Slide 1: Absa Group Limited Financial results
Absa Group Limited Financial results For the six months ended 30 June 2009 1
Slide 2: Agenda
Agenda • Financial Overview Jacques Schindehütte • Retail Bank and Commercial Bank Louis von Zeuner • Absa Financial Services Willie Lategan • Absa Capital and Absa Wealth John Vitalo • Outlook Maria Ramos 2
Slide 3: Financial Overview
Financial Overview Jacques Schindehütte Group Financial Director 3
Slide 4: Financial highlights
Financial highlights • Headline earnings of R3,8 billion (¾ 19%) • Attributable earnings of R3,3bn (¾ 39%) • Diluted headline earnings per share of 551 cents (¾ 17%) • Dividends per share of 225 cents • Net asset value per share of 6 762 cents (½ 16%) • Return on equity of 16.4% • Tier 1 capital rat
Slide 5: Group income statement
Group income statement 2009 2008 Change Rm Rm % Net interest income 10 772 10 565 ½ 2 Non-interest income 10 209 9 683 ½ 5 Top line income 20 981 20 248 ½ 4 Operating expenditure (10 210) (10 498) ¾ 3 Profit before impairments 10 771 9 750 ½ 10 Credit impairment charge (4 834) (2 178) ½ 122 Other im
Slide 6: Group income statement
Group income statement 2009 2008 Change Rm Rm % Net interest income 10 772 10 565 ½ 2 Non-interest income 10 209 9 683 ½ 5 Top line income 20 981 20 248 ½ 4 Operating expenditure (10 210) (10 498) ¾ 3 Profit before impairments 10 771 9 750 ½ 10 Credit impairment charge (4 834) (2 178) ½ 122 Other im
Slide 7: Cluster performance
Cluster performance Earnings Earnings Earnings growth composition RoE 2 Rm % % % Retail banking 1 336 ¾ 31 41 12 ACBB 1 098 ½ 3 33 17 Absa Capital 1 129 ¾ 87 4 • Headline earnings 917 ¾ 10 28 18 • SSF impairment (788) (24) Bancassurance 672 ¾ 5 21 38 Corporate centre 37 ¾ 94 1 – Absa Group 3 272 ¾ 3
Slide 8: Cluster performance
Cluster performance Earnings Earnings Earnings growth composition RoE 2 Rm % % % Retail banking 1 336 ¾ 31 41 12 ACBB 1 098 ½ 3 33 17 Absa Capital 1 129 ¾ 87 4 • Headline earnings 917 ¾ 10 28 18 • SSF impairment (788) (24) Bancassurance 672 ¾ 5 21 38 Corporate centre 37 ¾ 94 1 – Absa Group 3 272 ¾ 3
Slide 9: Margins under pressure
Margins under pressure Group (bps) Advances 2 • Change in client rates 2 • Change in composition 11 • Interest suspended (11) Deposits (14) • Client pricing (9) • Change in composition (5) Endowment / reset risk (15) Change in margin on interest bearing assets (27) 9
Slide 10: Non-interest income
Non-interest income 2009 Growth 3 Composition Rm % % Net fees and commission 6 903 ½ 15 68 • Cheque accounts 1 606 ½ 10 16 • Credit card 889 ½ 18 9 • Electronic banking 1 633 ½ 18 16 • Savings accounts 1 098 ½ 9 11 • Insurance and other income 1 013 ½ 26 10 • Other fees net of commissions paid 664 ½
Slide 11: Credit impairment charge continues to rise
Credit impairment charge continues to rise Impairment charge NPL s June 2009 Change Change June June Dec NPL NPL Loss 2009 2008 2008 ratio coverage ratio Rm % % % ratio % % Retail banking 4 204 ½ 110 ½ 19 9.2 26.9 2.52 • Home Loans 2 073 ½ 143 ½ 22 9.8 16.4 1.86 • Vehicle/asset finance 678 ½ 67 ¾ 12
Slide 12: Improved cost efficiency
Improved cost efficiency • Employment costs – Staff numbers down by 3 100 (8%) since June 2008 – Contractors down by 3 005 – Incentive provisions reduced • Tactical interventions – Discretionary spend reduced – Projects delayed – Marketing cost down 25% • Franchise protected – Information technology
Slide 13: Capital position
Capital position Economic RWA capital Bank Group Target Capital adequacy Absa Group Rbn Rbn % % % Credit risk 304 32 Core Tier I 9.5 10.3 8.0 • Retail 129 16 Tier I 10.8 11.5 10.0 • ACBB 80 8 Tier II 2.9 2.4 • Absa Capital 56 3 Total 13.7 13.9 13.0 • Wealth 7 1 • Africa and other assets 32 4 Operati
Slide 14: Resilient performance in tough conditions
Resilient performance in tough conditions • Diversified franchise protects earnings – Fee and commission income – Secondary markets – Robust Bancassurance model • Retail impairments nearing its peak • Commercial impairments set to rise • Cost flex balanced with investment for future 14
Slide 15: Retail Bank Overview
Retail Bank Overview Louis von Zeuner Chief Executive 15
Slide 16: Key highlights
Key highlights Attributable earnings (Rm) • Revenue of R12,9 billion (½ 11.3%) • Attributable earnings of R1,3 billion (¾ 30.9%) • Sharp rise in impairments of 110.0% • Cost to income ratio improves to 51.5% • Customer numbers growing • Improved structure of balance sheet 16
Slide 17: No1 in market share for deposits and advances
No1 in market share for deposits and advances June June Change Market Gross Loans and Advances (Rm) 2009 2008 % share 5 Mortgage loans 251 458 238 955 5 1 ¾ Vehicle finance 43 557 48 008 (9) ¾ 3 ¾ Card advances 6 19 973 14 471 38 2 ¾ Personal loans 15 607 13 770 13 2 ¾ Total net loans and advances (
Slide 18: Growth from unsecured lending
Growth from unsecured lending June June Change • Core business showed healthy Total income (Rm) 2009 2008 % growth Secured • Secured lending as expected – under pressure • Home loans 1 597 1 968 (19) • Strong performance in • AVAF 1 164 1 251 (7) unsecured lending Unsecured • Retail Bank recorded st
Slide 19: Impairment levels continue to rise
Impairment levels continue to rise AHL age Analysis (Jun ‘09) June June Change Impairment ratio 2009 2008 % Less than 1 year Secured Between 1 & 2 years • Home loans 1.86 0.81 130 More than 2 years • AVAF 2.88 1.57 83 Unsecured AHL Loan to Value (Jun ‘09) • Card 8 8.41 4.46 89 • Personal loans 12.41
Slide 20: Proactive cost management delivering results
Proactive cost management delivering results June June Change • Retail bank operating costs Cost-to-income ratio 2009 2008 % (½ 1.8%) Secured • Excluding WFS operating costs (¾ 2.5%) • Home loans 31.7 34.3 (8) • Staff numbers declined through • AVAF 37.1 39.7 (7) effective resource management Unsecu
Slide 21: Delinquencies – early buckets showing signs of improvements
Delinquencies – early buckets showing signs of improvements Total arrears (incl Legal) construct of keys portfolios • Stability evident in early delinquents 35 60 • Tightening of lending criteria % of Total Arrears (incl Legal) 30 55 delivers results 25 50 1 Downs (%) • Debt counselling has a negati
Slide 22: Sustainability of improved business remains key
Sustainability of improved business remains key Home Loans New Performance Trends • Move from volume to value 14,000 3.0 evident 12,000 2.5 10,000 • Vintages show improvement 2.0 R'm Booked 2+ 3MOB (%) 8,000 1.5 • Increased life time value and 6,000 4,000 1.0 increased return on capital 2,000 0.5 •
Slide 23: Strategic focus
Strategic focus • No further deterioration in market will mean impairments may peak in Q4 • Grow business in segments with acceptable risk profile • Continue with collections and consumer support as cycle improves • Continue with disciplined cost management • Grow non-interest through cross sell and
Slide 24: Commercial Bank Overview
24 Commercial Bank Overview cb ABSA
Slide 25: Key highlights
Key highlights Attributable earnings (Rm) • Attributable earnings of R 1 098m (½ 2.6%) • Revenue of R4 215m (½ 12%) • Strong deposit growth (½ 17%) • Transaction volumes continue to rise (½ 12%) • Rise in impairment ratio to 0.9% • Cost to income ratio improves from 54% to 50% 25
Slide 26: Deposits continue to grow
Deposits continue to grow June June Gross Loans and advances Change 2009 2008 by main product % Rm Rm Cheques 20 919 18 292 ½ 14 Specialised Funding Solutions 9 387 7 309 ½ 28 Commercial Asset Finance 22 383 22 869 ¾ 2 Commercial Property Finance 42 548 36 803 ½ 15 Other 25 818 25 375 ½ 2 Total gros
Slide 27: Strong growth in non-interest income
Strong growth in non-interest income • Electronic banking fees up 22 % Non-interest income June June Change • Property market conditions categories (Rm) 2009 2008 % adversely impacting on Devco sales Electronic banking fees 297 244 ½ 22 • Market volatility impacting CPF equities (67) (259) ½ 74 nega
Slide 28: Impairments rise
Impairments rise June June • The mining, transport ,retail, and Credit impairment ratio’s 2009 2008 real estate industries are taking % % strain. Total ACBB 0.90 0.36 • Stricter lending criteria Commercial Asset Finance 0.96 1.00 implemented Commercial Property Finance 0.78 0.49 • Impairments driven
Slide 29: Cost initiatives implemented reaping rewards
Cost initiatives implemented reaping rewards • Total costs (½ 2%) June June Change • Staff numbers declined by 206 Main cost categories 2009 2008 % Rm Rm due to natural attrition as well as reductions in CPF and CAF Staff costs 686 777 ¾ 12 • Reduced incentive provisions Marketing costs 30 46 ¾ 35 •
Slide 30: Strategic focus
Strategic focus • Continue with the focus in non-interest income growth • Our full banking proposition allows us to now establish our selves as primary bankers • Increase the contribution of Markets revenue • Continue to focus and improve the electronic banking solutions • Deepen share of customer w
Slide 31: Absa Financial Services
Absa Financial Services Willie Lategan Chief Executive 31
Slide 32: Financial highlights
Financial highlights Business Unit • Attributable earnings of Growth Earnings Mix (%) R672m (¾ 4.8%) • Operational earnings (½ 8.5%) 11 ¾ 32.9% 18 • Absa Investments : Total net 8 ½ 4.0% inflows of R25 bn (½ R24 bn) 8 22 ½ 45.6% 16 • Absa Life : Embedded value of new business at R164m 20 21 ½ 6.6% (
Slide 33: Return on shareholders funds
Return on shareholders funds Asset mix (%) 3.5% 13.2% 24.4% R’m 58.9% Jun ‘09 33 11. Annualised return
Slide 34: Absa Investments posted excellent results
Absa Investments posted excellent results June June Change • Operating income of R204m Investments Rbn 2009 2008 % (½ 45.6%) Net Inflows ex MM 20.9 3.2 ½ 17.7 • Significant asset management and administration mandates Retail 2.7 1.2 ½ 1.5 secured Institutional 18.2 2.0 ½ 16.2 • Net margin of 32.8bps
Slide 35: Absa Life maintaining superior returns
Absa Life maintaining superior returns Life insurance June June Change • Continued diversification of the 2009 2008 % product range to stand alone Gross premium risk products 619 562 ½ 10.1 income Rm • Protection solutions for the entry Net operating 358 342 ½ 4.7 level market performing well income
Slide 36: Absa Insurance performance resilient
Absa Insurance performance resilient Short-term insurance June June Change • Increased uptake of idirect 2009 2008 % – 2 000 policies per month Gross premium 1 358 1 257 ½ 8.0 • Retention efforts successful income Rm Underwriting • Good underwriting 148 135 ½ 9.6 profit Rm performance in crop insura
Slide 37: Strategic focus
Strategic focus • Leveraging the Group’s infrastructure • Improving cross sell ratios into the customer base • Diversification of income streams and • Customer and asset retention 37
Slide 38: Absa Capital and Absa Wealth Overview
Absa Capital and Absa Wealth Overview John Vitalo Chief Executive 38
Slide 39: Absa Capital and Absa Wealth
Absa Capital and Absa Wealth Absa Capital Absa Wealth Private Private Equity Investment Banking and Markets & Infrastructure Centre Banking Investment Investments Management • Fixed income • Debt Financing • Private Equity • Legacy SSF • Onshore and and credit Products positions offshore wealth • In
Slide 40: Absa Capital and Absa Wealth
Absa Capital and Absa Wealth Absa Capital Absa Wealth Private Private Equity Investment Banking and Markets & Infrastructure Centre Banking Investment Investments Management • Fixed income • Debt Financing • Private Equity • Legacy SSF • Onshore and and credit Products positions offshore wealth • In
Slide 41: Key highlights
Key highlights Revenue gross of impairments (Rm) • Revenue (gross of impairments) of R2,3 billion (¾ 7%) • Attributable earnings of 2 482 2 315 R0,1 billion (¾ 87%) • Headline earnings of 1 232 R0,9 billion (¾ 10%) 1 275 • Headline Earnings CAGR H1 2006 – H1 2009 22% 1 250 • Attributable earnings ad
Slide 42: Material impairments of legacy SSF equity positions were incurred in the period
Material impairments of legacy SSF equity positions were incurred in the period Shares acquired as a result of SSF defaults Carrying % Cost Impairment value at Share Name Accounting basis Holding (Rm) (Rm) 30 June (Rm) Pinnacle Point Group 28 931 931 0 Equity accounted 296 Blue Financial Services 22
Slide 43: Material impairments of legacy SSF equity positions were incurred in the period
Material impairments of legacy SSF equity positions were incurred in the period Shares acquired as a result of SSF defaults Carrying % Cost Impairment value at Share Name Accounting basis Holding (Rm) (Rm) 30 June (Rm) Pinnacle Point Group 28 931 931 0 Equity accounted 296 Blue Financial Services 22
Slide 44: Strong focus on cost management
Strong focus on cost management Cost-to-income ratio (%) • Business continues to have a strong focus on cost management • Pro-actively manage the cost base in line with the economic climate and revenue conditions • Productivity per head adversely affected by Private Equity Income Cost Headline earni
Slide 45: Markets continued to grow revenue
Markets continued to grow revenue P&L distribution per significant product (Rm) • Revenue growth of 30% (net of impairments) • P&L distribution has continued to shift to the right (increased number of days with higher positive P&L) • Performance driven by: – Increasing the number of substantial risk
Slide 46: Markets continued to grow revenue
Markets continued to grow revenue P&L distribution per significant product (Rm) • Revenue growth of 30% (net of impairments) • P&L distribution has continued to shift to the right (increased number of days with higher positive P&L) • Performance driven by: – Increasing the number of substantial risk
Slide 47: Investment banking revenue marginally lower
Investment banking revenue marginally lower Revenue mix (net of impairments) (Rm) Growth (08-09) • Revenue down 8% (10%) • Strong pipeline for future growth 795 718 • Growth experienced in lower risk Growth (08-09) fee business, while margin 492 10% business decreased 140 103 113 • Margin business l
Slide 48: Difficult conditions for Private Equity and Infrastructure Investments
Difficult conditions for Private Equity and Infrastructure Investments Revenue (net of impairments) (Rm) • Performance under pressure because of: 207 112 – Higher funding costs with no realisations Jun '07 Jun '08 Jun '09 – The global recession which negatively impacted the performance and valuation
Slide 49: Absa Wealth continuing to grow revenue and customer balances
Absa Wealth continuing to grow revenue and customer balances Revenue growth (net of impairments) (Rm) • Revenue growth of 9% reflects: CAGR 15% (‘07-’09) – broad based growth in customer balances – improving lending margins – an increase in impairment charges as economic conditions have worsened • W
Slide 50: Strategic focus
Strategic focus Absa Capital Absa Wealth • Grow the client franchise and increase • Deliver proprietary advice tools and risk management penetration package bespoke investment solutions • Continue to invest in support • Leverage the Barclays Wealth offshore infrastructure and robust controls proposi
Slide 51: Strategic focus
Strategic focus Absa Capital Absa Wealth • Grow the client franchise and increase • Deliver proprietary advice tools and risk management penetration package bespoke investment solutions • Continue to invest in support • Leverage the Barclays Wealth offshore infrastructure and robust controls proposi
Slide 52: Outlook
Outlook Maria Ramos Group Chief Executive 52
Slide 53: Outlook
Outlook Maria Ramos Group Chief Executive 53
Slide 54: Outlook
Outlook • Macro economy unlikely to record positive growth • Household consumption to remain strained • Deleveraging of the consumer to continue • Financial markets are expected to remain fragile • Group performance to remain under pressure 54
Slide 55: Outlook
Outlook • Macro economy unlikely to record positive growth • Household consumption to remain strained • Deleveraging of the consumer to continue • Financial markets are expected to remain fragile • Group performance to remain under pressure 55
Slide 56: Key areas of focus
Key areas of focus • Customer service and support • Balance between risk management and growth • Improving efficiency while investing for the future • Leveraging the franchise for deposit and transaction income growth • Retention and motivation of top talent 56
Slide 57: Key areas of focus
Key areas of focus • Customer service and support • Balance between risk management and growth • Improving efficiency while investing for the future • Leveraging the franchise for deposit and transaction income growth • Retention and motivation of top talent 57
Slide 58: Key areas of focus
Key areas of focus • Customer service and support • Balance between risk management and growth • Improving efficiency while investing for the future • Leveraging the franchise for deposit and transaction income growth • Retention and motivation of top talent 58
Slide 59: Key areas of focus
Key areas of focus • Customer service and support • Balance between risk management and growth • Improving efficiency while investing for the future • Leveraging the franchise for deposit and transaction income growth • Retention and motivation of top talent 59
Slide 60: Key areas of focus
Key areas of focus • Customer service and support • Balance between risk management and growth • Improving efficiency while investing for the future • Leveraging the franchise for deposit and transaction income growth • Retention and motivation of top talent 60
Slide 61: Strategic framework
Strategic framework Targeted growth in economic value Balance sheet optimisation and proactive risk management Simple and streamlined Group for customer delivery Customer, people, centric organisation 61
Slide 62: Strategic framework
Strategic framework Targeted growth in economic value Balance sheet optimisation and proactive risk management Simple and streamlined Group for customer delivery Customer people centric organisation 62
Slide 63: Strategic framework
Strategic framework Targeted growth in economic value Balance sheet optimisation and proactive risk management Simple and streamlined Group for customer delivery Customer people centric organisation 63
Slide 64: Strategic framework
Strategic framework Targeted growth in economic value Balance sheet optimisation and proactive risk management Simple and streamlined Group for customer delivery Customer people centric organisation 64
Slide 65: Strategic framework
Strategic framework Targeted growth in economic value Balance sheet optimisation and proactive risk management Simple and streamlined Group for customer delivery Customer people centric organisation 65
Slide 66: Strategic framework
Strategic framework Targeted growth in economic value Balance sheet optimisation and proactive risk management Simple and streamlined Group for customer delivery Customer people centric organisation 66
Slide 67: Strategic framework
Strategic framework Targeted growth in economic value Balance sheet optimisation and proactive risk management Simple and streamlined Group for customer delivery Customer people centric organisation 67
Slide 68: Questions
68 Questions cd ABSA
Slide 69: Addendum
69 Addendum cd ABSA
Slide 70: Bancassurance
Bancassurance June June Life Insurance Change % 2009 2008 Embedded value Rm 2 114 1 711 ½ 23.6 Embedded value earnings Rm 149 219 ¾ 31.8 Net operating income Rm 358 342 ½ 4.7 Net income after tax Rm 266 300 ¾ 11.3 Short-term Insurance Loss ratio % 64.2 62.4 ½ 1.8 Combined ratio % 88.4 88.5 ¾ 0.1 Net
Slide 71: Bancassurance
Bancassurance June June Investments Change % 2009 2008 Net flows (total) Rm 25 048 983 ½ >100 Net flows (non - money market) Rm 20 893 3 229 ½ >100 Net operating income Rm 204 140 ½ 45.6 Net income after tax Rm 150 104 ½ 44.2 Fiduciary Assets under management – Trust Rbn 5 203 5 845 ¾ 10.9 Number of