Credito Real Earnings Release 1Q15

MEXICO CITY, April 22, 2015 /PRNewswire/ -- Credito Real, S.A.B. de C.V. SOFOM, E.R. ("Credito Real" or the "Company") (BMV: CREAL*) today announced its financial results for the first quarter of 2015. All figures presented throughout this document are expressed in nominal Mexican pesos (Ps.). All financial information has been prepared in accordance with the guidelines of the National Banking and Securities Commission ("CNBV") and the Mexican Stock Exchange ("BMV").

1Q15 Highlights

• Net income increased 20.8% during the 1Q15, reaching Ps. 326.7 million compared to Ps. 270.5 million during 1Q14 which excludes a non-recurring item. In the first quarter of 2014 a non-recurring item of Ps. 43.5 million coming from the unwinding of a derivative swap transaction was included.
• Financial margin increased 35.4% to Ps. 718.4 million in 1Q15, compared to Ps. 530.5 million during 1Q14 excluding the non-recurring item.
• 1Q15 average cost of funds has been reduced to 6.7%, meaning a decrease of 100 bps when compared to 7.7% in 1Q14.
• Loan portfolio increased by 28.7% to reach Ps. 14,280.3 million at the end of 1Q15, compared to Ps. 11,094.7 million recorded at the end of 1Q14. The loan book growth continues to be driven by payroll, small business, used car and group loans.
• Allowances for loan losses increased 101.3% year over year as the new expected losses methodology was fully adopted within the last year; and the non-performing loan ratio increased from 1.5% to 2.2% at the end of 1Q15 when compared to 1Q14.
• The efficiency ratio increased to 34.1% from 24.4% reported in 1Q14; showing the effect of consolidating Kondinero results since November 2014.
• During the quarter Credito Real's shares became part of the FTSE Global Equity Small Cap and FTSE All Cap (LMS) indexes.

Investor Relations
Jonathan Rangel • IRO
[email protected]
+52 (55) 5228 9753

Israel Becerril • IR
[email protected]
+52 (55) 5340 5200

www.creal.mx
[email protected]

IR Agency
Alejandro Ramirez Arcia
[email protected]

Message from the CEO

"Credito Real continues to expand its loan portfolio, reporting year over year 28.7% loan book growth; while our non-performing loans remained at 2.2%. A diversified portfolio expansion driven by payroll, used cars, small business and group loans allowed us to reach a portfolio of over Ps. 14 billion. Our ROAE reached 23.7% in the first quarter, while our net income increased 20.8% when excluding a non-recurring 43.5 million gain from the unwinding of derivatives in 2014.

Credito Real's distribution network kept supporting our loan portfolio expansion. During the quarter, our Drive & Cash partnership launched 12 new branches and our traditional used car business signed a new agreement with a car dealer in Mexico, to reach 47 Drive & Cash branches and 18 dealership agreements in total. Our group loan operators reached 120 branches with 804 promoters servicing 110,212 customers. By enlarging our distributor base and increasing our investments in partnerships, we continue to strengthen our portfolio growth foundations.

2015 will be a challenging year, with the Mexican economy growing steadily but still below its potential; consumer credit growing at low single digits. However credit penetration remains low, and we see tremendous growth opportunities by focusing on the low income segments. We expect to see growth mostly in used car, group loans and SME loans. We are confident that we can deliver the net income guidance of 15% to 18% growth. This quarter our net income increased 20.8% which is a good start to accomplish our annual objective.

Regarding our payroll business, during the quarter our loan origination increased by 35.5%. Regarding the government-sponsored program "Bansefi" to refinance SNTE teachers' loans, during the first quarter 391 loans were prepaid for a principal amount of Ps. 11 million pesos or approximately 0.1% of Credito Real's payroll loan portfolio. The total prepayment amount from the Bansefi program, announced last November 2013, represents about 1% of our Payroll portfolio as of March 2015.

Our capitalization ratio decreased from 42% to 40% year over year and our Return on Average Equity and Return on Average Assets reached 23.7% and 6.5% respectively. We continue to be one of the most efficient companies in the sector with a 34.1% efficiency ratio reported in the quarter. As mentioned above, since November 2014, Kondinero's operations are consolidated in our financial statements.

Our results once again are unaffected by the Mexican peso depreciation against the US dollar, given that we hedged all our USD-denominated debt instruments. Our average funding cost for the quarter reached 6.7% showing a 100 bps year over year improvement.

We are confident that we will continue expanding and diversifying our loan portfolio in 2015 while maintaining asset quality; our long term strategy will continue to focus on growth opportunities with ample returns. Overall, Credito Real's business model focuses on customers traditionally underserved by other financial institutions."

Results of Operation

Interest Income during the 1Q15 reached Ps. 943.0 million, implying an increase of 28.1% if we exclude non-recurrent items. That is because the 1Q14 interest income included Ps. 63.1 million in gains from the unwinding of the cross currency swap that fully hedged the 2015 Senior Notes. Interest income also includes the effect of consolidating Kondinero's interest income.

*1Q14 Interest Income excludes Ps. 63.1 million of non-recurring items.

Interest expense increased 9.1% in 1Q15 to reach Ps. 224.6 million, compared to Ps. 205.8 million posted during 1Q14. Meanwhile, the company's debt increased by 18.6% year over year. This shows an improvement in the average funding cost, explained by better credit conditions and the recognition of mark-to-market of securities and derivatives transactions.

Financial margin increased 35.4% when excluding non-recurring items reaching Ps. 718.4 million, from Ps. 593.6 million posted during 1Q14, mainly driven by growth in interest income and improvements in our cost of funding.

Provisions for loan losses reached Ps. 77.6 million during 1Q15, 9.8% higher than the Ps. 70.7 million recorded during 1Q14, mainly driven by effective collection efforts carried out during the quarter. Allowances for loan losses increased Ps. 228.6 million or 101.3% year over year. The allowances for loan losses represented 143.7% of non-performing loans, higher than the 135.6% reported in 1Q14. As described in our 2Q14 report, Credito Real completed the adoption of the new expected losses-based methodology required by the Mexican banking regulation.

Administrative expenses reached Ps. 237.2 million during 1Q15, showing an increase of 88.7% when compared to the Ps. 125.7 million recorded during 1Q14. The increase is mainly driven by the consolidation of Kondinero's expenses and a larger investment in brand recognition and marketing efforts. Looking forward, as we finalize the consolidation process for Kondinero more savings in the expenses should come from the synergies we expect achieve.

Participation in the results of associates and non-controlling participation reached Ps. 18.4 million in 1Q15, compared to Ps. 20.1 million recorded during 1Q14. The decrease is mainly explained by the effect of consolidating Kondinero, which we previously recognized under the equity method in this account.

Net income increased 20.8% when excluding a Ps. 43.5 million non-recurring item in 1Q14. The following graph illustrates with a dotted line the effect of non-recurring items in the 1Q14 net income. 

Balance Sheet          

Total assets accounted for Ps. 20,551.6 million at the end of 1Q15, an increase of 21.5% over the Ps. 16,912.5 million registered at the end of 1Q14. The increase was mainly driven by loan portfolio expansion, the recognition of the mark-to-market of securities and derivatives transactions and the recognition of Kondinero's assets in Credito Real's balance sheet.

Total loan portfolio reached Ps. 14,280.3 million at the end of 1Q15, an increase of 28.7% compared to Ps. 11,094.7 million at the end of 1Q14. Three of five Credito Real's products reached double-digit growth and in the case of used car loans even higher growth. The efforts carried out by our payroll distributors, our group loan partners, used cars partners and distributors and our small business loan distributor "Fondo H" continue to deliver loan portfolio growth.

Non-performing loan portfolio as a percentage of the portfolio was 2.2% as of 1Q15, equivalent to Ps. 316.0 million, compared to 1.5% ratio or Ps. 166.4 million as of 1Q14. The NPL is in line with the 2% to 3% long term objective, as the company achieves larger diversification of its loan portfolio. The company consistently applies its credit standards and collection procedures to maintain its non-performing loans ratio at such level.

Allowance for loan losses as of 1Q15 was Ps. 454.3 million or 143.7% coverage ratio (allowance for loan losses as a percentage of total past-due loan portfolio), compared to Ps. 225.7 million or 135.6% coverage ratio reported in 1Q14.

Other accounts receivable decreased to Ps. 1,624.0 million as of 1Q15, which compares to Ps. 2,351.9 million posted as of 1Q14. The decrease in other accounts receivable shows the effect of consolidating Kondinero, by eliminating a receivable account which included the interest income paid in advance to Kondinero.

Total liabilities reached Ps. 14,892.1 million, a 21.5% increase from the Ps. 12,254.6 million posted in 1Q14. Total debt reached Ps. 13,402.6 million as of 1Q15 compared to Ps. 11,297.6 million as of 1Q14.

• Senior notes and local notes reached Ps. 9,567.4 million as of 1Q15, representing an increase of 32.8% compared to Ps. 7,203.6 recorded as of 1Q14.
• Bank loans as of 1Q15 reached Ps. 3,835.1 million, a decrease of 6.3% compared to Ps. 4,094.0 million recorded as of 1Q14.

Stockholders' Equity increased Ps. 1,001.6 million when compared to 1Q14, and totaled Ps. 5,659.5 million at the end of 1Q15, a 21.5% year-over-year increase. The earnings growth is the main driver for our Stockholders' Equity increase. As of 1Q15 the company has repurchased 684,486 shares.

Financial ratios

Our efficiency ratio increased to 34.1% during 1Q15 compared to the 24.4% ratio obtained in 1Q14 when excluding the non-recurring item in 1Q14. The increase is mainly driven by the consolidation of Kondinero in Credito Real's results and investments to increase brand recognition. 

During 1Q15, Credito Real experienced a Return on Average Assets ("ROAA") of 6.5%, compared to 6.8% in 1Q14 when excluding the non-recurring item. Our Return on Average Equity ("ROAE") was 23.7% in 1Q15 compared to 24.1% in 1Q14 when excluding the non-recurring item. Both figures reflect the shift in portfolio mix experienced during the year, the effect of mark-to-market of securities and derivatives transactions and the recognition of Kondinero's assets. 

Capitalization index decreased to 39.6% as of 1Q15, compared to 42.0% observed in 1Q14, and the 41.6% ratio excluding the non-recurring item in 1Q14, overall showing a more efficient use of capital.

The above mentioned non-recurring effects are shown in the following financial ratio graphs highlighted with a dotted line.

Summary of Operations

* Includes data from Credito Real receivable portfolio and consolidations. In the case of Group loans, shows the funding from Credito Real to its partners Contigo and SomosUno, it does not include the receivable portfolio of those partners. Our group loan portfolio including our partnerships and alliances was Ps. 452.1 million and the number of customers at the end of 1Q15 was 110,212; the average loan was Ps. 4,102.

Note: Origination includes information of strategic alliances and joint ventures.

Credito Real Payroll loan portfolio rose to Ps. 11,092.1 million, an increase of 27.6% when compared to Ps. 8,692.4 million recorded at the end of 1Q14. Nearly 79.0% of payroll loans originated during 1Q15 came from the three main distributors in which we own equity. During 1Q15 loan origination reached Ps. 757.3 million, showing a substantial increase of 35.5% against 1Q14. Overall, we continue to observe a healthy portfolio performance. The non-performing loans reached 2.1% of the portfolio.

In the Education sector, since January 2015, the Tesofe (Tesoreria de la Federacion) through the FONE (Fondo de Aportaciones para la Nomina Educativa) centralized SNTE teachers' payroll disbursements instead of using government agencies for federal employees. During the quarter Credito Real began to receive the first payments from FONE, ensuring a more efficient and standardized collection process. However, the employer or government agency continues to handle the agreements with payroll distributors, in consequence our approach to serve this market continues as usual.

The following charts shows a breakdown by sector and region Credito Real payroll portfolio.

Credito Real Durable Goods loan portfolio reached Ps. 1,027.6 million, a decrease of 8.6% over the Ps. 1,124.6 million recorded at the end of 1Q14. Non-performing loans of 2.0% in 1Q15 were higher than the 1.8% level experienced in 1Q14. During 1Q15 loan origination reached Ps. 189.1 million, showing a decrease of 39.5% against last year. We attribute this decrease to weaker credit consumption in Mexico and decreasing the number of distributors in our network. Looking forward, we expect to add new retailers and to increase participation with the existing retailers by 2016.

Credito Real Small Business loan portfolio totaled Ps. 1,343.7 million as of 1Q15, which represents a 38.5% increase compared to 1Q14. Small business loan origination reached Ps. 546.9 million in 1Q15 compared to Ps. 613.3 million in 1Q14. The decrease in origination is explained by some slowdown during the first months of the year. The 1Q15 non-performing loan ratio reached 3.9%.

Credito Real Group Loans portfolio totaled Ps. 357.2 million at the end of 1Q15, an increase of 74.1% compared to Ps. 205.2 million reached at the end of 1Q14. It is important to highlight that as a consequence of our new strategy, now Credito Real recognizes in its Balance Sheet the funding provided to its partners Contigo and SomosUno, in which it has 38% and 23% equity participation respectively. The loan portfolio including our partners' loan portfolio reached Ps. 452.1 million increasing over 100% year over year. Group loan origination, including our partners, reached Ps. 689.9 million showing an increase of 105.2% when compared to 1Q14. Our group loan distributors have been able to expand their loan portfolio and maintain high asset quality after successfully implementing mechanisms to manage group promoters, consistently exerting tight controls and increasing market presence with a network of 120 branches, 40 branches more than reported in 1Q14. As of 1Q15, our group loan network extends to 804 promoters almost double the size reported in 1Q14 and 110,212 customers. Non-performing loans were 0.2% in 1Q15, compared to 0.6% in 1Q14.

Credito Real Used Car Loans portfolio totaled Ps. 459.8 million at the end of 1Q15, or 350.8% compared to 1Q14. Origination for the quarter represented Ps. 161.9 million while the non-performing loan ratio was 0.8%. The portfolio increased as a result of a larger participation in credit sales within existing distributors and the expansion of the distribution network. Regarding our partnership with Drive & Cash, twelve branches were opened during the quarter to reach a total of 47. The new branches are located in mid-size cities, in several states in the south and north of Mexico and in Mexico City; we currently operate in 17 states. Our goal for 2015 is to reach a national presence of about 100 branches.

Analyst Coverage

Actinver Casa de Bolsa S.A. de C.V. (Fixed Income)
Bank of America Merryll Lynch Global Research (Fixed Income)
Barclays Capital Casa de Bolsa, S.A. de C.V. (Equity)
BBVA Bancomer, S.A. Institucion de Banca Multiple (Equity)
Deutsche Securities, S.A. de C.V., Casa de Bolsa (Equity)
Interacciones Casa de Bolsa S.A. de C.V. (Equity)
Intercam Casa de Bolsa S.A. de C.V, Intercam Grupo Financiero (Equity)
IXE Casa de Bolsa S.A. de C.V, Grupo Financiero Banorte (Fixed Income & Equity)
J.P. Morgan Securities, LLC (Fixed Income & Equity)
Punto Casa de Bolsa S.A. de C.V. (Equity)
Ve por mas Casa de Bolsa, S.A. de C.V. (Equity)

About Credito Real

Credito Real is a leading financial institution in Mexico, with a focus on consumer lending with a diversified and scalable business platform oriented primarily on the following types of loans: payroll loans, durable goods loans, small business loans, group loans and used car loans. Credito Real offers products mainly to the low and middle income segments of the population, which historically have been underserved by other financial institutions.

Credito Real shares are listed on the Mexican Stock Exchange under the ticker symbol and Series "CREAL*". (Bloomberg identification number is CREAL* MM)

This document may contain certain forward-looking statements. These statements are non-historical facts, and they are based on the current vision of the Management of Credito Real, S.A.B. de C.V., SOFOM, E.R. for future economic circumstances, the conditions of the industry, the performance of the Company and its financial results. The terms "anticipated", "believe", "estimate", "expect", "plan" and other similar terms related to the Company, are solely intended to identify estimates or predictions. The statements relating to the declaration or the payment of dividends, the implementation of the main operational and financial strategies and plans of investment of equity, the direction of future operations and the factors or trends that affect the financial condition, the liquidity or the operating results of the Company are examples of such statements. Such statements reflect the current expectations of the management and are subject to various risks and uncertainties. There is no guarantee that the expected events, trends or results will occur. The statements are based on several suppositions and factors, including economic general conditions and market conditions, industry conditions and various factors of operation. Any change in such suppositions or factors may cause the actual results to differ from expectations.

Investor Relations contact

Phones:      +52 (55) 53405200, +52 (55) 52289753
E-mail:        [email protected]
                   Jonathan Rangel (IRO) [email protected]
                   Israel Becerril (IR) [email protected]
Web Page: www.creal.mx
Address:     Insurgentes Sur No. 730, 20th Floor, Col. del Valle Norte, Mexico City, 03103

Appendix

Appendix

Appendix

SOURCE Credito Real, S.A.B. de C.V.

Related Links

http://www.creal.mx/