Firstrand Limited · JSE:FSR
Firstrand — H1 2013 Earnings Presentation
41 slides from Firstrand's earnings presentation, February 2013
Slide 1: Results presentation, 6 months ended 31 December 2012
results presentation 6 MONTHS ENDED 31 DECEMBER 2012
Slide 2: Introduction: good growth in topline and profitability
1 introduction SIZWE NXASANA Good growth in topline and profitability Normalised earnings* R million 8 000 21.9% ROE +25% 7 000 6 000 5 000 4 000 6 959 7 218 3 000 5 771 5 545 4 572 2 000 1 000 0 6 months to Dec Dec '10 10 Jun Jun '11 11 Dec Dec '11 11 Jun Jun '12 12 Dec Dec '12 12 * Excludes contri
Slide 3: Despite moderate economic activity, business remained resilient
2 Despite moderate economic activity, business remained resilient Operating environment Business impact + Satisfactory advances growth − Impairments slightly on the rise, but in line Interest rates remained low with expectations − Negative endowment impact (average repo rate 45 bps lower) − Corporat
Slide 4: Financial review: performance highlights
3 financial review JOHAN BURGER Performance highlights Dec 12 Dec 11 Change Normalised earnings (R million) 7 218 5 771 25% Diluted EPS (cents) 128.0 102.4 25% Return on equity (%) 21.9 19.5 Net asset value per share (cents) 1 200.6 1 053.0 14% Dividend per share (cents) 55 44 25% I N T E
Slide 5: Key performance ratios
4 Key performance ratios Dec 12 Dec 11 Change Return on equity (%) 21.9 19.5 Return on assets (%) 1.81 1.58 Credit loss ratio (%) 0.91 0.80 Cost-to-income ratio (%) 53.7 55.0 Tier 1 ratio (%) 13.4 14.0 Core Tier 1 ratio (%) 12.5 13.0 Net interest margin (%) 4.91 4.64 Gross advances (R
Slide 6: Consistent strategies are driving performance
5 Consistent strategies are driving performance • diversification • client franchise businesses Earnings resilience (income statement) • risk-adjusted margins • positive operating jaws • maintain focus on quality of new business across segments Asset • improving NPLs and coverage ratios quality Bala
Slide 7: Geographic diversification is a long-term strategy
6 Geographic diversification is a long-term strategy… Dec 11 Dec 12 0% 3% 9% 10% South Africa International Rest of Africa & corridors 91% 87% …as South Africa still dominates Based on gross revenue, excluding Corporate Centre and consolidation adjustments Franchises provide diversification and rela
Slide 8: Segment diversification reflects structure of SA growth profile
7 Segment diversification reflects structure of SA growth profile and relative positioning Normalised earnings mix# Normalised earnings (R million) Dec 12 Dec 11 Change 27% Retail 3 923 3 033 29% Commercial* 1 490 1 520 (2%) 53% Corporate and investment banking** 1 969 1 455 35% 20% Other (164
Slide 9: Detailed income statement
8 Detailed income statement Normalised (R million) Dec 12 Dec 11 Change Net interest income before impairment of advances 13 606 11 905 14% Impairment of advances (2 518) (1 961) 28% Net interest income after impairment of advances 11 088 9 944 12% Non-interest revenue* 14 526 11 738 24% Income from
Slide 10: Balance sheet mix drives margin, rolling six months margins stable
9 Balance sheet mix drives margin, but rolling six months margins remain stable Rolling Year-on-year 6 months Dec 11 to Jun 12 to Dec 12 Dec 12 Normalised margin (%) Dec 11 4.64 Jun 12 4.92 Accounting mismatches 0.09 0.01 4.73 4.93 Capital and deposit endowment (0.09) (0.04) Advances 0.20 0.02 Chang
Slide 11: Impairment trend in line with cycle and portfolio expectations
10 Impairment trend in line with cycle and portfolio expectations % of advances Credit loss ratio (%) Dec 11 Jun 12 Dec 12 6 Retail – secured 0.64 0.58 0.92 5.5 Residential mortgages 0.56 0.56 0.39 5 VAF 0.80 0.62 0.98 4.6 Retail – unsecured 4.54 5.37 6.65 4 Credit card 0.38 0.24 0.03 Personal loans
Slide 12: Driven by portfolio provisioning, not risk in NPLs
11 …driven by portfolio provisioning, not risk in NPLs Coverage ratios 66.4% Cycle 4.5% Cycle 5.3% 46.6% Arrears trending 20.1% 14.7% Reflection of mix in NPLs 36.5% 31.9% Dec 10 Dec 11 Jun 12 Dec 12 Specific impairment Portfolio impairment BU overlays Central portfolio overlays Paying customers and
Slide 13: Paying customers and delayed workouts inflate NPLs
12 Paying customers and delayed workouts “inflate” NPLs WesBank VAF NPLs (R million) Arrears 3+ months (27%) 1 600 Restructured debt review (24%) Not restructured debt review (9%) Legal action for repossession (23%) 1 200 Repossessions (5%) Other (12%) 800 400 - Last 13 - 24 25 - 36 37 - 48 48+ 12 m
Slide 14: Non-interest revenue growth driven by client franchise strategies
13 Non-interest revenue growth driven by client franchise strategies R million Dec 12 Dec 11 Change Retail, commercial and corporate banking 10 441 9 312 12% Investment banking 2 202 1 741 26% Private equity activities 590 268 >100% Investment income 338 (27) (>100%) Other income 955 444 >
Slide 15: Level of annuity income underpins sustainability
14 Level of annuity income underpins sustainability Activity split Transactional income – franchise split* 9% 4% 13% 4% 4% 10% 11% 7% 66% 72% Retail, commercial and corporate FNB banking transactional income FNB Africa Investment banking transactional WesBank income Flow trading and residual risk RM
Slide 16: Positive operating jaws remains a key focus
15 Positive operating jaws remains a key focus R million 40 000 60% 55.0% 55.0% 53.7% 35 000 50% 30 000 40% 19% 28 132 25 000 30% 23 643 20 000 21 764 20% 16% 15 000 10% 15 120 11 963 12 995 10 000 0% Dec 10 Dec 11 Dec 12 Costs Topline Cost-to-income ratio (RHS) Consistent strategies are driving p
Slide 17: Total assets dominated by high-quality diversified advances
16 Total assets dominated by a high-quality diversified portfolio of advances Assets (R billion) Retail = 50%# 44%# 6%# Dec 12 (2011: 51%) (2011: 42%) (2011: 7%) Dec 11 247 251 226 211 120 119 33 35 32 11 13 10 13 31 26 24 29 26 Retail Retail Corporate FNB Africa Equity Trading* Cash, cash Asset bac
Slide 18: Successful lending strategies in RMB Investment banking and FNB Commercial
17 Successful lending strategies in RMB Investment banking and FNB Commercial Corporate advances breakdown R million Dec 12 Dec 11 Change FNB Commercial 39 300 32 617 20% 15% Commercial property 11 462 9 341 23% Term loans 12 046 9 506 27% 13% Overdrafts 15 792 13 770 15% WesBank Corporate 3
Slide 19: Strengthening deposit franchise and proactive liquidity management
18 Strengthening deposit franchise and proactive liquidity management = improved liability profile Liabilities# and equity (R billion) Deposit franchise +12% Funding +9% Dec 12 Dec 11 309 283 +14% +15% 120 116 105 +3% 101 +12% 68 70 72 114** 117** 64 33 37 39 36 Retail Commercial FNB CIB Institution
Slide 20: Revised LCR regulations improve Group position
19 Revised LCR regulations improve Group position and already meet 2015 requirement LCR 100% SARB CLF (subject to SARB approval) 100% 90% 80% 70% 60% 0% Dec 12 Dec 12 2015 2016 2017 2018 2019 LCR LCR based on revised LCR requirement regulations Strong earnings generation reflected in capital ratios
Slide 21: Capital level takes cognisance of expansion and efficiency
20 Level takes cognisance of expansion and scope to enhance efficiency 15% 14.0% 14% 13.1% 13% 0.3% 0.1% Expansion, 3.25% 12% regulatory 11% changes, etc.* CET1 target range 10% 9.5 – 11.0% 2.25% 9% 12.7% 8% 7% 6% 8.50% 5% 4% FSR Dec X 2012 2019 end state Y – Basel lll Basel lll pro forma minimum re
Slide 22: ROA reflects quality of earnings
21 ROA reflects quality of earnings % 8.0 6.0 Better 3.5 3.6 4.0 3.6 3.2 quality 4.0 3.1 1.58 1.73 1.81 2.0 1.18 1.22 1.35 Pricing & mix 2.7 2.6 2.9 3.3 3.4 3.4 0.0 2008 2009 2010 2011 Jun '12 2012 (3.1) (3.5) (3.6) -2.0 (3.7) (3.7) (3.8) Stable (1.1) (0.7) (0.5) Reflection -4.0 (1.0) (0.7) (0.6) of
Slide 23: Operating reviews: strong topline growth from FNB
22 operating reviews SIZWE NXASANA Another period of strong topline growth from the FNB franchise Profit before tax* Characterised by: R million ROE: 36.2% + Strong top-line growth 7 000 + NII +22% 6 000 +18% + NIR +13% 5 000 + Continued customer acquisition 4 000 + Appropriate credit origination an
Slide 24: Excellent performance from Retail segment
23 Excellent performance from Retail segment Profit before tax (R million) 3 500 Dec'11 Dec 11 +32% Dec'12 Dec 12 3 000 2 500 2 000 +6% 1 500 1 000 +1% 500 - # Retail * Commercial ** FNB Africa * Retail includes the previous Wealth, Mass and Consumer segments ** Commercial includes Business Banking,
Slide 25: FNB NIR driven by ongoing strong account growth
24 FNB NIR driven by ongoing strong account growth Active accounts* (millions) • Retail customer value proposition 20 driving account growth 18 +14% • Historical strategy of pricing below inflation translating into price 16 competitiveness 14 • Product offering returns value to 12 customers through
Slide 26: Innovation underpinning new customer acquisition and volume growth
25 Innovation underpinning new customer acquisition and volume growth FNB Banking App transactions FNB smart device sales Volumes (thousands) Values (R million) Cumulative units sold to date 140 000 900 2 500 120 000 750 2 000 100 000 600 1 500 80 000 450 60 000 1 000 300 40 000 150 500 20 000 0 0 0
Slide 27: Unsecured personal loans payout slowing down
26 Unsecured personal loans payout slowing down Six-monthly unsecured payouts (R million) • Deliberate strategy towards unsecured 6 000 lending given ROE focus 5 000 • Personal loans slowing, particularly in the mass market 4 000 • Successive tightening of origination 3 000 criteria will continue 2
Slide 28: Strong deposit growth in SA offsets lower margins
27 Strong deposit growth in SA offsets lower margins Deposits (R billion) Deposit NII (R million) 250 +15% 3 000 +6% 200 2 000 150 100 1 000 50 - 0 2011 Dec 11 2012 Dec 12 2011 Dec 11 2012 Dec 12 Endowment Investment • Endowment growth through transactional account acquisition • Although unhedged, l
Slide 29: FNB offshore platforms remain a key focus area
28 FNB offshore platforms remain a key focus area • FNB Africa • On the radar: Ghana, Nigeria • Visa and Momentum sale once-offs affect results in prior year Profit before tax* (R million) 1 000 800 930 600 771 400 200 - (161) ( 200) (73) Established ( 400) Established Growing Growing Priorities for
Slide 30: Record first half performance for RMB
29 Record first half performance for RMB Profit before tax (R million) Highlights: 3 500 22.2% ROE + Strategic actions resulted in ROE improvement from 18.1% to 22.2% 3 000 +24% + Continued focus on capital allocation, 2 500 growth and efficiencies 2 000 + Containment of core cost growth 1 500 1 000
Slide 31: Rebalancing portfolio and improving quality of earnings
30 Rebalancing portfolio and improving quality and sustainability of earnings Target Dec 12 3% 11% 25% Client activities Investment activities 5% Asset management 70% 86% Based on gross revenue. Excludes RMB Corporate Banking, legacy and head office portfolios Performance driven by client franchise
Slide 32: Balance sheet led growth in lending activities
31 Balance sheet led growth in lending activities Gross income* (R million) Dec 11 2 250 Dec 12 2 000 1 750 1 500 1 250 1 000 750 500 250 - Advisory Financing Capital raising Structuring Client Flow trading Asset Investing and solutions execution and residual management underwriting risk Client AM I
Slide 33: Astute investing yields solid returns
32 Astute investing yields solid returns Gross income* (R million) Dec 11 2 250 Dec 12 2 000 1 750 1 500 1 250 1 000 750 500 250 - Advisory Financing Capital raising Structuring Client Flow trading Asset Investing and solutions execution and residual management underwriting risk Client AM Investing
Slide 34: WesBank: leaders in instalment finance
33 WesBank: leaders in instalment finance Profit before tax* (R million) Highlights: 2 250 31.8% ROE + Strong new business origination 2 000 +16% 1 750 + Sustained interest margins 1 500 + Focus on cost management continues 1 250 1 000 + Continued low bad debts 750 500 250 0 6m to Dec 10 Jun 11 Dec
Slide 35: Retail secured lending – marching on
34 Retail secured lending – marching on Profit before tax (R million) • Good growth in balance sheet 1 500 at good margins 1 250 +18% • Arrears levelling off – no further portfolio unwind 1 000 • MotoNovo posted strong 750 performance 500 250 - Retail secured lending activities 6m to Dec 11 6m to Ju
Slide 36: Unsecured lending – good growth but tight credit discipline
35 Unsecured lending – good growth but tight credit discipline Profit before tax (R million) • Strong new business origination 700 and balance sheet growth +27% 600 • Arrears trending gradually upwards 500 • Credit discipline continues 400 300 200 100 - Unsecured lending activities 6m to Dec 11 6m t
Slide 37: Progress on growth strategies
36 Prospects underpinned by consistent strategies • Advances and profit growth, but reducing going forward • Gradual increasing impairments in retail portfolios • More momentum expected in corporate and commercial markets • Balance between efficiencies and system investments • Consistent approach to
Slide 38: Growing rest of African footprint a key imperative
37 Growing rest of African footprint a key imperative • FNB’s expanding physical footprint in new territories resulting in customer and transactional volume growth • RMB rep office in Kenya generating strong deal pipeline • RMB Nigeria officially launched • Ghana deal expected to conclude in second
Slide 39: In conclusion / appendix
38 In conclusion • Difficult macroeconomic environment to continue, mitigated to some extent by positive government initiatives, i.e. NDP • Franchise strategies are compelling • Focus on • Producing good organic growth • Investing in stated growth opportunities • Innovation • Expansion initativies i
Slide 40: Core costs growth impacted by variable staff cost
39 Core costs growth impacted by variable staff cost linked to performance R million 16 000 +16% (179) 15 000 15 120 (442) (248) 14 000 (345) (166) +11% 13 740 13 000 12 995 12 410 12 000 11 000 10 000 Dec 11 Dec 12 Share-based Expansions Software Cooperation Accelerated Dec 12 Dec 11 normalised nor
Slide 41: www.firstrand.co.za
FIRSTRAND www.firstrand.co.za