FirstRand Limited · JSE:FSR
FirstRand — H1 2008 Earnings Presentation
122 slides from FirstRand's earnings presentation, December 2007
Slide 1: FirstRand Limited interim results for the six months ended 31 December 2007
O 0) 4) © rer (e)) 0) 4) ‘= FirstRand Limited interim results for the six months ended 31 December 2007 [) FIRSTRAND
Slide 2: Environment and Introduction
O 0) 4) © rer ©) 0) 4) & Environment and Introduction Sizwe Nxasana CEO FirstRand Banking Group [) FIRSTRAND
Slide 3: Turbulent international environment
Turbulent international environment • Secondary credit markets have all but closed down • Discrediting of rating agencies led to securitisation market drying up • Interbank market severely curtailed • Many offshore banks running out of capital at the worst possible time • Investors still concerned s
Slide 4: Challenging local environment
Challenging local environment + - Corporate sector remains strong Current account deficit Infrastructure expansion Inflationary pressures Commodity Prices up e.g. Gold and Increased interest rates put pressure on Platinum consumer Major sell-off of SA equities by foreigners
Slide 5: FirstRand's performance
FirstRand’s performance Normalised R ’mil Growth % ROE % earnings FirstRand Group (proforma) 5 953 12 26 FirstRand Banking Group 5 283 10 27 Momentum Group 913 19 31 • For the first time the Banking Group’s earnings did not exceed the target of 10% above inflation • ROE at 26% continued to exceed th
Slide 6: Reasons for target not being met
Reasons for target not being met • Higher bad debts • Equity trading losses
Slide 7: Bad debts impacted retail businesses
Bad debts impacted retail businesses • Higher interest rates and increased consumer indebtedness resulted in higher than anticipated bad debts • Interest rates increased higher than assumed in scorecards • FNB Card and WesBank went too deep, however we have adjusted scorecards and fully provided • R
Slide 8: Difficult markets result in trading losses
Difficult markets result in trading losses • Unprecedented dislocation of international equity markets • Investments remain undervalued relative to intrinsic value • Our investment decisions were all within own market risk limits • We believe that when the market settles value will be unlocked • Wha
Slide 9: Franchise diversification
Franchise diversification Dec ’06 Dec ’07 2% Return on Equity 14% 15% 10% FNB 34% 7% FNB Africa 32% 41% 43% RMB 33% WesBank 17% 31% 31% Momentum 31% 4% 4% 43% * Based on normalised earnings, excluding Discovery, Group Support, FirstRand and NCNR preference shares
Slide 10: Segment diversification
Segment diversification Dec ’06 Dec ’07 15% 14% 30% 34% 31% 31% 21% 24% Retail Corporate & commercial Investment banking Insurance * Based on normalised earnings, excluding FirstRand, preference dividends and group support
Slide 11: Continued rotation to corporate and investment banking
Continued rotation to corporate and investment banking R ’mil 6,000 10% Normalised earnings after tax 5,306 5,283 4,783 5,000 4,000 3,000 8% 33% 14% 2,220 1,945 1,927 2,000 1,798 1,507 1,690 1,453 1,136 1,175 (100)% 1,000 458 159 0 -96 Retail Corporate & Investment Other Total Commercial banking -1,
Slide 12: Financial review for the six months ended December 2007
Financial review for the six months ended 31 December 2007 O 0) 4) © P| ©) 0) 4) & [) FIRSTRAND
Slide 13: Performance to financial targets
Performance to financial targets 35% 10% real growth 15% Momentum Group (ROE 31%) 30% 85% Banking Group (ROE 27%) 25% 10% plus FirstRand WACC ROE 20% 15% 10% 0% 10% 20% 30% 40% Normalised earnings growth * Based on normalised earnings, excluding Discovery, FirstRand centre and NCNR preference shares
Slide 14: Insurance outperforms banking
Insurance outperforms banking R ’mil Dec ’07 Dec ’06 % Change Normalised earnings Banking Group 5 283 4 783 10 Momentum Group 913 768 19 FirstRand* (49) (69) 29 Preference Dividend (194) (163) (19) FirstRand proforma 5 953 5 319 12 Discovery 185 220 (16) FirstRand actual 6 138 5 539 11 * Includes el
Slide 15: Slower earnings growth but targeted returns maintained
Slower earnings growth but targeted returns maintained Dec ’07 Dec ’06 Proforma Dec ’07 Dec ’06 R’mil Proforma Proforma Change % Actual Actual Normalised earnings 5 953 5 319 12 6 138 5 539 Normalised earnings per share - Basic 105.6 94.4 12 108.9 98.3 - Diluted 105.6 94.3 12 108.9 98.2 Headline ear
Slide 16: Premium returns over cost of equity
Premium returns over cost of equity R’ bil 50 28% 27% 28% 25% 25% 25% 25% 26% 40 23% 23% 30 17% 16% 15% 14% 13% 13% 13% 12% 13% 14% 20 10 0 Jun '01 Jun '02 Jun '03 Jun '04 Jun '05 Dec '05 Jun '06 Dec '06 Jun '07 Dec '07 NAV (excluding dividends) NAV (including dividends) Return on equity Average cos
Slide 17: Banking group remains well capitalised
Banking group remains well capitalised • Raised R1.5 bil in subordinated debt • Launched Fresco II, a corporate synthetic securitisation programme of R20 bil • Concluded the 2nd home loans securitisation programme, Ikhaya 2, of R2.8 bil • Plan to issue Hybrid Tier 1 and innovative Tier 2 instruments
Slide 18: Insurance group well capitalised
Insurance group well capitalised R’ mil 6,000 2.0 x CAR Target 1.7 - 1.9 times 5,000 1.9 x CAR 4,000 0.9 x CAR 0.9 x CAR 3,000 2,000 1,000 1 x CAR 1 x CAR 0 Jun '07 Dec '07 Termination Mortality and morbidity Expense Investment Credit Other risks Available for distribution
Slide 19: Financial review: Banking Group
Financial review for the six months ended 31 December 2007 2) FIRSTRAND Ga” Banking Group
Slide 20: Lower growth from the bank
Lower growth from the bank Dec ’07 Dec ’06 % change Normalised earnings* (R’ mil) 5 283 4 783 10 Return on equity** (%) 27 32 Return on assets (%) 1.82 1.98 Credit loss ratio*** (%) 1.00 0.69 Cost to income ratio (%) 52.6 53.0 * Before deducting preference share dividends ** After deducting preferen
Slide 21: Mixed performance from franchises
Mixed performance from franchises Profit before tax % Growth FNB R3.4 billion 22 FNB Africa R0.5 billion 23 RMB R2.4 billion 8 WesBank R0.6 billion (17) Other R0.2 billion (63) Total profit before tax R7.1 billion 7
Slide 22: Results in context
Results in context R’ mil Dec ’07 Dec ’06 change • Net interest income 8 134 7 130 14% • Credit impairment charge (1 625) (1 151) 41% • Net interest income after impairments 6 509 5 979 9% • Non interest revenue* 10 802 9 983 8% Transactional 6 567 5 230 26% Fair value and risk 1 419 2 419 (41%) Pri
Slide 23: Financial highlights
Financial highlights Dec ’07 Dec ’06 • Net interest income 8 134 7 130 14% • Credit impairment charge (1 625) (1 151) 41% • Non interest revenue 10 802 9 983 8% • Operating expenses (9 957) (9 076) 10% • Taxation expense (1 434) (1 572) (9%)
Slide 24: Advances growth levels off
Advances growth levels off 21% R 420 bil R 388 bil 9% 2% 400 R 347 bil 12% 1% 24% 350 2% 24% 300 22% 5% 5% 5% 11% 250 13% 11% 200 150 60% 57% 58% 100 50 0 Dec '06 Jun '07 Dec '07 Retail Corporate Commercial Investment banking Other Advances are shown net of ISP
Slide 25: Asset backed dominates retail advances
Asset backed dominates retail advances 16% R 242 bil 250 R 223 bil 9% R 209 bil 7% 200 32% 30% 33% 150 89% asset backed 100 57% 59% 56% 50 6% 6% 6% 5% 5% 5% 0 Dec '06 Jun '07 Dec '07 Other Card HomeLoans Auto loans
Slide 26: Liability mix adds pressure to margins
Liability mix adds pressure to margins Change Dec ’07 Dec ’06 R’mil Dec ’07 Dec ’06 % mix % mix% Retail 107 733 90 507 19 17 18 Corporate 201 000 166 000 21 32 33 Professional funding 172 439 115 710 49 28 23 Trading liabilities 61 652 65 605 (6) 10 13 Other liabilities 22 869 21 376 7 4 4 Mezzanine
Slide 27: Customer deposits & endowment support margin
Customer deposits & endowment support margin 0.32% 5% 0.22% 4.33% -0.26% 4.10% -0.16% 4% -0.16% -0.19% 3% 2% 1% 0% Dec '06 Deposits Capital Advances Funding / Mix Other Dec '07 volume and margins liquidity endowment
Slide 28: Financial highlights
Financial highlights Dec ’07 Dec ’06 • Net interest income 8 134 7 130 14% • Credit impairment charge (1 625) (1 151) 41% • Non interest revenue 10 802 9 983 8% • Operating expenses (9 957) (9 076) 10% • Taxation expense (1 434) (1 572) (9%)
Slide 29: NPLs and bad debts continue upward trend
NPL’s and bad debts continue upward trend 5.6 1.5 1.3 4.3 0.9 1.1 3.5 * 1.0 0.8 Long run expected loss: 0.8 3.0 0.9* 2.4 0.7 0.4 0.5 2.0 0.3 0.5 1.6 1.7 1.4 1.4 1.3 1.3 Jun '99 Jun '00 Jun '01 Jun '02 Jun '03 Jun '04 Jun '05 Dec '05 Jun '06 Dec '06 Jun '07 Dec '07 NPLs (%) Impairment charge (%) *Cre
Slide 30: Retail worse, Wholesale steady
Retail worse, Wholesale steady NPL Ratio Impairment Ratio 3.50 1.80 3.09 1.60 3.00 1.53 1.40 Retail 2.50 2.30 1.22 1.20 2.0 2.00 1.0 1.76 1.00 0.97 1.50 0.80 0.94 0.60 1.00 0.82 0.74 Wholesale 0.40 0.50 0.29 0.28 0.20 0.25 0.00 0.00 Dec '06 Jun '07 Dec '07 Dec '07 Total Total Impairment charge NPL%
Slide 31: Projected bad debts higher as cycle is deeper and longer
Projected bad debts higher as cycle 2.2% is deeper and longer than expected 2.0% Original estimate 100 – 120 bps for year end 1.8% 1.6% 1.4% 1.2% Bad debts 1.0% Long run expected loss: 0.8 0.8% 0.6% 0.4% 0.2% 0.0% Forecast '+50 '+100 '+150 Prime rate: 14.5% 15% Interest rates 15.5% 16% Lower Expecte
Slide 32: Financial highlights
Financial highlights Dec ’07 Dec ’06 • Net interest income 8 134 7 130 14% • Credit impairment charge (1 625) (1 151) 41% • Non interest revenue 10 802 9 983 8% • Operating expenses (9 957) (9 076) 10% • Taxation expense (1 434) (1 572) (9%)
Slide 33: Diversification in non interest revenue
Diversification in non interest revenue Resources Other investment 2% 0% Fair value Private equity 13% 13% 8% Other Transactional income 3% 61% WesBank and OUTsurance * Associate income split into appropriate non interest revenue categories
Slide 34: Diversification in non interest revenue
Diversification in non interest revenue Transactional income 61%
Slide 35: Economic activity drives transactional income
Economic activity drives transactional income R’ mil 26% 7,000 9% 6,000 11% 5,000 4% 4,000 120% 3,000 76% 2,000 -10% 22% 1,000 FNB FNB Africa RMB WesBank 0 Transactional Fair value Investment Other Dec '06 Jun '07 Dec '07
Slide 36: Diversification in non interest revenue
Diversification in non interest revenue 13% Private equity
Slide 37: Good balance between annuity income and realisations
Good balance between annuity income and realisations Dec ’06 Dec ’07 R’ mil 14,000 12,000 Profit on 10,000 Profit on realisations Annuity realisations Annuity 44% income 48% income 8,000 52% 56% 6,000 4,000 -10% 22% 45% 2,000 0 Private equity Other Transactional Fair value Dec '06 June '07 Dec '07
Slide 38: Diversification in non interest revenue
Diversification in non interest revenue 13% Fair value
Slide 39: Annuity showed strong growth but risk income volatile
Annuity showed strong growth but risk income volatile R’ mil Dec ’07 Dec ’06 % change • Annuity 1 518 1 140 33 Lending 875 646 35 Client flows 643 494 Risk 30 • Risk (325) 1 212 (>100) Equities (774) 667 (>100) Commodities 30 30 - Interest rates 452 189 >100 Credit (49) 45 (>100) Forex 52 13 >100 Re
Slide 40: Financial highlights
Financial highlights Dec ’07 Dec ’06 • Net interest income 8 134 7 130 14% • Credit impairment charge (1 625) (1 151) 41% • Non interest revenue 10 802 9 983 8% • Operating expenses (9 957) (9 076) 10% • Taxation expense (1 434) (1 572) (9%)
Slide 41: Positive jaws maintained
Positive jaws maintained R’ mil Income growth +11% 20,000 58.2% 18,000 16,000 56.8% 55.5% Jaws =1% 14,000 55.6% 12,000 53.8% 53.0% 10,000 8,000 51.9% 52.6% Cost growth +10% 6,000 4,000 2,000 0 Dec '00 Dec '01 Dec '02 Dec '03 Dec '04 Dec '05 Dec '06 Dec '07 Total income Total costs Cost to income
Slide 42: Improving efficiencies remains a focus
Improving efficiencies remains a focus Dec ’07 Dec ’06 Top line Cost Cost to Cost to growth growth income ratio income ratio % % % % FNB 22.2 15.0 56.5 60.0 - Retail 23.3 17.3 57.8 60.8 - Corporate & Commercial 20.2 10.9 54.1 58.6 FNB Africa 19.7 20.0 46.5 46.4 WesBank 18.1 20.6 53.4 52.3 RMB 12.9 1
Slide 43: Financial review: Momentum
Financial review for the six months ended 31 December 2007 momentum
Slide 44: Strong operating performance
Strong operating performance R’ mil Dec ’07 Dec ’06 % change Insurance operations 643 513 25 Asset management operations 140 139 1 Group operating profit 783 652 20 Investment income on shareholder assets 130 116 12 Normalised earnings 913 768 19 Return on equity (%) 31 24 Return on embedded value (
Slide 45: Capital management benefits realised
Capital management benefits realised R’ mil Dec ’07 Dec ’06 % change Insurance operations 643 513 25 Asset management operations 140 139 1 Group operating profit 783 652 20 Investment income on shareholder assets 130 116 12 Normalised earnings 913 768 19 Return on equity (%) 31 24 Return on embedded
Slide 46: Return on EV impacted by volatile markets
Return on EV impacted by volatile markets R’ mil Dec ’07 Dec ’06 % change Insurance operations 643 513 25 Asset management operations 140 139 1 Group operating profit 783 652 20 Investment income on shareholder assets 130 116 12 Normalised earnings 913 768 19 Return on equity (%) 31 24 Return on emb
Slide 47: Investment market dampens EV growth
Investment market dampens EV growth Capital appreciation R’ mil Investment variations 4,000 Other CAGR 28% Investment Income 3,500 Operating profit 3,000 Adjusted EV profit 2,500 Normalised earnings EV 2,000 1,500 CAGR 14% I/S 1,000 500 0 EV -500 -1,000 Jun '03 Jun '04 Jun '05 Jun '06 Jun '07 Dec '0
Slide 48: FNB results
NATIONAL SUPPORTER WORLD CUP Ff) results
Slide 49: What we said in June 2007
What we said in June 2007 • SA and SADC economic growth will remain high • Diversified portfolio provides for sector rotation and protects against interest rate volatility • Focus on middle market / 2010 FIFA World Cup Sponsorship • Competition Commission and National Credit Act • Runway for expansi
Slide 50: FNB's good performance continues
FNB’s good performance continues Dec ’07 Dec ’06 change Net profit before taxation (R’ mil) 3 436 2 815 22% Advances (R’ bil) (23% to R198b post gross-up) 179 146 22% Deposits (R’ bil) (20% to R184b post gross-up) 164 138 19% Net interest revenue (R’ mil) 5 035 3 979 27% Non interest revenue (R’ mil
Slide 51: Impairments rise off historic lows
Impairments rise off R ’mil historic lows 6,000 1.40% 1.20% 5,000 1.00% 4,000 0.80% 3,000 0.60% 2,000 0.40% 1,000 0.20% 0 0.00% Jun '04 Dec '04 Jun '05 Dec '05 Jun '06 Dec '06 Jun '07 Dec' 07 NPL Balance Impairment charge (%) Pre June 2006 information not restated for the transfer of business units
Slide 52: Advances growth strong but slowing
Advances growth strong but slowing Composition Growth (Pre LROS*) Mass +71% Consumer +19% Wealth +29% Commercial +17% Corporate +78% (35% post gross up) (R198m – 23% FNB Total R179m +22% post gross up) 0 50 100 150 200 *Legal right of set off, also referred to as “gross up”
Slide 53: Diversified deposit growth
Diversified deposit growth Composition Growth (Pre LROS*) Mass +8% Consumer +17% Wealth +17% Commercial +19% Corporate +18% (21% post gross up) FNB Total R164m +19% (R184m – 20% post gross-up) 0 50 100 150 200 *Legal right of set off, also referred to as “gross up”
Slide 54: FNB segment strategy and structure
FNB segment strategy and structure Customer numbers Profit before tax – Dec ’07 Income / Turnover Corporate Support R400m + 0.7k -2% Public Sector Corporate N/A 12.5k 9% Mass 17% R0k – R400m Commercial 430k R750k + Wealth 47k Commercial Consumer 39% 31% R81 – R750k Consumer 2.0m Wealth R0 – R81k Mas
Slide 55: All segments contributed
All segments contributed Profit before tax Support R’ mil Dec ’07 Dec ’06 +7% +28% Mass 598 466 Corporate Mass Consumer 1 059 952 Wealth 219 155 +33% Commercial Consumer Commercial 1 344 1 011 Corporate 311 292 +11% Other and Support (95) (61) Wealth Total FNB 3 436 2 815 +41%
Slide 56: FNB brand resonates in the mass market
FNB brand resonates in the mass market 17% • 28% increase in PBT to R598 million • Customer base increased 9% to 3.4 million • Transnet housing purchase • 71% increase in advances to R6 billion – 30% organic • Strong growth in non interest income (19%) driven by: • 16% increase in transactions • 32%
Slide 57: The consumer is taking strain
The consumer is taking strain HomeLoans • Increased new business market share and maintained ROE 31% • PBT down 21% due to credit impairment charges of 44bps and higher funding costs • Advances growth will slow and bad debts will increase Card • Advances up only 4% since June ’07 due to tighter cred
Slide 58: SA wealth still growing
SA wealth still growing • PBT is up 41% to R219 million (24% excl. FRIAM) • Offshore wealth management - through FRIAM 6% • Assets under management increased 102% to R44 billion (35% excl. FRIAM) • Advances growth still strong at 29% - but expected to slow • Deposit growth healthy at 17% • Non inter
Slide 59: Commercial – continued strong performance
Commercial – continued strong performance • Great performance – PBT up 33% 39% • 19% deposit growth to R57bn (2.5x advances) • 17% advances growth driven by 51% increase in Commercial Property Finance • Customer base grew 17% reflecting strong market share gains • Quality client base
Slide 60: Transactional strategy pays off in Corporate
Transactional strategy pays off in Corporate 9% • Transactional banking focus • Increased transactional volumes in electronic channels • FNB Online +30% • SpeedPoint +30% • Non interest income growth at 15% • PBT up 7% - higher prior year base • Margins under pressure hence 5% increase in interest i
Slide 61: Africa delivered
Africa delivered Pre-tax profit up 23%* to R525 mil ; CIR 46.5% FNB Mozambique FNB Botswana • Acquired in July ’07 • Profit +13% to R239m • PBT of R11m (18% local currency) • Infrastructure investment • Assets up 29% • Deposits up 34% • Strong brand in market FNB Swaziland • Profit +20% to R36m FNB
Slide 62: FNB on track
FNB on track • Credit conditions to remain a challenge, have not seen the top yet • Previous customer growth should support future revenue increases • Stimulus in SA corporate segments driving growth in medium corporates and SME’s • Slowdown in retail lending compensated by continued focus on effici
Slide 63: RMB
x ei: a) RAND Py | MERCHANT BANK CO. of FirstRand Bank Limited
Slide 64: Creditable performance off high base
Creditable performance off high base R’ mil Profit after tax 2007 Chairman’s Statement 5,000 CAGR “….it will be a challenge to 56% exceed the exceptional performance in the current 4,000 year” 3,000 +8% 2,000 1,000 0 2004 2005 2006 2007 2008 PBT Half Year PBT Full Year Turbulent times, resilient res
Slide 65: Global banking context
Global banking context Global banks profit history* $' bil 100 Ð 48% 75 50 25 - 2003 2004 2005 2006 2007 *UBS, CS, DB, JPM, Citi, GS, ML, MS, Leh, BS, SocGen, Barc, StanCh 2007 Profit after tax announced to date accounting for about 42% of global banking market cap Source : Company quarterly and ann
Slide 66: Most had a bad 2nd half 07
Most had a bad 2nd half 07 First half to second half 2007 profits 150 Goldman Sachs 1H07 = 100 RMB Deutsche 50 Credit Suisse UBS -50 Bear Sterns -150 Lehman Bros Merrill Lynch -250 Morgan Stanley JP Morgan -350 Citi Jun ’07 Dec ’07
Slide 67: The portfolio effect
The portfolio effect Net income before tax R’ mil 1,500 Ï 65% Ï 125% 1,000 Ï 117% 500 0 -500 (R760m) -1,000 FICC Equity Investment Private Trading Banking Equity Jun '07 Dec '06 Dec '07
Slide 68: The portfolio effect
The portfolio effect Net income before tax R’ mil 1,500 Ï 65% Ï 125% 1,000 Ï 117% 500 0 -500 -1,000 FICC Equity Investment Private Trading Banking Equity Jun '07 Dec '06 Dec '07
Slide 69: Strong performance from FICC
Strong performance from FICC Net income before tax R’ mil 400 200 0 Fixed Income Currencies Commodities Dec '06 Dec '07
Slide 70: Top solutions and derivatives house
Top solutions and derivatives house 2007 Spire Awards 2007 Awards Best origination team Best securitisation team 1st Interest Rate Options (2006- 1st) Best derivative team 1st Fwd Rate Agreements (2006- 1st) (sales & structuring) Best inflation linked debt house 1st Currency Options (2006- 3rd) Best
Slide 71: The portfolio effect
The portfolio effect Net income before tax R’ mil 1,500 1,000 500 0 -500 (R760m) -1,000 FICC Equity Investment Private Trading Banking Equity Dec '07 Jun '06 Jun '07
Slide 72: Equity market dislocation
Equity market dislocation 130 Dow Jones 125 Russell 2000 120 115 110 105 100 95 90 Jul '06 Oct '06 Jan '07 Apr '07 Jul '07 Oct '07 Jan '08 Source : RMB Economics
Slide 73: Nature & timing
Nature & timing Net income before tax R’ mil 1,000 500 0 -500 (R760m) -1,000 -1,500 to Oct to Dec Local International Net November was painful offshore
Slide 74: Managing the risk
Managing the risk Methodology • Extreme tail loss – 99% confidence level – scaled 1.5 times – for a 25 year stress event • Additional Capital Buffer – scales it to a 1 in 40 year event Market • Bigger than 1 in 40 year dislocation Result • Equity trading loss – 4.0% of FirstRand 2007 PBT, – 1.6% of
Slide 75: Trading profitable over the long term
Trading profitable over the long term R’ mil Equities trading cumulative net income 1,500 18 months 1,000 12 months 500 0 Jul '06 Nov '06 Mar '07 Jul '07 Nov '07 Sep '06 Jan '07 May '07 Sep '07 Jun ’06 Dec ’06 Jun ’07 Dec ’07 Year end
Slide 76: The portfolio effect
The portfolio effect Net income before tax R’ mil 1,500 Ï 125% 1,000 500 0 -500 -1,000 FICC Equity Investment Private Trading Banking Equity Jun '07 Dec '06 Dec '07
Slide 77: Growth across the board
Growth across the board Ï >20% Ï >250% Ï >250% Ï >100% Ï >100% Ï 90% Ï 90% Ï >200% 150 100 50 0 Corporate Preference Leveraged Project Property Asset Debt RMB Finance Shares Finance Finance Finance Based Capital Properties Finance Markets (JV) Dec '06 Dec '07
Slide 78: Consistent leaders
Consistent leaders M & A Deal of the year Mergers Survey & BEE Listings Structured 2007 Year Deals Finance Acquist’ns M & A Dealmaker of the year 2006 2007 1st 1st 3rd 1st M & A Dealmaker of the year 2005 2005 1st * 1st 1st 1st M & A Dealmaker of the year 2004 2003 1st * n/a 7th 1st Magazine by tran
Slide 79: The portfolio effect
The portfolio effect Net income before tax R’ mil 1,500 Ï 65% 1,000 500 0 -500 -1,000 FICC Equity Investment Private Trading Banking Equity Jun '07 Dec '06 Dec '07
Slide 80: Unrealised profits maintained
Unrealised profits maintained Assets, unrealised value and profit before tax R’ mil 3,500 3,000 2,500 2,000 1,500 1,000 Associate Earnings 500 0 2002 2003 2004 2005 2006 2007 H1 08 Profit before tax Unrealised profits Assets (excl debt)
Slide 81: Portfolio prospects
Portfolio prospects R’ mil Net income before tax Jun '07 1,000 Dec '06 500 Dec '07 0 -500 -1,000 FICC Equity Investment Private Trading Banking Equity • Continuing • Deep • Market • Established volatility value leaders Book Turbulent times, resilient results
Slide 82: WesBank
WesBank WesBank A division of FirstRand Bank tta
Slide 83: A challenging year for WesBank
A challenging year for WesBank R’ mil Dec ’07 Dec ’06 Local lending 635 776 (18%) International operations (44) (65) 32% Consolidated profit before tax 591 711 (17%)
Slide 84: Worse than expected performance
Worse than expected performance The cycle is deeper and longer than first thought • Slow down in retail new business (motor and loans) • Higher bad debts and worsening arrears • Good performance in corporate and fleet • Improved cost ratios in local operations • Reduced losses and decisive action on
Slide 85: Advances growth is slowing
Advances growth is slowing R’ mil R’ mil 30,000 100,000 25,000 80,000 20,000 60,000 15,000 40,000 10,000 20,000 5,000 0 0 Dec '02 Dec '03 Dec '04 Dec '05 Dec '06 Dec' 07 New Business Gross advances
Slide 86: Corporate new business grows while retail declines
Corporate new business R ’mil grows while retail declines 25,000 20,000 15,000 10,000 5,000 0 Dec '02 Dec '03 Dec '04 Dec '05 Dec '06 Dec '07 Retail new business Corporate new business
Slide 87: Increased contribution from corporate
Increased contribution from corporate Dec ’07 Dec ’06 Change % of net income 35.7 25.3 10.4 % of new business 25.7 22.5 3.2 % of advances 29.3 26.5 2.8
Slide 88: Bad debts rise as expected in this cycle
Bad debts rise as expected in this cycle • Further reduction in second hand vehicle prices • Commercial/SME market starting to feel effects of higher interest rates • Flat interest rate forecast to provide some ‘breathing space’ R’ mil 800 1.6% 700 1.4% 600 1.2% 500 1.0% 400 0.8% 300 0.6% 200 0.4% 1
Slide 89: Exit from Australia
Exit from Australia MotorOne Finance – Australia • Not attaining required return levels, and unlikely to do so • Fundamental shift in market dynamics • Decision taken to exit the businesses • No negative overall financial impact expected • May be timing differences in conclusion of the transactions
Slide 90: UK showing signs of improvement
UK showing signs of improvement Carlyle Finance – UK • Good improvement in operational performance • Losses in line with budget reduced from R35m to R20m YOY • Closed the business finance division • Margins and scale showing good improvements • Cost elements addressed • Break even within 6-9 months
Slide 91: Prospects for 2008
Prospects for 2008 Challenges faced… • Continued pressure on retail new business • Affordability levels • Higher interest rate and inflation environment • Second hand vehicle prices • Spill over into commercial sector But… • Good growth in corporate sector • Systems and operational efficiencies • Gr
Slide 92: Momentum: making a success of life
making a success of life momentum
Slide 93: Financial highlights
Financial highlights Dec ’07 % change Normalised earnings (R’ mil) 913 19 Return on equity (%) 31 Insurance new business (R’ mil) 15 459 40 Value of new business (R’ mil) 298 44
Slide 94: Challenging operating environment
Challenging operating environment JSE Alsi +17.3% +13.7% +2.2% 32,000 y Pressure on disposable income y Pressure on asset values 29,000 y Negative impact on capital requirements 26,000 y Reduction in fee income BUT 23,000 y Resilient new business sales 20,000 Jun-06 Dec-06 Jun-07 Dec-07
Slide 95: Strong operational performance…
Strong operational performance… R’ mil Dec ’07 Dec ’06 % change Insurance operations 643 513 25 Asset management 140 139 1 Group operating profit 783 652 20
Slide 96: …driven by insurance operations
…driven by insurance operations R’ mil Dec ’07 Dec ’06 % change Insurance operations 643 513 25 - Momentum insurance 533 454 17 - FNB insurance 110 59 86 Asset management 140 139 1 Group operating profit 783 652 20
Slide 97: Strategy paying off
Strategy paying off Operating profit +17% R’ mil 600 +11% -7% +1% 533 550 +12% 500 454 0% 450 400 350 300 250 Dec '06 New Growth Margins & Markets Other Dec '07 business initiatives experience strain
Slide 98: Growing channel diversification
Growing channel diversification Contribution to Momentum Sales APE 100% 9 7 18 15 13 14 13 80% 8 12 12 6 9 16 20 15 60% 40% 68 64 60 61 60 20% 0% 2004 2005 2006 2007 Dec '07 Indendent brokers Agency force FNB Other bank brokers
Slide 99: Product diversification strategy delivering
Product diversification strategy delivering R’ mil New business APE per product 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 Dec '07 Retail Wealth Group Health Short -term
Slide 100: New business growth across all product lines
New business growth across all product lines APE R’ mil 900 +41% 800 +32% 700 +10% 600 500 400 300 +78% 200 +24% 100 +85% 0 Wealth Group Retail FNB Health Short-term Insurance Dec '06 Dec '07
Slide 101: Excellent growth in wealth business
Excellent growth in wealth business New business +41% R’ mil 9,000 8,000 +87% • Driven by product innovation and specialised 7,000 distribution 6,000 +48% 5,000 • 30% share of broker market 4,000 3,000 +17% • Strong positive net 2,000 cashflows 1,000 +23% 0 Dec '06 Dec '07 Individual life Annuities
Slide 102: Risk continues to drive retail business
Risk continues to drive retail business New business +10% R’ mil 700 • Savings growth dampened 600 +4% by pressure on disposable 500 income 400 +7% • Historical sales success and 300 acquisitions paying off 200 100 +17% 0 Dec '06 Dec '07 Risk RA's Endowments
Slide 103: Significant contribution from FNB collaboration
Significant contribution from FNB collaboration Mass market Middle market R’ mil In-force API +67% pa R’ mil In-force API >100% pa mil 600 2.5 100 60,000 90 500 50,000 80 70 400 2.0 40,000 60 300 50 30,000 40 200 1.5 20,000 30 20 100 10,000 10 0 1.0 0 0 Dec '05 Jun '06 Dec '06 Jun '07 Dec '07 Dec '0
Slide 104: Short-term insurance approaching breakeven
Short-term insurance approaching breakeven R’ 000 35,000 150% • Strong new business volumes 30,000 125% • Positive trends in all key 25,000 indicators 100% 20,000 • Steady progress to breakeven 75% 15,000 in near future 50% 10,000 25% 5,000 0 0% Jun '06 Dec '06 Jun '07 Dec '07 Gross premium earned C
Slide 105: Focus on integration and service delivery in health business
Focus on integration and service delivery in health business Lives ’000s 500 485 000 450 400 Acquisition 350 300 250 200 167 000 150 100 Organic Growth 50 0 Sovereign ALH MMSA 2003 2004 2005 2006 2007 Momentum administrators Momentum Health Scheme
Slide 106: Flat performance in challenging markets
Flat performance in challenging markets R’ mil Dec ’07 Dec ’06 % change Insurance operations 643 513 25 Asset management 140 139 1 Group operating profit 783 652 20
Slide 107: Good retail flows into asset management
Good retail flows into asset management Assets under management R’ bn 250 • Unit trust inflows counterbalanced +6% by institutional outflows 200 150 • Distribution collaboration with Momentum benefits retail assets 100 50 • Product innovation 0 Dec '06 Dec '07 Retail Institutional
Slide 108: Investment income benefits from capital investment policy
Investment income benefits from capital investment policy R’ mil Dec ’07 Dec ’06 % change Group operating profit 783 652 20 Investment income on free reserves 130 116 12 Normalised earnings 913 768 19
Slide 109: Investment income impacted by capital reduction
Investment income impacted by capital reduction +12% R’ mil 175 +23% -25% 150 + 15% -1% 130 125 116 100 75 50 25 0 Dec '06 New mandate Interest rates Capital Other Dec '07 reduction
Slide 110: Margins maintained
Margins maintained Value of new business as % of PV of future premiums • Improved from 1.9% 3.00% 2.6% in comparative six 2.50% 2.2% months 2.1% 2.1% 2.00% • Strong contribution 1.50% from high single investment volumes 1.00% • Increased 0.50% contribution from 0.00% growth initiatives Jun '05 Jun '
Slide 111: Capital efficiency impacted by volatile markets but…
Capital efficiency impacted by volatile markets but… 8% CAR as % of liabilities 7.3% 7% 5.7% 6% 5.0% 5% 4.0% 4% 3.3% 2.6% 3% 2.4% 2.1% 2% 1.7% 1.6% 1.8% 1% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Dec '07 Large companies Momentum
Slide 112: ...Momentum remains well capitalised
...Momentum remains R’ mil well capitalised 6,000 2.0 x CAR Target 1.7 - 1.9 times 1.9 x CAR (post dividend) 5,000 4,000 0.9 x CAR 0.9 x CAR 3,000 2,000 1,000 1 x CAR 1 x CAR 0 Jun '07 Dec '07 Termination Mortality and morbidity Expense Investment Credit Other risks Available for distribution
Slide 113: Growth in a volatile market
Growth in a volatile market • Market volatility expected to continue ― Impact mitigated by investment policy of capital • Further benefits from historical corporate actions and sales success still to flow • Ongoing diversification — Product — Channel — Geographical
Slide 114: Prospects
Prospects Paul Harris CEO FirstRand Limited O 0) 4) © fall ©) 0) 4) = ) FIRSTRAND
Slide 115: Summing-up
Summing-up • 1st time FirstRand has not met earnings growth target of CPI plus 10% - achieved CPI plus 5% • But still achieved ROE target of cost of capital plus 10% - achieved cost of capital plus 12.9% • Negative impact primarily caused by • Higher bad debts • Equity trading losses • Problems have
Slide 116: Not all gloom and doom!
Not all gloom and doom! • Momentum had an outstanding 6 months in a difficult market • Good new business flows • Collaboration between FNB and Momentum contributes meaningfully • FNB had an excellent operating performance • Strong franchise in corporate and commercial segments • Outstanding performa
Slide 117: Local markets remain tough
Local markets remain tough • Anticipate continued slowdown in SA in line with international economy • Consumer will remain under pressure and will filter into corporates • There is still a risk that bad debt cycle has not yet peaked • FirstRand created a high base last year with 32% increase in prof
Slide 118: Progress in international strategy
Progress in international strategy • Driven at divisional level rather than from the centre • Divisions that have opportunities to expand internationally are encouraged • FirstRand has setup group platforms to assist divisions in India and Brazil • Favour greenfields over buying businesses • Good co
Slide 119: This is not part of my job description!!
This is not part of my job description!!
Slide 120: TOI! - Lead India
TOI! - Lead India "Tree" 2 mins Existing Track 26 11 DO?
Slide 121: India – the opportunity
India – the opportunity • 1.1 Billion people • English language and legal system and financial regulation • Strong affinity with SA • Economic growth 10% • Financial services growth 30% • Deregulation • Foreign banks limited to 5% of Indian banks to 2009 • Many very successful startups in recent pas
Slide 122: Future growth
Future growth • Decentralised with many divisions that are profit centres • All divisions have growth strategies • All divisions in good shape operationally to deal with downturn • Poised to benefit from recovery on economy and market Confident our diversified portfolio will continue to provide shar