2025 will be, as the reform aims to have a financial stability. Along with this, we do not foresee any capital requirements as it has occurred in the past years. I would like to reinforce that all the reimbursements and liabilities that are reflected on the IFRS, are not reflected in the solvency accounting standards and also have no requirements for warranties. As I said before, we do not foresee any plans to put capital in Consalud. Regarding Banco Internacional, as they have done in the past years, they will be analyzing different funding alternatives and sources. As we mentioned in the key milestones of 2024, opening the Swiss market alternative is very useful for the bank and probably will be analyzing different alternatives for 2025, in local market and international markets. Thank you, Rosario. I think that's everything for today. Now, if you have further question, feel free to contact our IR team. Thank you all for attending this conference call, and see you in the next quarter. Thank you very much. Goodbye.