Firstrand Limited · JSE:FSR
Firstrand — FY2015 Earnings Presentation
49 slides from Firstrand's earnings presentation, June 2015
Slide 1: Results presentation for the year ended 30 June 2015
for the year ended 30 June 2015 R E S U LT S P R E S E N TAT I O N
Slide 2: Introduction: Tough operating environment
Results presentation for the year ended 30 June 2015 1 INTRODUCTION Tough operating environment • Macros • Subpar economic growth and activity • Consumer under pressure and low business confidence • Global commodity prices depressed • Regulatory demands • Increasing prudential, conduct and credit re
Slide 3: Group continues to deliver growth and returns above hurdle rates
2 FIRSTRAND GROUP Introduction continued Group continues to deliver growth and returns above hurdle rates Normalised earnings (R million) 24.7% ROE . 22 500 14% 20 000 21 286 17 500 18 663 15 000 15 420 12 500 12 730 10 000 10 117 7 500 5 000 2 500 0 2011 2012 2013 2014 2015 Economic profit reflects
Slide 4: ROE driven by ROA, not gearing; Performance highlights
Results presentation for the year ended 30 June 2015 3 ROE driven by ROA, not gearing % 7 6 3.5 3.4 5 4.0 3.6 3.4 4 3 2.12 1.89 2.06 1.49 1.73 2 1 3.4 3.0 3.4 3.7 3.9 0 (1) (2) (3.7) (3.5) (3.7) (3.7) (3.9) (3) (4) (0.6) (0.8) (0.7) (0.6) (0.6) (5) 2011 2012 2013 2014 2015 NIR as % of assets Operati
Slide 5: Transactional and lending franchises reflect successful execution of strategy
4 FIRSTRAND GROUP Introduction continued Transactional and lending franchises reflect successful execution of strategy Revenue (R million) 25 000 30% 30% 20 000 15 000 10 000 8% 7% 5 000 6% 5% 5% 4% 4% 1% 0 Transactional * Lending Investing Deposits Insurance Investment Markets and FNB Africa Capita
Slide 6: Lending franchise reflects strength of origination
Results presentation for the year ended 30 June 2015 5 Lending franchise reflects strength of origination Revenue (R million) 25 000 30% 30% 20 000 15 000 10 000 8% 7% 5 000 6% 5% 5% 4% 4% 1% 1% 0 Transactional * Lending Investing Deposits Insurance Investment Markets and FNB Africa Capital Other ma
Slide 7: Cross-sell: Opportunity to further grow through customer bases
6 FIRSTRAND GROUP Introduction continued Cross-sell: Opportunity to further grow through mining group customer bases DIRECT WESBANK AXIS MOTOR 30% 40% 340 000 680 000 accounts accounts 60% 70% FNB banked Non-FNB FNB banked Non-FNB Business model rethink: Specifically for asset origination businesses
Slide 8: Private equity franchise underpins investing performance
Results presentation for the year ended 30 June 2015 7 Private equity franchise underpins investing performance Revenue (R million) 25 000 30% 30% 20 000 15 000 10 000 8% 7% 5 000 6% 5% 5% 4% 4% 1% 0 Transactional * Lending Investing Deposits Insurance Investment Markets and FNB Africa Capital Other
Slide 9: FirstRand has the necessary skills, customers and platforms
8 FIRSTRAND GROUP Introduction continued FirstRand has the necessary skills, customers and platforms to compete in these markets INSURANCE INVESTMENT MANAGEMENT • Enhances customer entrenchment • Integrated into main bank relationship strategy • Leverage through: • Innovation • Big data • Product (c
Slide 10: Rest of Africa can be a larger contributor
Results presentation for the year ended 30 June 2015 9 Rest of Africa can be a larger contributor 2% 2% 10% 10% South Africa International 2014 2015 Rest of Africa and corridors 88% 88% Based on gross revenue, excluding FCC (which includes Group Treasury). Currently three pillars to execution in the
Slide 11: Much of growth in rest of Africa revenues from pillar 1
10 FIRSTRAND GROUP Introduction continued Much of growth in rest of Africa revenues from pillar 1 17% CAGR Rest of Africa gross revenue* (R million) . 8 000 Overall subsidiaries ROE 18.5%, established subsidiaries ROE 27.9% 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 2011 2012 2013 2014 2015 FNB RMB
Slide 12: Strategy supported by effective allocation of financial resources
Results presentation for the year ended 30 June 2015 11 STRATEGY SUPPORTED BY EFFECTIVE ALLOCATION OF FINANCIAL RESOURCES Financial resource management aligned to strategy execution Funding Capital and liquidity allocation strategies Funds transfer Performance pricing management (FTP) Set within des
Slide 13: Improved balance sheet liquidity places group LCR at 76%
12 FIRSTRAND GROUP Strategy supported by effective allocation of financial resources continued Improved balance sheet liquidity places group LCR at 76% Total assets (R billion) Cash and liquid assets (R billion) 1 200 180 160 1 000 1 059 155 CAGR 11% CAGR 13% 140 800 120 767 100 108 600 14.7% 80 of
Slide 14: Strong capital position maintained
Results presentation for the year ended 30 June 2015 13 Strong capital position maintained Economic view of surplus adjusted for: • Volatile reserves CET1 ratio • Trapped capital • Regulatory changes 14.0% 14% 12.9% CET1 target range: 10% – 11% R12.2bn 12% surplus FSR 10% management buffer 2.5% 8% 6
Slide 15: Return profile supports drop in dividend cover
14 FIRSTRAND GROUP Strategy supported by effective allocation of financial resources continued Return profile supports drop in dividend cover Dividend cover (times) 2.4 The board annually reviews 2.2 2.2 x 2.2 x Dividend cover range: 1.8 x to 2.2 x dividend cover, considering: 2.0 • Actual performan
Slide 16: Performance highlights (normalised)
Results presentation for the year ended 30 June 2015 15 Performance highlights (normalised) 2015 2014 % change Net interest income before bad debts (R million) 38 610 33 415 16 Net interest margin (%) 5.07 5.05 Bad debts (R million) 5 787 5 519 5 Credit loss ratio (%) 0.77 0.83 Non-interest
Slide 17: Revenue growth of 12% driven by client franchise
16 FIRSTRAND GROUP Financial review continued Revenue growth of 12% driven by client franchise NET INTEREST INCOME (NII) = 53% NON-INTEREST REVENUE (NIR) = 47% 29% Transactional income * 28% Lending Flow trading and residual risk Group Treasury and other transactional income Deposit endowment Invest
Slide 18: NII benefits from deposit strategy and endowment
Results presentation for the year ended 30 June 2015 17 NII benefits from deposit strategy and endowment Net interest income* (R million) 2015 2014 Movement % change Lending 20 673 18 844 1 829 10 Deposits (including endowment) 8 289 6 797 1 492 22 Capital endowment 3 820 3 087 733 24 FNB Africa 3 0
Slide 19: Retail advances growth reflects appropriate origination strategies
18 FIRSTRAND GROUP Financial review continued Retail advances growth reflects appropriate origination strategies RETAIL ADVANCES Mortgages Affordable housing SA VAF UK VAF (MotoNovo) Remain conservative Continued strong Volumes tracking Strong market position with focus on low-risk demand and credit
Slide 20: Book quality reflects targeted lending strategies
Results presentation for the year ended 30 June 2015 19 Book quality reflects targeted lending strategies COMMERCIAL ADVANCES Commercial Asset-backed Small businesses Rest of Africa Agri finance property finance finance (SMEs) and India Remained focused Continued to Growth focus on Cross-sell to Con
Slide 21: Deposit franchise growing strongly across all portfolios
20 FIRSTRAND GROUP Financial review continued Deposit franchise growing strongly across all portfolios Equity and liabilities (R billion) DEPOSIT FRANCHISE +12% FUNDING +12% 310 360 2015 322 2014 13% 11% 158 10% 153 140 138 120 109 12% 61% 44 50 15 24 Institutional Retail Commercial CIB deposits Res
Slide 22: Positive endowment impact of over R700 million
Results presentation for the year ended 30 June 2015 21 Positive endowment impact of over R700 million Repo rate (%) 7.0 6.5 6.0 Daily average repo 5.74% 5.5 5.0 Daily average repo 5.21% 4.5 4.0 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Average endowment book = R13
Slide 23: Margin widened on the back of endowment
22 FIRSTRAND GROUP Financial review continued Margin widened on the back of endowment Margin (bps) 525 520 (2) 6 515 (8) Group Treasury 510 impacts (1) (2) 12 505 507 505 500 (13) 10 495 Liabilities Assets 490 485 480 2014 Increase in Treasury Capital and Liabilities mix Deposit pricing Term funding
Slide 24: Negative cycle driving NPL growth
Results presentation for the year ended 30 June 2015 23 Negative cycle driving NPL growth NPLs (R million) 22 000 Origination Specific Credit cycle action and counterparties worsening 8% workout 16 500 11 000 (18%) 24% 5 500 24% 9% 37% 0 Residential Corporate Retail VAF Unsecured FNB Africa Total NP
Slide 25: Underlying cost of credit trending up and provisioning remains prudent
24 FIRSTRAND GROUP Financial review continued Underlying cost of credit trending up and provisioning remains prudent NPLs (R million) Credit loss ratio 30 000 0.94% 0.95% 1.0% 0.9% 25 000 0.83% 0.77% 0.8% Ratio excluding 20 000 proactive provisioning 0.7% 15 000 0.6% 3.5% 0.5% 10 000 2.8% 0.4% 5 000
Slide 26: Unsecured portfolios benefiting from post write-off recoveries
Results presentation for the year ended 30 June 2015 25 Unsecured portfolios benefiting from post write-off recoveries 4% 1% 10.54* 9.14* 26% 7.54* 4.03* 8.49 6.81 69% 5.42 1.08 Retail secured Card FNB WesBank Retail loans loans other Retail unsecured Corporate Recoveries as a % of average advances
Slide 27: Continued strong topline drives earnings growth
26 FIRSTRAND GROUP Financial review continued Continued strong topline drives earnings growth Normalised earnings (R million) 30 000 +8% +10% 25 000 +16% +5% 2 504 (3 464) +18% (268) (1 344) 14% 5 195 20 000 21 286 18 663 15 000 10 000 5 000 0 2014 NII Impairments NIR Opex Tax and other 2015 NIR im
Slide 28: NIR impacted by macros and regulatory changes
Results presentation for the year ended 30 June 2015 27 NIR impacted by macros and regulatory changes Non-interest revenue (R million) 21 000 +8% • M&A activity benefited IB&A 19 000 • Ongoing progress on corporate transactional strategy 17 000 • Strong performance from client activities in the rest
Slide 29: Positive jaws maintained despite higher staff costs
28 FIRSTRAND GROUP Financial review continued Continued strong topline drives earnings growth Normalised earnings (R million) 30 000 +8% +10% 25 000 +16% +5% 2 504 (3 464) +18% (268) (1 344) 14% 5 195 20 000 21 286 18 663 15 000 10 000 5 000 0 2014 NII Impairments NIR Opex Tax and other 2015 Positi
Slide 30: Revenue-linked costs will allow overall cost flexibility
Results presentation for the year ended 30 June 2015 29 Revenue-linked costs will allow overall cost flexibility FNB RMB WESBANK Growth and Growth and expansion +26% expansion +6% Investment +6% Variable costs -24% Variable costs Growth* +12% Variable +11% costs Fixed -6% core Fixed costs core costs
Slide 31: Franchise operating review
30 FRANCHINE OPERATING REVIEWS FNB FRANCHISE OPERATING REVIEW
Slide 32: FNB performance reflects success of consistent strategy
Results presentation for the year ended 30 June 2015 31 FNB performance reflects success of consistent strategy Normalised profit before tax (R million) 18 000 38.3% ROE . 16 000 16% 16 488 14 000 14 240 12 000 11 644 10 000 9 668 8 000 7 879 6 000 4 000 2 000 0 2011 2012 2013 2014 2015 Years prior
Slide 33: FNB's strategy to grow core transactional accounts drives growth
32 FRANCHINE OPERATING REVIEWS FNB continued FNB’s strategy to grow core transactional accounts drives growth Normalised profit before tax (R million) 10 000 2014 2015 19% 8 000 6 000 4 000 10% 0% 16% 2 000 23% 0 28% (2 000) Transactional Lending Deposit taking Insurance Other Rest of Africa Transac
Slide 34: Growth in volumes driven by electronic channels
Results presentation for the year ended 30 June 2015 33 Growth in volumes driven by electronic channels Transactions processed 12% Increase in transaction volumes % Mobile 25 14% Internet banking 15 Banking app 69 ADT/ATM cash deposits 12 0% 2014 2015 Manual transactions Electronic transactions Manu
Slide 35: Focus on growing deposit franchise delivering
34 FRANCHINE OPERATING REVIEWS FNB continued Focus on growing deposit franchise delivering Deposit-taking PBT (R million) • Innovative products 1 400 1 200 • Further penetration into both retail 23% and commercial customer bases 1 000 800 600 400 200 0 2014 2015 Retail Commercial Good performance fr
Slide 36: Solid performance underpins superior returns from RMB
Results presentation for the year ended 30 June 2015 35 Solid performance underpins superior returns from RMB Normalised profit before tax (R million) 25% ROE 9 000 . 8% 8 000 8 307 7 688 7 000 6 000 6 062 5 000 5 367 4 937 4 000 3 000 2 000 1 000 0 2011 2012 2013 2014 2015 Years prior to 2014 have
Slide 37: Client-focused franchise delivers balanced performance
36 FRANCHINE OPERATING REVIEWS RMB continued Client-focused franchise delivers balanced performance Normalised profit before tax* (R million) 4 000 INVESTMENT CLIENT (70%) INVESTING MANAGEMENT 3 500 3 000 2 500 2 000 1 500 1 000 500 0 Investment banking Corporate and Markets and Investing Investment
Slide 38: C&TB becoming a meaningful contributor
Results presentation for the year ended 30 June 2015 37 C&TB becoming a meaningful contributor Normalised profit before tax (R million) • Strong deposit-raising activities 1 200 contributed to enhanced liquidity profile 1 000 19% • Good cost management aided profits 800 • Focused client initiatives
Slide 39: Investing activities bolstered by realisations
38 FRANCHINE OPERATING REVIEWS RMB continued Investing activities bolstered by realisations Normalised profit before tax (R million) • Continued contribution from earnings 2 500 8% of underlying investments 2 000 • Results benefited from realisation cycle 1 500 • Growth in unrealised value to R4.9 b
Slide 40: WesBank's performance proves resilience of franchise
Results presentation for the year ended 30 June 2015 39 WesBank’s performance proves resilience of franchise Normalised profit before tax (R million) 23.2% ROE 5 000 . 9% 4 500 4 693 4 315 4 000 3 983 3 500 3 667 3 000 2 500 2 627 2 000 1 500 1 000 500 0 2011 2012 2013 2014 2015 Years prior to 2014
Slide 41: Domestic VAF business performed well, but not cycle-proof
40 FRANCHINE OPERATING REVIEWS WesBank continued Domestic VAF business performed well, but not cycle-proof Normalised profit before tax (R million) • As expected, production growth slowed: 2 500 • 4.8% decline in industry new 5% vehicle sales 2 000 • Increased customer indebtedness • Margin pressure
Slide 42: Growth in personal loans business moderating
Results presentation for the year ended 30 June 2015 41 Growth in personal loans business moderating Normalised profit before tax (R million) • New business volume growth declined 1 400 reflecting reduced credit appetite 9% 1 200 • Good NIR growth from transactional and insurance activities 1 000 •
Slide 43: New products, platforms and internal distribution channels delivering
42 FRANCHINE OPERATING REVIEWS Ashburton Investments update New products, platforms and internal distribution channels delivering Assets under management* (R billion) • Investment management strategy 120 gaining traction 110 15% 100 • Strong growth in AUM since launch: 90 • Growth in both alternativ
Slide 44: Prospects
Results presentation for the year ended 30 June 2015 43 PROSPECTS Domestic franchise growth faces some challenges… • Even tougher macros • Increased cost of funding and liquidity • Current and proposed regulatory changes likely to place pressure on growth • Lower demand from corporate SA • Consumer
Slide 45: However… / Appendix
44 FIRSTRAND GROUP Prospects continued However… • Cross-sell and up-sell will provide growth impetus • New insurance initiatives to increase share of wallet across customer base • Strong investment realisation cycle in private equity portfolio to offset some growth pressures • Balance sheet prepared
Slide 46: Coverage breakdown: residential mortgages and VAF
Results presentation for the year ended 30 June 2015 45 Coverage breakdown: residential mortgages RESIDENTIAL MORTGAGES Specific Type R million coverage ratio Property sold 119 17.6% Litigation 1 931 20.9% Debt review 824 19.0% Deceased 285 20.6% Non-debt review paying 1 142 15.0% Other (new NPLs) 2
Slide 47: Debt review inflows reflects continued pressure on consumers
46 FIRSTRAND GROUP Appendix continued Debt review inflows reflects continued pressure on consumers SA retail VAF NPLs (R million) WesBank personal loans NPLs (R million) 4 500 1 000 4 000 900 800 3 500 700 3 000 600 2 500 500 2 000 400 1 500 300 1 000 200 500 100 0 0 Dec 10 Jun 12 Dec 13 Jun 15 Dec
Slide 48: Margin pressure from shift in rate mix in WesBank's VAF book
Results presentation for the year ended 30 June 2015 47 Margin pressure from shift in rate mix in WesBank’s VAF book Proportion of SA retail VAF new business % of total advances 2015 2014 80% Fixed rate 57 58 70% 68% Floating rate 43 42 62% 60% 58% 56% 50% 50% 50% 44% 40% 42% 38% 30% 32% 20% 2011 20
Slide 49: FirstRand
WWW.FIRSTRAND.CO.ZA FIRSTRAND