Banco Comercial Português

Good afternoon, Miguel Maia speaking. Welcome to BCP earnings conference call. As mentioned in the previous earnings conference, we are now presenting also the strategic plan for 2025-2028 period, along with the nine-month earnings. To ensure this call runs smoothly, we will adjust the structure of the presentation today. I will begin by highlighting our performance over the past nine months, followed by Miguel Braganza, who will provide additional details on our consolidated performance. Then I will present the strategic plan before opening the Q&A section. Regarding the results of the first nine months, I begin by highlighting the net income of 740 million, a year-on-year increase of 9.7%, driven by a solid operational performance that supported a core operating profit of 1.77 billion. The activity in all of our three core markets contributed to this performance, notably in Portugal, where net income went up 8.8%, having reached almost 606 million, supported by the leading position of BCP in multiple business fronts and confirming the profitability and efficiency of our business model. The contribution from Mozambique amounted to 64 million, in line with previous years and confirmed the quality of the franchise and the relevant profitability of this operation, despite the impact of a substantial increase in cash reserves held by the central bank. with the central bank. In Poland, despite the costs with legal risks still being a significant burden, Bank Millenium continues to demonstrate that it has a high quality franchise and a profitable business model. The costs associated with FX mortgage loans portfolio amounted to 550 million in the first nine months, broadly aligned with the amount in the same period last year, Additionally, the costs related to the extension of the mortgage moratoriums amounted to 36.6 million, which was below the amount that had been provisioned for this purpose. Despite these costs, Bank Millennium's net income went up more than 18% and amounted to 127 million. It is worth noting that in 2023, the net income of Bank Millennium was positively impacted by a one-off gain of 127 million from the sale of 80% of the Millennium Financial Services. The consistent organic capital generation capacity of our business model is well reflected in the solid capital position achieved. We have capital ratios comfortably above regulatory requirements, with CE Tier 1 at 16.5 and total capital at 20.8, having increased 219 basis points in CE Tier 1 and 225 basis points in total capital in the last 12 months. Operating in an increasingly competitive landscape for deposits, the quality of our retail banking business model, supported on strong commercial skills, led to an increase of 9% in customer funds, which stood above 100 billion. We sustained the improvement trajectory of our balance sheet by continuing to reduce non-productive assets. Over the past 12 months, we decreased NPEs by 92 million and foreclosed assets by 60 million. The NPE ratio is now at 3.5, with a total cash coverage of approximately 80%, which stands above 120% when including real estate collateral. Our rigorous management of the balance sheet risks enable us to improve the cost of risk, which is currently well anchored below 50 basis points, a reasonable result for our business model. At the group level, the customer base expanded 4% in the last 12 months, exceeding 6.9 million, of which almost 2.8 million in port calls. Most notably, mobile customers grew 11% during the same period, accounting for 71% of the group's customer base and 61% in portals, revealing the success of our digital transformation journey and the quality of our digital channels. Now, I give the floor to Miguel Braganza.

Thank you very much. Going directly here to the income statement, as you see, we have been able, in spite of the much tougher interest rate environment where interest rates decreased substantially when compared with the same period of last year to maintain the core income in our consolidated accounts, which was notably and clearly above our initial expectations. In terms of operating costs, mainly due to the inflation, salary inflation in Poland, we increased around 11%, still below what you see in some of our peers. So the core operating profits decreased by around 4% compared with the year that had some extraordinary elements as we had last year. Another extraordinary factor that we had last year was the sale of our insurance brokerage company that impacted our P&L in 127 million euros, which of course did not occur this year. Correcting for this effect, our operating net income was broadly constant. An important factor when we compare 24 with 23 is that we already see the decrease in the total provision for CHF mortgage risk as we had anticipated when we stated that 23 was clearly or would be clearly the height of the provisioning for legal risk in CHF mortgages in Poland. So clearly already on a decreasing trend as we have anticipated, still high. We also have here an important element, as we had already discussed in June, that was the fact that some of the provisions for Swiss francs were declared, so to say, tax deductible, so that our income taxes in 24 benefited from it. All in all, this implies an increase of our net income of around 10% from 23% to 24%. In terms of NII, as you see, we have been able to present a very resilient NIM in spite of the decrease in interest rates, a decrease in interest rates that was that occur both in Portugal and in Poland, as you know, keeping NIM in Portugal above 2.2%, which, as you know, is above the European average of NIMs and quite stable when you compare also with what is happening with some of our competitors. In the international operations, in spite of the strong decrease in the interest rate of the Zloty. We were still able to show a NIM above 4.5% in the international operations. All in all, the NIM above 3%. Fees and commissions also performed well in the mid single digit area as we had anticipated. Here too, with a strong contribution from bank assurance and from securities and asset management, already showing some positive effects from the markets, but also in terms of daily banking and fees, a positive evolution. Other income. We have here a positive evolution in terms of regulatory contributions, they were stable but this is a tale of two sides, so to say. In Portugal, they clearly decreased because the contribution to the European fund and to the local resolution and to the local contribution decreased from 54 to 39 million euros. In Poland, as we ended the capital protection plan, the bank started to pay as it is normal and as our competitors do, the bank tax. The bank tax, of course, that was not paid last year. All in all, one effect compensates the other. Another positive effect that we had in Q3 was the sale of a UPT portfolio, where we had a capital gain around 30 million euros, which shows also the prudency of our impairment policy. Operating costs. Operating costs as you see in the mid single digit area in Portugal, in spite of the effort that we are all doing in terms of increasing investments in technology and resiliency in the bank, still with a cost to income clearly below 40 percent and an increase in the international operations of around 17 percent to some extent or two with a very large contribution from Poland, where, as you know, minimum wages have been increasing consecutively at a double digit pace for more than two years. Cost of risk, cost of risk with a positive evolution, if we adjust for a special recovery that we have clearly within our target of 50 basis points in Portugal and international operations, in spite of the more challenging environment with the recessionary elements that you know. This was also shown in the continued decrease of NPEs. So we were able, in spite of the much lower size of the portfolio, to decrease the NPEs year on year. In Portugal, 12.3%. In international operations, broadly stable. And this is explained to a large extent by the growth of the portfolio. All in all, we were able to decrease the NPEs ratio, really past due 90 days ratio is only at 1.4 percent or only 1.4 percent and if we have the ratio only including loans so without securities which typically have less risk um we and but also includes the unlikely to pay loans the ratio also decreased from 3.6 percent to 3.4%, which already compares very reasonably with European banks with a business model such as ours. I will go here to capital and liquidity. As we have shown, we were able one quarter more in spite of only accruing 50% of the earnings to grow our CET1 ratio from 16.2% to 16.5%. reaching MDA buffers above 600 basis points and very comfortably above the minimum ratios as you see here in the graph. This also is shown in the leverage ratio where we clearly perform better than our competition, which is partly explained also by our higher RWA density associated to the more conservativeness of our models. clearly above the MREL requirement. Our MREL plus CBR overall 29%, 28.7% to be more precise, and showing a ratio of 34%. Liquidity position very robust. I will not comment on it for the benefit of time and just as I will present hopefully for the last time. I will not go into the international operations for the benefit of time, but I will only summarize this slide. It will be the last time that we'll be presenting this slide. It's basically the slide of our previous strategic plan where we clearly highlighted that we have met in anticipation practically all of the commitments and all of the ratios that we had presented to you years ago. I will now pass the floor here to Miguel Maia.

Thank you, Miguel. I will now outline the Bank's strategic plan for the period 2025 to 2028. The presentation is structured around three blocks, the first relating to our trajectory and market outlook, the second expressing the main highlights of our ambition and strategy, and the third summarizing the main priorities for the most relevant geographies in our business portfolio, namely Portugal, Poland and Mozambique. We will conclude with a recap of targets before opening the Q&A. We have reached the current moment with a bank that presents a sound performance anchored on a proven track record, clearly evident in the success achieved in the bank's recovery and in all the metrics defined in the previous two strategic plans were met. We have achieved a robust financial position with clear market recognition as clearly demonstrated by the bank's rating evolution and the stock price performance. The transformation in the way we interact with customers, incorporating technology into processes and business models, always keeping in mind that we want to position ourselves as the reference bank in symbiotically enhancing the relationship between people and technology, has allowed us to achieve high operational efficiency, reinforce leadership in multiple business variables, and obtain high preference indicators in the choice made by customers. The ability of the bank to execute the strategic plan is well demonstrated by the evolution of our commercial activity and the way business processes have been adjusted. Let me highlight, for example, since 2018, the reduction of around 25% in the number of branches. Simultaneously with this reduction of the physical network, there was an increase of 37 percentage points in the number of customers who regularly use mobile in their interactions with the bank, representing more than 71% of the customers base today. The growth of the active customer base exceeding 42% and business volumes that is customer funds and loans growing by more than 26%, even in a very difficult context. I would also highlight the evolution of NPEs and the significant increase in impairment coverage from 52% to 80%, which clearly signaled the normalization of the bank's balance sheet, as well as the robustness achieved, visible, evident in the solid capital and leverage ratios. Net operating revenues grew by more than 67%, The cost-to-income ratio is solidly anchored below 40%. The evolution of cost of risk was also very significant, standing at a level below 50 basis points. Net income is almost three times what was achieved in 2018. And due to the bank's evolution, ROE stands clearly above the cost of capital. Our evolution altogether, driving BCP to surpass more than a year ahead of scheduled, the last targets that were presented to the market, except for ESG rating, which was defined at a time when this metric was not yet clearly mastered. As the market knows, not only the bank does not have any issues in this area, but it is also firmly involved in the preparation and implementation of the increasingly demanding regulatory requirements in terms of ESGs. As would be expected, given the observed evolution, the bank has recorded positive development in the evaluations conducted by rating agencies and achieved investment-grade status from the agencies that follow us. The evolution of the bank's stock price recognizes the work developed, highlighting the differential compared to the markets throughout the entire period, especially between 2020 and 2024. BCP begins a new cycle, well prepared to handle a context in which the financial industry will continue to face significant challenges, among which I will highlight the convergence of interest rates to levels aligned with inflation around 2%, a context that allows us to foresee an expansion of lending volumes, with BCP being in a more favourable position to its strong retail deposit franchise. the achieved normalization of cost of risk, and the decrease in other provisions. I would also highlight the strong incorporation of technology in business models and operational processes, which will enhance commercial innovation capacity while ensuring benchmark efficiency levels. And, equally important, all the investment and work carried out and to be done in strengthening robustness, will surely further empower the bank for a context marked by a strict regulatory demand, among which I would like to highlight the Digital Operational Resilience Act. The arrival point, which now becomes a starting point for a new cycle, is deeply marked by an approach in which the customer is the cornerstone People are the link of trust and the quality of the service provided by in-person and digital channels are the facilitators and simplifiers of the interactions. The quality of the franchise is systematically recognized both in terms of Net Promoter Score and by the multiple distinctions obtained in all the geographies where we operate. Allow me to also highlight the evolution in terms of digital and mobile customers, who currently represent 78% and 71% respectively of the group's customers, and exemplifying for Portugal the preponderance and relevance of the digital channels in terms of transactions, accounting for 87% as well as in the percentage of sales in number, currently exceeding 59%, which represents an evolution of 41 percentage points compared to 2018. This slide clearly shows not only the relevance of millennial operations in our different markets, but also the growth potential in all of them, with special emphasis on SME credit in Poland, where the bank, with recovered capital ratios and a comfortable liquidity position, is well positioned to significantly evolve. I would also highlight the growth potential in Portugal, especially in the SME sector and in consumer credit. In Mozambique, the goal is also to develop the credit to the corporate sector, with the pace of this progression being greatly determined by the macroeconomic context and the advancement of major energy projects. The growth potential of our operations becomes even more evident in these slides. In the three main geographies where we operate, the GDP growth potential is substantially higher than the average growth forecasted for the European Union. The countries in which we operate will benefit from strong structural fund support, which will obviously have a significant impact on their economic growth. I would also highlight the enormous growth potential of credit to the economy in the Polish market, where the percentage of credit to the private sector represents only 35% of GDP compared to 80% in the European Union. Moving now to the chapter of ambition and strategy for the next cycle, I would start by highlighting the name of the plan, Valorizar, which we consider most adequately translated into English as Deliver More Value. Deliver more value to our customers, creating distinctive and engaging customer experience through the symbiotic combination of human touch and technology. I would highlight that we intend to exceed 8 million customers. We aim to have more than 80% of customers regularly using mobile as the most frequent means of interacting with the bank. we seek to maintain a leadership position and to be a benchmark in terms of satisfaction and customer recommendation. At the level of our people appreciation, an essential aspect of our success is the capacity for innovation and execution, aspects for which the quality and motivation of people are paramount requirements. For this new cycle, I would highlight the imperative to attract and retain critical profiles, upskill the talent base and reward performance decisively to achieve an even more productive organization. I would like to draw your attention to two indicators in this slide, the high satisfaction we intend to have at the level of the employees with relevant contributions to the bank and the level of professional progression we aim to achieve. The third pillar of the strategy addresses our shareholders, although all of them being of utmost importance for us, as only a harmonious evolution of these three pillars can sustain high performance over time. In the shareholders' pillar, we propose to deliver profitability above the cost of capital throughout the cycle, distributing relevant returns while ensuring strong balance sheet resilience. I would highlight that we propose to achieve ROE levels over the plan above 13.5%. And subject to the plan being executed in its main components, achieving the relevant capital and business targets in Portugal and in the international area, and necessarily that the European supervisor authorizes it, we propose to ensure a distribution up to 75% to shareholders to dividends and share buybacks. Allow me to emphasize that for this purpose we are considering the bank's capacity to generate over the plan a cumulative net income between 4 and 4.5 billion. After successfully executing two strategic plans in a very challenging environment, the first of which was called Mobilize, and whose purpose could be summarized by the expression Get Back on Track, and the next, which we now conclude and marks the end of the bank's normalization period, resulting in converging with the market in terms of balance sheet robustness, and profitability, we now enter the 2025-2028 cycle under the motto, deliver more value, or in other words, achieve superior performance. To this end, the main guidelines of the group strategy and for each of our operations have common denominators to achieve. Compelling profitability, which means organic growth in attractive pools, increasing portfolio balance towards SMEs. focus expansion and innovation adjacent opportunities and strengthen the credit risk capabilities. Also, achieve an edge in customer experience and trust through the combination of human touch and technology to excel, increasing the tech and cyber resilience and achieve tangible and relevant returns. This slide expresses the main target for the new strategic cycle. In business volumes, we aim to exceed 119 billion, of which more than 120 billion in Portugal. In terms of customers, we aim to reach the 8 million mark, with more than 3 million in Portugal. We anticipate that more than 80% of our customers will regularly use the mobile channel in their interactions with the bank. We want to remain a benchmark in terms of operational efficiency with cost-to-income ratio well anchored below 40%. And at the cost-of-risk level, we anticipate it to be below 50 basis points, highlighting the growth and strengthening we aim to achieve in the market shares across different geographies. In terms of ESG evolution, a theme that will be underlying and present of all fronts of the bank's development, we assume the ambition to rank in the top quartile of S&P Global CSA ranking. The concern with very rigorous capital management remains a priority, maintaining a ratio always with adequate buffers to regulatory requirements. and to have the robustness desired given the bank's business model, which implies a CE tier 1 above 13.5. The ambition ROE is above the cost of capital and higher than 13.5. Regarding shareholder distribution, I reiterate and emphasize what I have already mentioned, which is for this purpose we are considering the bank's ability to generate a cumulative net income between 4 and 4.5 billion over the cycle of the plan. On this assumption, we aim to promote a shareholder distribution up to 75% over the cycle through dividends and share buybacks subject to the execution of the plan rate. plans relevant capital and business targets in Portugal and in the international area and necessarily to the authorization by the European supervisor. We foresee delivering solid revenue growth driven by customers and volumes evolution. We forecast the growth in net interest income over the cycle in the range to 500 to 700 million, the growth of commissions in the range of 100 and 200 million, which materialize in the growth of net operating revenues in the range of 4 to 5 billion over the period. Despite the projected decline in interest rates, we envisage ensuring a healthy NII trajectory, supported by 300 to 400 million from loan volumes growth, between 400 and 500 million from deposit volumes growth, and a negative effect in the range of 200 to 300 million from the net impact of interest rate decline and NIM hedging. This evolution allows us to foresee that the NII will be in the range of 3 to 3.4 billion. The initiatives defined for the evolutions of the banks over the strategic plan duration are based on multiple initiatives, each framed by specific objectives, among which I would highlight the progress in productivity per employee, noting the goal of increasing the business volumes per person by approximately 30%, maintaining the banks as a reference in efficiency, ensuring that the necessary investments to sustain the predicted growth and enhance the banks' resilience do not compromise our distinctive characteristic of high operational efficiency. This will require to continue a very meticulous cost and investment management policy. The ambition for growth will be framed and subordinated to a well-established risk appetite, within the culture of ambition with rigor that has successfully guided the execution of previous strategic plans. Going forward, keeping the cost of risk below 50 basis points will continue to be a strategic reference. As I mentioned, the commitment to ESG evolution will be present in all initiatives and actions outlined in the plan. We firmly believe that the banks play a significant role in contributing to society in this field and this contribution goes beyond merely complying with an increasingly demanding regulatory framework or aiming to achieve carbon neutrality. Our role includes and centralizes on supporting our clients so that they too can contribute and succeed in this crucial front, which is essential for building a better, more inclusive and prosperous world. Our reference metric will be to position ourselves, as I said, in the top quartile of S&P Global CSA Index. To conclude this section of the presentation, I want to highlight, with all the caveats previously mentioned, that our ambition over the plan is to generate a cumulative net income between 4 and 4.5 billion. We aim for a ROE greater than 13.5, The average total payout to shareholders will be up to 75%, with a dividend payout of 50% and additionally a regular share buyback program, subject to supervisor approval and achievement of the plan's relevant capital target, meaning Common Equity 1 above 13.5% and achievement also of the relevant business target in Portugal and the international area. It should mention a projected average annual book value per share growth plus dividends yield around 15% per annum. I'd like to emphasize and ask your attention for these specific statements. It's also important to mention that the Board of Directors has already approved the submission to the ECB of a request to execute a share buyback in the amount of 25% of the annual consolidated profit estimated for 2024. To introduce you the main priorities in each geography and conclude the presentation, I now hand over to my colleague, Miguel Braganza.