Firstrand Limited · JSE:FSR
Firstrand — FY2018 Earnings Presentation
60 slides from Firstrand's earnings presentation, June 2018
Slide 1: Results presentation for the year ended 30 June 2018
’18 results presentation for the year ended 30 June
Slide 2: Slide 2
Slide 3: Introduction
RESULTS PRESENTATION – JUNE 2018 01 Introduction results ‘ presentation for the year ended 30 June 18 The group continued to deliver real earnings growth and strong returns Cents 23.0% ROE . 500 +8% 450 470.8 436.2 400 407.4 350 378.5 300 331.0 +8% 250 275.0 255.0 200 226.0 210.0 150 174.0 100 50 0
Slide 4: Good growth in NIACC, the group's primary measure of shareholder value creation
02 FIRSTRAND GROUP | Introduction continued Good growth in NIACC, the group’s primary measure of shareholder value creation NIACC* R million ROE and COE 24.7% 12 000 24.2% 24.0% 23.4% 25% 23.0% 10 000 9 968 20% 9 694 9 548 9 086 8 000 8 172 15% 6 000 14.5% 14.3% 14.3% 13.6% 13.5% 10% 4 000 5% 2 000
Slide 5: Against this backdrop, FirstRand has continued to deliver above-system growth
RESULTS PRESENTATION – JUNE 2018 03 Against this backdrop, FirstRand has continued to deliver above-system growth Growth in NAV + DPS Index, 2015 = 100 140 135 FirstRand 10.0% CAGR 130 125 Nominal GDP 6.7% CAGR 120 115 110 105 100 95 2015 2016 2017 2018 Structure of portfolio underpins ROA % 8 7 6 3
Slide 6: Strategic actions should underpin future sustainability of ROA
04 FIRSTRAND GROUP | Introduction continued Strategic actions should underpin future sustainability of ROA • Relative size of transactional franchise (contributes approximately half of gross revenue*) • Relative advances mix delivers higher risk-adjusted margins • Credit underwriting and pricing anc
Slide 7: FNB and RMB performed well, WesBank had a tough year
RESULTS PRESENTATION – JUNE 2018 05 FNB and RMB performed well, WesBank had a tough year Normalised earnings Contribution* 2018 2017 % change ROE % R million FNB 57% 14 877 12 801 16 40.7 RMB 28% 7 327 6 918 6 25.3 WesBank 14% 3 626 3 996 (9) 17.4 Aldermore (3 months) 1% 276 n/a n/a 12.1** * Ex
Slide 8: Excellent domestic performance, rest of Africa remains under pressure
06 FIRSTRAND GROUP | Introduction continued Excellent domestic performance, rest of Africa remains under pressure Normalised PBT R million 16 000 14 000 +17% 12 000 10 000 8 000 6 000 +25% 4 000 +33% (6%) (11%) 2 000 0 (2 000) (31%) (4 000) Transactional* Term lending Save and invest ** Insurance #
Slide 9: RMB's portfolio is well diversified
RESULTS PRESENTATION – JUNE 2018 07 RMB’s portfolio is well diversified RMB South Africa and other normalised PBT Rest of Africa* normalised PBT R million R million 9 000 +2% 1 900 >100% 1 750 8 000 +31% +27% 1 600 7 000 (12%) 1 450 1 300 6 000 1 150 +7% (11%) 5 000 1 000 +8% 850 4 000 700 3 000 550
Slide 10: Unpacking performance against strategy
08 FIRSTRAND GROUP | Introduction continued Decline in SA retail VAF and MotoNovo partially offset by better performances in corporate and personal loans Normalised PBT R million 3 000 (16%) 2 500 2 000 +9% (14%) in rand terms 1 500 (15%) in pound terms 1 000 +19% 500 (>100%) 0 Retail VAF SA* Corpor
Slide 11: Group strategic framework
RESULTS PRESENTATION – JUNE 2018 09 Group strategic framework FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength DELIVERED THROUGH CURRENT STRATEGIES: Increase diversi
Slide 12: FNB's transactional and lending businesses performed particularly well
10 FIRSTRAND GROUP | Unpacking performance against strategy continued FNB’s transactional and lending businesses performed particularly well Normalised PBT Underpinned by consistent strategy to: R million • Grow and retain core transactional accounts – 16 000 active base and transactional volumes up
Slide 13: Advances growth in FNB's consumer segment reflects targeted origination strategies
RESULTS PRESENTATION – JUNE 2018 11 Advances growth in FNB’s consumer segment reflects targeted origination strategies FNB consumer advances R billion 45 Consumer advances up 3% (13%) 40 (5%) • Mortgage growth driven by ongoing demand 35 for affordable housing 30 (2%) • Growth in card and loans temp
Slide 14: Customer acquisition and cross-sell strategies drive advances in FNB's commercial segment
12 FIRSTRAND GROUP | Unpacking performance against strategy continued Customer acquisition and cross-sell strategies drive advances in FNB’s commercial segment FNB commercial advances R billion Other +12% 5% 90 Overdrafts 94.0 Commercial 21% 75 84.1 property 23% finance FNB 60 commercial 45 advances
Slide 15: RMB – SA corporate and transactional banking performance underpinned by good growth in trade
RESULTS PRESENTATION – JUNE 2018 13 RMB – SA corporate and transactional banking performance underpinned by good growth in trade and working capital RMB South Africa and other normalised PBT R million • NII growth of 8% due to: 9 000 • Increased utilisation of working 8 000 capital facilities by cli
Slide 16: WesBank impacted by challenges in retail VAF SA
14 FIRSTRAND GROUP | Unpacking performance against strategy continued WesBank impacted by challenges in retail VAF SA WesBank South Africa normalised PBT R million • VAF credit performance reflects specific sector issues 5 000 • Customer behaviour around 4 000 repossessions • Increased competitive p
Slide 17: Personal loans also delivered a resilient performance
RESULTS PRESENTATION – JUNE 2018 15 Personal loans also delivered a resilient performance WesBank South Africa normalised PBT R million • PBT up 9%, driven by: 5 000 • Optimisation in direct marketing channels 4 000 • Streamlined approvals process +9% 3 000 • 10% growth in advances • Continued focus
Slide 18: Growth of FirstRand's deposit franchise continues to outpace market
16 FIRSTRAND GROUP | Unpacking performance against strategy continued Growth of FirstRand’s deposit franchise continues to outpace market on the back of save and invest strategy Index June 2012 = 100 175 • Strong growth supported by: 165 FirstRand’s Outperformance • Product innovation domestic depos
Slide 19: FNB's wealth and investment management strategy making progress
RESULTS PRESENTATION – JUNE 2018 17 FNB’s wealth and investment management (WIM) strategy making progress despite tough market conditions R billion R245 billion 250 +8% R226 billion 200 FNB Horizon series AUM Assets under management 150 Assets under advice 100 Assets under administration Assets unde
Slide 20: FNB Life: strong value creation
18 FIRSTRAND GROUP | Unpacking performance against strategy continued …resulting in strong value creation Value of new business Value creation Value of new business – all life products Gross embedded value* – all life products R million R million 1 750 4 500 1 500 +32% 4 000 +18% 4 070 3 500 1 250 +
Slide 21: WesBank's domestic insurance tracking new unit volumes
RESULTS PRESENTATION – JUNE 2018 19 WesBank’s domestic insurance tracking new unit volumes Number of policies Gross written premium (GWP) Thousands R million 1 600 (1%) 3 000 1 400 5% 2 500 +12% 0% 1 200 +18% 27% +3% 2 000 1 000 VAPS sales +3% channels 800 1 500 68% 600 (1%) 1 000 400 +11% 500 Point
Slide 22: Ashburton AUM driven by growth in fixed income
20 FIRSTRAND GROUP | Unpacking performance against strategy continued Ashburton AUM driven by growth in fixed income Assets under management* R billion 120 • Good new business flows from both 100 traditional and alternative asset classes 80 • Benefiting from FNB distribution 52 46 60 43 • New mandat
Slide 23: Contextualising the group's portfolio approach to the rest of Africa
RESULTS PRESENTATION – JUNE 2018 21 Contextualising the group’s portfolio approach to the rest of Africa Mature businesses Start-ups Botswana, Namibia, Swaziland Ghana • Universal banks, insurance and asset management • Business model has to be disruptive • Systemic, therefore, impacted by macros •
Slide 24: FNB Africa – credit strain due to macro headwinds
22 FIRSTRAND GROUP | Unpacking performance against strategy continued FNB Africa – credit strain due to macro headwinds Normalised PBT R million • Mature subsidiaries – negatively impacted by 2 500 credit provisions and macros (1%) • Namibia earnings down 8%, as NPLs 2 000 1 998 1 987 increased in r
Slide 25: MotoNovo's performance reflects lower volumes, margin pressure and investment drag
RESULTS PRESENTATION – JUNE 2018 23 Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Build a sustainable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Underpinned by disciplined management of fin
Slide 26: Aldermore advances and credit quality trends as expected
24 FIRSTRAND GROUP | Unpacking performance against strategy continued Aldermore advances and credit quality trends as expected Advances NPLs and credit loss ratio* £ million 0.5% 45 10 000 0.43% 0.4% 40 9 000 0.39% 0.38% 9 016 0.4% 35 8 000 8 589 8 136 Medium-term credit 0.3% 30ratio range: loss 7 0
Slide 27: Aldermore funding strategy anchored around its deposit franchise
RESULTS PRESENTATION – JUNE 2018 25 Aldermore funding strategy anchored around its deposit franchise Funding composition Cost of funds Deposit breakdown £ million % 12 000 1.6% 1.45% 1.38% 8% 1.32% 1.4% 10 000 1.2% 8 000 1.0% 26% 6 000 0.8% 30 June 2018 0.6% 4 000 66% 0.4% 2 000 0.2% 0 0.0% Jun 17 D
Slide 28: Group has reduced reliance on institutional funding
26 FIRSTRAND GROUP | Unpacking performance against strategy continued Measuring execution on strategic priorities Protect and grow Broaden financial Portfolio approach Build a sustainable banking businesses services offering to the rest of Africa UK business SOUTH AFRICA REST OF AFRICA UK Underpinne
Slide 29: Capital deployment will enhance growth and returns
RESULTS PRESENTATION – JUNE 2018 27 Capital deployment will enhance growth and returns CET1 ratio Aldermore acquisition Higher than expected RWA growth of 13% (240 bps) • 3% from sovereign downgrade (20 bps) 14.3% • 10% tracked balance sheet growth 11.9% 11.5% 2017 Post Aldermore acquisition 2018 CE
Slide 30: Continue to reward shareholders through dividend strategy
28 FIRSTRAND GROUP | Unpacking performance against strategy continued Continue to reward shareholders through dividend strategy Dividend cover (times) 2.3 2.2 • Payout continues to reflect • Group’s high return profile 2.1 • Strong capital generation Dividend cover range: 2.0 1.8x to 2.2x • Should c
Slide 31: Performance highlights (normalised)
RESULTS PRESENTATION – JUNE 2018 29 Performance highlights (normalised) 2018 excl. 2018 2017 % change Aldermore* Diluted normalised EPS (cents) 470.8 436.2 8 7 Dividend per share (cents) 275.0 255.0 8 Earnings (R million) 26 411 24 471 8 7 NIACC (R million) 9 968 9 548 4 Net asset value pe
Slide 32: Revenue composition reflects strength of client franchise
30 FIRSTRAND GROUP | Financial review continued Revenue composition reflects strength of client franchise NET INTEREST INCOME = 55% NON-INTEREST REVENUE = 45% 29% Transactional NIR ** Lending Transactional NII* 24% Flow trading and residual risk Capital endowment 17% transactional income Investment
Slide 33: High quality topline growth maintained
RESULTS PRESENTATION – JUNE 2018 31 High quality topline growth maintained Normalised earnings* R million 36 000 +7% excluding Aldermore 32 000 +7% +9% +10% +6% 2 658 (3 891) 28 000 +10% 8% 4 628 (513) (942) 26 411 24 000 24 471 20 000 16 000 12 000 8 000 4 000 0 2017 NII Impairments NIR Opex Tax a
Slide 34: Pressure on deposit pricing offset by benefit of funding mix
32 FIRSTRAND GROUP | Financial review continued Pressure on deposit pricing offset by benefit of funding mix Margin excluding Aldermore Basis points 7 4 (4) (12) 2 530 3 5 526 (1) 2017 Interest rate Term funding Accounting HQLA and Change in Deposit Asset mix Capital and 2018 normalised and FX hedge
Slide 35: Strong growth in deposit franchise across all segments
RESULTS PRESENTATION – JUNE 2018 33 Strong growth in deposit franchise across all segments Liabilities R billion 400 +21% 2017 2018 378 350 300 313 250 +12% +7% 200 227 203 207 193 150 +8% 173 138 100 127 +7% (31%) +25% 50 61 +50% 57 56 35 44 39 - 19 28 0 Retail Commercial CIB Rest of Africa Deposit
Slide 36: FNB unsecured advances growth driven by cross-sell and digital strategies
34 FIRSTRAND GROUP | Financial review continued FNB unsecured advances growth driven by cross-sell, up-sell and activation of digital strategies FNB personal loans FNB card Other retail * R billion R billion R billion 20 30 18 +14% +7% 16 +19% 25 15 14 20 12 10.2 18.1 7.0 14.6 10 10 15 11.7 13.1 8 1
Slide 37: RMB corporate and FNB commercial advances growth
RESULTS PRESENTATION – JUNE 2018 35 RMB corporate and FNB commercial advances growth reflect strength of client franchises R million 2018 2017 % change CIB core advances – South Africa 246 906 235 596 5 4% 22% – Investment banking* 190 146 185 222 3 – HQLA corporate advances 18 629 18 544 - Corporat
Slide 38: Credit charge well below TTC levels, despite NPL increase
36 FIRSTRAND GROUP | Financial review continued High quality topline growth maintained Normalised earnings* R million 36 000 +6% excluding Aldermore 32 000 +7% +9% +10% +6% 2 658 (3 891) 28 000 +10% 8% 4 628 (513) (942) 26 411 24 000 24 471 20 000 16 000 12 000 8 000 4 000 0 2017 NII Impairments NI
Slide 39: NPL growth as expected given origination strategies
RESULTS PRESENTATION – JUNE 2018 37 NPL growth as expected given origination strategies NPLs* R million 8 000 7 000 7 373 +21% 6 000 6 090 +11% 5 387 5 000 5 233 +26% 5 075 +20% 4 560 4 000 4 357 4 279 3 000 +25% 3 263 2 619 2 000 1 000 616 - 1Residential2 3Retail VAF4 5Unsecured6 Corporate 7 and 8
Slide 40: Credit performance remains below TTC levels
38 FIRSTRAND GROUP | Financial review continued Credit performance remains below TTC levels Credit loss ratio % 2018 2017 4.2 Retail – secured 0.81 0.74 Residential mortgages 0.07 0.15 3.5 VAF 1.73 1.48 – SA 1.88 1.54 2.8 – MotoNovo 1.46 1.36 Retail – unsecured 5.38 5.94 0.5 2.3 0.5 0.5 2.2 Credit c
Slide 41: Overall coverage remains appropriate
RESULTS PRESENTATION – JUNE 2018 39 Overall coverage remains appropriate Coverage ratios NPLs % 2018 2017 R million Retail – secured 26.0 26.9 27 500 2% 2% Residential mortgages 17.8 21.8 25 000 12% VAF 31.6 30.7 22 500 12% 20% – SA 29.5 29.3 20 000 17 500 – MotoNovo 57.5 58.4 20% 15 000 20% Retail
Slide 42: Credit metrics in line with risk appetite and origination strategies
40 FIRSTRAND GROUP | Financial review continued Credit metrics in line with risk appetite and origination strategies PORTFOLIO PROVISION* +6% to R8.9 billion Still prudent SPECIFIC PROVISION* +16% to R9.9 billion Appropriate coverage INCOME STATEMENT CHARGE* 90 bps (still below TTC) Lower than expec
Slide 43: FNB's NIR benefited from customer acquisition and volumes
RESULTS PRESENTATION – JUNE 2018 41 FNB’s NIR benefited from customer acquisition and volumes Non-interest revenue* R million +12% 26 000 FNB NIR +10% 23 000 20 000 • Good growth in customer numbers and increase in cross-sell (VSI up to 2.97 from 2.83) 17 000 • 10% growth in volumes, with continued
Slide 44: RMB's client franchises delivered solid NIR growth
42 FIRSTRAND GROUP | Financial review continued RMB’s client franchises delivered solid NIR growth Non-interest revenue* R million RMB NIR +2% 26 000 +12% • IB&A benefited from resilient fee income from advisory and capital market mandates 23 000 • C&TB uplifted by good transactional volumes in rest
Slide 45: Cost containment allows for continued investment spend
RESULTS PRESENTATION – JUNE 2018 43 High quality topline growth maintained Normalised earnings* R million +7% excluding 36 000 Aldermore 32 000 +7% +9% +10% +6% 2 658 (3 891) 28 000 +10% 8% 4 628 (513) (942) 26 411 24 000 24 471 20 000 16 000 12 000 8 000 4 000 0 2017 NII Impairments NIR Opex Tax a
Slide 46: FNB cost trend still impacted by investment in growth initiatives
44 FIRSTRAND GROUP | Financial review continued FNB cost trend still impacted by investment in growth initiatives Rest of Africa* +6% • Growth initiatives 15% • Insurance and WIM build-out • Card acquiring (PowerCARD) • Branch digitisation FNB costs +7% • Technology infrastructure • Majority of deve
Slide 47: WesBank's costs reflect operational efficiencies; Summing up
RESULTS PRESENTATION – JUNE 2018 45 WesBank’s costs reflect operational efficiencies in core business, offset by investment in platforms • Operating expenses +11% New expansion and platforms/systems +35% • Investments in channel and new FML 10% products depreciation +5% • MotoNovo digital channels a
Slide 48: Prospects
46 FIRSTRAND GROUP | Prospects Prospects results ‘ presentation for the year ended 30 June 18 Prospects • South Africa • Difficult macros expected to continue • However: • Lending and transactional franchises have good momentum and well positioned for upswing • Traction on the group’s integrated fin
Slide 49: Appendix
RESULTS PRESENTATION – JUNE 2018 47 Prospects • UK • Brexit uncertainty continues to weigh on macros • Aldermore growth trajectory to slow as expected • Margin pressure from competition and tighter funding markets • Normalisation of cost of credit • Integration costs and platform investments Appendi
Slide 50: Recalibration of branch network continues
48 FIRSTRAND GROUP | Appendix continued Recalibration of branch network continues INFRASTRUCTURE INVESTMENT TO TAKE FOCUS ON GROWTH IN COST REDUCTION OUT MORE COSTS LONG-TERM COSTS • Branch costs Flat • Electronic channels • Staff costs +3% • Growth in ADT • Long-term leases +1% • Branch m2 (8%) dev
Slide 51: Aldermore 3-month highlights
RESULTS PRESENTATION – JUNE 2018 49 Aldermore 3-month highlights June 18 June 18 (R million) (£ million) Normalised earnings* 276 16 Normalised PBT 549 32 Total assets 189 867 10 446 Total liabilities 176 089 9 688 Advances margin (%) 3.15 3.15 NPLs (%) 0.38 0.38 ROA (%) 0.80 0.84 ROE (%) 12.1 12.9
Slide 52: Margin pressure from shift in rate mix in WesBank's VAF book
50 FIRSTRAND GROUP | Appendix continued Margin pressure from shift in rate mix in WesBank’s VAF book Proportion of retail VAF SA new business % of total advances 2018 2017 80% Fixed rate 44 46 Floating rate 56 54 70% 62% 68% 65% 60% 58% 56% 50% 52% 51% 50% 50% 48% 49% 40% 42% 44% 38% 35% 30% 32% 20%
Slide 53: Unpacking Group Treasury NII
RESULTS PRESENTATION – JUNE 2018 51 Unpacking Group Treasury NII Endowment benefited from higher capital levels, despite lower rates • Interest on capital +>R430 million Group Treasury activities • Interest rate risk management +>R180 million • Increase in HQLA >(R270 million) • ALM strategies and F
Slide 54: Credit performance reflects origination strategies and prudent provisioning
52 FIRSTRAND GROUP | Appendix continued Credit performance reflects origination strategies and prudent provisioning in prior periods Contribution to Credit Specific Portfolio I/S impairment Asset class loss ratio coverage coverage Commentary charge Residential • Model calibration and changes benefit
Slide 55: Credit performance: paying debt-review customers require lower coverage
RESULTS PRESENTATION – JUNE 2018 53 Credit performance reflects origination strategies and prudent provisioning in prior periods Contribution to Credit Specific Portfolio I/S impairment Asset class loss ratio coverage coverage Commentary charge • Specific coverage down on write-offs and work- outs a
Slide 56: Retail advances growth reflects appropriate origination strategies
54 FIRSTRAND GROUP | Appendix continued Retail advances growth reflects appropriate origination strategies RETAIL ADVANCES Mortgages Affordable housing SA VAF UK VAF (MotoNovo) • Continued focus on • Credit demand and • Volumes resilient and • Market position and origination quality. performance rem
Slide 57: Coverage breakdown: residential mortgages and retail VAF
RESULTS PRESENTATION – JUNE 2018 55 Coverage breakdown: residential mortgages Specific Type R million coverage ratio Sold property awaiting registration 118 16.1% Deceased 222 14.9% Debt review – mostly paying per agreement 690 15.9% Insolvencies and litigation 1 623 21.0% Non-debt review – payments
Slide 58: FirstRand Group
56 FIRSTRAND GROUP
Slide 59: STUDIO®
STUDIO®
Slide 60: www.firstrand.co.za
www.firstrand.co.za