FirstRand Limited · JSE:FSR
FirstRand — FY2007 Earnings Presentation
167 slides from FirstRand's earnings presentation, September 2007
Slide 1: Financial review for the year ended 30 June 2007
Financial review for the year ended 30 June 2007 O O 4) O — (e)) O 4+) ‘= @) FIRSTRAND
Slide 2: Strong growth in earnings & returns
Strong growth in earnings & returns R’ mil June ’07 June’06 % change Normalised earnings 11 845 8 958 32 Normalised earnings per share - Basic 210.2 159.4 32 - Diluted 210.1 159.2 32 Headline earnings per share - Basic 202.5 157.8 28 - Diluted 196.8 152.6 29 Return on equity (%) 28 25 Dividend per s
Slide 3: Bank remains largest contributor
Bank remains largest 4% contributor 14% Banking Group Momentum Group Discovery Group 82% * Based on normalised earnings, excluding the FirstRand centre and NCNR preference shares
Slide 4: Segment diversification
Segment diversification 2006 2007 2% 1% 19% 22% 27% 33% 43% 53% 24% 20% 33% 19% Retail Corporate & commercial Investment banking Insurance Centre * Based on normalised earnings
Slide 5: Good returns from a diversified portfolio of strong franchises
Good returns from a diversified portfolio of strong franchises 5% 2% Return on Equity % FNB 33 13% FNB Africa 33 35% RMB 43 8% WesBank 18 Momentum 25 Discovery 22 OUTsurance 64 33% 4% * Based on normalised earnings
Slide 6: Global ascendancy of investment banking
Global ascendancy of investment banking * * Citigroup Barclays FirstRand 100% 90% 80% 70% 60% 50% 40% 30% 45% 20% 33% 30% 33% 10% 20% 16% 0% 2002 2006 2002 2006 2002 2007 Investment banking Other * Source: Morgan Stanley
Slide 7: Diverse sources of income
Diverse sources of income 6% Corporate client flows 2% 1% Resources 15% Momentum Risk Lending 1% Outsurance & WesBank 24% Transactional 4% Private equity income 1% Investment Client flowsincome 4% Other income Structured lending 3% Risk 11% Discovery Net interest income 1% Capital 27% * Excludes Fir
Slide 8: Diverse sources of income
Diverse sources of income 26% Transactional income
Slide 9: Diverse sources of income
Diverse sources of income Net interest income 30%
Slide 10: Diverse sources of income
Diverse sources of income 15% Momentum Lending 26% Client flows Risk 11% Discovery
Slide 11: Diverse sources of income
Diverse sources of income 7% Risk 4% Private equity Client flows Approximately 80% of earnings from client franchise
Slide 12: Performance against financial targets
Performance against financial targets 65% OUTsurance 60% 10% real growth 55% 50% RMB 45% 40% FNB ROE 35% FNB Africa 30% Momentum 25% Discovery 10% plus FirstRand WACC 20% WesBank 15% 10% -20% 0% 20% 40% 60% 80% Normalised earnings growth * Momentum growth of 19% adjusted for special dividend
Slide 13: Premium returns over cost of equity
Premium returns over cost of equity R’ bil 50 28% 25% 25% 25% 25% 40 23% 23% 30 17% 16% 15% 14% 14% 13% 12% 20 10 0 Jun '01 Jun '02 Jun '03 Jun '04 Jun '05 Jun '06 Jun '07 NAV (excluding dividends) NAV (including dividends) Return on equity Average cost of equity * Based on normalised NAV
Slide 14: Capital efficiency and asset yields drive banking returns
Capital efficiency and asset yields drive banking returns 18 8% 7.30% Percentage to average assets 6.90% 6.80% 6.40% 6.40% 7% 17 Gearing multiple 5.70% 5.80% 6% 4.3% 16 5% 15 4% 4.30% 3.90% 3.70% 3.50% 3.70% 3.80% 3.40% 3% 14 2% 1.8% 2.0% 13 1.6% 1.6% 1.8% 1.3% 1.5% 1% 12 0% Jun '01 Jun '02 Jun '03
Slide 15: Capital efficiency & product innovation drive Momentum returns
Capital efficiency & product innovation drive Momentum returns CAR as a percentage of liabilities 8% 7.3% 7% 5.7% 6% 5.0% 5% 4.0% 4% 3.3% 3% 2.6% 2.4% 2.1% 1.7% 1.6% 2% 1% 0% Jun '98 Jun '00 Jun '02 Jun '04 Jun '06 Large companies Momentum
Slide 16: Bank well capitalised
Bank well capitalised Actual % 14% 13.6 Target minimum capital adequacy 12% 12% 10% 9.8 8% Target minimum core equity 7.25% 6% Basel II minimum core equity 5.25% 4% 2% Jun '04 Jun '05 Jun '06 Jun '07 Core equity Perpertual preference shares Upper Tier 2 Lower Tier 2
Slide 17: Capital backing banking risks
Capital backing banking 5% 7% risks 5% Investment 11% Credit - domestic Credit - international 5% Market Operational 4% Business & other Interest rate 63%
Slide 18: Capital backing insurance risks
Capital backing insurance R’ mil risks 7,000 Target 2.8 x CAR 1.7 - 1.9 times 6,000 2.3 x CAR Reduction in economic Special dividend 5,000 capital Normal dividend 4,000 1.2 x CAR 0.9 x CAR 3,000 2,000 1 x CAR 1 x CAR 1,000 0 Jun '06 Jun '07 Termination Mortality and morbidity Expense Investment Cred
Slide 19: Financial review: Banking Group
Financial review for the year ended 30 June 2007 2) FIRSTRAND ” Banking Group
Slide 20: Bank delivers on key measures
Bank delivers on key measures June ’07 June ’06 % change Normalised earnings (R’ mil) 10 041 7 463 35 Return on equity (%) 31 28 Return on assets (%) 1.98 1.81 Credit loss ratio* (%) 0.81 0.50 62 Cost to income ratio (%) 51.7 54.0 * After insurance claim
Slide 21: Financial highlights
Financial highlights R’ mil June ’07 June ’06 change • Net interest income 13 998 10 895 28% • Credit impairment charge (2 857) (1 411) 102% • Net interest income after impairments 11 141 9 484 17% • Non interest revenue 22 849 16 933 35% Non interest revenue 20 836 15 674 33% Associate earnings 2 0
Slide 22: Financial highlights
Financial highlights June ’07 June ’06 • Net interest income 13 998 10 895 28% • Credit impairment charge (2 857) (1 411) 102% • Non interest revenue 22 849 16 933 35% • Operating expenses (19 042) (15 037) 27% • Taxation expense (3 844) (3 012) 28%
Slide 23: Impairments dampen benefits of asset growth and endowment
Impairments dampen benefits of asset growth and endowment June ’07 June ’06 change • Net interest income 13 998 10 895 28% • Credit impairment charge (2 857) (1 411) 102% • Net interest income after impairments 11 141 9 484 17% Bad debts offset 13 % of asset growth
Slide 24: Strong growth in advances continues
Strong growth in advances continues R’ bil 388 bil 400 3 (1%) 320 bil 350 39% 93 (24%) 7 (3%) 300 67 (21%) 21% 20 (5%) 250 49 (13%) 17 (5%) 7% 46 (14%) 200 150 22% 100 223 (57%) 183 (57%) 50 0 Jun '06 Jun '07 Retail Corporate Commercial Investment banking Other
Slide 25: Asset backed dominates retail advances
Asset backed dominates retail advances R’ bil 250 223 bil 200 183 bil 19% 67 (30%) 150 56 (30%) 87% 22% asset backed 100 128(57%) 105 (57%) 50 30% 10 (6%) 13 (6%) 0 12 (7%) 15 (7%) Jun '06 Jun '07 Other Card HomeLoans Auto loans
Slide 26: Liability strategy & endowment enhances margin
Liability strategy & endowment enhances margin 5% 0.16% 0.35% 3.95% 4.01% 4% -0.10% -0.10% -0.10% -0.15% 3% 2% 1% 0% Jun '06 Liability Capital Advances Funding / Hedges Other Jun '07 margins endowment margins liquidity
Slide 27: Asset margins under pressure
Asset margins under pressure Weighting % June ’07 June ’06 Asset backed mortgages 47 2.06 2.27 Instalment sales 30 3.47 3.53 Card debtors 5 6.45 7.03 Overdraft and loans 5 5.46 5.10 Personal loans 5 7.86 7.12 Other banking advances 8 2.08 2.31 Total 100 3.16 3.26 Lending margin down 10 bps * Based o
Slide 28: Liability margins improve through endowment benefit
Liability margins improve through endowment benefit Weighting % June ’07 June ’06 Current and savings 28 5.95 5.10 Money market 13 1.45 1.49 Call 18 1.43 1.23 Notice deposits 19 1.13 0.90 Fixed deposits 9 0.87 0.74 Managed account creditors 13 1.73 1.45 Total 100 2.61 2.26 Funding margin up 35 bps *
Slide 29: Financial highlights
Financial highlights June ’07 June ’06 • Net interest income 13 998 10 895 28% • Credit impairment charge (2 857) (1 411) 102% • Non interest revenue 22 849 16 933 35% • Operating expenses (19 042) (15 037) 27% • Taxation expense (3 844) (3 012) 28%
Slide 30: Credit themes
Credit themes • Bad debts reflect impact of cycle caused by higher indebtedness and higher interest rates • Actual versus expected charge off • Manage credit markets impact on current portfolio and origination strategies
Slide 31: NPL's and bad debts continue upward trend
NPL’s and bad debts continue upward trend Turbulent:1.60 5.6 NCA and 50bps interest increase 1.50 amount to an extra 9 bps 4.3 1.30 1.12 3.5 0.90 0.81 3.0 2.6 Long run expected loss: 0.8 2.4 0.81 2.1 0.42 2.0 0.50 Calm:0.40 1.6 1.7 1.7 1.7 1.4 1.4 1.3 1.2 0.321.2 1.0 1999 2000 2001 2002 2003 2004 20
Slide 32: Retail main contributor to bad debts
Retail main contributor to bad debts Percentage of average advances For the period ended June ’07 June ’06 Non performing loans - Retail* 2.3% 1.5% - Corporate and commercial** 1.3% 1.5% - Investment banking*** 0.5% 0.8% Total 1.70% 1.30% Bad debts - Retail* 1.34% 0.83% - Corporate and commercial**
Slide 33: Affordability drives higher impairments
Affordability drives higher impairments 1.60% 16.00% 1.40% 14.00% Repayment rate 1.20% 12.00% 110 – 120 bps Impairments 1.00% 90 -110 bps 10.00% 0.80% 8.00% 0.60% 6.00% 0.40% 4.00% 0.20% 2.00% 0.00% 0.00% 1988 1991 1994 1997 2000 2003 2006 2009 Historical impairmentsHistorical impairmentsHistorical
Slide 34: Credit themes
Credit themes • Bad debts reflect impact of cycle caused by higher indebtedness and higher interest rates • Actual versus expected charge off • Manage credit markets impact on current portfolio and origination strategies
Slide 35: Bad debts at the higher end of projected range
Bad debts at the higher end of projected range 1.2% Protection against 1.0% negative gearing Upper end of income statement range 0.8% Bad debts 0.6% 0.4% Oct Dec June Aug Aug Prime rate: 11% 11.5% 12% 12.5% 13% 13.5% 0.2% 0.0% 30 June '06 '+50 '+100 '+200 '+300 bps Interest rates Lower Expected Uppe
Slide 36: Credit themes
Credit themes • Bad debts reflect impact of cycle caused by higher indebtedness and higher interest rates • Actual versus expected charge off • Manage credit markets impact on current portfolio and origination strategies
Slide 37: Financial highlights
Financial highlights June ’07 June ’06 • Net interest income 13 998 10 895 28% • Credit impairment charge (2 857) (1 411) 102% • Non interest revenue 22 849 16 933 35% • Operating expenses (19 042) (15 037) 27% • Taxation expense (3 844) (3 012) 28%
Slide 38: Diversification in non interest revenue
Diversification in non interest revenue 1% WesBank and OUTsurance 6% 31% 5% Private equity Other 1% Other investment Transactional income Fair value 16% 1% Resources Interest income 39% * Associate income split into appropriate non interest revenue categories
Slide 39: Diversification in non interest revenue
Diversification in non interest revenue 31% Transactional income
Slide 40: Economic activity drives transactional income
Economic activity drives transactional income R’ mil 14,000 23% 12,000 • FNB - transactional and customer volumes 10,000 • RMB - corporate activity 8,000 • WesBank - new business volumes 6,000 120% 4,000 -10% 22% 2,000 0 Transactional Fair value Investment Other 2006 2007
Slide 41: Diversification in non interest revenue
Diversification in non interest revenue 5% Private equity
Slide 42: Good balance between annuity income and realisations
Good balance between annuity income and realisations 2006 2007 R’ mil 14,000 12,000 Profit on Annuity 10,000 Annuity realisations income Profit on income 42% realisations 49% 8,000 51% 58% 6,000 4,000 -10% 22% 30% 2,000 0 Private equity Other Transactional Fair value 2006 2007
Slide 43: Diversification in non interest revenue
Diversification in non interest revenue Fair value 17%
Slide 44: Almost half of fair value income from client activity
Almost half of fair value income from client activity 51% R’ mil June ’07 June ’06 % change • Lending 1 379 1 164 18 Risk • Client flows 1 215 949 28 • Risk 3 322 1 180 182 Transactional Capital 9% • Capital 550 613 (10) Lending 19% Total 6 466 3 906 66 21% The rest of fair value represents only 9 %
Slide 45: Financial highlights
Financial highlights June ’07 June ’06 • Net interest income 13 998 10 895 28% • Credit impairment charge (2 857) (1 411) 102% • Non interest revenue 22 849 16 933 35% • Operating expenses (19 042) (15 037) 27% • Taxation expense (3 844) (3 012) 28%
Slide 46: Top line growth drives operational leverage
Top line growth drives operational leverage R’ mil 40,000 60% 60% +32.4% 35,000 58% 30,000 57% 56% Jaws =5.8% 55% 25,000 54% 20,000 15,000 52% 10,000 +26.6% 5,000 0 June '00 June '01 June '02 June '03 June '04 June '05 June '06 June '07 Total income Total costs Cost to income
Slide 47: Spending for top line growth
Spending for top line growth June ’07 June ’06 % change R’ mil Cost Cost Base Cost 15 179 12 843 18 - International expansion 759 327 >100 - Share based expenses 289 147 97 - Performance linked expenses 2 579 1 652 56 - New initiatives 236 68 >100 FirstRand Banking Group 19 042 15 037 27
Slide 48: Improving efficiencies remains a focus
Improving efficiencies remains a focus June ’07 Jun ’06 Top line Cost Cost to Cost to growth growth income ratio income ratio R’ mil % % % % FNB 23.4 16.9 59.9 63.2 - Retail 25.4 20.3 61.5 64.1 - Corporate & commercial 20.1 11.1 57.2 61.9 FNB Africa 24.3 20.4 43.8 45.2 WesBank 35.8 48.4 53.4 48.9 RM
Slide 49: Financial highlights
Financial highlights June ’07 June ’06 • Net interest income 13 998 10 895 28% • Credit impairment charge (2 857) (1 411) 102% • Non interest revenue 22 849 16 933 35% • Operating expenses (19 042) (15 037) 27% • Taxation expense (3 844) (3 012) 28%
Slide 50: Effective tax rate
Effective tax rate 40% 30% 27.60% 26.50% 20% 10% 0% 2006 2007
Slide 51: Financial review: Momentum
Financial review for the year ended 30 June 2007 momentum
Slide 52: Good operating performance
Good operating performance R’ mil June ’07 June ’06 % change Insurance operations 1 145 914 25 - Momentum insurance 1 000 859 16 - FNB insurance 145 55 >100 Asset management operations 340 312 9 Group operating profit 1 485 1 226 21 Investment income on shareholder assets 231 288 (20) Normalised ear
Slide 53: EV growth shows true profit
EV growth shows true profit R’ mil Capital appreciation Investment variations 4,000 CAGR 51%pa Other 3,500 Investment Income Operating profit 3,000 EV Adjusted EV profit 2,500 Normalised earnings 2,000 CAGR 16%pa 1,500 I/S 1,000 500 0 -500 Jun '03 Jun '04 Jun '05 Jun '06 Jun '07 * Adjusted EV profit
Slide 54: Financial review: Discovery
Financial review for the year ended 30 June 2007 (] 2 4) © > O c ‘= Discovery
Slide 55: Strong operational performance
Strong operational performance Growth R’ mil June ’07 June ’06 % Discovery Health 736 655 12 Discovery Life 707 546 29 Discovery Vitality 43 41 5 Destiny Health (102) (151) 32 PruHealth (218) (146) (49) PruProtect (36) - (>100) Operating profit 1 130 945 20 After tax profit, before BEE *1 107 830 33
Slide 56: Operational review: Banking Group
Operational review for the year ended 30 June 2007 FIRSTRAND Banking Group
Slide 57: Good environment for banks
Good environment for banks • SA Banking market in good shape • Despite 250bps hike in interest rates retail demand for credit remains robust, but slowing • Higher capital expenditure and corporate activity driving corporate sector growth • Financial markets provide excellent opportunities for invest
Slide 58: Customer numbers & transaction volumes drive growth
Customer numbers & transaction volumes drive growth 000’s June ’07 June ’06 Retail Customer base 5 816 5 290 10% InContact accounts 5 032 3 417 47% eBucks customers 1 207 982 23% Internet bankers 697 537 30% Cellphone bankers 379 218 74% South African Retail clients only
Slide 59: Retail remains robust
Retail remains robust R ’mil • 35% Customer numbers and transaction volumes have 5,000 increased 7% • Slower advances growth to normalised levels 3,203 2,985 • Higher bad debts 82% • NCA was well implemented and limited impact going forward2985 32% • Competition Commission on-going (1)% but no impac
Slide 60: Shift to corporate & commercial
Shift to corporate & commercial R ’mil • Growth in advances driven mainly by 3,000 35% mid-corporate and WesBank 2,311 • Deposit franchise a key part of the growth strategy 1,706 1,500 • Strong growth in transactional volumes, particularly in the electronic banking channels 0 Corporate & Retail Inve
Slide 61: Investment banking was exceptional
Investment banking was exceptional R ’mil • Equity trading business benefited from buoyant 35% 5,000 financial markets 82% 4,247 3,910 • BEE was good 3,731 for private equity and corporate finance opportunities • Increased client flows, volatility and direction 2,500 for FiCC 82% 2,148 • 1,267 Lazy
Slide 62: Rotation to corporate & investment banking
Rotation to corporate & investment banking 35% R ’mil 10,041 10,000 7,463 82% 7% 5,000 35% 3,910 2,985 3,203 2,311 2,148 1,706 (1)% 624 617 0 Retail Corporate & Investment Other Total Commercial banking June '06 June '07 * Normalised earnings
Slide 63: Changing composition
Changing composition 2006 2007 8% 6% 32% 29% 40% 39% 23% 23% Retail Corporate Investment banking Other * Normalised earnings
Slide 64: Banking hits R10 billion
Banking hits R10 billion Normalised earnings % Growth FNB R4.14 billion 27 RMB R3.91 billion 82 WesBank R0.92 billion (13) Africa R0.46 billion 21 Other R0.61 billion (1) Total R10.04 billion 35
Slide 65: Rand Merchant Bank results
a RAND MERCHANT seliios of FirstRand Bank Limited results
Slide 66: Strong profit growth
Strong profit growth R’ mil Profit before tax 6,000 5 343 5,000 81% 4,000 3,000 2,000 1,000 0 2006 2007 Return on Equity 43 %
Slide 67: Off an already high base
Off an already high base R’ mil Profit before tax 6,000 5 343 5,000 4,000 81% 3,000 39% 2,000 37% 31% 1,000 0 2003 2004 2005 2006 2007
Slide 68: From a well balanced portfolio
From a well balanced portfolio Other 10% Equities Trading 27% FiCC 14% Investment Private Equity Banking 25% 24% * Percentage net income per division
Slide 69: Reflected in diversity of earnings
…reflected in diversity of earnings Structuring and fees 17% Trading 34% Lending 24% Investment 25% * Percentage gross income
Slide 70: And quality of earnings
…and quality of earnings 7% Fee income 43% Risk based 4% New Asset Income 46% Annuity 2007 * Percentage gross income
Slide 71: Growth across the board
Growth across the board R’ mil Profit before tax 1,600 Ï 229% 1,400 Ï 64% 1,200 Ï 54% 1,000 800 Ï 26% 600 Ï 94% 400 200 0 Equities Private Equity Investment FiCC Other Banking 2006 2007
Slide 72: Driven by favourable business environment
Driven by favourable business environment… • Strong Economy • Buoyant markets across board ¾ Equities ¾ Commodities & Currencies ¾ Interest Rates & Credit • Increased deal making activity ¾ Private equity ¾ BEE ¾ Infrastructure spend • Increased capital markets activity
Slide 73: Private equity & BEE stimulus
Private equity & BEE stimulus Hedging Acquisition & Private Equity Corporate Leveraged & Finance Finance BEE Investment
Slide 74: Infrastructure spend takes off
Infrastructure spend takes off R’ mil 100,000 Investment Banking Ports Origination & structuring 80,000 Arranging & underwriting Rail 60,000 Roads Electricity 40,000 Housing 20,000 Health FiCC FNB 0 Diesel, currency, Transactional Water inflation & interest Banking rate hedging 05 06 07 08 09 20 20
Slide 75: Driven by favourable business environment
Driven by favourable business environment… • Strong Economy • Buoyant markets across board ¾ Equities ¾ Commodities & Currencies ¾ Interest Rates & Credit • Increased deal making activity ¾ Private equity ¾ BEE ¾ Infrastructure spend • Increased capital markets activity
Slide 76: Driven by favourable business environment
Driven by favourable business environment… Relationships Equity house Niche Player Balance sheet & Product 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Ability to attract and retain intellectual capital ….and a sound strategic framework
Slide 77: Leading to a balanced business
Leading to a balanced business Brand value Rainmakers Risk Based Annuity Client relationships Product Leader Local International Balance sheet Distribution capability heavyweight Debt Equity Sound strategic framework
Slide 78: Future prospects
Future prospects Ever changing markets Sound strategic framework
Slide 79: Current market conditions
Current market conditions • Ride the boom End of under priced credit • Dance near the door • Hold vs Distribute Contagion Significant increase in volatility Market dislocations • Patience Fear replacing greed • Power Volatility increases risk - but also opportunity
Slide 80: Profitable despite changing markets
Profitable… despite changing markets Sub- prime “dotcom” crash Rand Asian LTCM collapse Crisis High Yield Market Russian Crisis Debt Crisis 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Slide 81: And the divisional prospects
…and the divisional prospects Investment Banking • Large annuity portfolio • Healthy deal pipeline
Slide 82: Consistent leaders in Investment Banking
Consistent leaders in Investment Banking Mergers Private Survey BEE Structured Year & Listings Deals Finance Equity Acquist’ns M & A Dealmaker of the year 2006 1st 1st 1st Not 2007 3rd rated M & A Dealmaker of the year 2005 2005 1st * 1st 1st 1st 1st M & A Dealmaker of the year 2004 2003 1st * n/a 7
Slide 83: And the divisional prospects
…and the divisional prospects Investment Banking Private Equity • Large annuity portfolio • Associate annuity income • Healthy deal pipeline • Pipeline of realisations FiCC • More volatility • More volume
Slide 84: Private Equity growth story
Private Equity growth story R’ mil 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 Associate Earnings Profit before tax Unrealised profits Assets Unrealised profits – R2.2bn * Associates are determined after deducting minorities and expenses
Slide 85: And the divisional prospects
…and the divisional prospects Investment Banking Private Equity • Large annuity portfolio • Associate annuity income • Healthy deal pipeline • Pipeline of realisations FiCC Equity Trading • More volatility • More volatility • More volume • More opportunity and risk
Slide 86: Good prospects, greater unpredictability
Good prospects, greater unpredictability CAGR 40% CAGR 34% • IFRS • Market volatility • Disintermediation 2001 2002 2003 2004 2005 2006 2007 2008
Slide 87: FNB results
NATIONAL SUPPORTER WORLD CUP Ff) results
Slide 88: FNB's great performance continues
FNB’s great performance continues June ’07 June’06 change Net profit before taxation (R’ mil) 5 663 4 504 26% Advances (R’ bil) ( 17% to R180b post gross-up) 162 131 24% Deposits (R’ bil) ( 13% to R168b post gross-up) 150 126 19% Net interest revenue (R’ mil) 8 372 6 576 27% Non interest revenue (R’
Slide 89: Growing profits & improving efficiency
Growing profits & improving efficiency R’ bil 6 68% 66.30% 66.3% +26% 66% 5 63.20% 64% +24% 4 62% 59.60% 60% 3 58% 2 56% Jun-05 Jun-06 Jun-07 Pre-tax profit Cost to income * Prior years restated for businesses transferred out
Slide 90: Consumer dominates advances but every segment growing
Consumer dominates advances but every segment growing Composition Growth Mass +39% Consumer +22% Wealth +32% Commercial +21% Corporate +38% (-16% post gross-up) FNB Total 162 18 +24%(+17% post gross-up) 0 50 100 150 200
Slide 91: Success in raising sticky deposits
Success in raising ‘sticky’ deposits, despite low savings rate Composition Growth Mass +16% Consumer +16% Wealth +42% Commercial +19% Corporate +25% (+2% post gross-up) FNB Total 150 18 +19% (+13% post gross-up) 0 50 100 150 200
Slide 92: FNB has a segment strategy and structure
FNB has a segment strategy and structure Income / Turnover Customer numbers Profit before tax for year ended Corporate & June ’07 R400m + Transactional 0,6k Banking Public N/A Sector 12k FNB Banking Corporate & Smart & Transactional Support Banking 7% R0k – 400m Commercial Banking 394k 9% R750k + We
Slide 93: All segments contributed
All segments contributed Profit before tax +30% -35% Corporate FNB R’ mil June ’07 June ’06 Mass & Transactional Banking Support FNB Mass & Support 367 568 Consumer 2 337 1 732 Wealth 161 101 Commercial Banking Consumer Commercial 2 275 1 700 Segment +35% Corporate 523 403 +34% Wealth Total FNB 5 66
Slide 94: A success story in Mass
A success story in Mass - 35% 7% • Support includes significant NCA provision • FNB brand resonates in the mass market • A R1 bil business • FNB 3.3m customers (up 12%) • Cherry-picking and secured lending behind 39% asset growth • 22% increase in income generating transactions • Insurance Policies
Slide 95: Customer and market share growth continues in Consumer
Customer and market share growth continues in Consumer • Profits underpinned by continued growth in: 41% • Over 2 million customers as market share increases +35% • VSI reaches 2.94 • Increasing transaction volumes support fee reductions • Product innovations • Consumer finance hub improved efficien
Slide 96: Card disappoints
Card disappoints • Profits significantly down (59%) to R156m • Dynamics: • Margins squeezed by Usury Act ceiling until March ’07 • Start-up costs of JVs • Massive growth ahead of new entrants had an anti-selection effect • Unexpected interest rate increases • Bad debts rose 85% to 5.4% of average ad
Slide 97: Plastic still being swiped
Plastic still being swiped All banks market share – credit, cheque and debit cards 32% 27% Market share 22% 17% 12% Jun '06 Jun '07 ABSA FNB NED STD Source: FNB Merchant Acquiring
Slide 98: HomeLoans: targeting ROE
HomeLoans: targeting ROE • Dynamics: • New business still dominated by intermediaries with 60% of new registrations • Commoditised HomeLoans can produce inappropriate ROE’s • Response: • Focus on ROE not market share, and on overall customer profitability • Re-engineered back-office to improve servi
Slide 99: Strong performance in Wealth
Strong performance in Wealth • The SA wealth segment is growing at the 4th fastest rate in the world after South Korea, India and Russia* 3% • Strong growth (45%) in assets-under-management to R26 billion +59 % • Start-ups show promise • Offshore wealth management offered through Ashburton * (Merril
Slide 100: New products & customers drive Commercial growth
New products & customers drive Commercial growth • Customer base grew 11% to 394,000 reflecting strong market share gains 40% +34% • 21% advances growth driven by Commercial Property Finance and invoice discounting • Sub-segment strategies in franchising, tourism and BEE • Enrich relationships using
Slide 101: Transactional banking strategy pays off for Corporate
Transactional banking strategy pays off for Corporate +30% 9% • Alternative strategy: Transactional banking • Money Market and Direct Foreign Dealing transferred from FNB IB to RMB • Growth in electronic channels • Electronic banking transactional volumes +26% • SpeedPoint volumes +31% • eForex volu
Slide 102: Africa shines
Africa shines Pre-tax profit up 25% to R927 mil; CIR 43.8% FNB Botswana FNB Mozambique • Pre-tax profit +23% to R428m • FNB Mozambique was • 34% CIR ratio despite launched on 24 July ‘07 significant expansion with an 80% stake that will increase to 90% • Deposits and Advances +12% (Pula) FNB Swazila
Slide 103: African footprint has exciting growth prospects
African footprint has exciting growth prospects Botswana Mozambique 2007: 4.7% 2007: 7.5% 2008: 4.4% 2008: 7.2% Namibia Swaziland 2007: 4.5% 2007: 1.6% 2008: 5.0% 2008: 1.4% South Africa Lesotho 2007: 4.8% 2007: 3.0% 2008: 4.5% 2008: 5.3%
Slide 104: Why FNB remains upbeat
Why FNB remains upbeat • SA and SADC economic growth will remain high • Our diversified portfolio provides for sector rotation and interest rate volatility • 2010 Sponsorship will give FNB an edge especially in black middle market • NCA and Competition Commission will have only a marginal impact on
Slide 105: WesBank
WesBank WesBank A division of FirstRand Bank tta
Slide 106: A challenging year for WesBank
A challenging year for WesBank R’ mil June ’07 June ’06 Local lending 1 519 1 451 5% International operations (149) 14 (>100%) Consolidated 1 370 1 465 (6%)
Slide 107: Performance - Curate's egg
Performance - “Curate’s egg” As expected in the current environment • Slow down in retail new business (motor and loans) • Higher bad debts • Good performance in corporate and fleet • Improved cost ratios in local operations • Losses on the international front
Slide 108: Retail new business growth flattens
Retail new business growth flattens after period of high R’ mil growth 30,000 25,000 20,000 15,000 10,000 5,000 0 Dec '02 Jun '03 Dec '03 Jun '04 Dec '04 Jun '05 Dec '05 Jun '06 Dec '06 Jun '07 Half yearly new business
Slide 109: Steady decline in advances growth
Steady decline in advances growth 25% 20% 15% 10% 5% 0% Dec '02 Jun '03 Dec '03 Jun '04 Dec '04 Jun '05 Dec '05 Jun '06 Dec '06 Jun '07 Six monthly advances growth
Slide 110: Corporate returns
Corporate returns… R’ mil Advances R ’mil Net income 100,000 1,600 90,000 1,400 +43% 264 378 80,000 +30% 26,500 1,200 70,000 20,400 1,000 60,000 50,000 800 -4% 40,000 +12% 600 1,187 1,141 65,500 30,000 58,300 400 20,000 200 10,000 0 0 Jun '06 Jun '07 Jun '06 Jun '07 Retail Corporate Retail Corporate
Slide 111: Dominant in vehicle asset finance
Dominant in vehicle asset finance 40% 30% Market share 20% 10% 0% Jun '02 Jun '03 Jun '04 Jun '05 Jun '06 Jun '07 WesBank Absa Standard Bank Nedcor Imperial Other Source: Reserve Bank DI 900 – including securitisation – Bond exchange
Slide 112: Bad debts rise as expected in this cycle
Bad debts rise as expected in this cycle • Predictable bad debt levels in higher indebtedness environment • Household debt levels impacting affordability • Price of second hand vehicles Bad debts • Quality of newer book (<18 months) cleaner Bad debt rate • Low levels of corporate delinquency R’ mil
Slide 113: Sharp rise in household debt impacts affordability
Sharp rise in household debt impacts affordability 80% 75% Sharp rise in household 70% debt levels 65% 60% 55% 50% 45% 40% 35% 30% Jun '80 Jun '83 Jun '86 Jun '89 Jun '92 Jun '95 Jun '98 Jun '01 Jun '04 Household debt to disposable income
Slide 114: International expansion still in investment phase
International expansion still in investment phase Carlyle Finance – United Kingdom MotorOne Finance - Australia • Bought existing business • Greenfield's • Investment in people and systems • Longer investment period • Advances exceed R3.5 billion • Advances exceed R2 billion • Losses as expected • L
Slide 115: Improving outlook for 2008
Improving outlook for 2008 Challenges faced… • Continued pressure on retail new business • Affordability levels • Higher interest rate environment But… • Strong pipeline in corporate • Improvement in the used vehicle sector • Improving book quality • Arrears and provisions flattening • Systems and o
Slide 116: Operational review: Momentum
Operational review for the year ended 30 June 2007 momentum
Slide 117: Financial highlights
Financial highlights June ’07 June ’06 % change Group operating profit (R’ mil) 1 485 1 226 21 Return on equity (%) 25 24 Return on embedded value (%) 28 31 New business embedded value (R’mil) 518 434 19
Slide 118: Operational performance
Operational performance R’ mil June ’07 June ’06 % change Insurance operations 1 145 914 25 - Momentum insurance 1 000 859 16 - FNB insurance 145 55 >100 Asset management 340 312 9 - RMB Asset Management 292 262 11 - Ashburton 48 50 (4) Group operating profit 1 485 1 226 21
Slide 119: Solid performance from insurance operations
Solid performance from insurance operations R’ mil June ’07 June ’06 % change Insurance operations 1 145 914 25 - Momentum insurance 1 000 859 16 - FNB insurance 145 55 >100 Asset management 340 312 9 - RMB Asset Management 292 262 11 - Ashburton 48 50 (4) Group operating profit 1 485 1 226 21
Slide 120: Strong new business growth across the board
Strong new business growth across the board APE R’ mil +31% 1,600 +17% +17% 1,400 1,200 1,000 800 600 +65% 400 200 0 Retail Wealth Group FNB collaboration 2006 2007
Slide 121: Good sales drive growth in recurring premiums
Good sales drive growth in recurring premiums New business +17% R’ mil 1,200 • Positive growth in in-force +20% premiums 1,000 800 • Recurring premium income R5.7bn (+16%) 600 +19% 400 • Significant contributor to insurance profits (32%) 200 +13% 0 2006 2007 Risk RAs Endowments
Slide 122: Market share gains in lump sum premiums
Market share gains in lump sum premiums New business +31% R’ mil 14,000 • Strong distribution model +59% 12,000 • Buoyant equity markets 10,000 +15% • Significant increase in off-shore 8,000 linked product sales 6,000 • LISP market share growth in 4,000 +10% AUM (13.3% to 14.3%) 2,000 +87% 0 2006 20
Slide 123: Improved margins in second half
Improved margins in second half 3.0% 2.7% 2.6% 2.7% • Driven by strong volumes and 2.5% favourable business mix 2.2% 2.0% 1.9% - Retail single investments 1.8% - Employee Benefits 1.5% - FNB insurance 1.0% 0.5% 0.0% Dec '04 Jun '05 Dec '05 Jun '06 Dec '06 Jun '07 Margin: Value of new business as % o
Slide 124: Growing channel diversification
Growing channel diversification New business APE 100% 15% 13% 9% 18% 12% 14% 80% 8% 12% 30% 6% 9% 15% 16% 60% 40% 68% 64% 60% 61% 20% 0% 2004 2005 2006 2007 Independent brokers Agency force FNB Other bank brokers
Slide 125: Growing product diversification
Growing product diversification New business APE per product R’ mil 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 Retail Wealth Group Health STI
Slide 126: Positioned for growth in health
Positioned for growth in health History Lives: 0 107 600 161 100 Momentum Health Scheme Lives: 247 000 105 000 476 000 493 000 MMSA (Administrator) Pulz Momentum Sovereign ALH MMSA Health 2003 2004 2005 2006 2007 • Create economies of scale through integration • Growth through market segment approac
Slide 127: Significant contribution from FNB collaboration
Significant contribution from FNB collaboration In-force API +62% pa R’ mil mil 700 +1.27 mil 2.6 • Growth driven by strong sales 600 2.4 2.2 - funeral policies 500 2 - embedded credit life products 400 1.8 • Positive contribution to new 300 1.6 business EV and margin 200 1.4 100 1.2 0 1 Jun '05 Jun
Slide 128: Mixed results from asset management
Mixed results from asset management R’ mil June ’07 June ’06 % change Insurance operations 1 145 914 25 - Momentum insurance 1 000 859 16 - FNB insurance 145 55 >100 Asset management 340 312 9 - RMB Asset Management 292 262 11 - Ashburton 48 50 (4) Group operating profit 1 485 1 226 21
Slide 129: RMB Asset Management's strategic imperatives
RMB Asset Management’s strategic imperatives 1 Excellent investment performance 4 2 Leverage retail distribution New assets and markets and marketing 5 3 Globalise! Eliminate duplication and improve efficiencies
Slide 130: Improving trend in investment performance
Improving trend in investment performance Alexander Forbes Global Large Manager Watch Performance period June ’07 December ’06 June ’06 • 1 year 5/11 7/11 11/11
Slide 131: Award-winner in international hedge fund of funds
Award-winner in international hedge fund of funds 140% RMBAM 120% Global Diversified 100% 80% 60% 40% EDHEC Fund of Funds Index 20% -20% MSCI World Equity -40% Index Jan ’99 Jan ’00 Jan ’01 Jan ’02 Jan ’03 Jan ’04 Jan ’05 Jan ’06 Jan ’07
Slide 132: New global alternative fund of funds business
New global alternative fund of funds business Alternative fund of funds • Fund of Hedge Funds - ZAR - International • Private Equity - ZAR - International • Property - ZAR - International
Slide 133: Consistently good ROEV
Consistently good ROEV 35% 31.2% 27.9% 28.1% 30% 25% 20% 16.6% 15% 10% 5% 0% 2004 2005 2006 2007 Investment return on net worth Investment experience on VIF Value of new business Operating experience
Slide 134: Strong growth in embedded value
Strong growth in embedded value R’ mil 22,000 28% 20,000 +9.5% 18 490 -17.8% 18,000 + 18.5% 15 927 16,000 14 438 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 June '06 Growth in Value of in- Sub-total Dividends paid June '07 shareholders force net worth
Slide 135: Improved capital efficiency
Improved capital efficiency CAR as a percentage of liabilities 8% 7.3% 7% 5.7% 6% 5.0% 5% 4.0% 4% 3.3% 2.6% 3% 2.4% 2.1% 1.7% 1.6% 2% 1% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Large companies Momentum
Slide 136: Driven by liability mix
Driven by liability mix 100% 12% 17% 80% 13% 32% 60% 40% 70% 56% 20% 0% 1998 2007 Linked and Market Related Smoothed Bonus Other
Slide 137: More efficient use of economic capital
More efficient use of R’ mil economic capital 7000 2.8 x CAR 6000 2.3 x CAR 5000 4000 1.2 x CAR 0.9 x CAR 3000 2000 1 x CAR 1 x CAR 1000 0 Jun '06 Jun '07 Termination Mortality and morbidity Expense Investment Credit Other risks Available for distribution
Slide 138: Looking forward: diversification ready to deliver
Looking forward: diversification ready to deliver Revenue Profit 2007 Other Other 6% 5% Group Group 8% 15% Health 2% Investments 37% Investments Health 52% 11% Retail 32% Retail 32% * Excludes FNB insurance
Slide 139: Strategy and outlook
Strategy and outlook for the year ended 30 June 2007 O Oo 4+ © — (e)) O 4+) ‘= @) FIRSTRAND
Slide 140: Financial Markets
Financial Many strong Markets franchises Excellent results Growth Diversified Strategies portfolios
Slide 141: Financial Markets
Financial Many strong Markets franchises Excellent results Growth Diversified Strategies portfolios
Slide 142: Great franchises
Great franchises 2% 5%2% 5% 1% 5% FNB 13% 13% FNB Africa 13% 35% 35% RMB 35% 8% 8% WesBank 4% Momentum 8% Discovery OUTsurance 33% 33% 4% 4% 33% * Based on normalised earnings
Slide 143: With well diversified portfolios
With well diversified Swaziland portfolios 7% Corporate 9% Other 7% Botswana Africa Consumer 46% 41% Namibia 8% 47% Commercial 40% Other 10% Equity trading FiCC Wealth 27% 14% 3% Non Investment Other Lending Private Banking Health Group 6% Entities Equity 24% 2% 8% Loans- 14% 25% Retail 9% Motor - R
Slide 144: It's not just about the numbers
Its not just about the numbers • Corporate culture is very strong with effective and established management teams • Basel II – SARB approval to use Advanced Internal Ratings Based Approach for credit and market risk • Deloitte / MoneyWeb Good Corporate Governance Awards 2nd year in succession • Stro
Slide 145: Financial Markets
Financial Many strong Markets franchises Excellent results Growth Diversified Strategies portfolios
Slide 146: Macro environment changing
Macro environment changing • Globally - Credit risk was under priced for a long time creating a bubble - Excessive leverage in the system exacerbated the problem when the bubble burst - Liquidity is the issue – forced liquidations and “knock-on” effect - Strength of holder more important than qualit
Slide 147: With resultant uncertainties & risks
With resultant uncertainties & risks • Globally - Can domestic growth in “Chindia” make up for slowdown of US consumer? - Can problems / slowdown be contained in US or will it spill over into emerging markets? - Refinancing of debt will be the test • South Africa - Balancing act of slowing down with
Slide 148: Sustainability of RMB earnings
Sustainability of RMB earnings • Skills and 25yrs experience in trading bonds, derivatives and now equities • Real-time risk management systems that have stood the test of time • Balanced Private Equity portfolio (plant, maintain, harvest) • Relatively small capital allocation to trading and princip
Slide 149: Financial Markets
Financial Many strong Markets franchises Excellent results Growth Diversified Strategies portfolios
Slide 150: How do we grow: Organic
How do we grow: Organic • Most divisions have lots of growth opportunities in SA (e.g. RMB Commercial Property finance <10% market share vs WesBank’s 36%) • Divisions look offshore if they have a competitive advantage and/or can leverage local infrastructure
Slide 151: How do we grow: Greenfields
How do we grow: Greenfields • Group was built on starting businesses (RMB, RMBAM, Discovery, OUTsurance, Private Equity, eBucks, etc) • All businesses continue to look to start new ventures (locally and offshore)
Slide 152: How do we grow: Accelerated Greenfields
How do we grow: Accelerated Greenfields • Appropriate in offshore ventures • Regulatory approvals already in place • Key people in place • Small but ready to grow
Slide 153: How do we grow: Acquisition
How do we grow: Acquisition • Acquisition successes (e.g. FNB and Momentum) • ROE vs Return on Investment • Risks: Skeletons in cupboard, internal focus, incompatible cultures etc. Always weigh up greenfields and acquisitions but we favour greenfields
Slide 154: Conclusion
Conclusion • Good results a tribute to our management and staff • Excellent franchises to ensure growth in future • Mindful of more risks in this environment therefore will rely on our skills, experience and risk management • SA growth themes still intact • Confident but realistic
Slide 155: Annexure
O O 4) O — (e)) O 4+) ‘= Financial review for the year ended 30 June 2007 Annexure @) FIRSTRAND
Slide 156: Banking Group normalised earnings
Banking Group normalised earnings R’ mil June ’07 June ’06 % change FNB 5 663 4 504 26 FNB Africa 927 744 25 RMB 5 343 2 960 81 WesBank 1 370 1 465 (6) FirstRand Short Term Insurance 310 251 24 Brand performance 13 613 9 924 37 Banking group support 880 987 (11) Banking group profit before tax 14 49
Slide 157: All businesses deliver
All businesses deliver R’ mil June ’07 June ’06 % change Banking Group 10 041 7 463 35 Momentum Group 1 716 1 514 13 Discovery Group 536 424 26 FirstRand Limited (100) (169) 41 Sub-total 12 193 9 232 32 Less: NCNR preference dividends (348) (274) (27) Normalised earnings for the group 11 845 8 958 3
Slide 158: Normalised vs headline
Normalised vs headline R’ mil June ’07 June ’06 % change Normalised earnings for the group 11 845 8 958 32% Adjusted for: (1 388) (843) (65%) - Private equity realisations (397) (219) - National Treasury settlement - (30) - Discovery BEE (19) (102) - IFRS 2: Share based payments (401) (168) - Treasu
Slide 159: Restated normalised vs headline
Restated normalised vs headline R’ mil June ’07 June ’06 % change Normalised earnings for the group 11 845 8 958 32% Adjusted for: (1 401) (1 861) - Fair value investment property (410) (1 237) - National Treasury settlement - (30) - Discovery BEE (19) (102) - IFRS 2: Share based payments (401) (168
Slide 160: Annexure: Banking Group
Financial review for the year ended 30 June 2007 Annexure 2) FIRSTRAND ” Banking Group
Slide 161: Performance to financial targets
Performance to financial targets 35% 10% real growth Banking Group (ROE 31%) 82% 30% 25% 14% Momentum Group (ROE 25%) ROE 4% Discovery Group (ROE 22%) 20% 10% plus FirstRand WACC 15% 10% 0% 10% 20% 30% 40% Normalised earnings growth * Based on normalised earnings, excluding the FirstRand centre and
Slide 162: Normalised vs Headline
Normalised vs Headline R’ mil June ’07 June ’06 % change Banking group headline earnings 9 355 7 049 33 Adjusted for: Private equity realisations 397 219 81 IFRS 2: Share based payments 289 147 97 Transfer of RMBP to the FirstRand book - 48 (>100) Banking group normalised headline earnings 10 041 7
Slide 163: Transactional income dominates NIR
Transactional income dominates NIR R’ mil June ’07 June ’06 % change • Fees and commissions 11 725 9 558 23 • Transactional 9 099 7 787 17 • Knowledge 987 491 >100 • Management 884 517 71 • Insurance 432 598 (28) • Other fees 323 165 96 • Fair value 6 466 3 906 66 • Fair value 5 969 3 733 60 • First
Slide 164: Transactional income dominates NIR
Transactional income dominates NIR R’ mil June ’07 June ’06 % change • Sub - total 20 165 14 985 35 • Investment income 339 359 (6) • Associate income 407 340 20 • WesBank 97 89 9 • Outsurance 310 251 24 • Other income 1 938 1 249 55 • Associates 100 8 >100 • Other 1 838 1 241 48 • Total non interes
Slide 165: Decomposing fair value
Decomposing fair value R’ mil June ’07 June ’06 % change • Lending 1 379 1 164 18 • Client flows 1 215 949 28 • Risk 3 322 1 180 182 Risk 2 825 1 007 181 Resources 497 173 187 • Capital 550 613 (10) Total 6 466 3 906 66
Slide 166: Annexure: Momentum
Financial review for the year ended 30 June 2007 Annexure momentum
Slide 167: Headline earnings analysis
Headline earnings analysis R’ mil June ’07 June ’06 % Momentum group headline earnings 1 610 1 534 5 Adjusted for: 106 (20) - IFRS2: Share based payments 78 26 - Listed property adjustments 28 (28) - National Treasury settlement - 30 - Transfer of RMBP to the FirstRand book - (48) Momentum normalise