FirstRand Limited · JSE:FSR

FirstRand — H1 2020 Earnings Presentation

58 slides from FirstRand's earnings presentation, March 2020

  1. Slide 1: Results presentation for the six months ended 31 December 2019

    19 results presentation for the six months ended 31 December

  2. Slide 2: Introduction: real growth in earnings

    RESULTS PRESENTATION – DECEMBER 2019 :: 01 Introduction Introduction results presentation for the six months ended 31 December The group delivered real growth in earnings… Cents 300 21.2% ROE . 5% 250 249.7 237.8 222.1 200 207.6 194.6 5% 150 146.0 139.0 130.0 100 119.0 108.0 50 0 Dec 15 Dec 16 Dec

  3. Slide 3: Ever-deteriorating macro backdrop

    02 :: FIRSTRAND GROUP | Introduction continued …against an ever-deteriorating macro backdrop % 2.0 1.8 1.6 2H 2019: Growth expectations for 2019 1.4 revised lower on account of: • Weak business confidence 1.2 • Severe load shedding in Dec 19 1.0 2H 2018: Mid-2019: 0.8 Consensus expectation Growth ex

  4. Slide 4: Value creation continued, NIACC reflects lower gearing

    RESULTS PRESENTATION – DECEMBER 2019 :: 03 Value creation continued, NIACC reflects lower gearing and reduction in ROA NIACC* ROE and COE R million 23.4% 22.9% 6 000 22.5% 22.3% 24% 21.2% 4% 20% 4 974 4 500 4 755 4 475 4 129 4 528 16% 14.8% 14.3% 3 000 13.8% 14.0% 14.0% 12% 8% 1 500 4% 0 0% Dec 15

  5. Slide 5: Current portfolio mix – activity, geography and business

    04 :: FIRSTRAND GROUP | Introduction continued Current portfolio mix – activity, geography and business Investing Other Insure Transact UK UK operations‡ Save Rest of Africa 7% WesBank 8% and invest** 11% 7% Geographic Normalised earnings Revenue split PBT mix# by activity* 23% per operating (i.e. p

  6. Slide 6: Transactional slowing, growth from diversification strategies

    RESULTS PRESENTATION – DECEMBER 2019 :: 05 Transactional slowing, pleasing growth from diversification strategies NORMALISED PBT R million 9 000 4% 8 000 7 000 6 000 5 000 4 000 3 000 2% 2 000 15% 12% 7% 1 000 0 (1 000) 5% (2 000) # Transactional* Term lending Save and invest ** Insurance Rest

  7. Slide 7: Strong portfolio performance despite Private Equity realisations

    06 :: FIRSTRAND GROUP | Introduction continued Strong performance from portfolio despite non-repeat of Private Equity realisations NORMALISED PBT R million 3 000 11% 2 500 2 000 1 500 7% 22% 1 000 500 46% 74% 0 Investment banking Corporate and Markets and Investing Other* and advisory transacti

  8. Slide 8: WesBank performance and Aldermore operational performance

    RESULTS PRESENTATION – DECEMBER 2019 :: 07 WesBank’s performance reflects declining vehicle sales and risk cuts NORMALISED PBT ROE R million % 1 750 19.3 20 18.3 18.4 18 1 500 1% 16 1 353 1 361 1 373 1 250 14 12 1 000 10 750 8 500 6 4 250 2 - 0 Dec 17 Dec 18 Dec 19 Aldermore produced a solid operat

  9. Slide 9: Unpacking performance against strategy

    08 :: FIRSTRAND GROUP Unpacking Unpacking performance performance against against strategy strategy results presentation for the six months ended 31 December Group strategic framework FirstRand commits to building a future of SHARED PROSPERITY through enriching the lives of its customers, employees

  10. Slide 10: Measuring execution on strategic priorities

    RESULTS PRESENTATION – DECEMBER 2019 :: 09 Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Grow a more valuable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Enabled by disruptive digital platfo

  11. Slide 11: Slowdown in FNB term lending; customer growth

    10 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Slowdown in FNB’s term lending business NORMALISED PBT R million • Targeted and segment-specific origination strategies 3 000 • Defending core transactional relationships 2% 2 500 • Unsecured still focused on main-banked custo

  12. Slide 12: Fastest-growing banking eWallet offering in SA

    RESULTS PRESENTATION – DECEMBER 2019 :: 11 Fastest-growing banking eWallet offering in SA eWallet active base Send money volumes Millions Millions 22% 8 16% 28 24 6 20 16 4 12 2 8 4 0 0 Dec 18 Dec 19 Dec 18 Dec 19 Send money value Average monthly senders R billion Millions 25% 16 1.5 20% 12 1.0

  13. Slide 13: Significant adoption of platform; investment banking performance

    12 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Significant adoption of platform Penetration of active customer base Digital interactions reflect platform adoption Monthly logins (millions) 26% 140 14% Dec 16 50% Dec 19 50% 120 74% 100 51.2 80 Active app users* Opportunity

  14. Slide 14: Strong performance by corporate and transactional banking

    RESULTS PRESENTATION – DECEMBER 2019 :: 13 Strong performance by corporate and transactional banking RMB SOUTH AFRICA AND OTHER NORMALISED PBT R million 4 000 • Higher utilisation of working 3 000 capital facilities with average 16% balances up 23% 2 000 • Merchant services volumes up 12% 1 000 - D

  15. Slide 15: Markets and structuring; Retail VAF

    14 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Markets and structuring impacted by subdued activity and ongoing platform investment RMB SOUTH AFRICA AND OTHER NORMALISED PBT R million 4 000 19% • Lower FX volatility in the current year 3 000 contributed to softer performan

  16. Slide 16: Core corporate book reflecting difficult environment

    RESULTS PRESENTATION – DECEMBER 2019 :: 15 Core corporate book reflecting difficult environment WESBANK NORMALISED PBT R million • Low growth in capital intensive industries 1 500 (transport and mining) 11% • Increased stress in commercial and SME sector, 1 000 rising impairments • Continued risk c

  17. Slide 17: Strong deposit growth from FNB; WIM distribution

    16 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Strong deposit growth from FNB FNB SOUTH AFRICA DEPOSITS* R billion 550 • Aligned to strategy to grow group’s 500 deposit franchise 450 400 254.6 10% y/y • Value proposition underpinned by 350 232.4 300 • Competitive products

  18. Slide 18: FNB WIM revenue stable; Ashburton AUM steady

    RESULTS PRESENTATION – DECEMBER 2019 :: 17 FNB WIM revenue stable while transitioning NON-INTEREST REVENUE R million 2% 500 • Investment industry experiencing 400 higher flows to fixed income 300 products that attract lower fees 200 • New generation products offer better value to customers 100 • Re

  19. Slide 19: Strong growth across all products in FNB Life

    18 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Strong growth across all products in FNB Life Annual premium equivalent (APE) New business APE IN-FORCE APE ON LIFE PRODUCTS NEW BUSINESS APE ON LIFE PRODUCTS R million R million 5 000 1 200 17% 5% 60% 4 000 1 000 30% 49%

  20. Slide 20: WesBank insurance and MotoVantage performance

    RESULTS PRESENTATION – DECEMBER 2019 :: 19 WesBank’s insurance reflects strong MotoVantage performance despite declining new unit volumes GROSS WRITTEN PREMIUM (GWP) R million 1 000 15% 63.6 1% 10% 900 800 64.1 700 (6%) 29% VAPS sales 600 channels 61% 500 899 16% 400 773 300 200 100 Point-of-sale

  21. Slide 21: CIB drove strong rest of Africa growth

    20 :: FIRSTRAND GROUP | Unpacking performance against strategy continued CIB drove strong rest of Africa growth GROUP REST OF AFRICA NORMALISED PBT * FNB REST OF AFRICA NORMALISED PBT RMB REST OF AFRICA NORMALISED PBT ** R million R million R million 3 000 1 200 1 200 29% 22% 7% 2 500 1 000 1 000

  22. Slide 22: Strong markets performance drives rest of Africa growth

    RESULTS PRESENTATION – DECEMBER 2019 :: 21 Strong markets performance drives growth in rest of Africa REST OF AFRICA* NORMALISED PBT R million M&S 1 150 29% • Increased client activity across markets • Strong flow trade activities in Nigeria 950 >100% • Robust growth leveraging off investments int

  23. Slide 23: Aldermore funding strategy and advances growth

    22 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Aldermore funding strategy anchored to its deposit franchise FUNDING COMPOSITION £ million COST OF FUNDS 16 000 1.67% 1.8% 1.62% 14 000 1.50% 1.6% 1.38% 1.4% 12 000 21% 1.2% 10 000 8% 1.0% 8 000 17% 0.8% 6 000 0.6% 4 000 54% 0.

  24. Slide 24: Standalone MotoNovo performance has stabilised

    RESULTS PRESENTATION – DECEMBER 2019 :: 23 Standalone MotoNovo performance has stabilised STANDALONE MOTONOVO NORMALISED PBT £ million • New book benefiting from Aldermore funding (c. 50 bps) 25 MotoNovo 1% • Credit loss ratio 1.45% (Dec 18: 1.46%) 20 20.6 20.8 • Scorecard tightening • Focus on col

  25. Slide 25: Continued focus on improving balance sheet strength

    24 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Continued focus on improving balance sheet strength ACTUAL TREND Assets in marketable format >R330 billion Increased Liquid assets as % total assets 19% Increased Credit quality of assets BB/BB- Marginal shift Institutional fun

  26. Slide 26: Payout reflects strong capital generation

    RESULTS PRESENTATION – DECEMBER 2019 :: 25 Payout continues to reflect strong capital generation DIVIDEND COVER (TIMES) 2.3 • Cover remains below long-term range: 2.2 • Balance sheet growth has not returned – lowest RWA growth rate since GFC 2.1 • Supported by disciplined financial 2.0 Dividend cove

  27. Slide 27: Performance highlights (normalised)

    26 :: FIRSTRAND GROUP | Financial review continued Performance highlights (normalised) Dec 19 Dec 18 % change Diluted EPS (cents) 249.7 237.8 5  Dividend per share (cents) 146 139 5  Earnings (R million) 14 009 13 342 5  NIACC (R million) 4 755 4 974 (4)  Net asset value per share (cents) 2 402.

  28. Slide 28: Revenue generated by lending and transactional franchises

    RESULTS PRESENTATION – DECEMBER 2019 :: 27 Revenue mainly generated by large lending and transactional franchises NET INTEREST INCOME = 59% NON-INTEREST REVENUE = 41% 28% Transactional NIR ** Lending Transactional NII* 23% Flow trading and residual risk Capital endowment 16% transactional income Inv

  29. Slide 29: Net interest income driven by lending and deposits

    28 :: FIRSTRAND GROUP | Financial review continued Quality of topline growth maintained, growth slowing NORMALISED EARNINGS* R million 8% 18% 5% 7% 16 000 (913) 1 136 (1 743) 2 449 4% 5% 14 000 (262) 14 009 13 342 12 000 10 000 8 000 6 000 4 000 2 000 0 Dec 18 NII Impairments NIR** Opex Tax an

  30. Slide 30: Unpacking Group Treasury NII and margin

    RESULTS PRESENTATION – DECEMBER 2019 :: 29 Unpacking Group Treasury NII Capital endowment • Higher capital base >R400 million Interest rate and FX management • Interest rate risk and FX management >R650 million • FX carry cost (>R50 million) Group Treasury activities • Excess HQLA carry cost (>R160

  31. Slide 31: Aldermore balance sheet and deposit franchise

    30 :: FIRSTRAND GROUP | Financial review continued Structure of Aldermore balance sheet changes the group’s overall margin FirstRand excl. Aldermore* Basis points Aldermore Aldermore margin: Advances margin 365 323 • Relatively weighted to secured advances Deposit margin 214 - • Funding margin set o

  32. Slide 32: Domestic retail advances growth resilient

    RESULTS PRESENTATION – DECEMBER 2019 :: 31 Domestic retail advances growth resilient Dec 19 Dec 18 % change R million Retail unsecured 15% Residential mortgages 223 979 210 484 6 3% WesBank VAF (SA) 106 705 105 684 1 7% 5% FNB card 30 098 24 799 21 Personal loans 40 796 35 956 13 36% – FNB 24 216 20

  33. Slide 33: DirectAxis advances; card growth trending down

    32 :: FIRSTRAND GROUP | Financial review continued DirectAxis delivered advances growth despite increasing competition DIRECTAXIS ADVANCES R billion +0.1bn +0.6bn 18 4% y/y 16.6 15 15.9 16.0 • Effective open market strategy • Continued optimisation of direct marketing 12 channels 9 • Focus on low-r

  34. Slide 34: VAF advances; MotoNovo growth

    RESULTS PRESENTATION – DECEMBER 2019 :: 33 VAF advances reflect disciplined origination in tough market MOTOR ADVANCES CORPORATE AND COMMERCIAL ADVANCES R billion R billion (1.7bn) +2.6bn +0.4bn +0.6bn 120 45 2% y/y 1% y/y 40 100 105.7 106.1 106.7 35 11.3 12.5 11.9 80 30 30.2 29.9 25 27.9 60 20 40

  35. Slide 35: Aldermore advances growth; corporate advances

    34 :: FIRSTRAND GROUP | Financial review continued Growth in Aldermore advances across all product lines ADVANCES BREAKDOWN £ million Growth driven by: 14 000 28% y/y (14% excl. MotoNovo) • Buy-to-let growth in the specialist 12 000 >100% market 20% 10 000 6% • Residential mortgages supported by

  36. Slide 36: FNB commercial advances; CIB rating profile

    RESULTS PRESENTATION – DECEMBER 2019 :: 35 FNB commercial continued to focus on targeted origination strategies FNB COMMERCIAL ADVANCES R billion Other +7.6bn +2.3bn 120 10% y/y 5% Overdrafts Commercial 18% 100 105.1 107.4 property 97.5 finance 26% 80 FNB COMMERCIAL 60 ADVANCES 40 BREAKDOWN 30% Spe

  37. Slide 37: Increase in operational NPLs

    36 :: FIRSTRAND GROUP | Financial review continued Quality of topline growth maintained, growth slowing NORMALISED EARNINGS* R million 8% 18% 5% 7% 16 000 (913) 1 136 (1 743) 2 449 4% 5% 14 000 (262) 14 009 13 342 12 000 10 000 8 000 6 000 4 000 2 000 0 Dec 18 NII Impairments NIR** Opex Tax an

  38. Slide 38: Write-off period and specific coverage

    RESULTS PRESENTATION – DECEMBER 2019 :: 37 Lengthening write-off period also drives growth in unsecured NPLs NPLs Dec 19 NPLs R million Dec 19 lengthening of write-off period Dec 18 NPLs Dec 18 lengthening of write-off period 12 000 31% 3 703 32% Total NPLs 17% 10 000 10 215 12% 9 086 8 000 18 9

  39. Slide 39: Portfolio coverage and credit charge

    38 :: FIRSTRAND GROUP | Financial review continued Portfolio coverage remains conservative Dec 19 Dec 18 Including Excluding Including Excluding Aldermore Aldermore Aldermore Aldermore Portfolio impairments as % of performing book 1.30 1.51 1.26 1.43 Stage 1 (%) 0.66 0.75 0.68 0.77 Stage 2 (%) 9.76

  40. Slide 40: Non-interest revenue growth

    RESULTS PRESENTATION – DECEMBER 2019 :: 39 Quality of topline growth maintained, growth slowing NORMALISED EARNINGS* R million 8% 18% 5% 7% 16 000 (913) 1 136 (1 743) 2 449 4% 5% 14 000 (262) 14 009 13 342 12 000 10 000 8 000 6 000 4 000 2 000 0 Dec 18 NII Impairments NIR** Opex Tax and other

  41. Slide 41: Fee growth; private equity in investment cycle

    40 :: FIRSTRAND GROUP | Financial review continued Healthy underlying volumes drive banking charge fee growth FEE AND COMMISSION R million 16 750 12% 16% (106) 1% 7% 301 (41) 6% (195) 4% 16 250 16 337 (270) 3% 717 16 067 16 067 15 750 15 661 15 250 14 750 Dec 18 Bank charges Card Knowledge- O

  42. Slide 42: Cost to income marginally down

    RESULTS PRESENTATION – DECEMBER 2019 :: 41 Quality of topline growth maintained, growth slowing NORMALISED EARNINGS* R million 8% 18% 5% 7% 16 000 (913) 1 136 (1 743) 2 449 4% 5% 14 000 (262) 14 009 13 342 12 000 10 000 8 000 6 000 4 000 2 000 0 Dec 18 NII Impairments NIR** Opex Tax and other

  43. Slide 43: FNB and RMB cost investment

    42 :: FIRSTRAND GROUP | Financial review continued Efficiencies in SA, however, investment drag from growth initiatives continues Rest of Africa* • Cost-to-income ratio improved 6% to 49.9% (Dec 18: 50.6%), despite 16% investments • Growth initiatives continue • Insurance and WIM build-out FNB COST

  44. Slide 44: WesBank and Aldermore costs

    RESULTS PRESENTATION – DECEMBER 2019 :: 43 Despite efficiencies, WesBank cost-to-income ratio reflects topline pressures • Efficiencies achieved due to cost FML costs containment and productivity focus 20% • Continued investment in IT, data 24% analytics and robotics capabilities • Full maintenance

  45. Slide 45: Summing up

    44 :: FIRSTRAND GROUP | Financial review continued Summing up Revenue growth 7% Bad debts 18% • Deposit growth +7% • At 105 bps (95 bps incl. Aldermore), within the • Advances growth +4% group’s TTC range of 100 - 110 bps • NII resilient although advances growth slowed • Portfolio provisions remai

  46. Slide 46: Prospects

    RESULTS PRESENTATION – DECEMBER 2019 :: 45 Prospects • UK • Reduced Brexit uncertainty • Incremental GDP growth expected and labour market strong • House price trend to improve • Aldermore group expected to contribute to growth and returns • Rest of Africa • Macros broadly similar to recent period •

  47. Slide 47: Appendix: Group's ROE is sustainable

    46 :: FIRSTRAND GROUP Appendix Appendix results presentation for the six months ended 31 December Group’s ROE is sustainable • Relative size of transactional franchise • Advances mix delivers higher risk-adjusted margins • Credit underwriting and pricing anchored to preserve return profile • Discipl

  48. Slide 48: Aldermore remains earnings accretive

    RESULTS PRESENTATION – DECEMBER 2019 :: 47 Aldermore remains earnings accretive R million Dec 19 Dec 18 % change Normalised earnings reported 14 009 13 342 5.0  Less: net impact of Aldermore 188 289 – Attributable earnings (excluding MotoNovo) 917 1 037 – Forgone interest on capital deployed (post-

  49. Slide 49: Recalibration of branch network continues

    48 :: FIRSTRAND GROUP | Appendix continued Recalibration of branch network continues INFRASTRUCTURE INVESTMENT TO TAKE FOCUS ON GROWTH IN COST REDUCTION OUT MORE COSTS LONG-TERM COSTS • Branch costs (2%) • Electronic channels • Staff costs Flat • Automated teller minutes (2%) • Branch m2 (8%) • Long

  50. Slide 50: Platform adoption in commercial continues

    RESULTS PRESENTATION – DECEMBER 2019 :: 49 Platform adoption in commercial continues Active customer base Platform adoption continues Number of customers Monthly logins (thousands) 600 000 28% 5 000 73% 11% 500 000 4 000 400 000 15% Dec 18 3 000 300 000 Dec 19 2 000 200 000 1 000 100 000 0 0 Ban

  51. Slide 51: Targeted lending strategy in commercial segment

    50 :: FIRSTRAND GROUP | Appendix continued Targeted lending strategy driving advances growth in commercial segment FNB COMMERCIAL ADVANCES R billion 35 • Targeted lending to key customer 7% 30 segments 15% 25 • Property-driven targeted strategy 11% 20 (predominantly owner occupied) 15 11% 3% 10

  52. Slide 52: WesBank credit portfolios

    RESULTS PRESENTATION – DECEMBER 2019 :: 51 WesBank credit portfolios RETAIL VAF Impairment charge (R million) Credit loss ratio 1 200 2.5% Long-run credit loss ratio = 1.40% 1 000 2.0% 800 1.5% 600 1.0% 400 200 0.5% 0 0.0% Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec J

  53. Slide 53: Buy-to-let portfolio – highly secured

    52 :: FIRSTRAND GROUP | Appendix continued Buy-to-let portfolio – highly secured c.78% of loans at £50k – £400k, with only 5% >£1 million 7% 4% 23% 17% 7% 32% 13% 13% 12% 7% 9% 2% 1% Geographical 3% 7% distribution of 0 - 50k 50k - 100k - 150k - 200k - 300k - 400k - 500k - 1m - 2m 2m+ 100k 150k 200k

  54. Slide 54: Aldermore specialist bank with small share of large profit pools

    RESULTS PRESENTATION – DECEMBER 2019 :: 53 Aldermore is a specialist bank with a small share of large profit pools in the UK ORIGINATION MARKET SIZE* AND ALDERMORE’S ESTIMATED SHARE Residential mortgages** Buy-to-let mortgages** < 1% 2.6% Aldermore’s estimated share RETAIL £216bn £39bn Rest of marke

  55. Slide 55: Unpacking NIR per operating business

    54 :: FIRSTRAND GROUP | Appendix continued Unpacking NIR per operating business NIR • FNB up 7% despite slowing volume growth, pricing pressures and fee concessions R million • Insurance benefited from strong growth in standalone products 14 500 4% • IB&A reflects solid income underpinned by discip

  56. Slide 56: Local deposit franchise outperforms market

    RESULTS PRESENTATION – DECEMBER 2019 :: 55 Local deposit franchise continues to outperform market due to success of save and invest strategy INDEX December 11 = 100 220 FirstRand’s domestic deposit 200 franchise Outperformance >R167 billion 180 over 8 years 160 M3 money supply 140 120 100 Dec 11 Jun

  57. Slide 57: Coverage breakdown: WesBank retail VAF

    56 :: FIRSTRAND GROUP | Appendix continued Coverage breakdown: WesBank retail VAF Specific Type R million coverage ratio Technical NPL – debt review 462 10.5% Technical NPL – arrears 1 375 11.6% Restructured debt review 750 15.3% Non-restructured debt review 473 40.2% >3 months’ missed instalments 2

  58. Slide 58: www.firstrand.co.za

    FirstRand www. firstrand.co.za

FirstRand — H1 2020 Earnings Presentation on 6ix