Banco Santander Brasil S A : 2Q21 Transcript

Confidential

Conference Call Transcript

2Q21 Results

Santander

July 28, 2021

Operator

Good morning and thank you for waiting. Welcome to the conference call to discuss Banco Santander Brasil S.A.'s results. Present here Mr. Sérgio Rial, CEO, Mr. Angel Santodomingo, CFO, and Mr. Gustavo Sechin, Head of Investor Relations.

All the participants will be on listen-only mode during the presentation, after which we will begin the question-and-answer session, when further instructions will be provided.

If you need any assistance during the presentation, please call the operator by pressing *0.

The live webcast of this call is available at Banco Santander's investor relations website at www.santander.com.br/ri, where the presentation is also available for download.

We would like to inform that the questions received via webcast will have answering priority. If you wish to ask a question via phone, please press *1. Once your query is answered, press *2 to leave the line. Each participant is entitled to ask one question.

Before proceeding, we wish to clarify that forward-looking statements may be made during the conference call, relating to the business outlook of Banco Santander Brasil, operating and financial projections and targets based on the beliefs and assumptions of the Executive Board, as well on information currently available. Such forward-looking statements are not a guarantee of performance. They involve risks, uncertainties, and assumptions as they refer to future events and hence depend on circumstances that may or may not occur. Investors must be aware that general economic conditions, industry conditions and other operational factors may affect the future performance of Banco Santander Brasil and may cause actual results to substantially differ from those in the forward-looking statements.

I will now pass the word to Mr. Sérgio Rial. Please Mr. Rial, you may proceed.

Mr. Sérgio Rial:

Well, thank you very much. I would like to start by again thanking everyone, I'd like to also give a welcome to Gustavo, who is our new head of investor relations, joining us in this important call, and of course, our CFO Angel will then take this conversation further with all of you.

The reason why I'm here is to at least try to provide some context for the news on my migration to the Board. A couple of thoughts and premises: 1) I'm not leaving Santander as a Group, I remain very much committed to both Santander Brasil, but also to Santander Group; 2) succession has been really planned over the last two years, we had an extensive and well- thought process, very much linked with the local Board and the Group Board primarily also due to the materiality of Brazil and South America for the whole Group. We had an extensive research, both externally and internally, I started the process since the day I joined the company as a CEO, so there were a number of names on the list and then I'm very glad that, as a CEO but very much supported by the Board which is a Board's prerogative at the end the succession, I was able to actually indicate the person and the executive that I think will take Santander Brasil in a second phase. Mario has been in part of the team for the last four years, part of the executive-committee, I had the opportunity to test, see, observe, challenge not only

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Confidential

Conference Call Transcript

2Q21 Results

Santander

July 28, 2021

him but also other potential names, and I'm very much convinced that on the back of his technical background, leadership style, commitment, and an incredible unlimited curiosity, let alone that he's got more ambition than I do for the business overall, I think I'm going to be leaving the organization next year in very good hands.

We have a very clear process that until the end of this year I am leading the organization, so there is absolutely no confusion whatsoever, and as from I would say probably more in November, we will start what I would call more of a gradual handover of the keys, but the process is clear: he takes over with Carlos Rey for South America on January 1st, and in the meantime we still have a year to deliver and we want to deliver the best year in the history of the company, and more importantly than this year is to create the base for a phenomenal solid 2022.

I think we have proven repeatedly that we are committed to profitable growth, I think we have proven repeatedly that despite regulatory changes, despite all the unknowns we have been in a very humble manner because we always say we don't know what the scenarios are going to be, the only thing that we know is that we're going to be prepared to any scenario, so I think the cultural component of Santander is very, very strong, and I've been saying that from the beginning perhaps, if there is a legacy that I live is this big word which has become a bit of a cliché, but if there are certain aspects of Santander today are its very clear cultural traits, and will they be from our perspective: speed, desire to grow, and focus constantly where are the opportunities for growth. You will see that as Angel explains what has happened in areas like credit cards and other areas like the distribution channels.

1. very committed to have constructive and difficult dialogue. We tend to deal with difficult issues in groups, in committees, there is a high level of what I would call intellectual honesty, perhaps not as much as it should, but the culture permits people to actually disagree and provoke change. The other component of the culture: autonomy. I believe in autonomy, I believed in business units. You're going to see a quarter where Getnet is no longer in the balance sheet, it was a business that was successfully incubated inside of Santander. We certainly bought the platform a number of years ago and we will deliver one of the strongest performances of the business relative to some competitors and even to the macro and the pandemic scenario.

So, the message to you all is we're going to have other chances and opportunities to explore the change, transition potential risks, I want to make sure that you all at least hear directly from me that succession was planned, you actually plan your succession when you don't need to be succeeded, this reinforces the culture of being contrarian, yes, we are contrarian, we tend to take sometimes not the obvious path, and this is exactly the best and strongest moment of the company over the last 10-15 years, and that's exactly when you think and you should plan and put in place the right gradual succession.

Key messages: I remain in the Group, Mario has been part of the Group, I'm not going to be an executive chairman, but I will not be a chairman of committees, so I'll be present inside of the bank, I will certainly help management to continue on the strategy, I think I can reassure you that there's going to be a high degree of continuity, certainly not going to be the same, hopefully it'll be better, but certain elements of continuity being growth and elements of the culture, the culture will be certainly kept because Mario has been - together with the rest of the executive committee - a very important part of this construct.

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Confidential

Conference Call Transcript

2Q21 Results

Santander

July 28, 2021

We are also adding Andrea Almeida, who was formerly the CFO of Petrobras, and a long executive inside of Vale for many years, she's going to be bringing a phenomenal experience in key commodity spaces for the executive committee, especially in a world where ESG is going to become so important. So, to have someone not only with her financial acumen, but also her views around ESG and how she experienced it from a mining and fossil fuel industry will be really helpful for us to continue to position ourselves as a leading force in becoming and being an engine for economies of low carbon.

Last, I would like to thank you all for following the story. I will remain again committed to the stock, my deferral remains committed in Santander Brasil stock, so I'm really pleased that I'm able to hand it over by the end of the year to a very high-quality person, you're going to have the chance to see him next year more in detail, in the meantime, we still have a year to deliver to shareholders and hopefully you will enjoy the conversation with our CFO and the numbers. We're really proud to deliver a very strong second quarter, we'll start it very strongly for third quarter and fourth quarter, you will see the best year of Santander in 2021 and Mario will do everything he can in an appropriate manner, and of course within the right level of governance, he will absolutely exceed everything that Sergio has done with my present executive committee.

With all of that, remember, succession happens when you don't need to be succeeded. With that, I pass my word to Angel, our CFO, and please enjoy the call, I will disconnect and, of course, I will - depending what Angel and Gustavo then guide me - certainly be happy to then organize a meeting with the sell side, with investors at the appropriate time during the month of August or in the early part of September.

Once again, thank you very much. Angel, with you.

Angel Santodomingo:

OK, thank you, Sérgio. Good morning everyone, hope you are doing well. What I will do from now on is share with you the presentation of our results or our 2Q results, and then we will open, as always, the session for Q&A.

So, we're starting with the presentation in the first slide, on the slide four. The first idea is, I mean, we saw how Santander is integrated business system in Brazil, which serves over 50 million clients reaching thousands of customers who use our platform on a day-to-day basis allow us to leverage business opportunities. Our talents receive more than 500 million visits every month, the auto platform alone, for example, which includes Webmotors, Santander Auto and Santander Financiamentos generates over 35 million monthly interactions. It's also worth noting the bank's initiatives and new businesses in open waters with platforms such as Sim, EmDia or Toro, which will enable us to further accelerate the pace of customer acquisition and loyalty.

So, in the next slide you can see the high volume of active or potential customers passing through our channels, which provides us with good growth opportunities. This is a growth clearly trend, we offer a comprehensive range of services channels from which customers can select the type of service that best suits their needs, whether it's digital, remote, physical or external.

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Confidential

Conference Call Transcript

2Q21 Results

Santander

July 28, 2021

We currently have about 17.3… a little bit more than 17 million customers who self-serve through digital channels each month. This has allowed us to increase our sales by more than two times over the last year while lowering execution costs.

In the remote channel, thanks to the new service model, we are already exceeding 300,000 sales per month, and it's just starting. Similarly, the physical channel continues to see a high volume of people and clients and non-clients in our stores, as we call them our agencies, with over 50% of those 15 million clients and non-clients per month being potential businesses.

We have also been expanding into strategic regions in the internal part of the country that have shown a strong potential in fact for revenue growth. The external channel is comprised of banking correspondence in the bank's business verticals, such as Prospera or Olé payroll, etc., which have been also experiencing steady growth and which I have presented during the past on how cheap and profitable they are.

In the next slide I presented to you last quarter the different types of clients from the non-active after 90 days to the largely linked ones. There are two important points to consider here: do we grow that client base, and do we move clients to the most profitable group, those more linked or loyal? And the answer to both questions is yes. The pace of customer acquisition increased by a remarkable 50% year-on-year; our total client base grew 8% in one year. In the same period, our most linked client's group, the 7.1 million you can see in the in the upper part, grew 26% at a pace more than three times faster than the total client base. And finally, the full linked group is 14.1 million, the adding of the first two categories stands for 80% of our total revenue.

So, we strongly believe customer service is a differentiating factor, which is reflected in that NPS that you can see on the right side at almost 63 points.

So, I mean, in the next slide, we spoke about client growth, now let me address how we cope technologically speaking with that huge growth, with amount of growth. We boosted our capacity, the speed and productivity to ensure that our technology initiatives were aligned with our ambition. The initiatives implemented will play a critical role in Santander's results in the future, but particularly by sorting in the time to market of new products and services. The wireless scale adoption and use of artificial intelligence and big data have already enabled us to increase the number of new processes in development and deployment. So, this is a fact already, this is not a plan, we are already using those facts as a way of growth, and by the end of the year 72% of our operations will be running in the cloud.

In the next slide you can see client's growth in technology need also people. Regarding inclusion, women already make up 30% of our leadership positions and 26% of our employees are black. We have already achieved the objective that we had for next years with still a lot of room for improvements. As part of the collaboration process, we incentivize knowledge dissemination with employees acting as leading figures. Training is key in our model, 3,000 courses, more than 70% of them being given by employees, by internal people. As a result of our actions in this field, we were recognized by Great Place To Work in both the Women and the LGBTQIA+ categories in 2021.

And finally, in the next slide, society in which we live. We aim and we have shared this with you during the last 6-7 years not just last quarters to contribute to the development of our communities. We have executed businesswise a total of almost R$28 billion in green

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Confidential

Conference Call Transcript

2Q21 Results

Santander

July 28, 2021

businesses. Apart from working with large companies on bond issues and project finance, we are also expanding our presence in micro credits through Prospera, which ended the second quarter with a loan portfolio of R$1.5 billion and more than 600,000 customers.

Additionally, we have set specific targets to reduce carbon emissions, help with environmental conservation and increase the use of renewable energy sources. We also give back to society by engaging in social initiatives such as the donation of over 200,000 food baskets in collaboration with our employees and customers. These efforts have earned us a spot on Exame's magazine list of the best ESG companies here in Brazil.

And all that is also supported by part of our business, our position as one of the best banks for large corporations is further strengthened by our leadership in the wholesale segment that you can see next slide. We are Brazil's obviously only international bank with a full range of services. For example, for the eighth consecutive year we have ranked as the largest fx bank. On top of being a major player in infrastructure advisory and financing having recently moved to the top five energy trading in just one year, we are also becoming a benchmark for Agro business with the largest agricultural commodities desk and leadership in green financing.

So, all this leads, in the next slide, to our strategy, so all what I presented to you is based on an integrated business platform that reaches millions of active and potential customers with a comprehensive channel offering. This fact aligned to the current customer experience that I already mentioned in satisfaction has led us to deliver the highest quarterly net profit in our history while maintaining our ROE above 21%, in fact, is the second-best return on equity on our history the 24.6% you can see in the slide.

Recurrence enables us to generate returns above the cost of equity on a sequential basis, steadily creating value for our shareholders and outperforming the Ibovespa (the local index) in the process.

So, moving to the numbers, the second part of my presentation on slide 13, we detail our P&L that we have published during the night. Second Q21 figures do not include Getnet - this is important, Sérgio commented in his introductory words - as the spinoff was approved on the last day of the first quarter, so what you are seeing is already with Getnet excluded from the numbers. We closed the period with a net income of R$4.2 billion, the highest we have ever reported for a single quarter, representing a little bit more of 5% increase compared to the 1Q of this year and 8% on a year-on-year basis.

Let me highlight some key messages here. On the revenue front, NII was stable in the quarter and showed a slight decrease relative to last year reflecting weaker market activity in the period but better client activity. Fees increased by 27% over the same quarter last year, here the customer base growth and higher activity boosted cars insurance and financial advisory revenue. And on the expense side, provisions stayed under control, in fact, stable on a year- on-year basis with a strong growth of the credit portfolio and rising in the quarter more aligned with that loan growth. General expenses are increasing at a clearly lower pace than inflation and below the revenue growth, thus improving efficiency. Efficiency ratio at the level of this 33.8% that you can see on the lower part, this is our lowest ever and probably again - as it has been during the last several quarters - the best in the country. Recurrence ratio reaches a level of 92% that you can see, capital strong at 12.6%, the core equity tier I ratio, and Return on Equity, as I mentioned, 21.6% being the second all-time high we have presented to you.

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