Slide 1: Absa Group Limited Interim Financial Results
ABSA GROUP LIMITED Interim Financial Results For the six months ended 30 June 2008
Slide 2: Agenda
Agenda • Financial Review Jacques Schindehütte • Retail Banking Louis von Zeuner • Absa Capital John Vitalo • Strategy and Outlook Steve Booysen 2
Slide 3: Financial Review
Financial Review Jacques Schindehütte
Slide 4: Financial Highlights
Financial Highlights • Headline earnings of R4,7 billion (½ 8%) • Attributable earnings of R5,3 billion (½ 22%) • Headline earnings per share of 700 cents (½ 8%) • Dividends per share of 265 cents (½ 10%) • Return on average equity of 24,6% • Cost-to-income ratio of 49,3% 4
Slide 5: Good Progress with Earnings Diversification
Good Progress with Earnings Diversification Earnings Revenue Cost Earnings growth Growth Growth Rm % % % Retail Banking 2 012 ¾ 7 ½ 18 ½ 15 Commercial Banking 1 039 ½ 15 ½ 12 ½ 9 Absa Capital 1 001 ½ 32 ½ 40 ½ 56 ¾ Bancassurance 752 0 ½ 2 ½ 19 Corporate centre1 751 Preference dividends (220) Absa Gr
Slide 6: Revenue Up 21%, PBT Up 19%
Revenue Up 21%, PBT Up 19% 2008 2007 Change Rm Rm % Net interest income 10 220 8 574 ½ 19 Impairment charge (2 178) (985) ½ 121 Non-interest income 10 030 8 120 ½ 24 Operating expenditure2 (10 498) (9 296) ½ 13 Taxation (1 994) (1 900) ½ 5 Attributable earnings 5 335 4 363 ½ 22 Headline earnings 4 7
Slide 7: Proactive Credit Management
Proactive Credit Management H1 08 FY 07 H2 07 H1 07 % % % % Retail banking 1.21 0.74 0.83 0.65 Commercial banking 0.35 0.35 0.44 0.28 Absa Capital (0.04) 0.00 0.00 0.00 Absa Group 0.93 0.58 0.65 0.49 Cover ratios Identified impairments 0.91 0.79 0.79 0.71 Unidentified impairments 0.44 0.44 0.44 0.45
Slide 8: Sustainable Growth in Annuity Income
Sustainable Growth in Annuity Income 2008 Change Mix Rm % % Net fee and commission income 6 007 9 65 Credit-related transaction fees 5 020 12 54 Other banking fees and commissions 607 (14) 7 Bancassurance fees and commissions 380 12 4 Net trading income 886 65 10 Bancassurance – premium income and p
Slide 9: Investment Income Down by 20%
Investment Income Down by 20% H1 08 H1 07 Growth H2 07 Rm Rm % Rm Private Equity 272 229 19 314 Commercial Property Finance (185) 137 (235) 133 Bancassurance: Shareholder funds 175 396 (56) 175 Retail Banking 275 0 100 0 Group investments 136 80 70 40 673 842 (20) 662 % of total pre-tax headline ear
Slide 10: Improved Efficiency Softens Rise in Impairments
Improved Efficiency Softens Rise in Impairments 59.0 57.7 57.0 56.6 56.8 52.8 53.8 51.8 49.3 21.3 18.0 19.1 14.2 14.6 13.2 13.2 12.1 10.4 9.5 Mar 2005 Dec 2005 3 Dec 2006 4 Dec 2007 Jun 2008 Top-line income growth (%) Operating expenses growth (%) Cost-to-income ratio final (%) Cost-to-income ratio
Slide 11: Commercial Banking Maintains Growth Momentum
Commercial Banking Maintains Growth Momentum • Revenue of R3,7 billion (½ 12%) Business unit PBT earnings (Rm) 86 (¾ 1%) • Revenue, excluding CPF listed 66 (½313%) equities (½ 24%) 692 (½ 48%) • Advances growth (½ 34%) • Deposit growth (½ 12%) 920 (½ 41%) • Transactional volumes (½ 8%) -259 (¾ 100%)
Slide 12: Resilient Earnings from Bancassurance
Resilient Earnings from Bancassurance Business Unit Operational Earnings Mix (%) Earnings • Operational earnings (½ 22%) Growth 18 ¾ 56% • Gross premium income (½ 17%) 37 30 ½ 56% • Embedded value of new business 18 at R135m (¾ 5 %) 18 ½ 14% 15 • Net inflow of non-money market mandates in excess of
Slide 13: Strong Organic Capital Generation
Strong Organic Capital Generation As at 30 June 2008 RWA Capital adequacy (%) Bank Group Capital demand (for 6 months) 2008 Mix Rbn % Tier I 10.6 11.4 Credit risk 281 80 Tier II 2.9 2.5 Retail 124 44 Total 13.5 13.9 ACBB 69 25 Absa Capital 51 18 Capital generation (Rbn) Africa and other assets 37 13
Slide 14: Earnings Diversification Counters Retail Slowdown
Earnings Diversification Counters Retail Slowdown • Strong performance from Investment and Commercial Banking • Quality of earnings not affected by market volatility • Retail revenue and impairments under pressure • Intensified cost containment measures introduced • Strong free cash flow 14
Slide 15: Retail Banking
Retail Banking Louis von Zeuner
Slide 16: Highlights
Highlights • Contribution to Group earnings Attributable earnings (Rm) at 42% • Attributable earnings of 2 164 2 012 R 2 billion (¾ 7%) 1 710 • Advances growth (½ 14%) • Deposits growth (½ 30%) • Cost-to-income ratio (¾ 56%) • Customer growth (½ 7%) Jun 2006 June 2007 June 2008 16
Slide 17: Key Successes
Key Successes • Largest individual deposit base • Strong growth in electronic channels – Internet (½ 20%) – Mobile (½ 86%) – ATM’s (½ 9%) – Merchant business (½ 16%) • Retained brand leadership • Implemented risk mitigating measures to protect future earnings • Healthy customer growth to 9.3 million
Slide 18: Positive Performance of Unsecured Lending
Positive Performance of Unsecured Lending June June Change Total Income (Rm) 2008 2007 % Secured Home loans 1 979 1 713 16 AVAF 1 251 1 219 3 Unsecured Instalment loans 1 881 1 465 28 Card 1 296 1 181 10 Transactional products and deposits 5 381 4 435 21 Total 11 788 10 013 18 18
Slide 19: Challenging Consumer Environment
Challenging Consumer Environment % 12 10 8 6 4 2 0 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Debt servicing cost % Final consumption expenditure disposable income by households (%y/y) 19
Slide 20: Lower Disposable Income and Security Values Impacting Impairments
Lower Disposable Income and Security Values Impacting Impairments Rm % 2500 16 2000 14 2 016 1500 12 1 254 1000 10 879 754 500 8 441 0 6 H1 065 H2 065 H1 07 H2 07 H1 08 Impairments (Rm) Average prime rate (%) 5 Not restated for CAF + Africa 20
Slide 21: Rising NPL's in Home Loans and Asset Finance
Rising NPL’s in Home Loans and Asset Finance % % 3 10 2.5 8 2 6 1.5 4 1 2 0.5 0 0 Jun 06 Dec 06 Jun 07 Dec 07 Jun 08 AHL (LHS) AVAF (LHS) Card (RHS) 21
Slide 22: Higher Impairments Driven by Delinquency Ratio
Higher Impairments Driven by Delinquency Ratio Delinquencies vs. Impairments (%) 14 Card 5 12 4 10 8 3 6 2 4 1 2 0 0 Jun 06 Dec 06 Jun 07 Dec 07 Jun 08 8 AHL 0.9 10 AVAF 1.6 7 0.8 0.7 8 6 1.2 0.6 5 6 0.5 4 0.8 0.4 3 4 0.3 2 0.2 0.4 2 1 0.1 0 0 0 0 Jun 06 Dec 06 Jun 07 Dec 07 Jun 08 Jun 06 Dec 06 Jun
Slide 23: Secured Lending Quality Focus
Secured Lending Quality Focus • Tightened underwriting criteria • Increased LTV caps, restricting exposure • Improved risk based pricing • Move from volume to return on economic capital • Innovation to limit losses • Enhanced collections recovery capability 23
Slide 24: Slowing Growth in Unsecured Lending
Slowing Growth in Unsecured Lending • Proactive measures taken in 2007 delivering results • Ongoing investment in infrastructure • Expansion into Micro Enterprise Finance • Innovation in entry level banking • Improved risk based pricing 24
Slide 25: Current Environment Requires Increased Agility
Current Environment Requires Increased Agility • Macro economic environment to remain challenging • Pressure on collateral values in secured lending • Rising impairments • Implication of Competition Commission enquiry in banking 25
Slide 26: Strategic Focus Going Forward
Strategic Focus Going Forward • Protect the future revenue streams • Grow customer base • Lengthen advances and deposit portfolio duration • Grow the retail affluent segment • Operational excellence • Full banking proposition and superior service 26
Slide 27: Absa Capital
Absa Capital John Vitalo Member of the 7 BARCLAYS
Slide 28: Revenue and Attributable Earnings Grew Strongly
Revenue and Attributable Earnings Grew Strongly • Revenue of R2,3 billion Revenue (Rm)6 (½ 40%) • Attributable earnings of 2 318 R1 billion (½ 32%) • Contribution to Group earnings of 1 653 21% (H2 07 contribution: 17%) 1 257 Jun 2006 Jun 2007 Jun 2008 6Net of impairment losses on loans and advances
Slide 29: Revenue Mix Diversified in Line with Strategic Objectives
Revenue Mix Diversified in Line with Strategic Objectives • Change in mix driven by Business Unit Revenue Mix (%) relatively stronger growth in Secondary Markets 19 22 13 • Objective for Secondary Markets to contribute 50% of revenue, is 51 40 40 close to being achieved 30 38 47 Jun 2006 Jun 2007 Ju
Slide 30: Strong Growth Achieved without an Increase in Risk Weighted Assets
Strong Growth Achieved without an Increase in Risk Weighted Assets • Strong revenue growth and Revenue Growth Relative change in business mix has been to Change in RWA (indexed to 100) achieved without an increase in 110 Risk Weighted Assets • This has been possible due to further improvements in th
Slide 31: Primary and Secondary Markets Grew Strongly
Primary and Secondary Markets Grew Strongly • Strong revenue growth across Primary and Secondary Markets • Lack of realizations and higher funding costs led to negative growth in Equity Investments and Investor Services Secondary Markets Primary Markets Equity Investments and % growth % growth Inves
Slide 32: Core Performance Drivers
Core Performance Drivers • Differentiated investment banking model • Investment in talent • Product innovation • Increased deal flow from new and existing clients • Synergies with Barclays Capital 32
Slide 33: Secondary Markets Grew Revenue Aggressively
Secondary Markets Grew Revenue Aggressively • Revenue growth of 85% for H1 08 • Contributed 47% to Absa Capital’s revenue • Performance driven by: – Increased deal flow from new and existing clients – Broadening of the product offering – Greater use of derivatives by clients – More effective risk ta
Slide 34: Primary Markets Grew Strongly while Optimising Balance Sheet Usage
Primary Markets Grew Strongly while Optimising Balance Sheet Usage • Revenue growth of 45% for H1 08 • Contributed 40% to Absa Capital’s revenue • Performance driven by: – Client-centric business model – Leveraging off Barclays Capital global capabilities – Delivery of comprehensive international an
Slide 35: Equity Investments and Investor Services Under-performed Relative to Last Year
Equity Investments and Investor Services Under-performed Relative to Last Year • Revenue decreased by 10% • Contributed 13% to Absa Capital’s revenue • Performance driven by: – A lack of significant realisations (compared to H1 07) – Higher funding costs • The Private Equity portfolio is well divers
Slide 36: Strategic Focus Going Forward
Strategic Focus Going Forward • Continue to attract and retain the best people • Invest in support infrastructure and robust controls • Grow the client franchise • Develop opportunities with other Absa business units • Derivatise the client base and develop innovative products • Expand into Sub-Saha
Slide 37: Strategy and Outlook
Strategy and Outlook Steve Booysen
Slide 38: A Challenging Environment
A Challenging Environment • Global economic woes continuing – US economy heading for recession, EU growth slowing – Credit and liquidity crises yet to be resolved – Rising inflation, a global challenge – Emerging market growth still resilient • Domestic economic growth moderating – Household consump
Slide 39: In Retail we are Focused on Protecting the Business
In Retail we are Focused on Protecting the Business… • Continue to strengthen our collections capability • Reduced risk appetite reflected in stricter lending criteria • Focus on value, not market share • Deliver customer support and service • Ensure productivity and efficiency 39
Slide 40: ...and in Wholesale we are Focused on Growth
…and in Wholesale we are Focused on Growth • Investment Banking – Growing market share and expansion into Africa – Derivatisation of the business – Leverage Group wide cross-sell opportunity • Commercial Banking – Further industry specialisation – Enhanced specialised finance offering – Leverage Gro
Slide 41: Our Strategic Objectives
Our Strategic Objectives… • Build a well diversified business • Embed market leadership in retail financial services • Build the leading investment bank • Accelerate growth in commercial business • Grow and build wealth management …. will enable us to be the best financial services provider in South
Slide 42: Strategic Enablers
Strategic Enablers • Attract and retain the best people • Sustain competitiveness through transformation • Enhance operational excellence • Lead in risk and capital management • Leverage our global knowledge and network • Embed brand leadership 42
Slide 43: A Strong Franchise
A Strong Franchise • A leading financial services brand • 9,4 million customers and growing • Largest distribution network • Global banking capabilities • Strong capital position • Significant growth potential 43
Slide 44: Questions
Questions Member of the 7 BARCLAYS
Slide 45: Addendum
Addendum er of the 7 BARCLAYS
Slide 46: Savings Bank of the Nation
Savings Bank of the Nation % 30 25 26.15 25.22 22.29 20 19.79 15 10 5 6.55 0 Absa Firstrand Nedcor Standard Bank Other 46
Slide 47: Credit Impairment Trends
Credit Impairment Trends 22.3 19.7 16.4 16.4 14.5 14.7 13.7 13.6 13.1 11.2 10.6 11.2 5.2 5.1 4.9 4.3 4.4 3.8 3.3 2.38 2.2 1.8 1.6 2.0 1.21 1.3 1.11 1.09 1.02 0.90 0.93 0.86 0.52 0.45 0.58 0.31 1998 1999 2000 2001 2002 2003 2004 2005 20056 20066 20076 2008 Impairment ratio (%) Non-performing loans an
Slide 48: Non-interest Income
Non-interest Income 53.8 53.8 52.5 50.8 50.2 49.5 47.9 47.0 45.0 43.7 40.5 16 728 38.8 37.0 15 019 34.1 13 780 12 168 10 753 10 030 9 127 7 694 6 421 5 331 4 623 3 879 3 150 2 406 c c c c c c c c c c c 30.9% 23.1% 19.2% 15.3% 20.4% 19.8% 18.6% 17.8% 13.2% 9.0% 11.4% 1996 1997 1998 1999 2000 2001 200
Slide 49: Non-interest Income
Non-interest Income For six months ended 30 June 2008 2008 Mix Change Rm % % Net fee and commission income 6 007 60 ½ 9 Investment income 269 3 ¾ 75 Trading and banking income 1 573 16 ½ 73 Changes in insurance and investment liabilities 244 2 ½ 143 Net insurance premium income 1 710 17 ½ 3 Net insu
Slide 50: Bancassurance
Bancassurance For six months to 30 June 2008 Life insurance 2008 2007 Change % Gross premium income (Rm) 562 702 ¾ 20 Embedded value (Rm) 1 711 2 328 ¾ 26 Embedded value of new business (Rm) 135 142 ¾ 5 Embedded value earnings (Rm) 219 352 ¾ 38 Return on embedded value (%) 22.1 30.3 Net operating in
Slide 51: Bancassurance
Bancassurance For six months to 30 June 2008 Investments 2008 2007 Change % Assets under management (Rbn) 117 114 ½ 2 Net flows (excluding money market) (Rm) 3 228 3 250 ¾ 1 Net operating income (Rm) 140 149 ¾ 6 Net income after tax (Rm) 104 123 ¾ 15 Fiduciary Assets under management – Trust (Rbn) 5
Slide 52: Enhanced Efficiency
Enhanced Efficiency Driving a declining cost-to-income ratio (%) 69.4 67.2 64.7 62.9 62.6 62.3 60.3 60.0 57.1 56.6 57.0 53.8 51.8 7.7 49.3 7.2 7.1 7.3 7.2 7.1 6.9 7.0 7.0 6.9 6.7 6.6 6.4 Gap – 2.1 6.0 4.8 Gap – 3.1 4.6 4.6 4.5 4.5 4.5 4.4 4.2 4.1 3.9 3.9 3.6 3.3 2.9 1996 1997 1998 1999 2000 2001 200