FirstRand Limited · JSE:FSR
FirstRand — FY2008 Earnings Presentation
151 slides from FirstRand's earnings presentation, September 2008
Slide 1: FirstRand Limited Results for the Year Ended 30 June 2008
08 FIRSTRAND LIMITED RESULTS FOR THE YEAR ENDED 30 JUNE 2008 FIRSTRAND
Slide 2: FirstRand's earnings: R10.4 billion profit in 2008
FirstRand’s earnings: R10.4* billion profit in 2008 Normalised earnings (R millions) +32% ROE 8%* 2007: 29%* 2008: 22%* Target: 23.4% CAGR 15% +23% +19% +13% The Group’s Discovery earnings * Pro forma
Slide 3: Solid increase in net asset value
Solid increase in net asset value R billions CAGR since 2003: 18.5% 11% 51.6 VISA R0.9bn 23% 17% 46.6 27% 37.8 16% 32.4 25.5 Note: NAV not adjusted for dividends
Slide 4: Franchises
Capital deployed into the organisation Group (Capital: R52bn) 10% 30% 30% 10% Franchises Divisions 2% 5% 3% 6% 8% 3% 13% 8% 12% 3% 1% 6% 5% 2% 3% 1% 1% 1% 2% 1% 2% 1% 1% 1% 2% 1% 1% 2% 1% 1% 1% Business units 1% 1% 2% 1% 1% 1% 2% 1% 1% 1% 1% 1% 1% 1% 2% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 4% 1% 1% 6% 1
Slide 5: Robust risk management and governance processes
Robust risk management and governance processes Group Risk & compliance Audit FirstRand Board Exco committee Committee Franchises Banking / Insurance Risk & compliance Audit Excos Boards committees committees Divisions Risk & compliance Audit Divisional Boards Excos committees committees Business un
Slide 6: Diversified portfolio
Business units Divisions Franchises Group Diversified portfolio
Slide 7: Equity Trading Division losses
Diversified portfolio Group Franchises Divisions Equity Trading Division losses Business units
Slide 8: Equity Trading Division losses
Equity Trading Division losses • Capital allocated to cover risk exposure at given confidence level • Misread market: Assumptions wrong Volatility Increased dramatically More capital for same position Correlations Massive divergence Hedges made losses not profits Liquidity Dried up Couldn’t sell: “f
Slide 9: Equity Trading Division losses
Equity Trading Division losses • No failure of risk management we misread the market • Concentration of style: Long mid and small caps / short indices • Volatility, correlation and liquidity assumptions wrong, therefore required more capital to support portfolio • Valuations irrelevant if no liquidi
Slide 10: Removing the impact of Equity Trading Division
Removing the impact of Equity Trading Division R millions : 17% CAGR 25% 11% 22% 18% 14% 2007/8 growth rate is based on pro forma normalised earnings
Slide 11: Bad debts
Business units Divisions Franchises Group Diversified portfolio Bad debts
Slide 12: Bad debts
Bad debts • Identified change in market early and reviewed strategy • Analysed our portfolios and peer group with respect to • Product mix • Risk concentrations • Provisioning assumptions • Maturity and risk profile • Experience in line with our models’ predictions and not out of line with peers • A
Slide 13: Positives in 2008 results
Positives in 2008 results Group • Outstanding performance in difficult market • Excellent new business flows and margins Franchises • Capital management strategy immunised against poor markets Divisions Business units
Slide 14: Positives in 2008 results
Positives in 2008 results Group • Strong divisional performances from • Private Equity Franchises • Investment Banking • Fixed Income Commodities & Currencies (FICC) Divisions Business units
Slide 15: Positives in 2008 results
Positives in 2008 results Group • Solid operating performance • Growth in transactional Franchises businesses • Strong franchise in corporate and commercial segments • Outstanding performance Divisions from FNB Africa Business units
Slide 16: Positives in 2008 results
Positives in 2008 results Group • Strong platform for growth Franchises • Profitable through the cycle Divisions Business units
Slide 17: Resilience of FirstRand's diversified portfolio
Resilience of FirstRand’s diversified portfolio in our most difficult year to date Group Franchises Divisions Business units
Slide 18: FirstRand Banking Group Results
FIRSTRAND BANKING GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2008
Slide 19: Mixed segment performance
Mixed segment performance • Normalised earnings • Retail 16% to R2.76 billion • Corporate and commercial 29% to R2.97 billion • Investment banking 22% to R3 billion • Key issues • Retail impacted by bad debt charge of R4.7 billion • Investment banking hit by trading losses • Corporate and commercial
Slide 20: Performance relative to financial targets
Performance relative to financial targets ROE FNB Africa FNB RMB 10% plus FirstRand WACC WesBank 10% real growth Normalised earnings growth Based on normalised earnings, excluding Group Support
Slide 21: Retail impairments continue to rise with corporate steady
Retail impairments continue to rise with corporate steady Impairment charge 2.0% 1.54% 1.28% before credit hedges 1.22% 0.97% 1.19% after credit hedges 0.83% 0.79% 0.78% 0.67% 0.58% 0.55% 0.17% 0.19% 0.1% Retail Corporate and commercial Investment banking
Slide 22: Segment diversification protects earnings and balance sheet
Segment diversification protects earnings and balance sheet Investment banking 34% Retail 32% [FY07 41%] [FY07 35%] Corporate & commercial 34% [FY07 24%] Based on normalised earnings, excluding Group Support
Slide 23: Franchise diversification protects earnings and balance sheet
Franchise diversification protects earnings and balance sheet WesBank 7% [FY07 10%] RMB 34% [FY07 41%] FNB 53% [FY07 45%] FNB Africa 6% FY07 4%] Based on normalised earnings, excluding Group Support
Slide 24: Business portfolios create protection through the cycle
Business portfolios create protection through the cycle • Banking franchises well represented in all segments and products • Well diversified portfolios within segments with no concentration • Protects against earnings volatility and protects the balance sheet through the cycle • Continue to manage
Slide 25: FirstRand Limited Results
08 FIRSTRAND LIMITED RESULTS FOR THE YEAR ENDED 30 JUNE 2008 FIRSTRAND
Slide 26: Key financial ratios
Key financial ratios R millions June ’08 June ’07 % change Normalised earnings – pro forma 10 398 11 309 (8) Diluted normalised EPS – pro forma (cents) 184.4 200.6 (8) Normalised return on equity – pro forma 22% 29% Normalised net asset value 51 637 46 622 11 Attributable earnings 11 309 11 511 (2) D
Slide 27: Financial Review: Momentum
08 FINANCIAL REVIEW FOR THE YEAR ENDED 30 JUNE 2008 momentum
Slide 28: Key financial ratios
Key financial ratios June ’08 June ’07 % change Normalised earnings (R millions) 2 004 1 668 20 Return on equity (%) 30 25 Return on embedded value (%) 15 28 CAR cover (times) (before dividend) 2.2 2.3
Slide 29: A consistent performance
A consistent performance Economic value profit R millions EV profit CAGR 27% Normalised earnings CAGR 18%
Slide 30: Financial Review: Banking Group
08 FINANCIAL REVIEW FOR THE YEAR ENDED 30 JUNE 2008 FIRSTRAND Banking Group
Slide 31: Key financial ratios
Key financial ratios June ’08 June ’07 % change Normalised earnings* (R millions) 8 814 10 089 (13) Return on equity** (%) 21 31 Return on assets (%) 1.4 2.0 Credit loss ratio*** (%) 1.28 0.83 Cost to income ratio (%) 52.6 51.7 * Before deducting preference share dividends ** After deducting preferen
Slide 32: Mixed performance from banking franchises
Mixed performance from banking franchises Profit before tax (R millions) June ’08 June ’07 % change FNB 6 345 5 738 11 FNB Africa 1 098* 907 21 RMB 4 204 5 281 (20) WesBank 734 1 370 (46) OUTsurance 367 310 18 * Excluding VISA revenue
Slide 33: Contextualising the income statement
Contextualising the income statement R millions June ’08 June ’07 % change Net interest income 17 098 13 998 22 Credit impairment charge (5 064) (2 857) 77 Net interest income after impairments 12 034 11 141 8 Non interest revenue 1,2 21 753 22 849 (5) Transactional 13 722 11 725 17 Fair value 1 2 5
Slide 34: Diversification adds some protection
Diversification adds some protection Revenue (R millions) +17% +8% Fair value +36% (>100%) +20% +7% +50% (>100%) (>100%) * Interest income is shown after deduction of impairments ** Other income excludes VISA revenue
Slide 35: Banking Earnings Through the Cycle
08 BANKING EARNINGS THROUGH THE CYCLE FIRSTRAND Banking Group
Slide 36: Banking risks through the cycle
Banking risks through the cycle Funding & Asset liquidity quality Capital/ Earnings Gearing volatility
Slide 37: Banking risks through the cycle: Asset quality
Banking risks through the cycle Asset quality
Slide 38: Asset quality – cyclical not structural
Asset quality – cyclical not structural Structural Cyclical • Not exposed to sub prime and • Exposure to credit cycle as other structured credit markets expected in current cycle • No mispriced credit • Balance sheet not highly leveraged • Off balance sheet exposure limited We underestimated the sev
Slide 39: Understanding the impact of bad debts on bank earnings
Understanding the impact of bad debts on bank earnings Actual normalised earnings CAGR = 18% since 2002 Earnings (R millions) Benign credit conditions Credit downturn * Through the cycle net interest after impairments calculated assuming long run average bad debt ratio of 0.8
Slide 40: Benign credit environment resulted in excess profits
Benign credit environment resulted in excess profits Large Cap Banks pre tax profit breakdown CAGR, 2002-2006 4.7% -0.4% 15.4%* 11.0% Source: Morgan Stanley – Large Cap Banks US *Pre-tax profit growth doesn’t cast due to rounding
Slide 41: Retail advances growth continues to slow
Retail advances growth continues to slow R billion 15% R 457 billion R 396 billion 36% 16% 9% * Fixed Income Currency and Commodities
Slide 42: A diversified interest income portfolio
A diversified interest income portfolio R millions Jun ’08 Jun ’07 % change Retail 10 629 9 117 17 HomeLoans 1 274 1 546 (18) Credit card 1 129 850 33 Personal banking 2 107 1 647 28 Mass 1 020 701 46 Wealth 756 634 19 FNB Africa 1 324 1 101 20 WesBank 3 019 2 638 14 Corporate & commercial 4 755 3 79
Slide 43: Asset margins holding up
Asset margins holding up Margins (%) Jun ’08 Jun ’07 Retail HomeLoans 1.1 1.6 Credit card 7.3 6.9 Other consumer 8.5 8.9 Mass 7.9 9.0 Wealth 1.7 1.8 WesBank retail asset backed 3.9 4.3 WesBank retail non asset backed 12.9 11.4 Corporate and commercial FNB Corporate 4.1 3.3 FNB Commercial 4.9 4.5 Wes
Slide 44: NPLs and bad debts continue upward trend
NPL’s and bad debts continue upward trend… Long run expected loss: 0.8
Slide 45: But within our risk reward profile
… but within our risk reward profile Turbulent 1.45% Through the cycle 0.8% Calm 0.5%
Slide 46: Tough times are not over yet
Tough times are not over yet Bad debts 12 months 6 months 6 months Percentage of average advances Jun ’08 Jun ’08 Dec ’07 Retail - Mortgages 0.84 1.22 0.42 - Credit card 8.87 8.46 9.16 - Instalment finance* 1.73 2.22 1.23 Wholesale 0.34 0.34 0.33 Total bad debt ratio 1.28** 1.54 0.97 NPL Jun ’08 Dec
Slide 47: Banking risks through the cycle: Funding & liquidity
Banking risks through the cycle Funding & liquidity
Slide 48: Funding and liquidity – industry faces structural pressures
Funding and liquidity – industry faces structural pressures Structural Cyclical • Diversified banking activities • Funding and liquidity costs increase • Reliance on wholesale funding • Credit risk repriced in line with our peers • Not reliant on international capital markets • Limited exposure to r
Slide 49: Funding and liquidity strategies provide underpin
Funding and liquidity strategies provide underpin • Increased focus on deposit franchise • Limit dependence on wholesale funding • Lengthening funding profile • Eliminate roll over risk • Limit off balance sheet activities • Marginal maturity matched transfer pricing • Decrease size of international
Slide 50: Funding composition in line with our peers
Funding composition in line with our peers FirstRand Bank Limited Industry average* Source: SARB BA900 returns * Industry average excludes FirstRand ** Government & parastatal
Slide 51: Liability mix adds pressure to margins
Liability mix adds pressure to margins R millions Jun ’08 Jun ’07 Change % Jun ’08 mix % Jun ’07 mix % Retail 98 189 81 498 20 15 15 Corporate 127 485 101 505 26 19 19 Professional funding 220 964 196 408 13 34 36 Govt & Para 49 436 45 615 8 8 8 Trading liabilities 79 341 49 944 59 12 9 Other liabil
Slide 52: Endowment effect still provides margin protection
Endowment effect still provides margin protection Customer margin (%) Jun ’08 Jun ’07 Change Current and savings 5.33 4.43 0.90 Money market 1.69 1.57 0.12 Call 1.90 1.87 0.03 Term 1.43 1.42 0.01 Total customer margin 3.47 3.04 0.43
Slide 53: Banking risks through the cycle: Capital/Gearing
Banking risks through the cycle Capital/ Gearing
Slide 54: Capital – well within targets
Capital – well within targets Structural Cyclical • Balance sheet not highly • Capital strategy provides for cyclical leveraged requirements • Strong core equity position • Capital held against off balance sheet activities
Slide 55: Banking group remains well capitalised
Banking group remains well capitalised FRBH Regulatory minimum Target Actual Jun ’08 Core Tier 1 5.25 8.25 10.30 Tier 1 7.00 10.00 11.13 Total CAR 9.50* 12.00 – 13.50 13.75 FRB Regulatory minimum Target Actual Jun ’08 Core Tier 1 5.25 7.75 8.41 Tier 1 7.00 9.50 9.44 Total CAR 9.50* 11.50 – 13.00 12.
Slide 56: Economic risk backed with Tier 1 capital
Economic risk backed with Tier 1 capital R millions
Slide 57: Capital allocated mainly to credit and operational risk
Capital allocated mainly to credit and operational risk
Slide 58: Above targets even in downturn scenario
Above targets even in downturn scenario Core Tier 1 (%) Target Regulatory minimum Basel I Basel II Scenarios
Slide 59: Banking risks through the cycle: Earnings volatility
Banking risks through the cycle Earnings volatility
Slide 60: Earnings volatility – it's about risk income
Earnings volatility – it’s about risk income Earnings volatility • Market risk appetite exposure too high
Slide 61: Equity trading losses add to the pain in the cycle
Equity trading losses add to the pain in the cycle R millions Actual normalised earnings CAGR = 18% since 2002 Benign credit conditions Credit downturn * Through the cycle normalised earnings calculated assuming long run average bad debt ratio of 0.8
Slide 62: Income statement through the cycle
Income statement through the cycle NIR Costs
Slide 63: Diversification adds some protection
Diversification adds some protection Revenue (Rm) +17% Fair value +36% (>100%) +20% +7% +50% (>100%) (>100%) * Other income excludes VISA revenue
Slide 64: Economic activity continues to drive transactional income
Economic activity continues to drive transactional income Transactional revenue breakdown by franchise* R millions 17% 120% • FNB -10% 22% • Increase in customer numbers • Client activity slowdown due to tough economic conditions • RMB • Increased corporate activity (structuring and BEE) • Increased
Slide 65: Good balance between annuity income and realisations
Good balance between annuity income and realisations R millions Jun ’07 Jun ’08 20% -10%Annuity income Profit on realisations 22% Unrealised profits at R2 billion
Slide 66: Strong growth in annuity income
Strong growth in annuity income R millions R millions Jun ’08 Jun ’07 % change 36% Annuity 3 527 2 594 36 - Lending 1 987 1 379 44 - Client flows 1 540 1 215 27 120% Client flows 1 540 1 215 27 - Forex 1 109 995 11 - Debt -10%315 155 22% >100 -Equity 116 65 78
Slide 67: Risk income hit hard by equity trading losses
Risk income hit hard by equity trading losses R millions R millions Jun ’08 Jun ’07 % change Risk (742) 2 825 (>100) - Equities (1 714) 2 096 (>100) (100%) - Commodities 170 143 19 120% - Interest rates 664 468 42 - Credit (48) 48 (>100) -10% 22% - Forex 186 70 >100
Slide 68: Mark-to-market timing issues impact Nufcor
Mark-to-market timing issues impact Nufcor R millions R millions Jun ’08 Jun ’07 % change (100%) Resources (269) 497 (>100) 120% -10% 22%
Slide 69: Income statement through the cycle
Income statement through the cycle NIR Costs
Slide 70: Slowing top line impacts cost to income ratio
Slowing top line impacts cost to income ratio R millions 8% Top line CAGR 17% 10% Costs CAGR 15%
Slide 71: Strong focus on costs across the board
Strong focus on costs across the board Operating expenses (R millions) Jun ’08 Jun ’07 % change Staff expenditure 10 976 10 308 6 Depreciation and amortisation 1 086 908 20 Advertising and marketing 893 866 3 Insurance 302 261 16 Lease charges 866 732 18 Professional fees 840 677 24 Computer expense
Slide 72: Contextualising negative jaws
Contextualising negative jaws
Slide 73: Improving efficiencies remains a focus
Improving efficiencies remains a focus Cost to income ratio (%) Jun ’08 Jun ’07 FNB 56.9 59.8 Retail 59.4 61.4 Corporate & Commercial 52.6 57.1 FNB Africa 46.5 45.7 WesBank 53.5 53.4 RMB 42.8 41.7 FirstRand Banking Group 52.6 51.7
Slide 74: Financial Review: FNB
08 FINANCIAL REVIEW FOR THE YEAR ENDED 30 JUNE 2008 <= ENB First Notional Bank
Slide 75: What did we say last time?
What did we say last time? Credit conditions to remain a challenge, have not seen the top yet Historic customer growth should support future revenue increases Stimulus in the corporate market in SA driving growth in medium corporate and SME segments Slowdown in retail lending compensated by continue
Slide 76: FNB's good performance continues
FNB’s good performance continues June ’08 June ’07 Change FNB South Africa Profit before tax (R millions) 6 345 5 738 11% Cost to income (%) 56.9 59.8 ROE (%) 33 35 FNB Africa Profit before tax (R millions) 1 156 907 27% Cost to income (%) 46.5 45.7 ROE (%) 34 33
Slide 77: Mixed performance across the SA segments
Mixed performance across the SA segments Profit before tax (R millions) 2008 2007 % change Mass 1 276 981 30 Consumer 1 159 2 035 (43) HomeLoans (381) 729 (>100) Card Issuing 120 109 10 Other Consumer 1 420 1 197 19 Wealth 444 320 39 Commercial 2 907 2 191 33 Corporate 671 603 11 FNB Other and Suppo
Slide 78: Segment strategy in SA complemented by African expansion
Segment strategy in SA complemented by African expansion Income/Turnover Customer numbers Profit before tax* >R600m 0.7k (June 2008) Corp. Corp. N/A 12.5k Africa Mass R0 – R600m 460k Corporate Consumer >R1m 50k R81k – R1m 2.2m Wealth R0 – R81k 3.5m Commercial Africa 830k 7.0m * Excludes FNB Other an
Slide 79: Management focus areas
Management focus areas Growth Volumes ROE Bad focus debts Costs
Slide 80: Volumes still growing
Volumes (not only rand values) still growing • Volumes • Customer growth +8% to 6.3 million* • Teller deposit transactions +3% • ATM cash withdrawals +16% • Cellphone transactions more than doubled (+133%) • Internet transactions +22% largely due to payments • Cardholder turnover +9% • Values • Depo
Slide 81: Bad debts: Consumer segment accounts for 80%
Bad debts: Consumer segment accounts for 80% Advances (Rbn) Bad debts as % of advances June 2008 June 2008 June 2007 Mass 6 3.81 6.48 Consumer 129 2.00 0.93 Wealth 28 0.36 0.25 FNB Other 5 0.36 1.86 Retail 168 1.72 1.03 Commercial 24 0.91 0.62 Corporate 15 0.64 0.07 Commercial & Corporate 40* 0.80 0
Slide 82: Bad debts: Consumer home loan book metrics
Bad debts: Consumer home loan book metrics Home loans age distribution Loan to value (at original value)* * Average LTV based on valuation at inception: 80% (FY07: 77%) Average LTV based on updated market values: 74% (FY07: 69%)
Slide 83: Bad debts: Tough decisions made in mortgage advances
Bad debts: Tough decisions made in mortgage advances Market share – residential mortgage advances* ABSA Standard Bank Nedbank FNB • Charges high but as expected • Originating for own customers, increasingly own channels • Continued ROE focus with appropriate risk based pricing *Source: SARB BA900s
Slide 84: Bad debts: Tough decisions made in Card advances
Bad debts: Tough decisions made in Card advances Market share – credit card advances* Standard Bank FNB ABSA Nedbank • 10% profit increase • Collections yielding good results • Card not only about advances growth, hence increase in market share of card turnover in line with transactional strategy *
Slide 85: Bad debts: Focus on growing transactional revenue in Card
Bad debts: Focus on growing transactional revenue in Card Market share – issuer turnover* Standard Bank 1st ABSA FNB 3rd Nedbank * Source: FNB Card Acquiring
Slide 86: Bad debts: Card new business strain largely out of the system
Bad debts: Card new business strain largely out of the system Percentage of advances by age of book
Slide 87: Bad debts: Disciplined management through tough times
Bad debts: Disciplined management through tough times Originate & Ongoing risk Collections & approve management recoveries • Tighter affordability criteria • Scenario planning • Capacity • Focus on FNB Channels and • Stress testing of existing book • Technology customers for new business in line wit
Slide 88: Costs: Efficiencies of more than 3% per annum achieved
Costs: Efficiencies of more than 3% per annum achieved R billions • Cost to income ratio reduction largely driven by revenue growth • Top line growth under strain, further CIR reduction challenging
Slide 89: Costs: Management approach
Costs: Management approach • Through the cycle view • One size doesn’t fit all • Business imperative • Centrally led, decentralised implementation • Prepared for risk scenario
Slide 90: Costs: Targeting efficiency
Costs: Targeting efficiency • Selective rationalisation of staff numbers • Branch optimisation • Shared services • Marketing: More bang for less buck • Increase productivity
Slide 91: ROE focus continues
ROE focus continues • Internally our performance is measured in growth in profit after cost of capital • The cost of liquidity and capital has increased • Credit risk pricing paramount • International trend: Back to gathering deposits benefiting funding, liquidity and brand
Slide 92: Confident about organic growth opportunities
Confident about organic growth opportunities Targeting growth industries where market share subscale Corp. Partnering government to deliver New Markets: Franchising, Tourism, BEE, Start ups Leveraging successful SA/Jersey wealth model in Mid East & India Deposit growth via transactional relationship
Slide 93: FNB continues to invest in sustainable growth
FNB continues to invest in sustainable growth • FNB Mozambique is expanding • FNB Zambia (awaiting Lusaka approval)
Slide 94: FNB continues to invest in sustainable growth
FNB continues to invest in sustainable growth • Investment in physical infrastructure • Growth in number, size and quality of branches • ATM roll-out • Innovation • Business cellphone banking • Cellphone payments at point of sale • InContact value added services • 2010 promotions • Unlimited cheque
Slide 95: FNB prospects – growth will be challenging
FNB prospects – growth will be challenging • Top line growth will slow in line with economy • Bad debts will increase even with flat interest rates • Cost management will only partially compensate • Competition Commission will gradually impact • FNB still sees growth runway in SA • Organic, infrastr
Slide 96: Financial Review: RMB
08 FINANCIAL REVIEW FOR THE YEAR ENDED 30 JUNE 2008
Slide 97: Second highest earnings
Second highest earnings Profit before tax R millions 80% R4.2 billion (20%) 20% decline after an 80% increase
Slide 98: Global banking context
Global banking context 16 Top banks’ profit after tax (representing 58% of pre-crisis market capitalisation) $ billions 32% >90%
Slide 99: Annuity income
Annuity income % of revenue 100% 80% 60% 40% 20% 0% T T T T T 1 2004 2005 2006 2007 2008 08 &
Slide 100: The best of times… the worst of times
The best of times… the worst of times Profit before tax R millions
Slide 101: The worst of times: Equity Trading crash
The worst of times …. Equity Trading crash Losses Lessons learnt • Total R1.4 billion • Too big • Dublin $268 million (R1.9 billion) • Too concentrated (style) • Underestimated liquidity crunch Second half • Too slow to sell down • No visibility of realisation of inherent value Current position • As
Slide 102: The best of times: Investment Banking
The best of times… Investment Banking Fantastic deal record this year…across all sectors Transport & Property & Resources Telcos BEE LBOs logistics infrastructure PBT growth of 64% to R2.1 billion
Slide 103: The best of times: Fixed Income, Currencies & Commodities
The best of times… Fixed Income, Currencies & Commodities • Record year taking advantage of… • Volatile & trending markets • >50% increase in client flows • Big driver was Fixed Income • Giant strides in Debt Capital Markets • R107 billion distributed PBT growth of 76% to R1.2 billion
Slide 104: The best of times: Private Equity
The best of times… Private Equity R millions PBT growth 37% to R1.8 billion, unrealised profits = R2 billion
Slide 105: Into a new era
Into a new era Profit before tax R millions
Slide 106: Into a new era
Into a new era Platform for growth… • Annuity income • Solid risk management • Diverse portfolio
Slide 107: Diverse portfolio
Diverse portfolio Equity Trading • Difficult Markets but losses not to be repeated FICC • Healthy client flows Investment Banking • Strong annuity income & solid deal pipeline Private Equity • Two realisations complete & associate income …but all have challenging bases
Slide 108: Into a new era
Into a new era Platform for growth… • Annuity income • Solid risk management • Diverse portfolio • Top people • Sound leadership team • Good reputation
Slide 109: Good reputation: Best Investment Bank in South Africa
Good reputation Best Investment Bank in South Africa
Slide 110: Financial Review: WesBank
08 FINANCIAL REVIEW FOR THE YEAR ENDED 30 JUNE 2008 WesBank FirstRand Bank i:
Slide 111: Tough year in instalment finance
Tough year in instalment finance Profit before tax (R millions) June ’08 June ’07 % change Local 918 1 519 (40) International (184) (149) (23) WesBank 734 1 370 (46)
Slide 112: Unpacking local performance
Unpacking local performance R millions June ’08 June ’07 % change Net interest income after impairments 1 631 2 411 (32) Net interest income 3 577 3 507 2 Credit impairment charge (1 946) (1 096) (78) Non interest revenue 2 092 1 768 18 Operating expenses (2 681) (2 555) (5)
Slide 113: Impact of the cycle
Impact of the cycle • Negative gearing • High bad debts • Arrears and provisions at high levels • Security realisation values down • Reduction in bad debt recoveries • Advances growth slowed significantly • Retail new business production down 18% • Total new business production down 11.5% Bad debt c
Slide 114: Impact of the cycle
Impact of the cycle • Negative gearing • High bad debts • Arrears and provisions at high levels • Security realisation values down • Reduction in bad debt recoveries • Advances growth slowed significantly • Retail new business production down 18% • Total new business production down 11.5% Repo recov
Slide 115: Impact of the cycle
Impact of the cycle • Negative gearing • High bad debts • Arrears and provisions at high levels • Security realisation values down • Reduction in bad debt recoveries • Advances growth slowed significantly • Retail new business production down 18% • Total new business production down 11.5% New busine
Slide 116: Managing the book through the cycle
Managing the book through the cycle • Early tightening of score cards throughout the cycle based on economic outlook • Planned decrease in new business • Reduction in market share • Balanced with defence of origination platform (dealer network) New business market share (%)
Slide 117: Managing the book through the cycle
Managing the book through the cycle • Early tightening of score cards throughout the cycle based on economic outlook • Planned decrease in new business • Reduction in market share • Balanced with defence of origination platform (dealer network) • Continued investment in collections • Underlying cred
Slide 118: International strategy
International strategy • Why international expansion? • Approaching market share ceiling locally • Exportability of competitive advantage in certain markets • Medium-term revenue diversification strategy
Slide 119: Australian experience
Australian experience • WorldMark (private equity investment) has a distribution network of motor dealers • WesBank’s objective was to provide vehicle finance leveraging this network • Market tougher than anticipated • The advances book was to be funded through securitisation (similar to GE Finance,
Slide 120: Carlyle (UK)
Carlyle (UK) • Difficult economic climate • Monthly operating profit achieved • Established business and brand • Funding and scale remain the challenge
Slide 121: Prospects – international
Prospects – international • Wrap up Australian exit • Turnaround of Carlyle to continue • Brazil
Slide 122: Prospects – local
Prospects – local • Challenging times to continue until Q3 of FY09 • Origination platform not eroded – footprint remains • Consistent strategy • Efficient business • Increasing contribution from non-lending operations • Arrears showing signs of easing Well positioned when cycle turns
Slide 123: Financial Review: Momentum
08 FINANCIAL REVIEW FOR THE YEAR ENDED 30 JUNE 2008 momentum
Slide 124: Financial highlights
Financial highlights June ’08 June ’07 % change Normalised earnings (Rm) 2 004 1 668 20 Return on equity (%) 30 25 Insurance new business (Rm) 28 873 20 651 40 Value of new business (Rm) 590 518 14
Slide 125: Challenging operating environment
Challenging operating environment ALSI • Volatile capital markets 7% • Pressure on asset value growth 33% • Impact on fee income • Reduction in embedded value profit Prime CPIX • Pressure on disposable income • Slowing new business growth • Increase in lapses and surrenders • Increase in costs
Slide 126: Momentum in the cycle
Momentum in the cycle Protection through the cycle • High income segment focus • Strong new business initiatives • Exceptional risk experience • Bancassurance delivers strong growth • Capital not exposed to equity markets • Maintain new business margin
Slide 127: Strong operational performance
Strong operational performance June ’08 June ’07 % change Insurance 1 459 1 145 27 Momentum insurance 1 184 1 000 18 FNB insurance 275 145 90 Asset management 282 326 (13) Group operating profit 1 741 1 471 18 Investment income 263 197 34 Normalised earnings 2 004 1 668 20
Slide 128: Driven by insurance operations
…driven by insurance operations R millions +1% +27% 1 459 +11% -3% +16% +6% -4% 1 145
Slide 129: Strong new business growth across insurance product lines
Strong new business growth across insurance product lines APE (R millions) 22% 59% 12% -15% 21% >100% 13% * Excludes RMB Asset Management
Slide 130: Risk continues to drive retail business
Risk continues to drive retail business API (R millions) • Growth maintained despite +12% affordability concerns +2% • Product innovation • Change in product mix +25% • Full impact of pressure on disposable income not felt yet +16%
Slide 131: Strong growth in wealth business
Strong growth in wealth business APE (R millions) • Demand for foreign investments +22% +32% • Open architecture assists with retention +30% • Collaboration benefits • Product innovation +40% • Technology enhancement -14%
Slide 132: Umbrella funds drive group recurring new business
Umbrella funds drive group recurring new business API (R millions) • Group risk market remains highly +4% competitive • Umbrella funds • Strong recurring growth • Growth in broker footprint +40% • Up and cross-sell initiatives -41%
Slide 133: Significant contribution from FNB collaboration
Significant contribution from FNB collaboration Aspire FNB Life Policies API (R millions) Policies (millions) API (R millions) In-force API growth > 100% pa In-force API +53% pa
Slide 134: Short-term insurance at breakeven
Short-term insurance at breakeven Gross earned premium (R millions) • Month-on-month breakeven Operating loss as % of premium income achieved • Positive trends in all key indicators Claims ratio
Slide 135: Margins maintained
Margins maintained Value of new business as % of PV of future premiums • Retail benefited from 2.6% different new business mix 2.2% 2.1% 2.1% 2.6% • Higher margins in new 2.2% segments 2.1% 2.1% • Margins maintained despite some negative impacts • Margin pressure in group risk business • Increase in
Slide 136: Sustained growth in value of new business
Sustained growth in value of new business R millions 20% p.a.
Slide 137: Helped by growing channel diversification
Helped by growing channel diversification Contribution to Momentum sales APE
Slide 138: And continued product diversification
…and continued product diversification APE (R millions)
Slide 139: Earnings pressure at RMB Asset Management
Earnings pressure at RMB Asset Management June ’08 June ’07 % change Insurance 1 459 1 145 27 Momentum insurance 1 184 1 000 18 FNB insurance 275 145 90 Asset management 282 326 (13) Group operating profit 1 741 1 471 18 Investment income 263 197 34 Normalised earnings 2 004 1 668 20
Slide 140: Positive operational performance
Positive operational performance R millions 326 +8% -7% -16% +8% -12% +1% +5% 282 275 +3% operational performance June ‘07 Prior year Normalised Market Performance UT net Institutional Investment Other June ‘08 once-offs June ‘07 growth fees inflows outflows growth
Slide 141: Turnaround in investment performance
Turnaround in investment performance RMBAM 12-month rankings (global) Turnaround in performance RMBAM 24-month rankings (global) Turnaround in performance
Slide 142: Investment income benefited from capital investment policy
Investment income benefited from capital investment policy R millions • Immunised against 263 market volatility -13% +29% 263 • Benefited from increased interest rates +10% +34% • Significant +8% increase despite capital reduction 197
Slide 143: Return on embedded value impacted by negative market
Return on embedded value impacted by negative market Return on EV • Operating experience 31% remains strong in 28% 28% unfavourable conditions 17% 15% • Strong growth in new business embedded value 7% • Market conditions impact negatively on investment return and experience
Slide 144: Capital efficiency impacted by volatile markets
Capital efficiency impacted by volatile markets CAR as % of liabilities
Slide 145: Momentum remains well capitalised
Momentum remains well capitalised R millions 2.2 x CAR before dividend 1.9 x CAR post dividend 0.9 x CAR 0.9 x CAR 1 x CAR 1 x CAR
Slide 146: Outlook
Outlook • Market volatility expected to continue • Pressure on disposable income • Further benefits from sales success to follow • Full benefits of investment performance turnaround not yet realised • Ongoing diversification • Regulatory reforms expected to continue
Slide 147: FirstRand Limited Results: Prospects
FIRSTRAND LIMITED RESULTS PROSPECTS
Slide 148: Local market will continue to remain tough
Local market will continue to remain tough • GDP to grow 2-3% in 2008-2009 • Consumer remain stressed and affordability levels drop further • Businesses under increasing pressure as economy slows • Inflation starts falling – second half 2008 • Interest rates start falling – mid 2009 • Improvement in
Slide 149: FirstRand's approach to growth
FirstRand’s approach to growth Local International Discovery FNB Zambia OUTsurance India RMB Asset Management FNB Lesotho Greenfields eBucks Youi - Outsurance Australia Momentum Health RMB Resources Momentum Wealth Destiny Sage Ashburton Accelerated Saambou WesBank Australia greenfields Corvest Carl
Slide 150: International expansion
International expansion • India – Representative office • Initial focus - India/SA trade • Initial small investment to set up office – our eyes and ears • Open for business – partnerships and acquisitions • Brazil – discussions between Banco do Brasil and WesBank • Exciting and growing market • Pote
Slide 151: The Group is in good shape after a tough year
The Group is in good shape after a tough year We have • made mistakes and learnt from them • a strong balance sheet and excellent franchises • good risk management structures • diversified businesses with committed management with exciting growth plans Prospects • Over the medium term to produce rea