Grupo Supervielle(US:SUPV)2020-04-30 21:15PART I Key Information This section provides a high-level financial overview of Grupo Supervielle, including selected consolidated financial data for the fiscal years 2017, 2018, and 2019, prepared under IFRS and adjusted for hyperinflation (IAS 29), along with a comprehensive analysis of significant risks Selected Financial Data The company's financial statements are presented under IFRS, restated for hyperinflation as of December 31, 2019, due to Argentina's economic conditions - The company's consolidated financial statements were prepared in accordance with IFRS for the first time for the year ended December 31, 2018, and are restated in terms of the measuring unit current as of December 31, 2019, as required by IAS 29 due to Argentina's hyperinflationary economy4648 Consolidated Income Statement Data (IFRS, in thousands of Argentine Pesos) | Indicator | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net interest income | 9,881,144 | 20,002,646 | 21,467,567 | | Net Financial Income | 30,518,040 | 31,443,278 | 27,526,655 | | Net Operating Income | 27,925,867 | 26,270,968 | 28,997,855 | | Net loss for the year | (2,153,622) | (4,702,117) | (1,161,834) | | Comprehensive Loss | (2,201,455) | (4,330,500) | (1,089,714) | Consolidated Statement of Financial Position Data (IFRS, in thousands of Argentine Pesos) | Indicator | As of Dec 31, 2019 | As of Dec 31, 2018 | As of Dec 31, 2017 | | :--- | :--- | :--- | :--- | | Total Assets | 148,684,691 | 218,032,810 | 208,027,788 | | Loans and other financing | 88,010,011 | 118,771,635 | 134,001,359 | | Deposits | 89,008,177 | 145,996,201 | 128,119,290 | | Total Liabilities | 125,249,296 | 191,930,415 | 176,812,474 | | Total Shareholders' Equity | 23,435,395 | 26,102,395 | 31,215,314 | Selected Ratios | Ratio | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Return on average equity | (9.2%) | (16.2%) | (4.7%) | | Return on average assets | (1.1%) | (1.9%) | (0.6%) | | Efficiency Ratio | 62.7% | 61.8% | 66.3% | | Non-performing loans as a percentage of Total Loans | 7.4% | 4.1% | 3.1% | | Coverage Ratio | 96.0% | 147.2% | 162.3% | Risk Factors The company's operations are highly dependent on Argentina's macroeconomic, regulatory, social, and political conditions, exposing it to significant risks - The company's operations are substantially located in Argentina, making its financial condition highly dependent on the country's macroeconomic, regulatory, social, and political conditions64 - Key risks related to Argentina include: - COVID-19 Pandemic: Government measures like lockdowns and loan payment postponements are adversely affecting business and results, with the ultimate impact remaining highly uncertain65 - Economic and Political Instability: Argentina's history of volatility, negative growth, high inflation, and currency devaluation poses significant risks, with the new Fernández administration's policies creating uncertainty73 - Inflation: High inflation, reaching 53.8% in 2019, undermines the economy, increases operating costs, and negatively affects the business86 - Sovereign Debt: The government's limited access to international financing and ongoing debt restructuring efforts could impair economic growth and the company's own ability to access credit - Currency Fluctuations: Significant devaluation of the Peso negatively impacts businesses with foreign currency debt and fuels inflation - Key risks related to the Argentine Financial System include: - Depositor Confidence: A history of financial crises has undermined confidence, and a contraction in the deposit base could negatively impact liquidity and operations136 - Competition and Consolidation: Increased competition in the banking sector could reduce margins and market share146 - Regulatory Environment: The company operates in a highly regulated environment, and changes in regulations by the Central Bank, CNV, or other agencies could adversely affect profitability and operations155 - Key risks related to the company's business include: - Loan Portfolio Quality: Exposure to SMEs and middle/lower-middle-income individuals makes the loan portfolio more susceptible to economic downturns168 - Market and Interest Rate Risk: Results depend heavily on net financial income, which is sensitive to changes in interest rates and currency volatility171 - Holding Company Structure: As a holding company, its ability to invest and pay dividends depends on the cash flow and dividend-paying capacity of its subsidiaries, particularly the Bank176 - Cybersecurity: The company depends on uninterrupted internet-based systems and is exposed to risks like phishing and data breaches, which could damage its reputation and financial condition188 Information on the Company This section details the company's long-standing history in the Argentine financial system, outlining its growth through key acquisitions and an IPO, its multi-brand business model, segments, competitive strengths, strategic vision, regulatory environment, and physical properties History and Development of the Company Grupo Supervielle's history dates back to 1887, evolving through strategic acquisitions and mergers to form its modern structure - Grupo Supervielle traces its origins to 1887 with the establishment of Supervielle y Cía. Banqueros, with the modern group formed through a series of strategic acquisitions and mergers211213 - Key milestones in the company's development include: - 2005: Banco Banex S.A. acquires a majority stake in Banco Société Générale S.A., which is then renamed Banco Supervielle S.A219 - 2007: Merger of Banco Banex S.A. into Banco Supervielle S.A224 - 2010: Acquisition of Cordial Compañía Financiera S.A., expanding into consumer finance230 - 2013: Acquisition of Supervielle Seguros S.A., entering the insurance market238 - 2016: Successful Initial Public Offering (IPO) with listings on the NYSE and ByMA - 2018: Acquisitions of Micro Lending S.A.U. (car financing) and InvertirOnline (online trading platform) Business Overview As of December 31, 2019, Grupo Supervielle served 1.8 million active customers with total assets of Ps.146.5 billion, operating through a multi-brand, multi-channel platform with 316 access points - As of December 31, 2019, Grupo Supervielle served 1.8 million active customers with total assets of Ps.146.5 billion, operating through a multi-brand, multi-channel platform with 316 access points, including bank branches and consumer finance sales points250253 Market Share as of December 31, 2019 | Product/Segment | Market Share | | :--- | :--- | | Personal loans (private system) | 7.0% | | Leasing (private banks) | 19.9% | | Factoring (private system) | 9.5% | | MasterCard credit cards | 9.3% | - The company's business is organized into six main segments: Retail Banking, Corporate Banking, Treasury, Consumer Finance, Insurance, and Asset Management and Other Services266 - The company's strategy focuses on digital transformation, enhancing value propositions for target segments, increasing customer acquisition and cross-selling, streamlining operations, and developing new products to expand its franchise292 - The Argentine banking sector is highly regulated by the Central Bank, which sets requirements for minimum capital, liquidity (LCR and NSFR), solvency, loan classification, and dividend distribution, with recent regulations in response to the COVID-19 pandemic including temporary suspension of dividend distributions, postponement of loan payments, and fee waivers for ATM transactions615617853 Organizational Structure Grupo Supervielle S.A. operates as a holding company with a portfolio of subsidiaries across various financial service areas, as illustrated by its ownership structure - Grupo Supervielle S.A. is a holding company with a portfolio of subsidiaries operating in different financial service areas, with the provided diagram illustrating the ownership structure as of the report date914 Key Subsidiaries and Business Lines | Subsidiary | Business Line | | :--- | :--- | | Banco Supervielle S.A. | Commercial Banking | | Cordial Compañía Financiera S.A. | Consumer Finance | | Tarjeta Automática S.A. | Consumer Finance & Credit Cards | | Supervielle Seguros S.A. | Insurance | | Supervielle Asset Management S.A. | Asset Management | | InvertirOnline S.A.U. | Online Brokerage | | Micro Lending S.A.U. (MILA) | Car Financing | Property, Plants and Equipment The company owns office space and retail branch properties in key Argentine locations, while the majority of its administrative buildings and headquarters are leased - The company owns office space and retail branch properties in key locations like Buenos Aires, Mendoza, Córdoba, and San Luis, with the majority of its administrative buildings, headquarters, and other branches being leased916918 Loan Portfolio by Type (in thousands of Pesos) | Loan Type | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | :--- | | Overdrafts | 5,598,311 | 7,292,439 | 8,214,818 | | Promissory notes | 19,620,906 | 24,107,254 | 35,192,489 | | Personal loans | 16,295,241 | 29,266,364 | 38,064,143 | | Credit card loans | 12,953,381 | 14,168,278 | 18,093,001 | | Total loans and other financings | 88,010,011 | 118,771,635 | 134,001,359 | Past Due Loans and Other Financing (in thousands of Pesos) | Period | Total Past Due Loans | | :--- | :--- | | As of Dec 31, 2019 | 7,068,384 | | As of Dec 31, 2018 | 6,913,200 | | As of Dec 31, 2017 | 3,406,916 | Operating and Financial Review and Prospects This section provides management's detailed analysis of the company's financial performance for the fiscal years 2017-2019, covering operating results, liquidity, capital resources, funding strategies, trend information, and contractual obligations Operating Results The company reported an attributable comprehensive loss of Ps.2.2 billion in 2019, an improvement from the Ps.4.3 billion loss in 2018, despite impacts from hyperinflation adjustments - The company reported an attributable comprehensive loss of Ps.2.2 billion in 2019, an improvement from the Ps.4.3 billion loss in 2018, with the 2019 results impacted by a Ps.5.4 billion loss from hyperinflation adjustments, less severe than the Ps.9.3 billion loss in 201811081112 - Net financial income decreased by 2.9% to Ps.30.5 billion in 2019 from Ps.31.4 billion in 2018, driven by a 50.6% drop in Net Interest Income largely offset by an 80.4% increase in NIFFI and Exchange Rate Differences, primarily from holdings of high-yield Central Bank securities11141118 - Loan loss provisions decreased slightly by 2.9% to Ps.7.7 billion in 2019, due to lower provisioning needs for delinquent commercial loans compared to consumer loans, despite a rise in NPLs in the corporate segment1159 - The COVID-19 pandemic and related government measures are adversely affecting operations, with key impacts including temporary branch closures, postponement of loan payments, fee waivers, and a likely deterioration in asset quality, while the company has implemented remote work protocols and is focusing on digital channels to serve customers100610101017 Liquidity and Capital Resources The company's primary liquidity source is the Bank's deposit base, which decreased by 39.0% to Ps.89.0 billion in 2019 due to a significant drop in U.S. dollar-denominated deposits - The company's main source of liquidity is the Bank's deposit base, with total deposits as of December 31, 2019, at Ps.89.0 billion, a 39.0% decrease from 2018, primarily due to a significant drop in U.S. dollar-denominated deposits following market uncertainty127912911292 Consolidated Cash Flows (in thousands of Pesos) | Cash Flow From | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating Activities | (2,407,296) | 8,196,460 | (27,815,906) | | Investing Activities | (1,303,808) | (6,828,224) | (613,058) | | Financing Activities | (14,850,160) | (1,367,478) | 28,428,029 | | Net (Decrease)/Increase in Cash | (44,328,683) | 23,603,182 | 21,586,042 | - The Bank maintains a Global Program for the Issuance of Medium-Term Notes for up to U.S.$2.3 billion to access capital markets for funding, with outstanding unsubordinated and subordinated corporate bonds totaling Ps.6.1 billion and Ps.2.1 billion, respectively, as of December 31, 2019129612991303 Consolidated Capital Ratios (Bank and CCF) | Ratio | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Tier 1 Capital / Risk weighted assets | 10.8% | 10.8% | | Regulatory capital/risk weighted assets | 11.6% | 11.9% | Trend Information Argentina's economy is projected to contract by 5.7% in 2020 according to the IMF, with the financial system expected to face asset quality deterioration due to the pandemic - Due to the COVID-19 pandemic, the IMF projects Argentina's economy will contract by 5.7% in 2020, while the Central Bank's Market Expectations Report (REM) forecasts a 4.3% contraction for the same year13151316 - The Argentine financial system is expected to face a deterioration in asset quality due to the economic disruption from the pandemic, making previously expected credit recovery unlikely, though liquidity is expected to remain high due to Central Bank measures1321 - The company plans to continue its strategy of digital transformation, enhancing value propositions, increasing cross-selling, and streamlining operations to navigate the volatile and challenging scenario1323 Contractual Obligations This section details the company's contractual obligations as of December 31, 2019, including deposits, financing from financial institutions, and corporate bonds Contractual Obligations as of December 31, 2019 (in thousands of Pesos) | Obligation | Less than 1 year | 1 - 3 years | 3 - 5 years | After 5 years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Deposits | 92,268,574 | 2,245 | 0 | 0 | 92,270,819 | | Financing from financial institutions | 8,573,139 | 927,621 | 339,929 | 0 | 9,840,689 | | Unsubordinated corporate bonds | 5,946,348 | 3,186,553 | 707,853 | 0 | 9,840,754 | | Subordinated corporate bonds | 1,500,837 | 862,185 | 0 | 0 | 2,363,022 | | Lease commitments | 502,481 | 498,849 | 133,801 | 168,845 | 1,303,976 | Directors, Senior Management and Employees This section provides detailed information on the company's leadership and workforce, including biographical details for the Board of Directors, senior management, and Supervisory Committee, along with compensation policies, committee structures, and employee numbers - The Board of Directors is composed of eight members, with Julio Patricio Supervielle serving as Chairman and Jorge Oscar Ramírez as First Vice-Chairman and CEO, and directors appointed for two-year terms in staggered elections133013321335 Compensation for Fiscal Year 2019 (in millions of Pesos) | Group | Aggregate Compensation | | :--- | :--- | | Directors | 218.5 | | Senior Management | 224.2 | | Supervisory Committee | 2.3 | - The company has several key committees, including an Audit Committee composed of three independent directors, an Anti-Money Laundering Committee, a Risk Management Committee, and a Nomination and Remuneration Committee1410141814221436 Employee Headcount | Year | Total Employees | | :--- | :--- | | As of Dec 31, 2019 | 5,019 | | As of Dec 31, 2018 | 5,253 | | As of Dec 31, 2017 | 5,236 | Major Shareholders and Related Party Transactions This section details Grupo Supervielle's ownership structure, highlighting the controlling interest of its Chairman, Julio Patricio Supervielle, and describes material transactions conducted with related parties Major Shareholders As of April 28, 2020, Julio Patricio Supervielle is the controlling shareholder, holding 35.1% of the total capital stock and controlling 57.9% of the total votes due to his ownership of high-vote Class A shares - As of April 28, 2020, Julio Patricio Supervielle is the controlling shareholder, holding 35.1% of the total capital stock but controlling 57.9% of the total votes due to his ownership of high-vote Class A shares1501 Ownership Structure as of April 28, 2020 | Shareholder | Class A Shares (5 votes) | Class B Shares (1 vote) | % of Capital Stock | % of Total Votes | | :--- | :--- | :--- | :--- | :--- | | Julio Patricio Supervielle | 61,738,188 | 98,684,713 | 35.12% | 57.89% | | Other | — | 296,299,421 | 64.88% | 42.11% | Related Party Transactions Grupo Supervielle provides management services to its subsidiaries, including financial advisory, fiscal planning, and auditing policy definition, with fees totaling Ps.104.9 million in 2019 - Grupo Supervielle provides management services to its subsidiaries, including financial advisory, fiscal planning, and auditing policy definition, with fees for these services totaling Ps.104.9 million in 201915061509 - The Bank provides accounting, administrative, legal, and treasury services to the holding company under an operator services agreement1510 - Financial assistance, such as loans, granted to directors, officers, and related parties is conducted in the ordinary course of business on terms comparable to those for non-related parties, with the aggregate financial exposure to related parties being Ps.963.0 million as of December 31, 2019151215151517 Financial Information This section covers legal proceedings and the company's dividend policy, noting that while no legal actions are expected to materially impact results, dividend distributions are subject to Argentine law, regulatory requirements, and recent Central Bank suspensions - The company and its subsidiaries are party to legal proceedings, including class actions related to alleged overcharging, but do not expect any to have a material adverse effect on results15211523 - Dividend payments are determined by shareholders based on Board recommendations and depend on operating results, cash flow, and legal and regulatory requirements, with the holding company's ability to pay dividends relying on distributions from its subsidiaries, particularly the Bank15271533 - The Bank's dividend distributions are restricted by Central Bank regulations, which require prior approval and compliance with liquidity and solvency standards, and on March 19, 2020, the Central Bank temporarily suspended dividend distributions by financial entities until June 30, 2020, due to the COVID-19 crisis1534199 - For 2018 and 2017, Grupo Supervielle paid dividends totaling approximately Ps.466.1 million and Ps.505.1 million, respectively, and for 2019, the shareholders' meeting approved the creation of a voluntary reserve of Ps.426 million for future dividend distribution15371533 Additional Information This section provides supplementary details regarding the company's securities, material contracts, and the complex regulatory landscape for exchange controls and taxation in Argentina, including significant foreign exchange restrictions and a summary of relevant tax considerations Exchange Controls In September 2019, the Argentine government reinstated foreign exchange controls to manage market volatility, consolidating them under Communication "A" 6844 and subsequent amendments - In September 2019, the Argentine government reinstated foreign exchange controls to manage market volatility, with these controls consolidated under Communication "A" 6844 and subsequent amendments15571558 - Key exchange control measures include: - Exports: Exporters of goods and services are required to repatriate and settle their foreign currency proceeds in the local market (MLC) within specified timeframes1558 - Debt: Proceeds from new foreign financial debt must be repatriated and settled in Pesos to gain access to the MLC for future debt service payments1566 - Dividends: Access to the MLC for paying dividends to non-resident shareholders is restricted, subject to a cap based on capital contributions and other conditions1584 - Individuals: Argentine residents' access to the MLC for savings is capped at US$200 per month through bank accounts and US$100 in cash1587 Taxation Dividends from profits generated from 2018 to 2020 are subject to a 7% withholding tax for Argentine resident individuals and non-Argentine residents, increasing to 13% for profits generated from 2021 onwards - Dividends from profits generated from 2018 to 2020 are subject to a 7% withholding tax for Argentine resident individuals and non-Argentine residents, with this rate increasing to 13% for profits generated from 2021 onwards1601 - Capital gains from the sale of shares or ADSs are generally exempt from income tax for both Argentine residents and non-residents if the securities are traded on markets authorized by the CNV and the non-resident is from a "cooperative jurisdiction"16071608 - The company is required to pay Personal Assets Tax on behalf of its individual and foreign entity shareholders at a rate of 0.50% for tax period 2019, levied on the proportional net worth value of the shares1616 - Law No. 27,541 introduced the "PAIS Tax," a federal tax for a five-year period on certain purchases of foreign currency for savings and payments for goods and services abroad, with rates ranging from 8% to 30%1624 Quantitative and Qualitative Disclosures about Market Risk This section details the Group's framework for managing market risk, encompassing interest rate, foreign exchange, liquidity, and operational risks, overseen by the Risk Management Committee using tools like a risk map and Value at Risk (VaR) methodology - The company manages market risk through policies approved by the Risk Management Committee, using a Value at Risk (VaR) methodology to estimate potential losses from adverse market changes, assuming a ten-day holding period and a 99% confidence interval167816831684 - Interest rate risk is managed by analyzing mismatches between asset and liability interest rates, using an internal model (MVE-VaR) and a Standardized Framework required by the Central Bank to evaluate the impact on its economic value16861689 - As of December 31, 2019, the Bank's consolidated total net asset foreign currency position subject to risk was Ps.873.9 million, generating a market risk capital requirement of Ps.70.5 million1700 - Liquidity risk is managed by focusing on sources of liquidity and monitoring key metrics, including the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), to ensure sufficient liquid assets to meet obligations under stress scenarios17011703 Description of Securities Other Than Equity Securities This section details the fees and expenses associated with the company's American Depositary Shares (ADSs), outlining the fees payable by ADS holders to the depositary, The Bank of New York Mellon, for services such as issuance, cancellation, and cash distributions Depositary Fees for ADS Holders | Fee | For: | | :--- | :--- | | $5.00 (or less) per 100 ADSs | Issuance or cancellation of ADSs | | $0.05 (or less) per ADS | Any cash distribution | | $0.05 (or less) per ADS per calendar year | Depositary services | - The depositary, The Bank of New York Mellon, may reimburse the company for expenses related to the ADS program, with reimbursements totaling U.S.$46,001 in 20191717 PART II Controls and Procedures This section contains management's assessment of the company's internal controls, concluding that as of December 31, 2019, its disclosure controls and procedures, as well as its internal control over financial reporting, were effective, a conclusion confirmed by the independent registered public accounting firm - Management evaluated the effectiveness of disclosure controls and procedures and concluded they were effective as of the end of the period covered by the annual report (December 31, 2019)1723 - Management assessed the effectiveness of internal control over financial reporting using the COSO 2013 framework and concluded that it was effective as of December 31, 20191726 - The independent registered public accounting firm, Price Waterhouse & Co. S.R.L., has audited and issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 201917271776 Corporate Governance This section covers key aspects of the company's corporate governance framework, including the audit committee's financial expert, the Code of Ethics, fees paid to its principal accountant, and a comparison of its governance practices against NYSE standards for U.S. domestic issuers - Laurence Nicole Mengin de Loyer is identified as the audit committee's financial expert and is an independent member of the committee1730 - The company has adopted a Code of Ethics applicable to all employees, which was updated effective January 1, 2020, to include guidelines on social media use and reporting corrupt practices1731 Principal Accountant Fees (in thousands of Pesos) | Fee Type | 2019 | 2018 | | :--- | :--- | :--- | | Audit Fees | 76,963 | 53,726 | | Audit Related Fees | 3,335 | 18,431 | | Tax Fees | 3,107 | 747 | | All Other Fees | 2,030 | 10,094 | | Total | 85,435 | 82,998 | - As a foreign private issuer, the company follows Argentine corporate governance practices, which differ from NYSE standards for U.S. domestic companies, with key differences including not having a majority of independent directors and not being required to have separate nominating or compensation committees composed entirely of independent directors174117431746 Financial Statements This section contains the complete set of audited consolidated financial statements for Grupo Supervielle S.A. and its subsidiaries for the fiscal years ended December 31, 2019, 2018, and 2017, prepared in accordance with IFRS and adjusted for hyperinflation (IAS 29) - The independent registered public accounting firm, Price Waterhouse & Co. S.R.L., issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations in conformity with IFRS1776 - Note 1 confirms the financial statements are prepared on a going concern basis and apply IAS 29 for hyperinflationary economies, using the National Consumer Price Index (CPI) for restatement, with the three-year accumulated inflation rate as of December 31, 2019, being 183.4%181118151817 - Note 29 details the acquisition of Futuros del Sur S.A. on December 18, 2019, for a total price of Ps.6.96 million, resulting in a goodwill of Ps.3.77 million22432245 - Note 34 discusses subsequent events, primarily the significant impact of the COVID-19 pandemic, which has led to a nationwide lockdown in Argentina and various Central Bank measures affecting the banking sector, with the company stating that while its business will be impacted, it expects to serve its financial obligations for the next fiscal year22582261