Firstrand Limited · JSE:FSR
Firstrand — H1 2018 Earnings Presentation
58 slides from Firstrand's earnings presentation, December 2017
Slide 1: Results presentation for the six months ended 31 December 2017
R E S U LT S P R E S E N TAT I O N for the six months ended 31 December 2017
Slide 2: Slide 2
Slide 3: Real earnings growth and superior returns
FirstRand continued to deliver real earnings growth and superior returns… Cents 22.5% ROE 250 . +7% 222.1 200 207.6 194.6 177.3 150 154.2 +9% 130.0 119.0 100 108.0 93.0 77.0 50 0 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Diluted normalised earnings per share Dividend per share 01
Slide 4: Difficult macroeconomic backdrop; good growth in NIACC
FIRSTRAND GROUP Introduction continued …despite difficult macroeconomic backdrop • SA operating environment was characterised by: • Political uncertainty • Low GDP growth • Depressed business and consumer confidence • Rest of Africa macro backdrop was more supportive: • Improved rainfall and commodi
Slide 5: Return profile underpinned by sustainably higher ROA
Return profile underpinned by sustainably higher ROA… % 8 7 6 3.40 3.50 3.11 3.19 3.22 5 4 3 2.07 1.97 1.99 2.00 1.99 2 1 3.72 3.95 3.79 3.99 3.92 0 (1) (2) (3.70) (3.79) (3.58) (3.65) (3.67) (3) (4) (0.55) (0.64) (0.57) (0.64) (0.65) (5) Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 NIR as % of assets Operati
Slide 6: Current breakdown of portfolio; FNB and RMB performed well
FIRSTRAND GROUP Introduction continued Current breakdown of portfolio – activity, geography and franchise Investing Other Rest of UK WesBank Transact Insure Africa Save 3% and invest† 10% 16% FNB Revenue split Geographic Franchise split of by activity* PBT mix** normalised earnings# 26% 58% RMB Lend
Slide 7: Good growth in pre-tax profits and superior returns maintained
Good growth in pre-tax profits and superior returns maintained Normalised PBT R million 12 000 40.6% ROE . 10 000 +11% 10 430 9 137 9 367 8 000 8 245 7 248 6 000 4 000 2 000 - Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Periods prior to 2015 have not been restated for refined rest of Africa segmentation. Per
Slide 8: FNB: strong domestic performance, rest of Africa under pressure
REVIEW OF OPERATIONS FNB continued Strong domestic performance, rest of Africa remains under pressure Normalised PBT R million 8 000 7 000 +18% Dec 16 Dec 17 6 000 5 000 4 000 3 000 +21% 2 000 +46% +6% (5%) 1 000 0 (1 000) (>100%) (2 000) * ** # Transactional Term lending Save and invest Insurance R
Slide 9: FNB: reflecting success of consistent strategy
…reflecting success of consistent strategy • Grow and retain core transactional accounts • Leverage customer relationships, ecosystems and FinTech • Provide digital platforms to deliver cost effective and innovative transactional volume propositions to customers • Use rewards programme, customer rel
Slide 10: RMB: return and growth demonstrate quality and diversity
REVIEW OF OPERATIONS RMB continued Return and growth demonstrate quality and diversity of portfolio Normalised PBT R million 5 000 22.9% ROE . 4 500 +11% 4 450 4 000 3 956 4 011 3 500 3 488 3 000 2 500 2 622 2 000 1 500 1 000 500 0 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Periods prior to 2015 have not be
Slide 11: RMB: strong operational performance
Strong operational performance • IB&A delivered solid results underpinned by: • Good lending income supported by prior period advances growth • Resilient fee income on the back of advisory and capital market mandates • Proactive provisioning shielding impact of sovereign downgrade • C&TB’s continued
Slide 12: WesBank: resilient performance in difficult environment
REVIEW OF OPERATIONS WesBank continued Resilient performance in difficult environment Normalised PBT R million 18.6% ROE . 3 000 (2%) 2 755 2 705 2 500 2 518 2 287 2 000 2 149 1 500 1 000 500 0 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Periods prior to 2015 have not been restated for refined rest of Africa
Slide 13: WesBank: mixed picture across the portfolio
Mixed picture across the portfolio • SA retail VAF PBT declined 15% • Credit loss ratio increased from 1.42% to 1.80% • Increase in NPLs, stickiness in late stage arrears and increase in customers opting for court orders for repossession required higher coverage and provisioning • Margins resilient
Slide 14: Performance highlights (normalised)
FIRSTRAND GROUP Financial review continued Performance highlights (normalised) Dec 17 Dec 16 % change Diluted EPS (cents) 222.1 207.6 7 Dividend per share (cents) 130.0 119.0 9 Earnings (R million) 12 461 11 646 7 NIACC (R million) 4 528 4 129 10 Net asset value per share (cents) 2 014.2 1 843.
Slide 15: Revenue composition reflects strength of client franchise
Revenue composition reflects strength of client franchise NET INTEREST INCOME = 55% NON-INTEREST REVENUE = 45% 30% Transactional NIR** Lending Transactional NII* 24% Capital endowment Flow trading and residual risk 17% transactional income Investment banking Other client# Insurance FNB Africa Deposi
Slide 16: High quality topline growth maintained
FIRSTRAND GROUP Financial review continued High quality topline growth maintained Normalised earnings R million 16 000 +10% +8% +6% +8% 1 870 (1 787) +6% 7% 12 000 1 322 (311) (279) 12 461 11 646 8 000 4 000 0 Dec 16 NII Impairments NIR Opex Tax and other Dec 17 NII driven by lending and transacti
Slide 17: Unpacking Group Treasury NII
Unpacking Group Treasury NII Capital endowment benefited from higher capital levels, despite lower rates • Interest on capital endowment +>R200 million Group Treasury activities • Financial resource management activities (>R200 million), elevated funding cost • ALM strategies, and interest rate and
Slide 18: Strong growth in deposits across all segments
FIRSTRAND GROUP Financial review continued Strong growth in deposits across all segments Liabilities R billion 350 Dec 16 Dec 17 +16% 326 300 281 250 +13% +11% 200 218 207 193 186 +9% 150 142 131 100 +5% (22%) (4%) 50 67 +11% 55 58 52 38 37 18 20 0 Retail Commercial CIB Rest of Africa Deposits and A
Slide 19: Deposit balances and retail advances growth
Good growth in average deposit balances in RMB rest of Africa Composition of corporate banking average deposits • Client acquisition and product roll-out 15% underpinned strong growth of 18% in 17% +18% the rest of Africa 35% 33% (5%) • Corporate banking average operational deposits up 1% in South A
Slide 20: FNB unsecured advances growth; WesBank retail advances
FIRSTRAND GROUP Financial review continued FNB unsecured advances growth reflects targeted approach FNB personal loans FNB card Other retail * R billion R billion R billion 0% +1% 15 +5% 25 16 +2% +6% +3% 14 20 6.5 7.0 12 7.6 10 16.0 14.6 13.3 10 15 11.1 11.7 12.1 8 10 6 5 7.9 7.4 4 7.0 5 9.2 9.2 9.
Slide 21: Corporate and commercial advances growth remained resilient
Corporate and commercial advances growth remained resilient R million Dec 17 Dec 16 % change CIB core advances – South Africa 250 387 226 194 11 5% – Investment banking* 193 181 179 254 8 20% – HQLA corporate advances 16 980 18 862 (10) Corporate and – Corporate banking** 40 226 28 078 43 commercial
Slide 22: Customer acquisition drives FNB commercial advances
FIRSTRAND GROUP Financial review continued Customer acquisition and cross-sell strategies drive advances in FNB’s commercial segment FNB commercial advances Other R billion 5% 90 +8% Overdrafts Commercial 87.9 property 19% 75 81.2 84.1 finance 24% 60 FNB commercial 45 advances 30 breakdown 15 Specia
Slide 23: NPLs trending in line with expectations
NPLs trending in line with expectations NPLs NPLs R million R billion Origination Reflects credit cycle Specific Higher rates, 25 7 000 action and counterparties liquidity and Overall NPLs +5% workout impacted by currency 6 501 write-offs and pressures in 6 000 +19% work-outs certain countries 20 5.
Slide 24: WesBank coverage reflects higher proportion of debt-review customers
FIRSTRAND GROUP Financial review continued WesBank coverage reflects higher proportion of debt-review customers Retail VAF SA NPLs WesBank personal loans NPLs R million R million 7 000 1 400 6 000 1 200 5 000 1 000 4 000 800 3 000 600 2 000 400 1 000 200 - - Dec-17 Jun-07 Dec-08 Jun-10 Dec-11 Jun-13
Slide 25: Total portfolio provisions increased with franchise overlays maintained
Total portfolio provisions increased with franchise overlays maintained Portfolio impairments R million 10 000 +5% 9 000 +8% 8 000 Dec 17 Dec 16 Dec 15 7 000 Portfolio impairments 6 000 as % of performing book 0.98 1.00 0.97 5 000 4 000 Credit loss ratio (%) 0.87 0.86 0.77 3 000 2 000 Portfolio impa
Slide 26: Credit performance better than expected
FIRSTRAND GROUP Financial review continued Credit performance better than expected due to origination strategies and prudent provisioning Contribution to Credit Specific Portfolio I/S impairment Asset class loss ratio coverage coverage Commentary charge Residential • Charge benefiting from lower NPL
Slide 27: Credit performance and credit metrics
Credit performance better than expected due to origination strategies and prudent provisioning Contribution to Credit Specific Portfolio I/S impairment Asset class loss ratio coverage coverage Commentary charge • NPLs and portfolio coverage down on write- offs and work-outs CIB – – • Portfolio charg
Slide 28: FNB's NIR benefited from customer acquisition and volumes
FIRSTRAND GROUP Financial review continued High quality topline growth maintained Normalised earnings R million 16 000 +10% +8% +6% +8% 1 870 (1 787) +6% 7% 12 000 1 322 (311) (279) 12 461 11 646 8 000 4 000 0 Dec 16 NII Impairments NIR Opex Tax and other Dec 17 FNB’s NIR benefited from customer a
Slide 29: WesBank and RMB non-interest revenue
WesBank NIR driven by FML and insurance initiatives Non-interest revenue* R million 13 500 +11% WESBANK NIR +4% • Muted growth in customer accounts impacted NIR 11 000 • MotoVantage enhances NIR diversification, tracking volume growth • Good growth in FML book 8 500 6 000 +20% 3 500 +10% +18% (4%) +
Slide 30: Healthy unrealised value in Private Equity portfolio
FIRSTRAND GROUP Financial review continued Healthy unrealised value maintained in the Private Equity portfolio following realisation cycle Gross income Unrealised value R million R million 2 500 5 000 2 000 4 000 1 500 3 000 1 000 2 000 500 1 000 - - Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16
Slide 31: Marginal increase in cost-to-income ratio; FNB cost trend
Marginal increase in cost-to-income ratio driven by continued investment drag R billion Cost-to-income ratio 50 51.9% 50.8% 51.1% 51.3% 51.7% 55% 45 50% 40 45% 40% 35 35% 30 30% 25 25% 20 20% 15 15% 10 10% 5 5% 0 0% Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Cost-to-income ratio (RHS) Total income Operating
Slide 32: RMB cost discipline; WesBank costs
FIRSTRAND GROUP Financial review continued RMB’s strong cost discipline supports operational leverage • Efficiency gains from: +15% • Historical platform investments 6% • Ongoing automation initiatives +10% 21% • Fixed cost growth tracking well below inflation despite: RMB costs +3% • Ongoing invest
Slide 33: FirstRand remains well capitalised
FirstRand remains well capitalised Economic view of surplus adjusted for volatile reserves* CET1 ratio 14.0% 13.9% 14% 0.1% R23.0 billion 12% CET1 target range: FirstRand 10% – 11% 10% management buffer 2.5% 8% 6% SARB end-state minimum 4% requirement 8.5% 2% 0% Target Column2 Regulatory X Economic
Slide 34: Strong capital position supports dividend strategy; summing up
FIRSTRAND GROUP Financial review continued Strong capital position supports dividend strategy Dividend cover 2.3 2.2 • Dividend payout sustainable 2.1 • Group’s high return profile Dividend cover range: • Strong capital generation 2.0 1.8x to 2.2x 1.9 • Provides ability to reward shareholders throug
Slide 35: Group strategic framework
Group strategic framework FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength DELIVERED THROUGH CURRENT STRATEGIES: INCREASE DIVERSIFICATION – ACTIVITY AND GEOGRAPHY Pr
Slide 36: Transactional and lending franchises substantial contributors
FIRSTRAND GROUP Unpacking performance against strategy continued Group strategic framework FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength DELIVERED THROUGH CURRENT
Slide 37: Strategy to protect and grow banking franchises
Strategy to protect and grow banking franchises = high quality topline growth • Core transactional customer acquisition (retail, commercial and corporate) • Resultant increase in transactional volumes and strong deposit growth • Ongoing momentum in cross-sell • Segment focus delivered appropriate ad
Slide 38: Deposit franchise growth; wealth and investment management
FIRSTRAND GROUP Unpacking performance against strategy continued Deposit franchise growth outpacing market on the back of save and invest strategy Index, Dec 2011 = 100 • Strong growth supported by: Outperformance >R100 billion 190% over 6 years • Product innovation 180% FirstRand’s domestic • Impro
Slide 39: AUM growth and FNB Life
AUM growth benefited from Namibian acquisition and SA inflows Assets under management* R billion • Good new business flows from both traditional and alternative asset 120 classes 100 • Leveraging FNB customers and channels 80 48 • New mandates in institutional 46 60 35 fixed income 101 28 88 40 76 6
Slide 40: Strong value creation; WesBank insurance
FIRSTRAND GROUP Unpacking performance against strategy continued …resulting in strong value creation Value of new business Value creation Value of new business – all life products Embedded value – all life products R million R million 800 4 500 700 +32% 4 000 4 235 +46% 600 3 500 +27% 3 000 500 2 90
Slide 41: Rest of Africa growth driven by strong CIB performance
Group strategic framework FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength DELIVERED THROUGH CURRENT STRATEGIES: INCREASE DIVERSIFICATION – ACTIVITY AND GEOGRAPHY Pr
Slide 42: FNB Africa credit strain; RMB rest of Africa strategy
FIRSTRAND GROUP Unpacking performance against strategy continued FNB Africa – credit strain due to macro headwinds Normalised PBT R million • Mature subsidiaries – negatively impacted by 1 250 (6%) credit provisions 1 115 • Namibia earnings 13% down, as NPLs 1 000 1 051 grew in recessionary economy
Slide 43: UK: building blocks for a sustainable business
Group strategic framework FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength DELIVERED THROUGH CURRENT STRATEGIES: INCREASE DIVERSIFICATION – ACTIVITY AND GEOGRAPHY Pr
Slide 44: More appropriate hard-currency funding; group exercised discipline
FIRSTRAND GROUP Unpacking performance against strategy continued More appropriate hard-currency funding for FirstRand Capacity limited to 10% Will become available to of domestic balance SA and rest of Africa sheet – substantial CCIB client franchises portion used to and transactions fund MotoNovo S
Slide 45: What does Aldermore bring?
What does Aldermore bring? A positive next step in strategy to build a more diversified, sustainable UK franchise Specialist lender with diversified lending Well-regarded customer book to retail and SME customers deposit franchise 2% 5% 19% Residential mortgages 21% Buy-to-let 25% Retail £8.1 billio
Slide 46: Disciplined management of financial resources
FIRSTRAND GROUP Unpacking performance against strategy continued Group strategic framework FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength DELIVERED THROUGH CURRENT
Slide 47: Reduced reliance on institutional funding; capital allocation
Reduced reliance on institutional funding and lengthened term profile over time Institutional funding as % of total funding Long-term funding as % of institutional funding (>6m) 44% 65% 42% 60% 40% 55% 38% 50% 36% 45% 34% 40% 32% 35% 30% 30% Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Jun 11 Ju
Slide 48: Prospects: domestic fundamentals will take time to improve
FIRSTRAND GROUP Prospects Domestic fundamentals will take time to improve • SA sentiment and macroeconomic outlook has improved • Medium to long term • Market-leading position of group’s businesses and execution on growth strategies mean the group is well positioned to benefit from renewed growth •
Slide 49: Margin sustainable due to asset/liability mix
Margin sustainable due to appropriate asset/liability mix 120% 528 526 528 550 516 506 492 497 500 100% 12% 10% 7% 16% 15% 17% 16% 450 80% 400 impairments only After 38% 37% 37% 38% of NII from lending 350 39% 60% 44% 47% 46% 300 40% 250Africa and other 38% 39% 37% Lending post TTC impairments * 33%
Slide 50: Continue to improve funding profile and mix
FIRSTRAND GROUP Appendix continued Continue to improve funding profile and mix % of total funding Retail as % of total funding 46% 28% 44% 27% Retail and SME (RHS) Institutional funding 26% 42% 26% 25% 40% 24% 38% 37% 23% 36% 22% 34% 21% 32% 20% 31% 30% Corporate and public sector 19% 28% 18% Jun 11
Slide 51: Advances portfolio mix remains appropriate
Advances portfolio mix between corporate and retail remains appropriate Gross advances R billion 1 000 900 12% 9% 9% 9% 800 8% 9% 700 6% 45% 43% 600 6% 45% 45% 45% 45% 6% 500 46% 5% 6% 5% 5% 44% 400 43% 7% 9% 37% 7% 7% 7% 35% 43% 42% 7% 300 7% 7% 5% 5% 5% 6% Retail 200 5% 41% 39% 40% 39% 39% 39% 36%
Slide 52: Targeted lending strategies in corporate and commercial
FIRSTRAND GROUP Appendix continued Targeted lending strategies in corporate and commercial COMMERCIAL ADVANCES Commercial Asset-backed Small businesses Rest of Africa Working capital Agri finance property finance finance (SMEs) and India • Organic growth to • Remain focused • Continue to • Growth fo
Slide 53: Coverage breakdown: residential mortgages and retail VAF
Coverage breakdown: residential mortgages Specific Type R million coverage ratio Sold property awaiting registration 113 34.5% Deceased 212 60.1% Debt review – mostly paying per agreement 823 9.4% Insolvencies and litigation 1 500 24.8% Non-debt review – payments being made 1 244 18.7% Other 643 26.
Slide 54: Debt review driving NPL growth in retail
FIRSTRAND GROUP Appendix continued Debt review driving NPL growth in retail NPLs R million NPLs R billion 7 000 Origination Credit cycle worsening Specific Higher rates, counterparties liquidity and 25 action and Overall NPLs +5% +19% 2 470 6 000 workout impacted by currency write-offs and pressures
Slide 55: Margin pressure in WesBank VAF; branch network recalibration
Margin pressure from shift in rate mix in WesBank’s VAF book Proportion of SA retail VAF new business % of total advances Dec 17 Dec 16 80% Fixed rate 46 48 69% Floating rate 54 52 70% 61% 60% 60% 58% 55% 55% 51% 50% 49% 45% 45% 40% 42% 39% 40% 30% 31% 20% Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 D
Slide 56: Branch efficiencies; innovation driving growth in volumes
FIRSTRAND GROUP Appendix continued Branch efficiencies being realised Index, Jul 2014 = 100 120% 110% 100% 90% 80% 70% 60% 50% 40% Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Minutes Gross lettable area Full-time employees Innovation driving grow
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