FirstRand Limited · JSE:FSR
FirstRand — H1 FY2019 Earnings Presentation
58 slides from FirstRand's earnings presentation, February 2019
Slide 1: Results presentation for the six months ended 31 December 2018
’18 results presentation for the six months ended 31 December
Slide 2: Slide 2
Slide 3: Introduction
RESULTS PRESENTATION – DECEMBER 2018 01 Introduction results ‘ presentation for the six months ended 31 December 18 The group continued to deliver premium returns and real growth in earnings… Cents 22.3% ROE . 250 +7% 237.8 222.1 200 207.6 194.6 177.3 150 +7% 139.0 130.0 119.0 100 108.0 93.0 50 0 De
Slide 4: Difficult operating environment; strong NIACC growth
02 FIRSTRAND GROUP | Introduction continued …in a difficult operating environment • South African economic activity slowed • Pressure on real income growth • Rising inflation and higher debt servicing costs • SARB increased the repo rate to 6.75% in November 2018 • Low business confidence • High gov
Slide 5: ROE maintained following Aldermore acquisition
RESULTS PRESENTATION – DECEMBER 2018 03 ROE maintained following Aldermore acquisition ROA Gearing % Times 2.20 14.0 2.07 Gearing (RHS) 1.99 2.00 1.99 13.0 2.00 13.0 12.0 11.8 1.80 11.5 11.5 11.0 11.3 1.71 ROA (LHS) 10.0 1.60 9.0 ROE ROE 1.40 22.5% 22.3% 8.0 7.0 1.20 6.0 1.00 5.0 Dec 14 Dec 15 Dec 1
Slide 6: Group's ROE is sustainable
04 FIRSTRAND GROUP | Introduction continued Group’s ROE is sustainable • Relative size of transactional franchise • Advances mix delivers higher risk-adjusted margins • Credit underwriting and pricing anchored to preserve return profile • Disciplined allocation and pricing of capital, funding and li
Slide 7: Actions to expedite execution of strategy resulted in rearrangement of businesses
RESULTS PRESENTATION – DECEMBER 2018 05 Actions to expedite execution of strategy resulted in the rearrangement of certain businesses Previous (Dec 17) Current (Dec 18) WesBank: WesBank: Group Treasury (FCC): Motor (SA retail VAF) MotoNovo Motor (SA retail VAF) MotoNovo Corporate and DirectAxis Corp
Slide 8: Strong growth from FNB, RMB good, WesBank resilient, Aldermore contributing
06 FIRSTRAND GROUP | Introduction continued Strong growth from FNB, RMB delivered a good result, WesBank remained resilient and Aldermore contributing for the first time Normalised earnings Dec 18 Dec 17 % change ROE % R million FNB 8 665 7 668 13 42.2 RMB 3 321 3 154 5 20.5 WesBank 957 952 1
Slide 9: Excellent domestic performance, improvement in rest of Africa
RESULTS PRESENTATION – DECEMBER 2018 07 Excellent domestic performance, improvement in rest of Africa Normalised PBT R million 9 000 8 000 +17% 7 000 6 000 5 000 4 000 +7% 3 000 2 000 (1%) +20% +21% 1 000 0 (1 000) (39%) (2 000) Transactional * Term lending Save and invest ** Insurance # Rest of Afr
Slide 10: RMB despite Private Equity rebase
08 FIRSTRAND GROUP | Introduction continued …despite Private Equity rebase Normalised PBT R million 2 500 +13% 2 000 1 500 +10% 1 000 +8% (21%) 500 (55%) - Investment banking Corporate and Markets and structuring Investing Other* and advisory transactional banking Dec 17 Dec 18 * Includes investment
Slide 11: WesBank performance reflects tough trading conditions
RESULTS PRESENTATION – DECEMBER 2018 09 WesBank performance reflects tough trading conditions Normalised PBT ROE R million % 19.6 1 600 20 18.3 1 400 +1% 1 353 1 361 1 200 15 1 000 800 10 600 400 5 200 - 0 Dec 17 * Dec 18 * Dec 17 figures have been restated for move of DirectAxis and WesBank Africa
Slide 12: Unpacking performance against strategy
10 FIRSTRAND GROUP | Unpacking performance against strategy Unpacking performance against strategy results ‘ presentation for the six months ended 31 December 18 Group strategic framework FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders wit
Slide 13: FNB's transactional and lending businesses' performance
RESULTS PRESENTATION – DECEMBER 2018 11 Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Build a sustainable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Underpinned by disciplined management of
Slide 14: FNB lending and volume growth supported by digital strategy
12 FIRSTRAND GROUP | Unpacking performance against strategy continued FNB’s transactional and lending businesses’ performance reflects consistent strategy Normalised PBT R million 9 000 8 000 +17% 7 000 Lend: 6 000 • Lend to main-banked customers 5 000 • Leveraging digital platforms for 4 000 increm
Slide 15: Efficient fulfilment on digital platforms drives cross-sell
RESULTS PRESENTATION – DECEMBER 2018 13 Efficient fulfilment on digital platforms drives cross-sell Card Loans Digital sales* Digital sales (number of loans) 120 000 +17% 180 000 150 000 90 000 120 000 +>100% +>100% 60 000 90 000 60 000 30 000 +>100% 30 000 0 0 Dec 16 Dec 17 Dec 18 Dec 16 Dec 17 Dec
Slide 16: Cross-sell into core base drives premium segment advances
14 FIRSTRAND GROUP | Unpacking performance against strategy continued Cross-sell into core transactional base drives growth in premium segment advances FNB premium advances R billion Premium advances up 10% year-on-year +4% 240 +6% • Mortgage book closely tracking house 220 12.3 +62% y/y 10.2 200 7.
Slide 17: RMB – strong performance from SA investment banking and advisory
RESULTS PRESENTATION – DECEMBER 2018 15 RMB – strong performance from SA investment banking and advisory activities RMB South Africa and other normalised PBT R million 4 500 • Good growth in NII due to prior period growth in advances 4 000 • Healthy structuring and arranging fee 3 500 mandates 3 000
Slide 18: SA corporate and transactional banking; markets and structuring
16 FIRSTRAND GROUP | Unpacking performance against strategy continued SA markets corporateand andstructuring transactional performance banking delivers reflectsatough robustmacros performance across all activities RMB South Africa and other normalised PBT • Balanced performance from flow activities:
Slide 19: Local deposit franchise outperformance
RESULTS PRESENTATION – DECEMBER 2018 17 Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Build a sustainable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Underpinned by disciplined management of
Slide 20: FNB deposit growth; WIM product distribution
18 FIRSTRAND GROUP | Unpacking performance against strategy continued FNB deposit growth driven by innovative product set and customer acquisition FNB SA deposits* R billion 500 450 • Strong deposit growth +11% y/y 400 • Consumer +5%, premium +13%, commercial +12% 350 232.4 +12% y/y 206.7 207.4 • #1
Slide 21: Strong growth across all products in FNB Life
RESULTS PRESENTATION – DECEMBER 2018 19 Strong growth across all products in FNB Life, now one of the largest insurers in the consumer segment Annual premium equivalent (APE) New business APE In-force APE on life products New business APE on life products R million R million 4 500 1 200 4 000 +33% +
Slide 22: WesBank insurance; Ashburton AUM
20 FIRSTRAND GROUP | Unpacking performance against strategy continued WesBank’s insurance tracking new unit volumes Gross written premium (GWP) R million 900 (1%) 800 68 64 11% 700 600 (6%) 25% VAPS sales 500 channels 64% 400 782 778 300 200 100 Point-of-sale 0 Telesales Dec 17 Dec 18 Other MotoVant
Slide 23: Rest of Africa performance
RESULTS PRESENTATION – DECEMBER 2018 21 Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Build a sustainable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Underpinned by disciplined management of
Slide 24: FNB Africa macro headwinds; RMB rest of Africa
22 FIRSTRAND GROUP | Unpacking performance against strategy continued FNB Africa – macro headwinds persist Normalised PBT R million 1 500 1% 1 250 • Mature subsidiaries – constrained by 1 176 1 190 credit provisions and macros 1 000 750 • Emerging and start-up subsidiaries 500 • Remain subscale and
Slide 25: Aldermore advances and credit quality trends
RESULTS PRESENTATION – DECEMBER 2018 23 Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Build a sustainable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Underpinned by disciplined management of
Slide 26: Aldermore funding strategy; MotoNovo performance
24 FIRSTRAND GROUP | Unpacking performance against strategy continued Aldermore funding strategy anchored around its deposit franchise Funding composition Cost of funds £ million % 12 000 1.50% 1.6% 1.38% 1.32% 1.4% 10 000 21% 1.2% 8 000 8% 1.0% 6 000 20% 0.8% 0.6% 4 000 0.4% 51% 2 000 0.2% 0 0.0% D
Slide 27: Group optimises institutional funding profile
RESULTS PRESENTATION – DECEMBER 2018 25 Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Build a sustainable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Underpinned by disciplined management of
Slide 28: Strengthened CET1 position
26 FIRSTRAND GROUP | Unpacking performance against strategy continued Strengthened CET1 position driven by Discovery card transaction and capital optimisation strategies CET1 ratio 12.5% 12.0% 12.0% 11.5% 11.5% 11.0% CET1 target range 10.5% 10% – 11% 10.0% 9.5% 9.0% 8.5% 8.0% Jun 18 Dec 18 Group rem
Slide 29: Solid capital position supports dividend strategy
RESULTS PRESENTATION – DECEMBER 2018 27 Solid capital position supports dividend strategy Dividend cover (times) 2.3 2.2 • Payout continues to reflect 2.1 • Group’s high return profile Dividend cover range: • Solid capital position 2.0 1.8x to 2.2x • Disciplined financial resource 1.9 management 1.8
Slide 30: Performance highlights (normalised)
28 FIRSTRAND GROUP | Financial review continued Performance highlights (normalised) Dec 18 Dec 17 % change Diluted EPS (cents) 237.8 222.1 7 Dividend per share (cents) 139.0 130.0 7 Earnings (R million) 13 342 12 461 7 NIACC (R million) 4 974 4 528 10 Net asset value per share (cents)* 2 202
Slide 31: High quality topline growth maintained
RESULTS PRESENTATION – DECEMBER 2018 29 High quality topline growth maintained Normalised earnings* R million +8% excl. +19% excl. +7% excl. +10% excl. 20 000 Aldermore Aldermore Aldermore Aldermore +8% +16% +20% +24% 1 559 16 000 (969) (3 696) 4 841 +17% 7% (854) 13 342 12 000 12 461 8 000 4 000 0
Slide 32: Good growth across all drivers of topline
30 FIRSTRAND GROUP | Financial review continued Good growth across all drivers of topline Gross revenue* R million 20 000 +12% 15 000 +11% 10 000 +12% 5 000 +3% +7% 0 Lending Transactional NII Capital endowment Transactional NIR Insurance NET INTEREST INCOME NON-INTEREST REVENUE * Excludes Aldermore
Slide 33: NII driven by lending and transactional deposit growth
RESULTS PRESENTATION – DECEMBER 2018 31 NII driven by lending and transactional deposit growth Net interest income* Dec 18 Dec 17** % change R million Lending 11 756 10 620 11 Transactional NII# 8 184 7 310 12 Deposits 1 657 1 528 8 Capital endowment 3 186 3 095 3 Group Treasury (1 001) (99) >100 FN
Slide 34: Deposit pricing and HQLA buildup impacted margin
32 FIRSTRAND GROUP | Financial review continued Deposit pricing and HQLA buildup impacted operational margin, Aldermore structurally lower Margin Basis points Group Treasury impact (4) 540 3 1 536 536 (1) 5 533 (12) 528 528 520 524 (7) 517 (1) 516 516 (14) 500 502 (32) 480 470 470 460 Dec 17 Interes
Slide 35: Deposit franchise growth; retail advances growth
RESULTS PRESENTATION – DECEMBER 2018 33 Strong growth in deposit franchise across all segments Liabilities R billion 400 +14% Dec 17 Dec 18 350 374 300 327 +10% +12% 250 239 232 200 217 207 (1%) 150 142 141 133 100 +9% +43% +13% 50 +40% 58 63 53 52 59 45 37 20 28 0 Retail Commercial CIB Rest of Afri
Slide 36: Strong origination reflects digital channels
34 FIRSTRAND GROUP | Financial review continued Strong origination reflects activation of digital channels and is underpin to transactional strategy FNB personal loans R billion 22 +17% 20 Breakdown of premium personal loans growth of 62% 18 +18% 20% – Up-sell and migration from consumer 16 14 12.3
Slide 37: DirectAxis and VAF advances
RESULTS PRESENTATION – DECEMBER 2018 35 DirectAxis advances growth trend maintained DirectAxis advances R billion +6% 16 +4% 15.9 15.0 14.4 12 • Continued optimisation of direct marketing channels 8 • Streamlined approval processes 4 0 Dec 17 1 Jul 18 Dec 18 (IAS 39) (IFRS 9) (IFRS 9) VAF advances i
Slide 38: MotoNovo advances; RMB and FNB commercial advances
36 FIRSTRAND GROUP | Financial review continued MotoNovo advances impacted by subdued new business volumes MotoNovo advances £ million 3 500 3 000 3 240 3 250 New business volumes in MotoNovo contracted 18% in pound terms (10% in rand terms) 2 500 Cutback in risk appetite 2 000 1 500 Reduction in ne
Slide 39: CIB rating profile reflects sovereign downgrade
RESULTS PRESENTATION – DECEMBER 2018 37 CIB rating profile reflects sovereign downgrade and origination strategy Wholesale credit performing book* 6% 5% 3% • Underlying quality of portfolio remains 45% 55% 58% unchanged • Strong portfolio coverage ratios maintained at 98 bps • Cross border up 21% in
Slide 40: IFRS 9 structurally rebases NPLs and provisions
38 FIRSTRAND GROUP | Financial review continued IFRS 9 structurally rebases NPLs and provisions upwards 1 July 2018 impact Provision balance NPLs balance Interest in suspense > R2.1 billion > R2.1 billion Customer rehabilitation > R2.0 billion > R4.0 billion Forward looking – Performing book
Slide 41: Increase in operational NPLs within expectations
RESULTS PRESENTATION – DECEMBER 2018 39 Increase in operational NPLs within expectations and trend rate given growth in underlying advances NPLs R million Dec 18 operational NPLs 9 000 1 Jul 18 operational NPLs Dec 18 debt review 8 000 1 Jul 18 debt review 1 943 1 412 Dec 18 definition of rehabilita
Slide 42: Portfolio provision coverage remains conservative
40 FIRSTRAND GROUP | Financial review continued Portfolio provision coverage remains conservative Dec 18 1 Jul 18 IFRS 9 IFRS 9 Including Excluding Including Excluding Aldermore Aldermore Aldermore Aldermore Portfolio impairments as % of performing book 1.26 1.43 1.33 1.51 Stage 1 (%) 0.68 0.77 0.68
Slide 43: Credit trend still below TTC levels
RESULTS PRESENTATION – DECEMBER 2018 41 Despite credit charge, trend still below TTC levels Credit loss ratio Dec 2018 Dec 2017 % IFRS 9 IAS 39 Retail – secured 0.72 0.84 0.7 Residential mortgages 0.09 0.15 0.7 VAF 1.51 1.72 2.5 2.4 – SA 1.48 1.80 2.3 0.5 0.5 0.5 2.2 – MotoNovo 1.55 1.58 Retail – un
Slide 44: Total NIR growth underpinned by client franchise
42 FIRSTRAND GROUP | Financial review continued Total NIR growth underpinned by resilient client-franchise performance, offset by lower private equity income NIR Dec 18 Dec 17 % R million IFRS 9 IAS 39 change Total fee and commission income, insurance, markets and other 20 773 19 170 8 Fee and commi
Slide 45: Cost growth reflects continued investment for growth
RESULTS PRESENTATION – DECEMBER 2018 43 High quality topline growth maintained Normalised earnings* R million +10% excluding Aldermore 20 000 +8% +16% +20% +24% 1 559 16 000 (969) (3 696) 4 841 +17% 7% (854) 13 342 12 000 12 461 8 000 4 000 0 Dec 17 NII Impairments NIR** Opex Tax and other Dec 18 *
Slide 46: FNB and RMB cost growth
44 FIRSTRAND GROUP | Financial review continued FNB’s costs driven by continued investment in growth initiatives Rest of Africa* +4% • Growth initiatives 16% • Insurance and WIM build-out • Card acquiring (PowerCARD) • Branch digitisation FNB costs • Technology infrastructure +9% • Majority of devel
Slide 47: WesBank costs; Summing up
RESULTS PRESENTATION – DECEMBER 2018 45 Subdued topline and growth in FML strategy impacted WesBank’s cost-to-income ratio FML costs +13% 19% • Operating expenses +4.5% • FML costs up due to volume growth • Continued investment in IT and data WesBank costs analytics capabilities +4.5% • Cost-to-inco
Slide 48: Prospects
46 FIRSTRAND GROUP | Prospects Prospects results ‘ presentation for the six months ended 31 December 18 Prospects • South Africa • Macro fundamentals will not change quickly – domestic economic activity and confidence expected to remain weak • However: • Lending and transactional franchises have goo
Slide 49: Appendix
RESULTS PRESENTATION – DECEMBER 2018 47 Prospects • UK • Continue to expect a soft Brexit deal will emerge and this should support a rebound in the UK economy • Aldermore growth trajectory expected to slow marginally due to: • MotoNovo integration costs • Investments into building scale in systems a
Slide 50: Unpacking NIR per operating business
48 FIRSTRAND GROUP | Appendix continued Unpacking NIR per operating business NIR R million +12% • FNB up 11% driven by growth in customer numbers and improved cross-sell and up-sell 14 000 • Insurance driven by growth in funeral policies and credit life policies 12 000 • IB&A impacted by muted corpo
Slide 51: Recalibration of branch network; IFRS 9 restatement impact
RESULTS PRESENTATION – DECEMBER 2018 49 Recalibration of branch network continues INFRASTRUCTURE INVESTMENT TO TAKE FOCUS ON GROWTH IN COST REDUCTION OUT MORE COSTS LONG-TERM COSTS • Branch costs 1% • Electronic channels • Staff costs +4% • Growth in ADT • Long-term leases +3% • Branch m2 (9%) devic
Slide 52: Credit portfolios
50 FIRSTRAND GROUP | Appendix continued Credit portfolios WESBANK RETAIL SA VAF Impairment charge R million Credit loss ratio Impairment charge Credit loss ratio 1 200 2.5% Long-run credit loss ratio = 1.40% 1 000 2.0% 800 1.5% 600 1.0% 400 200 0.5% - 0.0% Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 D
Slide 53: Aldermore impairment does not impact bank capitalisation
RESULTS PRESENTATION – DECEMBER 2018 51 Aldermore impairment does not impact capitalisation in the bank and other regulated entities Divergence between bank and group CET1 ratios Standalone capitalisation remains solid 11.0% Dec 18 Jun 18 Dec 17 16.1% % IFRS 9 IAS 39 IAS 39 13.1% FirstRand Bank CET1
Slide 54: Credit performance reflects origination strategies
52 FIRSTRAND GROUP | Appendix continued Credit performance reflects origination strategies and prudent provisioning in prior periods Contribution to Credit Specific Portfolio I/S impairment Asset class loss ratio coverage* coverage* Commentary charge • Reflecting new business strain, Card 8% 2.74%
Slide 55: Retail advances growth reflects origination strategies
RESULTS PRESENTATION – DECEMBER 2018 53 Retail advances growth reflects appropriate origination strategies RETAIL ADVANCES Mortgages Affordable housing SA VAF (WesBank) UK VAF (MotoNovo) • Continued focus on • Credit demand and • Volumes resilient and • Market position and origination quality perfor
Slide 56: Coverage breakdown: residential mortgages and retail VAF
54 FIRSTRAND GROUP | Appendix continued Coverage breakdown: residential mortgages Specific Type R million coverage ratio Sold property awaiting registration 281 28.3% Deceased 929 18.3% Debt review – mostly paying per agreement 1 543 26.2% Insolvencies and litigation 1 758 25.8% Non-debt review – pa
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Slide 58: www.firstrand.co.za
www.firstrand.co.za