FirstRand Limited · JSE:FSR

FirstRand — FY2023 Earnings Presentation

52 slides from FirstRand's earnings presentation, June 2023

  1. Slide 1: Results presentation for the year ended 30 June 2023

    results presentation for the year ended 30 June 2023

  2. Slide 2: Slide 2

  3. Slide 3: Operating environment: SA inflation, rates and private sector investment

    RESULTS PRESENTATION – 2023 FIRSTRAND 01 operating environment for the year ended 30 June 2023 SA: Inflation and higher rates impact consumers; promising structural underpin to private sector investment 2 Headline inflation rate (CPI) Repo rate % y/y % 8 9 8 6 7 4 6 5 2 4 0– 3 Credit extended to the

  4. Slide 4: UK and broader Africa operating environment

    02 FIRSTRAND GROUP Operating environment UK: Whilst inflation turned, policy tightening has continued, resulting in softer housing market 3 Bank of England (BoE) policy rate Headline inflation rate % % y/y 6 10 8 6 5 4 2 - 4 3 UK Nationwide house price index % y/y 2 20 15 10 1 5 - (5) - (10) Sources

  5. Slide 5: Attractive growth in earnings and superior returns

    RESULTS PRESENTATION – 2023 FIRSTRAND 03 unpacking performance for the year ended 30 June 2023 Attractive growth in earnings and superior returns 6 Normalised earnings Deposit franchise Ordinary dividend per share R36.7bn R1 443bn 384 cents (2022: R32.7bn) 12% (2022: R1 260bn) 14% (2022: 342 cents

  6. Slide 6: Economic profit and shareholder value creation

    04 FIRSTRAND GROUP Unpacking performance Earnings growth and capital optimisation delivered strong economic profit 7 Economic profit* ROE and COE R million % 22 000 22.8 24 21.2 20 000 20.6 18.4 20 18 000 16 000 15.0 16 14.0 14.0 14.25 14.25 14 000 19% 12 000 12 12.9 12 048 10 000 10 729 10 112 8 0

  7. Slide 7: FirstRand's shareholder value creation thesis

    RESULTS PRESENTATION – 2023 FIRSTRAND 05 FirstRand’s shareholder value creation thesis 9 • High-quality revenue • Quality of customer franchise #1 Liabilities • Trust • Ease of fulfilment, product development • Discerning origination – credit outcomes through the cycle #2 RWA optimisation • Advances

  8. Slide 8: NII diversification and deposit funding mix

    06 FIRSTRAND GROUP Unpacking performance Balance sheet evolution – NII diversification 11 Group Treasury and other Group Treasury 4% and other 1% Broader Africa SA lending Broader Africa 8% SA lending 58% 6% 36% Savings deposits 9% Savings deposits 13% 2013 NII 2023 NII composition composition Depos

  9. Slide 9: FNB and RMB deposit franchise growth

    RESULTS PRESENTATION – 2023 FIRSTRAND 07 FNB deposit franchise – customer growth and attractive propositions 13 FNB deposit franchise growth Retail deposit mix R billion Current Notice and fixed +1% 450 +14% Commercial +14% y/y (5-year CAGR 15%) 400 R366.8bn +10% 350 300 Retail +10% y/y (5-year CAGR

  10. Slide 10: Aldermore diversifying its funding base

    08 FIRSTRAND GROUP Unpacking performance Aldermore diversifying its funding base 15 Funding breakdown £ billion 12 Customer deposits 7% to £15bn 10 • Secured funding 10% 10.2 9.7 8 • Oak 4 RMBS (Aldermore’s first since 2019) 6 • Pre-funding TFSME contractual repayments through a combination of dep

  11. Slide 11: Growth in advances across all portfolios

    RESULTS PRESENTATION – 2023 FIRSTRAND 09 Growth in advances across all portfolios 17 Core lending advances R billion Centre 1 600 9% 15% 1 511 UK operations 23% 1 400 FNB retail (2% in pounds) 7% 1 311 1 200 1 000 2023 core lending 800 advances FNB composition commercial 600 8% FNB broader 400

  12. Slide 12: Sector-specific origination in FNB commercial and RMB advances

    10 FIRSTRAND GROUP Unpacking performance Sector-specific origination approach in FNB commercial 19 Commercial advances split FNB commercial new business risk distribution Other 100% High risk 1% Overdrafts 80% Medium risk 14% WesBank 4% 60% corporate 13% 20% 40% Low risk 20% 0%- 32% Commercial (F

  13. Slide 13: UK operations: owner-occupied and buy-to-let portfolios

    RESULTS PRESENTATION – 2023 FIRSTRAND 11 UK operations: Owner-occupied portfolio regionally diversified 21 Book size >£2 billion 54% of the portfolio has a balance <£200k 8% 4% 24% 21% 17% 11% 19% 14% 12% 5% 5% 2% Regional 0% 0% 8% distribution of owner-occupied 0 – 50k 50k – 100k – 150k – 200k – 30

  14. Slide 14: ALM strategies objectives and NII outperformance

    12 FIRSTRAND GROUP Unpacking performance Unpacking the objectives and outcomes of the ALM strategies 23 • Overarching objectives of group ALM strategies: • Actively manage the profile to protect and enhance earnings through the cycle • Earn the structural term premium for shareholders by investing a

  15. Slide 15: Credit performance at a glance

    RESULTS PRESENTATION – 2023 FIRSTRAND 13 Credit performance at a glance – fully expected, due to origination approach, coverage reflects macro outlook 25 Impairment charge (R million) and credit loss ratio (%) Total provisions (R million) and coverage (% of core lending advances) 55 000 50 000 5 941

  16. Slide 16: Capital-light revenue streams in group NIR

    14 FIRSTRAND GROUP Unpacking performance FirstRand’s shareholder value creation thesis 27 • High-quality revenue • Quality of customer franchise #1 Liabilities • Trust • Ease of fulfilment, product development • Discerning origination – credit outcomes through the cycle #2 RWA optimisation • Advance

  17. Slide 17: Fee and commission income and trading

    RESULTS PRESENTATION – 2023 FIRSTRAND 15 Fee and commission income reflects relative size and strength of transactional franchises 29 • FNB • Active customers +5% to 11.49 million • SA VSI at 2.98 (2022: 2.95) • Transactional volumes +12% • Fee reductions continued • RMB • Growing corporate transact

  18. Slide 18: Scaling insurance business provides NIR diversification

    16 FIRSTRAND GROUP Unpacking performance Scaling insurance business provides NIR diversification 31 Premium income and NIR – FNB Life* Premium income – FNB Short Term R billion Premiums:  15% CAGR R million NIR: 14% CAGR 800 6 97% CAGR 5.70 700 5 671 4.90 600 4.49 4 4.07 4.05 500 3.50 3 400 2.80

  19. Slide 19: Capital position remains solid

    RESULTS PRESENTATION – 2023 FIRSTRAND 17 FirstRand’s shareholder value creation thesis 33 #1 Liabilities #2 RWA optimisation FRM philosophies Capital-light/ and practices #3 non-bank revenues #4 Costs Capital position remains solid 34 CET1 ratio* % 18 17 CET1 accretion: +205 bps 16 (185 bps) 15 320

  20. Slide 20: Financial review: dividend cover maintained at 1.7 times

    18 FIRSTRAND GROUP Unpacking performance Dividend cover maintained at 1.7 times 35 Dividend cover Times 2.3 2.2 2.1 2.0 Dividend cover range: 1.8x to 2.2x 1.9 1.6x to 1.8 2.0x 1.7 No final dividend in 1.6 2020 in line with regulatory guidance 1.5 to preserve capital during pandemic 1.4 financial rev

  21. Slide 21: Key performance metrics (normalised)

    RESULTS PRESENTATION – 2023 FIRSTRAND 19 Key performance metrics (normalised) 37 2023 2022 % change Earnings per share (cents) 653.7 582.3 12  Dividend per share (cents) 384 342 12  Earnings (R million) 36 669 32 663 12  NIACC (R million) 12 048 10 112 19  Net asset value per share (cents) 3 221

  22. Slide 22: Net interest income driven by balance sheet growth

    20 FIRSTRAND GROUP Financial review Net interest income driven by growth on both sides of the balance sheet 39 Normalised earnings R million 48 000 11% 12% 16% 55% 44 000 (3 869) 5 501 (7 616) 5% 40 000 10 760 (770) 12% 36 000 Effective tax rate 2023: 23.8% 36 669 32 000 (2022: 26.0%) 32 663 2

  23. Slide 23: Institutional funding and growth across lending portfolios

    RESULTS PRESENTATION – 2023 FIRSTRAND 21 Recent institutional increase in funding, however, overall relative composition still low 41 Institutional funding as % of total funding Diversified institutional funding mix and term profile 42% Institutional funding composition Months 100% 45 40% 90% 40 41

  24. Slide 24: Net interest income growth and normalised margin

    22 FIRSTRAND GROUP Financial review Net interest income growth driven by transactional franchise, and endowment in both SA and broader Africa 43 Net interest income R million Capital endowment  >R960m 6% • Increase in average interest rates 25 825 • Partially offset by lower contribution from ALM

  25. Slide 25: Impairment charge and stage 2 arrears

    RESULTS PRESENTATION – 2023 FIRSTRAND 23 Impairment charge as expected given origination approach 45 Normalised earnings R million 48 000 11% 12% 16% 55% 44 000 (3 869) 5 501 (7 616) 5% 40 000 10 760 (770) 12% 36 000 Effective tax rate 2023: 23.8% 36 669 32 000 (2022: 26.0%) 32 663 28 000 24 0

  26. Slide 26: NPL trends and formation

    24 FIRSTRAND GROUP Financial review NPLs benefited from collections efforts captured in curing NPLs 47 NPLs (excluding UK operations) Operational NPLs (excluding UK operations) R million R million 9% 9 10% 1 47 290 36 849 42 958 33 785 2022 2023 2022 2023 UK NPLs Paying NPLs (excluding UK operatio

  27. Slide 27: CLR below through-the-cycle range; performing charge normalising

    RESULTS PRESENTATION – 2023 FIRSTRAND 25 CLR remains below TTC range – pleasing given the environment 49 8.25 8.25 5.00 5.0 5.0 4.80 4.8 4.60 4.6 7.25 6.75 4.40 4.4 6.50 4.5 4.20 4.2 4.00 4.0 6.25 3.80 3.8 3.9 3.8 3.60 3.6 5.25 3.5 3.40 3.4 3.20 3.2 3.00 3.0 3.0 4.75 4.25 2.80 2.8 3.75 2.60 2.6 2.40

  28. Slide 28: Book growth driving impairment charge

    26 FIRSTRAND GROUP Financial review Book growth in large lending portfolios driving charge 51 Retail secured CLR Other 18 bps Residential mortgages RMB corporate and (2022: 2 bps) CLR investment banking 335 165 b ps 707 WesBank VAF 12 bps (2022: 142 bps) Total (2022: (14 bps)) 847 Total charge R3 8

  29. Slide 29: Non-interest revenue and insurance income

    RESULTS PRESENTATION – 2023 FIRSTRAND 27 Fee and commission still the most significant component of non-interest revenue 53 Non-interest revenue R million Total investment income*,** 35% Other (Incl. restructure and Ghana impairment 4%) 3 792 2 675** Trading and other fair value 16% 6 522 Total N

  30. Slide 30: Private equity income and cost growth

    28 FIRSTRAND GROUP Financial review Sustained private equity annuity income despite significant realisation 55 Private equity gross income Unrealised value R million R million New investments 3 000 R1.2bn R1.8bn R0.3bn R1.0bn R2.0bn 7 000 2 500 6 000 2 000 5 000 1 500 4 000 1 000 3 000 500 2 000 - (

  31. Slide 31: Largest cost drivers and staff costs

    RESULTS PRESENTATION – 2023 FIRSTRAND 29 Unpacking largest cost drivers 57 Dep reci ati on, amo rti sati on and leases 2% Professional fees and other 11% 8% Professional fees 35% (Resourcing on execution on platform) Other 5% 23% Group costs 12% IT costs (continued investment) 62% 7% Other expe

  32. Slide 32: Looking ahead: solid operational performance

    30 FIRSTRAND GROUP Financial review Solid operational performance testament to quality of franchise 59 Net interest income 16% Non-interest revenue* 11% • Deposit franchise 14% • Strong growth in fee and commission income • Endowment benefit • Private equity and principal investments realisation

  33. Slide 33: Looking ahead: macros and expected operational outcomes

    RESULTS PRESENTATION – 2023 FIRSTRAND 31 Looking ahead – macros and expected operational outcomes 61 • Macros remain uncertain but more constructive • Disinflation trend will continue • Rate cuts expected in SA in H2 FY24 • UK rates may not have peaked • Will result in softer retail advances and dep

  34. Slide 34: Annexures: group strategic framework

    32 FIRSTRAND GROUP Annexures annexures for the year ended 30 June 2023 Group strategic framework 64 FirstRand commits to building a future of SHARED PROSPERITY through enriching the lives of its customers, employees and the societies it serves. This is the foundation to a sustainable future and will

  35. Slide 35: Structural underpins ensure sustainability of superior ROE

    RESULTS PRESENTATION – 2023 FIRSTRAND 33 Structural underpins ensure sustainability of superior ROE 65 Relative size of: Relative advances mix delivers • Transactional franchise which higher risk-adjusted margins – contributes approximately half of gross credit appetite, underwriting and revenue pri

  36. Slide 36: Group has strengthened its balance sheet

    34 FIRSTRAND GROUP Annexures Group has strengthened its balance sheet 67 ACTUAL TREND Assets in marketable format R571 billion Marketable liquid assets grew marginally Liquid assets as % of total assets 24.8%* Marginally lower following balance sheet growth LCR: 124% (group), 129% (bank) The group’s

  37. Slide 37: UK performance highlights

    RESULTS PRESENTATION – 2023 FIRSTRAND 35 UK performance highlights 69 Normalised earnings Normalised PBT Net interest margin £158m £215m 3.13% (2022: £149m) 6% (2022: £203m) 6% (2022: 3.05%) 8 bps Return on assets Return on equity NPLs as a % of advances 0.82% 11.6% 2.72% (2022: 0.82%)  (2022: 1

  38. Slide 38: Aldermore acquisition: value accretive

    36 FIRSTRAND GROUP Annexures Aldermore acquisition – value accretive 71 R million £ million (rand equivalent) Investment at acquisition (March 2018) @ spot rate (£1 = R16.68) 1 098 18 311 Aldermore excluding MotoNovo: earnings for the three months ended 30 June 2018 16 June 2018 adjusted NAV @ spot

  39. Slide 39: FNB performance highlights

    RESULTS PRESENTATION – 2023 FIRSTRAND 37 FNB performance highlights 73 Normalised earnings Normalised PBT Deposits R21.9bn R31.4bn R853.6bn (2022: R19.6bn) 12% (2022: R28.4bn) 10% (2022: R755.5bn) 13% Return on assets Return on equity Advances 4.16% 41.7% R529.1bn (2022: 4.03%) 13 bps (2022: 40.

  40. Slide 40: FNB transactional franchise and platform strategy

    38 FIRSTRAND GROUP Annexures Quality of FNB transactional franchise supported by platform strategy and unique customer propositions 75 Customers Digital (app, online and USSD) eBucks Retail 8.25m +5% Volumes +9% Rewards earned R2.3bn Commercial 1.21m +1% Rewards earned since inception R19.8bn Logins

  41. Slide 41: WesBank operational trends and RMB performance

    RESULTS PRESENTATION – 2023 FIRSTRAND 39 WesBank – operational trends 77 Good growth in production NPL trends Amount disbursed on new and existing business Advances NPLs R million R billion % of advances 5 000 Retail VAF 200 9% 4 000 3 000 Corporate and 180 8% commercial 8% 2 000 163 Low risk 160 15

  42. Slide 42: RMB transactional banking and broader Africa performance

    40 FIRSTRAND GROUP Annexures RMB corporate transactional banking’s deposit growth and volumes supported by client acquisition 79 Average deposits Rand general banking facility utilisation R billion 50% 85 Operational 40% 75 30% 65 Investment 55 20% 45 10% 35 – 0% Jul Aug Sep Oct Nov Dec Jan Feb Mar

  43. Slide 43: Strong performance from FNB broader Africa

    RESULTS PRESENTATION – 2023 FIRSTRAND 41 Strong performance from FNB broader Africa 81 Normalised PBT R million • FNB broader Africa PBT increased 26% 4 000 21% • Endowment NII benefit from high rates 3 500 • Increase in customer base and 3 369 3 000 transactional volumes drive NIR growth 2 780 2 5

  44. Slide 44: Breakdown of core lending advances and provisions

    42 FIRSTRAND GROUP Annexures Breakdown of core lending advances and provisions 83 Advances Provisions Credit loss ratio % R billion R million 243 260 4 084 4 356 0.02 0.18 Residential mortgages 7% 7% 14 12 22 20 21.5% 20.2% Coverage % 211 223 4.8% 4.8% 0.3% 0.2% 2022 2023 2022 2023 2022 2023 R bil

  45. Slide 45: Core lending advances and provisions: FNB commercial, RMB

    RESULTS PRESENTATION – 2023 FIRSTRAND 43 Breakdown of core lending advances and provisions 85 Advances Provisions Credit loss ratio % R billion R million 8 7 1 585 1 248 8.48 4.87 6% Retail other 1 21% 1 1 1 82.5% 83.3% Coverage % 6 6 25.1% 26.3% 6.4% 5.3% 2022 2023 2022 2023 2022 2023 R billion R

  46. Slide 46: Breakdown of core lending advances and provisions

    44 FIRSTRAND GROUP Annexures Breakdown of core lending advances and provisions 87 Advances Provisions Credit loss ratio % R billion R million 53 58 3 542 3 726 0.32 0.67 FNB broader Africa 10% 4 5% 3 6 5 58.6% 57.6% Coverage % 44 48 13.8% 9.3% 2.0% 2.3% 2022 2023 2022 2023 2022 2023 R billion R mi

  47. Slide 47: Core lending advances and provisions: broader Africa, UK

    RESULTS PRESENTATION – 2023 FIRSTRAND 45 SA retail and commercial stage 2 arrears, and stage 3 operational NPLs 89 Retail mortgages Retail Mortgages WesBank VAF 7.3% 7.0% 3.6% 3.5% 3.6% 3.7% 5.7% 3.4% 3.2% 3.1% 4.6% 5.9% 4.0% 3.7% 3.5% 2.0% 2.1% 4.5% 1.5% 3.6% 3.4% 3.4% 3.5% 1.4% 1.5% 3.2% 1.2% 1.1%

  48. Slide 48: SA stage 2 arrears and NPLs; UK credit performance

    46 FIRSTRAND GROUP Annexures Unpacking impact of balance sheet movement on impairment charge 91 Core lending advances Coverage Impairment charge R billion % R million 1 311 1 511 15% 10 949 57 13% 45.3% 2023 115 2% Write-offs* and 51 modification loss 113 and other 49.8% 2022 10 068 Stage 3 10.69

  49. Slide 49: Balance sheet impact on impairment charge

    RESULTS PRESENTATION – 2023 FIRSTRAND 47 Faster IT cost growth highlighting continuing platform journey 93 Operating expenses* Operating expenses excluding IT costs* CAGR: 5.7% CAGR: 4.2% 5-year average inflation 4.8% 61 545 46 036 55 279 11% 41 998  10% 51 215 52 130 39 046 39 761 39 487 49 231

  50. Slide 50: IT cost growth and topline jaws

    48 FIRSTRAND GROUP Annexures Run and grow cost growth – staff costs and investment spend 95 28% 13% 3% 13% 18% FNB 12% WesBank 12% 6% 87% 97% 12% Group 6% 12% 21% >100% 10% 88% 15% 12% UK RMB operations* 16% 19% 90% Run Change 85% 10% 15% * Calculated in pound terms. Note: Run costs i

  51. Slide 51: Run and grow cost growth

  52. Slide 52: www.firstrand.co.za

    www.firstrand.co.za

FirstRand — FY2023 Earnings Presentation on 6ix