FirstRand Limited · JSE:FSR
FirstRand — H1 2006 Earnings Presentation
66 slides from FirstRand's earnings presentation, Dec 31, 2005
Slide 1: Half year results 31 December 2005
Half year results 31 December 2005
Slide 2: Key numbers
Key numbers Headline earnings per share 20% Normalised earnings 19% Headline earnings 17% Return on equity 30% Dividend per share 20%
Slide 3: Factors influencing the numbers
Factors influencing the numbers Operational issues Margin compression Hedges Cost of funding Increase in expenses Infrastructure New business National Treasury settlement Dividend on perpetual preference shares
Slide 4: Factors influencing the numbers
Factors influencing the numbers Accounting issues Discovery BEE costs FirstRand shares held by policyholders IFRS currency translation differences
Slide 5: Strong operational performance
Strong operational performance R’m % Headline earnings +17 Currency translation (6) Sub total +11 National Treasury settlement charge 1 Impact of BEE transaction (Discovery) 3 FirstRand shares: Policyholders & Mutual Funds 4 Normalised earnings +19
Slide 6: The component parts
The component parts 2004 2005 5% 3% 16% 16% 81% 79% FirstRand Banking Group Momentum Discovery
Slide 7: All businesses performed
All businesses performed R’m H106 H105 % Banking Group 3 640 3 046 20 Momentum Group 742 592 25 Discovery Group 209 126 66 FSR company (102) (116) 12 Consolidation of share trust (134) (78) Perpetual preference share (114) Sub total 4 241 3 570 19
Slide 8: Strong operating performance
Strong operating performance R’m H106 H105 % Banking Group 3 640 3 046 20 Momentum Group 742 592 25 Discovery Group 209 126 66 FSR company (102) (116) 12 Consolidation of share trust (134) (78) Perpetual preference share (114) Sub total 4 241 3 570 19
Slide 9: Banking Group
Banking Group
Slide 10: The component parts
The component parts YOY growth Other 12% Other 11% +31% Africa 6% Africa 8% +3% WesBank WesBank +31% 15% 15% RMB 21% RMB 18% +41% FNB 46% FNB 48% +18% H1 06 H1 05
Slide 11: Key revenue drivers
Key revenue drivers R’m Interest income 18% 5 405 Bad debts 41% (576) Non-interest income 28% 6 888 Income from associates 90% 772 Revenue growth 26% 12 489
Slide 12: Key revenue drivers
Key revenue drivers Interest income 18% Bad debts 41% Non-interest income 28% Income from associates 90% Revenue growth 26%
Slide 13: Excellent retail advances growth
Excellent retail advances growth Growth 41%, market 260 share of new business at 20% 250 20 YoY increase of 26%, 240 further growth in market share Card up 42%, 230 Wealth up 35% 15 253 220 3 2 4 6 210 211 212 200 Dec '04 Africa RMB BGT Sub total Other FNB W esBank Homeloans Dec '05 Annualised incre
Slide 14: Excellent retail advances growth
Excellent retail advances growth 84% Retail advances as % of total advances 88% 260 250 % 20 30 + s 240 ce an a dv 230 il 253 ta 15 Re 220 3 2 4 6 210 211 212 200 Dec '04 Africa RMB BGT Sub total Other FNB WesBank Homeloans Dec '05 Annualised increase of 21%
Slide 15: Unpacking the margin
Unpacking the margin 4.40% 0% 0.09% (0.08%) (0.04%) 0.18% Margin (0.17%) 4.38% Endowment capital Volume effect Hedges Mix Pref 2% Endowment Shares deposits 2% 1% 4% 5% Interest income 5 208 14% 4 598 Dec 04 Dec 05
Slide 16: Asset margins under pressure
Asset margins under pressure Weighting Dec June Dec 2005 2005 2005 2004 Asset-backed mortgages 31 2.31 2.38 2.68 Instalment sales & lease debtors 23 3.72 3.66 3.79 Card debtors 3 8.33 7.79 8.00 Overdraft & other loans 4 4.55 4.53 4.79 Personal loans 3 7.51 6.47 6.62 Other advances 7 4.20 4.85 5.48 F
Slide 17: Liability margins stable
Liability margins stable Weighting Dec June 2005 2005 2005 2004 Current & savings 25% 3.51 3.49 3.55 Call accounts 7% 1.65 1.63 1.55 Notice deposits 5% 1.30 1.28 1.35 Fixed deposits 6% 0.73 0.63 0.76 Group Treasury 56% Total 100% 1.16 1.10 1.14
Slide 18: Shift in funding mix
Shift in funding mix 100% 13% 21% 24% 75% 25% 30% 29% 50% 60% 25% 45% 44% 0% 31/1/2/04 31/12/05 Marginal funding Professional Foreign entities Business, commercial & corporate Retail
Slide 19: Key revenue drivers
Key revenue drivers Interest income 18% Bad debts 41% Non-interest income 28% Income from associates 90% Revenue growth 26%
Slide 20: Bad debts & NPLs will normalise
Bad debts & NPLs will normalise 1.5 5.6 1.3 Ignoring the effect 1.1 of listed investment transactions 0.9 4.3 0.8 3.5 0.8 3.6 0.7 2.6 0.6 0.5 0.47 0.46 2.4 0.44 0.39 2.1 2.0 0.4 0.40 0.39 1.7 1.7 1.6 1.4 1.6 1.5 1.4 1.2 1.3 1.1 1999 2000 2001 2002 2003 2004 'Dec 04 'Jun 05 'Dec 05 NPLs (%) Provision
Slide 21: Long run expected loss
Long run expected loss 5.6 Turbulent:1.60 4.3 3.5 3.6 Long run average: 0.64 2.6 2.4 2.1 2.0 Calm:0.40 1.7 1.7 1.6 1.4 1.6 1.5 1.4 1.2 1.3 1.1 1999 2000 2001 2002 2003 2004 'Dec 04 'Jun 05 'Dec 05 NPLs (%) Provisions (%) Bad debts (%)
Slide 22: WesBank arrears levels normalising
WesBank arrears levels normalising Arrears % 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2002 2003 2004 2005 Arrears in line with expectation
Slide 23: HomeLoans arrears levels normalising
HomeLoans arrears levels normalising Arrears % 14% 12% 10% 8% 6% 4% 2% 0% Jan Feb March April May June July Aug Sept Oct Nov Dec 2002 2003 2004 2005 Arrears in line with expectation
Slide 24: Key revenue drivers
Key revenue drivers Interest income 18% Bad debts 41% Non-interest income 28% Operational non-interest income 24% Income from associates 90% Translation gains >100% Revenue growth 26%
Slide 25: Strong NIR growth
Strong NIR growth R’bn 4.5 21% 4 3.5 3 2.5 2 1.5 (12%) 1 94% 27% 0.5 35% (43%) 0 Transactional Trading Investment Insurance Knowledge Other 2004 2005
Slide 26: Driven by FNB
Driven by FNB Africa R’bn 6% WesBank 11% 21% 4.5 4 3.5 3 2.5 11% 2 1.5 1 79% 17% FNB 37% 14% 83% 0.5 0 Transactional Trading Investment Insurance Knowledge Other 2004 2005
Slide 27: Volumes driving fee income
Volumes driving fee income % Banking commissions and fees 30 25 20 15 19.5 14.2 10 Inflation 5 5.1 4.5 0 2004 2005 Price Volume
Slide 28: Pressure on annuity income
Pressure on annuity income R’bn 4.5 21% 4 Difficult trading conditions 3.5 • Non-trending markets 3 2.5 • Low volatility 2 1.5 (12%) 1 0.5 0 Transactional Trading Investment Insurance Knowledge Other 2004 2005
Slide 29: Big contribution from Private Equity
Big contribution from Private Equity 1,070 910 R’bn 867 715 698 2,567 4.5 21% 556 544 4 3.5 320 1,279 271 3 116 2.5 Jun '02 Jun '03 'Jun 04 Jun '05 Dec '05 2 Private equity contribution Unrealised proft Private equity assets 1.5 (12%) 1 94% 17% 37% 14% 0.5 0 Transactional Trading Investment Insuranc
Slide 30: Insurance income continues to grow
Insurance income continues to grow R’bn FNB 4.5 44% 21% 4 35% growth 3.5 WesBank 3 56% 2.5 36% growth 2 1.5 (12%) 1 94% 37% 35% 14% 0.5 0 Transactional Trading Investment Insurance Knowledge Other 2004 2005
Slide 31: Key revenue drivers
Key revenue drivers Interest income 18% Bad debts 41% Non interest income 28% Income from associates 90% Revenue growth 26%
Slide 32: Private Equity drives Associates
Private Equity drives Associates Other 3% Outsurance 19% WesBank 6% Private equity 71% Private Equity OUTsurance WesBank Six monthly - Dec 2003 to Dec 2005
Slide 33: Key revenue drivers
Key revenue drivers Interest income 18% Bad debts 41% Non-interest income 28% Income from associates 90% Revenue growth 26%
Slide 34: Operational leverage drivers
Operational leverage drivers Operating expenditure 22% Taxation 29% Expenses growth 23%
Slide 35: Investing for growth
Investing for growth Infrastructure New business Base costs +7% +6% + 6% +19% Consolidation IFRS WesBank FRAEM RMB 2% Ansbacher 3% 1% FNB 2% 2% 3% 7 025 Expenses 13% 5 758 2004 2005
Slide 36: Investing for growth
Investing for growth Infrastructure New business Base costs +6% +6% + 6% +18% Infrastructure New business Base costs +17% +33% + 14% +64% Infrastructure New business Base costs +5% +11% + 5% +21%
Slide 37: Operational leverage
Operational leverage 58 56 56 55 55 54 2002 2003 2004 Dec 04 2005 Dec 05 Cost to income
Slide 38: Operational leverage drivers
Operational leverage drivers Operating expenditure 22% Taxation 29% Expenses growth 23%
Slide 39: Effective tax rates
Effective tax rates 30% 5.8% 6.4% 15% 22.3% 23.6% 0% 2004 2005 Direct tax Indirect tax Effective tax rate at previous year levels
Slide 40: Superior ROE and economic value
Superior ROE and economic value 2005 2004 Return on assets 1.97 1.78 X X Gearing multiple 14.3 15.7 Return on equity 28.1 28.0 - - Cost of equity 11.9 12.7 Shareholder value add 16.2 15.3 Continued shareholder value creation
Slide 41: Momentum Group
Momentum Group
Slide 42: Key numbers
Key numbers Normalised earnings 25% Headline earnings 12% Return on equity - 25% Return on EV 27%
Slide 43: Excellent operating performance
Excellent operating performance R’m Dec05 Dec04 %Δ Operating earnings 742 592 25% National Treasury settlement (27) Operating earnings 715 592 21% IFRS (63) (9) Headline earnings 652 583 12% Settlement R204m after tax Momentum: R100m Sage R104m Provided 30 June ’05 Provided 31 Dec ’05 Impairment of
Slide 44: Key numbers
Key numbers Operating earnings 25% Headline earnings 12% Return on equity - 25% Return on EV 27%
Slide 45: All divisions perform well
All divisions perform well R’m H106 H105 % Insurance operations 423 299 41 Asset management operations 151 107 41 Group operating profit 574 406 41 Investment income on 168 186 (10) shareholders’ assets Group headline earnings (pre IFRS) 742 592 25
Slide 46: All divisions perform well
All divisions perform well R’m H106 H105 % Insurance operations 423 299 41 Asset management operations 151 107 41 Group operating profit 574 406 41 Investment income on 168 186 (10) shareholders’ assets Group headline earnings (pre IFRS) 742 592 25
Slide 47: Positive gearing
Positive gearing Strong equity market growth Retail new business APE +22% • New recurring individual life +21% Positive • Single premiums +8% gearing • Lump sum annuities +23% • Linked products +95% Organic expense growth +8%
Slide 48: All divisions perform well
All divisions perform well R’m H106 H105 % Insurance operations 423 299 41 Asset management operations 151 107 41 Group operating profit 574 406 41 Investment income on 168 186 (10) shareholders’ assets Group headline earnings (pre IFRS) 742 592 25
Slide 49: Strong performance RMBAM
Strong performance RMBAM R’m H106 H105 % Local operations 123 75 64 International operations 28 32 (13) Operating profit 151 107 41
Slide 50: Strong growth in funds under management - RMBAM
Strong growth in funds under management - RMBAM R'bn 16% R'bn 180 55% 20 170 18 R24 bn 16 160 R6.5 bn 14 150 12 140 10 130 8 6 120 4 110 2 100 0 2003 2004 2005 H1'06 2003 2004 2005 H1'06 Institutional Retail
Slide 51: Key numbers
Key numbers Operating earnings 25% Headline earnings 12% Return on equity - 25% Return on EV 27%
Slide 52: Return on embedded value
Return on embedded value Related to investment returns +13% +27% Related to operations +14%
Slide 53: Discovery Group
Discovery Group
Slide 54: Strong growth from local operations
Strong growth from local operations R’m H106 H105 % Discovery Health 266 245 9 Discovery Life 246 190 29 Vitality 16 9 78 Destiny Health (80) (41) PruHealth (68) (80) Investment Income 146 76 Operating profit 526 399 32
Slide 55: Headline earnings before BEE
Headline earnings before BEE R’m H106 H105 % Profit from operations 526 399 32 Financing costs (10) (28) 29 Forex loss - (33) Profit before tax 516 338 53 Taxation (178) (143) Attributable earnings 338 195 73 Available for sale (42) (15) Headline earnings before BEE 296 180 64
Slide 56: EV growth continues
EV growth continues R’m 12000 10 080 10000 9 173 8000 6 832 5 777 6000 4000 3 321 3 212 2 114 2000 0 2000 2001 2002 2003 2004 2005 Dec-05
Slide 57: Capital Management
Capital -|Management
Slide 58: Financial targets met
Financial targets met 35% Banking Group +20% 30% 25% Discovery +25% +66% ROE Momentum Group 10% plus FirstRand WACC 20% 15% 10% real growth 10% 0% 10% 20% 30% 40% Headline earnings growth
Slide 59: Active capital management
Active capital management Issued R1.5bn non-cumulative non-redeemable preference shares to: • Invest R500m in Momentum • Restructure the vendor finance of BEE transaction Optimal capital plan in low interest rate environment
Slide 60: Capital jaws expanded
Capital jaws expanded R’m Restructure BEE 23000 transaction Pref issue 21000 R1,1bn Tier 2 issue BEE 19000 transaction 17000 15000 13000 Jun-04 Dec-04 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Capital available Regulatory capital requirement
Slide 61: Capital invested in growth
Capital invested in growth Capital adequacy - rolling 12 month forecas 16% 15% 14% March dividend Sep dividend 13% 12% Target range 11% Buffer for volatility 10% Regulatory requirement 9% 8% Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Forecast capital requirement Internal c
Slide 62: Momentum's capital movements
Momentum’s capital movements CAR cover As at 30 June 2005 2.2x Less: Sage acquisition (0.5x) Add: Aflife transactions 0.2x Net 1.9X Add: Perpetual preference shares 0.2x 2.1x Add: Favourable conditions 0.3x As at 31 December 2005 2.4x Full impact of corporate actions in second half (ALH, MCubed) in
Slide 63: Superior ROE generation
Superior ROE generation Average Headline ROE economic ROE shareholders earnings capital funds allocated R’m FNB 8,394 1,798 40% 43% RMB 4,918 830 35% 34% WesBank 7,317 538 29% 15% Outsurance 350 103 59% 59% FRAEM 1,126 166 43% 30% All businesses deliver in excess of target
Slide 64: Dividend policy
Dividend policy
Slide 65: Stability in dividend
Stability in dividend Based to 100 390 CAGR: 24% 340 CAGR: 21% 290 CAGR: 21% CAGR: 21% 240 190 140 90 40 1999 2000 2001 2002 2003 2004 2005 Headline earnings per share Normalised earnings per share Net asset value Dividend per share
Slide 66: Capital optimisation
Capital optimisation Maintain the dividend cover of range 2.0 to 2.5 times Current 2.5 times • Utilise surplus to fund the growth Capacity created for further Tier 2 issue • Momentum Debt Rating AA+/ AA/ Stable • Over and above growth projections