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

This document may contain statements of future regulations related to Grupo SURA and its subsidiaries made under assumptions and estimates of the company's management and may present variations. First, we'll have a pre-recorded section in which we'll talk about the company's results and then a live Q&A session. Today from Grupo SURA, we are with Ricardo Jaramillo, the CEO, [ Juan Esteban Toro ], CFO; Juan Luis Munera, VP of Corporate Legal Affairs; and Carlos Gonzalez, the Manager of Investments in Capital Markets. From SURA Asset Management, we have [ Carlos Vallejo ], VP of Corporate Finance; and Suramericana, Juan Fernando Uribe, the VP of Finance and Investments. Remember, to send your questions any time during the call. Let's give the floor to Ricardo Jaramillo.

Good morning, everyone, and thank you, Daniel. Before we present the results of quarter of Grupo SURA, I'd like to talk about the announcement made on October 25, which is a milestone in the process of development of the structure of ownership of Grupo SURA. Aligned with our long-term strategic vision and our commitment to create value for our shareholders, we reported to the market the signature of a memorandum of understanding with Group Argos, which has a clear purpose: to structure a transaction that allows us to reach 2 independent companies, therefore, eliminating the cross participations between Grupo Argos and Grupo SURA directly or indirectly. This structure proposed to the Board of Directors should guarantee, among others, a fair treatment and a value generator for all shareholders, also ensuring an efficient and reliable process in terms of financial and legal matters. This agreement really has to do with the long-term vision and reaffirms our focus on financial services, focusing our efforts between investments that are of Suramericana, SURA Asset Management and Bancolombia, leaders in Latin America. With this context in mind, I project Grupo SURA to the future. We'd like to highlight the companies with high reputation and well-knowns backed by strategic partners that are present in 10 countries and a base of more than 73 million customers, which shows our competitive position in a market full of opportunities. Suramericana is the fourth insurer Latin American in the region with $20.4 trillion in premiums issued. SURA Asset Management is the company, a Latin America leader, in provisional fund management, asset management and advise investments of COP 729 trillion. And Bancolombia is a leader with more than COP 353 trillion in assets. The development of these companies is a reflection of our knowledge of the financial [indiscernible] for several industries an expansion driven by 2 key factors. First, the regional growth backed by a demographic bonus and a middle class and expansion that has doubled circa. Grupo SURA is well positioned to capitalize the growth and ensure sustainable profitability on a long-term basis. In the past decade, we have had growth annually in our investments. Suramericana has increased its premiums 16%; SURA asset management, its revenue from commissions, 12%; and Bancolombia, its assets in 9%. This growth, along with the strategy to rentalize, has allowed us to expand our profitability levels of the company's between 20 and 300 basis points in our investments and in Grupo SURA, showing a sound financial management as seen in the graph on the bottom left. So the dividends received have experienced a significant growth with an annual compound rate of 16% since 2011, reaching COP 2 trillion for 2024. And this is how we reiterate our commitment to continue creating value and yields that are sustainable for our shareholders and other stakeholders in coming years. So I invite you now to look at the accumulated results as of September at Grupo SURA. So let's look at Slide 8, please. In this period, we continue with the sound dynamics in our results. Operating revenue reached COP 26 trillion, representing a growth of 29%. But when we exclude the FX related to the transaction to Nutresa, revenue is at COP 22 trillion, up 17% in local currency. Let's [indiscernible] and taxes related to this transaction. This result is positive and is mainly due to the performance of the premiums of Suramericana, the revenue from commissions and the return of the reserve of SURA Asset Management and the good equity method of Bancolombia as well as Grupo Argos. The operating profit as of September reached COP 8 trillion, which by excluding the effects of the transaction mentioned, is at COP 4.1 trillion, up 26% by eliminating the effect of exchange rates. This increase shows the positive dynamics and developments in the expansion of margins and profitability of our subsidiaries and investments in this period. Lastly, as you can see, the net profit is at COP 5.7 trillion or COP 2 trillion when you exclude the effects of the transaction of Nutresa. These results at the recent businesses position us to end that year profit per stock in the past 5 years. Our controlling profit reached a figure of COP 2.5 trillion for the last 12 months, a figure that excludes EPS in this period. And by 2023, and that does not incorporate profits from the implementation of the agreement. This figure is a new maximum and evidence is the developments of the expansion of profitability of our pit subsidiaries aligned with our strategic to increase the profitability, optimizing the print of the business. So our ROE adjusted shows an uptrend reaching 12.2 that I mentioned in the last 12 months. Likewise, I would like to make a special emphasis on the annual profit per stock that we could see on the right-hand side, reaching COP 6,295, up 61% compared to 2023 and an annual growth of 19% since 2019. This growth is the result of the good operational performance our subsidiaries and investments and of a higher reduction in the number of stocks after completing the agreement and the liquidation of portfolio. These results reaffirm our strategy to continue reaching a profitable growth and our commitment to create value for all of our shareholders. Now let's give the word -- the floor to Juan Esteban Toro who will talk about the financial results of our subsidiaries. Thank you.

Thank you, Ricardo. Hello to all of our shareholders and those that join us in this call. Before we begin to analyze the results of our subsidiaries, it's important to highlight that we will continue emphasizing that the variations that exclude the exchange rate for the conversion of the figures, and therefore, to reflect the operational reality and the performance of the business better. Premiums issued in Suramericana come from countries outside of Colombia and that the exchange rate in Colombian pesos appreciated 10% to 21%. On Slide 12, we will analyze several highlights of the [indiscernible] request of a gradual removal plan presented to the Colombian authorities this past May 28. And on this removal plan, Suramericana has responded to different requests of information and clarification made by the authorities who have been evaluating this request, but have not ruled yet on it. Just in the previous call, we presented the results of the figures pro forma. These exclude the FX consolidation with the PS for 2023 and 2024 to allow a proper comparison. In the third quarter of this year, Suramericana identified an operational error in the recognition of the tax. This grew 12% in accounting variation and 26% in constant exchange rate. The technical margin expanded 132 basis points for the first 9 months of this year and closed at 13%. As to premiums issued pro forma, these reached close to COP 15 trillion in the accumulated and keep a pace close to COP 5 trillion a quarter. Loss ratio is at 59.4%, increasing [indiscernible] compared September 2023. And this reduction is mainly to the effect produced from high returns of investments shown the year [indiscernible] and 15.5%, respectively. This shows that the company still is focused on consolidating and advancing in the profitability of its business. Now let's look at the growth of the premiums in the different segments. The premiums issued show a growth of 6% at constant rate. This segment of Life has the mandatory automobile solution in Colombia called SOAT. And the seasonability of Seguros Chile, which, in the third quarter of the year before, issued type multi-annual policies that were not renovated this year. Remember that this past quarter, the Health segment only included the IPS and Ayudas Diagnosticas. Let's look at slide [indiscernible] is at 65.4%. This result has been seen or driven by the performance of the voluntary health solutions and labor risk, which for the year before, included an update reserves on a long-term basis, such as the extra longevity reserve. On the other hand, in Property & Casualty, the loss ratio increased 197 basis points because of a higher loss ratio in the SOAT and the events of major severity in the portfolio of companies in Colombia. In addition, the combined reason of casualty reduced to 76 basis points converging towards our goals which aim at taking it below 100%. This shows the commitment to improve the technical profitability and highlights the efforts that Suramericana has been making for more efficiencies and to expand margins. To close the results of Suramericana, let's review the contribution of each segment to net profit. As you can see here, the business insurance, including casualty, contribute COP 748 billion for the first 9 months of the year. And we have to highlight that the segment of Life decreased 27% because of the base effect that showed investments the year before. So the net profit is at COP 522 billion, up 41% compared to the year before. Now let's analyze the results of SURA Asset Management on Slide 17. Revenue from commissions at the end of September reached 2 points below those of the revenue from commissions, which has allowed us to record a growth in 2 digits for the accumulated of the year and in the quarter, reaching COP 1.66 trillion and COP 735 billion, respectively, and setting the operating margin at 34.2%, which is better than the 32.8% accumulated of the year before. Here, it's worth mentioning that the increase in the operating compared to 2021 is above 300 basis points in which highlight the control of expenses in a time of high inflation. All of these figures reflect the growth of the revenue from commissions, the efficient management expenses and the good result of the reserve. The net profit grew 37%, reaching COP 881 billion as of September, showing an operating soundness in all the business. The return over the equity of the company reached figures of double digits at 11.3% while the profitability of the [indiscernible] and investment management, all recording growths of double digit. In addition, the salary base, excluding El Salvador because of comparability effects, grew 7% in local currency, favored by higher inflation, which has driven higher salaries. However, it's important to highlight that this trend can be modeled because inflation has begun to decrease, which anticipates a gradual normalization of salary conditions. All of these has led to have revenue from commissions in the segment of savings and retirement at the end of September at COP 2.6 trillion, up 10%, excluding the effects of the exchange rate. These investments, both figure 15% increase compared to the same period the year before. This growth shows the results of Bancolombia, which contributes COP 1.1 trillion. Bancolombia reached an equity return of 15.7% annualized and shows the strength in its business model, which has allowed it to maintain very good results during challenging times in this credit cycle. Right now, we would like to highlight the announcement made by Bancolombia to create the Grupo [ Ares ] matrix in which we have potential to benefit all of those that of the bank while the entity is strengthened, especially we'd like to highlight that the reorganization proposed provides flexibility for the development of the bank's corporate strategy and enables the repurchasing programs. As to Grupo Argos, we can highlight several results that are very good as well, which contributed COP 620 billion as the results that are driven by the gains in the transactions made. It's worth highlighting that the year before -- for the quarter. The method is as said, at COP 399 billion, which is in line with the third quarter of 2023, where Bancolombia contributed COP 368 billion. In the bar of others, you can see the recognition of the added value as well. And this is proportional as well presented by Suramericana before which, for the consolidated financial statement of Grupo SURA, does not imply a re-expression and therefore, is reflecting the results of the third quarter of '24 and in the accumulated. This adjustment of previous periods known as -- in the results, which totaled COP 191 billion, it impacted the net profit of COP 155 billion during the quarter. After we reduced the administrative management and others, Grupo SURA records a net profit adjusted of COP 2 trillion, including the effects of the transaction of Nutresa and an EPS reaching COP 5.7 trillion. So to conclude, we have consolidated results that reflect the power of the business print in our portfolio in Latin America. With this, we end the first part of the call, and we can move on to the live Q&A session.

Good morning, everyone, again. So we will begin the Q&A session. I'd like to ask Carlos Gonzales to begin to read the different questions that we have received throughout this presentation.

Thank you, Ricardo. First question sent by [ Santiago Marzo ]. Thank you for your presentation. Could you please expand on the restructure of what's happening with Grupo Argos? Is it just reducing a percentage? Or what's really happening there?

Santiago, thank you for your question. As we've said in this presentation and in the memorandum of understanding, the transaction with Argos has a purpose. And it has 2 independent companies focus on its industry, Argos focused on infrastructure, Grupo SURA and Financial Services in which we want to have any participation directly or indirectly in each company. This process will take time and again, as we've said is in the memorandum of understanding and in this presentation, we are -- we would like to highlight, first, the purpose and 3 fundamental premises. One is this operation should be entirely fair and transfer value for the shareholders, potential in ordinary of the company; second, to have a structure that's feasible in terms of financial efficiency, legal, et cetera. And in times of execution; and third, to aim towards the assignment of capital focus on the financial services for Grupo SURA. So right now, that's the information we have of the transaction. We are aware of the how. But during the process while we have the approvals and discussions are made with different corporate governance members, we will keep you all members of each -- we will keep you all aware of each step taken. Remember, this is a milestone in the history of these companies and do it with care. We've been doing it with the support of financial, legal, strategic advisers because we know the relevance of the transaction we are facing right now.

Second question from [ Camilo Resepo ], has to do with SURA Asset Management. How do you expect the profitability of equity to evolve in the future.

Carlos Vallejo will answer. He's our new financial VP of SURA Asset Management. So let's allow him to answer.

Thank you, Ricardo. Camilo, greetings, and thank you for your question. have seen a significant growth in the profitability of SURA Asset Management in recent years as a result of an operational leverage and higher revenue that we've sustained double digits in recent years while expenses are growing below and they're much more tied to inflation. So we have an ROE of 11%, close to 11% as of September 2024, an RoTE of 100%. So we expect that these strategies or efforts will be sustainable. And that's why we're optimistic of keeping our profitability or ROE close to double digit for the next periods. Clarifying, of course, that at by the end of the year, we're seeing close to 10%, while the accounting systems of the reserve normalize, which have been good up to September 2024. It's also important to mention that we're taking a good look at the process of the reforms, pension reforms that we're having in Colombia and in Peru. And that these reforms could provide some variation to the profitability expectation that we have on a medium-term basis. It's an ROE of double-digit.

Yes, I would like to complement Carlos' answer to emphasize that the result that SURA Asset Management has been showing this year is quite positive. Since we acquired the company, we have never seen a profit -- a double-digit profitability level, and that's thanks to the effort of thousands of people in the provision like adding value to the clients and voluntary in the growth of AUMs which we see in the region. So it's a major milestone for the profitabilization -- optimization of the company.

Next question from Andres Uribe, what's the direct share -- direct and indirect of Grupo SURA and Argos to-date?

Hello, Andres. Thank you for your question. Good morning to everyone that's joining us today. We directly didn't directly have 286,000 stocks of Grupo SURA. That's 34% of the total stocks of Grupo Argos.

Next question from [ Mario Garces ]. According to these positive results in which practically in the third quarter, you meet the projections of the entire year. What could be the dividend expected for 2025?

Mario, this discussion is usually made at the beginning with the Board of Directors that recommends it to the shareholders. But still in this year, we haven't specifically discussed the dividend of 2025. But according to the results and how the year ends, the commitment of top management and shareholders will be -- and the Board of Directors will be shared with our shareholders. And surely, this is based on our good results.

Mario sends us another question. Other investors and other investors, too, related to the difference between the prices of ordinary and preferential stocks, do you have any plans to close this gap, like a conversion of stocks or something?

Thank you, Mario, for your question. It's a question that is common in these calls. We are totally aware of the relevance of the discount between both species. And what we can say now is the structural change that we have or we will have in the ownership of Grupo SURA clearly keeps in mind preferential stocks. These have the same underwriting and we believe that the structure that we're working on will be simpler to understand for the different investors that will allow us to attract more investors and to access eventually to different markets, as you've mentioned. This, along with different initiatives like the liquidity former that we began several months ago with both types of stocks, we believe that these are signs that we have to work on. We have to look at the depth of the Colombian market in terms of liquidity. That does not allow to change so much the price of stocks but within our goal, we will show the gap between both species. Economically, it doesn't -- we don't know why it really exists, but if you have a preferential stock or an ordinary stock, you have the same underwriting stock. So within the structural changes that we're making, the ownership of the company. As we said in the premises, it will be a fair treatment that will create value our shareholders, including the preferential shareholders that we have.

Next [ Juliano Sinke ]. Could you tell me if there's a relation to create [indiscernible] and the plan to separate Argos and SURA?

There is no relation in the process or in the initiative that Bancolombia is making with the process that making between Grupo SURA and Argos. However, let's take -- we will take your question to make a comment on this initiative of the bank. From the viewpoint of our own position as a shareholder of the bank, we consider that as an important operation that will provide more flexibility of capital for the bank. For the financial and nonfinancial businesses of the bank, it will give a more efficient capital management to the bank. And it can allow it to reacquire stocks which the bank has mentioned. And we believe that goes aligned with showing competitive value or better -- reflecting a better value of the stock that the bank can or is entitled to according to its profitability levels and its results to expect the stock exchange to show the true price of the stock. So the initiative is very important for the bank. And since we are major shareholders of the bank, it should have a major impact on Grupo SURA because the stocks of the bank will increase.

[ Mauricio Mensa ] asks about the same topic of the bank's reorganization for the reacquisition of stocks. Do we have a similar strategy to have an impact the stock of Grupo SURA?

Yes. Thank you, Mauricio, for your question. First, years ago, we have a reacquisition stocks program that embeds some than during the pandemic given the priorities of taking care of cash flow, we were prudent in its execution. And then we had the transaction of Nutresa. And remember, Grupo SURA, as a result of that transaction, reacquired 32% of its capital So the reacquisition which tends to being the most important one that we've made is to reacquire its own stocks. If you look at the indicators of the stock, intrinsic value, dividend, et cetera, when you look at it by stock, it's grown significantly. Of course, that's value for the shareholders. Okay, additional reacquisition of stock programs. Right now, the priority is to simplify the structure again because of the big acquisition we made. However, there are other initiatives that we're working on for liquidity. We've got the liquidity former that we began, what, a month ago, which has again liquidity formation for both species. So as we've said in the past, the reacquisition of stocks in the world and in Colombia now is something that we have in our toolbox. And as the cash flows, the stocks, the structure of capital reaches a good point. This tool is something that we'll keep in mind always.