FirstRand Limited · JSE:FSR
FirstRand — UBS Financial Services Conference 2006
50 slides from FirstRand's conference presentation, May 2006
Slide 1: UBS Conference May 2006
financial services { (2-) FIRSTRAND UBS Conference May 2006
Slide 2: South Africa enjoys a very positive macro environment
South Africa enjoys a very positive macro environment conference UBS
Slide 3: Confidence and growth at all time high!
Confidence and growth at all time high! 7 100 Real GDP growth (y-o-y) Lhs RMB Business Confidence Index Rhs 90 5 80 70 3 60 1 50 40 -1 30 20 -3 10 conference -5 0 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 UBS
Slide 4: Reasons for the economic boom
Reasons for the economic boom Economic reforms of late 1990’s Political stability Fiscal discipline Effective monetary policy Emerging Black consumer Sound institutional framework conference Government policy – Go for Growth UBS
Slide 5: Strong evidence of a structural shift
Strong evidence of a structural shift Higher trend GDP growth …with lower volatility Lower real interest rates ...with lower volatility Lower inflation conference ...with lower volatility UBS
Slide 6: The South African growth themes
The South African ”growth” themes 1. Lower interest rates 2. Emerging Black consumer 3. Black Economic Empowerment (BEE) 4. Infrastructure finance conference UBS
Slide 7: Lower interest rates
Lower interest rates Higher asset values More disposable income Higher levels of borrowing Lower levels of bad debts conference UBS
Slide 8: Lower interest rates driving growth in lending
Lower interest rates driving growth in lending % 30 25 20 15 10 5 conference 0 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 UBS Prime interest rate Y-o-y growth in asset backed lending
Slide 9: South African growth themes
South African growth themes Lower interest rates Emerging Black consumer Black Economic Empowerment (BEE) Infrastructure finance conference UBS
Slide 10: Rising income levels in Black market
Rising income levels in Black market Lower income Higher income categories (LSM 1-5) categories (LSM 6-10) 70% 60% 50% 40% 30% 20% 10% 0% 1996 2004 conference • Economic growth • Employment growth UBS • Employment equity • Tax and interest rate cuts SAARF and Unilever Institute
Slide 11: South African growth themes
South African growth themes Lower interest rates Emerging Black consumer Black Economic Empowerment (BEE) Infrastructure finance conference UBS
Slide 12: Value BEE deals last two years - $17 bn
Value BEE deals last two years - $17 bn 25,000 20,000 15,000 $ million 10,000 5,000 conference UBS - 4 5 4 5 04 04 05 05 4 5 4 5 -0 -0 -0 -0 -0 -0 -0 -0 b- n- b- n- ct ct pr pr ug ug ec ec Fe Ju Fe Ju O O A A D D A A Source – RMB internal analysis
Slide 13: South African growth themes
South African growth themes Lower interest rates Emerging Black consumer Black Economic Empowerment (BEE) Infrastructure finance conference UBS
Slide 14: US$ bn infrastructure spend anticipated
US$ 67 bn infrastructure spend anticipated… Energy Rail and roads 2010 Soccer World Cup Schools & hospitals conference UBS
Slide 15: US$ bn committed for Public Private Partnerships (PPP's)
US$ 6 bn committed for Public Private Partnerships (PPP`s) $ million 2500 2000 1500 1000 500 conference 0 2001 2002 2003 2004 2005 2006F 2007F 2008F UBS Process Risk
Slide 16: BRIC...S ?
BRIC...S ? 39Ud1aJUOD san
Slide 17: How is FirstRand positioned?
How is FirstRand positioned? ¾Our Business Philosophy conference UBS
Slide 18: Business philosophy
Business philosophy Juggernaut Niche player Conventional army Guerrilla platoon • Bureaucratic • Focussed • Slow • Flexible • Mediocrity • Talent • Command and control • Empowered • Diversified • Concentrated risk • Large balance sheet • Small balance sheet • Scale • Sub scale conference UBS
Slide 19: Business philosophy
Business philosophy Juggernaut Niche player Conventional army Guerrilla platoon • Bureaucratic • Focussed • Slow • Flexible • Mediocrity • Talent • Command and control • Empowered • Diversified • Concentrated risk • Large balance sheet • Small balance sheet • Scale • Sub scale The BEST of both world
Slide 20: FirstRand Business Philosophy
FirstRand Business Philosophy Chunk into many profit centres, therefore lots of growth stories Multi-branding Centre’s role is not to make decisions, but rather to facilitate good decision making Employee centric: consistently at top of “Best company to work for” survey conference Culture
Slide 21: FirstRand group structure
RMBH 30% FirstRand 100% 100% 65% FirstRand Bank 45% OUTsurance Momentum Discovery Rand Merchant Bank Short-term Life Health conference Insurance Insurance Insurance First National Bank UBS WesBank
Slide 22: Integrated financial services group
Integrated financial services group Earnings (June 2005) $1.25bn Assets under management $80bn Total advances $37bn conference NAV $5.5bn UBS Market cap $18bn
Slide 23: The role of the centre
UBS conference Balance sheet management Capital management Balance sheet Risk Management Owner-manager Innovation The role of the centre Collaboration Corporate culture
Slide 24: The role of the centre
UBS conference Balance sheet management Capital management Balance sheet Risk Management Owner-manager The role of the centre Innovation Collaboration Corporate culture
Slide 25: Utilising a bigger balance sheet
Utilising a bigger balance sheet Rand Merchant Bank Leverage, credit rating and cost of equity Impact of the balance sheet on leverage 20 $ 18bn 16 Assets $ bln 13 10 $ 9bn conference 6 UBS 3 $ 3bn
Slide 26: Top-down positioning of the balance sheet
UBS conference Yield (%) Ja n- -2% 0% 2% 4% 6% 8% 10% 12% 14% 02 16% -J un -0 Ju 2 l-0 2 -D Alpha ec -0 Ja 2 n- 03 -J un -0 Ju 3 l-0 3 -D ec -0 Ja 3 n- 04 -J Overnight un -0 Ju 4 l-0 4 -D ec -0 Ja 4 n- 05 -J balance sheet un -0 Ju 5 l-0 5 -D ec -0 Ja 5 n- 06 -M ar -0 6 ”Top-down” positioning of the
Slide 27: The role of the centre
UBS conference Balance sheet management Capital management Balance sheet Risk Management Owner-manager The role of the centre Innovation Collaboration Corporate culture
Slide 28: Capital – optimise or return?
Capital – optimise or return? Capital management principles • Key pillar of our growth strategy • Mobility of capital Applying the principles • Capitalise the group to meet targeted credit rating • Charge business units for the use of capital • Allocate capital on a portfolio basis to maximise r
Slide 29: Obsession with ROE
Obsession with ROE 30% 25% 20% 15% 10% 5% 0% conference 2001 2002 2003 2004 2005 UBS Return on Equity Cost of Equity
Slide 30: How well are we positioned to exploit growth themes?
How well are we positioned to exploit growth themes? conference UBS
Slide 31: All our businesses are well positioned
All our businesses are well positioned Lower Emerging BEE Infrastructure interest Black transactions finance rates consumer 9 9 9 9 9 9 9 9 9 9 9 conference 9 9 UBS 9 9
Slide 32: All our businesses well positioned: RMB
All our businesses well positioned Rated no.1 Investment Bank in South Africa PBT $313m • Structured &Project Finance • Mergers & Acquisitions • Securities Trading • Private Equity conference • Asset Management ($30 bln) UBS
Slide 33: RMB well positioned for BEE
RMB well positioned for BEE Major source of business for investment bank RMB Structured Finance • Structuring • Lending BEE conference UBS Private Equity Corporate Finance • Investment • Advisory • Equity Raising
Slide 34: How does RMB make money from infrastructure finance?
How does RMB make money from infrastructure finance? Arranging & Equity / Participation Advisory Underwriting Sponsorship RMB Positioning conference Opportunity to acquire assets UBS
Slide 35: RMB strongly positioned
RMB strongly positioned RMB has dominated the PPP market Total Deals led Deals in which number of by RMB RMB has deals participated Toll roads 5 3 5 Power stations 1 1 1 Hospitals 1 1 1 Prisons 2 1 1 conference Accommodation 1 0 0 UBS Grand total 10 6 8
Slide 36: Most innovative commercial bank in South Africa
All our businesses well positioned Most innovative commercial bank in South Africa PBT $682m Mass market High networth Companies / Government conference 5 million customers 704 branches UBS 4535 ATMs
Slide 37: Lower interest rates drive borrowing
Lower interest rates drive borrowing Asset values • Rising Asset and Property values – increase loan amounts • Improve security esp the “in force book” Higher levels of borrowing • Advances +26% to June 2005 • Growth in all Retail markets conference Lower levels of bad debts UBS
Slide 38: Innovation - key to capture emerging Black consumer
Innovation - key to capture emerging Black consumer Using low cost distribution channels • Mini ATMs • Cell phone banking Products • Affordable housing • Pension-backed Home Loans • Micro loans • Mzansi account – low cost account for conference mass market UBS • InContact – sms confirmation
Slide 39: All our businesses well positioned: WesBank
All our businesses well positioned 1 in 3 cars financed by Wesbank in South Africa PBT $231m • Dominates Point of Sale • JV with 5 of 10 motor manufacturers conference • Originates in over 30 JV UBS brands
Slide 40: Forecast 40% Black book by 2010
Forecast 40% ”Black book” by 2010 WESBANK book 100% 90% 80% 70% 60% % 50% 40% 30% 20% 10% conference 0% UBS 1998 2005 2010F White Black
Slide 41: Rated no.1 provider of investment products
All our businesses well positioned Rated no.1 provider of investment products PBT $158m • Investment Products • Risk Products conference UBS
Slide 42: Momentum's Growth strategy
MOMENTUM`S Growth strategy Attacking the fast growing middle market Adding load to distribution • Short-term insurance • Health conference UBS
Slide 43: Fastest growing short-term insurer in South Africa
All our businesses well positioned Fastest growing short-term insurer in South Africa PBT $62m • Auto • Homeowners & Householders • Small Commercial conference UBS
Slide 44: OUTsurance's winning recipe
OUTsurance’s winning recipe Most recognised short-term insurance brand in South Africa after only 8 years Differentiates itself with the OUTbonus “Direct’’ distribution model World class actuarial risk modeling conference Exportable value proposition UBS
Slide 45: No.1 health insurance group in South Africa
All our businesses well positioned No.1 health insurance group in South Africa PBT $147m Health plus life insurance Vitality loyalty scheme Destiny in the US conference JV with Prudential in the UK UBS
Slide 46: After years, as big as the rest combined
After 13 years, as big as the rest combined Total scheme membership 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 conference 100,000 UBS 0 Discovery Top 10
Slide 47: FirstRand's international strategy
FirstRand’s international strategy At divisional level vs group level Divisions expand geographically in different markets Only expand if there’s a clear competitive advantage conference Africa a focus ($100m PBT), but also other emerging markets UBS
Slide 48: What have we delivered to shareholders?
What have we delivered to shareholders? conference UBS
Slide 49: Superior value creation
Superior value creation 4,500 Economic Profit 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 - 2000 2001 2002 2003 2004 2005 conference • Compound annual growth rate - 45% (SA Rand) UBS • Adjusted for constant cost of equity - 26%* *COE held constant at 19%
Slide 50: Conclusion
Conclusion Expect boom to last until 2010 FirstRand units focused in growing niches Business philosophy empowers divisions – many growth stories FirstRand uses centre/”bigness” to enhance performance conference Is big better? YES, if you have a niche UBS market mentality!