FirstRand Limited · JSE:FSR
FirstRand — FY2010 Earnings Presentation
91 slides from FirstRand's earnings presentation, June 2010
Slide 1: FirstRand Limited results for the year ended 30 June 2010
FirstRand Limited results for the year ended 30 June 2010
Slide 2: Introduction
2010 Introduction Sizwe Nxasana FIRSTRAND
Slide 3: Macro recovered, but remained challenging
3 Macro recovered, but remained challenging • GDP growth recovered from a recession • Disposable income rebounded, but job losses continued • Inflation returned to the target and interest rates drifted lower • C Consumer lleverage remained i d hi high h • House price growth turned positive • Corpora
Slide 4: High-level overview of performance
4 High-level overview of performance Macro: + Reduction in retail bad debts + Increase in fees earned on investment business + Transactional volumes still increasing – No balance sheet growth – Negative endowment effect FirstRand specific: + Level of losses from legacy portfolios reducing + Portfoli
Slide 5: Strong recovery in earnings and ROE
5 Strong recovery in earnings and ROE Normalised earnings* Normalised earnings R millions increased 39% y/y 6 000 5 990 5 953 ROE = 18% 5 319 5 358 5 000 4 576 4 605 4 445 4 000 3 000 2 575 2 000 1 000 0 6m to: Dec '06 Jun '07 Dec '07 Jun '08 Dec '08 Jun '09 Dec '09 Jun '10 * December 2006 to Decemb
Slide 6: Franchises show growth across the board
6 Franchises show g growth across the board Normalised profit before tax Year to Year to Change R millions 30 Jun ’10 30 Jun ’09 (y/y) FNB* 5 851 5 112 14% FNB Africa* 1 266 1 220 4% RMB* 4 486 2 081 >100% WesBank* 1 356 410 >100% OUTsurance 458 440 4% Momentum** 1 810 1 649 10% * Detail
Slide 7: A clear strategic intent…
7 A clear strategic intent… • To be the African financial services group of choice • Create long-term franchise value • Deliver superior and sustainable returns • Within acceptable levels of earnings volatility Actions taken already having an impact
Slide 8: …driven by two growth strategies
8 …driven by two growth strategies • In I South S th Africa, Af i focus f on existing i ti markets k t and d “white “ hit spaces”” • Further g grow African franchises in key y markets and mine the corridors Execute plans through the franchises
Slide 9: Financial review
Financial review Johan Burger
Slide 10: Highlights of Group performance
10 Highlights of Group performance R millions Jun ’10 Jun ’09 Change Normalised earnings – Group 9 963 7 151 39% Normalised earnings – Banking Group 8 535 6 056 41% Normalised earnings – Momentum 1 810 1 649 10% Diluted normalised EPS (cents) – Group 176.7 126.8 39% Normalised return on equi
Slide 11: Drivers of earnings
11 Drivers of earnings Macro • Low asset g growth and Legacy reduced margin • Endowment • Reduced losses • Bad debts • NIR Strategy • Cost containment • Improving quality of earnings • Geographical diversification • Capture white space in SA
Slide 12: Drivers of earnings – net interest income
12 Drivers of earnings – net interest income Macro • Low asset g growth and reduced margin • Endowment • Bad debts • NIR Strategy S • Cost containment • Improving I i quality lit off earnings i • Geographical diversification • Capture white space in SA
Slide 13: Net interest income is a mixed picture
13 Net interest income is a mixed picture Corp Centre % NII FNB RMB WesBank Total 2009 & Consol change Net interest income 9 512 116 4 144 1 221 14 993 15 553 (4) - Lending 3 573 116 4 144 - 7 833 7 375 6 - Deposit D it 1 312 - - - 1 312 1 276 3 - Transactional 2 498 - - - 2 498 2 661 (6) - Endowmen
Slide 14: Net interest income is a mixed picture
14 Net interest income is a mixed picture Corp Centre % NII FNB RMB WesBank Total 2009 & Consol change Net interest income 9 512 116 4 144 1 221 14 993 15 553 (4) - Lending 3 573 116 4 144 - 7 833 7 375 6 - Deposit 1 312 - - - 1 312 1 276 3 - Transactional 2 498 - - - 2 498 2 661 (6) - Endowment/BSM
Slide 15: Drivers of household spending turned positive
15 Drivers of household spending turned positive + Willingness to spend + Strong growth in household income + Rising purchasing power (falling inflation) + Rising consumer confidence + Recovery in asset prices (wealth effect) + Reduction in debt servicing cost (interest rate cuts) – High household d
Slide 16: Retail credit picking up in mortgages and WesBank
16 Retail credit picking up in mortgages and WesBank HomeLoans advances R millions Residential mortgage advances R millions 154,000 110 000 110,000 152,000 109,000 150,000 148,000 108,000 146,000 107,000 144,000 , R millions R millions WesBank advances Card advances 12,000 94,000 93,000 11,500 92,00
Slide 17: HomeLoans reduced discount to Prime and decreased risk rating
17 HomeLoans reduced discount to Prime and d decreased d d risk i k rating ti Higher Higher risk discount 60 Average discount new business 50 40 Average FR rating at registration 30 20 10 Lower Lower risk discount 0
Slide 18: Repricing strategy mitigates lack of advances growth for WesBank
18 Repricing strategy mitigates lack of advances d growth th for f WesBank W B k WesBank Jun ’10 Jun ’09 (retail asset-based finance) Net interest income / average advances 4.27% 4.07% • Greater proportion of fixed-rate advances • Mix of business between motor and corporate tending towards motor • I
Slide 19: Drivers of corporate investment
19 Drivers of corporate investment – The need to invest negated by excess capacity – Pressure on earnings growth (ability to service debt) + Corporate saving
Slide 20: Wholesale credit portfolio reflects subdued levels of activity
20 Wholesale credit portfolio reflects subdued levels of activity Advances (R millions) 8% • New origination remains a challenge 150 000 • Growth areas include • Public sector • Investment-grade listed commercial 100 000 real estate • Decrease in industrial sector 50 000 • Weighted average credit ra
Slide 21: Pressure on wholesale re-pricing
21 Pressure on wholesale re-pricing % bps bps 3.0 Difference AAA and A (national scale) (LHS) 140 400 2.5 Consolidated average SA credit spreads 130 300 2.0 120 1.5 Average 110 200 1.0 100 Difference Aaa and Baa 100 0.5 (global scale) (RHS) 90 00 0.0 80 0 Sources: I-Net Bridge, RMB FICC Research Sou
Slide 22: Net interest income is a mixed picture
22 Net interest income is a mixed picture Corp Centre % NII FNB RMB WesBank Total 2009 & Consol change Net interest income 9 512 116 4 144 1 221 14 993 15 553 (4) - Lending 3 573 116 4 144 - 7 833 7 375 6 - Deposit 1 312 - - - 1 312 1 276 3 - Transactional 2 498 - - - 2 498 2 661 (6) - Endowment/BSM
Slide 23: Funding mix is structural, but adds to cost
23 Funding mix is structural, but adds to cost R millions Jun ’10 Jun ’09 % change Jun ’10 mix % Jun ’09 mix % Retail 108 105 3% 16% 16% Corporate & commercial 154 128 20% 24% 20% Professional 179 182 (2%) 27% 28% Govt & Parastatal 57 58 (2%) 9% 9% Foreign sector 16 16 0% 2% 2% g liabilities Trading
Slide 24: Liquidity premium remained high
24 Liquidity premium remained high bps 9-month liquidity premium over JIBAR 80 70 60 50 40 30 20 10 2009 financial year: 2010 financial year: 45 bps average 56 bps average 0
Slide 25: Actively lengthening term profile
25 Actively lengthening term profile FirstRand s a d Bank a Ltd d 60% ’10 Jun 1000 15% 25% 62% 09 9 Jun’09 15% Jun 23% 0% 10% 20% 30% 40% 50% 60% 70% ShortTerm Short term MediumTerm Medium term LongTerm Long term
Slide 26: Net interest income is a mixed picture
26 Net interest income is a mixed picture Corp Centre % NII FNB RMB WesBank Total 2009 & Consol change Net interest income 9 512 116 4 144 1 221 14 993 15 553 (4) - Lending 3 573 116 4 144 - 7 833 7 375 6 - Deposit 1 312 - - - 1 312 1 276 3 - Transactional 2 498 - - - 2 498 2 661 (6) - Endowment/BSM
Slide 27: Endowment impact R543 million per 100 bps
27 Endowment impact R543 million per 100 bps 3m Jibar (%) 13 12 En ndowment book* = R 11 Average Jibar 10.6% 10 9 R65bn 8 Average Jibar 7.1% 7 6 5 Jun '08 Dec '08 Jun '09 Dec '09 Jun '10 * FirstRand Bank endowment book size as at June 2010 Sensitivity per 100 basis points for the 12 months to June 2
Slide 28: Pressure on margin partly offset by asset pricing
28 Pressure on margin partly offset by asset pricing i i Percentage of average interest-earning banking assets % J ’09 Jun 4 96 4.96 Asset price movement 0.28 Capital and liability endowment effect (0 52) (0.52) Retail deposit pricing 0.07 Jibar/Prime basis impact (0 27) (0.27) Wholesale liquidity p
Slide 29: Drivers of earnings – bad debts
29 Drivers of earnings – bad debts Macro • Low asset g growth and reduced margin • Endowment • Bad debts • NIR Strategy S • Cost containment • Improving I i quality lit off earnings i • Geographical diversification • Capture white space in SA
Slide 30: Bad debts reduction adds R2.3bn of PBT
30 Bad debts reduction adds R2.3bn of PBT Impairment charge (%) 30 3.0 Retail 2.5 2.66 2.0 Total 1 84 1.84 1.79 1.81 1.5 1 28 1.28 1.30 1.13 1.0 0.83 Corporate 0.73 0.42 0.5 0.62 0.51 0.44 0.32 0.34 0.05 0.17 0 19 0.19 00 0.0 2005 2006 2007 2008 2009 2010
Slide 31: Retail unwind faster than corporate
31 Retail unwind faster than corporate p Bad debts 6 months to 6 months to 6 months to Percentage of average advances Jun ’10 Dec ’09 Jun ’09 Retail 1.41 2.08 2.97 - Residential mortgages g g 0.73 1.17 1.76 - Credit card 5.73 8.14 12.51 - Vehicle and asset finance 1.45 2.20 2.70 Wholesale* 0.81 0.71
Slide 32: NPLs remain sticky
32 NPLs remain sticky 6 5.6 6 5 5.0 4 4.2 3.4 3 2.8 2.9 2.6 2 2.3 1.5 1.5 1 1.2 1.1 0.8 0.8 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total NPLs (%) Debt counselling (%)
Slide 33: Number of debt counselling accounts stabilising
33 Number of debt counselling accounts stabilising t bili i W B k and WesBank dHHomeLoans L d debt bt counselling lli accounts t 25 000 53% 20 000 74% 15 000 47% 26% 10 000 5 000 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun • Inflows into debt review are stabilising • The underlying risk profil
Slide 34: Positive trend, but absolute level remains high
34 Positive trend, but absolute level remains high NPL J ’10 Jun D ’09 Dec J ’09 Jun Percentage of advances Retail 6.94 7.43 8.15 - Residential mortgages 8.24 8.71 9.21 - Credit card 6.28 8.50 12.31 - Vehicle and asset finance 5.17 5.03 5.52 Wholesale* 2.52 2.72 2.29 Total NPL ratio 5.00 5.42 5.64 *
Slide 35: Lower NPL inflows reflect better macro and origination actions
Jul '08 Aug '08 Aug '08 Sep '08 Sep '08 Oct '08 Oct '08 Nov '08 Nov '08 Dec '08 Dec '08 Jan '09 Jan '09 Feb '09 Feb '09 Mar '09 Apr '09 Mar '09 May '09 Apr '09 Jun '09 May '09 Jul '09 Jun '09 Aug '09 Jul '09 and origination actions Sep '09 Aug '09 Oct '09 Sep '09 Nov '09 Oct '09 FNB HomeLoans - New
Slide 36: Drivers of earnings – non interest income
36 Drivers of earnings – non interest income Macro • Low asset g growth and Legacy reduced margin • Endowment • Reduced losses • Bad debts • NIR
Slide 37: NIR driven by increased activity and risk unwind
37 NIR driven by increased activity and risk i k unwind i d Change Jun ’10 R millions Jun ’10 Jun ’09 y/y mix Client activities/primary markets 22 932 20 973 9% 87% Investment activities – private equity 800 1 487 (46%) 3% Risk activities/secondary markets 1 682 (1 462) (>100%) 6% Private equi
Slide 38: Increased activity provides annuity
38 Increased activity provides annuity R millions Jun ’10 Jun ’09 Change Client activities/primary markets 22 932 20 973 9% - Transactional income 14 888 13 964 7% - Annuity fair value income 3 361 3 342 1% - Operational associates income 513 302 70% - Other primary income 2 264 1 591 42%
Slide 39: Reasonable growth in transactional volumes
39 Reasonable growth in transactional volumes Transactional revenue R millions 17 500 2010 breakdown by franchise* 7% 15 000 12 500 10 000 7 500 5 000 2 500 FNB FNB Africa RMB WesBank 0 Jun '09 Jun '10 * Excluding Corporate Centre
Slide 40: Good growth in customers and cross-sell
40 Good g growth in customers and cross-sell FNB customers Cross sell (millions) ratio 2.1 7 6 2 5 1.9 4 3 1.8 2 1.7 1 0 1.6 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
Slide 41: Annuity revenue influenced by increase in lending and slowdown in client flows
41 Annuity revenue influenced by increase in lending and slowdown in client flows Fair value annuity revenue R millions illi 3 500 1% R millions Jun ’10 Jun ’09 % change 3 000 Annuity 3 361 3 342 1 - Lending 2 018 1 804 12 2 500 - Client flows 1 343 1 538 (13) 2 000 Client flows flo s 1 343 1
Slide 42: Results from lower market activity
42 Results from lower market activity Trade import and export data BESA turnover Rbn Rbn Rb Rbn Trade balance (RHS) 900,000,000,000 900 Exports 75 10 Imports 800,000,000,000 800 5 700 700,000,000,000 60 600 600,000,000,000 0 45 500 500,000,000,000 -5 400 400,000,000,000 30 300 300,000,000,000 -10 20
Slide 43: Realisation and associate income compensates for write-downs
43 Realisation and associate income compensates t ffor write-downs it d R millions Jun ’10 Jun ’09 Change Realisations 1 047 952 10% Associates and dividends 330 1 065 (69%) Impairments (577)* (530) (9%) Total private equity income 800 1 487 (46%) Unrealised profits R1.4 billion (Jun ’09: R1
Slide 44: Kicker from turnaround in legacy portfolios and better trading results
44 Kicker from turnaround in legacy portfolios and better trading res results lts Fair value risk R millions illi 1 000 (>100%) R millions Jun ’10 Jun ’09 Change 500 Risk 871 (1 154) (>100%) - Equities 407 (1 230) (>100%) 0 - Commodities 41 120 (66%) - Interest rates 339 (148) (>100%) - Cred
Slide 45: De-risking of legacy portfolios positively impacting income statement
45 De-risking of legacy portfolios positively impacting income statement Legacy portfolios – income statement Jun ’10 Jun ’09 R millions Offshore equity trading 29 (499) Dealstream impairments (618) (335) SPJi (130) (775) Total (719) (1 609) Legacy portfolios – balance sheet Jun ’10 Jun ’09 Offshore
Slide 46: Drivers of earnings – strategy
46 Drivers of earnings – strategy Strategy • Cost containment Strategy • Improving quality of earnings • Geographical diversification • Cost containment • Capture white space in SA • Improving quality of earnings • Geographical diversification • Capture white space in SA
Slide 47: Cost-to-income ratio reflects good cost control and improved top line
47 Cost-to-income ratio reflects good cost control and improved top line R millions 45 000 10% 40 000 60% 35 000 50% 30 000 Top line CAGR 15% 7% 40% 25 000 C t CAGR 14% Costs 20 000 30% 15 000 20% 10 000 10% 5 000 0 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Costs Top line Cost to income r
Slide 48: Core cost growth in line with inflation
48 Core cost growth in line with inflation R millions 26 000 25 000 1% 24 785 2 1% 1% 24 227 24 000 1% 1% 7 5% 23 355 23 000 22 238 22 000 21 000 20 000 Cost per I/S IFRS2 Impairments Normalised IFRS2 JVs JV Other Core costs Sustainable Sustainable Core costs Jun '09 09 costs unhedged costs Jun Jun
Slide 49: Drivers of earnings – quality of earnings
49 Drivers of earnings – quality of earnings Strategy • Cost containment Strategy • Improving quality of earnings • Geographical diversification • Cost containment • Capture white space in SA • Improving quality of earnings • Geographical diversification • Capture white space in SA
Slide 50: Growth in client revenue improves quality of earnings
50 Growth in client revenue improves quality lit off earnings i 2007 2010 2% 7% 7% 8% Client activities Investment activities Trading activities 85% 91% Based on gross revenue
Slide 51: Quality improvement driven by RMB strategy
51 Quality improvement driven by RMB strategy t t 2007 2010 9% 29% 39% Client activities Investment activities 37% 54% Trading activities 32% Based on gross revenue
Slide 52: Geographic diversification – mix changing
52 Geographic diversification – mix changing 2007 2010 10% 4% 7% 5% South Africa Rest of Africa International 85% 89% Based on gross revenue
Slide 53: Capital
53 Capital
Slide 54: Banking ROEs continue to recover
54 Banking ROEs continue to recover ROA Level of equity 35% • Cyclical • Regulatory • Strategy • Business mix • Pricing • Primary vs 30% • Efficiency secondary 25% 20% 15% 10% Jun '04 Jun '05 Jun '06 Jun '07 Jun '08 Jun '09 Jun '10 Return on equity (actual) Return on equity (adjusted for the cyc
Slide 55: Banking Group's capital position remains robust
55 Banking Group’s capital position remains robust FRBH capital adequacy (%) FRBH Tier 1% Total % Capital adequacy ratio 13.5 15.6 15.6 14.6 2.1 Regulatory minimum 7.0 9.5* 2.2 0.9 1.0 Target 10.0 12.0 – 13.5 FRB Tier 1% Total % 12.6 Capital adequacy ratio 11.7 14.0 11.4 Regulatory minimum 70 7.0 9
Slide 56: Momentum further strengthens capital position
56 Momentum further strengthens capital position R millions CAR cover (times) 9 000 2.1 x CAR 2.1 8 000 2.0 x CAR 2 7 000 1.9 1.8 x CAR 1.8 6 000 1.7 5 000 1.6 4 000 1.5 14 1.4 3 000 1.4 x CAR 1.3 2 000 1.2 1 000 1.1 0 1 Dec '08 Jun '09 Dec '09 Jun '10 Dec '08 Jun '09 Dec '09 Jun '10 CAR Excess
Slide 57: Results in a nutshell
57 Results in a nutshell Macro • Low asset g growth and Legacy reduced margin • Endowment • Reduced losses • Bad debts • NIR Strategy • Cost containment • Improving quality of earnings • Geographical diversification • Capture white space in SA
Slide 58: Operational performance reflects underlying franchise strength
58 Operational performance reflects underlying franchise strength R millions 14 000 54% 12 000 14% 12 739 5% 11% 10 000 9% 8 000 33% Revenue 9% 8 270 (23%) 5% 6 000 Expenses 7% 4 000 2 000 0 PBT 09 Endowment Interest Baddebts Bad debt Investment Legacy Employee Organic PBT 10 strategies liabilities
Slide 59: Operating review
Operating p g review Sizwe Nxasana
Slide 60: FNB's performance reflects strong franchise
60 FNB’s performance reflects strong franchise Profit before tax Characterised by: R millions 7 000 + Improving bad debts ROE = 32% + Turnaround in HomeLoans 6 000 15% and Card 5 000 + Transactional volumes still growing but mix changing growing, 4 000 + Customers up 4% 3 000 + Retail deposits still
Slide 61: FNB HomeLoans turning the corner
61 FNB HomeLoans turning the corner Profit before tax* 6m to Dec ’08 6m to Jun ’09 6m to Dec ’09 6m to Jun ’10 (R millions) FNB HomeLoans (977) (777) (289) (29) • Year-on-year improvement of R1 436 million – mainly attributed to: p • Improvement in bad debts • Increased NIR • 13% reduction in operat
Slide 62: Effective credit and pricing strategies
62 Effective credit and pricing strategies • New business weighted heavily towards lower risk customers • Repricing initiative successful even though low risk customers qualify for relatively higher discounts 100% 90% d deals 80% 70% % % of registered 60% 50% 40% 30% 20% 10% 0% Sep-09 Oct-09 Jan-07
Slide 63: Strong turnaround in FNB Card
63 Strong turnaround in FNB Card 6 months to 6 months to 6 months to 6 months to Profit before tax* (R millions) Dec ’08 Jun ’09 Dec ’09 Jun ’10 FNB Card C d 36 (145) 180 288 • Year-on-year improvement of R577 million – mainly attributed to: • Improved I d bad b dd debts bt • Increased NIR • Profit
Slide 64: Model allows for cost management whilst investing for growth
64 Model allows for cost management whilst i investing ti for f growthth • T t l costt increase Total i limited li it d to t 5% • 2% decrease in headcount, resulting in only 6% staff cost increase • Process and system y efficiencies • Various cost cutting initiatives • Segments and products focus =
Slide 65: FNB Africa earnings continue to grow despite cost of ongoing investment
65 FNB Africa earnings continue to grow despite cost of ongoing investment Profit before tax R millions Characterised by: y 1 400 ROE = 23% + Good performances from 2% Namibia and Swaziland 1 200 + Ongoing investment in 1 000 Zambia and Mozambique s bsidiaries subsidiaries 800 + Overall success of c
Slide 66: Progress on strategy
66 Progress on strategy • Executing growth strategies in • Wealth (BJM acquisition) • Mass (Easy Plan roll-out, eWallet) • Corporate (CIB initiative) • Continued investment in South African infrastructure, particularly electronic channels • ATMs – p particularly y retail ATMs and real-time deposit-t
Slide 67: RMB rebounds and quality of earnings improves
67 RMB rebounds and quality of earnings improves Profit before tax R millions Characterised by: 5 000 >100% + All units exceeding prior year 4 500 + Turnaround in Equity q y Trading g 4 000 3 500 + Lower level of losses from 3 000 legacy portfolios 2 500 + Private Equity realisation 2 000 1 500 1 00
Slide 68: All divisions delivered growth
68 All divisions delivered growth • Investment Banking Division • Good G d performance f given i b base and d slowdown l d iin corporate activity i i • Significant contributions from leveraged finance, property and DCM g • Progress in corridor strategies g encouraging g g and p partnerships p delive
Slide 69: All divisions delivered growth
69 All divisions delivered growth • Private Equity* • Realisations of R1 047 million ((2009: R952 million)) • Income from Private Equity investments** R538 million (2009: R456 million) • Unrealised value R1 408 million (2009: R1 210 million) • R837 million illi iinvested, t d portfolio tf li iin goo
Slide 70: Progress on strategy
70 Progress on strategy • Rebalance p portfolios and improve p q quality y of earnings g • Revised risk appetite framework • CIB unit formed • Wholesale credit focus • C id strategies Corridor t t i iin IIndia di and d Chi China gaining i i ttraction ti
Slide 71: WesBank: Back on track
71 WesBank: Back on track Normalised profit before tax* Characterised by: R millions 1 400 + Stabilisation of advances book >100% + Retail new business volumes 1 200 have turned 1 000 + Better interest margin through repricing 800 + Reduction in retail bad debt charge 600 + Good cost control 400 + G
Slide 72: Provisions… the unwind progresses
72 Provisions… the unwind progresses • Retail arrears and repossessions well on the road to recovery • C Corporate t ffailures il and d arrears h have reached h d th their i peak k • Continued gradual unwind of bad debts expected Motor R million Corporate R million 900 3.5% 900 3.5% 800 3.0% 800 3.0
Slide 73: Cost containment remains an imperative
73 Cost containment remains an imperative • 5% cost growth in core business • Cost and efficiency wins • Headcount reduction (9% year-on-year year on year, 22% over 2 years) • Restructure of Motor division • Rationalisation of ‘bricks and mortar’ representation • WesBank’s total costs negatively imp
Slide 74: Progress on strategy
74 Progress on strategy • Identified domestic “white spaces” p • Fleet management and full maintenance rental • Asset finance in large corporate sector • Additional Additi l local l l alliances, lli ii.e. V Volvo, l R Renault, lt JJaguar • Formal collaboration with CCB to fund acquisition of Chinese
Slide 75: OUTsurance performance reflects international investment
75 OUTsurance performance reflects international investment Profit before tax R millions Characterised by: 1 400 • Strong domestic operational 1 200 performance 1 000 • Combined ratio for OUTsurance 800 improved to 79.1% (2009: 81.5%) 600 • Lower investment income 400 following drop in interest rate
Slide 76: Momentum – solid core operational performance
76 Momentum – solid core operational performance Characterised by: Normalised earnings R millions o s + Solid increase of 15% in operating 2 500 profit + Market recovery benefited asset based fees asset-based 2 000 10% + Conservative expense management (+3%) 1 500 ± Mixed new business results – Pres
Slide 77: Unpacking the increase in operating profit
77 Unpacking the increase in operating profit Operating profit 15% R millions 1 800 8% (10%) 1 700 3% 1 600 (5%) 23% 2% 1 530 1 500 1 400 1 328 (6%) 1 300 1 200 1 100 1 000 Jun '09 New Markets Margins and FNB Life Tax IFRS 2 Other Jun '10 business b i experience i charges h strain
Slide 78: Return on EV reflects strong operational and investment market performance
78 Return on EV reflects strong operational and investment market performance R millions Embedded value profit 19 000 734 (802) 18 000 1 665 17 683 17 000 16 086 16 000 15 000 14 000 13 000 12 000 Jul '09 Operations Market conditions Dividends Jun '10
Slide 79: MMI represents an exciting proposition to shareholders
79 MMI represents an exciting proposition to shareholders • Merger and unbundling unlock shareholder value • Combines two businesses in different but complementary markets = growth story • Creates exciting new player • FirstRand remains committed to bancassurance
Slide 80: Strategy & prospects
Strategy gy & p prospects p Sizwe Nxasana
Slide 81: Modest economic recovery
81 Modest economic recovery • Economic growth to return to trend • Inflation to remain in the target range • Interest rates to remain low • Credit growth to remain slow • Muted g growth in house p prices • Continued income growth, but unemployment remains a concern • Corporate sector to remain cauti
Slide 82: Sticking to our strategic plans
82 Sticking to our strategic plans • South Africa • Grow top-line through entering new markets or where the Group has low representation • Africa & corridors • Nigeria • Tanzania • Angola • India • China C a • Cost management
Slide 83: Annexure
Annexure FIRSTRAND 83
Slide 84: Normalised income statement shows improvement
84 Normalised income statement shows improvement R millions Jun ’10 Jun ’09 Change Net interest income 16 583 17 117 (3%) Bad debts (5 686) (8 024) (29%) Net interest income after impairments 10 897 9 093 20% Non interest income 26 512 22 125 20% Operating expenses (24 227) (22 552) 7% Ind
Slide 85: Continued good performance from Momentum
85 Continued good performance from Momentum R millions Jun ’10 Jun ’09 Change Performance driven by: Momentum 1 114 994 12% • Value of new business holding up FNB Insurance 416 334 25% • Record retail single investments Group operating profit 1 530 1 328 15% • Improved markets Investment incom
Slide 86: Strong performance from banking activities
86 Strong performance from banking activities Jun ’10 Jun ’09 Change Normalised earnings (R millions) 8 535 6 056 41% Return on equity (%) 18 13 Return on assets (%) 1.31 0.93 Credit loss ratio (%) 1.30 1.81 Cost to income ratio – normalised (%) 56 2 56.2 57 5 57.5 Tier 1 capital ratio* (%
Slide 87: Reconciliation of bank normalised earnings (2010)
87 Reconciliation of bank normalised earnings (2010) Sale of Jun ’10 Non effective WorldMark, Jun ’10 Other † Normalised hedges** Norman Bisset Attributable and Makalani Net interest income 16 583 15 16 598 Bad debts (5 686) (5 686) Net interest income after 10 897 15 10 912 impairments t iincome* N
Slide 88: Reconciliation of bank normalised earnings (2009)
88 Reconciliation of bank normalised earnings (2009) Jun ’09 Non effective Motor One Jun ’09 Other † Oth Normalised hedges** Finance Attributable Net interest income 17 117 517 17 634 Bad debts (8 024) (8 024) Net interest income after 9 093 517 9 610 impairments Non interest income* 22 125 (517) (2
Slide 89: Consumer spending cycle
89 Consumer spending cycle PCE Index Peak = 100 105 Folder: Y:\C - Macro Q410 100 File: Cycle analysis – PCE & GFCF.xlsx Sheet: Recession analysis consump qoq Current 95 A Average 90 85 -8 -6 -4 -2 0 2 4 6 8 10 12 14 Quarters f rom peak, peak = 0 We expect a return to pre-recession levels by end-201
Slide 90: Investment spending cycle
90 Investment spending cycle Gross fixed capital formation for the private sector index Index Peak Peak == 100 100 105 Average (excl. '85 recession) Folder: Y:\C - Macro 100 File: Cycle analysis – PCE & GFCF.xlsx Sheet: Cycle invetsment exp qoq 95 2008 90 85 80 -8 -6 -4 -2 0 2 4 6 8 10 12 Quarters f
Slide 91: Excess capacity in the corporate sector
91 Excess capacity in the corporate sector Real private investment R billions Real private investment, R'bn 260 210 Folder: Y:\C - Senior exec\AFS & budgets\201006 File: Extra trend requested for key themes.xlsx Sheet: RpiData 160 110 60 80 83 86 89 92 95 98 01 04 07 10 Sources: SARB Quarterly Bulle