Financiera Independencia SAB de CV SOFOM ENR

BMV:FINDEP

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, everyone, and welcome to Financiera Independencia's 2024 Second Quarter Results Conference Call. My name is Andrea, and I will be your operator for today's call. [Operator Instructions] As a reminder, this video conference is being recorded.

Joining us today from Financiera Independencia is Mr. Eduardo Messmacher, Chief Officer -- Chief Executive Officer; and Mr. Jose Maria Cid, Chief Financial Officer. I will now like to turn the call over to Mr. Jose Maria Cid. Mr. Cid, you may begin.

[Jose Maria Cid Michavila, executive]

Good morning. Thank you for joining FINDEP's Second Quarter Results 2024 Conference Call. We published these results yesterday, which are available on our Investor Relations website, findep.mx. I would like to remind you that the information shared during this conference call may include forward-looking statements and as such, are subject to assumptions, uncertainties, risks and other factors that could cause actual results to differ materially from those described, including risks that may be beyond the company's control.

Now I will turn the call over to Eduardo Messmacher.

[Eduardo Bernhart Messmacher Henríquez, executive]

Thank you, Jose Maria. Good morning, everyone. I will start with some highlights from our second quarter '24 operations. Reported net profit for the quarter reached MXN 193 million, another quarter of strong results, 17% higher year-on-year and the highest second quarter in the company's history.

The top line remains strong with interest income up 1% from prior year, and operating expenses well controlled. Cost as a percentage of our average portfolio remained at 34% and the quarter ending portfolio balance increased 2% versus the prior year. Remaining roughly flat under constant FX.

Liquidity is strong with cash at MXN 841 million at quarter end with net debt decreasing 12% year-on-year. Our equity-to-asset ratio stands at 51%, 4.2 percentage points above the same time last year. Our portfolio based in Mexico grew approximately 4% year-on-year, and our U.S. portfolio declined 6% year-on-year in dollar terms.

In the second quarter of '24, loan origination was MXN 1.3 billion, an increase of 18% compared with last year or an increase of 15% under a constant FX. Compared to the prior quarter, total loan originations increased 21% with originations in Mexico, increasing 16% and those in the U.S. increasing 28% in dollar terms.

Growth in each of the portfolio's origination activities in the quarter reflects growing confidence in stable to improving macroeconomic drivers. The consolidated NPL ratio measured as Stage 3 loan portfolio over the total portfolio, stood at 5.7% in the second quarter, flat to the prior quarter and improving 80 basis points against the prior year.

FINDEP's write-offs amounted to MXN 316 million in the quarter, 14% lower than the prior quarter and 22% down from the prior year. Compared to the average portfolio, trailing 12 months' write-offs were at 19%, flat to the prior year. NPLs plus trailing 12 months' write-offs over the total loan portfolio, including trailing 12 months' write-offs, was 20% compared to -- with 22% in the prior year.

Now I'd like to share some performance highlights from each of our businesses during the quarter. Independencia represents 35% of the total portfolio and its portfolio grew 1% year-on-year, with net interest income also increasing 1%. Apoyo Económico Familiar represents 28% of the total portfolio and experienced growth of 7% year-on-year, with net interest income growing 5% versus the prior year. Apoyo Financiero represents 37% of the total portfolio and remained flat year-on-year in pesos, down 6% in dollars. Net interest income increased 1% in dollars.

We are pleased with a quarter of strong results with positive expected trends across each of the businesses, underpinned by consistent execution of our strategy. Prioritizing digital transformation remains our focus, which help us to drive operational efficiencies across processes and work streams and ultimately improves the service we can provide to our customers and the quality of our results.

We remain committed to our strategy of focusing on our core businesses in our strategic markets, leveraging our expertise in credit analysis and loan origination while prudently managing liquidity and debt through macroeconomic cycles. I will now hand over the discussion to Jose Maria, who will provide additional details of our results.

[Jose Maria Cid Michavila, executive]

Thank you, Eduardo. In second Q 24, interest income was MXN 1.2 billion, an increase of 1% year-over-year, with a 2% increase in the loan portfolio and almost flat under constant FX. Interest expense was MXN 149 million, declined 2% year-over-year, as we continue to proactively manage outstanding indebtedness.

Net interest income was MXN 1.05 billion, increased 2% year-over-year. The provision for loan losses or PLL was MXN 335 million in second quarter '24, 16% higher compared to the prior quarter and less than 1% down versus the prior year. PLL to average loans was 17%, an improvement of 210 basis points from the prior quarter and 40 basis points from prior year.

Noninterest expense were MXN 648 million in second quarter '24 or 34% as a percentage of the average portfolio, reflecting continued discipline and control in managing the expense base. Interest-bearing liabilities are down 7% year-over-year, or 9% under constant FX compared to a 2% increase in the loan portfolio, almost flat under constant FX. Compared to the prior quarter, interest-bearing liabilities have increased 4%, close to 1% under constant FX.

The company maintains a strong financial position with cash and cash equivalents of MXN 841 million or 8% of total assets and a solvency ratio, equity to total assets of 51%, improving 4.2 percentage points from the prior year and consistent with the prior quarter.

Net debt, measured as interest-bearing liabilities, minus cash and cash equivalents of MXN 3.1 billion at the end of the quarter, was down MXN 435 million or 12% from the prior year and 15% decline under a constant FX rate, reflecting prudent portfolio and debt management. On a sequential basis, net debt increased MXN 100 million.

Our operating cash flow during the second quarter '24 was MXN 640 million. The company's coverage ratio was 229%, measured as allowances for loan losses over a Stage 3 loans compared with 233% in the prior quarter and 202% prior year. The company's return on equity ratio for the quarter was 14%, increasing 40 basis points from the prior year, and the return on assets ratio was 7.2%, increasing 110 basis points from the prior year.

When considering tangible equity for the quarter, it marginally increased to 18% versus 17.9% in the prior year. Overall, the company again delivered strong and consistent results in the quarter and achieved growth in originations and in the ending portfolio balance.

Operator, we'd like to open the call for questions at this time.

[Operator]

[Operator Instructions] The first question comes from the line of Nicolas Riva.

[Nicolas Riva, analyst]

This is Nicolas Riva from Bank of America. So I have a couple of questions. The first one, if I calculate, if I estimate, really, the free cash flow generation as a short change in net debt over the last 12 months, I see you've generated about $37 million in free cash and positive free cash flow over the last 12 months and the current base of free cash flow generation appears to be enough to repay the 83 million outstanding on the '28 maturity.

My question is, at this point, what will be the plan in terms of refinancing or paying the '28, if you plan to use your free cash flow generation or access in the market? That's my first question.

And then my second question, if you can share an expectation related to either the change in net debt for the full year or the free cash flow generation expectation for the full year?

[Jose Maria Cid Michavila, executive]

Basically, what we have, as you said, we have a strong cash generation of rates. So we don't have any specific plans now to repay the '28. We will wait for the market. We like the unsecured bonds. So the market, as you know, is relatively close. So for now, we don't have any plans to repay '28. It's earlier.

Going forward, what we see is, we start to see higher bookings in the market. So we won't see or you won't see this kind of cash generation going forward. But we still see a strong cash generation in the future, right? As our bookings go forward, we will still be using some of our own cash for the bookings for the rest of the year, both markets, Mexico and the U.S. We've seen -- we saw higher bookings. So -- and that's how [indiscernible] the year.

[Nicolas Riva, analyst]

So I guess compared to the $11 million in positive free cash flow and net profits in the second quarter. Do you have an expectation in terms of free cash flow generation, I believe like for the second half of this year? Or is it -- or at least on a relative basis compared to the $11 million in the second quarter?

[Jose Maria Cid Michavila, executive]

As I was saying, I think you will see a lower number. We will still have a strong cash generation going forward because we [indiscernible] a growth in the portfolio for the second quarter.

[Operator]

Our next question comes from the line of Nik Dimitrov.

[Nikolai Dimitrov, analyst]

Nik Dimitrov from Morgan Stanley Investment Management. One question for me regarding your strategy in the U.S. I see you've deemphasized the U.S. for some time now and previously, you've expressed some concerns about the U.S. economy. And I was wondering whether we're going to continue to see the U.S. portion of the booked window or you're getting to the point where you feel more comfortable and you're going to go back to growth? I'm just trying to kind of figure out your long-term commitment to the U.S. market.

[Jose Maria Cid Michavila, executive]

So strategically, we are committed to the U.S. market and we'll continue to assess economic situation and design our growth strategy there. Our strategy, though, so far this year has been to maintain the portfolio. Obviously, that means originating compensation for amortization, for write-offs, et cetera.

We are seeing better indicators on the U.S. economy. And that gives us cautious optimism in our ability to start growing again in the U.S. I will say that we are committed to the U.S. market. We like the fact that it is a good way to balance our risk and our exposure in Mexico. And we will continue growing as we see it in terms of the economy. And today, we're cautiously optimistic.

[Operator]

We have not received any further questions at this point. So that concludes our question-and-answer session. I would now like to hand the call back over to Jose Maria Cid for some closing remarks.

[Jose Maria Cid Michavila, executive]

Thank you very much for your time and interest in Financiera Independencia. As you know, my contact information is available on our website at findep.mx, if you have any further questions. Have a great day.

[Operator]

That concludes our call today. You may now disconnect.