Grupo de Inversiones Suramericana S.A. (GRUPOSURA) Earnings Call Transcript & Summary

Welcome to the presentation for results for the third quarter of 2020 for Grupo SURA. I'm Silge and I will be your operator today. [Operator Instructions] Please keep in mind that this teleconference is being recorded. As of now, I give the floor to Mr. Juan Carlos Gómez, Manager of Investor Relations, to start the conference.

Good morning. Welcome to the presentation for results for the third quarter of 2020 for Grupo SURA. On the agenda, we have to -- this recorded session where we read -- discuss the results, and then we will have the questions and answers. From Grupo SURA, Gonzalo Perez, our President; Ricardo Jaramillo, our Vice President of Finance; Juan Luis Múnera, Vice President of Legal Affairs; and Mónica Guarín, Vice President of Corporate Affairs. And our affiliate Carlos Oquendo, the Vice President of Finance for SURA Asset Management; Juan Camilo Parra, Manager of Inversiones Suramericana. Welcome, and I give the floor to our President, Gonzalo Perez.

Once again, everyone, thank you for your attendance to this presentation for results for the third quarter for Grupo SURA. We will now talk about -- first, about the strategy that has brought around these 9 months for the affiliates and the group and later Ricardo will go more deeply into the financial results. From the beginning, we've been telling you what our strategy has been like, and I want to repeat it because it's still valid. First of all, when we started, the pandemic was hit, we said lets first take care of our people. Both human channel and for the company which we've done that, fortunately, with more than 10,000 employees in the health area and obviously, the people who are members of our companies. Thus today, we can say that by taking care of our people, we have managed to include 2,300 new individuals to work in our health area. This means 2 important effects. First is to improve our health system. We right now, as Suramericana, have 0.7% of our mortality, with world has 2.4%. For example, Colombia has 3%. So we have less than 30% of the mortality than around the world. This is the result of our strategy. And also as we were saying, because we have 2,300 new people that are also in support of the reactivation of the country. So there, we continue to work on these results taking care of our people, our employees and ourselves, our employees, and obviously, the people who are members of our different products of the company. We've also said that after the people, we're going to meet our objectives and our promises through our activities and what we've told our customers about the solutions to products and our services. So we've always looked for creating value here. What we found is that the strategy is that we had the various affiliates for creating value for being competitive in our companies, in our people has been valid. We're always talking about that well-being is good and creating value for the companies is good. We have good examples of how developing this strategy has had an effect on small and medium-sized income companies. So asset management generating new products and new solutions for financing the various very small companies and also for the medium-sized companies with attending strategic risks for those small and medium-sized companies. We've had more than 82,000 small and medium-sized companies in this pandemic, helping them with competitiveness and sustainability. So this is even more value during the pandemic than we had initially at the beginning of the year. That value creation has had some very important results as well because we'll see that in the revenue of the companies. When Ricardo will talk about the results, financial results, you'll see that the results for the companies have been increasing in spite of the pandemic, in spite of the -- this economic impacted period, both Suramericana and SURA Asset Management have maintained a very much higher level to -- levels of revenue than we had expected during the first quarter. The revenue for our companies are still healthy. There's no doubt that there are -- this is a result of value creation and helping out the expectations of what we could do in our affiliates, SURA Asset Management and Suramericana. And the other thing that's been very important and we had said it earlier before speaking about the liquidity and solvency, this operating model, in addition to efficiency, more than -- existing operating model. This -- the 2 affiliates in Grupo SURA, every day, we're going through that -- to facilitate the operating model to make it more efficient from the point of view of expenses, but also to allow us to develop our strategies. So our goals are above the expenses and our levels of efficiency. Both companies, both affiliates have been working in-depth on those operating models, and this will allow us to achieve better margins, but at the same time, as we build value for the customers in both companies. So it's not only taking care of the expenses and efficiency, but we're also taking care of our strategy at times like this, eliminating processes. A strategy that allows us to have results that, as we will see. And I mentioned earlier, these results are -- no doubt are better than what we were expecting for us, it's very clear also that every day, every day, we have to work on each one of these criteria straight in taking care of the health and the revenue, creating value for the people, for the key companies through our affiliates and to take care of our operating model. We also have 3 further months to end the year. We will continue to work on this with all the tools that we've been using, which fortunately are providing very good results, much better than we had expected as a result of the pandemic. In summary, there's a strategy that is working for our affiliates. This is a strategy that means that we're creating value. We are keeping on with the strategy and more than ever we have to be helpful to the strategy, the customers, create value to the customers. We have to take care of the revenue and to keep our loyalty. And we have achieved that, and that is why the company's revenues -- as Ricardo will show, in the middle of the pandemic, we're still having very healthy revenue. So truth be told all of you, thank you for your confidence, as always. And we want to leave you with Ricardo, who will go into tell you more about the results of the companies in Grupo SURA and also the balance sheet and the solvency and liquidity that we had set up as part of our strategy, as a strategy, but especially during these times of pandemics. Thank you once again for your company, and we'll go with Ricardo, and then we will have all your questions and answers.

Thank you, Gonzalo, and casual welcome to all investors. I want to start by telling you and update you to the financial risk management. We have a key point that we were saying, which is the managing this soundness and the solid liquidity. We started in with the stress test process that has enabled us to become -- take early action and to manage our cash flows for 2021. What I can tell you is that both soundness and the liquidity of the companies are in a very good position, improving throughout the year. And secondly, during this early actions and what we were close to COP 2.3 billion in the various companies, Suramericana, SURA Asset Management and Grupo SURA. Specifically the payment of our debt by COP 590,000 million, where we have amortized some of our debt. And secondly, a refinancing or a management of COP 1.7 million, where we have COP 1.3 million in Grupo SURA and close to COP 400,000 million, COP 365,000 million in SURA Asset Management. This has enabled us to have some important benefits. The significant rate of reduction in SURA Asset Management, we have approximately 100 basis points now. And in additional to the extent that our average life was close to 7.5 years plus. And also, we have a natural coverage for our debt by having revenue in pesos and the expenses associated in pesos. This to summarize management, we have ratified the different ratings for the 3 companies: Grupo SURA, Suramericana and SURA Asset Management. From the point of view of risk, I want to point out, obviously, we're monitoring all the risks that we can have in company, both strategic and operating, but we have to point out. One is the seriousness and duration of the pandemic. There's a recent news, which are positive by the possible vaccine. However, as we said earlier, we're in a position that because of our knowledge and the good management of the company, we are able to mitigate the situation. Gonzalo was talking about a thing like mortality. We have 0.7% in terms of -- I think it's very significant. It shows our capability to manage the pandemic. The second point is the management with the vis-à-vis the regulatory changes. And I want to give you a specific detail of one, not a specific country. We want to talk about a long-term view for the system specifically about a strategy that is supported on 5 pillars. One, which is the creation of value for our customers, our clients. We know we have to be the best service providers, this makes us strong, and our clients will support us during difficult times. Second is operating efficiency. This has enabled us to accelerate certain transformations, leveraging our technology. For example, in Chile, the digital channel in Chile that we had talked to earlier, is 40% of our new entries and the new activities in Chile or in ASP is through the digital channel. We have optimized the capital. We've focused on resources with total efficiency in our management capital for new investments, and we have democratized our capital. And I think this is very important to point out that the efficiency of the systems -- these systems throughout the years in creating. And we have to be very visible to the fact that today, our members, all of those as the pension members -- pension system members are the dynamics of the economies. The main owners of the companies, in the case of Colombia, are the members of the pension fund. So this is very important because the democratization of capital and then supporting the government in terms of making the economy more dynamic. We have a lot of dialogue with the value of the systems and to create the awareness on how these systems are fundamental for the future. And there's a major challenge is that the benefit of our pension systems is reflected in the future is not so short term. So we have to have a lot of dialogues to show this dialogue, that this is the future. This is a very general strategy that we are not just looking at the pensions. Let's go to this next slide, where we will see the statements of results for Grupo SURA. I'll start with this segment or results and tell you that we maintain that, as we said, Gonzalo, we had significant growth of our revenue. At least the profits are positive, supported by very, very important operating dynamics. And you can see the revenue, the first lead lines, which are associated to the business of our affiliates are still positive. The premiums and revenue through commissions are positive. This gives us a lot of peace of mind. And this shows us that taking care of our revenue is being a major priority. And I can point out 2 other accounts that we will see in more detail later, which is a revenue from investments and the net for participation. If you can look at the tables left -- on the left-hand side, variation of those accounts is about COP 1.2 billion less compared to the previous year. Let's keep that in mind because it is important. Means that the operating revenue is decreasing by 3.3%, which, as I said for a situation like the one we've been living through this year, is much better than expected. And we have a very strong control of operating expenses. They're going out to 2.9%. And an operating profit of COP 1.4 billion, growing 40%. And you can see that the variation vis-à-vis the previous year is less than we had COP 1.2 billion, which is in operating profits and net profits. And net profit is COP 398,000 million, with a difference of COP 1.1 billion compared to previous year. We have -- clearly, you can see that in detail on the right-hand side, there are 2 accounts that show this difference, and we will show you throughout the presentation, as a net participation and revenue from investments. Next slide. Let me tell you about these 2 accounts. The first is the participation method, and I want to rely on the graph and the table. You can see the trend that we had from the participation method. This is a normal participation method, and the company should be about COP 300,000 million, which has come from the associates every quarter, COP 300 million per quarter. We're seeing a quarter of 184,000. Although, it's below the level, it's better, and you can see the trend in the graph, it's better than we had in the previous quarter. This is supported mainly because of the Bancolombia, from that total difference of COP 300,000 million, the difference is COP 515,000, which is a considerable amount in our financial statements. And we will have to continue monitoring this because it will depend on the provisioning policies that the bank might have and the reactivation and post credit in the institutions. Going to the lower part, the revenue from investments was COP 1.745 billion. Compared to the previous year, the difference is COP 453,000 million. Point out 2 things. The first 2019, remember, we had a very positive year for capital markets. But 2018 was pretty so-so. We're having a year, which is close to COP 100,000 million less than 2018. But this is -- it's a so-so year. I guess you can see the graph, we're at higher levels than the first quarter, which was perhaps the most complex. But it is a year where we have to continue to monitor with the other accounts to see what the final impact is going to be by December. Let's go to this next slide and show you what the net profits look like. We have recovery from the quarter or especially in the Suramericana, COP 202,000 million. This is a 1% growth. Suramericana is maintaining its profits, and being able to maintain its profits. Even during the pandemic, we have some COVID effects actually impacting our results, and associated mainly to what I just showed you about the revenue from investments, and this is an important difference. In Grupo SURA, especially the main impact is also mentioned by the participation method, which mainly by our Grupo Argos, Nutresa, Bancolombia, in this case, also Protección. This, we can see that graphically in the bottom part just illustrates what I'm showing you. If you compare the progress from '19 to -- 2019 to 2020, and we have the effect of the SURA Asset Management cash and the participation in Grupo SURA. Let's now go to Suramericana. I want to point out 5 main messages to understand the numbers in the accumulated for the 9 months and for the quarter. First, the growth of revenue was healthy. It's COP 13.36 billion, 10% growth, driven by mandatory Health close to 21% growth and others growing at 7%. This is the first metric which is very important. Secondly, rate of losses in different economies, as they come back to normal. The last level -- the accident level has been increasing. Those are expenses due to COVID, especially like Health and ARL in Colombia. The fourth is a very strong control of other expenses and fifth a component for diversification, which I think is very important. And I want to show you in the next slide. This diversification component shows at the life company, which is most impacted by the pandemic, is having a decrease in profit. But general insurance, general provisions are making up for that decrease. And you can see 202,000 in the case of live -- less compared to 228,000 positives in general issue. And this also brings a message that I want to show you more detail and is the component of diversification, which began to have a higher rate, especially outside of Colombia. The other positive measure in the graph is how the composition of the profits in the comparison of 2019. Now you can see that the profits for Suramericana. If we exclude the effect of the sale to the company we had in 2019, which is close to COP 33,000 million, which are added to the statement of results of the 2019 stationery results. Our own company's results is close to 12.6% higher. And let's go now to the segments. We have these life segment point out what we mentioned earlier, the growth in premiums, mostly driven by Health. However, this is very important for what I was mentioning earlier, there's an increase in the rate of accidents, especially in work-related accidents. First as mentioned is the 7.6% increase in premiums and the whole segment in 7-point percent of the pandemic losses, some investments were -- these investments, because is mainly in Colombia, they associated to the decrease in inflation. Most of the portfolio is in this through inflation. So the inflation is right now will have an impact due to that financial results, the financial results from investments which also added to the losses in the investments and increases our profits. This is COP 197,000 million in profits. Labor risk, we have higher accident rates, previously was close to 40% in this business, right now is 69% so far this year. This is aligned with the coronavirus infections in the country, are also associated to the business of Suramericana. And since we have managed this from the company that control of those losses. Going to the next slide about general insurance. We wanted to point out what we said earlier by Ricardo, is supported by some operating results and the higher profits from international operations. The green line is trend to recovery. We're still not positive in terms of our accumulated growth. We have minus 3.8% in premiums. But in combined ratio, it's coming to similar levels to what we had before the COVID. We want to say that the investment from revenue, on the left-hand side, has a very important recovery our portfolio in Argentina. And the most important thing that I want to point out here is in the lower right-hand side is how the contribution of the profit the companies outside of Colombia in 2017, and what it is -- what it looks like in the -- this first quarter. And previously, it was 50%, now it's almost 30 -- 73% of profits, up between 2017, [ COP 152,000 went up to COP 2,021 million. ] Colombia not only decreased, but also -- we had a significant increase of the operations outside [indiscernible] message we had with our process to get our more profits. And this is specifically important because they're helping us. They are helping us to make up for the pandemic effects that we are seeing that in Colombia today. Let's go to the next slide, and we'll see the Health segment. The Health segment, I want to point out that even with the current situation that we repeated, it's having positive profits. We continue the number of members will almost at 4 million people with an accumulated growth of 23.4% in revenue or COP 4.1 billion in revenue. This slide, on the right-hand side graph shows that the costs are highly controlled. And we can see in the lower part that profits are COP 16,000 million positive. Remember that '19 was a very complex year because we had a lot of members coming in from other IPS in migration that impacted initially our losses in that way, had such a significant increase, although in this segment is part of the complexity of these 8 months. In terms of Health, we are still resilient, we're still growing. We have a growth in controlling our costs and expenses. Let's go to SURA Asset Management. And in our Slide 17, I want to point out that the revenue from commissions are keeping up even with lower rates in the countries, the cash reserves have affected our results. Our main company revenue is positive even with the unemployment rates are still very positive. We have COP 248,000 million compared to the previous year, which associated that to the investments. And we have a method of participation in which the participation in Protección, which also has an impact because of the revenue from investments. So we're talking about COP 341,000 million, COP 340,000 million, which have been gathered through this period where we see operating profits with a difference of COP 422,000 million were coming to [ COP 642 million. ] And we have a difference of COP 228,000 million, which I say is mainly associated to the impact that -- if we look at the right-hand side of the graph, the volatility that we had -- the reserve is -- the cash position, which is we needed for the pension funds and which is invested that reflect the funds and the funds currently have had volatility due to the financial markets. But this is relative, the operating profit for the third quarter 2019 without the reserves of COP 181,000 million and the relative COP 188,000 million, without the growth for 2020, we maintain the same operating profits for the business. Let's go to Page 18, where I want to show you the main figures for the savings for retirement. Let's start with the graph left upper part, COP 5.1 million. And I want to separate the part about the flow, which in some countries like Uruguay had a percentage from Peru and Chile and a part of AUM which is Mexico and a part from Peru. And you can see that over by AUM is growing at 11% and the flow, which is more associated to unemployment, we are decreasing 11.6%. These 2 have a very balanced growth. We're growing at 6.9%. This is part of the situation from the economic point of view. This is a AUM positive growth, and we're maintaining our expenses as a percentage of revenue and at the same amount as we had last year compared to the third quarter of 2019. We have good dynamics in the growth of the AUM in Mexico. It has grown 8.2% in revenue. Let's go to the next slide, Slide 19, savings for investment and the investment management business. First, we have like 16.2% growth. This leads us to have accumulated growth of revenue of 17.2%. It's almost COP 232,000 million. And third, we have a net flow for the quarter, which is COP 2.9 billion. And in the first 9 months is 17%, COP 7.4 billion, which is a very challenging time for what is still positive. And the fourth message is that the growth that we're seeing in the expenses in this segment is 10.3%. Why is that important? Because when we compare to this growth of 10.3% compared the growth of 17.2%, it shows that the road to the point -- to a breakeven point is right on. This is the end of my participation. Thank you very much. And now let's go to the section of questions and answer, which is a live session.

[Operator Instructions] We have Julian Ausique from Davivienda Corredores.

I have two questions which are more about your vision for the instability in Peru and the impact that this might have, both in the investments in the business. You mentioned something about in other countries has been -- allowed us to offset part of the results of the pandemic. Give us a little more information about these other countries, how have they affected results? What segments are out of water, what has affected us?

Thank you for your questions. First about the political situation in Peru. Obviously, this affects the market, that's totally obvious. But for us, we've been trying to get ahead of the political situations in countries. For example, we have very efficient operating models, which make our expenses -- can have much better position. So that operating model will help us, but we are focusing that on being very efficient. And we as an administrators of mandatory pension funds, we have to be as most -- the most efficient we can. We believe that what's happened in -- both in Chile and Peru has gives us a lot of positioning from fund managers because the savers in those funds, they want to protect their money, the money that is totally on site. We've been working in every country, with the opinion that make. But also we're working with the [indiscernible] chambers to make sure what the benefits that not only the benefits for the savers, but also for the entire country. So we've been -- we shouldn't be indifferent to the politics, but we have to be very efficient and getting -- anticipating on the situation. So we're always creating value for the people who are saving, we're creating value for the country and are creating obviously for the company. So it's not an easy moment in Peru, but we know that we are watching out what the system can do. And we insist that we are proving to all the savings in the country that we are -- the savings that are owned by each work and the salaries that they are helping the country. So we are anticipating this efficiency factor that, as Ricardo mentioned, we are taking giant strides, and this is going to be making it possible to have very positive results in each country. So this -- in general, this is a mandatory insurance, part of our strategy and our philosophy. We had said that very early in the year, we're going to be very positive for everybody. I have to make 2 comments. Let me say, we're going to have greater growth in Latin America, but also a rate of informality, which in Latin America will have to go down in this year and the next year, we're going to have to go through that deficit due to the COVID. It's going to be difficult, but we have to be aware that we have to move towards formality and equilibrium and is going to be important for all the products that are mandatory in nature. And on other countries, in the case of Suramericana, basically, there are some countries that have very good results from the point of view of profits. Mexico has a very important growth in profits. They recovered a year that was pretty poor last year and Dominican Republic has had very good profit compared to the trends in the previous years. Argentina, you know that the performance of the investments affected close to COP 70,000 million last year. This year -- they've been recovering this year in part, and we had some positive results. And Chile also had some hard times in previous years and the year before that. So we had better results. So in general, most countries have better results. You know that these are companies that are mostly in the mandatory businesses, and they're also going into life and auto businesses. And we're working very hard. I don't know whether Ricardo or any other my colleagues would like to -- or Juan Camilo can add anything to that answer.

About Peru, it's a business not only because of the crisis for the last week, we've had been -- had a significant impact also because of measures that have been taken by the previous Congress. Right now, we have a commission or a committee installed that we're reviewing proposals for the mandatory business. We had set out some first guidelines, but there was a sort of -- they were taken back and they gave another 60 days for review the study. So we don't really know when these initiatives will come to Congress for a study, but we are on hold, what -- a little bit more peace of mind is because it would seem that the person that was accepted by Congress yesterday has been more broadly accepted. That could help a key impact on the economic reform of the country. So from the point of view of the measures that we've taken previously, we have an impact of the mandatory business, both because of the withdrawal of the AUMs and because of the month that we didn't charge the commissions. But that has brought as a positive factor and awareness by the savers that, that money is theirs. And it also happened in Chile that they're trying to defend some of our characteristics of the system. But also, for us, there has been a very important increase in the AUMs and the revenue in the non-mandatory business, which is the other side of this equation of the AUMs, which is -- it is driving the Peruvian economy. So we hope that at least that this commission will have a date or when this is going to be studied in Congress after they define when the President is elected.

We have no further questions.

No further questions?

We have questions to the webcast platform from [ Phillip Torres ], and it has to do with the metrics. What the ratings for the SURA Americana and the debt net to EBITDA for Grupo SURA?

I'll start with the Grupo SURA, and then I'll give the floor to Carlos to talk about the SURA and for 2020, we have some estimated dividends of COP 1.03 billion. The indicator when we look at those -- that revenue from dividends compared to the debt is going to be going up a little bit because we anticipated the increase of debt for COP 9 billion, but that was accepted in May when it expires. And my suggestion and the conversations we had with the rating agencies, we should look at that because we have that invested in wait for the effect of the amortization. That is the first point that, for example, we have no concerns in that respect. And this is an indicator, which has been about 4.2%, which is a little decrease. The second one is compared to 2021 and 2022. I want to be realistic here. The dividends from Grupo SURA for 2021 and for 2022, clearly, will have an impact because they come from the results that we will have in the companies this year. We've had some ratings with the rating agencies, and they were ratified our grade, not only because of the indicator, but also because of the all indicators and all the mechanisms that we have to manage liquidity at Grupo SURA and our anticipated cash flow for 2021. We're going to have that an increase in 2021 and 2022 because the net debt dividends might be around 70% or 80% of what we had right now. I don't have an exact figure. We'll have to wait for the third quarter. But what we've been working with the rating agencies have shown that this is a temporary impact that we'll be having a recovery. Our cash flow indicator is totally under control. And the value of the portfolio vis-à-vis that is also a very good situation, degree options. So we have some 54% of our portfolio is in liquid companies. So that gives the rating agencies a lot of peace of mind because that gives them the basis to maintain our rating. We'll see this improvement. We have to wait. In our management ideas is to continue with the strategy to reduce our leverage. Carlos now for you to tell us about SURA Asset management.