Inversiones La Construcción S.A. (ILC) Q3 FY2025 Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining ILC's Third Quarter 2025 Results Conference Call. With me today is Juan Pablo Undurraga, CFO of ILC; and Francisca Arroyo, Investor Relations. Before we begin, I will invite everyone to download from our website the presentation prepared especially for this call. This document provides an overview for 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 into 5 sections. First, we will review the economic and industry context for the period. followed by ILC's consolidated results for 3Q '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 section. 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 year.

Thanks, Gustavo. Slide 5 presents the macroeconomic context for the third quarter of 2025 compared to the third quarter of 2024. In the third 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 6.4% return. As you can see from the graph below, inflation remained flat during the quarter compared to a 0.7% increase in the same period last year, while UF increases 1%. 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. Regarding our 2025 milestones, significant events have occurred during the year. In June, Banco Internacional achieved 100% ownership of Autofin, consolidating its presence in auto financing segment. That same month, Banco Internacional carried out 2 capital increases, further reinforcing its capital base. In addition, during 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 Concepción. The transaction, which is subject to regulatory approvals and due diligence process is aligned with our strategy to expand the network's regional presence 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 tender, reinforcing its strong position in the annuities and life insurance market. On Slide 8, we can see that ILC stock has continued to deliver strong returns, significantly outperforming the IPSA in both 2024 and year-to-date 2025. As of November 21, our shares have delivered a 101% return year-to-date, more than double the IPSA's gain over the same period. A key milestone supporting this performance was our reentry into the IPSA Index on March 24, which boosted both the visibility and liquidity of our stock. This strong momentum reflects market recognition of ILC growth strategy, the consistent execution by 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. Slide 10 highlights the strong results ILC achieved in the first 9 months of 2025, driven by solid execution across its businesses and greater performance in financial markets. ILC closed the third quarter with a profit of CLP 72.4 billion compared to CLP 57.8 billion in the same period of 2024, representing a 25% increase. As a result, recurring profit for the first 9 months of 2025 reached CLP 186.4 billion, a 68% increase compared to the previous year. This record performance reflects the consistent growth of our businesses. With these results, ILC achieved an ROAE of 19.2% over the last 12 months. Over time, ILC has maintained double-digit profitability, demonstrating steady growth and resilience. On Slide 11, we present an executive summary of the main drivers behind ILC's consolidated profit of CLP 72.4 billion in the third quarter of 2025 compared to CLP 57.8 billion in the third quarter of 2024. Subsidiaries with greater exposure to financial assets such as Confuturo, Habitat and AAISA recorded better results. Confuturo contributed with CLP 37.1 billion, while Habitat added CLP 21.8 billion during the period. In the Healthcare segment, Red Salud achieved CLP 4.6 billion, supported by higher and more complex inpatient activity. In the health insurance segment, Consalud reported a loss of CLP 11.4 billion because during the quarter, the discount rate parameters of the accounting model used to calculate the present value of the liability established by the Short Isapres Law were updated. This adjustment resulted in a loss of CLP 18.3 billion during the quarter. Excluding this effect, Consalud posted a profit of CLP 6.9 billion compared to a loss of CLP 6.2 billion recorded in the third quarter of 2024. 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 review ILC's consolidated performance, we will take a closer look at the performance of each of our main subsidiaries. In this section, we will go division by division to better understand the key drivers behind each business, the challenges faced in the quarter and the strategic progress achieved in line with our long-term plan. Let's begin with Banco Internacional. Moving to Slide #14. As of September 2025, Banco Internacional's total loan portfolio grew by 11.5% year-over-year, position the bank while the industry expanded by just 5.5%. The commercial loan portfolio grew by 8%. Meanwhile, consumer loan increased by 41%, driven by the expansion of Autofin portfolio and the bank's digital consumer lending platform. As a result, Banco Internacional's market share increased in commercial loans from 2.8% to 2.9%, consumer loans from 1% to 1.4% and mortgage loans from 0.13% to 0.17%. In terms of client growth, the bank continued to expand its footprint. Commercial clients increased by 15%, reaching over 8,700 companies. Retail clients increased by 46%, totaling more than 98,000 clients, including Banco Internacional and Autofin. And with this, the bank reached 111,000 total clients. Looking ahead, Banco Internacional remains focused on expanding its presence in the large corporate segment, consolidation of the retail auto finance banking segment, diversifying both its product offering and funding sources. In this line, as shown in Slide 18, Banco Internacional continues to consolidate its funding structure, reflecting a clear shift towards greater diversification and long-term stability. As of September 2025, the bank's funding base shows an increased reliance on the bonds and retail time deposits, which now represent 30% and 24% of total funding. At the same time, the share of bank funding declined from 11% to 9%, reducing dependence on short-term sources. It's important to remember that in April, the bank completed the issuance of the first AT1 bond in the Chilean industry for UF 2 million, also to capital increases carried out during the first half of the year, totaling CLP 28.5 million. Looking ahead, the bank sees 3 main opportunities: scaling retail financing by improving client acquisition and retention, expanding the corporate funding base; and third, developing digital financial products aligned with an efficient onboarding process. Next slide, Banco Internacional shows -- Banco Internacional's growth operating results grew 27.6% quarter-over-quarter, reaching CLP 52.1 billion. This increase was supported by higher loan volumes and the contribution from Autofin, partially offset by lower spreads. Operating expenses rose to CLP 31 billion, mainly due to Autofin, which continues to expand its operation. As a result, the efficiency ratio increases by 570 basis points year-over-year, reaching 59.5%. Banco Internacional remains focused on sustaining profitability growth by expanding its loan portfolio while continue to manage cost and integration efforts with Autofin. As shown on Slide 17, total risk expenses increased to CLP 8.4 billion in the third quarter of 2025 compared to CLP 6 billion in 3Q '24. This increase of CLP 2.4 billion was mainly due to higher provision in Autofin along with provision and write-off in commercial banking. In terms of asset quality indicators, the NPL ratio stood at 2.6% as of September 2025 compared to 2.4% in September 2024. The risk index remained stable at 1.9% versus 1.8% in September 2024, collateral coverage stood at 69%, above the industry average of 53%. Finally, Banco Internacional remains fully compliant with Basel III requirements with a solvency ratio of 16.4% as of September 2025. Slide 18 chart shows Banco Internacional profit and ROAE evolution. In the third quarter of 2025, the bank reported a net income of CLP 9.9 billion compared to CLP 10.5 billion in 3Q '24. Autofin play a significant role, accounting 31.6% of Banco Internacional quarterly earnings. In a consequence, the bank posted a return on average equity of 11.9% in 3Q '25. Despite these short-term pressures, Banco Internacional continues to demonstrate solid long-term growth supported by loan volume, diversification of funding, the ongoing integration of Autofin and the development of relevant commercial lines. Now I want to shift to the annuity market as shown on Slide 20. In the third quarter of 2025, we continue to see a strong demand for annuities. During the quarter, the annuity rate stood at 3% compared to a prior withdrawal rate at 3.54%. This spread continue to favor annuities as an attractive retirement option. As a result, 55% of pensioners chose annuities while 35% opted for program withdrawal. The 25% pension reform, which reduced the requirement for annuities from 3 year to 2 year continue to broaden access and reinforce the relevance of this retirement alternative. Total industry premium reached UF 34.3 million, increasing 25% quarter-over-quarter. Confuturo premiums amounted UF 2.7 million below the previous quarter with a market share at 8%. As we have mentioned in the past, we aligned our sales performance with investment opportunities and the generation of shareholder spread. Confuturo remains one of the leading players in the annuities market, supported by the sustained demand and regulatory developments. This quarter, sales were below the usual levels, primarily due to a lower expected internal rate of return observed during the period. Slide 21 highlights Confuturo focus on strengthening its direct sales channel and maintaining strict cost efficiency. In the third quarter of 2025, 38% of life annuity premiums came from the direct channel, above the industry average of 32%. On the cost side, SG&A expenses reached CLP 9.7 billion, increasing 2.6% compared to the third quarter of 2024, mainly due to higher personnel and IT-related costs. Despite this increase, SG&A over assets under management stood at 40 basis points lower compared to last quarter of the previous year and below the industry average of 91 basis points. On Slide 22, we show the investment result of Confuturo's portfolio in the third quarter of 2025. The investment result of Confuturo in 3Q '25 totaled CLP 122.3 billion, representing 16.9% increase quarter over quarter. This strong performance was mainly explained by higher returns in local fixed income, which contributed CLP 6.3 billion and investment funds added CLP 15 billion. In addition, equities contributed CLP 1.6 billion and real estate portfolio resulted CLP 1.5 billion. Slide 23. In the third quarter of 2025, Confuturo represented -- reported a net income of CLP 40.2 billion compared to CLP 38.4 billion recorded in the third quarter of '24, representing a 41.2% increase. This increased result was mainly driven by higher investment income, supported by improved performance of local fixed income and investment fund results. As of September 2025, Confuturo achieved an ROAE of 15.1%. 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 now to Habitat and AAISA as shown on Slide 25. In the third quarter of 2025, revenues reached CLP 65.7 million, 5.4% increase compared to 3Q '24. This growth was mainly supported by higher fee income from mandatory contributions, driven by a 7.7% increase in the average taxable income per contributor. As of September 2025, Habitat contributors had an average taxable income 22.4% higher than the industry average, reinforcing the company's strong positioning in the mid- to high income segment. This was partially offset by a 2.7% decrease in the number of contributors year-on-year. Legal reserves reached CLP 35.7 billion, CLP 2.2 billion higher compared to the same quarter of the previous year. This result was mainly driven by the strong performance of funds with higher exposure to equities, funds A and B. The next slide shows both our international operation in Peru and Colombia reported higher revenues in the third quarter of 2025, both supported by growth in commission income. In Peru, revenues increased 34.5% quarter-over-quarter, reaching CLP 11.6 billion and legal reserve return improved CLP 2.8 billion compared to CLP 0.4 billion in 3Q '24, reflecting stronger global market performance. Colfondos in Colombia, revenues grew 21.5% quarter-over-quarter, reaching CLP 27.3 billion. Legal reserves return also showed a strong recovery, reaching CLP 10.5 billion, up from CLP 7.2 billion in 3Q '24. The strong performance in Colombia is also attributable to a new insurance company, Andina Vida, which generated revenues for CLP 7 billion in 3Q '25. On Slide 27, we show the evolution of profit before taxes and in [indiscernible] legal reserve for both AFB Habitat and AAISA. Results were mainly supported by higher legal reserve returns, reflecting the strong performance of funds with greater exposure to equities. Excluding these effects in the third quarter of 2025, AFB Habitat reported a profit of CLP 38 billion, up 3.7% compared to the same quarter of the previous year. Habitat's quarterly improvement was driven by higher commission revenue supported by increased taxable income. AAISA posted a profit of CLP 13.6 billion, an 87% increase compared to the same quarter of the previous year. This result was primarily explained by higher revenues in Peru and Colombia, together with the contribution of Andina Vida, the new insurance company. Moving now to the Health segment. Slide 29 shows Red Salud activity indicators. In the third quarter of 2025, Red Salud's revenues reached CLP 214.4 billion, which implies a 15.2% increase compared to the same period in last year. Growth was broad-based with inpatient, outpatient and dental services rising 16.8%, 13.9% and 11.5%. Inpatient care, revenues grew -- growth was mainly driven by higher income from surgical procedures, critical care units and hospitalization. The number of surgeries increased 5.5% quarter-over-quarter while occupancy ratio of the network rose to 77.8% compared to 73.1% in the third quarter of 2024, reflecting a more complex case mix. Outpatient revenues grew 13.9%, supported by higher activity in laboratory services, imaging and medical consultation as well as the continued expansion of clinics and medical centers. Dental revenues increased 11.5%, boosted by higher demand and promotional campaigns. Red Salud solid growth is supported by rising demand and more complex inpatient mix and increased activity in outpatient and dental services. Moving to Slide 13. Red Salud's EBITDA margin reached 11.1%, slightly below 11.2% recorded in 3Q '24. The breakdown shows that the margin was affected mainly by clinical material costs, which reduced the margin by 1.4%, reflecting the change in the mix of services. At the operational level, the end of the referral agreement between Red Salud [indiscernible] impacted also the results. Now turning to Slide #31. Red Salud continued to diversify its revenue source, reinforcing its resilience across different payer segments. As of the third quarter of 2025, Fonasa accounted for 49% of revenue, while Isapre represented 31% and out of pocket and other payers 20%. This reflects the sustained relevance of the public insurer, which reached a 49% share on a last 12 months basis. aligned with Red Salud's strategic objective of expanding access. It is also important to note that Isapre showed a recovery last quarter following the implementation of the Short Law, which has provided greater financial stability for the system. Overall, Red Salud's diversified revenue mix reduces exposure to regulatory changes while supporting sustainable long-term growth. On Slide 32, we can see Red Salud's EBITDA grew mainly in dental and outpatient center and Regional Hospital. Consolidated EBITDA increased 13.9% quarter-over-quarter reaching CLP 23.8 billion in the third quarter 2025 with a margin of 11.1% compared to 11.2% in 3Q '24. By business unit EBITDA increases by CLP 3.5 billion Outpatient and Dental Center reaching a margin of 17.6%. Regional Hospital showed similar trend with increase of CLP 1.4 billion and margin of 9.5%. Metropolitan Regional Hospital remains stable, reaching a margin of 9.5%. On Slide 33, we can see that Consalud's average monthly contribution remained stable at 5.7 UF per affiliate in the third quarter of 2025, consolidated recovery observed since last year or the beginning of the last year after the GES price adjustment and the implementation of the Short Law. This stabilization reflects the combined effects of regulatory measures, including the implementation of the extraordinary premium in late 2024 and the Short Law adjustment. Together, these have helped restore contribution to levels consistent with the historical average. In this context, the loss ratio stood at 81.7% in to 3Q '25, down from 97.4% in the third quarter, continuing the improving trend and pointing towards a more balanced outlook for Consalud. Now moving to next slide, Slide 34, highlights, we are seeing stable recurring profit following the approval of the payment plan and a reduction in medical leave cost. If you look at the gray bars, you will notice a trend of stability in our recurring profit. This performance is underlined by the implementation of Short Isapre Law, the payment plan and the extraordinary premium. They have not only helped to fully comply with the payment plan mandated by the regulation, but also stabilized the Isapre Law. Now I will like to draw your attention to the light blue bar shown in the third quarter of 2025, which represents a negative extraordinary effect for CLP 18.3 billion. During the quarter, as Juan Pablo mentioned before, the discount rate parameters of the accounting model used to calculate the present value of the liability under IFRS standards were updated. This update follows the lower spread in the market and a better outlook for the Isapres situation. That resulted in a decrease in the discount rate from 35% to 30%. Nevertheless, this is [indiscernible] the book, that means a cash flow vertical. Moving to the next slide, we can see that Vida Cámara continued to expand its operations during the third quarter of 2025. The number of beneficiaries reached 654,000, up 5.8% year-over-year with growth across both group and individual health insurance, highlighting individual insurance grew by 55.5%, supported by policies associated with [indiscernible] provided agreements with [indiscernible]. This growth meant a higher premium collection in both health and life insurance. However, claims cost increased by 17.7%, mainly driven by higher outpatient coverage in group health insurance. Loss ratio reached 79.3% in the third quarter of '25 compared to 77.5% in the third quarter of '24. Now we turn to Slide 37, we show ILC well-managed debt maturity and liquidity position as of September 2025, net financial debt totaled CLP 392.3 billion with a net financial debt-to-equity ratio of 0.32x. Liquidity stood at CLP 184.6 billion, composed mainly of cash and equivalents and investment portfolio of liquid assets with a low risk profile. This liquidity structure provides ample flexibility to cover upcoming maturities. An important highlight, we are proud announce to that yesterday, Fitch Ratings upgraded ILC's international credit rating to BBB+. With this improved classification, all ratings agencies now share a BBB+ international rating for ILC. This upgrade reflects the company's strong financial position and our consistent track record of value creation. According to the agency, this improvement is driven by several key factors where we can highlight diversified business portfolio, robust risk management practices supported by a stable regulatory framework, sustained profitability, Fitch also highlighted our solid liquidity and controlled leverage with a net debt ratio of 0.3x and also a healthy coverage of operating expenses. This upgrade is a direct recognition of ILC's financial discipline and growth strategy. Now to sum up, I'd like to highlight the key advances towards our strategic goals. Between 2023 and 2027, we remain focused on growth in the financial business as mentioned. At Banco Internacional, we continue expanding our client base, reaching more than 111,000 clients as of September 2025, delivering 11.5% loan growth above the industry 5.5%. Milestones this year include increasing our stake in [indiscernible] 100%, issuing the first AT1 bond in Chile, forgoing the new strategic [indiscernible]. Confuturo maintained its strong position in the annuity market, supported by higher spreads, efficiency and value creation, achieving an 8% market share in the quarter. AFP Habitat remains focused on the mid- to high income segment, benefiting this quarter from a stronger financial market performance. In the health care business, Red Salud reinforced its leadership in private coverage, strengthening high complexity services. EBITDA reached CLP 23.8 billion with a 11.1% margin. While Vida Camara delivered health insurance grew 55% year-on-year reaching more than 47,000 beneficiaries. On the regulatory front the implementation of Isapres Short Law has contributed [stability] in the health insurance segment with positive effects at Consalud. Finally the ILC [indiscernible] we remain fully committed to our purpose of creating value. We achieved a profit of CLP 186 billion in the first 9 months, supported by operational progress across our businesses and stronger financial markets. In addition, ILC's stock continues to perform strongly, doubling it's return year-to-date. Before we end the presentation, I would like to extend a cordial invitation to our seventh Investor Day, which will take place on December 4 in Santiago, Chile. This event will provide an opportunity to present our strategic priorities, review key developments and share the long-term outlook for 2030. The presentation will be led by Pablo Gonzalez, CEO of ILC and Mario Chamorro, CEO of Banco Internacional. This concludes today's presentation. We will now open the floor for questions.

[Operator Instructions] I have a question here regarding Consalud. If you can provide more details on how Consalud's liability rate is calculated while the accounting occurs this quarter.

Based on Isapres industry risks, we estimate a discount rate based on high yield bond spreads, which have decreased significantly since September 2024. Considering September '25 market condition, the new discount rate reached 20% compared to the previous discount rate of 35%. This new discount rate increases the liability established by the Short Isapres Law, and as we mentioned before in this presentation, this adjustment resulted in a CLP 18.3 billion loss after tax during the quarter. It is important to remember that the liability established by the Short Isapres Law and the adjustment of the discount rate described are accounting effects under IFRS standard that have not involved cash flows disbursement during the year.

Thank you, Juan Pablo. There's another question regarding annuity industry especially low volume from [indiscernible] quarter. I could take this question. I mean the annuity market continued strong demand during the third quarter with a solid growth in premiums and [indiscernible] in preference towards annuity number from withdrawal. For the third quarter of this year, premium reached UF 34 million confirming the strong demand that we observed in 2024 and 2025. A key factor that we mentioned has been narrower spread between annuity rates and program withdraw rate which has made annuities more attractive for [indiscernible] seeking for long-term financial certainty. Regulatory changes are also [indiscernible] the market outlook. The reduction in the minimum eligibility from the UF [indiscernible] has expanded access while the gradual increase in the mandatory contribution rate will strength the system in a long-term horizon. Demographic trends also, I mean, particularly an aging population will provide an additional structure headwind for annuity going forward. Confuturo is well positioned to capture this growth. We have a strategy focused on the direct channel, which give us some flexibility. But however that Confuturo's growth will be aligned. We have mentioned that before Confuturo growth will be aligned with the investment opportunities available in the market. During this quarter, the marginal investment IRR was slightly below Confuturo's [indiscernible] which led us to sell a [indiscernible]. Question regarding Pension reform in Colombia. If we have any plans for M&A in AAISA. I will start with the last question regarding M&A. AAISA continuously looked together with Prudential which is our partner there for opportunities in the region, especially markets similar to where we participate like Chile, Peru and Colombia. However, there's nothing to mention right now, we continuously focus on -- look for opportunities, but I mean, opportunities we see value for the shareholders, not opportunities to put [indiscernible]. Then regarding the Pension reform in Colombia, the Pension reform in Colombia was approved by Congress in 2024. And the idea was to start in July this year. However, implementation was suspended by the constitutional court due to procedural irregularities requiring a new vote in Congress. Then in June 2025, the House of Representatives approved the reform again and the process now awaits a final ruling from the court. There's no -- we are awaiting the court to the final decision. But there will [indiscernible] reform in this aspect for the coming years. As we have mentioned in the past, this reform implies a new framework. There are some first that will change access [indiscernible] private system earning between [indiscernible] minimum wage will direct contribution to the public system, but the reform allow [indiscernible] to charge over AUM [indiscernible]. The next step, as I mentioned, will depend on the court confirmation and the government ready to ensure financial [indiscernible], there's no confirmed implementation date and final decision right now is on the court -- court's decision. Thank you, everyone, for joining us today in third quarter 2025 results conference call. If you have any further questions, please feel free to contact our Investor Relations team. Thank you for joining this conference call, and we hope to see you next week.