Firstrand Limited · JSE:FSR
Firstrand — Investor Presentation (November 2003)
61 slides from Firstrand's investor presentation, November 2003
Slide 1: Presentation to Counterparty Banks
Presentation to Counterparty Banks London, November 2003 Johan Burger CFO FirstRand Ltd
Slide 2: Agenda
Agenda • What is FirstRand? • Growth strategy • International strategy • The numbers • Risk management • Capital management • Prospects in a changing environment
Slide 3: FirstRand’s strategic intent
FirstRand’s strategic intent • An integrated financial services company • Comprehensive range of products and services to all segments in the South African market • Niche products in certain international markets • FirstRand is differentiated by: Its unique business philosophy De-centralised structu
Slide 4: Key stats
Key stats FirstRand Ltd • Total assets R396bn $49.5bn • Net asset value R22bn $2.75bn • Core headline earnings R5.2bn $638m Exchange rate used: 1 USD = 8 ZAR
Slide 5: SA’s top listed companies
SA’s top 10 listed companies Market Capitalisation Company ZAR (bn) USD (bn)* Anglo American Plc 208.8 26.1 BHP Billiton Plc 134.0 16.8 Richemont Securities AG 81.0 10.1 Anglo American Platinum Corp 62.4 7.8 Sasol Ltd 61.6 7.7 AngloGold Ltd 60.2 7.5 SABMiller Plc 58.9 7.4 Old Mutual Plc 45.9 5.7 Sta
Slide 6: SA’s top listed financial services companies
SA’s top 10 listed financial services companies Market Capitalisation Company ZAR (bn) USD (bn)* Old Mutual Plc 45.9 5.7 Standard Bank Group Ltd 44.9 5.6 FirstRand Ltd 44.4 5.6 Remgro Ltd 31.2 3.9 Absa Group Ltd 25.6 3.2 Liberty International Plc 23.6 3.0 Sanlam Ltd 22.9 2.9 Nedcor Ltd 18.8 2.3 Libe
Slide 7: Group structure
Group structure Management Remgro 23% RMBH 23,1% 32.8% 9.6% FirstRand Limited 100% 100% 62% Momentum Group FirstRand Bank Discovery Limited Holdings Limited - Individual life - Investment banking - Discovery Health - Employee benefits - Corporate banking - Discovery Life - Investments - Retail banki
Slide 8: Agenda
Agenda • What is FirstRand? • Growth strategy • International strategy • The numbers • Risk management • Capital management • Prospects in a changing environment
Slide 9: Growth strategy
Growth strategy • Classic organic growth
Slide 10: A fully diversified earnings base
A fully diversified earnings base • Not a single growth story • Less reliance on profits from any single business unit, which provides a measure of protection • Each business unit formulates own response/ strategy for each segment HomeLoans Deposits Capital
Slide 11: Growth strategy (cont.)
Growth strategy (cont.) • Classic organic growth • Acquisitions • Collaboration • More greenfields
Slide 12: Ability to create new sources of revenue
Ability to create new sources of revenue
Slide 13: Agenda
Agenda • What is FirstRand? • Growth strategy • International strategy • The numbers • Risk management • Capital management • Prospects in a changing environment
Slide 14: Our view on international: Components of strategy
Our view on international Components of strategy We are Not targeting Sustainable Extension of a rand % offshore competitive domestic specialist income advantage strategy FirstRand provides strategic alignment
Slide 15: Strategic decision on international activities
Strategic decision on international activities • Ansbacher disengagement • Good opportunities for Retail in Africa • Our plan to expand in Africa
Slide 16: Rationale for Ansbacher disengagement
Rationale for Ansbacher disengagement • Does not fit our international strategy • Requires scale • Underperforming capital • Historical investment
Slide 17: Ansbacher disengagement
Ansbacher disengagement Timetable Information Memorandum to End November 2003 prospective bidders Identify & shortlist bidders End November 2003 Receive final bids Early December 2003 FirstRand selection of final bidders Mid December 2003 Advise selected bidders to proceed Mid December 2003 with due
Slide 18: Good opportunities for Retail in Africa
Good opportunities for Retail in Africa • SA now largest source of FDI into Africa • 20% of SA exports go to Africa • Superior ROEs • Good track record (3 year CAGR = 38%)
Slide 19: Our plans to expand
Our plans to expand • Retail Grassroots Acquisition of local banks Would consider purchasing a network • Corporate Origination of project finance and trade finance assets
Slide 20: Agenda
Agenda • What is FirstRand? • Growth strategy • International strategy • The numbers • Risk management • Capital management • Prospects in a changing environment
Slide 21: Another year of superior growth
Another year of superior growth FirstRand Ltd Pre-AC133 Post-AC133 Core headline earnings +23% +30% Dividend per share +23% +23% ROE (core headline) +27% +28% Compound NAV incl. dividends +24% +25% (4 years)
Slide 22: Unpacking the growth
Unpacking the growth Growth 2003 = R965m = +23% Contributors: Growth: Retail 10% +265% Capital 6% Corporate 6% +42% Greenfields 4% +69% Momentum 1% 27% +206% Non-contributors: Ansbacher UK (2%) RMBAM (2%) Total Growth 23%
Slide 23: Profit contribution
Profit contribution 22% (2002: 24%) 78% (2002: 76%) Banking Group Insurance Pre-AC133: Insurance +10% Banking +26% Post-AC133: Insurance + 9% Banking +35%
Slide 24: Banking Group
Banking Group 22% 78% 78%
Slide 25: Key indicators
Key indicators Pre-AC133 Post-AC133 Core headline earnings + 26% + 35% Return on equity + 25% + 26% Total assets R302bn Total advances R189bn Total capital R18.7bn
Slide 26: The strategy is delivering
The strategy is delivering • Strong net interest income growth Load acquisitions deliver Strong deposit and asset growth Endowment benefit on retail deposits and capital • Improved credit result Lower CDO losses Credit environment improved • Non interest revenue subdued Strong growth in transactiona
Slide 27: Strong organic & load growth
Strong organic & load growth Margin analysis • Domestic advances up 12.4% Volume HomeLoans achieved 21.4% new Effect business growth 4.33 % WesBank new business growth of 19% Card loans growth of 17% Low demand for credit by large corporates continues • Retail deposits up 6.8% • Medium corporate dep
Slide 28: The market helped
The market helped Margin analysis Endowment Volume Deposits Capital 0.18% 0.13% Effect 4.33 % • Higher average interest rates • Hedge structures in place to protect endowment margin for declining interest rates 2002 2003
Slide 29: Total picture
Total picture Margin analysis Endowment Volume Deposits Capital Other 4.81 % Effect 0.18% 0.13% 0.17% 4.33 % 9% Growth 4% Growth 23% Growth 2002 2003
Slide 30: Credit contributes to growth
Credit contributes to growth • Credit environment Local and international credit markets improved Improved CDO result of R206 million More conservative provisioning • Credit strategy (credit grading and scoring) Improved risk profile Price for risk
Slide 31: Continuing downward trend
Continuing % downward trend % 6 1.5 1.6 5 5.6 1.3 1.4 1.1 1.2 4 0.9 4.3 1.0 3 3.5 0.7 0.8 3.0 0.6 2 2.4 0.4 1 0.2 0 0.0 1999 2000 2001 2002 2003 NPLs Bad debts Bad debts before CDO
Slide 32: A mixed picture
A mixed picture Non interest revenue R million 8,000 Growth YOY (3.3%) Other (41.6%) (41,6%) 7,000 Investment income (76.1%) (76,1%) 6,000 Trading income (18.3%) (18,3%) Transactional income 11.7% 11,7% 5,000 4,000 2002 2003 Pre-AC 133 Excluding translation gains/losses
Slide 33: … but transactional income strong
… but transactional income strong Rm 6,000 6,000 • Banking fees increased by 22.7% 11.7% Steady growth in volume: 8.2% Broadening of product offerings: 4.7% 5,000 5,000 Pricing increases: 7.2% Cash handling fee: 2.3% 4,000 4,000 • Knowledge-based fees decreased by 58.7% Lower M&A activity Lower stru
Slide 34: Difficult trading period
Difficult trading period Rm 2,000 2,000 • Treasury trading income down by 4.3% (18.3%) Difficult trading conditions 1,400 1,400 • Foreign exchange trading down by 28.6% Lower volatility 800 800 Lower volumes Smaller margins 200 200 2002 2002 2003 2003 Foreign exchange Foreign exchangetrading trading
Slide 35: Operational leverage is still improving
Operational leverage is still improving Rbn % 18 65 Revenue +15% 62.4 16 61.0 60.9 14 60 12 57.6 57.0 10 55 8 Expenditure +14% 6 50 4 2 0 45 1999 2000 2001 2002 2003 C ost to incom e O perating expenditure T otal Incom e
Slide 36: Conservative tax charge
Conservative tax charge • Changes in legislation relating to foreign subsidiaries • Changes in foreign dividend legislation • Lower earnings contribution from favourable tax jurisdictions
Slide 37: Diverse earnings base
Diverse earnings base Rm Attributable income 1,000 15% 900 19% 800 700 600 6% 22% 500 165% 400 8% 300 200 105% 100 18% (12%) 0 FNB Retail FNB WesBank FNB Africa Insurance RMB FNB Wealth Ansbacher -100 HomeLoans Corporate 2002 2003
Slide 38: Agenda
Agenda • What is FirstRand? • Growth strategy • International strategy • The numbers • Risk management • Capital management • Prospects in a changing environment
Slide 39: FirstRand’s risk management supports the business units
FirstRand’s risk management supports the business units to achieve desired objectives and avoid adverse outcomes
Slide 40: Improved credit strategy
Improved credit strategy • Credit scoring and grading (internal rating scale) • Risk pricing • Work-out and debt restructuring process • Collection process • Portfolio management
Slide 41: Improved credit profile
Improved credit profile Distribution of deal ratings across the Banking Group 60 Improved credit quality 50 Average profile: 2002: BBB+ 40 2003: BBB+ % 30 20 10 0 FR1-13 FR14-22 FR23-47 FR48-94 FR95-100 AAA/AA+ AA A/BBB BB/B CCC/D 2002 2003
Slide 42: Interest rate risk strategy
Interest rate risk strategy • Income / margin protection • Reduce volatility in margin • No aggressive positioning of book for interest rate view • Portfolio management by interest rate sensitivity portfolio
Slide 43: Hedging to protect margin
Hedging to protect margin Net interest income shock Change (Rm) 250 200 150 100 Rm 50 0 Up 400 Up 300 Up 200 Up 100 Down Down Down Down BASE -50 100 200 300 400 -100 -150 -200 Last month's Last 12 months 1st 12m 1st 1212 First months months 2nd 12 months Second 12 months
Slide 44: Market risk strategy
Market risk strategy • Value at risk • Primary measure is a stress loss limit Per trading desk For the bank • Not correlated, but all risks aggregated over a 10-day period without any intervention
Slide 45: Agenda
Agenda • What is FirstRand? • Growth strategy • International strategy • The numbers • Risk management • Capital management • Prospects in a changing environment
Slide 46: FirstRand’s capital strategy enhances shareholder value
FirstRand’s capital strategy enhances shareholder value
Slide 47: Capital management framework
CAPITAL MANAGEMENT FRAMEWORK Level of Investment Capital capital of capital allocation
Slide 48: Capital management framework
CAPITAL MANAGEMENT FRAMEWORK • Highest of regulatory or economic capital Current Rating (BBB, AA) Buffer Level of Acceptable gearing (66% : 33%) capital • Economic capital Based on Basel II principles Prepare for Basel II Focussed on risk sensitive basis
Slide 49: Capital management framework
CAPITAL MANAGEMENT FRAMEWORK • Acceptable risk profile Investment • Reduce volatility in investment income of capital • Invest along the yield curve
Slide 50: Capital management framework
CAPITAL MANAGEMENT FRAMEWORK • Price and reserve for risk • Strategic decision making Capital allocation • Performance measurement (alignment) • Basel II requirement
Slide 51: The strategy at work
The strategy at work CAR Capital adequacy ratio 12% Buffer 10% Tier 2: 24% 8% Tier 2: 50% Tier 1: 6% 76% Tier 1: 50% 4% Regulatory Capital Economic Capital A ctual
Slide 52: The strategy at work
The strategy at work Return on equity Increased regulatory requirement from 8% to 10% 27% 26% 25% 25% 25% 25% 23% 21% 21% 20% 19% 18% 18% 17% 17% 17% 15% 1999 2000 2001 2002 2003 Return on equity Cost of capital
Slide 53: Net asset value
Net asset value R million Currencies 16,000 14,000 12,000 10,000 76% 8,000 64% 6,000 4,000 2,000 17% 7% 10% 11% 8% 5% 0 South Africa Pounds Dollars Other 2002 2003
Slide 54: Net asset value
Net asset value R million 17,117 17,000 15,460 15,000 13,000 11,911 11,000 9,505 9,000 8,040 7,000 5,000 1999 2000 2001 2002 2003 CAGR over 4 years: 21%
Slide 55: Accounting complexity
Accounting complexity • AC133 / IAS39 Provision Hedging Insurance contracts
Slide 56: Agenda
Agenda • What is FirstRand? • Growth strategy • International strategy • The numbers • Risk management • Capital management • Prospects in a changing environment
Slide 57: Financial charter overview
Financial charter overview • Voluntary and proactive engagement between industry and government • Referee is Charter Council • Achievable targets • Opportunities for growth
Slide 58: The scorecard
The scorecard Charter Components: Scorecard: 1. HR Development 15 + 5 = 20 2. Ownership 14 + 8 = 22 3. Procurement and development 15 4. Access to financial services 18 5. Corporate social investment 3 6. Empowerment financing 17 + 5 = 22 100 FirstRand well-positioned
Slide 59: Changing environment
Changing environment • Generally speaking, lower interest and inflation rates lead to: Improved equity markets Increased property values Countries with lower interest and inflation rates have higher economic growth rates Higher demand for credit Improvement in bad debts Increased level of economic a
Slide 60: Positive picture looking forward
Positive picture looking forward • Expect lower interest rates and improved economic outlook to impact favourably on new business growth • Greenfield operations will continue to provide earnings growth “sweetener” • Hedge strategies in place to protect endowment margins • Release of under-performing
Slide 61: FirstRand
FIRSTRAND