Inversiones La Construcción S.A. (ILC) Earnings Call Transcript & Summary

Okay. Hello, everyone, and thank you for joining us for ILC's as First Quarter 2023 Results Conference call. For starting, I would like to invite everyone to follow our website, a presentation prepared especially for this conference call. Purpose of this document is to go to the main events and achievements for the period as well as to explain the context of financial figures for each of our businesses. This call will be divided in 4 blocks. First, we will review the ILC consolidated results for the first quarter of 2023. Then we are going to analyze our subsidiaries' financial results and main highlights for the quarter. Afterwards, we will do an update regarding our financial position in order to close the call with a Q&A session. Now if we turn to Slide #5, we see ILC's net income composition. As of March 2023, ILC recorded a profit of CLP 34.9 billion, primarily driven by the results of ILC's financial subsidiaries, especially AFP Habitat, AAISA, Confuturo and Banco Internacional. Regarding AFP Habitat it improved its operating results due to an increase in the average taxable income of it's contributors, which along with a lower loss from the some results generated a profit of CLP 26.2 billion. On the other hand, Administradora Americana de Inversiones S.A. reported a result of CLP 9.2 billion, primarily driven by the performance of Colfondos. Confuturo I mean, premiums for life annuities grew by 214% compared to the previous year. As a result of a smaller difference in the offered rate compared to programmed withdrawal. Along with the introduction of secured life annuity, Red Salud and [ shelter ]. On the other hand, the strong performance of it's income portfolio was offset by a lower result from foreign investment funds. Regarding Banco Internacional's operations, we grow the loans and advances, along with improved financial operations, reduced risk expenses resulted in a profit of CLP 12.5 billion. In the health care sector, Red Salud has maintained a high level of demand for a patient and inpatient services, consistent with the previous years. Regarding the health insurance sector after 2 years of significant negative results due to sustainable cost growth decrease of the rates in 2020 and 2021 and the payment of extended paternal leaves, Consalud has achieved improved results. This improvement was mainly attributable to lower loss ratio, reduced costs related to medical leaves. Moving to Slide #6. We see that the company was able to generate a consistent and stable earnings and ROE over time. This is important accomplishment as we were looking for consistent and stable returns over time. A goal that has been already achieved even under extreme situations such as COVID-19 pandemic. For the trailing year and March 2023, ILC reached CLP 157.3 billion and an ROE of 18%. Slide #7 shows ILC profit breakdown. As of March 2023 last 12 months income of 42% came from our life insurance business Confuturo, 25% from AFP Habitat, 18% from Banco Internacional, 10% from health sector and 5% from AAISA. We are pursuing to reach even more diversified business portfolio where pension, health, life insurance and banking sector represent approximately 25% each. Well, after the summary of ILC's net income performance, further review the main operational events and key financial figures of ILC subsidiaries. As shown in Slide #9, AFP Habitat increased by 11.2% in the first quarter of 2023 compared to the same period in 2022, reaching CLP 60.4 billion. This increase was mainly explained by commission associated with mandatory savings due to a 13.6% nominal increase in the average taxable income of Habitat contributor compared to 1Q 2022. As of March 2023, this figure exceeded the industry average by 21.4%. And all of the above offset 2.8% quarter-on-quarter decrease in the average number of contributors. Regarding nonoperating results the company reported a nonoperating loss for the first quarter of 2023 of CLP 3.3 billion compared to CLP 20.3 billion in the first quarter of '22. The reduced loss ratio was mainly attributed to our loss from negative results, mainly driven by growth performance compared to the previous year by funds with higher exposure to equities. As a result, AFP Habitat consolidated profit recorded CLP 26.2 billion compared to CLP 12.3 billion bill in the first quarter of 2022. Regarding AFP Habitat Peru decreased by 0.2% quarter-on-quarter mainly due to decrease in managed assets resulting from pension fund withdrawals occurred during 2022, leading to a decrease of approximately USD 471 million. Regarding Colfondos, its revenues grew 70.8%, mainly due to a lower cost of the D&S insurance with an increase -- with a decrease by 20 basis points compared to the first quarter of 2022. Regarding with [indiscernible] probability for the first quarter of 2023 amounted to a profit of CLP 41.8 billion (sic) [ 41.8 million ] compared to a loss of CLP 1.5 million in the first quarter of 2022. Slide #10 and 11, show Colfondos performance. This entity registered CLP 13 million profit for the first quarter of 2023, in comparison to CLP 37 million for the same period last year. As shown in Slide 10, regarding the annuity market, the difference between the offer programmed withdrawals and the annuity rate decreased by 53 basis points. It is also important to mention that as of September 2022, this year annuity was in prepared as an annual molality. So as a result, a number of people choosing annuity increased by 78% compared to the previous year, while market premiums increased by 65%. Regarding Confuturo during the first quarter of 2023, net written premiums totaled CLP 235 billion in the first quarter 2023, 183% higher than '22. This was mainly due to higher premium for annuities, to start D&S insurance. As shown in Slide #11, excluding the individual saving accounts, Confuturo showed a lower performance from its investment portfolio. Investments results decreased 19% quarter-on-quarter, mainly due to a lower performance in foreign investment, partially offset by lower results from fixed income and real estate investments. Now if we turn to Slide #12, we will see Banco Internacional operating performance. As of March 2023, Banco Internacional's commercial loans grew 20.1% compared to March 2022, exceeding the industry average of 7.1%. This resulted in a market share of 1.1% and 2.0% in the total loans and commercial loans, respectively. Banco Internacional reported gross operating income of CLP 31.6 billion, 18% higher than the same period and the previous year, mainly explained by loan growth and higher treasury income. In addition, loan loss provision decreased by CLP 4.1 billion compared to the same period of the previous year. This decrease was mainly attributed to a good payment behavior in the commercial loan as well as the recovery of previously written up loans. Moving on to Slide #13 in terms of its bottom line, loan growth, higher treasury income and lower risk provisions led to a CLP 12.5 billion profit during the period compared with CLP 8 billion gain for the same period of 2022. As of March 2023, Banco Internacional had achieved an ROAE of 20.1% with an annual trading net income of CLP 52 billion. Going on to Slide #14. Red Salud's revenue reached CLP 159 billion in the first quarter of 2023. For gross [ LTM ] 10.3% increase compared to the same quarter of the previous year. This growth was mainly driven by higher demand for outpatient and inpatient services. In the outpatient segment, a number of medical consultations, imaging procedures, laboratory tests increased by 12%, 14% and 10% respectively. In the vision segment, the number of surgical interventions grew by 4.4% quarter-on-quarter, however, with a lower X-ray visions. Despite an increased activity, higher personnel expenses really due to consumer price index and increase in the complexity of services demand have put pressure on the margin. As a result, Red Salud's EBITDA reached CLP 14.3 billion with an EBITDA margin of 9% compared to CLP 18.2 billion with an EBITDA margin of 12.6% in the first quarter of 2022. As a result of the above factors partially offset by lower and dissection losses as far as sort of inflation for the period and its effects on the U.S. denominated financial debt. Red Salud reported profit of CLP 80 -- CLP 79 million for the first quarter of 2023 in comparison to CLP 3.2 billion for the same quarter of the previous year. Regarding the health insurance sector on Slide 13, there are 2 years of significant negative results due to sustained growth increase of base rates in 2020 and 2021. And the payment of extended paternal leaves, the mandatory health insurance has achieved improved results. This improvement was mainly attributable to lower loss ratio and reduced costs related to medical leaves. Cost of sales was CLP 172.7 billion for the first quarter of 2023, up 7.2% over the same period in the previous year. This rise was mainly explained by a 38% increase in the total cost of inpatient services and an 8% increase in outpatient services, partially offset by an 18% decrease in the cost of medical leaves. The number of cost or coverage for inpatient service grew by 40%, while the number of services provided in this category decreased by 1.4%. The average cost of patient services increased by 10%, together with a 2.1% decrease in the number of services provided for medical leaves, I mean, the average subsidy increased by 30.3%, while the number of authorized leaves decreased by 27.6% fairly due to a lower number of leaves related to mental health disorders and COVID-related issues. As a result, Consalud's loss ratio this quarter reached 87.1%, down 1,360 basis points compared to the same period of the previous quarter. Regarding Vida Camara, as shown in Slide #16, Vida Camara's contribution margin to the mental health life insurance for the first quarter of 2023, reached CLP 2.7 billion, increasing CLP 425 million basis compared to the same period of the previous year. Income from premiums up 19% mainly driven by inflation during the period and growth in beneficiaries. On the other hand, costs rose by 21.4% associated with increased inpatient coverage and higher claims in the life insurance. All the above resulted in a 200 basis point increase in the quarterly loss ratio compared to the previous year. I mean, during the quarter, the supplemental group of insurance industry reached USD 4.5 billion in premiums, 5.1% higher than the first quarter in 2022. Vida Camar,a, sits at 11% market share, ranking 4th in the industry in terms of premiums. As of the end of March 2023, Vida Camara had close to 400,000 beneficiaries, 5.1% higher compared to March 2022. Sales and SG&A, I mean, during the first quarter of 2023 increased by 17% compared to the first quarter of 2022, reaching CLP 2.9 billion. This was mainly due to higher personnel expenses associated with the investor -- I mean, with the CBI effects. Accordingly, Vida Camara reported a quarterly profit of CLP 678 million for the first quarter of 2023 compared to CLP 934 million achieved in the same period of 2022. Now in order to conclude our first quarter results conference Call, and please turn to Slide #19. Finally, with respect to our ILC that will be the [ structure ] after the issuance of USD 300 million debt in international debt in February of 2022, the company has repaid a portion of its local and foreign debt. Today, it has taken out 7 currency swaps or up to USD 202 million and has managed the cash position through investments in instruments that help us to reduce financial costs and maintain ample liquidity to meet future obligation. So this concludes today's presentation. We will now open the floor for questions. If you have any question, you can send us a massage from under and we can...

Gustavo just checked the website and apparently there was a problem uploading the presentation, which we will be solving after the meeting. Just answered the questions regarding that. I'm sorry for the inconvenience.

Okay. There's a question regarding administrative expenses in Red Salud. Administrative expenses for Red Salud grew close to 20% to 30% quarter-on-quarter? Mainly due to a CPI inflation during the period. That's is a 30% touched with the sales -- I mean our workers in the hospital. And also, there's an impairment of some receivable accounts. This is not something to worry about. This is something related to financial and public insurers. Sometimes takes some time to pay, but it's only something that we -- I mean, it's not something, as I said before, is still something to worry about. We expect this increase in SG&A done all in then for this, I mean, in the year.

Mr. Pablo returned on what Gustavo had just said, around half of the increase in SG&A as a proportion of income earnings, sorry, was due to personnel expenses, and the other half was due to impairment. And this compares with higher duration of impairment in the first quarter in '22 due to an extraordinary payment from the public services than hospitals due to urgency low. And that is part also of the explanation in the increase compared to the first quarter in 2022

There's another question regarding the mandatory health insurance business? Well, I'll sum all the questions in 1 answer. Currently, what we can say, is there 2 bills in the Congress leading to address the ruling, one sent by the government and other supported by a group of senators. Discussion is starting in Parliament. So we cannot anticipate whenever it will have an impact on our operation or not. Further details of this topic, it's on our risk analysis, which can be found in our MD&A and the Risk Factors analysis section. A question regarding the profits of Consalud, they are normal operating profit in the subsidiaries. Regarding the health insurance sectors after 2 years of significant negative results due to sustained cost growth, increase of base rates in 2020 and 2021 and the payment of standard paternal leaves, health insurance sectors has achieved better results. This improvement was mainly attributed to higher patient for the period. As you may know, the contracts are in inpatient related and are lower loss ratio, reduced costs mainly related to medical leaves. So it's too soon to tell that this will be obtained together with, as I mentioned, it's an important increase in the patient trust. So I cannot anticipate this good results will maintain during the year.

There's a question regarding Red Salud also, Gustavo, maybe you can address. The health insurance has impacted Red Salud's ratio as of the figures at March 2023 and accounts receivable are in a healthy state in our business as usual state. And we have also seen a sus tained participation of FONASA in the earning mix. Around 45% of Red Salud's revenues come from the public insurance. So this is good news because it has been a trend that started with COVID and has been sustained and is almost permanent in the revenue mix of Red Salud and also with healthy accounts receivable from FONASA of March 2022. So this is how we have seen as of today, an impact in Red Salud operations in the current context. And now Gustavo, you want to..

I see there's no further questions. So with this, we conclude, this is everything for today. Thank you all for attending this conference call. It's important to remember, we are always hoping to answer any further questions, just feel free to contact our IR team. Have a nice day and we hope you and your families remain healthy. Goodbye, and see you next quarter.