Nuam S.A. (NUAM) Earnings Call Transcript & Summary

[Audio Gap] Patricio Rojas, Chief Financial Officer; and [ Claudia Diaz ], Senior Regional Finance Manager. Please be advised that this call is being recorded and that following the presentation, we will open the floor to questions from the audience in both English and Spanish. The video recording and transcript of this call will be available on NUAM's website within the next few days. I will now repeat this information for our Spanish speaking participants. [Foreign Language] Juan Pablo, good afternoon, and thank you for joining us today. The floor is yours.

Thank you, Bruno. Hi, everyone. Thank you very much for joining the call, and welcome to the 2024 final earnings conference. Let me just start by indicating the agenda for the day. So we have the main highlights of the company and 2024 performance -- business performance and our key takeaways. To sum up, I would say that the results are pretty good. We feel very satisfied with the results for the full year 2024. It's our first full year integrated operation. So for the first year, I think the results are pretty good, pretty solid and in track with our expectations or slightly above our expectations, which is always good for, let's say, an endeavor of this nature. And I think that our first year has set a very strong footing in what we want to perform and what we set out to do. So to start, in terms of financials, the financials, I guess, will not be a surprise as they continue to come in fairly strong as they had in the first 3 quarters of the year. So the final results for the year are $147 million in revenue, $64.9 million in EBITDA and $38.1 million in net profit. In terms of revenue growth, this means 13% growth in our revenues in dollars in the combined businesses, which again stresses the importance of our well-diversified business model, not only in business lines, but also in the 3 countries. Our EBITDA margin up to 44% from 39%. So a good 5% increase in EBITDA margins, which we feel very satisfied with. And net profits 22% higher. We will talk a little bit about that. We have a one-off tax event at the end of the year that I'll comment on, which in the end ended up affecting the net profit. But overall, very, very good results. In terms of Q4, Q4 presented softer market activity. So performance in the market was not as strong as we had seen in the -- particularly in the second and third quarters. And also the results were affected by the FX depreciation, particularly in Colombia. So that affected some of the numbers of the fourth quarter. And as I mentioned, the one-off tax affected the net profit at the end of the year, which is a one-off of roughly $2.7 million associated to our holdings in Peru. We can go a little bit into that a little bit later. In terms of market highlights, I think that overall, the year was a strong year for the region, for the 3 countries. Volumes were up 17% in total, which is pretty good given the economic and the political circumstances around the world. Good news for the NUAM stock. We joined the IGPA index. So we're starting to meet the criteria for inclusion in indices, which is good news. We increased to 2 analysts covering the stocks, and we upgraded to 2 new market makers starting this month. So we're working hard to improve liquidity and secondary market for our stock. Also, the date for the shareholders' meeting has been announced on 24 April. And very importantly, in that annual meeting, we will have the proposed dividend distribution, which will be CLP 181.86 per share, which is an increase of roughly 30% from last year. And we will also propose an increase in the dividend policy from 50% to 70%. So both, I think, going in the right direction, increasing the dividend per share and for next year, increasing the payout ratio. In terms of our projects, we're reaching a very tough moment in the projects. We are set to go live 30 June, as you very well know. We are at this juncture with a lot of things in our plate. One is, of course, finalizing our own, let's say, internal technology and processes; second is training and enabling the testing environment for our clients; and finally, having final approval from regulators. So we have basically 3 months to get all these things done and wrapped up. It's pretty tough, but we're working very hard and committed to that end. In terms of regulators, the good news is we've had very constructive conversations with them over the last, let's say, 4 to 6 weeks probably. And that has accelerated the process in the 3 countries. Remember that we have split the regulatory approval process in 2. So we will have the, let's say, first step. The first stage will be the harmonized trading rules in the 3 countries but still operating separately. And then Phase 2 will be when they allow us to operate as a single market. But the first step is to have the same operational rules in the 3 countries. And that, as I mentioned, is going fairly well. We expect at least one of the countries, hopefully, to approve the rules later this month and the other 2 next month so that we will be ready for June. So some progress there, tough few months coming forward but with the full commitment to putting in place this very important first step of our integration project in the equity market in particular. So those are the main, let's say, corporate highlights. In terms of markets, pretty much the same trends we saw throughout the year. The market cap was just slightly up, 2%. But volumes in all markets were fairly strong last year, 11% growth in the equity market, 28% growth in fixed income, 9% growth in derivatives, 10% growth in FX and clearing and settlement up 23%. Custody, which is a stock, was down 2%. But this is mainly affected by the end year Colombia depreciation, which was CLP 4,400. Today, it's trading around CLP 4,040. So I guess the picture was not pretty good at the end of the year, but the average assets under custody were higher than this. So that's basically the same trend we had seen all year. So it was reaffirmed for the end of the year. In terms of quarter-on-quarter market performance, as I mentioned, the last quarter was particularly soft vis-a-vis the third quarter. And we saw all of these numbers in dollar terms negative mainly because of the depreciation and softer activity. Okay. So if we go to the income statements and business performance. So full year income statement will have a 13% revenue growth to $147.6 million, as I mentioned at the beginning. Expenditures were up 95 -- I mean, 2% to $95.3 million from $93.5 million. EBITDA at $64.9 million, up 28%, and net profit at $38.1 million with a 22% growth. As I mentioned, EBITDA growing, in terms of EBITDA margin, from 39% to 44%. If we go to the next slide, looking at individual business lines. There, you have basically what we have discussed, particularly the post-trade business doing very well, growing at 22%, and all core businesses performing fairly well during the year. The other 2 business lines, information and value-added services, managed to grow slightly, 3% and 2%, respectively. But the core business, as I mentioned, growing double digits mostly. Individually, so listing services -- listing and issuer services growing 6% in the year. This represents 12% of our revenue -- of total revenues. And here, we had significant activity in terms of new listings and new issuance in fixed income, particularly in Peru, and then somewhat more activity in Colombia. So numbers are pretty strong, and 86% of revenues are associated to listing fees. So in the sense that if we have market activity in terms of new issuance, new bonds or follow-ons for existing equity products, we have a very stable revenue source there. So total revenue for listing and issuer services at $18.1 million. In terms of trading, well-diversified revenue line. It represents 15% of our total revenue. It grew 14% full year in 2024. And as I mentioned, it's well diversified, where you have 34% of that comes from equity trading; 33% from market access to different markets but particularly the equity market; 24%, fixed income trading; 6%, derivatives; and then 3%, other. In terms of equities volumes, up 11%, which I think is pretty good, again, saying equity volumes up 11% given, let's say, economic and political conditions. So 11% growth is pretty good, and the start of the year is also very, very strong. In terms of fixed income volumes, up 30%. Note also that in the equity volumes, we have a 17% growth in number of trades, which means an increased retail activity, which is very important, and it's very important for our business moving forward. So particularly with the integrated trading platform, we want to stimulate retail activity, and we are seeing good life into the retail activity. Also to highlight derivatives, this is standardized derivatives mainly in Colombia, growing very strong. Of course, it's a small business line and small revenue line but growing very strong at 72% year-on-year in terms of volumes and to USD 72 billion. This has been the case given that pension funds are feeling more comfortable with using futures for some of their strategies, and we now have 3 pension funds actively participating in the market. Number of contracts, the growth was 200% growth. So derivatives, it's a small business line but growing strong. In terms of clearing and settlement, definitely the star of the year in 2024. Clearing is clearly a very important part of our strategy and a very important part of our product offering in the 3 countries and where we want to expand services moving forward. Also, as in the trading business line, very well diversified by market. So 39% of the clearing revenue is coming from the equities clearing; 22% from derivatives; collateral management, 10%; FX, 10%; and fixed income, 7%. So overall growth in clearing, a 30% growth in the year to $27.6 million with -- well, more than 23% increase in volume from the previous year. Also to note, the open interest grew 14% to $37 billion. This is an important number as well because as you grow open interest, that level of open interest tends to replicate itself year-over-year. So it's a very stable source of revenue moving forward. So clearing and settlement, definitely the star of the year with 30% growth in the year and with a lot of opportunity for the future. Custody services, 17% growth, also well-diversified revenue base with deposit services representing 35%; custody, 28%; distribution processing, 23%; and other revenues at 15%. The -- let's say, the end year picture in terms of assets under custody is not pretty, but it's associated, as I mentioned, to the FX, particularly the depreciation in Colombia. But $42.9 million in revenue coming from the custody business, again, also very solid and stable, let's say, revenue source and business for us. In terms of the next 2 business lines, which are information and value-added services, information represents 13% of our revenues, $19.4 million. So it's also well diversified. Market data represents 48%; market access, 27%; and price vendor, 25%. So well diversified. A lot of this line of business is indexed to the U.S. dollar. So also gives us FX, let's say, FX protection. We had, in market data, a bit of a step back with one of the large, let's say, vendors halting the distribution of our services, particularly in Peru. So that represented a decline of 1,700 clients, an 18% decline. So this is, let's say, a one-off event, unfortunate. It gives us a lower base for 2025. So hopefully, we can recover not only the activity that we have in this vendor with other vendors, but as we move closer to the integrated market, this is also a line of business where we want to grow. So information services, market data and international distribution of our market data is a potential source of revenue in the future. In terms of our price vendor, the price vendor performed fairly well last year, and we have done -- taken small steps but steps in the right direction of expanding Precia into Peru and into Chile. We have done a couple of client events here in Chile over the last few months. And we should start seeing the signing of new clients in Chile starting this year is the plan. And in value-added services, again, the focus in value-added services for 2024 was to recover credibility in the market. We have had some setbacks in terms of quality of services and performance of our solutions. I think that is well under control right now. Still some challenges, of course. But we have managed to, let's say, revert some decisions by clients of not continuing with our service. We are continuing the service with some of those clients, and we have signed in new clients. So we should start seeing this year new clients and new, let's say, implementation projects in value-added services and basically the back office services strictly in Chile. This is mostly -- I mean, the 50% of the revenues is the back office services in Chile. So that's going very well. The other 2 lines of business are in Peru and in Colombia, and those are growing fairly well in terms of volumes and revenues. In terms of expenditures, no big surprise here. I think you have these numbers well under control. Let's say the increase in expenditures is basically associated to depreciation allowances, and most of that is coming from the PPA, the incorporation of depreciation allowances from the PPA. We did, let's say, the final adjustments to the PPA in Q3. We went through this in detail in Q3. But all in all, it represents $4.5 million in additional depreciation allowances for 2024, and this will be a stable figure for the next 5 or so years. So this is something that you will see in the next 5 years, the effect of the PPA depreciation. So that's basically going very roughly over the financials. Again, I think very satisfactory first full year in operation of NUAM, taking into consideration that the challenge was not just to produce good financial results but to integrate 3 companies with 18 subsidiaries in 3 countries with 3 different cultures coming from different -- 3 different origins. So I think that we did a reasonably good job of creating, let's say, the sense of a single company, a single corporation, a single working team, building a new culture for this company. So that was a very significant also activity. You can't see it in the numbers, but it took a lot of time and effort. And also work with the regulators. Work with regulators, even though we did not have the rules that we wanted published, allowing the integrated market, I think we have made tremendous headways into the building of trust and constructing a new vision with regulators in 3 countries. With ups and downs, as you know, but I think we're moving in the right direction. And as I mentioned, between now and end of May, we should be seeing the first stage of the regulatory approvals being published in the 3 countries. So a good year, a lot of work, but it's very satisfactory to be able to transmit to you the very positive results of 2024. So again, 13% revenue growth amidst a very difficult year in terms of corporate integration and economic and political environment in the region. EBITDA margins increasing to 44% from 39% and working strongly and without distraction in our projects to create the new single market for the 3 countries. The following chart, I will not go into detail, but it's just to indicate how busy we will be over the next few months. Each triangle in this graph indicates a go-live of one of the systems in one of the countries. So blue is Chile, red is Peru and yellow is Colombia. So that is to say the amount of activity that will be taking place beginning in the second -- yes, at the end of the second quarter of this year or beginning of the third quarter of this year up until first quarter of 2026. So a lot of activity going on, a lot of, I guess, synchronization between our own teams and our clients' teams and regulators. So hopefully, in 12 months' time, we sit here and we can convey to you that all of this has been implemented successfully. But very busy, very busy next 9 to 12 months. So finally, to wrap it up, we have also announced the time for the shareholders' meeting, April 24 at 11:00 a.m. Santiago time. For those of you who want to be in person, it is at the W Hotel here in Santiago. One of the main topics, of course, the election of the new Board. As you know, our statutes indicate that the current Board will be reduced from 16 Board members to 11 Board members. So it's an election of the new Board with the new size of Board, so 11 members in the Board. We will, of course, present the annual report, the financial statements for approval and the profit distribution proposal, which, as I mentioned, corresponds to CLP 181.86 per share, which implies a 30% increase from last year's dividend. There will be a single payment on May 9, and it will be done to individuals holding the shares 4 days prior to May 9. We will also modify the policy -- the dividend distribution policy from a minimum 50% to 70%. So expect a higher payout ratio next year as we complete this year the investment in -- the big investment in the integration projects. Also on the Board, the election of the external auditor, it has to be renewed every year and the proposal for the compensation of the Board of Directors and the Committee members. So that's basically it. I think that good first year, good results, on track, working towards the goal of creating an integrated market. It will probably not be as quick as we had anticipated, but we continue to work in that direction, both with market participants, very important to have our clients on board, and of course, regulators. So I'll stop there and open up for questions. Thank you very much.

Thank you, Juan Pablo. And we will now open the floor to questions from the audience. [Operator Instructions] [Foreign Language] So it seems that we have the first question, Mr. Adonay Félix.

Adonay Félix from Apalache. Congratulations for the results. I have 3 questions. The first one is about employee benefits. We noticed that they increased 14%. Could you give us more color on where this increase came from? My second question is about CapEx. What is your estimate for 2025? And finally, what is your EBITDA margin expectation for this year?

Thank you, Adonay Félix. Just a second, please.

Okay. So employee benefits basically covers everything. It's salaries plus bonds and benefits, including training and other benefits. So it's all-encompassing name. So we basically have a few things. One is we reduced the number of staff, but inflation in 2023 was pretty high in these countries. So we have -- and almost by law, if not by law, we need to adjust salaries by inflation. So if you take in consideration, for example, inflation in Colombia, which was 9%, so salaries were increased 9% in Colombia. A few -- I mean, 4% and 5% in Peru and Chile, respectively. So adjusted by inflation, that's an important figure. Also tied to the restructuring, there were some, let's say, salary adjustments for new responsibilities in individuals. So individuals who were, let's say, a local manager now becomes a regional manager has further responsibilities, and that in itself was -- implied an increase in the salary just because it has more breadth and responsibility. And finally, what we did last year is to harmonize the, let's say, bonus structure in the 3 countries. So today, every staff participates in the same, let's say, compensation scheme where you have your base salary and your short-term bonus scheme. And given the results for the year, that implied an increase in, let's say, overall compensation. Finally, marginally throughout the year, we had some incorporation of new staff, new, let's say, profiles that we didn't have internally in the company. But that shouldn't be that significant in the results. So it's really a combination of all of these things. And we hope that as inflation stabilizes in the 3 countries, we should start seeing less pressure on that account. In terms of CapEx for this year, integration projects, as you know, last year, we approved a budget of $20 million. This year, the integration projects budget is $12 million, so lower than last year. And we have roughly $8 million of ongoing IT and other investments. So roughly this year, CapEx overall is $20 million, down from $28 million from 2024. In terms of EBITDA as I mentioned probably in our last call, we have a challenge this year for, let's say, operational margins because we will have a little bit of double counting this year in terms of licenses for the new systems while we have not been able to decommission the old systems. So 2025 will be a transition year. So I will not bet on a significant increase in the EBITDA margin for this year given that we will have that, let's say, double expenditure, which is roughly $4 million in additional license costs this year, which we will compensate in the following years. But we need to have -- let's say it's a gradual decommissioning plan for the existing systems. It's not like we can turn off -- turn on one system and turn off the other the same day. It takes time to decommission those systems. So there will be a little bit of overlap, which begins with an increase in, let's say, license fees this year.

Thank you, Adonay, for your question. We will now go now over one that's written in the chat. The question says, in Spanish, [Foreign Language].

Okay. So a couple of things. Yes, we are -- we need to restructure our businesses. As I mentioned, we have many, many businesses, and we're going to be restructuring. And the other element has to do with also focusing on our core competencies and our core businesses. I think some of the businesses have better projection growing regionally than others, and we would like to focus on those businesses. So as I mentioned, for example, the information, the price vendor Precia, we're looking to expand that into Peru and Chile, which means then that the specific business that we have reclassified is indeed part of a conversation where we can probably divest. We cannot confirm that right now. And if it were to be divested, then it needed to be reclassified as you indicate. In terms of prices, we cannot disclose anything right now because it's not -- we have not finalized any discussions on that account. But you may expect in the next year or so some reshuffling of the smaller, let's say, subsidiaries that we have that allows us to concentrate in our core business, core competencies and where we think we can provide more value to our clients and hopefully grow the business faster than by concentrating in smaller, let's say, endeavors.

[Foreign Language] We don't see any further hands raised in the chat. We have just received another question. And the question this time comes from [ Anna Maria Juelar ]. The question reads, [Foreign Language].

I think we all share the same concern. I think analysts and different market participants agree that the price of the stock does not fully reflect both the current business performance and future evolution of the business. And this is mainly tied to the liquidity trap problem that we seem to be in. This is an issue of discussion. We have moved to providing 2 market makers beginning this month, as I mentioned. We continue to work with other market participants to see how we can, let's say, have some of the blocks available for sale change hands so that we have less of an overhang on the price of the stock. But in the end, we feel very confident that if we perform as we have performed in 2024 and continue to deliver the results, not only financial results, but towards the construction of the new integrated market, eventually, the price of the stock will reflect the real value of the company. So we are concerned as everybody else is, working as much as we can to contribute to enhancing liquidity in the stock and facilitating blocks to be traded and focusing on delivering the results that we are set out to deliver.

[Foreign Language] We don't seem to have any further questions in the chat or by hands -- by raise of hands. So perhaps, Juan Pablo, a few final thoughts before we finish.

Okay. So if there's no further questions, again, thank you very much. I think that from the staff and the administration, we are very satisfied with the results for 2024. The challenges in 2025 are steep, both financially, as I mentioned, because of the new expenditures that we'll have to accommodate coming from the new systems that we are implementing, but more importantly, from the steps that we are going to implement in terms of advancing towards constructing the integrated market starting at the end of June. So a challenging year but exciting year. I think that once we set the foundation for the integrated market, I think credibility in the process will be enhanced. And I think that will also reflect credibility in the price of the stock. So we will continue to work very hard towards this end, building trust with regulators, working with our clients and hopefully delivering the ambitious goals that we set out to deliver for this 2025. So thank you very much. Thanks for joining, and see you all at the Annual Shareholders' Meeting. So sorry, we have an additional -- a couple of additional questions. So we're going to rephrase this.

So we got 2 questions during the final thoughts. First question. [Foreign Language]

Yes, yes, of course. It's already disclosed in our financial statements. It is [indiscernible]. It is a small business we have here in Chile related to products and services for funds especially. It is a small business.

Thank you for that, and thank you, Patricio, for the question as well. And the very last question in Spanish. [Foreign Language]

Okay. So the latter, this question, I think it is perfectly consistent with we have announced since day 1, which was we have a concentration in investments in '24 and -- sorry, yes, '24 and '25. And that was the reason why we announced that we would be reducing the dividend payout to 50%. As we complete the bulk of the investments, as I mentioned, it will be $40 million in the 2 years. As we complete those investments in 2025, we feel that we can move back towards a higher payout ratio beginning in 2026. So this is perfectly consistent with the initial plan. As you saw the numbers for 2024, delivered what we had anticipated. So we see that we can continue with that plan. Also, as we consolidate an EBITDA of roughly $60 million, $65 million, we should be okay with the investments going forward without any, let's say, retaining additional earnings from our shareholders. So that -- I think that the plan is perfectly consistent with the investment profile that we expect.

Thank you, [ Emmanuel ], for your questions, and thank you, everybody.

Thank you.