Unifin Financiera SAB de CV

BMV:UNIFINA

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, and welcome to UNIFIN's Fourth Quarter 2020 Conference Call. [Operator Instructions] If you have not yet received a copy of the earnings release, you can find it on UNIFIN's website at www.unifin.com.mx. Or please feel free to contact the Investor Relations team at [e-mail], and they will provide a copy immediately.

Forward-looking statements may be made during this conference call. These do not necessarily consider changing economic circumstances, industry conditions, the company's performance or financial results. These forward-looking statements are based on several assumptions and factors that could change, causing actual results to differ from current expectations materially. Therefore, UNIFIN asks that you refer to the disclaimer located in the earnings release before making any investment decision.

At this time, I would like to introduce Mr. Rodrigo Lebois Mateos, Chairman of the Board and Founder of UNIFIN, who will share his view on recent developments and 2021's outlook afterwards. We would then turn the call over to Sergio Camacho, Chief Executive Officer, to discuss 2020's results. Mr. Lebois, you may begin.

[Rodrigo Lebois Mateos, executive]

Good morning to all of you. This is Rodrigo Lebois, Chairman of UNIFIN, and I would like to share with you some views on Mexico and UNIFIN. If we look back at the world in 2020, we all can agree that it was marked by the wide ranging effect of the unexpected COVID-19 pandemic. We faced an economic crisis, production disruption and lockdowns all together. The sanitary emergency had series of precautions at the global level, significantly affecting the economic activity in the national market.

Most countries are facing a crisis that transcends their health systems and includes internal economic upheaval, falling external demand and reversals of capital flows.

Mexico has not been the exception. COVID-19 has deepened the contraction of the Mexican economy. Even with a stable peso and falling interest rates, GDP registered its worst contractions since the Great Depression, causing a feeling of uncertainty in the business sector.

The economy, as you well know, contracted 8.5% in 2020. Both consumption and investment registered significant reductions. To resume the growth of asset-backed loans, business competency is required. Also needed are a widely and ambitious vaccine plan against COVID-19 and a healthier investment appetite for Mexico SMEs.

Global economy is just beginning to show signs of recovery. After a 3.5% decline in the global GDP in 2020, the IMF expects a 5.5% increase for 2021, the highest since 2007. The application of COVID-19 vaccines will pave the way for economic recovery with heterogenous results across countries as a result of varying policies towards the reopening activity as well as fiscal and monetary stimulus packages.

For Mexico, economic recovery will be around 4% in 2021, with some factors and regions performing well. An example is the agri industrial sector that has registered a significant increase as well as the external sector showing more dynamism, boosted by the resilience of U.S. manufacturing. For example, the automotive sector, helping Mexico export-oriented industries. UNIFIN will focus its efforts on those sectors, where it is very well positioned and will contribute to boost the growth of the SMEs.

Additionally, a more favorable economic environment in the United States will likely result in higher remittances. International remittances are a record high. We will support domestic consumption and demand, but imports of capital will remain weak. Long-term investors are increasing their exposure to disruptive businesses, responsible for making our world increasingly digital.

At UNIFIN, we are targeting financial technology through our digital platform Uniclick in a strategic partner with Google, which offers credit to Mexican SME market. The combination of UNIFIN and Uniclick will allow our company to increase significantly our client portfolio, targeting a market unserved by banks, but well-known by UNIFIN in the last 28 years.

2020 proved UNIFIN's leadership and ability to adapt and be resilient in the midst of a very difficult economic environment. Decisive actions were taken to first ensure the health of our team, strategies to support our clients get through a difficult economic scenario and guarantee business continuity.

Among these, I would like to highlight the successful capital increase of MXN 2.5 billion, which shows the confidence of our stockholders in the company. Likewise, UNIFIN was able to issue bonds in international markets for $400 million and made an exchange offer of notes, due 2023 and '25, for $130 million additional, strengthening our financial position, the balance sheet and reinforcing our commitment to continue developing the SME market.

I am confident that we are on the right path for a successful recovery, focusing above all on helping our clients achieve their best potential, increasing our market and offering new and improved services for new reality that demands a flexible and disruptive vision.

Thank you very much for hearing me, and of course to our Investment Relations management. If you have any questions or would like to have an interview or whatever, I'm at your disposal. Thank you very much for attending. Good day.

[Sergio Camacho Carmona, executive]

Thank you, Rodrigo, and good morning, everyone. Today with me are Sergio Cancino, our Chief Financial Officer; David Pernas, Head of Corporate Finance and Investor Relations; and Nayeli Robles, Head Economist and Strategist, to answer any questions you may have. And as usual, after our 2020 results discussions, we will open our Q&A session.

The year 2020 was a highly unpredictable and volatile year. With UNIFIN's strategy and ability to adapt enabled us to overcome the challenges we faced and emerge as a stronger and more competitive company. While for much of the year we focused on managing the fallout from the pandemic, we also took important steps to prepare us for the rapidly emerging digital economy and continued growth. Namely, we launched Uniclick, began our partnership with Google and launched our artificial intelligence lab, building our capabilities for the future and enabling us to grow our market share, client base and products.

Dealing with the consequences of the COVID-19 pandemic was, of course, the priority. From ensuring the well-being of our employees to the implementation of a client support program to help our clients manage their cash flow through the most difficult months and keep our NPLs to a minimum. The pandemic brought a change in our approach to risk as we redefined our credit risk scorecard and origination strategy, which led us to favor a high-quality portfolio and slow down growth.

I am pleased to report that with the pandemic now finally receding, we were successful on both fronts. As the bulk of our employees were able to work from home productively and safely, while the vast majority of our clients met their leasing and other financial obligations.

From the financial side, we increased our loan -- our loan loss reserves to historic levels to ensure that we have the appropriate loan coverage, given the difficult macroeconomic situation. We also carried out a profitable and prudent buyback at a discount of our international bonds for USD 40 million in paid value as well as executing a highly successful capital increase of MXN 2.5 billion. In addition, we diversified our lines of financing, raising new lines of credit for MXN 9.8 billion as well as rolling over more than MXN 28 billion of maturing new lines.

As part of our innovative and improved corporate culture and in the midst of challenging context, in the year 2020, we began to work on aligning our social responsibility practices with a comprehensive vision of sustainability that includes all the strategic areas of the business. This alignment responds to our intention to provide information to investors, regulators, collaborators, among other stakeholders, about our financial and nonfinancial performance and the opportunity to have comprehensive risk management, incorporating social and environmental risk in making decisions.

As I mentioned, we launched Uniclick, our digital platform designed to make a credit application quicker and easier. Uniclick, which will become an agent of change for UNIFIN, has the added benefit of diversifying anything client based and enabling the cross-selling of all of our products to this new client base, providing the clients with different solutions to help them to grow their business at the same time helping UNIFIN to grow its market. Due to the economic backdrop, we decided to be extremely cautious on these new originations and our numbers differ from our expectations. Nevertheless, we already have 432 clients and a portfolio of MXN 288 million.

During the first 2 weeks of February, when we reopened Uniclick, we acquired 40 clients at a rate of 4 clients per day. At this rate, we will acquire 1,000 more clients during 2021, in line with our objectives and key results for the year.

We are helping our clients on their path to digitalization through our accelerator, jointly developed with Google. This, too, allow us to diversify the client base. They're reducing the risk of nonpayments by customers as it provides an additional sales source, helping UNIFIN to identify potential new product opportunities through access to our client business database and generating brand loyalty, which will lead to an increase in the uptake of our other services over the long term.

The digital accelerator is having a positive impact on our clients, which is particularly needed at this difficult time, with 1.4 million users viewing our clients adverts through the accelerator and helping them to obtain 300 new customers with a conversion rate of 158% higher than the market average. All this has earned our digital accelerator a Net Promoter Score of 100%, meaning that all of our users would recommended it.

At UNIFIN, we think that the availability of data plays a fundamental role in the development of both of our businesses and those of our clients. And this is only going to increase. Therefore, we have launched our artificial intelligence lab. As of today, it has 5 different platforms: Clarivia, Lenia, Literata, Casia and Robina. Each of which play their own part in supporting our clients, providing reports, identifying client needs, interpreting KYC documentation using credit score, model rating and enabling data extraction, benefiting both the clients and UNIFIN.

We believe UNIFIN has a unique platform in the Mexican financial market, capable of excelling and facilitating the development of the SME focused financial sector. Thanks to the technology we have developed in our I-lab, today, we have the capacity to understand the clients in an empathetic and prudent way. And we are clear that having access to more information on our clients will derive in enhanced and more efficient services that will ultimately impact the value of UNIFIN.

Moving on to our COVID-19 update. The number of clients on the support program had fallen from a peak of 1,205 clients in the second quarter to 548 by the end of the year. And our total exposure had fallen from a second quarter high of MXN 5.8 billion to MXN 3.7 billion by the end of the year. We ended the year with deferred payments amounting to MXN 1.9 billion. 96.4% of the clients included in the support program are up-to-date with their payment as of the fourth quarter of the year 2020. We have 50 clients which are currently in negotiations to join the support program. This will potentially add an additional exposure of around MXN 274 million.

As I mentioned earlier, we have redefined our credit risk scorecard to reflect the current economic situation, including avoiding loans to the extent possible to severely affected sectors and conducting a profound and deep analysis of payment capabilities before extending credit. This led to lower originations for both the quarter and the year when compared to the same periods in 2019 as we continue to focus on the quality of our portfolio.

Our NPL indicator was slightly lower in the fourth quarter than the third quarter of 2020, falling from 4.9% in the third quarter to 4.8% of total portfolio in the final quarter of the year. This is only 0.7% above what it was in the fourth quarter of 2019 and suggests a steady return to normal, lower NPL levels. We continue to be well diversified across a board -- a broad range of sectors and leasing continues to be our largest product, accounting for 74% of the portfolio, followed by the business line covering structured finance, working capital loans and Uniclick, representing 20% of the total portfolio.

We continue to monitor our clients' payment behavior closely and follow a focused 7-step collection process, starting with an e-mail reminder 3 days before a payment is due. As you can see from the graph, most of our past due portfolio is in the 0 to 30 day due bracket across all business lines.

We have increased our recoverage ratio to 81% of our NPL portfolio in accordance with IFRS because of the incremental risk due to current economic backdrop. This means that 77% of our leasing portfolio is covered by the reserves, in addition to the estimated recovery value of the asset, which historically has been around 80% of the outstanding balance.

Additionally, and in accordance with IFRS methodology, all of our business lines are covered 100%. Once again, we need to consider that we are not a bank and that in addition to our provisions, we had an asset and other collateral that back up the exposure in our leases with the created provisions, we will need to realize our assets. At 30% of its recovery value to record an impairment in our P&L as our return to efficiency covers up to 70% of the outstanding balance of the NPL.

We continue to exercise financial discipline, improving our capitalization ratio from 19% at the end of 2019 to 21.4% at the end of 2020, reducing our financial leverage ratio from 4.4x at the end of 2019 to 4.1x at the end of last year. Excluding mark to market, it stood at [ 3 point ] times at the end of the year. We maintain a healthy financial gap between assets and liability maturities, soundly managing the company's liquidity as part of our risk management approach.

Financial liabilities at the end of December 2020 were MXN 65.5 billion, an increase of 4.1% compared to MXN 62.9 billion in the fourth quarter of 2019, maintaining a near neutral leverage year-over-year. As mentioned, during the second and third quarter of last year, the company bought back USD 40 million of our outstanding international bonds. The company maintains a steady liability maturity profile with a weighted average term of 39 months versus 30 months for the total portfolio. During the quarter, the weighted average funding cost, excluding the perpetual bond, was 10.2% as a result of [ quantitive ] easing policies and strategic financing activities.

Interest income increased by 3.1% year-over-year, but fell by 4.9% versus the fourth quarter of 2019. The distribution of this income was split relatively even between the different business lines. In line with our size, with the largest business lines, leasing, accounting for 76.6 of interest income in the fourth quarter of 2020 compared to 75.7 in the last quarter of 2019.

The financial margin increased by 5% year-over-year, but decreased by 16.9% to MXN 907 million quarter-over-quarter. Operating income fell by 54% versus 2019 and net income by 30% due to the decrease in income because of the economic backdrop. The annualized NIM contracted by 90 basis points to 6.4% in the fourth quarter of 2020 versus the same period of 2019.

Due to the slowdown of our business because of current market conditions, this decrease comes mainly from lowering our credit exposure and prudence in the face of the challenging macroeconomic environment, in addition to the increase in the outstanding balance of the portfolio due to the implementation of our COVID-19 support program. Administrative expenses decreased by 5.3% compared to the fourth quarter of last year to MXN 366 million. OpEx, as a percentage of revenue, remained stable during 2020 at 13.3%, despite the decrease in interest income year-over-year, which reflects the operating efficiency that the company achieved during the year.

Moving on to the financial metrics. The return on assets stuck at 1.5% at the end of the fourth quarter of 2020. The return on equity was 11%, but excluding the perpetual bond, the return on equity closed at 17.5%.

We continue to make ESG factors a central part of our corporate purpose. Our mission is to be a growth engine for Mexico and to build a more inclusive society as we enable Mexican SMEs to succeed. In 2020, we continued to engage with communities and positively impacted over 190,000 families and over 180,000 children. We do this work through our charitable foundation, Fundacion UNIFIN. Our approach to corporate governance is always to consider what is right and we continue to empower our employees by providing them with extensive learning opportunities through funding in-house courses to MBAs.

As always, I would like to reiterate our commitment to Mexico and our stakeholders. We will continue to focus on generating long-term value as we are overcoming this crisis, and in the same way, we overcame crises in the past. We will emerge as a stronger and better company. Thank you for listening.

We will now like to begin our Q&A session.

[Operator]

[Operator Instructions] Our first questions come from the line of Nicolas Riva of Bank of America.

[Nicolas Riva, analyst]

I have a number of questions. The first one, on loan growth, if you can give us some guidance for loan growth this year. I mean, last year, you grew 11% in a very tough context. So I would assume that that 11% is going to be a floor for loan growth this year. But at the same time, I know that you have been focusing on profitability over loan growth. So yes, if you can give us some guidance for loan growth this year.

Second question on the funding budget for this year, I'm also looking for some guidance, if possible, for the funding budget. In the earnings report, you tell us how much of your debt is coming due this year and how much of that is not revolving bank debt. So you've seen that those debt maturities this year, excluding the revolving debt, and assuming 15% loan growth, I'm getting to a funding budget of $1.1 billion, approximately. But I wanted to get any thoughts from you in terms of guidance for this year for the funding budget.

Third, it was nice to see the improvement in leverage, another improvement in leverage this quarter. I wanted to ask about the increase in equity because equity increased by about MXN 800 million. But your net income this quarter was around MXN 300 million. So I wanted to ask for the difference there. What was the driver? It seems that there were some changes in the other comprehensive income.

And finally, on the relief program. Thanks very much, Sergio, for the comments earlier in the call about the update on the relief program. I may have missed it, but I didn't see those numbers in the earnings report, so I think it would be maybe useful going forward, if there will be a chance to include those numbers in the earnings report as well. But I wanted to ask, did you say that at this time, there's MXN 3.7 billion outstanding in the relief program? So about 5.7% of the loan book, but 97 -- sorry, 94% of those clients are making payments on those leases? Did I understand it correctly?

[David Sánchez, executive]

Nicolas, thank you for your questions. I'll try to go through them in order, and if I skip anything please feel free to ask again. I'm pretty sure I wrote down everything, but I just wanted to make sure that we're answering everything.

So as to the first one in guidance of loan growth. As you know, we try to be always very conservative in terms of providing guidance. But in the means of establishing a context and what we're viewing in terms of addressing the market and our client base going forward, I think that we are confident to say that we are expecting something along the line of mid-teen growth on loan book for 2021, which is roughly in line also, and we roughly agree with the financing budget that you have said, considering, of course, the rolling over of non-revolving facilities, such as the 7 -- well, sorry, MXN 9 billion of term facility.

I have to say also that in January this year, as you probably all know, we raised $400 million in new cash from a new issue transaction. Which also consisted of doing the exchange on the notes -- on the 2023 notes and on the 2025 notes, for a final amount of $527 million approximately of the new issuance, out of which the new cash component, again, is $400 million. So that is more or less consistent in terms of including, of course, all the liability management that the company would like to include in this transaction, the [ $1 billion ], approximately, of funding target.

Additionally to that, Nicolas, in terms of the equity increase, yes, the OCI did present a variation that was, in this quarter, favorable to the company. And it's mostly because of the mark-to-market valuation of our derivatives registered in the OCI. So I think that explains why the equity of the company increased by $800 million when the retained earnings for the quarter just increased MXN 305 million -- sorry, that was altogether.

Finally, as to the COVID-19 program, no, yes, I think we'll include it in the press release. We have no issue with that. By the way, this presentation, the webcast is always available also on the web page. So you can find that information there. But we'll make sure to include everything in all documents so that information is out there and public. But yes, the MXN 3.7 billion is the current outstanding value of the clients that are subject to the COVID-19 program as of December.

The balance presents a slight decrease over the numbers in the third quarter, just because of the accruals of the portfolio. So there was a slight variation on that. And again, 96% -- yes, we confirm 96% are current on their payments, meaning that some of them were scheduled to already be paying and are paying. And some of them might not be scheduled to pay yet. So that's why they are considered to be performing because of the -- basically change in the maturities or sending back or providing them the payment holiday.

I would say that out of the 96% that are paying, that we have said, most of them are current on their payments because they were already scheduled to be paying again. And I think that those were the questions, unless you have any other things to ask?

[Operator]

Our next questions come from the line of Chelsea Colón with Aegon Asset Management.

[Chelsea Colón, analyst]

Just following up on the last questions related to the relief program. You mentioned on the call that there were 50 new clients potentially negotiating, coming into some type of program. And that compares to, if I recall correctly, only 20 new clients in the third quarter. So I'm wondering if you could provide any color around what you're seeing here? Like do you think that we will continue to see more clients join some type of program for the first half of the year? Or when do you think that this whole negotiation process will end?

And then separately, can you also provide some commentary around the collection rate that you saw in the fourth quarter and what you've been seeing so far at the start of this year?

[Sergio Camacho Carmona, executive]

Chelsea, as long as -- as to the lockdowns in -- particularly in the metropolitan area continues, due to the peaking in the numbers of cases of COVID, there were some clients involved that unfortunately, they cannot receive any longer. And that's why we are under those discussions with these 50 clients, that their maximum exposure is less than MXN 300 million.

So I want to say that, the way that we are handling this is case by case, talking with them and seeing if the best way to resolve their issues may be returning the asset to us. And that's what I can tell you. I mean these are cases from different sectors. It's just a matter that they cannot hold any more with the restrictions of opening businesses in the metropolitan area, and in some states, within the Mexican Republic.

The rate of collections, we saw, I would say, a good fourth quarter, particularly the month of December. January continues to develop well. And as of February, we're on track on our budget in terms of collections. So we feel, of course, very active on being very close over time. But we are confident that we're going to be collecting well throughout the year.

[Chelsea Colón, analyst]

And so what are you budgeting for this year? I mean, I recall that, I believe it was in the third quarter, collections were around 85%. Were you budgeting for something similar in 2021 or something better than that?

[Sergio Camacho Carmona, executive]

I would say that some improvement to that number, maybe in the level of 90% on [indiscernible] collection.

[Operator]

Our next questions come from the line of Natalia Corfield with JPMorgan.

[Natalia De Melo Corfield, analyst]

It's related to asset quality. I'm looking at early delinquencies here because, as you mentioned, your NPL ratio declined slightly quarter-over-quarter. But once I look at the early delinquency, I see a big increase, particularly in factoring and auto loans and others. So I just wanted to -- and if I calculate your NPL ratio based on the previous methodology, I actually have an increase to 6.5% versus 5.4% in the previous quarter. So a deterioration there because of the early delinquencies. So my question is, like, how are you seeing these early delinquencies? What can we expect?

And most importantly, what can we expect in terms of provision expenses going into 2021? Because then your NPL coverage is not the 80% that you mentioned, but like looking at the early delinquencies, it would be around, like, 60%. And lastly, the -- my usual question of all conference calls, if you could -- if you have the number of -- for collections?

[David Sánchez, executive]

Natalia, thank you for your questions. Of course, first, I think something very, very important to highlight, and as you've already mentioned, I think that the portion of the portfolio which has presented a higher deterioration is the factoring and auto loan portfolio; most importantly, factoring. I highlight this because, first and foremost, this is already provisioned at 100%, but most importantly also because that's specifically where we put much more focus on taking care of this portfolio. And that's why we reduced the outstanding balance of this book almost by half, anticipating that this was going to be a much more complicated product to maintain in terms of asset quality.

We are confident -- and as you know, during the second quarter of this year, we've already done write-offs for this particular business line in an amount of 200 -- or almost MXN 200 million or a little over MXN 200 million. And we're not scared about probably taking additional measures in terms of writing off additional portfolio for factoring sometime soon. So that's something that we are definitely taking in my -- similar thing as to the auto loans. And that's why we have cut down the exposure again on this business segment.

We're more confident on the rest of the products, and that's where we will be focusing our strategy more through 2021 and the years to come. And until things normalize in terms of -- in the economy and sentiment wise also, I think that factoring is likely to remain our most impacted sector of the portfolio.

[Sergio Camacho Carmona, executive]

In addition to that, and just to complement on David's answer, and that was something that somehow we forget. And that's why, if you recall on -- when the COVID-19 situation started, I announced that I was going to lower the activity on factoring. And actually, you see the portfolio factoring has been reduced proactively because it's a business in which we are aware that has more risk associated to the economic activity. So somehow, we were aware of that, and that's why we also increased our reserves, particularly in that business.

[David Sánchez, executive]

And as to -- sorry, Natalia, as to the nominal collection amount for the fourth quarter of this year, pretty much consistent with the third quarter number. The fourth quarter was -- actually, [ MXN 406,010 billion ], sorry.

[Natalia De Melo Corfield, analyst]

David, appreciate the answer. But just 1 thing like, yes, I see the big increase in factoring. But also, if I look at autos and structured finance, there was also a big increase there. So I'm wondering, are those provisions as well instead of factoring is some more is autos and structured finance out of provisions. And in the leasing, if I look at the 31 to 60 days, I see an increase of more or less 32.3%. Would the 50 clients like this increase, from 20 to 50 clients, be part of this group of overdue by more than 30 days?

[David Sánchez, executive]

In a way, yes, up to the leasing portfolio. I mean, these are clients that are levering up on their cash flow, to be able to starting to have business continuity. It's a liquidity problem. We don't necessarily foresee this to be a solvency problem over the long-term of our clients' perspective -- or perspective going forward.

And as you know, year-over-year, the aging balances have definitely changed from historical levels of the company. This is mostly because, again, our clients and overall, the entire economy is levering a little more in time. So their payment dates are a little bit more extended than as usual. We believe that over the course of 2021, and we have been saying this, we do anticipate a recovery on these metrics and on the aging balances. It's probably going to take a little longer to incorporate that into the real numbers, but we feel comfortable and are confident that the metrics should go back to normalized levels.

And lastly, as to the auto loan portfolio and the structured finance, yes, they are -- they had 100% coverage on NPLs. And remember that auto loans is not related to leasing. This is auto credit, basically. So the product is a little different, and that's why we have to collateralize or -- not to collateralize, sorry, to have a coverage ratio of 100%.

[Natalia De Melo Corfield, analyst]

All right. So factoring in the auto structured finance and others, they are fully covered. The ones that are not are still the leasing portfolio?

[David Sánchez, executive]

That is correct. The provision for the leasing book specifically accounts for 77% of the total outstanding NPL. For factoring, auto loans and structured finance, it's 100%. And the blended, the weighted average would be 81% for the entire book.

[Operator]

Our next questions come from the line of Vishal Iyer of BlueBay Asset Management.

[Vishal Iyer;BlueBay Asset Management;Analyst, analyst]

Just the first one on the oil rig that you purchased last year, which I think sits in property, plant and equipment. Just want to understand whether you've tested that for impairment and -- because you booked a large revaluation surplus. And I just wanted to understand if that's been tested for impairment?

[David Sánchez, executive]

I'm sorry, can you repeat the question, please?

[Vishal Iyer;BlueBay Asset Management;Analyst, analyst]

Sure. I just wanted to check whether the revaluation surplus that you have taken on -- the revaluation gain that is taken on the oil rig purchased last year, which I believe was released to Pemex, whether that's been tested for impairment?

[David Sánchez, executive]

Yes. It's been tested for impairment. It's insured up to 100% of the value of the rig. And of course, of other additional factors...

[Sergio Camacho Carmona, executive]

Sorry, the -- this rig is insured at 100% of its commercial value and also have an insurance of business interruption.

[David Sánchez, executive]

Correct.

[Sergio Camacho Carmona, executive]

So it's a fully, fully insured, sorry.

[David Sánchez, executive]

And just to clarify, it's not leased directly to Pemex. We don't engage with any transactions directly to government agencies or the government itself. It's leased to a third party, which has a contract -- a current contract with Pemex to deliver services.

[Vishal Iyer;BlueBay Asset Management;Analyst, analyst]

I see. Okay. Understood. And that contract is still ongoing? It's not been canceled or modified in any way?

[Sergio Camacho Carmona, executive]

No. It's continued. Actually, it's a 4-year contract, but it's going to be, let's say, renewed on the tariff each year for -- it's going to be a that -- our platform, it's going to be very -- it's very, very short because it has already found oil in the Nikita well. So it's performing very well actually. That's what we have received from our clients and from comments from Pemex directly.

[Vishal Iyer;BlueBay Asset Management;Analyst, analyst]

Okay. That's good to hear. Okay. And then I guess -- you've got a lot of questions on COVID already, but if you could, I guess, just explain how it is that the delinquencies won't rise more under the lockdown that we've seen in 1Q of this year? And that will be quite helpful.

[Sergio Camacho Carmona, executive]

I think it's somehow a matter of our clients to adapt better for the current conditions. If I put an example, for example, in the sector of services, and talking particularly on restaurants, they already adapt to the delivery, to take-out schemes. So now they are more prepared. And the other thing is that some of them had evolved to provide with different services. And in that sense, our digital accelerator that we already discussed on the alliance with Google have also helped them to be more visible in terms of googling their respective businesses. So I would think it's more, I think they adapt better to the current conditions. And that's the reason why we have seen that evolution.

[Vishal Iyer;BlueBay Asset Management;Analyst, analyst]

Okay. And within the services sector, could you sort of broadly give a breakdown of what subsectors you're exposed to? So is it sort of health care? Just a broad -- whether it's health care, telecom, restaurants, a broad breakdown of the subsectors?

[David Sánchez, executive]

Yes. So as to -- so we have categorized our portfolio, of course, to describe a little bit further what services represents of course. So for that purpose, for instance, out of services, approximately, the portion that would be related to entertainment, restaurants and tourism would be roughly around 7% of the -- within the 37%, 7% of that amount.

Then -- sorry. Okay. Manufacturing would represent approximately 16% of the portfolio; mining, oil and gas, 10%; commerce, 10%; transportation, 9%; construction, 8%; media, 6%; and then agriculture, 4%.

[Vishal Iyer;BlueBay Asset Management;Analyst, analyst]

Right. Sorry, my question was specifically on the services part. And the reason I'm asking this is that services activity in Mexico has been quite weak, even though manufacturing has picked up. So within the 37% at services, do you have a breakdown of subsectors? So for example, are you exposed to maybe health services or telecom services, which have been more resilient? Or sort of -- what are the subsectors that you're exposed to?

[David Sánchez, executive]

Yes, telecom would be included in media, which accounts for 7% -- 6% of the outstanding book. And then like I said, 7% of the portfolio would be entertainment, tourism, restaurants, among others. But we'll make sure to follow up on the rest of the breakdown of services. Services is also logistics. For instance, services would mean also -- sorry, professional and advisory for different purposes, transportation of personnel and logistics, again. Some of which would be linked to transporting personnel, but others would be linked directly to tourism and so on. But we'll follow-up on the additional breakdown of what services represent.

[Vishal Iyer;BlueBay Asset Management;Analyst, analyst]

That will be quite helpful because obviously, there's a big difference between being exposed to sort of health care services or logistics versus other tourism-linked transportation services. So that will quite helpful. Nothing else for me.

[Operator]

Our next questions come from the line of Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

You had a fairly large gain in other income in the financing result. Was this related, in the quarter, to changes to your hedges? And could you give us any sort of color or guidance on how these lines would do in this year?

[David Sánchez, executive]

Gilberto. Yes, no, no -- I assume you're referring to the MXN 92 million in other products and services in the P&L. That would be directly related to the fact that, given IFRS accounting, we're claiming assets and we are repossessing some of those assets, but are being revalued, and this is IFRS accounting again, because we're making them productive. Either by realizing the asset specifically or by the fact that we're putting it to be productive, meaning that we're leasing it or so.

And that would be something that as of this quarter is a particular effect. But we hope -- I mean, I would say that, given the current context, economic conditions and so on, this line going forward could present similar numbers over the course of 2021. As we, again, are repossessing, realizing assets and revaluing them because of the accounting criteria.

[Operator]

Our next questions come from the line of [ Nick Dmitra ] with Morgan Stanley.

[Unknown Analyst]

Most of my questions have been answered, but I have one left. I was looking at your net interest margin, and there's been quite a compression there. On a quarterly basis, going back a year ago, there's been a compression of about roughly 200 basis points. So as per my calculations, NIM has compressed to 5.7%. So I was wondering, considering the fact that now focus will be kind of shifted more towards profitability rather than growth, when do you see margins stabilizing and potentially see the inflection point where there's going to be a margin expansion?

[David Sánchez, executive]

We believe that stabilization will happen through 2021, most definitely, derived by several factors. First, we expect incremental profitability from our Uniclick branch or business line or channel, much more profitability. And in addition to that, of course, a pickup in the origination levels from pre-pandemic numbers. We have said that the company estimates roughly to incorporate originations for 2021 in similar levels than those of 2019 on a nominal basis.

So that, in addition to the incremental -- to the more productive or more profitable business, which is Uniclick, will make up for stabilization and then, of course, an enhancement in net interest margins. In addition to that, we're also anticipating that we'll have a more productive portfolio. So as you know, we have had to defer a portion of the book because of the COVID-19 pandemic.

This is something that is not happening only to UNIFIN. I would assume that this is happening to the rest of the financial services industry. And that has definitely had a slight -- because it hasn't been to date, but it has had a slight impact on profitability as well, coming from, of course, aging balances and coming from the fact that we have to renegotiate a portion of the book.

So as those effects normalize, the profitability of the company through 2021 should definitely improve. And finally, we are also taking some efforts to continue repricing on the portfolio. We believe that with Uniclick, we are averaging a client base, which, by definition, would mean that we are having more profitable transactions. But also, in addition to the net interest margin, we are also expecting an improved efficiency or an improved OpEx metric. Eventually rendering much improved ROAs over the medium term. And of course, ROEs as well. That's the goal in the medium-term of the company.

[Sergio Camacho Carmona, executive]

In addition to that, I mean, when we analyze, for example, the cost of acquisition of a client that we have in our digital platform, it's 8.3x slower than the cost of acquisition that we have in UNIFIN. And so as long as we start like exploding on the digital capability that we are developing through the whole company, we're going to see an improve -- a significant improvement on that front.

[Unknown Analyst]

And can you remind me what kind of loans you originate through Uniclick? Is it mostly working capital loans or...

[Sergio Camacho Carmona, executive]

Currently, yes, they are the products that are outstanding are basically working capital loans. But now we have also leasing with a maximum up to MXN 2 million. So these are low tickets on that. The platform, which is perceived internally as also the product in [indiscernible]. It's working now on different products such as corporate credit cards or payroll to our -- the workers of our clients. Also, we are developing capabilities on blockchain and [ confounding ] on factoring.

So there's a vast majority of different products that we are testing under this platform and one that we are comfortable that everything goes well, we're going to start launching them in the whole portfolio of UNIFIN.

[Operator]

There are no further questions at this time. I would like to hand the call back over to management for any closing comments.

[Sergio Camacho Carmona, executive]

Well, thank you. Thank all of you for being and showed the interest on UNIFIN. We are -- as I said, we are very confident that this year is going to be better in the sense of everything that we have designed and worked internally to develop more efficient capabilities. So thank you, and here we are if you need any -- in the case you need to -- for further questions. Thank you very much.

[Operator]

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you, and have a great day.