Inversiones La Construcción S.A. (ILC) Q2 FY2025 Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining ILC's Second Quarter 2025 Results Conference Call. I'm with Juan Pablo Undurraga, CFO of ILC; and Francisca Arroyo, Investor Relations. Before we begin, I will invite everyone to download from our website a presentation prepared especially for this call. This document provides an overview of 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 second quarter 2025. 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 section. Now I will hand the call over to Juan Pablo Undurraga, CFO of ILC, who will review the period context, ILC's 2025 milestones and our consolidated results for the year.

Thanks, Gustavo. On Slide 5 presents the macroeconomic context for the second quarter of 2025 compared to the second quarter of 2024. During the first quarter of 2025, we observed increased volatility in the global equity market. However, in the second quarter of 2025, both global and local equity markets delivered strong performances, marking a recovery from the weakness seen in the previous period. The S&P 500 advanced 10.6% while the IPSA gained 7.8%. Pension Fund C, which we use as a proxy for the return on legal reserves, posted a 4.7% return, reversing the negative result of the prior quarter. As you can see in the graph below, inflation remained flat during the quarter compared to a 0.7% increase in the same period last year while UF registered a 1% increase. Regarding the monetary policy rate, the Central Bank continued its easing cycle, maintaining the policy rate at 5% for most of the quarter before lowering it to 4.75% in August. On Slide 7, you can see that regarding our 2025 milestones, significant events have occurred during the second quarter of the year. At Banco Internacional, we continue to strengthen our position in retail financing and capital markets. In April, the bank achieved 100% ownership of Autofin, consolidating its leadership in auto financing. In the same month, it successfully issued its first AT1 bond, broadening its capital structure. In June, Banco Internacional carried out 2 capital increases, further reinforcing its capital base. More recently, in July, the bank signed a commercial alliance with MAPFRE aimed at expanding its distribution capabilities in the insurance business. In health care, in June, Red Salud signed a binding agreement to acquire the Nuevo Sanatorio Alemán, a leading health care institution in Concepcion. The transaction, which is subject to regulatory approvals and a due diligence process, is aligned with our strategy to expand the network's regional and strengthen its offering of high complexity services. Finally, in the insurance sector, Confuturo was awarded 50% of contract 11 of the Disability and Survivor Insurance Standard, reinforcing its strong position in the annuities and life insurance markets. ILC stocks has continued to deliver strong returns, significantly outperforming the IPSA both in 2024 and year-to-date 2025. This positive trend extended into the second quarter. And as of August 22, our shares delivered a 63% return year-to-date compared to a 32% gain for the IPSA over the same period. A key milestone supporting this performance was our reentry into the IPSA Index on March 24, which boosts both the visibility and liquidity of our stock. This strong momentum reflects market recognition of ILC's growth strategy, the consistent execution of our subsidiaries and our commitment to long-term value creation. As we have stated in previous presentations, ILC's strategy is based on 5 pillars. 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 metrics 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. Highlights. The strong -- Slide 10 highlights the strong performance ILC delivered in the first half of 2025, driven by greater stability in financial markets and solid execution across its businesses. ILC closed the second quarter with a profit of CLP 74.5 billion compared to CLP 25.2 billion in the same period of 2024, representing a 195% increase. As a result, recurring profit of the first half of 2025 reached CLP 114.1 billion during the period. This record performance reflects the diversification of our portfolio, the recovery of financial subsidiaries following last quarter's market volatility and the consistent growth of our businesses. With these results, ILC achieved an ROAE of 18.7% over the last 12 months. Over time, ILC has maintained double-digit profitability, showcasing steady growth and resilience. On Slide 11, we present an executive summary of the main drivers behind ILC's consolidated profit of CLP 74.5 billion in the second quarter of 2025, which compares to CLP 25.2 billion in the second quarter of 2024. The difference between both periods represent a 195% increase year-on-year, largely supported by the rebound in global financial markets. On the right part of the slide, you can see ILC's profit breakdown. On this table, subsidiaries with greater exposure to financial assets, such as Confuturo and Habitat recorded better results. Confuturo contributed CLP 25.6 billion while Habitat added CLP 18.9 billion during the period. In the health care segment, Consalud reported a profit of CLP 9.7 billion after the adjustment of the Short Isapres Law. Now I turn the presentation to Gustavo, who will review the results of our subsidiaries.

Thank you, Juan Pablo. Now that we've reviewed this consolidated performance, we will take a closer look at the performance of each of our main subsidiaries. In this section, we'll go division by division to better understand the key drivers behind each businesses, the challenges faced in the quarter, and the strategic progress achieved in line with our long-term plan. Let's begin with Banco Internacional. As of June 2025, Banco Internacional's loan portfolio grew by 16% year-over-year, positioning the bank with the highest growth in the industry, which expanded by just 4%. The commercial loan portfolio grew 30%. Meanwhile, consumer loans increased by 50% during the expansion of Autofin's portfolio and the bank's digital consumer lending platform. As a result, Banco Internacional's market share increased in commercial loan from 2.65% to 2.94%, consumer loans from 0.92% to 1.3% and mortgage loans remained stable, reaching 0.15%. In terms of client growth, the bank continued to expand its footprint. Commercial clients increased by 17%, reaching 8,500 companies. Retail clients increased by 52%, totaling more than 97,000 clients, including Banco Internacional and Autofin. With this, the bank reached 106,000 total clients. Looking ahead, Banco Internacional remains focused on expanding its presence in the large corporate segment, the consolidation of 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 a clear shift towards greater diversification and long-term stability. As of June 2025, the bank's funding base shows an increased reliance on bonds and retail time deposits, which now represent 29% and 22% of total funding. At the same time, the share of bank funding declined from 12% to 9%, reducing the dependence on short-term sources. During the quarter, in April, as Juan Pablo mentioned before, Banco Internacional completed the issuance of the first AT1 bonds in the Chilean industry for up to [indiscernible] million with maturity and 5.6% annual coupon. It's also important to remember that in July of the previous year, the bank placed its first public bond in the Swiss market for CHF 120 million, diversifying its international funding sources. In addition, 2 capital increases carried out in 2025 totaling CLP 28.5 billion further strengthen the capital base. Something important to highlight that most of the 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: scaling retail financing by improving client acquisition and retention, expanding the corporate funding base, developing digital financial products aligned with an efficient onboarding. The next slide, as shown in Slide #16, Banco Internacional's gross operating results grew 12.6% quarter-over-quarter, reaching CLP 53.6 billion. This increase was supported mainly by higher loan volumes, provision releases and the contribution from Autofin, partially offset by lower spreads and treasury income in the commercial loans. Operating expenses rose to CLP 30.1 billion, mainly due to Autofin, which continues to expand its operations. And as a result, the efficiency ratio improved by 622 basis points year-on-year, reaching 56.1%. As shown in Slide #17, total risk expenses increased to CLP 12.1 billion in the second quarter of 2025 compared to CLP 4.1 billion in 2Q '24. This increase of CLP 8 billion was mainly due to higher provision in commercial banking, mainly explained by a small group of clients. In terms of asset quality indicators, I mean, NPL ratio decreased to 2.8% as of June 2025 compared to 3% in June 2024. The risk index remained stable at 2% versus 2.1% in June 2024. Collateral coverage stood at 68%. Finally, Banco Internacional remains fully compliant with Basel III requirements with a solvency ratio of 16.8% (sic) [ 16.6% ] as of June 2025 compared to the industry average of 16.7%. Slide #18. The chart shows Banco Internacional's profit and ROAE evolution. In the second quarter of 2025, the bank reported a net income of CLP 9.8 billion compared to CLP 11.9 billion in the same quarter of the previous year, reflecting higher risk-related expenses in commercial banking, as we have mentioned, but mainly focused -- mainly explained by a small group of clients. Autofin continued to play a significant role, accounting for 30% of Banco Internacional's quarterly earnings. All in all, the bank posted a return on average equity of 12.1% in 2Q '25. Despite the short-term pressures, Banco Internacional continued to demonstrate solid long-term growth, supported by improved loan volumes, diversification of funding and the ongoing integration of Autofin in its balance. Now shifting to the annuity market. As shown on Slide #20, in the second quarter of 2025, we continue to see a strong demand for annuities. During the quarter, the annuity rate stood at 3.14% compared to a program withdrawal rate of 3.54%. The spreads continue to favor annuities as an attractive retirement option. As a result, 68% of retirees choose annuities while 32% of the program withdrawal. Total industry premium reached 35 million UF, increasing 24.3% quarter-over-quarter. Confuturo's premium amounted 4.2 million UF, slightly below the previous quarter with a market share at 12%. Confuturo remains one of the leading players in this industry, supported by the demand and regulatory changes. The 2025 pension reform, which reduced eligibility requirement for annuities from 3 UF to 2 UF to continues to broaden access and reports the relevance of these alternative. Next slide highlights Confuturo focused on strengthening its direct channel and maintaining strict cost efficiency. In the second quarter, 47% of life annuity premiums came from the direct channel, consolidated its role as the company main distribution platform and remaining well above the industry average. On the cost side, the chart in the right, SG&A expenses reached CLP 9.1 billion, increasing 3.7% compared to the same quarter previous year, mainly due to higher personnel and IT-related costs. Despite this increase, SG&A over assets under management stood at 37 basis points lower compared to prior quarters, below the industry average of 100 basis points. On the next slide, Slide #22, we show the investment result of Confuturo's portfolio in the second quarter of 2025. The investment result of Confuturo's portfolio in this quarter totaled CLP 110.2 billion, representing a 24% increase quarter-over-quarter. This performance was mainly explained by higher returns in fixed income with local instruments contributing CLP 6.8 billion and foreign instruments contributing CLP 3.5 billion, both supported by impairment reversal. In addition, local equities contributed CLP 4.4 billion and investment funds added CLP 6.9 billion during the quarter. These positive effects were partially offset by a weaker result from the real estate portfolio this quarter, which decreased by CLP 745 million. In Slide #23, we see the Confuturo's profit evolution. In the second quarter of 2025, Confuturo reported a net income of CLP 28.9 billion compared to CLP 14.1 billion reported last year, representing a 105% increase. This better result was mainly driven by higher investment income, supported by improved performance of local equity and fixed income results. As of June 2025, Confuturo achieved an ROAE of 13.6%. 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 in order to improve future returns and diversification. Then if we move do Slide #24 regarding AFP Habitat. In the second quarter of 2025, revenues reached CLP 64.7 billion, a 4% increase compared to second quarter of 2024. This growth was mainly supported by higher fee income from mandatory contributions driven by a 6.8% increase in the average taxable income per contributor. As of June 2025, Habitat contributors had an average taxable income 19% higher than the industry average, reinforcing the company's strong position in the mid- to high income segment. This was partially offset by a 0.9% decrease in the number of contributors year-over-year. Non-operating income showed a recovery with -- in cash legal reserve return totaling CLP 24.9 billion compared to a loss of CLP 11.6 billion in 2Q 2024. This result was mainly driven by the strong performance of funds with higher exposure to equities as the A, B, and C funds, supported by the rebound in local and international equity markets during the second quarter of 2025 after a first quarter impacted by the U.S. tariff announcement. In the next slide, we see the performance of our international operation in Peru and Colombia. These companies reported higher revenues in the second quarter of 2025, supported by growth in commission income. In Peru, revenues increased 8.8% year-over-year, reaching CLP 11.5 billion. Legal reserve return improved, totaling CLP 2 billion compared to CLP 0.7 billion in 2Q '24, reflecting strong global market performance. At Colfondos, very similar. In Colombia, revenues grew 7% quarter-over-quarter, reaching CLP 22.8 billion, legal reserve return also showed a strong recovery, reaching CLP 6.5 billion, up from CLP 4.3 billion in 2Q '24. Overall, higher legal reserve returns in both countries were mainly driven by the rebound in financial markets, particularly in equity-heavy funds, reversing the weaker performance seen in the first quarter. This slide, here, we show the evolution of profit before taxes and encaje for both AFP Habitat and AAISA. Results were mainly supported by -- I mean, by higher legal reserve returns, reflecting, as we mentioned, the strong performance of funds with greater exposure to equities. But excluding these effects, I mean, the second quarter of 2024 -- I mean, '25, AFP Habitat reported a profit of CLP 38.6 billion, up 4.9% compared to the previous quarter. The improvement was mainly driven by higher commission revenue supported by increased taxable income. In the case of AAISA, there's a 52.5% increase compared to the last year. The result was mainly explained by higher revenue and the addition of a new company, Andina Vida. Overall, Habitat and AAISA performance in the quarter reflects the positive impact of improved financial market condition and the sustained growth of taxable income across the contributors of both companies. Now I will turn the call over to Francisca Arroyo. She will review the performance of the -- our health sector.

Thank you, Gustavo. And moving now to health segment, we will review the performance of Red Salud, Consalud, and Vida Cámara during the second quarter of 2025. In Slide 29, it shows Red Salud activity indicators. In the second quarter of 2025, Red Salud revenues reached CLP 210.3 billion, an 11.2% increase compared to the same period in 2024. Growth was broad-based with inpatient, outpatient and dental services rising -- I mean, 13.1%, 10.1%, and 10.8%, respectively. Inpatient care, revenue growth was mainly driven by higher income from surgical procedures, intensive care units and hospitalizations. The number of surgeries increased 3.8% quarter-over-quarter while occupancy rate [indiscernible] rose to 76.3% compared to 73.6% in the second quarter of 2024, reflecting a more [indiscernible]. Outpatient revenues grew 10.1%, supported by the higher activity in the laboratory services, imaging and procedures, as well as the continued expansion of fees in medical sectors. Dental care revenues increased 10.8% boosted by higher demand and promotional campaigns. Red Salud's solid growth is supported by rising demand and a more complex inflation mix and increasing activity in our operation and dental services. Moving to Slide 30. Red Salud's EBITDA margin reached 12.9%, slightly below that 13.1% recurring in the second quarter of 2024. The breakdown shows that the margin was affected mainly by the personnel and SG&A costs, which reduced margin by 0.9%, reflecting the increase in staffing associated with the development of new specialties. At the operational level, the higher complexity in patient services and continued growth in outpatient and dental activities supported revenue expansion while investments in medical staff and specialty explains the slight margin [ construction ]. Now to Slide 31, Red Salud continues to diversify its revenue sources, reinforcing into resilience across different segments. As of the second quarter of 2025, Fonasa accounted for 46% of revenues while Isapre represented 30% of out-of-pocket and [indiscernible] and other payers by 24%. This reflects [indiscernible] prevalence of the public issuance, which reached a [ 49% ] share of the last 12-month basis, in line with the Red Salud's strategic of the expanding access. This is also worth noting that Isapres show a modest recovery this quarter, following the implementation of the share lot, which has provided greater financial stability to the system. Overall, Red Salud diversified revenue mix reduced exposure to regulatory changes while supporting sustainable long-term growth. On Slide 32, we can see that Red Salud EBITDA grew across all segments of the network. Consolidated EBITDA increased 9.5% year-over-year, reaching CLP 27.2 billion in the second quarter of 2025 with a margin of 12.9% compared to the 13.1% in the second quarter of 2024. By business unit, EBITDA increased by CLP 1.4 billion of outpatient and dental centers, reaching a margin of 17.6%. Metropolitan region hospital also grew, adding CLP 0.9 billion with a margin of 13.8%, while regional hospitals show a similar trend, with an increase of CLP 0.9 billion and a margin of 13.8%. This broad-based growth across centers reflect Red Salud's balanced network expansion and operational improvements, reinforcing its ability to capture demand in both outpatient and inpatient services. On Slide 33, we can see that Consalud average monthly contribution remained stable at 5.7 UF per affiliate in the second quarter of 2025, consolidating the recovery observed since early last year after the GES price adjustment. This stabilization reflects the combined effect of regulatory measures, including the implementation of the extraordinary premium in the late 2024 and the Short Law adjustment. Together, we can -- I mean, together, these have helped restore contribution to lever consist with historical average. In this context, the loss ratio stood at 85.7% in the second quarter of 2025, slightly down from 88.1% in the first quarter, continuing the improvement trend and pointing toward a more balanced outlook for the industry. Slide 34 illustrates the evolution of Consalud beneficiaries and the market share. We can see that the Consalud beneficiaries slowed down during the later part of 2024 and the first half of 2025. After the 19.8% decrease observed between December 2022 and December 2023, the pace of decline, moderate, with beneficiaries falling by 5.5% during the 2024 and by 3.2% in the first half of 2025. Despite this reduction in total affiliates, Red Salud has managed to maintain a stable market share, standing at around 19% in June 2025. Moving to the Slide 35, we can see that Vida Cámara continues to expand its operations during the second quarter of 2025. The number of beneficiaries reached 650,000, up 16.4% year-over-year, with growth across group and individual insurance. Group insurance beneficiaries increased by 14.3% while individual insurees surged by 61.6%, supported by the policies associated with preferred provider with Red Salud. This growth translates into higher premium collections in both health and life insurance. However, the comparison is affected by the high base for the prior year, which has -- from provision releases in 2024. Claims costs increased by 20.4% in the quarter, mainly driven by higher outpatient coverage in the group health insurance. As they're sold, the loss ratio rose to 86.1% in the second quarter of 2025 compared to the 73.5% in the second quarter of 2024. Now I will turn the call over to Gustavo again, and he will review ILC debt indicators on the following of this conference call.

Thank you, Francisca. Now if we move to Slide #37, which shows ILC's well-managed debt maturity profile and liquidity position. As of June 2025, net financial debt totaled CLP 386.4 billion with a net financial debt -- I mean, net financial debt-to-equity ratio of 0.33x, showing deleveraging compared to March, where the company reached 0.35x. Liquidity stood at CLP 189.3 billion composed mainly of cash and equivalents and an investment portfolio of liquid assets. This liquidity structure provides the flexibility in order to cover upcoming maturities. ILC continues to optimize its funding structure, balancing carry cost, maintaining conservative leverage and mitigating foreign exchange exposure, supporting both financial resilience and long-term growth. Now in order to end the presentation and to sum up in Slide #39, I would like to highlight the key advances towards our strategic goals. Between 2023 and 2027, we are focused on accelerating the growth in the financial business. At Banco Internacional, we continue expanding our client base, reaching 106,000 clients as of June 2025 and delivering 15.5% loan growth, far above the industry 4%. Milestones this quarter include increasing our stake in Autofin to 100%, issuing the first AT1 bond in Chile and forging new strategy alliances. Regarding Confuturo, Confuturo maintained its strong position in the market, supported by higher spread, efficiency, value creation, achieving a 12% of market share in the annuity business. I mean, AFP Habitat remained focused on the mid- to high-income segment, benefiting this quarter from a stronger financial market performance. Then as Francisca just reviewed, in the health care business, Red Salud reinforced its leadership in private coverage, strengthening high complexity services. EBITDA reached CLP 27.2 billion with a 12.9% margin, while Vida Cámara's supplemental health insurance grew 16% year-over-year, reaching 650,000 beneficiaries. On the regulatory front, the implementation of the Isapres Short Law has contributed to stabilizing the health insurance system with positive effects at Consalud. Finally, at the ILC level, we remain fully committed to our purpose of creating value. We achieved a first half profit of CLP 114 billion, supported by stronger financial markets and operational progress across all our businesses. In addition, ILC's stock continues to perform strongly, outperforming the IPSA by more than 30% year-to-date. This concludes today's presentation. We will now open the floor for questions.

Daniel Vallenas from Moneda Patria has a question. I will let him to talk and ask her question -- I mean, his question.

Gustavo, you hear me?

Yes.

It's mostly regarding the increase in provisions we saw this quarter. And when we look at NPLs, it seems quite well behaved going from 3.1% last quarter to 2.8%, so actually an improvement. So trying to understand the reasons behind. You mentioned during the call the one group of small commercial clients, but I don't know like this is not reflected in the NPL ratio. Trying to understand better that.

Thank you, Daniel, for your question. The bank, I would say, let's say, current provision policy and a conservative approach to greater origination, focusing on clients with strong payment behavior. It is important to note that the higher risk expenses recorded this quarter were primarily linked to a few specific case, as you also mentioned. Do not reflect the duration of the loan portfolio. Overall, the portfolio quality remains sound and within the bank's historical norms. All right, remember, if you have any question, I'll help so, right? If you don't, [indiscernible] or in the Investor Relations department, we are very open to address any questions you have. So no other questions? It was a very clear call. That's everything for today. Now as I mentioned, if you have further questions, feel free to contact our IR team. Thank you all for attending this conference call and see you next quarter.