Slide 1: Absa Group Limited Financial Results
Absa Group Limited Financial Results For the year ended 31 December 2008 1
Slide 2: Financial Overview
Financial Overview Jacques Schindehütte Group Financial Director 2
Slide 3: Financial Highlights
Financial Highlights • Attributable earnings of R10,6bn (½ 10%) • Headline earnings of R9,9 billion (½ 5%) • Diluted headline earnings per share of 1 412 cents (½ 7%) • Dividends per share of 595 cents (½ 6%) • Net asset value per share of 6 950 cents (½ 26%) • Return on equity of 23.4% • Tier 1 cap
Slide 4: Strong Growth From Commercial & Investment Banking
Strong Growth From Commercial & Investment Banking Earnings Earnings Earnings growth composition RoE Rm % % % Retail Bank 3 706 (25) 35 20 Commercial Bank 2 806 30 26 25 Absa Capital 2 249 30 21 21 Bancassurance 1 597 6 15 40 Corporate Centre 691 - 7 - Preference Dividends (457) (46) (4) - Absa Grou
Slide 5: A Resilient Performance
A Resilient Performance 2008 2007 Change Rm Rm % Net interest income 21 795 18 890. ½ 15 Non-interest income 21 115 16 756. ½ 26 Top line revenue 42 910 35 646 ½ 20 Impairment charge (5 839) (2 433) ½ 140 Operating expenditure (21 935) (19 209) ½ 14 Taxation (3 966) (4 052) ¾ 2 Attributable earnings
Slide 6: Capital and Liability Focus
Capital and Liability Focus 2008 Growth 2008 Growth Assets Capital and Liabilities Rbn % Rbn % Retail advances 348 11 Retail deposits 135 32 Commercial Advances 120 33 • High margin 78 11 Absa Capital advances 64 21 • Low margin 57 79 Total advances 532 17 Commercial deposits 100 29 Trading assets 7
Slide 7: Interest Margin Remains Under Pressure
Interest Margin Remains Under Pressure Margin Basis Points Compression Decline in margin on total assets 35 • Increase in non-interest earning assets (15) Decline in margin on interest-earnings assets 20 Represented by: • Advances pricing and composition 3 • Endowment impact on capital 7 • Deposit p
Slide 8: Strong Growth in Non-interest Income
Strong Growth in Non-interest Income 2008 Change Mix Rm % % Net fee and commission income 13 343 ½ 15 66 Net trading income 2 111 ½ 92 10 Bancassurance – premium income and policyholders’ benefits 2 156 ½ 12 11 Hedging activities and other income 1 062 ½ 21 5 Investment income 1 703 ½ 6 8 Non-intere
Slide 9: Prolonged Higher Rates Impact on Recovery Values
Prolonged Higher Rates Impact on Recovery Values NPLs Impairment Ratios 2008 2007 2008 2007 2008 Impairments % % % % H1 % Retail Bank 5.0 2.2 1.68 0.74 1.21 • Home loans 5.4 2.2 1.19 0.26 0.81 • AVAF 3.3 1.5 2.31 1.14 1.57 • Card 7.5 7.6 5.65 3.50 4.46 • Instalment / products 9.8 6.5 8.15 5.34 8.01
Slide 10: Improved Cost-to-income Ratio
Improved Cost-to-income Ratio (%) • Staff rationalisation 57.0 • Consolidated regional 53.8 structures from 10 to 6 51.7 49.4 • Reduction in head office structures 20.4 19.2 • Closure of under-performing 18.0 branches 14.9 • Reallocation of under- 14.2 14.6 13.2 performing ATM’s 12.1 • Introduced st
Slide 11: Strong Capital Position
Strong Capital Position 2008 Mix Capital Demand Capital Adequacy (%) Bank Group Rbn % Credit risk 294 77 Core Tier I 9.7 10.3 • Retail Tier I 11.0 11.6 141 48 Tier II 3.0 2.5 • ACBB 69 23 Total 14.0 14.1 • Absa Capital 55 19 • Africa and other Capital Generation (Rbn) assets 29 10 Operational risk 4
Slide 12: On Reflection – A Resilient Performance
On Reflection – A Resilient Performance • Non retail businesses excel • Retail impairments building to a peak but well controlled • Advances growth and margin under pressure • Responsive approach to cost management • Capital and Risk Management intensified 12
Slide 13: Retail and Commercial Bank Overview
Retail and Commercial Bank Overview Louis von Zeuner Chief Executive 13
Slide 14: Financial Highlights
Financial Highlights Attributable Earnings (Rm) 6000 • Revenue of R24.9 billion (½ 15%) 5000 • Attributable earnings of R3.7billion (¾ 25%) 4000 • Contribution to Group 3000 earnings of 35.8% (F07 contribution: 47.8%) 2000 • Sharp rise in impairments 3 706 4 943 of 159% 1000 • Cost to income ratio d
Slide 15: Key Performance Highlights
Key Performance Highlights • Largest individual deposit base • 10 million customers banked with Absa (½ 12%) • Strong growth in electronic channels – Internet users increased 14% to more than 1 million users – Internet transactions increased 25% – Cellphone banking transactions increased 74% • Leadi
Slide 16: Advances Growth Slowing, 32% rise in Deposits
Advances Growth Slowing, 32% rise in Deposits Dec Dec Change Market Gross Loans and Advances (Rm) 2008 2007 % share1 ¾ Mortgage loans 252 704 225 713 12 1 ¾ Vehicle finance 47 798 47 159 1 3 Card advances 19 522 13 831 41 ½ 2 Instalment loans 14 665 12 459 18 ¾ 2 ¾ Total net loans and advances Rm 34
Slide 17: Strong Revenue Growth From Unsecured Lending
Strong Revenue Growth From Unsecured Lending Dec Dec Change • Increase in overall margin on Total Income (Rm) 2008 2007 % net assets due to strong retail deposit growth, despite Secured the higher cost of wholesale • Home loans 4 180 3 891 7 funding • AVAF 2 578 2 350 10 • Improvement in advances ma
Slide 18: Consumer Distress Impacting Impairment Levels
Consumer Distress Impacting Impairment Levels Dec Dec Change • Sustained period of rising Impairment Ratio 2008 2007 % interest rates and high inflation Secured • Reduced ability of customers • Home loans 1.19 0.26 358 to service debt • AVAF 2.31 1.14 103 • Impairments accelerated Unsecured towards
Slide 19: Repossessions Continue to Rise
Repossessions Continue to Rise Vehicle Repossessions 5000 • Number of vehicles repossessed has increased 35% year on year 4000 • Number of vehicles repossessed in 3000 Q4 2008 18% down on peak in Q3 2000 • 76% of vehicles repossessed are 1000 sold within 60 days 0 Q1 Q2 Q3 Q4 Property Sales in Execu
Slide 20: Recoveries are Under Pressure
Recoveries are Under Pressure Vehicle Recovery % • AVAF recovery as a percentage of 54 debt outstanding is more resilient 52 50 • Average sales value per vehicle is 48 up 2% year on year 46 44 42 40 Q1 Q2 Q3 Q4 Property Sales in Execution Recovery % • Sales in execution recovery 120 percentage down
Slide 21: Higher Impairments Driven by Delinquencies and NPL's
Higher Impairments Driven by Delinquencies and NPL’s AHL New Booked Performance Trends Home Loans Based on Application Date 10 4 000 1.6 8 % Performance R'm Booked 3 000 1.2 % 6 2 000 0.8 4 2 1 000 0.4 0 0 0 Nov 08 Dec'08 Jan 08 Jun 08 Mar 08 Feb 08 Jul 08 Dec 07 May 08 Aug 08 Sep 08 Apr 08 Oct 08 D
Slide 22: Quality Long Dated Home Loans Book
Quality Long Dated Home Loans Book 16% Age Analysis • 60% of book older than 2 years • Less than 1 year granted under more stringent criteria – Loan to value caps 23% 60% – Affordability – Ability to repay Less than 1 year Between 1 & 2 years More than 2 years Loan to Value 11% • 76% of book has les
Slide 23: Outlook
Outlook • Impairments remain a challenge • Advances growth to slow further • Risk of rising unemployment • Slow down in property price growth Proactive Risk Management • Grow retail deposits • Risk based pricing • Capitalise on cost management initiatives • Improve cross sell opportunities 23
Slide 24: Commercial Bank Overview
Commercial Bank Overview 24
Slide 25: Key Highlights - ACBB
Key Highlights - ACBB Attributable Earnings (Rm) • Attributable earnings of R2.8billion (½ 30%) 3000 • Revenue of R8.7billion (½ 20%) 2500 • Transaction volumes up 10% 2000 • Impairments well controlled, impairment ratio of 0.28 % 1500 • Cost to income ratio improves from 51.8% to 49.8% 1000 2 806 2
Slide 26: Strong Advances and Deposit Growth
Strong Advances and Deposit Growth Dec Dec Change Abridged Income Statement (Rm) 2008 2007 % Net interest 5 937 4 725 26 Non interest income 2 763 2 500 11 Impairments (287) (288) - Operating costs5 (4 402) (3 752) 17 Profit before tax 4 011 3 185 26 Attributable income 2 805 2 167 29 Abridged Balan
Slide 27: Outlook
Outlook • Marginal rise in impairments • Advances growth slowing • Synergies with Absa Capital • Further product and income diversification Proactive Risk Management • Margin Management • Capital management • Pricing for Risk • Containment of Costs 27
Slide 28: Absa Financial Services Overview
Absa Financial Services Overview Willie Lategan Chief Executive 28
Slide 29: Financial Highlights
Financial Highlights Business Unit Growth • Attributable earnings of Earnings Mix (%) R1 597m (½ 6.3%) ¾ 28% • Operational earnings (½ 16.4%) 19 29 14 ½ 47% • Investment income contribution to earnings of 19% (FY07: 29%) 10 14 ¾ 4% 15 • Net inflow of non - money 18 ½ 16% market mandates of R9,4bn 16
Slide 30: Key Performance Highlights
Key Performance Highlights • Reduced volatility of earnings and reliance on investment income • Investment performance by Absa Asset Management • Expansion of distribution capacity • Scale in Employee benefits business • Successful product initiatives (@Ease; Absa idirect; MyAbsa) • Solutions for co
Slide 31: Absa Life Writing Profitable Business
Absa Life Writing Profitable Business Dec Dec Change • Improved new business Life Insurance 2008 2007 % margins to 7.4% (FY07: 5.3%) Gross premium income Rm 1 207 1 202 ½ 0.4 • Continued good underwriting experience Embedded value of new business Rm 331 213 ½ 55.4 • Successful launching of @Ease, ma
Slide 32: Insurance Top-line Growth Whilst Maintaining Quality
Insurance Top-line Growth Whilst Maintaining Quality Change • Growth in both the personal Short-term Insurance 2008 2007 % and commercial business Gross premium • Successful launching of income Rm 2 764 2 305 ½ 19.3 Absa idirect contributed to premium growth Underwriting profit Rm 263 255 ½ 3.1 • Tu
Slide 33: Core Performance Drivers Strategic Focus
Core Performance Drivers • Unique and differentiated Bancassurance business model • Well diversified portfolio of products & services • Largest broker distribution network in SA • Shared infrastructure with Absa Group Strategic Focus • Drive organic growth by focusing on key customer value propositi
Slide 34: Absa Capital Overview
Absa Capital Overview John Vitalo Chief Executive 34
Slide 35: Revenue and Attributable Earnings Grew Strongly
Revenue and Attributable Earnings Grew Strongly Revenue (Rm6) • Revenue of R5.3billion (½ 38%) CAGR 46% 5 348 (‘06–’08) • Attributable earnings of R2.2billion (½ 30%) • Contribution to Group earnings 3 869 2 098 of 21.7% (F07 contribution: 16.8%) 1 638 • Growth in non-interest income 2 519 mainly du
Slide 36: Growth in Revenue Across All Business Units
Growth in Revenue Across All Business Units • Strong revenue growth in Secondary Markets • Primary Markets performed well despite challenging capital market conditions • Equity Investments and Investor Services delivered revenue on par with prior year with fluctuations offsetting in various business
Slide 37: Strong Focus on Cost Management and Productivity
Strong Focus on Cost Management and Productivity Cost to Income Ratio (%) • Business continues to have a 37.5 35.4 41.0 strong focus on cost management • Cost management approach – 62.5 64.6 59.0 cost base responsive to revenue conditions • Productivity per head continues Dec 06 Dec 07 Dec 08 to gro
Slide 38: Secondary Markets Continued to Grow Revenue Rapidly
Secondary Markets Continued to Grow Revenue Rapidly P&L Distribution Per Significant Product (Rm) 1 500 • Revenue growth of 110% • Contributed 55.0% to Absa 1 000 Capital’s revenue • P&L distribution has shifted to 500 the right (compared to prior years - increased days with positive P&L) 0 Interest
Slide 39: Primary Markets Grew While Continuing to Optimise Balance Sheet Usage
Primary Markets Grew While Continuing to Optimise Balance Sheet Usage Revenue Mix (Rm) • Revenue growth of 14% CAGR 17% (06’-08’) • Contributed 33.1% to 1 551 Absa Capital’s revenue 1 244 • Performance driven by: 1 130 CAGR 35% – Client-centric business model (06’-08’) – Leveraging off Barclays Capi
Slide 40: Difficult Conditions for Equity Investments and Investor Services
Difficult Conditions for Equity Investments and Investor Services • Revenue increased by 1% Revenue (Rm) • Contributed 11.9% to Absa Capital’s revenue CAGR 20% (‘06–’08) • Performance negatively impacted by equity market conditions 638 646 • Fund raising for semi-captive private equity fund remains
Slide 41: Strategic Focus Going Forward
Strategic Focus Going Forward • Continue to invest in support infrastructure and robust controls • Grow the distribution client franchise • Optimize usage of balance sheet and capital • Be the employer of choice for top talent • Increase risk management penetration with our clients • Develop opportu
Slide 42: The Way Forward
The Way Forward Steve Booysen Group Chief Executive 42
Slide 43: The Incredible Situation in Global Markets
The Incredible Situation in Global Markets • Global banking conditions under pressure • Dramatic slowdown in global growth • Large scale government intervention • Heightened volatility and risk aversion 43
Slide 44: Risks to a Recovery in South Africa
Risks to a Recovery in South Africa • Risk aversion to emerging markets • Slowdown in growth • Currency volatility • Job losses • The consumer to remain under pressure 44
Slide 45: Near Term Priorities
Near Term Priorities • Focus on liability management • Profitability vs market share Maintain Profitability • Maximise cross selling • Transaction volumes and asset pricing • Specific capital demand targets • Free cash flow generation Preserve Capital • RWA relief initiatives • Higher hurdle rates •
Slide 46: Long Term Strategy Remains on Track
Long Term Strategy Remains on Track To be the Best Financial Services Provider in South Africa and Selected African markets 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
Slide 47: Excellence in Execution Delivers Results
Excellence in Execution Delivers Results • Earnings diversification • Risk focus and asset quality • The retail bank of choice • Brand and distribution dominance • Successful strategic alliance with Barclays • Strong capital position 47
Slide 48: Addendum
Addendum Financial Results For the year ended 31 December 2008 48
Slide 49: Retail Banking - Abridged Income Statement
Retail Banking - Abridged Income Statement Dec Dec Change Abridged Income Statement (Rm) 2008 2007 % Net interest 14 647 12 546 17 Non interest income 10 262 9 024 14 Impairments (5 551) (2 144) 159 Operating costs (13 538) (11 799) 15 Profit before tax 5 477 7 307 (25) Attributable income 3 706 4 9
Slide 50: ACBB Product and Sector Diversification
ACBB Product and Sector Diversification % 100 2 2 3 6 9% 80 37 8% 38 60 39% 17% 40 50 48 7% 20 20% 8 6 0 Dec 2008 Dec 2007 Corporate Large Medium CPF CAF Term CPF Equities Africa Cheque accounts Specfin Other* 50
Slide 51: ACBB Segmental Breakdown PBT
ACBB Segmental Breakdown PBT Dec Dec Change Segmental Income Statement (Rm) 2008 2007 % Corporate 317 204 55 Large 2 007 1 514 33 Medium 1 476 1 205 22 CPF Equities • Listed (98) 195 (150) • Unlisted 231 Africa 76 66 15 Total 4 009 3 184 26 51
Slide 52: ACBB Balance Sheet Growth
ACBB Balance Sheet Growth Dec Dec Change Balance Sheet (Rm) 2008 2007 % Term Loans 8 667 7 874 10 CPF 47 104 36 222 30 Cheques 20 748 14 024 48 CAF 23 547 18 155 30 Specfin 9 071 5 932 53 Other 10 906 8 132 34 Loans and advances 120 045 90 340 33 52
Slide 53: Impairments - ACBB
Impairments - ACBB Dec Dec Change Impairment Ratio (%) 2008 2007 % CAF 0.25 0.13 (92) CPF 0.10 (0.03) 433 Other Loans 0.10 0.31 68 Gross Impairment Ratio 0.45 0.41 (10) Recoveries (0.17) (0.04) (325) Impairment Ratio 0.28 0.37 24 53
Slide 54: Bancassurance
Bancassurance Life Insurance 2008 2007 Change % Embedded value Rm 2 092 2 091 ½ 0.1 Embedded value earnings Rm 747 543 ½ 37.5 Net operating income Rm 746 610 ½ 22.3 Net income after tax Rm 631 524 ½ 20.4 Short-term Insurance Loss ratio % 66.0 61.9 ½ 4.1 Combined loss ratio % 89.8 88.5 ½ 1.3 Net oper
Slide 55: Bancassurance
Bancassurance Investments 2008 2007 Change % Assets under management Rbn 117 118 ¾ 1.1 Net flows (total) Rm 6 922 16 046 ¾ 56.9 Net flows (non - money market) Rm 9 358 7 989 ½ 17.1 Cost to income % 52 51 ½ 1.0 Net operating income Rm 289 300 ¾ 3.7 Net income after tax Rm 213 227 ¾ 6.2 Fiduciary Asse
Slide 56: Acquisitions as a result of Single Stock Futures Defaults
Acquisitions as a result of Single Stock Futures Defaults Number of % of Issued Acquisition Share Name shares Ordinary Cost Accounting basis (million) Shares Rm Pinnacle Point Group 1 259.6 28 931.4 Equity accounted Sekunjalo Investments 84.9 17 36.5 Equity accounted7 Blue Financial Services 95.9 16