Firstrand Limited · JSE:FSR
Firstrand — Non-Deal Roadshow (May 2004)
42 slides from Firstrand's roadshow presentation, May 2004
Slide 1: FirstRand US Roadshow – May 2004
FirstRand US Roadshow – May 2004
Slide 2: The environment
The environment
Slide 3: Improving macro environment
Improving macro environment • Prime interest rate expected to remain unchanged at 11.5% for 2004 • CPIX Inflation expected to peak at 6% by December 2005 • GDP growth of ±3% is expected in 2004 & 2005 • Do not expect a collapse of the rand • Expect asset values to continue to improve
Slide 4: What does this mean for Banking?
What does this mean for Banking? • Continued strong: New business growth Transactional and trading income Income from merchant banking fees • Low bad debts and NPLs • Margins Maintain core margins No further erosion of endowment effect
Slide 5: What does this mean for Insurance?
What does this mean for Insurance? • Improved Equity markets Investment performance • Continued strong growth in unit trust and linked product sales • Improved demand for equity linked savings and retirement products of insurance companies
Slide 6: Environment currently favours banking
Environment currently favours banking Headline earnings Momentum Discovery Group Group 2% 16% Banking Group 82% Financial results for the 6 months ending 31 December 2004
Slide 7: How is FirstRand positioned?
How is FirstRand positioned?
Slide 8: Diversity provides robustness
Diversity provides robustness Moment um Discovery Group Group 2% 16% Retail Banking 30% Ot her Banking 7% ST Insurance 2% Corp. Banking Inst alment 12% Finance Merchant Banking A frican Banking 12% 14% 5% Financial results for the 6 months ending 31 December 2004
Slide 9: Integration unlocks value
Integration unlocks value • Diversified outside banking successfully due to: Entrepreneurial culture Building blocks • Infrastructure (IT and distribution) • Intellectual and product • Brand • Client base • Created new sources of revenue • Discovery Leveraged Momentum’s brand and distribution
Slide 10: Key focus areas
Key focus areas • New business growth Inculcating sales culture Product innovation Collaboration • Credit quality • Growing Non-interest revenue • Productivity improvement and cost containment • Optimal capital management • Margin protection through hedging • Greenfields providing “sweeteners”
Slide 11: Biggest chunks of the book
Biggest chunks of the book…. Rbn Advances 100,000 57% 56% 90,000 80,000 70,000 36% 60,000 33% Wealth WesBank & 50,000 Africa HomeLoans 40,000 Corporate 81% Retail 30,000 20,000 4% 6% 3% 5% 10,000 0 '31 Dec 2003 30-Jun-03 R161bn R159bn
Slide 12: …showing impressive growth
…showing impressive growth New business Total advances WesBank +24% +23% FNB HomeLoans +37% +6% • Retail asset growth +12% • Corporate asset growth: Medium corporate +20% Large corporate +3%
Slide 13: Key focus areas
Key focus areas • New business growth Inculcating sales culture Product innovation Collaboration • Credit quality • Growing Non-interest revenue • Productivity improvement and cost containment • Optimal capital management • Margin protection through hedging • Greenfields providing “sweeteners”
Slide 14: Collaboration facilitates new business growth
Collaboration facilitates new business growth FNB Life • Low hanging fruit in credit life (new business) Embedded in products (eg: credit cards, overdrafts, etc) Credit life / homeloans penetration: • 2003 1% • Currently 19% • Targeting 35% Funeral policies: • Currently 10% of Smart accounts •
Slide 15: Growth through collaboration
Growth through collaboration Retail income from insurance operations up 68% year on year Rm Dec 02 Dec 03 June 03 % change YOY OUTsurance 40 68 85 70% FirstLink 18 25 62 39% WesBank 75 100 160 34% Homeloans - 35 46 FNB Life (5) 0 5 >100% FNB Consultants 18 17 33 -6% Total 146 245 381 68%
Slide 16: Key focus areas
Key focus areas • New business growth Inculcating sales culture Product innovation Collaboration • Credit quality • Growing Non-interest revenue • Productivity improvement and cost containment • Optimal capital management • Margin protection through hedging • Greenfields providing “sweeteners”
Slide 17: Bad debts and NPLs at all time lows
Bad debts and NPLs at all time lows 6 1.5 1.6 1.3 1.4 5.6 5 1.1 1.2 4 4.3 0.9 1.0 0.8 3.6 3.5 3 0.8 0.5 0.6 2.5 2 0.4 1.9 1 0.2 0 0.0 1999 2000 2001 2002 2003 Dec-03 NPLs Bad Debts
Slide 18: Improved credit profile
Improved credit profile Total FRB exposure distribution 60% Distribution of national scale deal ratings across the entire bank 50% 40% Dec-02 Dec-03 30% 20% 10% 0% AAA/AA+ AA A/BBB BB and B CCC/D • Corporate loans average deal rating remained static at FR22 (A+) • Retail loans average deal rating im
Slide 19: Key focus areas
Key focus areas • New business growth Inculcating sales culture Product innovation Collaboration • Credit quality • Growing Non-interest revenue • Productivity improvement and cost containment • Optimal capital management • Margin protection through hedging • Greenfields providing “sweeteners”
Slide 20: Excellent growth in NIR
Excellent growth in NIR +27% 4,000 3,600 –5% Other income (5%) 3,200 2,800 2,400 Investment income >+100% 2,000 1,600 Trading income +57% 1,200 800 Transactional income +16% 400 * Excluding translation gains/(losses) 0 2002 2003 • Transactional income driven by strong client acquisition and volume g
Slide 21: Key focus areas
Key focus areas • New business growth Inculcating sales culture Product innovation Collaboration • Credit quality • Growing Non-interest revenue • Productivity improvement and cost containment • Optimal capital management • Margin protection through hedging • Greenfields providing “sweeteners”
Slide 22: Expenditure anomalies explained
Expenditure anomalies Rbn explained 6,000 5,000 Forecast 4,000 3,000 2,000 1,000 0 98/99 99/00 00/01 01/02 02/03 03/04 December June • Two sets of salary increases included to align to new increase dates • Second half expenses not expected to show similar increase • Cost increase YOY if we spend bud
Slide 23: Analysing the non-interest expenditure
Analysing the non-interest expenditure FirstRand Banking Group: R5bn Goodwill & Amortisation of other intangible assets Insurance 1% 2% Advertising & Marketing 4% Maintenance 5% Lease charges 5% Depreciation Staff 7% 56% Other 20%
Slide 24: Key focus areas
Key focus areas • New business growth Inculcating sales culture Product innovation Collaboration • Credit quality • Growing Non-interest revenue • Productivity improvement and cost containment • Optimal capital management • Margin protection through hedging • Greenfields providing “sweeteners”
Slide 25: Where is our capital?
Where is our capital? Capital adequacy 2X CAR Insurance Group R4.3bn 18% Banking Group R19.4bn 82% Capital adequacy 12.5%
Slide 26: Allocated capital
Allocated…………… Total capital FirstRand Banking Group: R19.4bn Offshore R3.8bn 20% Africa R1.6bn 8% South Africa R14bn 72%
Slide 27: …for optimal return
………. for optimal return FirstRand Banking Group attributable earnings Offshore Africa 4% 8% South Africa 88%
Slide 28: Strong ROEs a priority
Strong ROEs a priority FirstRand Banking Group % 40 36.4 28.2 30 20 10 0 -10 -14.1 -20 South Africa Africa Ansbacher * Based on core headline earnings
Slide 29: Sources of surplus capital
Sources of surplus capital Generated by • Banking group • Sale of Ansbacher (£100m) Capital adequacy • Tier 1 14% • Tier 2 7% Expected to be concluded by June 2004 • African Subsidiaries Capital adequacy • Tier 1 16% • Tier 2 3% Possibilities • New initiatives by business units • De-gearing of
Slide 30: Key focus areas
Key focus areas • New business growth Inculcating sales culture Product innovation Collaboration • Credit quality • Growing Non-interest revenue • Productivity improvement and cost containment • Optimal capital management • Margin protection through hedging • Greenfields providing “sweeteners”
Slide 31: Protecting the margin
Protecting the margin 4.93 % 0% –0.16% –0.21% 0.22% –0.08 % 4.70 % Volume effect 507 Deposits Hedges –156 215 Other 12% –72 3% Capital 1% 4,668 –213 Interest income 5% 4% 4,387 Dec 2002 Dec 2003 • Volume growth more than compensates for margin squeeze • Hedging provides satisfactory protection Back
Slide 32: Africa and international
Africa and international
Slide 33: FirstRand provides strategic alignment
FirstRand provides strategic alignment Components of strategy We are Not targeting Sustainable Extension of a Rand % offshore competitive domestic specialist income advantage strategy
Slide 34: Africa is a strategic priority
Africa is a strategic priority • Natural extension of core business Current Retail operations have shown good growth/ROE’s Successful Corporate “briefcase banking” Preference is for “greenfields” expansion but will not rule out acquisitions • Recently appointed a senior “Mr Africa” • Currently
Slide 35: Africa in perspective
Africa in perspective Percentage contribution Africa to group core headline earnings Prior year Most recent annual annual results results Stanbic 9.2% 8.2% FNB Africa 7.3% 8.1%** Nedbank 3.3% 4.3% ABSA 2.6% 3.8%** * Only retail operations ** Half year results
Slide 36: Africa in perspective
Africa in perspective • SA banking assets US$200bn Mozambique 0.6% Nigeria 11% Bank assets US$m, 2002 Nigeria 21,962 21,962 8,638 6,063 2,357 2,235 2,017 1,814 1,704 1,586 1,458 Mozambique 1,266 1,063 625 370 Source: Bank scope; Team analysis
Slide 37: US Health Market
US Health Market • Discovery entered the US market, through Destiny Health brand, in 2000 • Broke-even in February 2004 • Partnerships with Guardian Life and Tufts Health Plan provide brand credibility, reach and distribution capability
Slide 38: Financial Services Charter
Financial Services Charter
Slide 39: The components
The components………….. Charter Component Scorecard Grade HR Development 20 Junior Executive Senior Ownership 22 Procurement and Enterprise 15 Development Access to Financial Services 18 Corporate Social Investment 3 Empowerment Financing 22 100
Slide 40: Strategy
Strategy
Slide 41: Our unique structure and value proposition
Our unique structure and value proposition • Owner-manager culture • Separate profit centres • Portfolio of brands • Supported at the centre Capital Strategic alignment Business philosophy Lots of little growth stories
Slide 42: Growth strategy remains the same
Growth strategy remains the same • Combination of Continuous improvement Acquisitions Collaboration Promoting and nurturing “greenfields”