Banco Santander, S.A.

Good morning, everybody, and welcome to Banco Santander's conference call to discuss our financial results for the year 2021. Just as a reminder, both the results report and the presentation we'll be following today are available to you on our website. I'm joined here today by our Executive Chairman, Mrs. Anna Botin, and our CEO, Mr. José Antonio Álvarez. Our CEO will provide an overall view of the performance of the group, regions, and some of the main countries, as well as the business divisions throughout the year. Our chairman will provide key highlights of the year, as well as the strategic priorities and key targets going forward for both 2022 and the midterm. Following their presentations, we will open the floor for any questions you may have in the Q&A session. With this, I will hand over to Ms. Badin. Anna, the floor is yours.

Thank you very much, Begonia, and good morning to everybody. It's great to be with you all, and thank you for joining us. So, as Begonia said, and as an introduction to our 2021 results, I would like to provide you with some context of what we have achieved since 2015. Our resilient business model has allowed us to grow to increase our balance sheet strength, our profitability, and deliver attractive shareholder returns. Again, key elements continue to be our scale, our diversification, and our customer focus, all of which remain a source of strength of more predictable and earnings results through the cycle. In fact, if you look back 20, 25 years, our earnings per share presents the lowest volatility, the lowest volatility versus our peers and growing results. And this is, again, a key attractiveness of our business model. So we have laid these foundations to deliver great value to service a growing customer base, which is up 30 million customers since 2015, increasing profits, improving profitability. Our ROT is up close to 170 basis points since 2015, and of course, strengthening our capital base in a very significant way, as well as delivering sustainable returns to our shareholders. A couple of numbers on this. We have remunerated shareholders with 19 billion euros since 2015, and our tangible NAV has grown by 12 billion euros since then. So I'm very pleased to report that a strong 2021 takes us very close to meeting our 2019 investor day targets in spite of the pandemia. Actually, in some cases, we're ahead. And we will continue to focus on growth, profitability, strength, including shareholder remuneration. We are guiding for 2022 a mid-single-digit revenue growth, cost income close to 45, and return on tangible equity above 13%. And we're aiming to keep our CET1 fully loaded at around 12%. We're also aiming to keep the 40% payout in 2022, of which, as we already said, will be 50% share buybacks and the other 50% in cash. I also want to say that longer term, we aspire to increase our total shareholder remuneration beyond the 40 to around 50, again through share buybacks and growing our cash dividend whilst maintaining a CET1 of 12%. This would be, of course, subject to future corporate and regulatory decisions and approvals. So if we go to the next slide, you've seen very strong 21 results. Our net profit is actually up 25% from 19 underlying in a similar percentage. Reflect, as I said, the strength and resilience of our business model. We onboarded 5 million new customers. We are growing revenues by 7% to over 46 billion. We again increased efficiency and reduced the cost of credit. That's down to just 77 basis points. And generating a return to shareholders as measured by tangible NAV per share and cash dividend per share of 11%. Importantly, 2021 was a pivotal year for us in terms of capital. We are at the high end of the range, delivering a 12% CET1 fully loaded. And going forward, as I already said, we expect to keep it at these levels of 12%. So you can hear our P&L here. We have been able to recover actually more than recover our pre-pandemic levels of customer activity in terms of the underlying profit before tax. Again, it's a record high of $15.3 billion. Actually, on the quarter, it's the highest underlying in 12 years, and this is up 21%. Our underlying profit of $8.7 billion, that's up 80% versus last year, 23% compared to 19%. And again, this reflects optimal cost of risk, but also very strong execution of what I have said many times is a structural change in our business model. Very importantly, as you can see, revenues are growing more than cost with a positive operating leverage. Very strong capital generation in the year and up to CET1 of 12%. even though we had significant regulatory headwinds this year. Even more important is the strong business momentum. And you can see just some examples here. We are moving our business model to more fees, diversifying into different sources of revenues linked to our customer focus. These are only some examples. Loans and deposits are growing. Mutual funds are growing at 13%. But in the higher return, value-added services, which are really what's adding to our profitability, our POS, point of sale, up 38%. Insurance premiums up 12%. Our new Buy Now, Pay Later, this is a business we've built on top of our tech stack, Open Bank in Germany. It's going across Europe soon. Two million customers in the first few months. Debt capital markets, M&A fees up 16%. This is really important for the future, and these are the businesses in which we're investing more heavily. Jose Antonio will give you details later on the regions. During the year, we also leveraged the diversification and scale of the group. These are two key elements, and we're working more and more in this key strength of our business model. So operational performance is improving across the board, Europe, North America, South America. Our digital consumer bank, which, as you know, combines our auto and consumer finance and open bank, is one of our important growth initiatives. In Europe, we are working really hard to transform the business model. Return on tangible is close to 10%. As you can see in the slide, our customer focus is also showing up in better NPS across the different countries. And again, the structural changes have led to cost efficiencies of around $200 billion, and this is an area we'll continue to focus on for next year. North America, we generated a return on tangible equity of close to 25%. We are working also in a structural basis in the U.S. I'll give you more details later on. and really trying very hard to leverage the connectivity across the group, our experience in consumer finance in Europe and Latin America, and other relationships that are global. Corporate and investment banking also have made great progress in North America and in Mexico. We're increasing profitability and being very successful in growing new business like the auto business organically. South America, a great and a standout performer, with Chile and Brazil being the best bank in terms of profitability in their respective markets and overall returns of 26%. We're growing double-digit in terms of revenues, growing in terms of market share, and growing customers in very different segments in all these markets. Our digital consumer bank, again, very strong year, producing a return on tangible equity of around 15%. I would like to point to two key numbers in this slide. If you look at the group's customer loans and group underlying profit, you can see Europe is where we have 60% of our loans. and 28% of our profits. Again, this means our business is more dependent on lending in Europe. This is something we're working on to increase fees and increase profitability. It also means reduced risk, as a lot of these loans are secured on mortgages in countries like the UK and Spain. South America, on the contrary, you can see 14% customer loans, 31% underlying profit. This is exactly the example of very positive operating leverage, very diversified businesses, many of them high-growth fee businesses linked to digital initiatives like auto platforms, GetNet, and other such businesses. Same in North America. As you can see, 14% of the loans and 29% of the profits. We have been leading and intend to continue to lead on the responsible banking, and here we have very specific targets in terms of our green transition for us and our customers, building a more inclusive society, and of course, talent and diversity. In terms of the green transition, we are working with our customers to help them in that transition. We are focused on delivering on our own net zero ambition by 2050, which of course includes our customers. In terms of our own operations, we are already net zero. And we are working, again, on the advisory side, on the capital markets, but also increasingly developing retail and SME products, We originated 61 billion euros in green finance in 19. We have 27 billion euros under management, and we're the number one bank in project finance in renewable energy. But we are, again, making a lot of progress in our very important goal of empowering 10 million individuals by 25. We're on target to reach that. We've empowered 7 million people in 19 and also allocated 500 million in microfinance in 21. As I said before, we are very, very focused and proud to have been number one bank in Bloomberg gender equality index and number two company worldwide. And this is an area where we'll continue to focus as we think diversity is not just the right thing, it's also good for business. So in summary, Responsible banking, we believe, is key to delivering on all our other commitments. We are creating value for our shareholders. We did set a 40% payout of underlying earnings, split in equal parts between cash, dividends, and also buyback programs. We will be announcing in a couple of weeks the second dividend after the interim dividend of 1.7 euros, which was half and half between... cash, and buybacks. We continue to believe buybacks are an excellent investment of our capital, and so that would be the intention for the second dividend as well. So I will now pass over to Jose Antonio, who's going to review the regions and detailed operating metrics for the year.

Thank you, Anna, and good morning to everyone. As Anna has already commented, we recorded a pretty strong set of results in 2021 with an underlying profit of 8.7 billion, 78% higher year-on-year in constant euros, driven by a very positive performance across the board, notably in the US, UK, Brazil, and the CIB and wealth management businesses. Our net operating income, pre-provision profit, was around $25 billion, with an increase of 9% year-on-year, which I think is remarkable. This was driven by a 7% revenue growth. Net interest income grew 7%. on the back of higher volumes, lower cost of funds, better credit spreads in Latin America, and starting some positive impact from recent interest rate hikes in some Latin American countries and Poland. Net fee income rose 8% year-on-year, double digit growth in corporates, wholesale banking and wealth management and insurance due to greater commercial and financial activity. Costs increased half of the base of the revenue, what has driven significant efficiency improvements. The significant fall in loan loss provision across the group accelerated in Q4, driven by the improvement in the macroeconomic outlook and the very positive performance of our main portfolios. If we look one step down in the P&L and we analyze the quarterly trends in core lines, we saw improving trends across the board on the P&L lines through the year. Q4 was the profit-quantity highs of 2021 of 2.3 billion euros after a good behavior, particularly on the provisioning side. But also, some of the releases were offset for the contribution to the positive guarantee fund, bank levy, the charge for the Swiss francs in Poland, so net-net, the quarter is fairly comparable with the previous ones. In more detail, sustained custom revenue growth plus 4% NII and 3% fee income quarter on quarter driven by greater volumes, initial impact for interest rate hikes, as I mentioned before, and growth in higher value-added products and services. Q and Q increase in costs is almost fully explained by bonus adjustments, so this does not represent a running rate for the coming year. In addition, a lower loan loss provision in Q4 favored the aforementioned provision release. I will run through the costs and provisions in more detail in the following slides. On the cost side, we have seen significant inflationary pressure around the world. Group costs rose 4% in cost and euros, but were 2% lower in real terms, absorbing higher IT expenses, digital developments, increased activity and labour agreements that particularly affected in the second part of the year. Our efficiency ratio improved to circa 46%. This was basically driven by Europe, minus 5 full percentage points, which recorded the highest efficiency gains. I should stress that the cost in Spain went down 7%, in Portugal 5%, and UK also decreased. This is more to come in 2022, and our running rate will decrease in line with our targets for the region. We continue to make structural changes to our operating model to drive new improvements in productivity, which should enable us to maintain cash growth below inflation and further improve our efficiency rate. So on the credit quality, the balance sheet remains, I would say, robust. NPL ratio at 3.16, below 2020 and 2019. Provisions down 37% in constant euros, partly due to the releasing provisions in Q4. We also reduce significantly cost of credit, was mentioned already by Anna, to 77 basis points below 2020 and 2019 levels, and exceed our initial 2021 target. In 2022, we expect to maintain the cost of credit below our ratio through the cycle. Spain will be key, as we expect its cost of credit to reduce to approximately 50 basis points, offsetting some normalization in the US and UK. Finally, on capital, in 2021 we reached a fully loaded core equity at 112.12%, thanks to strong operating results we delivered quarter of quarter. In Q4, we generated 42 basis points organically, a combination of net profit, net of dividends, and also by efficient risk-weighted asset management that the risk-weighted assets were flat in the quarter. Negative impacts in the quarter of two basis points due to small regulatory impacts. We already spoke about this in the previous quarter. Nine basis points due to market movements affecting some ALCO portfolios and five basis points from the minority interests in Mexico. It will include the acquisition of SCUSA that was approved last year. This same week, it was executed this same week. Of eight basis points, we closed on the 31st of January, 2022, and the announced acquisition of the broker-dealer and her spear point that affect eight basis points, which is still subject to completion, which will have an impact of 16 basis points, and our pro forma CET1 ratio will stand at 1196%. We were able to combine this performance with an increase in the tangible net asset value per share. Looking at the regions, starting with Europe, we are accelerating our business transformation. It's where we are pushing harder in changing our operating model. Profit doubled in the region, reaching Euro 3 billion with higher profitability due to volumes growth, particularly mortgage, in line with economic recovery. 24% net operating income supported by wider jobs in most countries. Revenue was up 11%, particularly customer revenue, while costs were flat due to ongoing efficiency gains. 32% reduction in all loss provision and our cost of trade improved to under 40 basis points. In the following slides, for the sake of clarity, I include the return on tangible equities adjusted to the 12% core equity tier 1 in all the units, due to the fact that in order to have a like-for-like comparison between the units, and given the fact that they have very different capital ratios, we are making this adjustment. So in Europe, starting with Spain, Spain saw a strong pickup in activity in individuals, mortgages, consumer lending, customer funds also grew significantly in the last year, profit nearly doubled, boosted by strong net operating income performance. Just of 10 full percentage points, revenue grew 3%, and efficiency gains drove 7% reduction in cost. Loan loss provision reduced 8% year-on-year, and in 2022, we expect to halve our cost of credit. So, also, we expect a single-digit balance sheet in 2022. In the UK, we improved. It's a four-fall increase in profit, basically by record net mortgage lending. You don't see this in the long book, that only grows 0.5% due to the fact that we completed the transfer of the CIB business to the London branch and this effect. sum of the loan portfolio went from the Ring Fence Bank to the London branch. Plus 22% year-on-year growth in NII due to deposit repricing and volumes on the mortgage that I mentioned before. Cost savings from our transformation programme partially offset by IT investments and regulatory related programmes. Efficiency improved by nearly 11 full percentage points. Long-lost provision releases reflecting balance sheet strength. As a result, we achieved double-digit return on tangible equity in the UK. North America. We improve our competitive position in increasing connectivity in the region, consolidating IT functions and advancing significantly in the business simplification. We also announced several transactions in 2021 in line with our strategy to deploy capital in the most profitable business. Volumes grew driven by our main segments in both countries. profit double driven largely by lower provisions and higher revenue in the u.s in the u.s we had extremely positive 2021 on a like for life basis excluding puerto rico and blue steam portfolio disposals long grew with double digit growth in auto originations customer fund increased due to retail deposits with a significantly lower cost of funding Underlying profit increased sharply, supported by the 11% increase in net operating income, NII fees and auto lease results, and 85% decline in loan loss provisions. In short, strong performance with U.S. being one of the engines of the group in 2021 results. Mexico, we increased our stake to over 96% and continue to invest in the franchise, reflecting in positive results and customer growth. In a challenging environment, rate cuts in 2020 and falling volumes, we were able to quickly adapt, resulting in improving trends during the year. As a result, we delivered an 8% increase in profit thanks to the loan and deposit growth, controlled costs well below inflation despite IT investments, and better cost of credit. Finally, the last region, South America. We continue to strengthen connectivity. We are market leader across the region. We are capturing scenarios across the region and new business opportunities and boosting our already profitable franchise. We show strong customer growth in all the countries where we are leader in quality of service as we measure in MPS. In terms of results in 2021, we delivered greater volumes in all countries, double-digit customer revenue growth, increased productivity with growth growing well below inflation and lower cost of credit in all countries. This resulted in strong profit and very high return on tangible equity. In Brazil, another excellent year, record customer attraction, more than 5 million customers, which translates into a significant growth in individuals, loans to individuals growing at 22%, consumer finance 12%, and SMEs plus 15%. This translates into the P&L. with a return tangible equity well above 20%. Double digit growth in customer revenue and record annual efficiency levels led below 30% for the first time. Maintain credit quality at comfortable levels. In Chile, our digitization process allow us to increase significantly our customer attraction, which is reflected in the plus 23% percent increase in demand deposits and double-digit fee income growth, widening the gap in NPS with our competitors being the market leader. Excellent year-on-year profit-for-profit performance, NII plus 10%, improved efficiency, increasing gap to peers, lower cost of credit driven by better than expected performance in SMEs and corporates. The consumer bank, the digital consumer bank, balance sheet dynamics were solid. New business activity has recovered to the pre-COVID levels up 10% despite the challenges posed by COVID restrictions and the semiconductor shortage. Of note was auto plus 13% origination on the back of increasing our market share by 50 basis points across Europe. Additionally, we are working on the expansion of OpenBank, which performed very well in the year in terms of customer increase and volumes. Loans grew 48% and customer funds 24%. Total digital consumer bank revenue was boosted by the new business recovery, particularly for income and leasing. Positive year in credit quality with further reduction in cost of credit. In summary, excellent results reflecting in 16% underlying profit growth, and increase in profitability return on tangible equity exceeding 14%. Going to the two business that we report as secondary segments, both have had in the industry a very good year. The corporate investment banking revenues grew 10%. sharp improvement in loan loss provision. We are gaining share and we are top of the market in project finance, top three in project finance in Europe and Latin. And as Anna mentioned, focused on sustainable alternatives and ESG through the green financing. We are investing in the business, the cost increase as we are investing both in continental Europe, UK and US to develop new capabilities to serve our customers. In wealth management insurance, excellent business performance in 2021, record commercial flows of Euro 20 billion, 12 billion in private banking and 8 billion in the asset management. Insurance premiums protection business increased a double digit. Wealth management and insurance total contribution to the group increased 12% to EUR 2.3 billion. Finally, on Pagonex, well, we made the commitment to grow the business, to grow the revenue 50%. So we achieved 500 million, 47% year-on-year. In Merchant Acquiring, GetNet continued to deliver growth, increasing the number of active merchants and total payments volume by 50%. GetNet Brazil recorded significant market share gains. GetNet Europe started to operate in age. in the second half of the year as a European acquirer following the integration of former Wirecars technology. In international trade, OneTrade currently connects our customers in eight central banks exceeding 8,000 active SMEs and corporates, doubling in size since March. In summary, we have significant progress in the last 12 months as Pagones, as Winbest in world-class technology and recruit the best payments telling to continue to innovating and launching new products. And I hand over the floor to Ana to continue with the presentation.