FirstRand Limited · JSE:FSR
FirstRand — FY2014 Earnings Presentation
63 slides from FirstRand's earnings presentation, June 2014
Slide 1: Results presentation for the year ended 30 June 2014
results presentation for the year ended 30 June 2014
Slide 2: Introduction: growth and returns above hurdle rates
Results presentation for the year ended 30 June 2014 1 INTRODUCTION Group continues to deliver growth and returns above hurdle rates Normalised earnings* (R million) 24.2% ROE . 20 000 18 663 18 000 21% 16 000 15 420 14 000 12 730 12 000 10 117 10 000 8 283 8 000 6 000 4 000 2 000 0 2010 2011 2012 2
Slide 3: Franchises performed well despite increasing headwinds
2 FIRSTRAND GROUP | Introduction continued Franchises performed well despite increasing headwinds Normalised profit before tax (R million) 2014 2013 % change FNB 13 995 11 644 20 RMB 7 459 6 150 21 WesBank 4 060 3 983 2 Franchise outperformance continues… • FNB • Residential mortgages continue
Slide 4: Franchise outperformance continues; consistent execution on strategy
Results presentation for the year ended 30 June 2014 3 Franchise outperformance continues… • WesBank • Consistent point-of-sale presence and partnership model ensured resilient new business volumes • MotoNovo growing strongly in GBP terms • Discipline in origination results in better than expected V
Slide 5: Achieving momentum in the rest of Africa and corridors
4 FIRSTRAND GROUP | Introduction continued Achieving momentum in the rest of Africa and corridors • Consistent execution through operating franchises matched with disciplined capital deployment • Country selection focused on main economic hubs of east and west Africa • Three pillars to strategy: • U
Slide 6: Franchise strength and financial discipline underpin performance
Results presentation for the year ended 30 June 2014 5 Franchise strength and financial discipline underpin performance and sustainability RESILIENCE OF EARNINGS, GROWTH, RETURNS AND BALANCE SHEET STRENGTH FINANCIAL STRENGTH AND FRANCHISE VALUE DISCIPLINED CAPITAL ALLOCATION Client businesses Balanc
Slide 7: Franchise diversification
6 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Franchise strength and financial discipline underpin performance and sustainability RESILIENCE OF EARNINGS, GROWTH, RETURNS AND BALANCE SHEET STRENGTH FINANCIAL STRENGTH AND FRANCHISE VALUE DISCIPLINED CAPITAL ALLOCATION Cli
Slide 8: Segment diversification reflects SA cycle and strategy to grow CIB
Results presentation for the year ended 30 June 2014 7 Segment diversification reflects SA cycle and strategy to grow CIB Normalised earnings mix# Normalised earnings (R million) 2014 2013 % change Retail 8 905 7 868 13 30% Commercial* 3 387 2 904 17 51% Corporate and investment banking 5 342 4
Slide 9: Product diversification underpins quality of earnings
8 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Product diversification underpins quality of earnings FNB Africa VAF Other (incl. VAF corporate) Investment management 1% 2% Investing 8% 10% Personal loans 4% Markets and structuring 5% 9% Corporate and transactional bankin
Slide 10: Balance sheet structure presents opportunity to grow deposit franchise
Results presentation for the year ended 30 June 2014 9 Balance sheet structure presents opportunity to grow deposit franchise Assets Equity and liabilities Other liabilities Cash and cash equivalents Equity and pref shares Retail Liquid assets Equity investments FNB Africa Commercial CIB FNB deposit
Slide 11: Corporate transactional banking presents an opportunity for growth
10 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Corporate transactional banking presents an opportunity for growth Franchise split of transactional NIR* RMB corporate banking . RMB IB 5% WesBank FNB Africa FNB * FCC (which includes Group Treasury) excluded from franchise
Slide 12: Investment management is an attractive revenue pool
Results presentation for the year ended 30 June 2014 11 Investment management is an attractive revenue pool Risk income Deposit and Investment management and investing endowment = 1% of total revenue . Insurance and other New products, platforms and internal distribution channels delivering Cumulati
Slide 13: Building blocks to grow insurance profits; rest of Africa track record
12 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued The Group’s brands, distribution and client insights provide building blocks to grow insurance profits Deposit-taking Risk income Insurance = 4% of revenue and endowment and investing . Based on gross revenue. Approach to r
Slide 14: Equal focus on growth and efficiency
Results presentation for the year ended 30 June 2014 13 Franchise strength and financial discipline underpin performance and sustainability RESILIENCE OF EARNINGS, GROWTH, RETURNS AND BALANCE SHEET STRENGTH FINANCIAL STRENGTH AND FRANCHISE VALUE DISCIPLINED CAPITAL ALLOCATION Client businesses Balan
Slide 15: Macros matter
14 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Franchise strength and financial discipline underpin performance and sustainability RESILIENCE OF EARNINGS, GROWTH, RETURNS AND BALANCE SHEET STRENGTH FINANCIAL STRENGTH AND FRANCHISE VALUE DISCIPLINED CAPITAL ALLOCATION Cl
Slide 16: Mapping origination strategy to macros
Results presentation for the year ended 30 June 2014 15 Mapping origination strategy to macros Higher real income growth Higher real income growth Higher real income growth Higher debt service costs Lower debt service costs FY2010 FY2011 Higher debt Lower debt service costs service costs FY2012 Curr
Slide 17: Economic view of balance sheet structure
16 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Franchise strength and financial discipline underpin performance and sustainability RESILIENCE OF EARNINGS, GROWTH, RETURNS AND BALANCE SHEET STRENGTH FINANCIAL STRENGTH AND FRANCHISE VALUE DISCIPLINED CAPITAL ALLOCATION Cl
Slide 18: Economic view of balance sheet: net advances
Results presentation for the year ended 30 June 2014 17 Economic view of balance sheet structure Rating 2%* AAA FNB Africa and other 7%* 24%* A-/BBB- Net advances = 78% Corporate and commercial 45%* 31%* BB+/BB- Retail unsecured 6%* B+/ 32%* B upper Retail secured 42%* 7%* B/B- 2%* CCC 2%* Default A
Slide 19: Portfolio provisions reflect countercyclical actions
18 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Portfolio provisions reflect countercyclical actions Portfolio impairments (R million) 8 000 2014 2013 7 000 17% Portfolio impairments as % 6 000 1.06% 0.97% of performing book 14% 20% 5 000 16% Portfolio impairments as % 1
Slide 20: Private equity unrealised value not on balance sheet
Results presentation for the year ended 30 June 2014 19 Private equity unrealised value not on balance sheet R million 14 000 12 000 3 896 10 000 1 673 8 000 1 595 6 000 1 211 4 000 2 000 - 2011 2012 2013 2014 RMB private equity portfolio book value Unrealised value Economic view of balance sheet st
Slide 21: Building a sustainable, diversified funding profile
20 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Building a sustainable, diversified, efficient and flexible funding profile Funding diversified across Liability growth attributed Deposit franchise instruments to better source and term diversified across segments Institut
Slide 22: Group strategy reflected in structurally different ROA
Results presentation for the year ended 30 June 2014 21 Franchise strength and financial discipline underpin performance and sustainability RESILIENCE OF EARNINGS, GROWTH, RETURNS AND BALANCE SHEET STRENGTH FINANCIAL STRENGTH AND FRANCHISE VALUE DISCIPLINED CAPITAL ALLOCATION Client businesses Balan
Slide 23: ROA composition and economic profit
22 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued ROA composition reflects quality of earnings, but at cyclical high % 8 6 3.4 3.5 4.0 3.6 3.8 4 1.73 1.89 2.06 2 1.27 1.49 2.9 3.0 3.4 3.4 3.7 -0 (2) (3.7) (3.9) (3.7) (3.5) (3.7) (4) (0.9) (0.8) (0.7) (0.6) (0.6) (6) 2010 2
Slide 24: Returns driven by ROA not gearing
Results presentation for the year ended 30 June 2014 23 Returns continue to be driven by ROA not gearing ROA Gearing (times) 6% 18 16 5% 13.9 14 12.5 11.9 12.0 11.8 4% 12 10 3% 8 2.06% 1.89% 2% 1.73% 6 1.49% 1.27% 4 1% 2 0% 0 2010* 2011 2012 2013 2014 ROA Gearing (times) * 2010 comparative is for Fi
Slide 25: Strong capital position and expansion buffer maintained
24 FIRSTRAND GROUP | Ensuring sustainability of growth and returns continued Franchise strength and financial discipline underpin performance and sustainability RESILIENCE OF EARNINGS, GROWTH, RETURNS AND BALANCE SHEET STRENGTH FINANCIAL STRENGTH AND FRANCHISE VALUE DISCIPLINED CAPITAL ALLOCATION Cl
Slide 26: Strong capital generation reflected in lower dividend cover
Results presentation for the year ended 30 June 2014 25 Strong capital generation reflected in lower dividend cover MOVEMENT IN SURPLUS (8.7) 13.8% 18.4 13.0% (6.6) (0.4) Dividends (2.7) 12.8% R10.2bn Reduction in dividend cover to 1.9x R10.2bn 2014 capital consumption surplus 10.2 10.6 Deployed/rin
Slide 27: Financial review: performance highlights
26 FIRSTRAND GROUP | Financial review FINANCIAL REVIEW Performance highlights 2014 2013 Change Normalised earnings (R million) 18 663 15 420 21% Diluted EPS (cents) 331.0 273.5 21% Normalised net asset value per share (cents) 1 447.2 1 289.4 12% Dividend per share (cents) 174.0 136.0 28% Net
Slide 28: Key performance ratios and normalised income statement
Results presentation for the year ended 30 June 2014 27 Key performance ratios % 2014 2013 Change Return on equity 24.2 22.7 Return on assets 2.06 1.89 Credit loss ratio* 0.84 0.95 Cost-to-income ratio 51.1 51.5 Tier 1 ratio** 14.8 14.8 – Common Equity Tier 1 ratio** 13.9 13.8 Net interest
Slide 29: Strong topline drives earnings growth
28 FIRSTRAND GROUP | Financial review continued Strong topline drives earnings growth Normalised earnings (R million) 30 000 +14% +15% 25 000 3 936 (4 459) +19% (3%) +28% 20 000 181 (1 677) 21% 5 262 18 663 15 000 15 420 10 000 5 000 0 2013 NII Impairments NIR Opex Tax and other 2014 Lending and d
Slide 30: Lending still dominates NII; robust retail advances growth
Results presentation for the year ended 30 June 2014 29 Lending still dominates NII… NII breakdown 48% of NII from lending activities 6% 9% 9% 52% 8% 56% 12% Lending Net lending income after credit costs Deposits Deposit endowment Capital endowment …but after risk cost a more balanced picture Africa
Slide 31: Origination risk appetite; personal loans portfolio
30 FIRSTRAND GROUP | Financial review continued …but within origination risk appetite RETAIL Mortgages Affordable housing SA VAF UK VAF (MotoNovo) Remain conservative Continued strong Gradual reduction of Strengthening market with focus on low-risk demand and credit higher-risk with volumes position
Slide 32: Overdraft growth and retail secured portfolios
Results presentation for the year ended 30 June 2014 31 Growth in overdrafts and revolving term loans linked to retail transactional strategy New business origination (R billion) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Overdrafts Revolving Retail
Slide 33: Corporate lending strategies and origination risk appetite
32 FIRSTRAND GROUP | Financial review continued Successful lending strategies in RMB investment banking and FNB commercial… R million 2014 2013 % change Corporate advances breakdown RMB core South Africa 160 509 129 941 24 16% RMB core cross-border 28 502 19 121 49 RMB IB core advances 189 011 149 0
Slide 34: NII benefited from deposit franchise growth and endowment
Results presentation for the year ended 30 June 2014 33 NII benefited from good growth in deposit franchise… Equity and liabilities (R billion) 2014 Deposit franchise +18% Funding +1% 2013 299 296 13% 19% 142 139 24% 126 117 113 101 91 20% 88 0% 41 49 26 26 Retail Commercial CIB deposits Rest of Afr
Slide 35: Lower mortgage and corporate NPLs offset new inflows
34 FIRSTRAND GROUP | Financial review continued Strong topline drives earnings growth Normalised earnings (R million) 30 000 +14% +15% 25 000 3 936 (4 459) +19% (3%) +28% 20 000 181 (1 677) 21% 5 262 18 663 15 000 15 420 10 000 5 000 0 2013 NII Impairments NIR Opex Tax and other 2014 Lower mortgag
Slide 36: Continued reduction in NPLs; higher coverage ratio
Results presentation for the year ended 30 June 2014 35 … driving continued reduction in overall NPLs NPLs (R billion) 25 4.98% 4.17% 4.8% 2% 6% 3.48% 3.8% 20 2% 14% 6% 2.81% 3% 2.33% 2.8% 8% 13% 4% 5% 14% 12% 1.8% 15 21% 14% 26% 15% 0.8% 28% 21% 10 -0.2% 29% 25% -1.2% 57% 5 53% -2.2% 47% 40% 35% -3
Slide 37: WesBank NPLs and provisioning given credit cycle
36 FIRSTRAND GROUP | Financial review continued WesBank NPLs include growing proportion of debt review accounts… SA retail VAF NPLs (R million) WesBank personal loans NPLs (R million) 3 500 700 3 000 600 2 500 500 2 000 400 1 500 300 1 000 200 500 100 - - Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Ju
Slide 38: Non-interest revenue driven by client franchise strategies
Results presentation for the year ended 30 June 2014 37 Strong topline drives earnings growth Normalised earnings (R million) 30 000 +14% +15% 25 000 3 936 (4 459) +19% (3%) +28% 20 000 181 (1 677) 21% 5 262 18 663 15 000 15 420 10 000 5 000 0 2013 NII Impairments NIR Opex Tax and other 2014 Non-i
Slide 39: Core costs well controlled
38 FIRSTRAND GROUP | Financial review continued Strong topline drives earnings growth Normalised earnings (R million) 30 000 +14% +15% 25 000 3 936 (4 459) +19% (3%) +28% 20 000 181 (1 677) 21% 5 262 18 663 15 000 15 420 10 000 5 000 0 2013 NII Impairments NIR Opex Tax and other 2014 Core costs we
Slide 40: In conclusion – resilient, high quality earnings
Results presentation for the year ended 30 June 2014 39 Strong topline underpins earnings growth Normalised earnings (R million) 30 000 +14% +15% 25 000 3 936 (4 459) +19% (3%) +28% 20 000 181 (1 677) 21% 5 262 18 663 15 000 15 420 10 000 5 000 0 2013 NII Impairments NIR Opex Tax and other 2014 In
Slide 41: FNB Operating Review
40 FIRSTRAND GROUP | Financial review continued … and good return profile ROE 26% 24.2% 24% 22.7% 22% 20.7% Target range: 20% 18.7% 18% – 22% 18% 17.7% 16% 14% 12% 10% 2010* 2011 2012 2013 2014 * 2010 comparative is for FirstRand Banking Group. FNB OPERATING REVIEW
Slide 42: FNB performance reflects success of strategy
Presentation of financial results 30 June 2014 41 FNB performance reflects success of strategy Normalised profit before tax (R million) • Strong topline growth 16 000 • NII +15% 37.4% ROE . • NIR +10% 14 000 20% • Robust balance sheet growth 12 000 • Advances +10% 10 000 • Deposits +17% 8 000 • Tran
Slide 43: Retail benefits from focus on core client relationships
42 FRANCHISE OPERATING REVIEWS | FNB continued Retail benefits from focus on core client relationships and continued improvement in lending portfolios Normalised profit before tax (R million) 4 000 11% 2013 2014 3 500 3 000 2 500 2 000 81% 1 500 0% 17% 1 000 500 - Personal loans Residential mortgage
Slide 44: Platform investment delivering for commercial and business segments
Presentation of financial results 30 June 2014 43 Platform investment and customer proposition delivering for commercial and business segments Normalised profit before tax (R million) • Good performance from business segment (+38%) 4 500 18% • Starting to see the benefits of 4 000 transitioning reta
Slide 45: Rest of Africa remains a key focus area
44 FRANCHISE OPERATING REVIEWS | FNB continued Rest of Africa remains a key focus area • Solid performance from established subsidiaries • Balance sheet growth, improved margins and increased transactional volumes Established • Particularly strong performances from Growing Namibia (+26%) and Swazila
Slide 46: Diversified asset and deposit franchise
Presentation of financial results 30 June 2014 45 Diversified asset and deposit franchise Total FNB NII (R million) 7 000 2013 2014 20% 6 000 5 000 4 000 25% 3 000 21% 9% (6%) 2 000 14% 1 000 0 Transactional Investments Secured lending* Card Personal loans Rest of Africa (incl. overdrafts and deposi
Slide 47: Growth in volumes driven by electronic channels
46 FRANCHISE OPERATING REVIEWS | FNB continued Growth in volumes driven by electronic channels Transactions processed • Continued shift to electronic channels 12% • Manual transactions down 4% • Electronic transactions up 15% • Banking app volumes up >100% 15% • Mobile and internet show sustainable
Slide 48: RMB Operating Review: strong performance
Presentation of financial results 30 June 2014 47 RMB OPERATING REVIEW Strong performance from RMB Normalised profit before tax (R million) • Strong balance sheet growth and 8 000 27.1% ROE lower impairments . 7 000 21% • Investment realisations 6 000 • Growth in equity-accounted earnings from priva
Slide 49: Client and investing activities drive revenue growth
48 FRANCHISE OPERATING REVIEWS | RMB continued Client and investing activities drive revenue growth Gross income* (R million) 5 000 12% 2013 2014 4 000 3% 3 000 5% >100% 2 000 1 000 30% - Investment banking and Corporate and Markets and structuring Investing Investment advisory transactional banking
Slide 50: Contribution from rest of Africa increasing
Presentation of financial results 30 June 2014 49 Contribution from rest of Africa increasing Gross income* (R million) Rest of Africa gross revenue (R million) 2013 5 000 91% 2014 1 600 52% CAGR Rest of Africa . 4 000 24% 1 400 7% 3 000 8% 1 200 >100% 2 000 (1%) 1 000 5% 1 000 800 30% - Investment
Slide 51: Investment management growing; WesBank Operating Review
50 FRANCHISE OPERATING REVIEWS | RMB continued Contribution from investment management growing Gross income* (R million) 5 000 2013 2014 4 000 3 000 2 000 1 000 30% - Investment banking and Corporate and Markets and structuring Investing Investment advisory transactional banking management Investmen
Slide 52: WesBank's profit growth and return profile resilient
Presentation of financial results 30 June 2014 51 WesBank’s profit growth and return profile resilient Normalised profit before tax (R million) • New business origination resilient 26.6% ROE 4 500 . 2% • Interest margin pressure 4 000 • Good core operational cost 3 500 management 3 000 • Excellent p
Slide 53: Where the profits came from: retail VAF and MotoNovo
52 FRANCHISE OPERATING REVIEWS | WesBank continued Where the profits came from Normalised profit before tax (R million) 2 500 1% 2013 2 250 2014 2 000 1 750 1 500 3% 1 250 1 000 750 4% 500 250 - Retail VAF Personal loans Corporate and commercial Domestic VAF performance reflecting cycle, strong perf
Slide 54: Where the profits came from: personal loans
Presentation of financial results 30 June 2014 53 Where the profits came from Normalised profit before tax (R million) 2 500 1% 2013 2 250 2014 2 000 1 750 1 500 3% 1 250 1 000 750 4% 500 250 - Retail VAF Personal loans Corporate and commercial Personal loans performing as expected Normalised profit
Slide 55: Corporate and commercial secured lending gaining traction
54 FRANCHISE OPERATING REVIEWS | WesBank continued Where the profits came from Normalised profit before tax (R million) 2 500 1% 2013 2 250 2014 2 000 1 750 1 500 3% 1 250 1 000 750 4% 500 250 - Retail VAF Personal loans Corporate and commercial Corporate and commercial secured lending gaining tract
Slide 56: Ashburton Investments operating review
Presentation of financial results 30 June 2014 55 ASHBURTON INVESTMENTS OPERATING REVIEW Ashburton organic growth plans on track • Continuing to build platforms, systems and skills • Switched on LISP platform to internal channels • Changes to investment process in traditional offering showing benefi
Slide 57: Prospects
56 FIRSTRAND GROUP | Prospects PROSPECTS Franchises in good shape… • FNB • Domestic franchise should continue to outperform • Customer acquisition across targeted segments • Cross-sell remains a focus • Electronic channels will drive volumes • Targeted advances growth • Deposit franchise expected to
Slide 58: Prospects: RMB and WesBank; Appendix
Results presentation for the year ended 30 June 2014 57 Franchises in good shape… • RMB • Domestic client franchise positioned to capture higher share of market • Rest of Africa activities should continue to grow • Investment portfolios expected to contribute going forward • Reap benefits from integ
Slide 59: 87% of liability growth attributed to better source and term
58 FIRSTRAND GROUP | Appendix continued 87% of liability growth attributed to better source and term 13% of growth 15% of growth 72% of growth R24bn R262bn CIB R30bn R28bn Commercial R60bn WART** Retail R47bn 27 months R209bn R137bn WART** 20 months R443bn R307bn 2011 Deposit Deposit franchise Capit
Slide 60: Breakdown of NPLs illustrates coverage is appropriate
Results presentation for the year ended 30 June 2014 59 Breakdown of NPLs illustrates coverage is appropriate VAF Specific Type R million coverage ratio Other (includes absconded, insurance and alienations) 244 59.1% Repossession 194 49.2% Legal action for repossession 384 41.9% Not restructured deb
Slide 61: FirstRand Group
60 FIRSTRAND GROUP
Slide 62: Results presentation for the year ended 30 June 2014
Results presentation for the year ended 30 June 2014 61
Slide 63: www.firstrand.co.za
www.firstrand.co.za @ FIRSTRAND