FirstRand Limited · JSE:FSR

FirstRand — FY2019 Earnings Presentation

62 slides from FirstRand's earnings presentation, June 2019

  1. Slide 1: Results presentation for the year ended 30 June 2019

    19 results presentation for the year ended 30 June

  2. Slide 2: Slide 2

  3. Slide 3: Introduction

    RESULTS PRESENTATION – JUNE 2019 :: 01 Introduction results presentation for the six months ended 31 December ’18 The group delivered premium returns and real growth in earnings against a tough macro backdrop Cents 600 22.8% ROE . 6% 500 497.3 470.8 400 436.2 407.4 378.5 6% 300 291.0 275.0 255.0 2

  4. Slide 4: Continued track record of shareholder value creation with NIACC of R10.7 billion

    02 :: FIRSTRAND GROUP | Introduction continued Continued track record of shareholder value creation with NIACC of R10.7 billion NIACC* ROE and COE R million 24.7% 24.0% 12 500 23.4% 23.0% 25% 22.8% 10 000 10 729 20% +8% 9 694 9 968 9 548 9 086 7 500 15% 14.5% 14.3% 14.3% 14.0% 13.5% 5 000 10% 2 500

  5. Slide 5: Geographic and activity diversification underpins portfolio performance

    RESULTS PRESENTATION – JUNE 2019 :: 03 Geographic and activity diversification underpins portfolio performance NORMALISED EARNINGS 2019 2018 % change ROE % R million FNB 17 637 15 865 11  41.9 RMB 7 086 7 353 (4)  21.7 WesBank 1 808 1 854 (2)  18.5 Aldermore 1 658 276 >100  13.1* * ROE excludes

  6. Slide 6: Excellent domestic performance, strong recovery in the rest of Africa

    04 :: FIRSTRAND GROUP | Introduction continued Excellent domestic performance, strong recovery in the rest of Africa NORMALISED PBT R million 18 000 13% 16 000 14 000 12 000 10 000 8 000 5% 6 000 4 000 25% 6% 30% 2 000 0 (2 000) 8% (4 000) Transactional * Term lending Save and invest ** Insura

  7. Slide 7: …despite Private Equity realisation rebase of R1.5 billion

    RESULTS PRESENTATION – JUNE 2019 :: 05 …despite Private Equity realisation rebase of R1.5 billion NORMALISED PBT R million 6 000 8% 5 000 4 000 3 000 12% 24% 2 000 54% 1 000 0 4% -1 000 Investment banking Corporate and Markets and Investing Other* and advisory transactional banking structuring

  8. Slide 8: WesBank focused on protecting origination franchise and returns in tough market

    06 :: FIRSTRAND GROUP | Introduction continued WesBank focused on protecting origination franchise and returns in tough market NORMALISED PBT ROE R million % 3 500 22 • VAF performance reflects 18.5 20 3 000 17.4 18 • Scorecard risk cuts in retail, and 2% corporate and commercial 2 500 2 643 16 2 5

  9. Slide 9: Unpacking performance against strategy

    RESULTS PRESENTATION – JUNE 2019 :: 07 Unpacking performance against strategy results presentation for the six months ended 31 December ’18 Group strategic framework FirstRand commits to building a SHARED FUTURE of prosperity through enriching the lives of its customers, employees and the societies

  10. Slide 10: Measuring execution on strategic priorities

    08 :: FIRSTRAND GROUP | Unpacking performance against strategy continued 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 Enable

  11. Slide 11: FNB’s lending activities benefit from targeted origination strategies

    RESULTS PRESENTATION – JUNE 2019 :: 09 FNB’s lending activities benefit from targeted origination strategies NORMALISED PBT R million LEND 18 000 • Strong unsecured credit growth from 16 000 13% lending primarily to main-banked 14 000 customers 12 000 10 000 • Growth in key commercial segments 8 00

  12. Slide 12: eWallet growth contributing to volumes and NIR

    10 :: FIRSTRAND GROUP | Unpacking performance against strategy continued eWallet growth contributing to volumes and NIR Active eWallet base: +5% to 6.4 million users (2018: 6.1 million) Send money volumes: +19% to 46.1 million transactions (2018: 38.6 million) Send money value: +23% to R25.9 billion

  13. Slide 13: Ongoing client acquisition in FNB commercial

    RESULTS PRESENTATION – JUNE 2019 :: 11 Ongoing client acquisition in FNB commercial NORMALISED PBT R million • Customer growth: 9 000 17% • 11% year-on-year 8 000 • Growth over last 5 years: 42% 7 000 6 000 • Customer retention: 5 000 • Deepen relationship through targeted lending 4 000 • Relations

  14. Slide 14: SA investment banking and advisory activities continued to grow off a high base

    12 :: FIRSTRAND GROUP | Unpacking performance against strategy continued SA investment banking and advisory activities continued to grow off a high base RMB SOUTH AFRICA AND OTHER NORMALISED PBT R million 10 000 9 000 8 000 • Strong growth in NII 7 000 6 000 • Muted income from advisory and 5 000 ca

  15. Slide 15: Corporate and transactional banking volumes demonstrate strength of client proposition

    RESULTS PRESENTATION – JUNE 2019 :: 13 Corporate and transactional banking volumes demonstrate strength of client proposition SA primary-banked relationships Rand general banking facility utilisation Utilisation of limits (%) 50% 40% 2018: 413 7% 2019: 441 +16% 30% 20% Jul Aug Sep Oct Nov Dec Jan Fe

  16. Slide 16: WesBank performance reflects challenges in retail VAF

    14 :: FIRSTRAND GROUP | Unpacking performance against strategy continued WesBank performance reflects challenges in retail VAF WESBANK NORMALISED PBT R million 3 000 • Difficult trading environment 2 500 • New car sales back to 2011 levels 2 000 • Increased competitive pressure and pricing 1 500 • L

  17. Slide 17: FNB’s deposit growth driven by innovative products and customer acquisition

    RESULTS PRESENTATION – JUNE 2019 :: 15 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 platforms

  18. Slide 18: WIM product distribution into FNB base gains traction

    16 :: FIRSTRAND GROUP | Unpacking performance against strategy continued WIM product distribution into FNB base gains traction NON-INTEREST REVENUE R million 8% 1 000 • Creating investment solutions to 900 meet customer needs 800 700 • Optimising channels 600 500 • Enabling digital channels for 400

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

    RESULTS PRESENTATION – JUNE 2019 :: 17 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 2 500 26% +33% 34% +84% 4 000 +94% 2 000 +33% +99% 3 000 1 500 +15% +12% 2

  20. Slide 20: WesBank’s insurance tracking new unit volumes

    18 :: FIRSTRAND GROUP | Unpacking performance against strategy continued WesBank’s insurance tracking new unit volumes GROSS WRITTEN PREMIUM (GWP) R million 1 800 1% 1 600 131 132 1% 10% 1 400 1 200 (6%) 26% VAPS SALES 1 000 CHANNELS 64% 800 1 557 1 568 1% 600 400 200 Point of sale 0 Telesales 20

  21. Slide 21: Recovery in FNB and continued strong CIB performance in the rest of Africa

    RESULTS PRESENTATION – JUNE 2019 :: 19 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 platforms

  22. Slide 22: FNB rest of Africa – improved performance despite ongoing macro headwinds

    20 :: FIRSTRAND GROUP | Unpacking performance against strategy continued FNB rest of Africa – improved performance despite ongoing macro headwinds NORMALISED PBT R million • Mature subsidiaries 2 500 1% • Constrained by credit provisions and 2 000 2 202 2 233 macros • NIR recovered on the back of r

  23. Slide 23: Aldermore/MotoNovo integration completed

    RESULTS PRESENTATION – JUNE 2019 :: 21 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 Underpinned by disciplined management of

  24. Slide 24: Aldermore is a specialist bank with a small share of large profit pools in the UK

    22 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Aldermore is a specialist bank with a small share of large profit pools in the UK MARKET SIZE AND ALDERMORE’S ESTIMATED SHARE Residential mortgages* Buy-to-let mortgages* < 1% 2.8% Aldermore’s estimated share RETAIL £218bn £19b

  25. Slide 25: Residential mortgage portfolio geographically diversified

    RESULTS PRESENTATION – JUNE 2019 :: 23 Residential mortgage portfolio geographically diversified 60% of the portfolio has a balance <£200k 7% 4% 25% 24% 11% 19% 15% 19% 9% 1% 3% 4% 0% 0% Geographical 8% 0 - 50k 50k - 100k - 150k - 200k - 300k - 400k - 500k - 1m - 2m 2m+ distribution of 100k 150k 200

  26. Slide 26: Aldermore funding strategy anchored to its deposit franchise

    24 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Aldermore funding strategy anchored to its deposit franchise FUNDING COMPOSITION COST OF FUNDS £ million % 14 000 1.8% 1.62% 1.50% 1.6% 12 000 1.38% 1.32% 1.4% 10 000 20% 1.2% 8% 8 000 1.0% 19% 6 000 0.8% 0.6% 4 000 53% 0.4% 2

  27. Slide 27: Building a stronger balance sheet

    RESULTS PRESENTATION – JUNE 2019 :: 25 Building a stronger balance sheet ACTUAL TREND Assets in marketable format >R220 billion Increased HQLA as % total assets 15% Improved Credit quality of assets BB/BB- Stable Institutional funding term 36 months Improved duration Deposit franchise 64% core depos

  28. Slide 28: Strong recovery in CET1 leaves group well in excess of internal target

    26 :: FIRSTRAND GROUP | Unpacking performance against strategy continued Strong recovery in CET1 leaves group well in excess of internal target CET1 RATIO 12.5% 12.1% 12.0% 11.7% 11.5% 11.5% R6.9 billion surplus 11.0% CET1 target range 10.5% 10% – 11% 10.0% 9.5% 9.0% 8.5% 8.0% 2018 regulatory (IAS 3

  29. Slide 29: Financial review

    RESULTS PRESENTATION – JUNE 2019 :: 27 Financial review results presentation for the six months ended 31 December ’18 Performance highlights (normalised) 30 Jun 19 30 Jun 18 % change (IFRS 9) (IAS 39) Diluted EPS (cents) 497.3 470.8 6  Dividend per share (cents) 291 275 6  Earnings (R million) 27

  30. Slide 30: Unpacking Aldermore’s total contribution to group earnings

    28 :: FIRSTRAND GROUP | Financial review continued Unpacking Aldermore’s total contribution to group earnings R million 2019 2018 % change Normalised earnings reported 27 894 26 411 5.6  Less: net impact of Aldermore 239 (123) – Attributable earnings (excluding MotoNovo) 1 722 276 – Forgone interes

  31. Slide 31: Revenue mainly generated by large lending and transactional franchises

    RESULTS PRESENTATION – JUNE 2019 :: 29 Revenue mainly generated by large lending and transactional franchises NET INTEREST INCOME = 58% NON-INTEREST REVENUE = 42% 28% Transactional NIR ** Lending Transactional NII* 23% Flow trading and residual risk Capital endowment 16% transactional income Investm

  32. Slide 32: Quality topline growth maintained

    30 :: FIRSTRAND GROUP | Financial review continued Quality topline growth maintained NORMALISED EARNINGS* R million +9% excl. 40 000 Aldermore +18% +23% +6% +14% 36 000 (1 933) 2 382 32 000 (6 475) 9 045 +15% 6% 28 000 (1 536) 27 894 24 000 26 411 20 000 16 000 12 000 8 000 4 000 0 2018 NII Impairm

  33. Slide 33: Unpacking Group Treasury NII

    RESULTS PRESENTATION – JUNE 2019 :: 31 Unpacking Group Treasury NII Interest rate and FX management • Interest rate risk and FX management <R100 million Group Treasury activities • Incremental forgone interest on capital deployed (>R1 billion) • Higher level of HQLA (>R600 million) • Term funding co

  34. Slide 34: Structure of Aldermore balance sheet changes the group’s overall margin

    32 :: 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 363 328 • Relatively weighted to secured advances Deposit margin 224 - • Funding margin set o

  35. Slide 35: Retail advances growth reflects targeted origination strategies

    RESULTS PRESENTATION – JUNE 2019 :: 33 Retail advances growth reflects targeted origination strategies 30 Jun 19 1 Jul 18 % change Retail unsecured 15% R million IFRS 9 IFRS 9 Residential mortgages 217 164 205 630 6 3% 7% WesBank VAF (SA) 106 142 104 884 1 5% MotoNovo VAF (UK)* 54 561 60 347 (10) 36

  36. Slide 36: Growth reflects platform activation and is underpin to transactional strategy

    34 :: FIRSTRAND GROUP | Financial review continued Growth reflects platform activation and is underpin to transactional strategy FNB PERSONAL LOANS R billion 36% 24 22 • Lengthening of write-off period contributed 20 10% of growth 18 16 15.1 49% y/y • Upward migration of customers from 14 consumer

  37. Slide 37: Growth reflects platform activation; VAF advances reflect disciplined origination

    RESULTS PRESENTATION – JUNE 2019 :: 35 Growth reflects platform activation and is underpin to transactional strategy FNB CARD ADVANCES OTHER RETAIL ADVANCES * R billion R billion 13% 30 23% 18 16 25 14 20 12 30% y/y 10 15.2 16% y/y 23.5 13.1 15 18.1 8 10 6 4 5 2 4.7 4.6 2% y/y 2.8 2.7 3% y/y 0

  38. Slide 38: MotoNovo growth reflects risk appetite adjustments

    36 :: FIRSTRAND GROUP | Financial review continued MotoNovo growth reflects risk appetite adjustments MOTONOVO ADVANCES £ million 3 500 3% 370 3 000 2 500 Volumes broadly flat year-on-year 2 000 Reflecting cutbacks in risk appetite in prior 3 320 periods 1 500 3 034 1 000 Projected credit profile o

  39. Slide 39: RMB corporate and FNB commercial advances growth reflect strength of client franchises

    RESULTS PRESENTATION – JUNE 2019 :: 37 RMB corporate and FNB commercial advances growth reflect strength of client franchises 30 Jun 19 1 Jul 18 R million % change IFRS 9 IFRS 9 11% 19% CIB core advances – South Africa 259 510 246 916 5 – Investment banking 198 998 190 107 5 CORPORATE AND 5% COMMERC

  40. Slide 40: CIB rating profile reflects origination strategy

    38 :: FIRSTRAND GROUP | Financial review continued CIB rating profile reflects origination strategy WHOLESALE CREDIT PERFORMING BOOK* 5% 3% • Underlying quality of portfolio remains 55% unchanged 63% • Prudent portfolio coverage ratios maintained at 108 bps • Cross-border up 18% in dollar terms 40%

  41. Slide 41: Operational NPL growth in line with expectations, IFRS 9 impacted overall growth

    RESULTS PRESENTATION – JUNE 2019 :: 39 Operational NPL growth in line with expectations, IFRS 9 impacted overall growth NPLs R million 42 000 23% 41 349 3 316 38 500 519 598 (191) Aldermore 35 000 3 593 11% 24% 33 514 31 500 6 567 28 000 26 947 24 500 2018 IFRS 9 1 Jul 18 Lengthening Definition o

  42. Slide 42: Specific coverage increase reflects change in NPL mix

    40 :: FIRSTRAND GROUP | Financial review continued Specific coverage increase reflects change in NPL mix NPLs SPECIFIC COVERAGE RATIOS 30 Jun 19 1 Jul 18 R million % IFRS 9 IFRS 9 42 000 Retail – secured 26.7 27.5 6% 3% 10% Residential mortgages 19.3 21.6 35 000 5% 3% 19% VAF 34.5 33.3 28 000 12% –

  43. Slide 43: Credit charge decomposition

    RESULTS PRESENTATION – JUNE 2019 :: 41 Credit charge decomposition +23% Operational NPLs up 15% with mix weighted R8 567m R10 500m to unsecured: with its charge up 29% 30 Jun 18 30 Jun 19 (IAS 39) (IFRS 9) IFRS 9 not material on a net basis, however, directionally impacted as follows: Performing boo

  44. Slide 44: NIR growth underpinned by resilient client franchise performance

    42 :: FIRSTRAND GROUP | Financial review continued Quality topline growth maintained NORMALISED EARNINGS* R million +5% excl. Aldermore 40 000 +18% +23% +6% +14% 36 000 (1 933) 2 382 32 000 (6 475) 9 045 +15% 6% 28 000 (1 536) 27 894 24 000 26 411 20 000 16 000 12 000 8 000 4 000 0 2018 NII Impairm

  45. Slide 45: Private equity now in an investment cycle

    RESULTS PRESENTATION – JUNE 2019 :: 43 Private equity now in an investment cycle GROSS INCOME UNREALISED VALUE R million R million 4 000 New investments 6 000 R0.5bn R0.8bn R1.6bn R1.8bn R1.2bn 3 500 5 000 3 000 4 000 2 500 2 000 3 000 1 500 2 000 1 000 1 000 500 - - 2015 2016 2017 2018 2019 Annuity

  46. Slide 46: Core cost growth reflects continued investment for growth

    44 :: FIRSTRAND GROUP | Financial review continued Core cost growth reflects continued investment for growth R billion 120 51.1% 50.5% 51.1% 51.0% 51.2% 51.8% 55% Cost increase driven by: 110 50% 100 • Direct staff costs up 11% impacted by 45% 90 unionised increases in SA of 7.8% and 40% 80 headcoun

  47. Slide 47: RMB’s fixed cost growth contained, ongoing investment in platforms

    RESULTS PRESENTATION – JUNE 2019 :: 45 RMB’s fixed cost growth contained, ongoing investment in platforms Expansion and investment in platforms • Investment spend targeted at: 38% 9% • Africa expansion • Global Markets infrastructure Variable programme 9% 25% RMB COSTS • Ongoing platform enhanceme

  48. Slide 48: Aldermore costs driven by integration and investment; Summing up

    46 :: FIRSTRAND GROUP | Financial review continued Aldermore costs driven by integration and investment in systems and processes Projects/ investment Integration MotoNovo, 1% Total cost base of £178 million: 5% 3% • Including MotoNovo operating costs since May 2019 ALDERMORE • Headcount increased to

  49. Slide 49: Prospects

    RESULTS PRESENTATION – JUNE 2019 :: 47 Prospects results presentation for the six months ended 31 December ’18 Prospects • Group executing on strategies for ongoing growth • SA businesses expected to maintain current growth momentum • FNB – customer growth, cross-sell, targeted origination and platf

  50. Slide 50: Appendix: Group’s ROE is sustainable

    48 :: FIRSTRAND GROUP Appendix results presentation for the six months ended 31 December ’18 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 • Disciplined

  51. Slide 51: Current portfolio mix – activity, geography and business

    RESULTS PRESENTATION – JUNE 2019 :: 49 Current portfolio mix – activity, geography and business Investing Other Aldermore‡ Insure Transact UK Save Rest of 7.6% WesBank and invest** Africa 6% 6% 9.6% Geographic Normalised earnings Revenue split PBT mix# by activity* 25% per operating (i.e. pre-minori

  52. Slide 52: Recalibration of branch network continues

    50 :: 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 (1%) • Electronic channels • Staff costs +1.6% • Growth in ADT • Branch m2 (11%) device cash value 7%

  53. Slide 53: Unpacking markets and structuring performance

    RESULTS PRESENTATION – JUNE 2019 :: 51 Unpacking markets and structuring performance NORMALISED GROSS INCOME R million 194 3 900 287 38 88 169 3 500 228 141 2222 3 100 944 • FX benefited from 2 700 906 currency volatility 2 300 • New capabilities in credit 1 900 2019: 19% trading and equities R3 87

  54. Slide 54: Impact of internal changes on WesBank

    52 :: FIRSTRAND GROUP | Appendix continued Impact of internal changes on WesBank NORMALISED PBT R million 6 000 Restated 2018 MotoNovo normalised moved to FCC earnings: 5 000 R1 854 million 5 130 DirectAxis and WesBank (1 019) rest of Africa moved to FNB 4 000 (1 473) 3 000 5 2 643 2 000 1 000 - 201

  55. Slide 55: WesBank credit portfolios

    RESULTS PRESENTATION – JUNE 2019 :: 53 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 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun

  56. Slide 56: MotoNovo (UK) credit portfolio

    54 :: FIRSTRAND GROUP | Appendix continued MotoNovo (UK) credit portfolio IMPAIRMENT CHARGE £ million CREDIT LOSS RATIO 30 3.0% 25 2.5% 20 Long-run credit loss ratio = 1.40% 2.0% 15 1.5% 10 1.0% 5 0.5% 0 0.0% Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15

  57. Slide 57: 1 July 2018 IFRS 9 restatement impact on equity

    RESULTS PRESENTATION – JUNE 2019 :: 55 1 July 2018 IFRS 9 restatement impact on equity Day 1 Affected balance adjustment R million (actual) Provision increase (ECL) (8 598) Stage 1 (2 440) Stage 2 (3 452) Stage 3 (2 706) Current and deferred tax 2 161 Remeasurement 896 ISP due to difference in cover

  58. Slide 58: Coverage breakdown: residential mortgages and WesBank retail VAF

    56 :: FIRSTRAND GROUP | Appendix continued Coverage breakdown: residential mortgages Specific Type R million coverage ratio Sold property awaiting registration 234 18.5% Deceased 263 25.7% Debt review – mostly paying per agreement 1 104 20.7% Insolvencies and litigation 3 066 26.8% Non-debt review –

  59. Slide 59: Unpacking NIR per operating business

    RESULTS PRESENTATION – JUNE 2019 :: 57 Unpacking NIR per operating business • FNB up 11% driven by growth in customer numbers and improved cross-sell and up-sell NIR R million • Insurance driven by growth in funeral policies and credit life policies • IB&A impacted by reduced knowledge-based fee inc

  60. Slide 60: 58 :: FIRSTRAND GROUP

    58 :: FIRSTRAND GROUP

  61. Slide 61: STUDIO®

    STUDIO®

  62. Slide 62: www.firstrand.co.za

    FirstRand www. firstrand.co.za

FirstRand — FY2019 Earnings Presentation on 6ix