Firstrand Limited · JSE:FSR
Firstrand — H1 2012 Earnings Presentation
45 slides from Firstrand's earnings presentation, December 2011
Slide 1: Interim results presentation for the six months ended 31 December 2011
11/ 12 interim results presentation for the six months ended 31 December 2011
Slide 2: Introduction: earnings growth reflects strong operational performance
1 introduction Sizwe Nxasana Earnings growth reflects strong operational performance Group continuing operations – normalised earnings* R million 7 000 ROE = 19.5% 6 000 +26% 5 771 5 000 5 023 4 572 4 000 3 829 3 813 3 000 2 000 1 000 0 Dec '07 Dec '08 Dec '09 Dec '10 Dec '11 * Excludes contribution
Slide 3: Operating environment remained challenging; franchises outperformed macros
2 Operating environment remained challenging − GDP growth moderated around 3% − Inflation continued rising, breaching 6% on a year-on-year basis in December − Employment growth was subdued − Rand strength reversed and currency volatility increased − Corporates cash flush (low corporate activity) ± I
Slide 4: Group actual and normalised performance
3 financial review Johan Burger Group actual and normalised performance R million Dec ’11 Dec ’10 Change Earnings – Group actual 5 771 5 260 10% Adjusted for: Earnings – OUTsurance* – (180) Earnings – Momentum† – (508) Earnings – Group continuing operations 5 771 4 572 26% * Dec ’10 OUTsurance e
Slide 5: Performance highlights and key ratios – continuing operations
4 Performance highlights – Group’s continuing operations Normalised (R million) Dec ’11 Dec ’10 Change Earnings 5 771 4 572 26% Diluted EPS – (cents) 102.4 81.1 26% Return on equity (%) 19.5 18.0 Net asset value per share (cents) 1 053.0 924.4 14% Dividend per share (cents) 44 35 26% Key r
Slide 6: Franchise and segment diversification underpins sustainability
5 Franchise and segment diversification underpins sustainability Dec ’10 Dec ’11 15% 20% 2% FNB SA FNB Africa 2% 44% RMB 48% GTS 29% 21% WesBank 10% 9% Based on PBT, excluding Corporate Centre & consolidation adjustments Geographic diversification remains a focus Dec ’10 Dec ’11 3% 0% 8% 9% SA Inter
Slide 7: Strategy to grow client revenues paying off
6 Strategy to grow client revenues paying off R million 13 000 17% Dec ’11 9% Dec ’10 11 000 9 000 7 000 5 000 3 000 (79%) (49%) 1 000 -1 000 Client NII * Client NIR Investing RMB Group Treasury Trading fair value Based on gross revenue * Dec ’10 client NII adjusted for mark-to-market losses. Actual
Slide 8: Income statement – Group's continuing operations
7 Income statement – Group’s continuing operations Normalised (R million) Dec ’11 Dec ’10 Change Net interest income before impairment of advances 11 905 9 771 22% Impairment of advances (1 961) (2 277) (14%) Net interest income after impairment of advances 9 944 7 494 33% Non-interest revenue* 11 8
Slide 9: Unpacking net interest income
8 Unpacking net interest income Normalised (R million) Dec ’11 Dec ’10 Change Dec ’11 mix - Lending 6 883 5 778 19% 58% - Deposit taking 1 410 1 313 7% 12% - Deposit endowment 1 171 1 143 2% 10% - Capital endowment 1 137 1 093 4% 10% - FNB Africa 1 022 913 12% 8% - Group Treasury and other
Slide 10: Balanced advances portfolio; shift in retail portfolio mix
9 Balanced advances portfolio… R billion 550 500 5% 450 5% 400 44% 350 44% Retail 300 Corporate* 250 FNB Africa 200 150 51% 51% 100 50 - Dec '10 Dec '11 * Includes Corporate Centre and other gross advances … however, shift in retail portfolio mix Dec ’10 Dec ’11 5% 6% 4% 4% Residential mortgages 26%
Slide 11: Change in mix generates better risk-adjusted margins
10 Change in mix generates better risk-adjusted margins 100% 6% 90% 4% 29% 80% 29% 70% 11% 60% Other unsecured lending 50% Credit card Vehicle and asset finance 40% 37% Residential mortgages 30% 61% 20% 10% 23% 0% Retail gross Retail net advances interest income Mix also results in lower gearing and
Slide 12: Retail secured and unsecured lending
11 Retail secured lending +7% but better quality and higher margins Advances (R million) Change 107 074 FNB HomeLoans – Residential mortgages 106 944 39 023 Wealth 3% 40 226 7 306 Affordable housing 30% 9 510 56 228 WesBank Motor 17% 66 060 VAF 5 035 International 55% 7 825 Dec '10 Dec '11 Retail un
Slide 13: Highest growth in unsecured lending seen in Consumer segment
12 Highest growth in unsecured lending seen in Consumer segment 6% Other unsecured advances segment split 70% 4% 60% 50% 29% 40% 61% 30% 20% Residential mortgages 10% Vehicle and asset finance 0% Credit card Mass Consumer Wealth Other unsecured lending (<R100k) (R100k - R1.1m) (>R1.1m) FNB Card vint
Slide 14: Ongoing risk management in unsecured portfolios; corporate and commercial growth
13 Ongoing risk management in unsecured portfolios 25% 3 months 6 months 9 months 20% 12 months 15% Default threshold 10% 5% 0% Dec '08 Jun '09 Dec '09 Jun '10 Dec '10 Jun '11 Dec '11 Origination action to reduce risk appetite Unsecured includes Smart, Easy loans, Personal loans, WesBank loans and F
Slide 15: Deposit franchise growing; funding profile
14 Deposit franchise growing Normalised (R million) Dec ’11 Dec ’10 Change Dec ’11 mix - Lending 6 883 5 778 19% 58% - Deposit taking 1 410 1 313 7% 12% - Deposit endowment 1 171 1 143 2% 10% - Capital endowment 1 137 1 093 4% 10% - FNB Africa 1 022 913 12% 8% - Group Treasury and other no
Slide 16: 87% of advances growth funded by deposit franchise
15 87% of advances growth funded by deposit franchise 600 Advances (R billion) Funding (R billion) 10% 500 600 45 463 463 RMB 500 400 400 Group 300 Treasury 300 16% 39 200 200 238 238 Deposit 100 franchise* 100 0 0 Dec '10 Dec '11 Dec '10 Dec '11 * Includes FNB Consumer and Mass, FNB Wealth, FNB Com
Slide 17: Endowment impact; margin benefits from mix and pricing
16 Endowment impacts R360 million per 50 bps per annum Repo rate (%) 8.0 7.5 Average rates down 58 bps 7.0 6.5 Average Repo 6.08% Approx. R73bn* 6.0 Average Repo 5.50% 5.5 5.0 4.5 2009/12/31 Dec '09 2010/06/30 Jun '10 2010/12/31 2011/06/30 Jun '11 2011/12/31 Dec '11 Dec '10 * Average endowment book
Slide 18: Income statement; profile of NPLs causes stickiness
17 Income statement – Group’s continuing operations Normalised (R million) Dec ’11 Dec ’10 Change Net interest income before impairment of advances 11 905 9 771 22% Impairment of advances (1 961) (2 277) (14%) Net interest income after impairment of advances 9 944 7 494 33% Non-interest revenue* 11
Slide 19: Reduction in bad debts reflects lower NPL inflows
18 Reduction in bad debts reflects lower NPL inflows R million Specific impairment charge 3 000 Post write-off recoveries Change in coverage ratios 317 NPL inflows 2 646 (109) 2 500 (998) 2 000 (26) (44) (89) 1 856 1 697 1 500 1 000 Dec '10 PWOR CR Inf Jun '11 PWOR1 CR1 Inf1 Dec '11 Bad debts below
Slide 20: Long-run average reflects shift in portfolio mix
19 Long-run average reflects shift in portfolio mix Credit loss ratio (%) 2.2 Long-run average Impairment charge 1.87 1.8 1.39 1.4 1.38 100 – 110 bps 1.0 0.87 90 – 100 bps 1.00 0.93 0.80 0.54 0.6 0.36 0.2 Jun '05 Jun '06 Jun '07 Jun '08 Jun '09 Jun '10 Dec '10 Jun '11 Dec '11 Income statement – Grou
Slide 21: Unpacking non-interest revenue
20 Unpacking non-interest revenue Normalised (R million) Dec ’11 Dec ’10 Change Dec ’11 mix - Client activities 11 053 10 128 9% 93.2% - Private equity activities 333 218 53% 2.8% - Other investment (27) 1 239 (>100%) (0.2%) - RMB trading 240 468 (49%) 2.0% - Group Treasury fair value 257 24
Slide 22: Equity and commodity markets impacted other investment NIR
21 Equity and commodity markets impacted other investment NIR Normalised (R million) Dec ’11 Dec ’10 Change - Resources (217) 542 (>100%) - ELI returns 70 290 (76%) - Other* 120 407 (71%) Other investment NIR (27) 1 239 (>100%) * Includes non-private equity dividends and realisations Mixed p
Slide 23: Income statement; cost-to-income ratio maintained
22 Income statement – Group’s continuing operations Normalised (R million) Dec ’11 Dec ’10 Change Net interest income before impairment of advances 11 905 9 771 22% Impairment of advances (1 961) (2 277) (14%) Net interest income after impairment of advances 9 944 7 494 33% Non-interest revenue* 11
Slide 24: Core cost growth reflects management focus; strong capital position
23 Core cost growth reflects management focus R million 9% 13 000 12 995 (494) 12 500 (378) 6% 12 000 12 123 11 963 11 500 11 473 11 000 10 500 10 000 Dec '10 Dec '11 Expansion Cooperation Dec '11 core Dec '10 core normalised normalised costs agreements & costs costs costs costs JVs Strong capital p
Slide 25: Basel 2.5 and 3 impact; Group ROE maintained
24 …and sufficient to deal with impact of Basel 2.5 and 3 Basel 3 impact 12.9 (0.6) 12.3 (0.4) (0.7) 0.7 11.9 Dec '11 Basel 2.5 Post Counterparty Minorities Reserves Post Basel 2.5 credit risk and other Basel 3 Group ROE maintained but shift at franchise-level Directional Dec ’11* Pre-Basel ROE (%)
Slide 26: Potential levers to mitigate decline in franchise ROEs
25 Potential levers to mitigate decline in franchise ROEs • Capital optimisation • Increasing scale and growth can enable franchises to improve performance • Business model and pricing options • Cost management ROE in target range and business/capital actions could further improve returns 35% FirstR
Slide 27: Excellent performance from FNB's strong and growing SA franchise
26 franchise review Sizwe Nxasana Excellent performance from FNB’s strong and growing SA franchise Profit before tax Characterised by: R million ROE = 38% + Strong topline growth 4 500 + NII +13% 4 000 +30% + NIR +14% 3 500 + Transactional volumes still growing, 3 000 mix changing to more electronic
Slide 28: NIR driven by robust growth in volumes
27 NIR driven by robust growth in volumes Transaction volumes (millions) 800 +10% 700 600 500 Electronic transactions 400 up 13% 300 200 100 Manual transactions flat 0 Dec '10 Dec '11 Manual transactions Electronic transactions Manual transactions – cash, cheques Electronic transactions – online, ca
Slide 29: Mass segment continues to deliver
28 Mass segment continues to deliver Profit before tax (R million) 2 500 Dec '10 Dec '11 2 000 2 005 1 500 1 388 1 380 1 000 +35% 1 125 894 740 763 500 664 84 165 - Mass Consumer Wealth Commercial FNB Africa • Profitability driven by topline growth • NII growth from lending activities • NIR reflects
Slide 30: Consumer segment switching record number of customers
29 Consumer segment switching record number of customers Profit before tax (R million) 2 500 Dec '10 Dec '11 +44% 2 000 2 005 1 500 1 388 1 380 1 000 1 125 894 740 763 500 664 84 165 - Mass Consumer Wealth Commercial FNB Africa • Strong topline growth • NII +14% driven by improved lending margins an
Slide 31: Innovation attracting new customers; Wealth impacted by bad debts
30 Innovation also attracting new customers in this segment FNB banking app transactions FNB smartphone/tablet device sales Volumes (thousands) Values (R million) Units sold 300 600 16000 14000 12000 200 400 10000 8000 6000 100 200 4000 2000 0 0 0 Jul '11 Aug '11 Sep '11 Oct '11 Nov '11 Dec '11 Oct
Slide 32: Commercial performance driven by solid topline
31 Commercial performance driven by solid topline Profit before tax (R million) 2 500 Dec '10 Dec '11 2 000 2 005 1 500 +23% 1 388 1 380 1 000 1 125 894 740 763 500 664 84 165 - Mass Consumer Wealth Commercial FNB Africa • Strong NIR growth at 12% • NII increased 8% despite endowment pressure due to
Slide 33: Strong performance from FNB Africa; progress on strategy
32 Strong performance from FNB Africa despite continued investment Profit before tax (R million) 2 500 Dec '10 Dec '11 2 000 2 005 1 500 ROE = 22% 1 388 1 380 1 000 1 125 +3% 894 740 763 500 664 84 165 - Mass Consumer Wealth Commercial FNB Africa • Good performances from Namibia, Botswana and Swazil
Slide 34: RMB and GTS: acceptable performance given the base
33 Acceptable performance given the base Profit before tax Characterised by: R million + Strong balance sheet growth 4 000 ROE: • RMB 18% • GTS 26% + Good performance from Investment 3 500 Banking, FICC, Private Equity 3 000 and GTS 2 500 + Excellent growth in African business ▼14% 2 000 particularl
Slide 35: Improved performance across most units
34 Improved performance across most units Profit before tax (R million) 1 400 Dec '10 Dec '11 1 200 1 000 800 600 400 200 - ( 200) ( 400) Investment Banking FICC Private Equity Equities RMB Other FNB GTS Investment Banking remains market leader Profit before tax (R million) 1 400 Dec '10 Dec '11 1 2
Slide 36: Client flows drive FICC; Private Equity benefits from portfolio quality
35 Client flows drive FICC performance Profit before tax (R million) 1 400 Dec '10 Dec '11 1 200 1 000 800 600 400 200 - ( 200) ( 400) Investment Banking FICC Private Equity Equities RMB Other FNB GTS FICC • Growth despite pressure on domestic deposit margins • Strong performance from client flow an
Slide 37: Mixed performance from Equities; tough commodity markets
36 Mixed performance from Equities Profit before tax (R million) 1 400 Dec '10 Dec '11 1 200 1 000 800 600 400 200 - ( 200) ( 400) Investment Banking FICC Private Equity Equities RMB Other FNB GTS Equities • Poor performance from trading activities, long-term trading positions reduced • Strong contr
Slide 38: GTS grows profits; corporate advances above market
37 GTS grows profits despite continued investment Profit before tax (R million) 1 400 Dec '10 Dec '11 1 200 1 000 800 600 400 200 - ( 200) ( 400) Investment Banking FICC Private Equity Equities RMB Other FNB GTS FNB Global Transactional Services (GTS) • Good performance given ongoing significant inv
Slide 39: Growing CIB revenues, Africa corridors; WesBank strong growth
38 Progress on strategy – growing CIB revenues, Africa and the corridors • Corporate and Investment Banking (CIB) • Benefiting from integrated client coverage across CIB • Refined transactional banking strategy • Significant investment in GTS platforms underway • African and Asian corridors • Levera
Slide 40: Where the profits came from; advances growth
39 Where the profits came from Profit before tax (R million) 1 250 6m to Dec '10 6m to Jun '11 98% y/y 1 000 6m to Dec '11 959 750 845 25% y/y 500 484 454 470 63% y/y 377 250 202 32% y/y 124 113 84 67 57 - Retail secured lending Corporate/Commercial Unsecured lending Non-lending activities a
Slide 41: Provisions approaching the bottom; cost management
40 Provisions… approaching the bottom • Retail arrears and repossession volumes continue to decline • Corporate arrears also trending downwards • Levelling off of bad debts anticipated R million Credit loss ratio 1 400 3.5% 1 200 3.0% 1 000 2.5% 800 2.0% 600 1.5% 400 1.0% 200 0.5% 0 0.0% Dec '05 Jun
Slide 42: Strategy & prospects
41 Progress on strategy • Retail motor alliance strategy generates excellent volume and quality • Good traction in fleet management and corporate initiatives • Discipline around credit appetite • Back office efficiencies still a major focus area • Increased intervention in operations on FNB Africa p
Slide 43: FirstRand's strategy and prospects
42 FirstRand’s strategy • Objectives • To be the African financial services group of choice • By creating long-term franchise value • Through delivering superior and sustainable returns • Within acceptable levels of earnings volatility • Underpinned by alignment of shareholder value creation and man
Slide 44: stud1i0®
stud1i0®
Slide 45: www.firstrand.co.za
www.firstrand.co.za FIRSTRAND