Slide 1: Absa Group Limited Financial results for the year ended 31 December 2010
Absa Group Limited Financial results for the year ended 31 December 2010 1
Slide 2: Contents
Contents » The year under review Maria Ramos » Financial overview David Hodnett » Cluster performance Louis von Zeuner » Outlook Maria Ramos 2
Slide 3: The year under review
The year under review Maria Ramos 3
Slide 4: 2010 review
2010 review » Solid results in an uneven economic environment » One Absa strategy delivering to plan » Strengthened the balance sheet » Strong Barclays relationship 4
Slide 5: Solid results
Solid results 2010 2009 Change % Diluted headline earnings per share (cents) 1 115.7 1 072.0 4 Dividends per ordinary share (cents) 455 445 2 Return on risk-weighted assets (%) 1.99 1.97 Return on average equity (%) 15.1 15.5 Tier l capital adequacy ratio (%) 12.8 12.7 5
Slide 6: One Absa strategy delivering to plan
One Absa strategy delivering to plan Enhancing business as usual Key priorities » Lead in South African foreign » Corporate Bank exchange » Absa Business Bank’s market » Grow retail business positioning » Grow core deposits » Entry-level banking proposition » Streamline the Group » Wealth and invest
Slide 7: Building a corporate bank
Building a corporate bank Cash and electronic banking revenue (Rm) Actions taken » Collaborated across client base 21% » Migrated clients and staff in 4Q 312 » Rolled-out operational processes and efficiencies 258 » Grew transactional banking and secondary markets » Focused multinational strategy Ou
Slide 8: Streamlining the Group
Streamlining the Group Total Group IT spend Actions taken 2010 2009 Change » Re-engineered FX system Rm Rm % » Re-platformed Mozambique and Depreciation and Tanzania amortisation of 833 777 7 » Replaced branch and contact intangible assets centre front-end » Improved online and electronic Informatio
Slide 9: Strengthened the balance sheet
Strengthened the balance sheet Sources and uses of funds in 2010 (Rbn) Actions taken 30 Rbn Sources Uses » Maintained high capital ratios 5.7 (21.9) » Increased liquidity buffers 25 » Lengthened funding profile 21.7 » Grew core deposits 20 » Reduced loan concentration risk 15 » Improved NPL cover 14
Slide 10: Financial overview
Financial overview David Hodnett 10
Slide 11: Positive earnings growth
Positive earnings growth Headline earnings (Rm) 2010 2009 Change Rm Rm % Net interest income 23 340 21 854 7 6% Non-interest income 19 474 20 232 (4) 9 965 6% Total income 42 814 42 086 2 24% 8 041 Credit impairments (6 005) (8 967) 33 7 621 Operating expenses (24 070) (20 857) (15) Other (888) (2 4
Slide 12: Healthy net interest income
Healthy net interest income 3.72% 3.83% 4.01% 3.81% 3.74% 2.94% 2.93% 2.41% 2.25% 1.72% 14 887 18 890 22 106 21 854 23 340 2006 2007 2008 2009 2010 Net interest income (Rm) Margin on average interest-bearing assets before credit impairments (%) Margin on average assets after credit impairments (%) 1
Slide 13: Hedging protects net interest margin
Hedging protects net interest margin YoY ∆ bps 18 % % 4.0 Loans and advances to 17 9 customers 3.5 16 » Change in client rates 4 3.0 15 » Change in composition 5 14 2.5 Deposits due to customers (2) 13 2.0 12 » Client pricing/endowment (14) 11 1.5 » Change in composition 12 10 1.0 Equity endowment (
Slide 14: Better quality non-interest revenue
Better quality non-interest revenue Non-interest income Non-interest income (Rm) 2010 Change Mix Rm % % Retail fees and 24% 9 925 1 51 3% commissions 4% ABB fees and 20 822 3 852 7 20 20 232 commissions 19 474 Financial Services 3 594 7 18 Markets and Investment 2 285 (26) 12 Banking Private Equity
Slide 15: Improving credit loss ratio
Improving credit loss ratio FY08: 1.19% FY09: 1.74% FY10: 1.20% 2.4% Rbn 45 40 1.9% 35 1.86% 30 1.62% 1.4% 1.50% 1.42% 25 20 0.9% 0.93% 0.91% 15 10 0.4% 5 (0.1%) 0 1H08 2H08 1H09 2H09 1H10 2H10 Credit loss ratio (%) Non-performing loans (Rbn) Net movement in non-performing loans for the period (%) 1
Slide 16: Appropriate NPL coverage ratios
Appropriate NPL coverage ratios Dec 2010 Jun 2010 Dec 2009 Dec 2010 Dec 2009 % % % % % Credit loss ratio NPL coverage ratio Retail Banking 1.49 1.90 2.30 28.9 27.1 » Mortgages 0.98 1.30 1.76 19.1 17.3 » Vehicle and asset 2.16 2.79 2.05 41.7 43.5 finance » Card 2.57 4.43 7.13 71.8 77.3 » Other 3.17 3
Slide 17: Investing in the franchise
Investing in the franchise Operating expenses Cost growth – five year CAGR (%) 2010 Change Rm % Fees and insurance (1%) Staff costs 12 537 16 Communication and Accommodation, property and 9% marketing 3 765 4 equipment-related Staff costs 11% Information technology 2 085 19 Accommodation and Communi
Slide 18: Strong core deposit growth
Strong core deposit growth Deposits due to customers (Rbn) 2010 Change Mix Rbn % % 23% 6% 7% Cheque accounts 108 17 29 154 128 118 Savings and 68 5 18 investments 137 122 127 Fixed deposits 114 7 30 Call deposits 55 (12) 15 106 110 115 Other 33 10 8 2008 2009 2010 Total customer 378 6 100 Retail Ban
Slide 19: Demand for credit remained low
Demand for credit remained low Net loans and advances to 2010 Change Mix customers (Rbn) Rbn % % 17% 5% 1% Retail Banking 326 1 65 74 58 50 » Credit cards 21 2 4 125 124 125 » Instalment finance 41 1 8 333 322 326 » Home loans 252 2 51 » Other 12 (6) 2 Absa Business Bank 124 (1) 25 Absa Capital 50 (
Slide 20: Consistent net asset value growth
Consistent net asset value growth Five-year compound annual growth rate of 15% 11% 26% 1% 7 838 6 998 7 038 17% 22% 5 537 4 717 2006 2007 2008 2009 2010 Net asset value per share (cents) 20
Slide 21: Maintained strong capital position
Maintained strong capital position Capital adequacy ratios (December 2010) Absa Group – core tier l capital adequacy ratio (%) Core tier I Tier I Total % % % Absa Group 11.7% 11.5% Capital adequacy ratio 11.7 12.8 15.5 10.4% Regulatory minimum 5.25 7.0 9.75 Absa Bank Capital adequacy ratio 10.7 11.9
Slide 22: Still generating economic profits
Still generating economic profits RoE drivers – Absa Group (%) 2006 2007 2008 2009 2010 Income as a percentage of RWAs 10.4 10.2 11.1 10.9 10.6 Cost-to-income ratio 53.8 51.7 49.2 49.6 56.2 Credit impairments as a percentage of income 5.1 6.7 13.6 21.3 14.0 Operating margin 25.5 26.1 23.1 18.1 18.8
Slide 23: Good portfolio mix
Good portfolio mix Divisional growth versus returns (2010) 45 » ABB’s returns remain high RoRC (%) 40 » Financial Services RoE Financial Services 1 35 attractive 30 » Strong Retail Banking Absa Business Bank Retail Banking 25 turnaround Absa Capital 20 » Private equity exposure 15 dampens Absa Capit
Slide 24: Cluster performance
Cluster performance Louis von Zeuner 24
Slide 25: Retail Banking
Retail Banking Financial performance 2010 2009 Change % Headline earnings (Rm) 3 232 1 749 85 Revenue (Rm) 23 291 22 976 1 Cost-to-income ratio (%) 57.1 53.2 Credit loss ratio (%) 1.49 2.30 Return on regulatory capital (%) 20.7 11.7 Average risk-weighted assets (Rbn) 160 153 5 25
Slide 26: Impairments outweigh muted revenue
Impairments outweigh muted revenue Retail Banking earnings bridge (Rm) » Subdued loan growth 36% 8% » Lacklustre fee income 2 727 991 » Stable margins 70% » Significantly lower impairments 643 72% » Operating expenses well contained 3 353 1% 315 1 945 Attributable Revenue Credit Expenditure Taxation
Slide 27: Strong turnaround, particularly in H2
Strong turnaround, particularly in H2 Headline earnings (Rm) » Rising proportion of unsecured lending >100% 6% 66% >100% 50% » Continued focus on gathering deposits 1 952 » Successful debt counselling strategy 1 344 » New entry level banking model 968 811 515 125 265 280 20 (1 299) Home Loans VAF Ca
Slide 28: Retail Banking's strategic focus
Retail Banking’s strategic focus 2010 achievements Focus for 2011 » Launched several innovative » Deliver compelling value solutions propositions » Enhanced collections capability » Broaden inclusivity in the entry level market » Improved the quality of loan book » Incentivise customers for number »
Slide 29: Financial Services
Financial Services Financial performance 2010 2009 Change % Headline earnings (Rm) 1 291 1 300 1 Net premium income (Rm) 4 468 3 845 16 Return on equity (%) 34.8 37.9 Embedded value of new business (Rm) 465 294 58 Combined ratio (%) 94.8 96.2 Assets under management (Rbn) 163 145 12 29
Slide 30: A strong revenue growth story
A strong revenue growth story Financial Services earnings bridge (Rm) » Strong gross premium growth in life (25%) and short-term insurance (12%) 16% 9% » Insurance claims ratio remains 623 189 39% high 5% 16% 193 350 » New business strain impacting 73 5% 6% 0% reserves 1 284 27 1 290 » AUM up 12%, s
Slide 31: Resilient operational performance
Resilient operational performance » Absa Life’s ability to write 2010 2009 Change profitable business % entrenched Life – return on embedded 39.8 26.0 » Absa Life’s new business APE value (RoEV) (%) driven by growth in recurring premiums Life – new business annual premium equivalent (APE) 880 761 16
Slide 32: Financial Services' strategic focus
Financial Services’ strategic focus 2010 achievements Focus for 2011 » Gained new business market share » Data mining and trigger event solution » Improved cross sell » Continue rolling out digital strategy » Doubled idirect sales volumes » Presence in Mozambique and » Maintained product margins Zam
Slide 33: Absa Business Bank
Absa Business Bank Financial performance 2 2010 2009 Change % Headline earnings (Rm) 2 848 3 206 11 Revenue (Rm) 11 626 11 498 1 Cost-to-income ratio (%) 55.0 48.9 Credit loss ratio (%) 0.90 0.91 Return on regulatory capital (%) 22.8 28.9 Average risk-weighted assets (Rbn) 128 114 12 33
Slide 34: Investing for growth
Investing for growth Absa Business Bank earnings bridge (Rm) » Loans declined year-on-year 3% 13% » Net interest margin widened 1% 128 28 730 17% 10% » Flat non-interest revenue 3 235 242 2 903 » Credit loss ratio maintained » Cost growth reflects investment Attributable Revenue Credit Expenditure T
Slide 35: Diversity provides resilience
Diversity provides resilience Profit before taxation (Rm) » Solid transactional volume growth: 28% 7% 4% 23% >100% >100% › Cash volumes 20 % 1 808 › Electronic volumes 8% 1 367 › Foreign exchange trades 13% 1 293 1 311 1 046 » Deposit strategy working 982 » Less reliant on commercial property financ
Slide 36: Absa Business Bank's strategic focus
Absa Business Bank’s strategic focus 2010 achievements Focus for 2011 » Implemented corporate coverage » Cross and up-selling to existing model clients » Integrated Small Business » Pricing and efficiency » Increased primary banking » Enhance sales effectiveness relationships » Strengthen transactio
Slide 37: Absa Capital
Absa Capital Financial performance 2010 2009 Change % Headline earnings (Rm) 1 527 1 272 20 Revenue (Rm) 5 226 4 446 18 Cost-to-income ratio (%) 54.3 51.9 Return on regulatory capital (%) 16.0 12.9 Average risk-weighted assets (Rbn) 98 101 3 37
Slide 38: Revenues resilient
Revenues resilient Absa Capital earnings bridge (Rm) » Continue to strengthen the franchise 66% 23% » Revenue reflects turnaround in Private 18% 210 527 Equity and growth in Prime Services 780 38% » Cost growth of 8% over the last two 20% 209 years 1 527 » The quality of lending remains strong 1 272
Slide 39: Diversified business model
Diversified business model Revenue after credit and other impairments (Rm) » Markets – strong performance from Prime Services and Africa trading 7% 22% 12% >100% 99% desks 3 416 3 180 » Investment Banking – subdued performance due to reduced client 2 039 activity 1 594 263 294 » Absa Wealth – furthe
Slide 40: Absa Capital's strategic focus
Absa Capital’s strategic focus 2010 achievements Focus in 2011 » Rolled out corporate and » Optimise corporate and investment investment banking model banking model » Rolled out enhanced FX platform » Grow our FX client franchise » Grew cash equities and prime » Broaden product offering services » P
Slide 41: Outlook
Outlook Maria Ramos Member of the Cd] BARCLAYS Group
Slide 42: A robust starting point
A robust starting point Headline earnings mix (%) » Strong balance sheet » Leading distribution network 17 15 20 » Large customer base 17 17 25 » Strong brand 43 32 » Better diversified earnings 25 » Retail banking leader 36 » Unique bancassurance model 30 23 » Strong investment bank 2009 2010 Targe
Slide 43: Basel III impact
Basel III impact Pro-forma core tier l ratio under Basel III at » Will have far reaching implications 31 December 2013 (%) 16% » Premature to return capital now 14% › Relatively small decline to 2013 R108 billion 12% › National discretion and deductions after 2014 create R53 billion 11% 10% 10% unce
Slide 44: Greater focus on RoRWA
Greater focus on RoRWA » Basel III will reduce returns RoRWA (%) » Optimise risk-weighted assets 3.0% » Improve revenue growth 2.5% › Non-interest revenue initiatives 2.0% › Loan growth picks up » Manage cost growth 1.5% Financial crisis » Further credit impairment tailwind UniFer 1.0% 0.5% 0.0% 200
Slide 45: The year ahead
The year ahead » A strong platform » Focus on growth and returns » Cost management a priority » Capital and liquidity » Africa 45