Nedbank Group · JSE:NED
Nedbank — H1 2018 Earnings Presentation
49 slides from Nedbank's earnings presentation, 2018
Slide 1: Nedbank Group Investor Roadshow Q3 2018
Nedbank Group INVESTOR ROADSHOW Q3 2018
Slide 2: Nedbank Group – a leading African financial services provider
Nedbank Group – a leading African financial services provider Old Mutual Group Listed on the JSE Market 54% JSE since capitalisation Top performing share in the peer shareholding in Top 40 1969 R125bn group in H1 2018 Nedbank Group company (established 1834) (at 30 June ‘18) (19.9% post unbundling)
Slide 3: Diversified & growing franchises
Diversified & growing franchises Corporate & Retail & Business Wealth Rest of Africa Investment Banking Banking Banking solutions to corporates, Banking solutions to individual retail Integrated insurance, asset & wealth Banking solutions to retail, small & institutions & parastatals with clients, a
Slide 4: Solid track record in delivering value to shareholders
Solid track record in delivering value to shareholders NAV per share1 (cents) ROE & cost of equity (%) Dividend per share (cents) +4.7% 18.9 (2) +13.9% 18.4 18.4 17.3 16.5 18.3 15.7 15.1 Economic profit 14.4 13.9 13.8 13.5 13.0 13 596 14 428 15 826 16 200 16 957 460 537 570 610 695 14 15 16 17 18 14
Slide 5: Stronger economic growth dependent on structural reforms
Stronger economic growth dependent on structural reforms, policy certainty, improved levels of confidence, investment & job creation Job creation Increased & reduced … levels of - unemployment Increased Improved inclusive levels of local - poverty Structural levels of economic Early stages of & fore
Slide 6: Our environment – cyclical economic upturn off a low base
Our environment – cyclical economic upturn off a low base Macroeconomic drivers1 (%) Prospects Balance sheet 2017 2018 2019 2020 – Stronger wholesale & retail advances growth GDP SA 1.3% 1.0% 1.8% 2.2% » Corporate clients awaiting clarity on land expropriation, mining charter, structural reforms,
Slide 7: Our environment – emerging market currency weakness
Our environment – emerging market currency weakness, although the Rand is undervalued on a purchasing power parity basis EM currencies relative to US$ (100 at 1 Jan 2013) Rand on PPP basis 110 Log of index % from adjusted "fair" value 4.7 30 100 4.5 20 90 4.3 10 80 4.1 70 0 3.9 60 -10 3.7 50 -20 3.5
Slide 8: Green shoots – gradual recovery in retail credit
Green shoots – gradual recovery in retail credit, but demand for corporate credit remains weak Retail credit application volumes (000) Business & consumer confidence & loan payouts +33.1% +17.4% (5.4%) +1.4% +10.4% +16.1% 15 657 725 626 635 62 72 Personal loans Vehicle finance Home loans 39 BB & CIB
Slide 9: Nedbank contributing to building a prosperous & inclusive South Africa
Nedbank contributing to building a prosperous & inclusive South Africa New boards & leadership appointed. Governance issues being addressed, but strategic change will take longer State Owned BASA and ASISA working on possible funding models Enterprises Nedbank Public Sector exposure: R24bn (go
Slide 10: Old Mutual managed separation
Old Mutual managed separation Listing of Allow OML shareholder Nedbank Group Old Mutual base to transition to an Unbundling shareholding after Limited (OML) SA & EM investor base unbundling Listed on 26 June Sufficient time for OML’s Unbundling of Nedbank Group ordinary Increased index 2018
Slide 11: Old Mutual managed separation – ongoing mutually beneficial relationship
Old Mutual managed separation – ongoing mutually beneficial relationship between Nedbank & OML OML ‘OML is committed to being a significant minority shareholder in accordance investor day (17 May 2018) with the new relationship agreement’ – CEO, Peter Moyo The OML Nedbank relationship agreement (R
Slide 12: Key performance indicators – strong financial performance
Key performance indicators – strong financial performance Managed operations H1 H1 H1 H1 2018 2017 2018¹ 2017¹ Headline earnings (Rm) 27.0% 6 696 5 271 2.0% 6 562 6 433 Economic profit (Rm) >100% 1 685 393 ROE (excl goodwill) 18.4%2 15.1% 18.3% 18.9% Diluted HEPS growth 26.3% (3.7%) 1.4% 5.9% Prepro
Slide 13: IFRS 9 & 15 changes impacted the shape of the income statement
IFRS 9 & 15 changes impacted the shape of the income statement New- Suspended business Initiation Loyalty H1 H1 % interest strain fees schemes Adjusted % Rm 2018 2017 change (IFRS 9) (IFRS 9) (IFRS 9) (IFRS 15) H1 2018 change NII 14 006 13 548 3.4 192 (141) 14 057 3.8 Impairments 1 815 1 594 13.9 19
Slide 14: Advances – solid growth & market share gains across retail portfolios
Advances – solid growth & market share gains across retail portfolios offset by wholesale portfolios remaining flat Gross advances (Rbn) BA900 market share3 (%) Wholesale Retail Yoy Ytd Share trend trend Leveraging Selective origination relationships & & unique positioning Commercial 39.6 (0.7) (0.9
Slide 15: Deposits – focus remains on Basel III-friendly deposits
Deposits – focus remains on Basel III-friendly deposits Deposits (Rbn) BA900 market share1 Yoy Ytd Share trend trend (7.0) 16.0 1.6 3.3 Wholesale 22.7 +2.0 +1.5 Corporate 24.6 (non- 16.6 (0.1) +0.1 financial) 801.2 Household 19.0 0.0 +0.1 762.7 Foreign +8.8% +4.3% +11.7% (2.0%) 12.3 (1.2) (0.5) +20.
Slide 16: Retail transactional NIR growth ahead of client growth
Retail transactional NIR growth ahead of client growth – deeper client penetration Total retail client base (#000) Retail NIR (Rm) +1.6% +1.0% +5.7% +2.8% 7 655 5 151 5 200 Total 7 329 7 531 Total 4 874 2 702 2 771 Main- 2 712 3 510 2.5% Transactional banked (0.3%) 3 370 & consumer 3 172 card issuin
Slide 17: NIR growth underpinned by good growth in retail clients
NIR growth underpinned by good growth in retail clients Retail client base breakdown (#m) Nedbank main-banked market share (%) Same question asked: 17 H1 18 H1 ‘Which ONE bank do you regard as your main bank for personal Yoy% growth banking?’ Consulta +1.6% AMPS 12.7% 7.7 +1.1% 6.1 10.1% 9.6% 8.8% +
Slide 18: Client-centred strategy intact with strong growth in the middle market
Client-centred strategy intact with strong growth in the middle market UNLOCKED.ME student CVP launched to address growth Main-banked, # 000 Kids & youth Professional (6%) (4%) +4% +4% 409 383 367 67 69 72 +6% +9% Small Business 0% 0% Entry level Services2 100 106 116 1 369 1 374 1 378 +1% +9% 0% +2
Slide 19: Building more enduring retail client relationships through cross-sell
Building more enduring retail client relationships through transactional product cross-sell # 000 Total Retail clients % CAGR Number of product line clients with Jun 13 Jun 17 Jun 18 ’13 vs ‘18 transactional products 919 Investments 1 521 11,9 78% 74% 72% 1 609 844 Card1 940 3,6 49% 59% 59% 1 008 71
Slide 20: CIB – ongoing new primary-client wins
CIB – ongoing new primary-client wins Primary-client wins (#) Selected primary-transactional-account wins 39 2 2 10 26 Target = 25 pa 3 7 15 2 25 3 21 22 11 10 5 FY14 FY15 FY16 FY17 H1 18 Tier 4 Tier 3 Tier 2 Tier 1 Target Definition of tiers: • Tier 1 > R5m • Tier 2 < R5m > R500k • Tier 3 < R500k >
Slide 21: Credit loss ratio – improvement underpinned by a quality portfolio
Credit loss ratio – improvement underpinned by a quality portfolio, IFRS changes & proactive risk management Group CLR1 (bps) Cluster CLR (bps) 114 106 109 83 80 77 67 47 53 15 9 1 (3) 14 15 16 17 18 CIB RBB Wealth RoA H1 17 H1 18 H1 Banking 46.7% 46.1% 4.1% 3.1% advances 1 Nedbank through-the-cycle
Slide 22: Defaulted advances – increase driven by specific counters in CIB
Defaulted advances – increase driven by specific counters in CIB, with prudent coverage levels maintained Defaulted advances (Rbn, %) Specific coverage (%) Portfolio coverage (%) 3.1% 2.7% 36.2 35.2 0.70 0.91 (1) 16.4% Dec 17 Jun 18 Dec 17 Jun 18 22.8 19.6 2.0 Other 1.5 5.1 RBB & CIB specific covera
Slide 23: RBB – CLR underpinned by quality origination
RBB – CLR underpinned by quality origination HL new business – low-risk clients proportion1 (%) Vehicle Finance 3 Months+ arrears benchmarking3 50% 6% 5% 40% 4% 30% 3% 20% 2% 1% 10% 0% 0% 09 10 11 12 13 14 15 16 17 18 13 14 15 16 17 18 HL new business – low-risk properties proportion² (%) PL market
Slide 24: High quality commercial property book
High quality commercial property book Low average loan to value (LTV) (%) Key drivers 18.4% 13.2% 4.5% 3.0% 1.7% : LTVs >90%1 Strong client base supported by an experienced team Lending access to existing collateral pools 47% 47% 47% 43% 43% Vacant land < 3% & residential < 10% of portfolio
Slide 25: Expenses – good cost management in response to slow revenue growth
Expenses – good cost management in response to slow revenue growth & benefit from PRMA credit & IFRS changes Expenses by cluster (Rm, % growth) Expense growth (%) +3.7% 8.9 8.8 7.4 6.2 6.4 5.4 4.4 4.3 5.0 +3.6% 2.7 +6.5% +4.0% 14 15 16 17 18 3 016 9 723 1 495 1 136 CIB RBB Wealth RoA H1 Expense grow
Slide 26: Expenses – initiatives to support efficiency ratio target of ≤ 53%
Expenses – initiatives in place to support our efficiency ratio target of ≤ 53% by 2020 Other ongoing Efficiency ratio (%) Target operating model1 cost savings R228m cost savings (R512m Savings of R109m, include: run rate), include: 59.3 Adoption of automation & 55.8 Optimisation of branch robot
Slide 27: Pathway for RBB efficiency ratio to ≤ 58% by 2020
Pathway for RBB efficiency ratio to ≤ 58% by 2020 Efficiency ratio: 2017 to 2020 Key drivers Organic – efficiency ratio deteriorates as inflationary cost increases & ongoing investments in the franchise/ digital exceed organic revenue growth in a more competitive environment Endowment – benefit
Slide 28: Digital 1st, 1st in digital – Nedbank Money app
Digital 1st, 1st in digital – digitise. Nedbank Money appTM reached more than 1m downloads, with 42 services added since launch (Target > 180 by 2020) 1 million downloads & > 400k active users Selected highlights in under 10 months since launch Balance peek Greenbacks rewards Money app launched in N
Slide 29: Accelerated digitisation of technology & operations
Accelerated digitisation of technology & operations Digital clients1 (# 000) Cash deposit volumes (# 000) Yoy change in 2018 Jun 16 Jun 17 Jun 18 Traditional cash deposits Self-service cash deposits Devices 0% Intelligent depositors 23% 14 530 14 395 14 649 ATMs (3%) +23% Video bankers 16% 5 68025 8
Slide 30: Integrated channels – optimising branch footprint
Integrated channels – efficient use of space & staff, optimising branch footprint Total & new-image outlets Floor space saved Outlets format mix (#) (m2) (#) Cumulative target >30 000 m2 709 695 by 20201 639 708 695 149 613 608 148 639 144 613 608 101 103 55 40 0 255 0 304 28 828 43 24 485 336 346 1
Slide 31: Investing in technology to enhance client experiences & unlock efficiencies
Investing in technology to enhance client experiences & unlock efficiencies Core systems (#) Capitalised IT costs (Rbn) IT cashflow spend (Rbn) Rationalise, standardise & simplify Projected to peak as regulatory projects are completed & development 6.8 costs on new technologies decrease 194 Increasi
Slide 32: Associate income – ETI performance
Associate income – ETI performance reflective of management actions & improving environment Associate income from ETI1 (Rm) ~R162m 870 (125) (744) 247 (Q3 18) 426 444 321 317 247 ETI medium-to-long term guidance2 ROTE target: COE + 5% (446) (H1 2018: 20.9%) Efficiency ratio: 50−55% (1 061) (H1 2
Slide 33: ETI market value greater than carrying value
ETI market value greater than carrying value – R1bn impairment provision to be reviewed at 31 Dec 2018 Carrying value drivers vs market value (Rbn) (1.0) (3.5) 7.8 0.4 (0.8) 4.6 4.7 4.0 3.3 2.9 Carrying Carrying Carrying Market value Market value Share of ETI value value value Jun Jun 2018 Jun 2018
Slide 34: Nedbank – Ecobank collaboration gaining traction
Nedbank – Ecobank collaboration gaining traction 1 Transactional banking: Over 90 Nedbank clients with more than 200 new accounts opened at Ecobank 2 Dealflow: Increased treasury & trading activities for improved business revenue flows 3 Other initiatives include: Integrated crossborder transfer sol
Slide 35: Capital – CET1 towards the top end of our target range
Capital – CET1 towards the top end of our target range CET1 capital ratio (%) – post full IFRS implementation Fully loss-absorbent capital adequacy ratios1 (%) (0.6) 14.1 14.2 1.3 (0.25) (0.6) 13.6 12.4 12.1 CET1: 10.5–12.5% 12.6 12.3 12.4 SARB minimum CET1: 7.375% Dec 17 Full IFRS Day 1 Organic Div
Slide 36: Dividend – dividend cover within our target range
Dividend – dividend cover within our target range Dividend cover (times) Dividend yield (%) Payout ratio: 46% 48% 50% 56% 50% 2.16 2.10 1.99 2.00 5.0 1.80 Board-approved target range: 1.75–2.25x 3.0 14 15 16 17 18 14 15 16 17 18 H1 H1 Nedbank JSE all-share index NEDBANK GROUP LIMITED – Q3 2018 Inves
Slide 37: Nedbank strategic focus – creating great client experiences
Nedbank strategic focus – creating great client experiences & growing clients Create great client experiences & grow clients … innovations launching in H2 2018 Enabled by Simplified client onboarding – Technology People/Talent/ convenient, FICA-compliant account (ME & DFL) + Culture/Brand opening
Slide 38: Delivering innovative market-leading client experiences
Delivering innovative market-leading client experiences Executive EySightTM Robotics Process Automation Technology Cross-sell & client First implementations servicing benefits delivering benefits Implementations | Pilots Client Intelligence Platform Executive EySightTM Real-time client & management
Slide 39: Delivering innovative market-leading client experiences
Delivering innovative market-leading client experiences UNLOCKED.ME Digital branch Payment solutions Winning in digital Banking’s first Leading in digital outlets SA’s first digital branch Innovative lifestyle e-commerce platform Worldclass banking apps – entirely self-service UNLOCKED.ME brings t
Slide 40: Delivering innovative market-leading client experiences
Delivering innovative market-leading client experiences STOKVEL MOBIMONEY Nedbank Online Banking *120* 001# *120* 001# Innovative savings vehicle solution for Innovative solutions for driving Refresh of digital channels for complexity in Stokvel community inclusive banking at low cost enhanced clien
Slide 41: Delivering innovative market-leading client experiences
Delivering innovative market-leading client experiences Chatbot, Robo-advisor & Nedbank Private Wealth app Systems & processes geyser telemetry Award-winning App In demand market solutions Seamless administration Global consolidated view of your wealth Enhancing digital solutions Improving business
Slide 42: 2018 guidance
2018 guidance Average interest-earning banking asset growth below nominal GDP growth (from: increase NII in line with nominal GDP growth) NIM slightly above the 2017 level of 3.62% (no change) To increase, but remain below the bottom of our target range of 60–100 bps (under IFRS 9) CLR (from:
Slide 43: 2020 & medium-to-long-term targets
2020 & medium-to-long-term targets H1 Medium-to-long-term vs Metric 2018 vs MLT target (MLT) 2018 outlook 1 2017 5% above COE 3 ROE (excl goodwill) 18.4% ▲ (≥ 18% by 2020) Increase, but remain below MLT ▲ Diluted HEPS Grow in line with MLT, growth 26.3% ▲ ≥ CPI + GDP growth + 5% supported by ETI rec
Slide 44: 2020 targets – strategy in place to improve financial metrics
2020 targets – strategy in place to improve financial metrics in RBB & RoA, while maintaining good returns in CIB & Wealth Efficiency ratio Return on equity1 Nedbank Peer Nedbank Nedbank Peer Nedbank H1 2018 average2 2020 target H1 2018 average2 2020 target Nedbank Group 55.8% 54% ≤ 53% 18.4% 18% ≥
Slide 45: Nedbank Group – an attractive investment
Nedbank Group – an attractive investment Building a more client−focused, digital, agile & competitive Nedbank An improving macroeconomic environment KPIs that support shareholder value creation Supportive global environment 2018 DHEPS growth ≥ nominal GDP growth + 5% Cyclical improvement in SA
Slide 46: Environment, social & governance – Nedbank a leader
Environment, social & governance – Nedbank a leader Thomson Reuters Diversity & Inclusion Index – Nedbank the only African company in the top 20 most diverse & inclusive organisations Dow Jones World Sustainability Index – one of only 27 banks on the index & included for the fourteenth year Africa’s
Slide 47: Our role in society – delivering value to all our stakeholders
Our role in society – contributing by delivering value to all our stakeholders Our purpose – to use our financial expertise to do good for individuals, families, businesses & society STAFF SHAREHOLDERS NAV per share up 4.7% to 16 957 cents Paid R8.1bn in salaries & benefits to support our 31 592
Slide 48: Delivering on our sustainability initiatives
Delivering on our sustainability initiatives – through our products & services, collaboration & partnership and our own operations NEDBANK GROUP LIMITED – Q3 2018 Investor presentation 48
Slide 49: Contact us
Contact us Nedbank Group Nedbank Investor Relations nedbankgroup.co.za Head of Investor Relations Nedbank Group Limited Alfred Visagie Tel: +27 (0) 11 294 4444 Direct tel: +27 (0) 11 295 6249 Physical address Cell: +27 (0) 82 855 4692 135 Rivonia Road Email: AlfredV@nedbank.co.za Sandown 2196 Invest