FirstRand Limited · JSE:FSR

FirstRand — H1 2024 Earnings Presentation

50 slides from FirstRand's earnings presentation, December 2023

  1. Slide 1: Results presentation for the six months ended 31 December 2023

    results presentation for the six months ended 31 December 2023

  2. Slide 2: Slide 2

  3. Slide 3: Operating environment

    RESULTS PRESENTATION – DECEMBER 2023 01 operating environment for the six months ended 31 December 2023 SA: High interest rates and low confidence weighed on credit growth, fixed capital formation growth stabilised 2 Nominal and real repo rate Consumer and business confidence % Index Index 15 40 90

  4. Slide 4: Broader Africa and UK operating environment

    02 FIRSTRAND GROUP Operating environment Broader Africa: Inflation eased in SACU countries, reforms/ restructurings in Nigeria, Ghana and Zambia 3 Average inflation rates – broader Africa portfolio Government debt % y/y % of GDP Zambia: default 50 and restructuring, 140 40 reforms 30 Ghana: default

  5. Slide 5: Unpacking performance

    RESULTS PRESENTATION – DECEMBER 2023 03 unpacking performance for the six months ended 31 December 2023 Performance driven by strong topline and excellent credit outcome – delivering superior returns 6 Normalised earnings Deposit franchise Ordinary dividend per share R19.1bn R1 510bn 200 cents (Dec

  6. Slide 6: Shareholder value creation through NAV growth and dividends

    04 FIRSTRAND GROUP Unpacking performance Shareholder value creation through compounded growth in NAV and generous dividend payout 7 TOTAL NAV CAGR 9% (8% excl. FCTR) R billion % 58.5 58.8 58.8 240 55.9 56.0 60 220 14% 200 R190.0bn 50 180 R167.1bn 160 40 140 120 30 100 80 20 60 40 10 20 – – Dec 19

  7. Slide 7: Unpacking cyclical impacts on ROE and NIACC

    RESULTS PRESENTATION – DECEMBER 2023 05 Unpacking the cyclical impacts on ROE and NIACC 9 ROA 9 bps driven by slower earnings growth: • Cyclically high retail credit impairments 100 bps movement • Unwind of Aldermore interest rate risk hedge in ROE to 20.6% (Dec 22: 21.6%) • Lower realisations per

  8. Slide 8: Deposit franchise growth

    06 FIRSTRAND GROUP Unpacking performance Unpacking group performance against shareholder value creation thesis 11 #1 Liabilities #2 RWA optimisation Capital-light/ #3 non-bank revenues #4 Costs Excellent growth in deposit franchise off a high base 12 Deposit franchise R billion Broader Africa 1 600

  9. Slide 9: FNB and RMB deposit franchise

    RESULTS PRESENTATION – DECEMBER 2023 07 FNB deposit franchise – customer growth and enhanced product set 13 FNB deposit franchise growth Retail deposit mix* Current R billion 1% Notice and fixed 500 13% Commercial +12% y/y (5-year CAGR 14%) 450 R389.1bn 400 11% 350 Retail +11% y/y (5-year CAGR 10

  10. Slide 10: Aldermore diversified savings franchise

    08 FIRSTRAND GROUP Unpacking performance Aldermore building a diversified and sustainable savings franchise 15 Funding breakdown £ billion 12 Customer deposits 4% to £15.9bn Customer deposits 4% 10 10.5 • Focus on maintaining diverse, stable deposit base 10.4 in more volatile funding markets 8 • P

  11. Slide 11: Growth in advances across lending portfolios

    RESULTS PRESENTATION – DECEMBER 2023 09 Growth in advances across all lending portfolios in line with expectations 17 Core lending advances R billion Centre 1 800 10% 1 600 11% UK operations 11% FNB retail (4% in pounds) 1 563 7% 1 400 1 411 1 200 1 000 Core lending advances 800 11% FNB commer

  12. Slide 12: Commercial and RMB advances

    10 FIRSTRAND GROUP Unpacking performance Sector-specific origination approach in FNB commercial = growth and quality of risk 19 Commercial advances split FNB commercial new business risk distribution Other 100% High risk High risk 9% Overdrafts 80% 15% Medium risk WesBank 4% 60% 13% corporate 40%

  13. Slide 13: UK operations mortgage portfolios

    RESULTS PRESENTATION – DECEMBER 2023 11 UK operations: owner-occupied portfolio contracted on risk cutbacks 21 Book size >£2 billion 55% of the portfolio has a balance <£200k 8% 4% 24% 21% 19% 17% 12% 15% 11% 2% Regional distribution 5% 5% 0% 0% 8% of owner-occupied 0 – 50k 50k – 100k – 150k – 200k

  14. Slide 14: ALM strategies objectives and outcomes

    12 FIRSTRAND GROUP Unpacking performance Unpacking the objectives and outcomes of the ALM strategies 23 • Overarching objectives of group ALM strategies: • Actively manage the profile to protect and enhance earnings through the cycle • Earn the structural term premium for shareholders by investing a

  15. Slide 15: Credit performance outperforms expectations

    RESULTS PRESENTATION – DECEMBER 2023 13 Credit performance continues to outperform initial expectations 25 Impairment charge (R million) and credit loss ratio (%) Total provisions (R million) and coverage (% of core lending advances) 6 404 55 000 5 941 50 000 45 000 Last of 5 008 40 000 45.4% +14% p

  16. Slide 16: Non-interest revenue growth drivers

    14 FIRSTRAND GROUP Unpacking performance Base effects period-on-period shaped NIR growth in the first half 27 • Partial unwind of UK operations’ interest rate risk hedge: • £10.8 million loss in current period (Dec 22: £6.7 million profit) • R392 million negative impact on group NIR period-on-period

  17. Slide 17: FNB Life and insurance activities

    RESULTS PRESENTATION – DECEMBER 2023 15 FNB Life – successful NIR diversification 29 Premium income and NIR – FNB Life Performance highlights R billion • Consistent growth in APE in credit life (CAGR 9%) and non-credit life (CAGR 18%) 5 NIR: 13% CAGR • Persistency improvements, with better-than- ex

  18. Slide 18: Private advisors and RMB NIR

    16 FIRSTRAND GROUP Unpacking performance Growth in private advisors supporting insurance/investment sales 31 Life insurance sales APE – digital and private advisors Invest advisor flows R million R million 90 1 200 Private advisors >100% y/y Digital: 66% y/y 80 1 000 1 042 Private advisors: >100%

  19. Slide 19: Cost-to-income ratio improved to 49.9%

    RESULTS PRESENTATION – DECEMBER 2023 17 Unpacking group performance against shareholder value creation thesis 33 #1 Liabilities #2 RWA optimisation Capital-light/ #3 non-bank revenues #4 Costs Group’s cost-to-income ratio improved to 49.9% 34 Operating expenses R million 25 000 • Excellent performan

  20. Slide 20: Capital position and dividend cover

    18 FIRSTRAND GROUP Unpacking performance Capital position remains solid 35 CET1 RATIO* % 16 CET1 accretion: +50 bps 15 (84 bps) 14 147 bps (13 bps) (35 bps) 13 13.2 13.3 13.2 12 11 10 Dec 22 Jun 23 Earnings Ordinary FCTR and RWA Dec 23 dividend other** * Includes unappropriated profits. ** Includes

  21. Slide 21: Key performance metrics (normalised)

    RESULTS PRESENTATION – DECEMBER 2023 19 financial review for the six months ended 31 December 2023 Key performance metrics (normalised) 38 Dec 23 Dec 22* % change Earnings per share (cents) 340.4 320.7 6  Dividend per share (cents) 200 189 6  Earnings (R million) 19 097 17 988 6  NIACC (R million

  22. Slide 22: Topline growth supports earnings

    20 FIRSTRAND GROUP Financial review Topline growth continued to support earnings performance, despite above inflation cost uptick and higher impairments 39 Normalised earnings R million 24 000 14% 28% 4% 9% (1 396) 1 043 (2 834) 9% 21 000 5 090 (794) 6% Effective tax rate 18 000 Dec 23: 24.9%

  23. Slide 23: Deposit franchise and funding liabilities

    RESULTS PRESENTATION – DECEMBER 2023 21 Deposit franchise continued its growth momentum 41 Funding liabilities 10% Dec 22 Dec 23 12% 450 20% 11% (£ growth: 4%) 401 389 375 6% 352 336 311 318 5% 207 196 19% 24% 100 84 2% 80 (£ growth: 12%) 14% 64  25 26 31 26 30 30 SA retail SA commercia

  24. Slide 24: Growth across lending portfolios

    22 FIRSTRAND GROUP Financial review Growth achieved across most lending portfolios, but momentum slowing as expected given macros 43 Core lending advances up 11% to R1 563bn Core lending advances R billion 89.1 251.5 10% period-on-period 6% period-on-period 94.6 Residential 259.6 Unsecured 98.3 

  25. Slide 25: Composition of margin

    RESULTS PRESENTATION – DECEMBER 2023 23 Composition of margin shows management of offsets across the portfolio 45 Normalised margin Basis points 2 6 496 9 488 478 (6) 7 479 (49) 472 June 2023: 447 bps 40 447 438 438 Dec 22 UK Dec 22 Lending Liabilities Capital Group FNB broader Dec 23 UK Dec 23 oper

  26. Slide 26: Credit performance better than expected

    24 FIRSTRAND GROUP Financial review Credit performance better than initial expectations despite current macro pressure 47 Credit impairment charge* Total provisions (R million) and coverage (% of core lending advances) R million 8% 6m 28% Total provisions 6 404 5 941 48 216 51 072 53 254 5 008 4 0

  27. Slide 27: Credit loss ratio below mid point of range

    RESULTS PRESENTATION – DECEMBER 2023 25 Credit loss ratio below mid point of the range 49 8.25 8.25 8.35 5.0 Covid-19 4.8 4.6 7.35 7.00 4.4 4.5 4.3 4.2 4.0 6.35 4.0 3.8 3.9 3.8 3.6 3.6 3.4 5.35 4.75 3.2 3.0 4.35 2.8 3.75 3.75 2.6 2.4 3.35 2.2 2.0 2.18 1.8 2.35 1.6 1.4 1.97 1.2 1.35 0.84 0.99 Group T

  28. Slide 28: NIR and fee and commission income

    26 FIRSTRAND GROUP Financial review Point-in-time NIR performance impacted by base effects and lower fee and commission income growth 51 Normalised earnings R million 24 000 14% 28% 4% 9% (1 396) 1 043 (2 834) 9% 21 000 5 090 (794) 6% 18 000 19 097 17 988 15 000 12 000 9 000 6 000 3 000 - Dec

  29. Slide 29: Insurance income and private equity performance

    RESULTS PRESENTATION – DECEMBER 2023 27 Integrated insurance strategy a growing component of NIR 53 Insurance income Broader R million Africa 2% 10% 1 950 WesBank** 7% 1 773 Brokers 3% 1 061 1 352 27% Insurance Short-term income* 25% 712 598 16% Life 14% Dec 22 Dec 23 Insurance risk related

  30. Slide 30: Cost growth and staff costs

    28 FIRSTRAND GROUP Financial review Cost growth continues to trend above inflation but focus starting to pay dividends at FNB 55 Normalised earnings R million 24 000 14% 28% 4% 9% (1 396) 1 043 (2 834) 9% 21 000 5 090 (794) 6% 18 000 19 097 17 988 15 000 12 000 9 000 6 000 3 000 - Dec 22 NII I

  31. Slide 31: Looking ahead: cost-to-income improvement

    RESULTS PRESENTATION – DECEMBER 2023 29 Improvement in cost-to-income ratio underpinned by topline growth 57 R billion 80 52.1% 52.8% 52.4% 55% 50.3% 49.9% 50% 70 45% 60 40% 0.8% 35% Topline 10% 50 30% Costs 9% 40 25% 30 20% 15% 20 10% 10 5% - - 0% Dec 19 Dec 20 Dec 21 Dec 22 Dec 23 Total income O

  32. Slide 32: Portfolio positioned for continued outperformance

    30 FIRSTRAND GROUP Looking ahead Portfolio is in great shape to deliver continued outperformance 59 Relative size of: Relative advances mix delivers • Transactional franchise which higher risk-adjusted margins – contributes approximately half of credit appetite, underwriting and gross revenue pricin

  33. Slide 33: Offset by growth in NIR and lower costs

    RESULTS PRESENTATION – DECEMBER 2023 31 … offset by growth in NIR and lower costs 61 • Fee reductions to continue in retail and commercial segments, but NIR growth trajectory will benefit from stronger growth relative to prior period – supported by ongoing customer growth and activity • Credit loss

  34. Slide 34: Prior year restatement for IFRS 17

    32 FIRSTRAND GROUP Annexures Prior year restatement for IFRS 17 63 Previously Dec 22 IFRS 17 Change reported Dec 22 restated Earnings per share (cents) 321.7 (1.0) 320.7  Earnings (R million) 18 047 (59) 17 988  NIACC (R million) 6 247 (112) 6 135  Net asset value (R million) 166 358 719 167 077

  35. Slide 35: Shareholder value creation thesis

    RESULTS PRESENTATION – DECEMBER 2023 33 FirstRand’s shareholder value creation thesis 65 • High-quality revenue • Quality of customer franchise #1 Liabilities • Trust • Ease of fulfilment, product development • Discerning origination – credit outcomes through the cycle #2 RWA optimisation • Advances

  36. Slide 36: Margin stability and balance sheet strength

    34 FIRSTRAND GROUP Annexures Combination of origination tilt and ALM outcomes adds margin stability and superior risk-adjusted profile 67 Basis points 900 800 700 Average repo rate 600 Margin (excl. UK ops) 500 400 Risk-adjusted margin* (excl. UK ops) 300 200 100 – Dec 10 Dec 11 Dec 12 Dec 13 Dec 14

  37. Slide 37: FNB performance highlights

    RESULTS PRESENTATION – DECEMBER 2023 35 FNB performance highlights 69 Normalised earnings Normalised PBT Deposits R11.5bn R16.5bn R906.7bn (Dec 22: R11.0bn) 5% (Dec 22: R15.7bn) 5% (Dec 22: R810.9bn) 12% Return on assets Return on equity Advances 4.12% 40.3% R545.5bn (Dec 22: 4.24%) 12 bps (Dec

  38. Slide 38: FNB operational highlights

    36 FIRSTRAND GROUP Annexures FNB operational highlights 71 Customers Digital (app, online and USSD) eBucks Retail 8.45m +5% Volumes +8% Rewards earned R1.1bn Commercial 1.23m +3% Rewards earned since inception R20.9bn Logins 981m Broader Africa 2.13m +8% eB travel sales (+30%) R583m Digital transact

  39. Slide 39: WesBank and RMB performance highlights

    RESULTS PRESENTATION – DECEMBER 2023 37 WesBank operational trends 73 Production growth NPL trends Amount disbursed on new and existing business Advances NPLs R million R billion % of advances 5 000 Retail VAF 180 9% 11% 4 000 8.01% 171 3 000 160 163 8% 2 000 Low risk 154 Corporate 1 000 140 144 an

  40. Slide 40: RMB transactional and broader Africa highlights

    38 FIRSTRAND GROUP Annexures RMB’s transactional operational highlights 75 Average deposits Rand general banking facility utilisation R billion 50% 135 Operational 40% 115 30% 95 Investment 75 20% 55 10% 35 –– 0% Jul Aug Sep Oct Nov Dec Jul Aug Sep Oct Nov Dec 2022 2023 2022 2023 Merchant services v

  41. Slide 41: FNB and RMB broader Africa performance

    RESULTS PRESENTATION – DECEMBER 2023 39 Unpacking FNB broader Africa performance 77 Normalised PBT R million • FNB broader Africa PBT increased 24% 2 000 6% • Endowment NII benefit from high rates 1 801 1 500 1 693 • NIR driven by growth in customers and transactional volumes 1 000 • Cost increase

  42. Slide 42: UK operations and Aldermore performance

    40 FIRSTRAND GROUP Annexures UK operations and Aldermore Bank – operational performance 79 Normalised PBT Dec 23 Dec 22 % change £ million Property finance 53 55 (4)  Structured and specialist finance 48 57 (16)  Central functions 14 (14) (>100)  Aldermore Bank operational* 115 98 17  Motor fina

  43. Slide 43: Aldermore acquisition value accretive

    RESULTS PRESENTATION – DECEMBER 2023 41 Aldermore acquisition – value accretive 81 £ million R million Investment at acquisition (March 2018) @ spot rate (£1 = R16.68) 1 098 18 311 Aldermore excluding MotoNovo: earnings for the three months ended 30 June 2018 16 June 2018 adjusted NAV @ spot rate (£

  44. Slide 44: Breakdown of core lending advances and provisions

    42 FIRSTRAND GROUP Annexures Breakdown of core lending advances and provisions 83 Advances (R billion) Provisions (R million) and coverage (%) Credit loss ratio (%) 252 260 266 4 201 4 356 4 655 0.12 0.18 0.24 Residential mortgages 6% 11% 12 14 16 Dec 22 Jun 23 Dec 23 22 22 20 21.5% 20.2% 19.7% 21

  45. Slide 45: Core lending advances and provisions: FNB, WesBank

    RESULTS PRESENTATION – DECEMBER 2023 43 Breakdown of core lending advances and provisions 85 Advances (R billion) Provisions (R million) and coverage (%) Credit loss ratio (%) 8 7 8 1 297 1 248 1 246 6.94 4.87 8.27 1% Dec 22 Jun 23 Dec 23 FNB retail other 1 1 1 4% 1 1 1 81.5% 83.3% 83.5% 6 6 6 26.

  46. Slide 46: Core lending advances: broader Africa and UK operations

    44 FIRSTRAND GROUP Annexures Breakdown of core lending advances and provisions 87 Advances (R billion) Provisions (R million) and coverage (%) Credit loss ratio (%) 56 58 61 3 772 3 726 3 694 0.91 0.67 0.73 FNB broader Africa* 9% Dec 22 Jun 23 Dec 23 4 4 2% 3 5 5 6 60.1% 57.6% 56.8% 48 48 52 14.5%

  47. Slide 47: Unpack of staff costs

    RESULTS PRESENTATION – DECEMBER 2023 45 Unpack of staff costs 89 Other 15% Increase due to higher employee statutory costs linked to the growth Long-term incentives 6% in direct staff costs, including the change in leave pay provisions Prior year non-vesting 7% 6% Short-term incentives 5% Aligned

  48. Slide 48: FirstRand Group

    46 | FIRSTRAND GROUP

  49. Slide 49: Slide 49

  50. Slide 50: www.firstrand.co.za

    www.firstrand.co.za

FirstRand — H1 2024 Earnings Presentation on 6ix