FirstRand Limited · JSE:FSR
FirstRand — H1 2015 Earnings Presentation
62 slides from FirstRand's earnings presentation, December 2014
Slide 1: Results presentation for the six months ended 31 December 2014
results presentation for the six months ended 31 December 2014
Slide 2: Slide 2
Slide 3: Introduction: Group continues to deliver growth and returns above hurdle rates
Results presentation for the six months ended 31 December 2014 1 INTRODUCTION Group continues to deliver growth and returns above hurdle rates Normalised earnings* (R million) 24.0% ROE . 10 000 15% 9 993 8 691 8 000 7 243 6 000 5 771 4 000 4 572 2 000 0 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 * Normalis
Slide 4: Growing shareholder value; Franchises performed well
2 FIRSTRAND GROUP | Introduction continued Growing shareholder value % 26 24.0 24 23.4 22.3 22 20 19.5 18.0 18 16 14 14.1 14.0 13.6 13.6 13.5 12 10 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Cost of equity Return on equity Franchises performed well despite increasing headwinds Normalised profit before tax (
Slide 5: Client franchise contributes 94% of gross revenue
Results presentation for the six months ended 31 December 2014 3 OVERVIEW AND KEY THEMES Client franchise contributes 94% of gross revenue Net interest income (NII) = 53% Non-interest revenue (NIR) = 47% Transactional income* Lending 30% 28% Flow trading and residual risk Group Treasury and other De
Slide 6: Performance highlights; Various strategies drive growth in net interest income
4 FIRSTRAND GROUP | Overview and key themes continued Performance highlights Dec 14 Dec 13 Change Net interest income before bad debts (R million) 19 048 16 397 16% Net interest margin (%) 5.26 5.13 Bad debts (R million) (3 086) (2 445) 26% Credit loss ratio (%) 0.86 0.77 Non-interest revenu
Slide 7: Retail advances growth reflects origination strategies
Results presentation for the six months ended 31 December 2014 5 Retail advances growth reflects origination strategies Retail advances Mortgages Affordable housing SA VAF UK VAF (MotoNovo) Remain conservative Continued strong Gradual reduction of Strengthening market with focus on low-risk demand a
Slide 8: Asset margins impacted by increased market liquidity spreads
6 FIRSTRAND GROUP | Overview and key themes continued Various strategies drive growth in net interest income Key drivers Targeted advances growth Lending Increased liquidity costs Deposit franchise and Group Treasury strategies Fixed vs floating-rate Endowment Asset margins impacted by increas
Slide 9: Margin pressure from shift in rate mix in WesBank's VAF book
Results presentation for the six months ended 31 December 2014 7 Various strategies drive growth in net interest income Key drivers Targeted advances growth Lending Increased liquidity costs Deposit franchise and Group Treasury strategies Fixed vs floating-rate Endowment Margin pressure from s
Slide 10: Funding strategies result in improved profile
8 FIRSTRAND GROUP | Overview and key themes continued Various strategies drive growth in net interest income Key drivers Lending Deposit franchise and Group Treasury strategies Endowment Funding strategies result in improved profile As % of total funding (institutional and corporate/public sector) R
Slide 11: Pre-emptive lengthening of institutional term funding
Results presentation for the six months ended 31 December 2014 9 Pre-emptive lengthening of institutional term funding Average liquidity spread for financial year (bps) Weighted average remaining term (months) 120 29 28 27 26 27 100 25 25 80 23 23 60 22 21 21 21 21 20 21 40 19 20 17 0 15 Jun 12 Dec
Slide 12: Positive endowment impact of R482 million
10 FIRSTRAND GROUP | Overview and key themes continued Positive endowment impact of R482 million Repo rate (%) 7.5 7.0 6.5 6.0 Daily average repo 5.73% 5.5 5.0 Daily average repo 5.00% 4.5 4.0 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Average endowment book = R131
Slide 13: Benefits from funding strategies and endowment offset asset margin pressures
Results presentation for the six months ended 31 December 2014 11 Benefits from funding strategies and endowment more than offset asset margin pressures Six months ended Six months ended 31 December 2014 31 December 2013 Average Average Pricing relative rate Pricing relative rate to reference rate %
Slide 14: Proactive provisioning and impact of overlays
12 FIRSTRAND GROUP | Overview and key themes continued Underlying cost of credit trended down, but proactive provisioning deemed prudent NPLs as % of advances Credit loss ratio 5% 1.0% Year-on-year increase in overlays driven mainly by corporate 4% 0.9% 0.86% 3% Impact of overlays 0.8% 2% 0.77% 0.7%
Slide 15: Uncertainty on oil and gas, and mining and metals
Results presentation for the six months ended 31 December 2014 13 … given uncertainty on oil and gas, and mining and metals Brent crude oil price (USD per barrel) Commodity price index 140 450 130 430 120 Brent crude (LHS) 410 110 390 100 90 370 80 350 Commodity prices (RHS) 70 330 60 310 50 40 290
Slide 16: Strong growth reflects quality and diversity of NIR
14 FIRSTRAND GROUP | Overview and key themes continued Strong growth reflects quality and diversity of NIR Non-interest revenue for the six months ended 31 December 2014 (R million) 10 000 +11% 9 000 8 000 7 000 6 000 5 000 4 000 3 000 +>100% 2 000 +6% +10% (10%) (22%) +12% 1 000 +26% - (1 (1000) 00
Slide 17: Mix of RMB NIR as signalled
Results presentation for the six months ended 31 December 2014 15 Mix of RMB NIR as signalled Non-interest revenue for the six months ended 31 December 2014 (R million) 10 000 +11% 9 000 8 000 7 000 6 000 5 000 4 000 3 000 +>100% 2 000 +6% +10% (10%) (22%) +12% 1 000 +26% - (1 (1000) 000) Net bankin
Slide 18: Mix of RMB NIR as signalled: corporate and transactional progress
16 FIRSTRAND GROUP | Overview and key themes continued Mix of RMB NIR as signalled Non-interest revenue for the six months ended 31 December 2014 (R million) 10 000 +11% 9 000 8 000 7 000 Progress on corporate 6 000 and transactional strategy 5 000 4 000 3 000 +>100% 2 000 +6% +10% (10%) (22%) +12%
Slide 19: Private Equity unrealised value reflects sustainability
Results presentation for the six months ended 31 December 2014 17 Mix of RMB NIR as signalled Non-interest revenue for the six months ended 31 December 2014 (R million) 10 000 +11% 9 000 8 000 7 000 6 000 5 000 Investing reflects realisation cycle 4 000 3 000 +>100% 2 000 +6% +10% (10%) (22%) +12% 1
Slide 20: Equal focus on growth and efficiency
18 FIRSTRAND GROUP | Overview and key themes continued Performance highlights Dec 14 Dec 13 Change Net interest income before bad debts (R million) 19 048 16 397 16% Net interest margin (%) 5.26 5.13 Bad debts (R million) (3 086) (2 445) 26% Credit loss ratio (%) 0.86 0.77 Non-interest reven
Slide 21: ROA composition reflects quality of earnings
Results presentation for the six months ended 31 December 2014 19 Performance highlights Dec 14 Dec 13 Change Net interest income before bad debts (R million) 19 048 16 397 16% Net interest margin (%) 5.26 5.13 Bad debts (R million) (3 086) (2 445) 26% Credit loss ratio (%) 0.86 0.77 Non-int
Slide 22: ROE remains cyclically high as bad debts below long-run average
20 FIRSTRAND GROUP | Overview and key themes continued ROE remains cyclically high as bad debts below long-run average 26% 24.0% 24% 23.4% 22.3% 22.8% 22% 21.7% 19.5% 21.4% Target range: 20% 18% – 22% 18% 18.0% 18.0% 17.7% 16% 14% 12% 10% Dec 10* Dec 11 Dec 12 Dec 13 Dec 14 ROE ROE based on 105 bps
Slide 23: Returns driven by ROA not gearing; economic profit
Results presentation for the six months ended 31 December 2014 21 Returns continue to be driven by ROA not gearing ROA Gearing (times) 6% 18 16 5% 13.3 14 12.4 12.2 11.9 11.5 4% 12 10 3% 8 1.97% 2.07% 2% 1.82% 6 1.58% 1.35% 4 1% 2 0% 0 Dec 10* Dec 11 Dec 12 Dec 13 Dec 14 ROA Gearing (times) * 2010 c
Slide 24: Capital stack: higher level but different mix of capital
22 FIRSTRAND GROUP | Overview and key themes continued Performance highlights Dec 14 Dec 13 Change Net interest income before bad debts (R million) 19 048 16 397 16% Net interest margin (%) 5.26 5.13 Bad debts (R million) (3 086) (2 445) 26% Credit loss ratio (%) 0.86 0.77 Non-interest reven
Slide 25: Dividend cover maintained
Results presentation for the six months ended 31 December 2014 23 Performance highlights Dec 14 Dec 13 Change Net interest income before bad debts (R million) 19 048 16 397 16% Net interest margin (%) 5.26 5.13 Bad debts (R million) (3 086) (2 445) 26% Credit loss ratio (%) 0.86 0.77 Non-int
Slide 26: Financial review: performance highlights
24 FIRSTRAND GROUP | Financial review FINANCIAL REVIEW Performance highlights Dec 14 Dec 13 % change Normalised earnings (R million) 9 993 8 691 15 Diluted EPS (cents) 177.3 154.2 15 Normalised net asset value per share (cents) 1 519.6 1 342.9 13 Dividend per share (cents) 93.0 77.0 21 Net i
Slide 27: Key performance ratios; Normalised income statement
Results presentation for the six months ended 31 December 2014 25 Key performance ratios % Dec 14 Dec 13 Change Return on equity 24.0 23.4 Return on assets 2.07 1.97 Credit loss ratio 0.86 0.77 Cost-to-income ratio 50.8 51.9 Tier 1 ratio* 14.7 14.8 CET1 ratio* 13.8 13.7 Net interest marg
Slide 28: Continued strong topline drives earnings growth
26 FIRSTRAND GROUP | Financial review continued Continued strong topline drives earnings growth Normalised earnings (R million) 14 000 +13% +12% 12 000 +16% +26% 1 891 (1 951) (641) +16% (648) 15% 10 000 2 651 9 993 (1 677) 8 000 8 691 6 000 4 000 2 000 0 Dec 13 NII Impairments NIR Opex Tax and oth
Slide 29: Lending still dominates NII
Results presentation for the six months ended 31 December 2014 27 Lending still dominates NII… NII breakdown 44% of NII from lending activities 7% 9% 10% 53% 56% 10% 11% Lending Net lending income after credit costs Deposits Deposit endowment Capital endowment …but after risk cost a more balanced pi
Slide 30: Corporate advances resilient but slowing
28 FIRSTRAND GROUP | Financial review continued Corporate advances resilient but slowing, reflecting lower levels of activity R million Dec 14 Dec 13 % change Corporate advances breakdown RMB core South Africa 168 214 138 014 22 RMB core cross-border 30 124 27 286 10 16% RMB IB core advances 198 338
Slide 31: Margin benefited from capital and deposit strategy
Results presentation for the six months ended 31 December 2014 29 Margin benefited from capital and deposit strategy together with endowment Margin (bps) 540 2 (4) 530 (4) (1) 14 Group Treasury impacts 526 520 6 519 510 10 513 500 503 490 480 Dec 13 Treasury Dec 13 Treasury Adjusted Capital and Bala
Slide 32: Residential mortgage NPLs reducing; total NPLs trending up
30 FIRSTRAND GROUP | Financial review continued Continued reduction in residential mortgage NPLs from work-out strategy… NPLs (R million) 22 000 Origination Specific Credit cycle action and counterparties worsening 8% workout 16 500 11 000 (17%) 28% 5 500 29% 4% 29% - Residential Corporate Retail VA
Slide 33: Portfolio impairments underpin higher coverage ratio
Results presentation for the six months ended 31 December 2014 31 Portfolio impairments underpin higher coverage ratio NPLs (R million) Coverage ratios (%) Dec 14 Dec 13 21 000 Retail – secured 25.1 24.5 8% 5% Residential mortgages 20.3 21.0 18 000 4% 13% VAF 31.7 31.8 15 000 13% Retail – unsecured
Slide 34: Overlays reflect countercyclical actions
32 FIRSTRAND GROUP | Financial review continued Overlays reflect countercyclical actions Portfolio impairments (R million) 9 000 8 000 Dec 14 Dec 13 7 000 25% Portfolio impairments as 1.07% 0.97% 6 000 % of performing book 5 000 Bad debt charge (%) 0.86% 0.77% 4 000 3 000 Portfolio impairments 7 665
Slide 35: Unsecured portfolios benefiting from post write-off recoveries
Results presentation for the six months ended 31 December 2014 33 Unsecured portfolios benefiting from post write-off recoveries 3% 1% 10.48* 10.50* 10.09* 26% 9.57 3.49* 8.15 70% 6.55 0.19 Retail secured Card FNB WesBank Retail loans loans other Retail unsecured Corporate Recoveries as a % of avera
Slide 36: Non-interest revenue reflects transactional strategy and private equity
34 FIRSTRAND GROUP | Financial review continued Non-interest revenue reflects transactional strategy and private equity franchise Non-interest revenue (R million) 14 000 Dec 14 10% Dec 13 12 000 10 000 8 000 6 000 4 000 (15%) >100% 2 000 (10%) (21%) - Retail, commercial and Investment banking* Priva
Slide 37: Core costs well controlled; franchises performed well
Results presentation for the six months ended 31 December 2014 35 Core costs well controlled, overall cost base can be flexed if required FNB RMB WesBank Rest of Africa expansion Growth and and investment in expansion +63% CB platform +38% MotoNovo +41% Variable Alliances* costs +61% +6% Variable We
Slide 38: FNB operating review
36 FRANCHISE OPERATING REVIEWS | FNB FNB OPERATING REVIEW FNB performance reflects success of consistent strategy Normalised profit before tax (R million) • Strong topline growth 40.7% ROE • NII +15% 9 000 • NIR +10% . 8 000 17% • Underpinned by strength of transactional 7 000 and deposit franchise
Slide 39: Strong growth across all segments
Results presentation for the six months ended 31 December 2014 37 Strong growth across all segments Normalised profit before tax (R million) 6 000 Dec 14 Dec 13 5 000 14% 4 000 3 000 19% 2 000 25% 1 000 - Retail Commercial Rest of Africa Excellent growth in transactional business; increased liquidit
Slide 40: Commercial and business segments delivering on strategies
38 FRANCHISE OPERATING REVIEWS | FNB continued Strong growth across all segments Normalised profit before tax (R million) 6 000 Dec 14 Dec 13 5 000 14% 4 000 3 000 19% 2 000 25% 1 000 - Retail Commercial Rest of Africa Commercial and business segments delivering on strategies Normalised profit befor
Slide 41: Rest of Africa franchise produces another strong performance
Results presentation for the six months ended 31 December 2014 39 Strong growth across all segments Normalised profit before tax (R million) 6 000 Dec 14 Dec 13 5 000 14% 4 000 3 000 19% 2 000 25% 1 000 - Retail Commercial Rest of Africa Rest of Africa franchise produces another strong performance •
Slide 42: Appropriate revenue mix; NII from transactional accounts
40 FRANCHISE OPERATING REVIEWS | FNB continued Appropriate revenue mix given strategy Gross revenue split NIR NII NIR* = 51% NII = 49% * Includes post-tax share of profit from associates and joint ventures. NII benefiting from strategy to acquire transactional accounts Total FNB NII (R million) Dec
Slide 43: NIR driven by new account growth and volumes
Results presentation for the six months ended 31 December 2014 41 NIR driven by new account growth and volumes Total FNB NIR (R million) • Client proposition continually enhanced 12 000 10% • New rewards offerings underpin strong growth in electronic channel 10 000 volumes 8 000 • Competitive pricin
Slide 44: Innovation driving growth in volumes and value
42 FRANCHISE OPERATING REVIEWS | FNB continued Innovation driving growth in volumes and value FNB banking app transactions FNB smart device sales Volumes (thousands) Values (R million) Cumulative units sold to date 3 500 10 000 300 000 3 000 250 000 8 000 2 500 200 000 2 000 6 000 150 000 1 500 4 00
Slide 45: Good performance and return profile from RMB
Results presentation for the six months ended 31 December 2014 43 Good performance and return profile from RMB Normalised profit before tax (R million) • Strong private equity earnings and a 4 000 21.2% ROE significant realisation . 8% • Good performance from corporate 3 500 banking 3 000 • Growth f
Slide 46: Client-related activities remain largest contributor
44 FRANCHISE OPERATING REVIEWS | RMB continued Client-related activities remain largest contributor Gross income after impairments* (R million) Dec 14 3 000 Dec 13 (32%) 2 000 11% 11% 1 000 - Investment banking Corporate and Markets and Investing Investment and advisory transactional structuring man
Slide 47: Investing activities make strong contribution
Results presentation for the six months ended 31 December 2014 45 As expected, investing activities make strong contribution Gross income after impairments* (R million) Dec 14 3 000 Dec 13 2 000 >100% 1 000 - Investment banking Corporate and Markets and Investing Investment and advisory transactiona
Slide 48: WesBank: strong return profile despite tough cycle
46 FRANCHISE OPERATING REVIEWS | WesBank continued Despite tough cycle, WesBank produces strong return profile Normalised profit before tax (R million) • Local new business origination 23.7% ROE resilient 2 500 . 6% • Increasing retail arrears and impairments, but within expectations 2 000 • Specifi
Slide 49: Domestic VAF reflects cycle, strong MotoNovo
Results presentation for the six months ended 31 December 2014 47 Domestic VAF reflects cycle, strong performance from MotoNovo Normalised profit before tax (R million) Normalised profit before tax (R million) 1 250 1 250 Dec 14 (1%) Dec 13 1 000 1 000 750 750 500 500 46% 250 250 - - Retail SA MotoN
Slide 50: Personal loans performing as expected
48 FRANCHISE OPERATING REVIEWS | WesBank continued Personal loans performing as expected Normalised profit before tax (R million) • Targets mid-to-upper market customers 700 • New business volume growth of 7.9% 8% (excluding new alliances) reflects 600 appropriate origination, however, new alliances
Slide 51: Impairments impacted corporate and commercial performance
Results presentation for the six months ended 31 December 2014 49 Impairments impacted corporate and commercial performance Normalised profit before tax (R million) • New business production down 1% on the back of lower demand 300 (17%) • Increase in bad debts from 0.58% 250 to 0.87%, specific count
Slide 52: Ashburton Investments operating review
50 FRANCHISE OPERATING REVIEWS | Ashburton Investments ASHBURTON INVESTMENTS OPERATING REVIEW New products, platforms and internal distribution channels delivering Assets under management* (R billion) • Strong growth in AUM since launch: 110 • Activated internal advice channel 100 • Growth in both a
Slide 53: Progress in the rest of Africa
Results presentation for the six months ended 31 December 2014 51 PROGRESS IN THE REST OF AFRICA Relative contribution stable given performance of local franchise Dec 13 Dec 14 3% 2% 10% 11% South Africa International Rest of Africa and corridors 87% 87% … resulting in stable relative contribution .
Slide 54: Rest of Africa revenues growing across all franchises
52 FIRSTRAND GROUP | Progress in the rest of Africa continued Rest of Africa revenues growing across all franchises Rest of Africa gross revenue* (R million) 22% CAGR 4 500 . 4 000 Overall subsidiaries ROE 21.6%, 3 500 established subsidiaries ROE 30.8% 3 000 2 500 2 000 1 500 1 000 500 - Dec 10 Dec
Slide 55: Prospects: franchises in good shape (FNB)
Results presentation for the six months ended 31 December 2014 53 Franchises in good shape… • FNB • Domestic franchise should continue to outperform • Despite: • Topline pressure • Cost pressure (continued investment in growth initiatives and regulatory costs) • Driven by: • Customer acquisition acr
Slide 56: Prospects: WesBank; Appendix
54 FIRSTRAND GROUP | Prospects continued Franchises in good shape… • WesBank • Local franchise under pressure from cycle: • Continued margin pressure (mix, cost of funding and price) • Domestic retail VAF advances and profit growth expected to slow further • Cost of credit will continue to trend up
Slide 57: Structure of personal loans portfolio reflects segment strategy
Results presentation for the six months ended 31 December 2014 55 Structure of personal loans portfolio reflects segment strategy New business origination (R billion) NPLs (R million) 4 900 800 700 3 600 500 2 400 300 1 200 100 0 0 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 11 Dec 1
Slide 58: Retail secured portfolios; NPL breakdown
56 FIRSTRAND GROUP | Appendix continued Retail secured portfolios reflect differing demand dynamics New business origination (R billion) NPLs (R billion) 25 12 10 20 8 15 6 10 4 5 2 0 0 Jun Jun 11 Dec Dec 11 Jun Jun 12 Dec Dec 12 Jun Jun 13 Dec Dec 13 Jun Jun 14 Dec Dec 14 Jun 11 11 Dec Dec 11 11 Ju
Slide 59: Breakdown of NPLs illustrates coverage is appropriate
Results presentation for the six months ended 31 December 2014 57 Breakdown of NPLs illustrates coverage is appropriate VAF Specific Type R million coverage ratio Other (includes absconded, insurance and alienations) 227 66.2% Repossession 165 48.1% Legal action for repossession 418 41.8% Not restru
Slide 60: FirstRand Group
(a) FIRSTRAND GROUP
Slide 61: Results presentation for the six months ended 31 December 2014
Results presentation for the six months ended 31 December 2014 59
Slide 62: www.firstrand.co.za
www.firstrand.co.za FIRSTRAND