Firstrand Limited · JSE:FSR
Firstrand — H1 2011 Earnings Presentation
47 slides from Firstrand's earnings presentation, December 2010
Slide 1: Results presentation for the six months ended 31 December 2010
results presentation FOR THE SIX MONTHS ENDED 31 DECEMBER 2010
Slide 2: Introduction
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 1 FirstRand Limited results for the six months ended 31 December 2010 Introduction Sizwe Nxasana
Slide 3: Recovery in ROE and earnings continues
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 2 Recovery in ROE and earnings continues 6-monthly pro forma normalised earnings* R million 6 000 ROE = 19% +20% y/y 5 000 5 128 5 150 4 752 4 610 4 623 4 000 3 980 3 946 3 519 3 000 2 000 1 856 1 000 0 Dec '06 Jun '07 Dec '07 Jun '08 Dec '08 Jun '09 Dec
Slide 4: Strong performance from all franchises
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 3 Strong performance from all franchises Profit before tax 6 months to 6 months to Change R million 31 Dec ’10 31 Dec ’09 (y/y) FNB 3 362 2 895 S 16% FNB Africa 740 597 S 24% RMB 2 142 1 449 S 48% WesBank 1 069 405 S >100% Consistent strategic fundamental
Slide 5: Financial review
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 4 Financial review Johan Burger All of the data contained in the Financial review section of this presentation are presented on a normalised basis basis, for continuing operations (excluding Momentum). A reconciliation between the normalised income statem
Slide 6: Macro influences bank earnings
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 5 Macro influences bank earnings GDP cycle 2004 – 07 2008 – 09 2009 – 11 2012 Earnings benefited from high Earnings g Despite p low GDP,, Top-line p growth g GDP fuelled by credit boom negatively earnings positively constrained by impacted by impacted by
Slide 7: Highlights of Group performance – pro forma
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 6 Highlights of Group performance – pro forma R million (normalised) Dec ’10 Dec ’09 Change Earnings – Group 4 752 3 946 S 20% Diluted EPS (cents) 84.3 70.0 S 20% Return on equity (%) 18.7 17.3 S Net asset value per share (cents) ( ) 924.4 838.7 S 10% % D
Slide 8: Income statement – pro forma
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 7 Income statement – pro forma Normalised (R million) Dec ’10 Dec ’09 % change Net interest income before impairment of advances 9 489 9 358 1% Impairment losses on loans and advances (2 084) (3 225) (35%) Net interest income after impairment of advances
Slide 9: Income statement – pro forma: Unpacking NII
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 8 Income statement – pro forma Normalised (R million) Dec ’10 Dec ’09 % change Net interest income before impairment of advances 9 489 9 358 1% Impairment losses on loans and advances (2 084) (3 225) (35%) Net interest income after impairment of advances
Slide 10: Unpacking NII – Lending
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 9 Unpacking NII – Lending Dec ’09 Dec ’10 Lending 54% 57% Based on net interest income before impairment of advances Retail* advances +4%, however growing in targeted segments Advances (R billion) Change mortgagess 109 1 109.1 FNB HomeLoans (2%) Market an
Slide 11: Commercial advances growing in targeted segments
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 10 Commercial advances growing in targeted segments Advances (R billion) Change 7.1 Medium corporate 7.6 7% Targeted sub-segment 40 4.0 Business (4%) Market 3.9 mmercial 8.0 FNB Com A i Agric 16% Targeted segment 9.3 5.8 Property term 14% Targeted segment
Slide 12: Unpacking NII – Deposit-taking
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 11 Unpacking NII – Deposit-taking Dec ’09 Dec ’10 Deposit-taking 14% 14% Liability profile reflects structural funding in SA Inc, Inc Basel III a challenge R billion Months 600 Lengthened term profile and increased liquidity buffer by R4 R4.6bn 6bn y/y 25
Slide 13: Liquidity premium reducing
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 12 Liquidity premium reducing bps 9-month liquidity premium over JIBAR (mid rate) 80 70 60 50 40 30 20 10 H1 FY10 H1 FY11 57 bps average 44 bps average 0 Dec '07 Jun '08 Dec '08 Jun '09 Dec '09 Jun '10 Dec '10 Unpacking NII – Endowment/Group Treasury Dec
Slide 14: Endowment impact R650 million per 100 bps per annum
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 13 Endowment impact R650 million per 100 bps per annum 3m Jibar (%) 8.0% 7 5% 7.5% Average Jibar 7.3% 7.0% 6.5% Endowment book R71bn* Average g Jibar 6% % 6.0% 5.5% 5.0% Jun-09 Dec-09 Jun-10 Dec-10 * Average endowment book for the current financial year.
Slide 15: MTM accounting treatment creates volatility in margin
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 14 MTM accounting treatment creates volatility in margin 3% 100% 60 100% 16% 40% 97% 90% 50 80% 84% 70% 40 60% 60% 50% 30 40% 20 30% 20% 10 10% 0% 0 Jun '09 Dec '09 Jun '10 Dec '10 % off iinstitutional tit ti l ffunding di - fair f i valued l d % off iins
Slide 16: Bad debts within long-run average range
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 15 Bad debts within long-run average range Impairment charge (%) 30 3.0 2.66 2.5 Retail 2.12 2.0 1.84 1.81 1.79 1.5 1.52 1.13 1.28 Total 1.31 1.28 1.0 0.73 0.92 0.83 0.62 0.42 Corporate 05 0.5 0 51 0.51 0.44 0.32 0.17 0.34 0.29 0.34 0.19 0.05 0.0 Jun '05
Slide 17: NPLs remain sticky
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 16 NPLs remain sticky… 6 5.6 5.5 5 5.0 46 4.6 4 4.2 34 3.4 3 2.8 2.9 2.6 2 2.3 1.5 1.5 1 1.2 1.1 1.0 08 0.8 08 0.8 0.7 0 Jun '99 Jun '00 Jun '01 Jun '02 Jun '03 Jun '04 Jun '05 Jun '06 Jun '07 Jun '08 Jun '09 Dec '09 Jun '10 Dec '10 Total NPLs (%) Debt co
Slide 18: Ageing NPLs impact LGDs
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 17 Ageing NPLs impact LGDs FNB HomeLoans NPL book Average time in NPL (months) 1 400 20 18 1 200 16 1 000 14 12 800 10 600 8 400 6 4 200 2 - 0 New inflows Write-offs Average time in NPL (RHS) Lower NPL inflows drive bad debt charge FNB HomeLoans – New NPL
Slide 19: Income statement – pro forma: Unpacking NIR
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 18 Income statement – pro forma Normalised (R million) Dec ’10 Dec ’09 % change Net interest income before impairment of advances 9 489 9 358 1% Impairment losses on loans and advances (2 084) (3 225) (35%) Net interest income after impairment of advances
Slide 20: Sustainability of NIR driven by strength of client franchises
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 19 Sustainability of NIR driven by strength of client franchises Change Dec ’10 Normalised NIR (R million) Dec ’10 Dec ’09 y/y mix Client 11 675 10 882 S 7% 87% Investment 1 259 738 S 71% 9% Trading & other fair value 492 403 S 22% 4% Total normalised non
Slide 21: Increased activity provides annuity
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 20 Increased activity provides annuity Normalised (R million) Dec ’10 10 Dec ’09 09 Change - Transactional income 8 467 7 872 S 8% - RMB client activity 1 024 778 S 32% - OUTsurance 292 216 S 35% - WesBank associates 143 95 S 51% - Insurance 1 051 895 S 1
Slide 22: Investment banking driving profitability in RMB client activity
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 21 Investment banking driving profitability in RMB client activity R million 1200 R million Dec ’10 Dec ’09 % change 32% 3 % FICC 560 583 T (4%) 1000 - Forex 207 233 T (11%) 800 - Debt 353 350 S 1% 600 Equity 78 114 T (32%) 400 Investment banking 413 209
Slide 23: Resources portfolio drives growth in investment NIR
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 22 Resources portfolio drives growth in investment NIR Normalised (R million) Dec ’10 Dec ’09 Change - Private equity activities 199 163 S 22% - Resources 542 204 S >100% - ELI returns 290 208 S 39% - Other* 228 163 S 40% Investment NIR 1 259 738 S 71% *
Slide 24: Unpacking NIR – Trading & other fair value
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 23 Unpacking NIR – Trading & other fair value Dec ’09 Dec ’10 3% 4% Trading & other fair value Strong performance from equity trading Trading and other fair value R million R million Dec ’10 Dec ’09 Change 22% 500 RMB trading 468 439 S 7% 450 - Equities 2
Slide 25: Cost-to-income ratio increased, but…
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 24 Income statement – pro forma Normalised (R million) Dec ’10 Dec ’09 % change Net interest income before impairment of advances 9 489 9 358 1% Impairment losses on loans and advances (2 084) (3 225) (35%) Net interest income after impairment of advances
Slide 26: Core cost growth +8% / Results in a nutshell
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 25 ... core cost growth +8% 13 500 R million 13 000 13 078 8% 12 798 12 500 12 000 11 819 11 500 11 000 10 500 10 000 D '10 Dec Share-based Sh b d Expansion E i C Co-operation ti W B k WesBank Dec '10 core D D '09 Dec normalised payments costs agreements
Slide 27: Strong capital position
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 26 Capital Strong capital position 15.3 14.1 1.7 FirstRand Group Core Tier 1 % Tier 1% 1.8 1.2 Capital adequacy ratio 12.4 13.6 10 1.0 Regulatory minimum 5.25 7.0 Target 8.25 10.0 12.4 FirstRand Bank Core Tier 1 % Tier 1% 11.3 Capital p adequacy q y ratio
Slide 28: Can already absorb impact of regulatory changes
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 27 Can already absorb impact of regulatory changes Draft regulations Basel III* (0 75%) (0.75%) (1% ) 13% 12% 12.40% (0.75%) (0.75%) (0.25%) 11.45% 11% 0.80% 10.65% 10% 9% Internal target of 8.25% 8% 7% Current 6% scalar, Quality of Risk coverage, Project
Slide 29: Strong capital position is drag on South African ROE
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 28 Strong capital position is drag on South African ROE Average NAV split Africa* ROE 28% Other ROE 23% South Africa ROE 18% * ROE for African subsidiaries (includes FNB Africa and RMB Africa) Strong capital position provides flexibility NAV split Availab
Slide 30: Understanding diversity of revenue
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 29 Understanding diversity of revenue Geography* Activity* SA Client Africa & corridors Investing International Trading FirstRand Segment† Franchise† FNB Retail FNB Africa Commercial RMB Corporate WesBank FNB Africa * Based on gross revenue † Based on PBT
Slide 31: Investment banking franchise drives corporate segment profits
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 30 Investment banking franchise drives corporate segment profits R million Dec ’10 Dec ’09 Change g PBT (R million) illi ) 2 500 Segment PBT 2 435 1 835 S 33% 2 000 6m to Dec ’09 1 500 6m to Dec ’10 1 000 500 0 Investment banking g Corporate p banking g &
Slide 32: Commercial segment presents diverse range of growth opportunities
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 31 Commercial segment presents diverse range of growth opportunities R million Dec ’10 Dec ’09 Change g PBT (R million) Segment PBT 1 163 833 S 40% 2 500 2 000 1 500 1 000 500 - ( 500) (1 000) (1 500) ((2 000)) 6m to Dec ‘09 (2 500) 6m to Dec ’10 (3 000)
Slide 33: Diversity of profit streams in mass segment
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 32 Diversity of profit streams in mass segment R million Dec ’10 Dec ’09 Change PBT (R million) Segment PBT 1 046 818 S 28% 2 500 2 000 1 500 1 000 500 0 - 500 -1 1 000 -1 500 -2 000 -2 500 Lending Bad debts Deposit-taking Non-interest Insurance Expenses
Slide 34: Results reflect resilience of FNB's franchise
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 33 Operating g review Sizwe Nxasana Results reflect resilience of FNB’s franchise Profit before tax* Characterised by: R million ROE* = 35% + Improving bad debts contributed 3 500 16% to performance + Customers up 3% since Dec ’09 3 000 + Transactional vo
Slide 35: Good growth across diversified portfolio
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 34 Good growth across diversified portfolio Profit before tax R million 1 600 1 400 1 418 1 200 1 000 1 078 991 800 814 740 600 686 648 597 400 342 200 230 143 161 0 Mass Consumer Wealth Commercial Corporate FNB Africa Dec '09 09 10 Dec '10 Stabilising tr
Slide 36: FNB Card benefits from transaction strategy and improving bad debts
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 35 FNB Card benefits from transaction strategy and improving bad debts Profit before tax* 6m to 6m to 6m to 6m to 6m to R million Dec ’08 Jun ’09 Dec ’09 Jun ’10 Dec ’10 FNB Card 38 (146) 180 288 451 * Endowment earnings on capital reported in Corporate C
Slide 37: Cost management focus whilst investing for growth
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 36 Cost management focus whilst investing for growth • Benefited from lower cost base resulting from below-inflation below inflation growth over the past two years • Core cost increase at 7%, now closer to inflation despite absorbing above-inflation salar
Slide 38: Progress on strategy
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 37 Progress on strategy • Executing growth strategies in: • Mass (EasyPlan roll-out, eWallet, cellphone banking) • Wealth (BJM acquisition finalised) – integration commencing • Commercial – instant accounting and commercial property finance • Continued in
Slide 39: Good performance across portfolio
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 38 Good performance across portfolio Profit before tax R million 1 400 1 200 1 262 1 000 953 800 600 518 557 400 200 198 235 132 120 0 ( 44) - 200 ( 340) - 400 - 600 Investment FICC Private Equity Equity Trading Other Banking g Dec '09 Dec '10 Excellent p
Slide 40: Strong Equity Trading performance, impairments impact Private Equity
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 39 Strong Equity Trading performance, impairments impact Private Equity • Equity Trading +96% 96% • Trading performance good • Agency businesses held up well despite little improvement in volumes • Private Equity* (33%) • Income from Private Equity invest
Slide 41: Progress on strategy: Wholesale credit grew above market
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 40 Progress on strategy: Wholesale credit grew above market Advances* R million 10% 100 000 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 - Dec '09 Dec '10 * Wholesale advances excluding repos Wholesale credit growth – improved quality •
Slide 42: Wholesale credit growth – improved quality
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 41 Wholesale credit growth – improved quality • Grew in low volatility industries Jun ’09 Dec ’10 25% 31% Low volatility 49% 49% Medium volatility High volatility 26% 20% Progress on strategy – CIB and corridors gaining traction • Corporate and Investment
Slide 43: Strong earnings recovery continues at WesBank
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 42 Strong earnings recovery continues at WesBank Normalised profit before tax* Characterised by: R millions 1 200 + Continued bad debt ROE = 22% charge unwind >100% + Improved interest margins 1 000 across all portfolios 800 + Excellent p personal loans p
Slide 44: Provisions… the unwind gathers pace
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 43 Provisions… the unwind gathers pace • Retail arrears and repossessions reducing at good pace • Corporate failures down and arrears on the road to recovery • Continued but gradual unwind of bad debts expected • Pressure on recovery values and time to re
Slide 45: Top-line pressure will remain in the second half due to macros
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 44 Strategy gy and prospects Sizwe Nxasana Top-line pressure will remain in the second half due to macros Macro GDP growth remains subdued Subdued asset growth Interest rates remain unchanged Limited endowment impact Credit costs Positive impact p will re
Slide 46: Strategic plans on track
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 45 Strategic plans on track • South Africa • Strategies in domestic growth segments should deliver modest growth above nominal GDP • Strategic investment in SA and Africa will place pressure on cost to income ratio • Continue to focus on efficiencies • Ba
Slide 47: Recon: normalised pro forma income statement
FIRSTRAND INTERIM RESULTS PRESENTATION 10/11 46 Recon: normalised pro forma income statement Dec ’10 Headline Dec ’10 Normalised (R million) normalised per earnings normalised circular adjustments† Net interest income before impairment of advances 9 489 – 9 489 Impairment losses on loans and advance