Firstrand Limited · JSE:FSR
Firstrand — UBS Financial Services Conference 2014
30 slides from Firstrand's conference presentation, Oct 16, 2014
Slide 1: Growing Shareholder Value
GROWING SHAREHOLDER VALUE UBS conference, 16 October 2014
Slide 2: FirstRand's definition of growing shareholder value
FirstRand’s definition of growing shareholder value INVEST CAPITAL TO PROVIDE GROWTH AND A SUPERIOR RETURN ABOVE THE COST OF CAPITAL ON A SUSTAINABLE BASIS 2
Slide 3: Think and behave like shareholders: how is this operationalised?
Growing shareholder value THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT BUSINESS MODEL CREATE LONG- OF FINANCIAL AND CULTURE TERM FRANCHISES RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 3
Slide 4: Think and behave like shareholders
Growing shareholder value THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT BUSINESS MODEL CREATE LONG- OF FINANCIAL AND CULTURE TERM FRANCHISES RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 4
Slide 5: Owner-manager culture and model aligns employees and shareholders
Owner-manager culture and model aligns employees and shareholders • Has its roots in that FirstRand was owner-managed by the founders • Culture empowers employees to think like owners/shareholders – employees know and understand: • Business strategy • The business case always prevails • Capital is o
Slide 6: Think and behave like shareholders
Growing shareholder value THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT BUSINESS MODEL CREATE LONG- OF FINANCIAL AND CULTURE TERM FRANCHISES RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 6
Slide 7: Central frameworks to ensure discipline in deployment
Central frameworks to ensure discipline in deployment • Strategic framework Deployment of financial resources • Strategy executed through franchises • Appropriate balance between capital-light and capital-intensive businesses • Risk management framework Return • Through-the-cycle approach/ countercy
Slide 8: Forward-looking financial resource management
Forward-looking financial resource management WHAT? WHY? Group Treasury manages financial resources Allows operating franchises to focus on (capital, funding, liquidity, risk appetite) operational profits Group Treasury: • Determines level of capital, capital structure and gearing To ensure that BUs
Slide 9: Balance between risk and return in 2007 created volatility
Balance between risk and return in 2007 created volatility RETURN Premium above cost of capital ROA 1.03% 2007 ROA ROA 2.47% ROA 1.95% 2.13% RISK GROWTH Above nominal GDP over Volatility of return profile the long term FNB WesBank RMB FCC 9
Slide 10: What changes did we make?
What changes did we make? FNB • Built a transactional and deposit franchise • Priced more appropriately for risk RMB • Business model changed from highly-leveraged market risk to client franchise • Increased appetite for corporate lending WesBank • Priced more appropriately for risk • Increased dive
Slide 11: Structurally higher and more sustainable ROA
Structurally higher and more sustainable ROA RETURN 18% – 22% ROA 1.89% 2014 ROA ROA 2.06% ROA 3.12% 1.46% RISK GROWTH Nominal GDP + 3% to 5% Volatility of return profile over the long term FNB WesBank RMB FCC 11
Slide 12: Approach has resulted in superior shareholder value creation
Approach has resulted in superior shareholder value creation NIACC* (R million) ROE 10 000 25% 24.2% 24% 8 172 8 000 22.7% 23% 22% 6 169 6 000 20.7% 21% 20% 4 163 4 000 18.7% 19% 17.7% 18% 2 364 2 000 1 594 17% 16% - 15% 2010** 2011 2012 2013 2014 NIACC ROE * Net income after capital charge. ** Comp
Slide 13: Think and behave like shareholders
Growing shareholder value THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT BUSINESS MODEL CREATE LONG- OF FINANCIAL AND CULTURE TERM FRANCHISES RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 13
Slide 14: How we think about long-term franchise value
How we think about long-term franchise value • Building long-term client franchises = Franchise value sustainability • Portfolio effect reduces volatility from over-concentrations to product lines, Client-centric activities segments or activities • Differentiation in customer offerings Diversified p
Slide 15: How we think about long-term franchise value
How we think about long-term franchise value Franchise value Client-centric activities Diversified portfolios (franchise, segment, geography, product) Differentiated offerings strengthen competitive position (innovation) Access new profit pools and turnaround poor performers 15
Slide 16: Strong focus on growth and mix of client franchises
Strong focus on growth and mix of client franchises 2.5% 3.5% 7% 8% Client 2007 Investing 2014 Risk income 85% 94% FNB client franchise credit-led Transactional- and liability-led . . Based on gross revenue, excluding FCC (which includes Group Treasury). 16
Slide 17: FNB's focus on transactional and deposit franchise resulted in better returns
FNB’s focus on growing transactional and deposit franchise resulted in better returns, lower volatility FNB retail normalised profit before tax (R million) FNB SA deposits (R billion) 4 000 300 15% CAGR 20% CAGR 3 500 250 3 000 200 2 500 2 000 150 1 500 100 1 000 50 500 - - Personal loans Residentia
Slide 18: WesBank focus on risk-adjusted returns and diversification
WesBank focus on risk-adjusted returns and diversification delivering a resilient return profile PBT (R million) Balance between risk, return and growth 4 500 • Better pricing for risk and an improved risk 4 000 profile should result in a less volatile return 3 500 3 000 profile compared to the prev
Slide 19: Strong focus on growth and mix of client franchises
Strong focus on growth and mix of client franchises 2.5% 3.5% 7% 8% Client 2007 Investing 2014 Risk income 85% 94% Also driven by change in RMB’s strategy and business model . Based on gross revenue, excluding FCC (which includes Group Treasury). 19
Slide 20: Proactive changes to business model improved quality of earnings at RMB
Proactive changes to business model resulted in more sustainable, better quality of earnings at RMB Investment banking and advisory 18% 29% Client activities 3% Investing activities 37% 39% 2007 Proprietary trading activities 2014* Asset management 24% 32% 18% Markets and structuring Corporate and t
Slide 21: Rebalanced advances portfolio to reduce retail concentration
Rebalanced advances portfolio to reduce retail concentration Gross advances (R billion) 800 700 6% 600 6% 6% 500 46% 6% 5% 44% 400 43% 42% 43% 7% 300 7% 6% 5% 5% 200 43% 41% 47% 47% 45% 100 - 2010 2011 2012 2013 2014 Retail secured Retail unsecured Corporate FNB Africa and other 21
Slide 22: How we think about long-term franchise value
How we think about long-term franchise value Franchise value Client-centric activities Diversified portfolios (franchise, segment, geography, product) Differentiated offerings strengthen competitive position (innovation) Access new profit pools and turnaround poor performers 22
Slide 23: Diversification underpins sustainability
Diversification underpins sustainability 3% 10% Retail South Africa Commercial Geography* International Products* CIB Rest of Africa and corridors FNB Africa 87% FirstRand 16% 30% Retail FNB Segment† Franchise† 54% 51% Commercial RMB Corporate and investment banking 30% WesBank 19% * Based on gross
Slide 24: How we think about long-term franchise value
How we think about long-term franchise value Franchise value Client-centric activities Diversified portfolios (franchise, segment, geography, product) Differentiated offerings strengthen competitive position (innovation) Access new profit pools and turnaround poor performers 24
Slide 25: Differentiated product offering drove above-market growth in transactional volumes at FNB
Differentiated product offering drove above-market growth in transactional volumes at FNB Consumer retail ecosystem Number of transactions (million) 1.8 eWallet Total CAGR 1.6 13% Airtime, grocery eBucks 1.4 and fuel rewards Electronic CAGR 17% 1.2 1.0 Cellphone Transactional Slow banking account lo
Slide 26: WesBank differentiated by its unique partnership model
WesBank differentiated by its unique partnership model which provides sustainable growth through the cycle 34% 2007 new 2014 new business 45% business 55% volumes volumes R54.5bn R91.6bn 66% Direct Partnerships 26
Slide 27: How we think about long-term franchise value
How we think about long-term franchise value Franchise value Client-centric activities Diversified portfolios (franchise, segment, geography, product) Differentiated offerings strengthen competitive position (innovation) Access new profit pools and turnaround poor performers 27
Slide 28: There are meaningful new profit pools available to the Group
There are meaningful new profit pools available to the Group Investment management = 1% of revenue Insurance = 4% of revenue Alternative products • Client base • Private equity Deposit- • Credit Risk taking/ • Client insights endowment income/ • Structured equity investing • Products • ETNs, ETFs •
Slide 29: Focus on earnings resilience (2011 UBS conference)
Focus on earnings resilience (2011 UBS conference) • In 2008/09 the Group embarked on process to rebalance earnings profile • Objectives: to reduce volatility, but continue to deliver superior returns • Create appropriate diversification • South Africa vs rest of Africa • Better balance betwee
Slide 30: Think and behave like shareholders
Growing shareholder value THINK AND BEHAVE LIKE SHAREHOLDERS DEPLOYMENT BUSINESS MODEL CREATE LONG- OF FINANCIAL AND CULTURE TERM FRANCHISES RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 30