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

Okay. Hello, everyone, and thank you for joining ILC's First Quarter 2025 Results Conference Call. Before we begin, I will invite everyone to download the presentation prepared especially for this call from our website. This document provides an overview of the key events and achievements for the period as well as the financial performance and context of each of our businesses. Today's call will be divided in 5 blocks. First, we will review the economic and industry context for the period, followed by ILC's consolidated results for first Q '25. Next, we will analyze our subsidiaries' financial performance and key highlights for the period. After that, we will provide an update on our financial position. And finally, we will conclude with a Q&A session. Now I will hand the call over to Juan Pablo Undurraga, CFO of ILC, who will review the period's context, ILC's 2025 milestones and our consolidated results for the quarter.

Thank you, Pablo. On this slide, we present the macroeconomic context for the first quarter of 2025 compared to the first quarter of 2024. During the first quarter of 2025, we observed increased volatility in global equity markets. The S&P 500 declined by 4.6%, reflecting higher uncertainty, particularly in the U.S. Meanwhile, Chilean equity outperformed with IPSA posting a strong quarterly return of 14%. As a result of this market behavior, pension fund C, which we use as a proxy for the return on legal reserves, delivered a 2.3% return in this quarter, down from 5.1% in the same period last year. Inflation in Chile reached 2% in the quarter compared to 1.6% in the first quarter of 2024. Also, the Central Bank of Chile maintained the monetary policy rate at 5% following a series of rate cuts that began in early 2024 when the rate stood at 8.25%. Now regarding our milestones during 2025, significant events have occurred during the first 5 months of the year. First, as of March 24, ILC was once again included in Chile's main stock market index, the IPSA, which comprised the 29 most relevant listed companies in the country. On April 24, we held our Annual Shareholders Meeting where a new Board was elected, comprising 5 nonindependent and 2 independent members. In this meeting, shareholders also approved a final dividend of CLP 600 per share charged to 2024 earnings. In December 2024, we increased our stake in Banco Internacional and Factoring Baninter Factoring to 78.1% and 78%, respectively, as part of a broader transaction that includes an option to reach full ownership by 2027. In addition, on January 2025, a voluntary tender offer allowed us to further increase our stake in Banco International to 78.2%. On April 30, Banco Internacional signed an agreement to acquire the remaining 49% of Autofin, consolidating full ownership and strengthening its position in auto financing. In the health care sector, on May 22, Redsalud signed a binding agreement to acquire the Nuevo Sanatorio Aleman, a leading health care center located in Concepcion in the Biobio Region. The transaction involves the acquisition of 100% of the shares of [indiscernible], the company that owns the facility. Lastly, we are proud to highlight several recognitions earned by our subsidiaries. Redsalud led the health sector in the Praxis 2025 Xperience Index. Banco Internacional ranked #2 in the Ipsos SurviTest small, medium enterprise survey. And finally, Habitat was ranked #4 by Great Place to Work. These milestones reflect our ongoing efforts to strengthen our presence, diversify our services and deliver long-term value across all business segments. On this slide, we can see ILC's stock performance, which has delivered a strong return, significantly outperforming the IPSA both in 2024 and year-to-date 2025. In 2024, ILC's stock price increased by 20% compared to an 8% return for the IPSA. Including dividends, the total shareholders' return reached 27.4%, supported by a dividend yield of 7.1%. This positive trend has continued in 2025. As of March 16, ILC stock has delivered a return of 63% year-to-date, while the IPSA has gained 25% over the same period. A key milestone contributing to this performance was our reentry to the IPSA Index on March 24, reinforcing the visibility and liquidity of our shares. This strong momentum reflects market recognition of ILC's growth strategy, execution across subsidiaries and commitment to long-term value creation. On this slide, we can reaffirm the 5 pillars of our strategy, which we have consistently emphasized. These pillars form the foundation of our approach, driving both organic and inorganic growth opportunities. Our focus remains on achieving profitability in our operations, maintaining flexibility in the businesses we engage with and ensuring a strong financial position. We work with ESG values and metric across all our activities. This strategic framework directly supports our overarching purpose to be leaders in creating social and economic value that improves people's quality of life. This slide highlights the consistent returns the company has achieved over time aligned with our strategic goals. As can be observed, ILC has maintained double-digit profitability, showcasing steady growth and resilience. Now ILC is entering a new phase where growth is expected to be driven primarily by its financial businesses. In the first quarter of 2025, ILC recorded a profit of CLP 39.6 billion, representing a 33.2% decrease compared to the same period in 2024. This decline was mainly explained by weaker performance from our financial subsidiaries with exposure to international equity markets, which was impacted by the global market volatility we mentioned earlier. On this chart, we summarize the main variation behind ILC's consolidated profit of CLP 39.6 billion in the first quarter of 2025 compared to the CLP 59.3 billion recorded in the first quarter of 2024. This represents a 33.2% decrease, mainly explained by lower contribution from financial subsidiaries with exposure to international markets. It's important to highlight that the first quarter of 2024 benefited from a very strong performance in global equity markets, particularly in the funds where Confuturo and Habitat are invested. This creates a high base of comparison that amplifies the relative decline in the first quarter of the year. On the other hand, the Healthcare segment showed better operational performance with RedSalud and Consalud delivering solid results due to greater service activity and continuous progress in product diversification. In summary, although financial market volatility affected some subsidiaries, the strength of our health care and banking operations helped mitigate the impact reaffirming the value of ILC diversified business model. Now I will turn the call over to Gustavo as he will review the main operational events and key financial figures of ILC subsidiaries.

Thank you, Juan Pablo. Now that we've reviewed ILC's consolidated performance, we will take a closer look at the performance of each of our main businesses. In this section, we will go by division to better understand the key drivers behind each business, the challenges faced in the quarter and strategic progress achieved in line with our long-term plan. Let's begin with Banco Internacional. Going to Slide 14. As of March 2025, Banco Internacional's total loan portfolio grew by 16.2% year-over-year, positioned the bank with the third highest growth in the industry, which expanded by just 2.4%. The commercial loan portfolio grew by 13%. Meanwhile, consumer loans increased by 60% during the expansion of Autofin portfolio and the bank digital consumer loans lending platform. As a result, Banco Internacional's market share increased in commercial loans from 2.5% to 2.9%; in consumer loans from 0.9% to 1.3%; mortgage loans remained stable, reaching 0.15%. In terms of client growth, the bank continued to expand its footprint. Banco Internacional increased by 16%. I mean, commercial clients increased by 16%, reaching over 8,200 companies. Retail clients increased by 60%, totaling more than 91,000 clients, including Banco Internacional and Autofin clients. With this, the bank has officially reached 100,000 total clients, an important milestone for the bank. Looking ahead, Banco Internacional remains focused on expanding its presence in the large corporate segment, strengthening the retail banking platform and diversifying both its product offering and funding sources. In this line, as shown in Slide #15, Banco Internacional has continued to consolidate its funding structure, reflecting affinity towards greater diversification and long-term stability. As of March 2025, the bank's funding base shows an increased release on bonds and retail time deposits, which now represents 30% and 21% of total funding, respectively. At the same time, the share of bank's funding declined from 17% to only 11%, reducing dependence on short-term service. During the quarter, the bank placed UF 400,000 in subordinated bonds and in April completed the issuance of the first AT1 bond in the Chilean industry for UF 2 million with no maturity and 5.6% annual coupon. It's also important to remember that in July 2024, the bank placed its first public bond in the Swiss market for CHF 120 million, further diversifying its international funding sources. Importantly, 90% of last year's loan growth was financed through stable funding sources, underscoring the consistency of the bank's funding model. Looking ahead, the bank sees 3 main opportunities. First, scaling the retail financing by improving client acquisition and retention; second, expanding the corporate funding base; and third, developing digital financial products aligned with an efficient onboard process. Banco Internacional's gross operating result increased by 13% quarter-over-quarter, reaching CLP 57 billion in 1Q '25. This growth was mainly driven by an improved spread in commercial and consumer loans, supported by the continued expansion of loans and by a strong contribution from Autofin, which added CLP 7 billion during the quarter. This positive evolution was partially offset by the end of the FCIC Program, which was still in effect during the first part of 2024 and has provided a temporary funding advantage. On the cost side, operating expenses rose by 20% compared to the same period of the last year, totaling CLP 29 billion. This increase was mainly explained by Autofin's higher operating costs, consistent with its growth plan and by greater expenses in system, IT and operational risk management. As a result, efficiency ratio rose to 51.3%, which remains in line with industry average. Banco Internacional continues to focus on managing its cost base while sustaining profitable growth across its business line. As shown on Slide 17, total risk expenses increased to CLP 11.9 billion through the first quarter of 2025, up by CLP 4.6 billion compared to 1Q '24. This increase was mainly driven by higher provision and write-offs in commercial banking as well as greater provisioning in Autofin consistent with the expansion of its consumer loan portfolio. In terms of asset quality indicators, the NPL ratio rose slightly from 3.1% to 3.7%. The risk index remained stable at 2.1% compared to 2.2% in 1Q '24. Collateral coverage stood at 66.8%, well above the industry average of 53%. Finally, as of March 2025, Banco Internacional fully complies with Basel III requirements, maintaining a solvency ratio of 14.9%. This ratio will improve after the AT1 issuance that we made in April of this year. Slide #18, the chart shows Banco Internacional's profit and ROAE evolution. Higher loan spreads and greater contribution from its subsidiary, Autofin were offset by the weaker performance following the expiration of the FCIC program, something that occurred in the industry as well and increased risk-related expenses. As a result, accumulated profit for the first quarter amounted to CLP 12.8 billion, 13.4% below the previous year's result. As of March, Banco Internacional reported an ROAE of 13%. It's also important to mention that Autofin makes up 11% of Banco Internacional's profit and 8% of its total loans. The bank continues to show strong long-term growth and good business performance. Now if we move to annuity market, as shown in Slide #20. In the first quarter of 2025, we continue to see a strong demand for annuities. The annuity rate reached 3.3%, slightly below the program withdrawal rate of 3.43%, which helped us keep the annuities attractive. In this context, 67% of people choose annuities compared to 33% who choose programed withdrawal. The average annuity rate reached, as I mentioned, 3.3%, slightly higher than first quarter 2024. Meanwhile, the programed withdrawal rate for [indiscernible] grew by 158 basis points to 3.43%. Because of the lower spread, more people choose annuities. As I mentioned, the number of people selecting annuities increased by 13% quarter-over-quarter, while those choosing programmed withdrawals fell by 20%. Total industry premiums reached 25 million with Confuturo growing 16% quarter-over-quarter and increasing its market share during the quarter from 13.1% in 1Q '24 to 14.2% in 1Q '25. These strong results reflect sustained demand together with the impact of last changes, regulatory changes. In the -- I mean, in beyond, we see other changes as the new pension reform that we had since March of this year, which will decrease the minimum loan requirement [indiscernible] from UF 3 to UF 2, allowing more people to access this option. Slide 21 shows Confuturo's sales strategy and cost control. In the first quarter of 2025, 44% of life annuity premiums came from the direct sales channel, well above the industry average of 33%. This reflects the company's focus on consolidating its own distribution model and improving customer engagement. Intermediation costs increased by 28% quarter-over-quarter, reaching CLP 2.4 billion, mainly due to higher premium volumes during the period. SG&A totaled I mean, CLP 8.4 billion, growing 8.2% compared to 1Q '24. This increase was mainly driven by higher personnel and IT costs, which supported long-term operational improvement. Despite this increase, Confuturo kept its SG&A over assets under management at 36 basis points, stable compared to the previous year and below the industry average of 100 basis points. On Slide 22, we show the investment results of Confuturo's portfolio in the first quarter of 2025. The investment result excluding CLP 88 billion, which represents 17% decrease compared to the previous year. This drop is mainly explained by 2 effects. Impairments of CLP 2.3 billion were recorded in 1Q '25, while in the first quarter of '24, there has been a reversal of CLP 6.4 billion, which had improved results last year. It will be a weaker in this quarter, with weaker performance of international equities and investment funds, which together fell by CLP 18 billion. These negative effects were partially offset by a stronger performance of local equities, which improved by CLP 10.4 billion and a better result from the real estate portfolio, which increased by CLP 1.6 billion. Overall, as Juan Pablo mentioned before, the quarter was mainly marked by global market volatility. In this quarter of 2025, Confuturo reported a net income of CLP 9.5 billion, which is 65.5% decrease compared to CLP 27.6 billion in 1Q '24. This drop was mainly due to a lower investment result caused by the weak performance of international equities. As we saw earlier, the previous year had benefited from the reversal of impairment provision, which created a high comparison base. Confuturo continues to lead the life insurance industry in terms of number of pensioners and remain third in assets under management. The company is staying focused on its long-term investment strategy, especially by growing its portfolio of alternative assets, including private equity and real estate to improve future returns and diversification. Moving to the AFP Habitat. In this first quarter of 2025, AFP Habitat reported revenues of CLP 66 billion, a 5.6% increase compared to the same period in 2024. This growth was mainly driven by higher fee income from mandatory contributions, supported by a 7.7% nominal increase in the average taxable income per contributor. As of March 2025, Habitat contributors had an average taxable income 22% higher than the industry average, reinforcing its position in higher income segment. This was partially offset by the 2.4% drop in the average number of contributors. On the other hand, nonoperating income fell, reaching CLP 8.9 billion, down from CLP 25.1 billion in 1Q '24. This was mainly due to lower returns on the legal reserve, which totaled CLP 9.1 billion compared to CLP 25.4 billion in the same period last year. The drop reflects the weak performance of funds with higher exposure to foreign equities, such as the fund A and B, which were affected by increased market volatility following the announcement of U.S. tariff measures. In contrast, conservative funds, C, D and E posted positive returns. As shown on Slide 26, the weaker financial market performance seen in the first quarter also had an impact on our international operations base. In Peru, revenues grew by 7.2% year-over-year, reaching CLP 10.1 billion, supported by higher commission income. However, Returns on legal reserves were negative, reaching a loss of CLP 0.3 billion compared to a positive result of PRN 0.7 billion in 1Q '24. Similar trend was observed in Colombia in Colfondos, where revenues grew by 1.8%, reaching PRN 21.9 billion. But again, legal reserve returns fell from CLP 4.5 billion to a loss of CLP 0.3 billion, reflecting the broad impact of market volatility on portfolios with exposure to global equities. Slide #27, we show the evolution of profit before taxes and encaje in legal reserves for both AFP Habitat and AAISA. In the first quarter of 2025, AFP Habitat reported a profit of CLP 35.7 billion, a 5.8% decrease compared to 1Q '24. This was mainly due to lower returns on legal reserves affected by the weak performance of funds exposed to foreign equities, combined with a high comparison base in 1Q '24. We exclude that effect. The lower result in AFP Habitat Chile was explained by higher impairment expenses related to accounts receivable from insurance companies. Meanwhile, AAISA posted a profit of CLP 10.6 billion before taxes and encaje up 17.5% quarter-on-quarter, mainly due to higher revenues, especially in Peru, where operations continue to grow. [Audio Gap] Also history of resilience in terms of profit, operational profit supported by -- I mean, the higher revenues in key markets, ongoing growth in contribution income -- contributors' income. Moving now to the Health segment. We will... [Audio Gap] This growth was supported by strong performance across all services lines. Inpatient revenue rose 14%, mainly driven by more complex surgical procedures, hospitalization and critical care. Surgeries increased by 1.5% and occupancy reached [indiscernible] 30.5% due to higher patient volumes and average ticket value. Together, trends show a more complex mix services with continued demand across medical, dental and inpatient care. Slide #30. Here, we can see Redsalud's EBITDA margin,[indiscernible] 11.9% to 12.1% in '25. This was mainly driven by a more complex inpatient mix and improved cost efficiency. [Technical Difficulty] Operation and its ability to deliver more [Technical Difficulty]. Redsalud continues to diversify its revenue source to reduce [indiscernible] Over time, the share of share from Fonasa has increased. So by '25 Fonasa reached 51% share of total revenue. This give difference of Redsalud's [indiscernible] So we can see that Redsalud's growth has not only been consistent over time, but also increasingly diversified across its different payer centers. In the first quarter of 2025, EBITDA increased by 13.5% quarter-on-quarter, reaching CLP 23.3 billion, which was margin improvement [indiscernible] metropolitan region clinics, partially offset by CLP 0.8 billion decrease in EBITDA -- I mean, from regional clinics. This distribution reflects a more balanced and resilient network with significant progress in operational efficiency across all segments. Now moving to Consalud. We can see that the implementation of the Short Law in late 2024 has helped to stabilize and gradually recover the average monthly contribution in Consalud after reaching a low of 5.0 UF per affiliate in 1Q '24 mainly due to the GES price adjustment, contribution began to rise, reaching 5.7 UF in 1Q '25, back in line with pre-adjustment level. In this context, the loss ratio reached 88.1% in 1Q '25, showing improvement from the previous quarter and a more balanced outlook for the [indiscernible] industry. Slide 34 shows the evolution of Consalud's beneficiary and market share. It's important to note that the deceleration in the decline towards the end of 2024. The most significant drop in beneficiaries occurred in 2023 and early 2024 with a 20% decrease from December 2022 to December 2023. The decline shows in the second half of 2024 with only 1.2% drop from September to December 2024 and 1.6% from December to March of this year. Despite the reduction in total beneficiaries, Consalud maintained its market share, stable at 19% by March 2025. In this context, the industry loss of beneficiaries was mainly due to [indiscernible]the public insurer Fonasa. Finally, in Slide #35, we look at the performance of Vida Camara during the first quarter of this year. The number of beneficiaries increased by 18% year-over-year, reaching 632,000 beneficiaries as of March 2025. As of the end of March 2025, the number of beneficiaries under group health insurance plans reached 595,000, a 16% increase compared to same period last year. Beneficiaries under individual health insurance plan totaled 36,700, marking a 73% increase year-over-year, primarily driven by policies linked to preferred provider agreement with Redsalud. As a result, premium income rose by 23%, in line with the growth in beneficiaries. However, claims costs increased by 25.6%, driven mainly by higher outpatient coverage. This led to a loss ratio of 82.5% in 1Q '25, above the 76.8% recorded the same period last year, reflecting the impact of the higher service use. Now turning to Slide 37, which shows the -- I mean 38, which shows ILC's consolidated debt maturity profile and liquidity position. As of March 2025, net financial debt total CLP 392.9 billion with a net financial to debt equity, I mean debt-to-equity ratio of 0.34x, below the 0.35x reported at the year-end 2024. ILC holds CLP 142.2 billion in liquid assets as of March 2025, primarily composed of cash, short-term investments and conservative portfolio allocation, ensuring a strong liquidity buffer of upcoming amortizations. The company continues to actively manage its financial position, optimizing its investment structure to reduce carry costs and mitigate foreign exchange exposure. Finally, to sum up, I'd like to summarize the key advances towards our strategic goals. We have mentioned between 2023 and 2027, we are focused on accelerating growth in the financial business, particularly through Banco Internacional and Confuturo. In this line at Banco Internacional, we continue to strengthen our presence in the financial sector as of March 2025, we reached 100,000 clients and post 16% year-over-year loan growth, outpacing the industry's 2.4% [indiscernible] expansion. Regarding the annuity business, Confuturo. Confuturo continues to lead in a highly dynamic market, growing 16.6% in the quarter, nearly doubling the industry growth rate. This was supported by spread-based valuation and strong operational performance. On the regulatory front, after the pension reform and share loss of IPSA last year. We see reduced uncertainty in both AFP Habitat and Consalud. In the healthcare segment, RedSalud continues to lead in coverage with a focus on expanding high complexity services. In the first quarter 2025, it posted an EBITDA of CLP 23.3 billion with a 12.1% margin. Over the last 2 years, Vida Cámara has grown its beneficiaries base by 53%. And finally, at ILC level, we reaffirm our commitment to creating value. This quarter, we want to highlight our strong performance, outperforming the IPSA by 38.2% year-to-date as the close date of May 16. With this, we conclude the presentation. We will now open the floor up for questions.

There is a question from [indiscernible] I will allow him to ask his question.

[indiscernible] referred to this, but could you elaborate further on the pension reform in Chile and also the pension reform in Colombia and how you see, let's say, the next 5 years for you?

Regarding the pension reform in Chile, there's -- I mean, the reform approved on March of this year. We're closely monitoring the progress of the pension reform, while the final design has not yet been defined. Now we are confident in AFP Habitat's ability to adapt and continue delivering value in this scenario. Our scale, operational efficiency and long-term investment approach position us well to navigate and contribute to the system evolution. Regarding the pension, I mean, it's a pension reform that affects AFP Habitat and also Confuturo. The market is expected to expand first, as individual contribution will increase by 4.5%, which implies a 45% increase in total contribution in a period of 9 years. As we have mentioned in the past and also in the presentation, there will be the minimum threshold for an annuity will decrease from UF 3 to UF 2. Regarding the AFP business, [indiscernible] will be reduced as we -- as new administrator will be allowed to enter with the support of the Institute of Social Security. In this line, there will be also a reduction in the mandatory reserve requirements for Habitat. This could imply a release of up to 85% of current reserves, will be beginning 24 months after the reform was published and applied probably over 4 years starting in 2027. I mean we will assess the implication of this change as the effective date approach. The reform also introduced portfolio actions, portfolio bidding process every 3 years starting in 2028, involving up to 10% of the affiliate's portfolio. However, the affiliates will retain free mobility and the right to out of the actual process if they want. It's important to note that new affiliates, we will also have the freedom to switch between AFP at any time. This is something good for Habitat. And finally, the proposal includes a new system of rewards and penalties linked to the deviation in investment performance. Now we don't have too much information on that. It should be defined by the regulation -- the regulator, I mean, while specific parameters are still pending, AFP Habitat has consistently ranked among the top performers in returns and maintain a strong and experienced investment team. So we are we still confident in that trend. So in summary, we're closely monitoring the progress of the reform while the final design has not been defined, we're confident in AFP Habitat's ability to adapt and continue delivering value. Regarding the pension reform in Colombia, the project presented by the President of Colombia was approved by the Congress last year. It introduced for pillar system [indiscernible] contributory and voluntary segments, the new system integrates public and private [indiscernible] by directing contribution up to 2.3 minimum wages into the RPM with any excess directed into the private system. The reform will be effect from this July. There's some consideration that is still pending that we are seeing, we are watching closely. But if the reform passed, the context will be several aspects to consider. First, the lower claims ratio in the disability and survivorship insurance because it will be managed by the state. The system can be -- I mean, it will be affiliate based with a lower claim ratio for portfolios and contribution -- also contributors earning between 1 to 2.3 minimum wages. However, they will direct their contributions to the public system. The reform introduced a 70 basis point fee applied to current pension funds. This fee will play a role in balancing the system, insurance that the funds can cover the administrative and operational costs will continue to provide sustainable benefits to contributors. There's another question regarding how is the bank managing the credit risk? As we have discussed in the presentation, the bank maintains a prudent provision policy and a conservative approach to credit origination with a high collateral base focusing on clients with strong payment behavior. Risk evaluation and monitoring system has been strengthened to ensure early identification and management of credit exposure. It's important to note that the higher risk expenses during this quarter were primarily linked to a few specific cases and do not reflect the deterioration of the total loan portfolio. We see the total loan portfolio quality remains sound and within the bank historical [ months ]. Another question regarding [indiscernible], how do we see results evolving for the rest of the year? The results of the first quarter of 2025 reflect the expected impact of operational improvements and regulatory adjustments introduced to the aim to restoring balance in the private health system and intended to cover the accounting liability associated with the implementation of the single factor payable as was required by the Supreme Court. During the quarter, we observed a lower loss ratio, which was mainly linked to first quarter where the loss ratio used to be lower compared to the rest of the year, but also confirms that the measures implemented such as price adjustments and cost control are contributing to a more sustainable financial outlook for the industry. There is no more questions. That's everything for today. Now if you have further questions, feel free to contact our IR team. Thank you all for attending this conference call.