Slide 1: Creating and protecting shareholder value
Creating and protecting shareholder value Johan Burger (CEO: FirstRand) 29 January 2016
Slide 2: Agenda
Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 2
Slide 3: Track record of superior returns…
Track record of superior returns… 30 000 31% 24.2% 24.7% 26% 25 000 22.7% 20.7% 18.7% 21% 20 000 17.7% 21 286 18 663 16% 15 000 15 420 11% 12 730 10 000 10 117 6% 9 694 8 283 8 172 5 000 6 169 2 364 1% 1 594 4 163 - -4% 2010 2011 2012 2013 2014 2015 Normalised earnings NIACC ROE 2010 comparatives is
Slide 4: …relative to peer group
…relative to peer group ROE 30% 24.2% 24.7% 25% 22.7% 20.7% 20% 18.7% 17.7% 15% 16.1% 14.4% 14.7% 13.4% 13.3% 13.8% 10% 5% 0% 2010 2011 2012 2013 2014 2015 FSR Big 4 (excl. FSR) 2010 comparatives is for FirstRand Banking Group. 4
Slide 5: Same picture on a through-the-cycle basis
Same picture on a through-the-cycle basis ROE using normalised impairment (105bps) 25% 22.9% 22.9% 22.3% 20.8% 20.0% 20% 18.0% 15% 15.6% 14.3% 14.8% 14.8% 14.0% 13.0% 10% 5% 0% 2010 2011 2012 2013 2014 2015 FSR Big 4 (excl. FSR) 2010 comparatives is for FirstRand Banking Group. 5
Slide 6: Think and behave like shareholders
Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT FRANCHISE BUSINESS MODEL AND OF FINANCIAL VALUE CULTURE RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 6
Slide 7: Think and behave like shareholders
Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT FRANCHISE BUSINESS MODEL AND OF FINANCIAL VALUE CULTURE RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 7
Slide 8: How we think about long-term franchise value
How we think about long-term franchise value Client base Customer base underpins sustainability. Market-leading Market-leading operating businesses deliver customers, financial services franchises distribution and products. Diversified portfolio reduces volatility from over- FRANCHISE VALUE Diversif
Slide 9: Think and behave like shareholders
Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT FRANCHISE BUSINESS MODEL AND OF FINANCIAL VALUE CULTURE RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 9
Slide 10: Disciplined financial resource management
Disciplined financial resource management • Strategic framework • Strategy executed through operating franchises • Achieve appropriate balance between RETURN capital-light and capital-intensive businesses • Risk management framework • Through-the-cycle approach/ Balance countercyclical origination a
Slide 11: Proactive and dynamic financial resource management
Proactive and dynamic financial resource management WHAT? WHY? Group Treasury manages financial resources Allows operating franchises to focus on (capital, funding, liquidity, risk appetite) operational profits Group Treasury: • Determines level of capital, capital structure and gearing To ensure th
Slide 12: Think and behave like shareholders
Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? DEPLOYMENT FRANCHISE BUSINESS MODEL OF FINANCIAL VALUE AND CULTURE RESOURCES MEASURE THROUGH PERFORMANCE MANAGEMENT 12
Slide 13: Business model allows franchises access to all platforms
Business model allows franchises access to all platforms within appropriate governance frameworks FirstRand FirstRand Investment Ashburton FirstRand Insurance FirstRand EMA (Pty) Bank Limited Holdings (Pty) Ltd Investments Holdings Ltd (FREMA) (FRB) (FRIHL) Holdings Limited (Pty) Ltd AFRICA AND OTHE
Slide 14: Model also facilitates cross-sell and up-sell for franchises
Model also facilitates cross-sell and up-sell for franchises FIRSTRAND ACTIVITY VIEW PER FRANCHISE INVESTMENT TRANSACT LEND INVEST DEPOSITS INSURANCE MANAGEMENT 14
Slide 15: Owner-manager culture aligns employees and shareholders
Owner-manager culture aligns employees and shareholders • Culture empowers employees to think like owners/shareholders – employees know and understand: • Business strategy • The business case always prevails • Capital is only deployed to achieve required returns • Treat company assets as their own •
Slide 16: Agenda
Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 16
Slide 17: Macros deteriorating
Macros deteriorating Real GDP growth very subdued going forward 0% – 1.5% Above inflation target (average) inflation for next two years 6% – 7% Low nominal GDP growth expected over the medium term 5% – 7.5% Low real income growth will place pressure on topline and bad debts 0.5% – 1.5% Interest rate
Slide 18: Agenda
Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 18
Slide 19: What has changed since the previous cycle?
What has changed since the previous cycle? 30 000 30.9% 31% 27.6% 25 000 24.2% 24.7% 26% 22.7% 21.3% 20.7% 20 000 18.7% 21 286 21% 17.7% 18 663 15 000 13.1% 16% 15 420 12 730 10 000 11% 9 857 10 117 8 541 9 694 8 283 8 172 5 000 7 210 6% 5 639 5 747 6 169 3 971 4 163 - 2 719 2 364 1% 1 594 -474 -5 0
Slide 20: Improved balance between risk and return = lower volatility…
Improved balance between risk and return = lower volatility… RETURN Premium above cost of capital ROA 1.03% 2007 ROA ROA 2.47% ROA 1.95% 2.13% RISK GROWTH Above nominal GDP Volatility of return profile over the long term FNB WesBank RMB FCC 20
Slide 21: …resulting in structurally higher and more sustainable ROA
…resulting in structurally higher and more sustainable ROA RETURN 18% – 22% ROE and ROA at cyclical highs ROA 1.82% 2015 ROA ROA 3.32% 2.12% ROA 1.41% RISK GROWTH Nominal GDP + 3% to 5% over Volatility of return profile the long term FNB WesBank RMB 21
Slide 22: Improved quality of earnings underpinned by growth and mix of client businesses
Improved quality of earnings underpinned by growth and mix of client businesses 2% 4% 7% 8% Client 2007 Investing 2015 Risk income 85% 94% Driven by proactive strategies in all operating franchises Based on gross revenue. 22
Slide 23: RMB portfolio reflects shift to client businesses
RMB portfolio reflects shift to client businesses Investment banking and advisory 23% 29% Client activities 33% 39% Investing activities 2% 2007 Proprietary trading activities 2015 Investment management 24% 32% 18% Markets and structuring Corporate and transactional banking Total client = 75% Based
Slide 24: WesBank improved risk-adjusted returns and diversification
WesBank improved risk-adjusted returns and diversification PBT (R million) Balance between risk, return and growth 5 000 • Better pricing for risk and improved risk 4 000 profile should result in less volatile return 3 000 profile vs. previous cycle 2 000 1 000 Franchise value 0 • Diversification of
Slide 25: FNB grew its transactional and deposit franchises
FNB grew its transactional and deposit franchises FNB retail normalised profit before tax (R million) FNB SA deposits (R billion) 6 000 350 12% CAGR 17% CAGR 5 000 300 4 000 250 3 000 200 2 000 150 100 1 000 50 - Personal loans Residential Card Transactional mortgages and other retail - 2012 2013 20
Slide 26: Adjusted credit appetite and improved pricing across retail portfolios
Adjusted credit appetite and improved pricing across retail portfolios (e.g. FNB HomeLoans) 100% 90% 80% 70% % of registered deals 60% 50% 40% 30% 20% 10% 0% Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Average DISCOUNT to Prime: – 1.50% Average PREMIUM above Prime: 0
Slide 27: Advances portfolio rebalanced for more appropriate mix between corporate and retail
Advances portfolio rebalanced for more appropriate mix between corporate and retail Gross advances (R billion) 900 800 8% 700 6% 600 6% 45% 500 6% 46% 5% 6% 5% 44% 400 5% 43% 37% 35% 42% 7% 43% 7% 300 7% 5% 5% 6% 5% 5% 200 41% 40% 53% 55% 45% 43% 100 47% 47% - 2008 2009 2010 2011 2012 2013 2014 2015
Slide 28: Started early with prudent provisioning
Started early with prudent provisioning Portfolio impairments (R million) 9 000 8 000 2015 2014 7 000 Portfolio impairments as 1.00% 1.05% 6 000 % of performing book 5 000 Bad debt charge 0.77% 0.83% 4 000 3 000 Portfolio impairments 7 760 7 259 2 000 (R million) 1 000 0 2013 2014 2015 Franchise por
Slide 29: Balance sheet more liquid…
Balance sheet more liquid… Total assets (R billion) Cash and liquid assets (R billion) 1 200 180 160 1 000 1 059 155 140 CAGR 7% 800 120 CAGR 15% 100 600 658 14.7% 80 of total assets 400 60 60 40 9% of 200 total 20 assets 0 0 2008 2015 2008 2015 29
Slide 30: …with reduced reliance on institutional funding and improved funding mix
…with reduced reliance on institutional funding and improved funding mix % of total funding Retail as % of total funding 50% 20% 48% 19% Corporate and public sector 19% 46% 44% 44% 18% 42% Retail (RHS) 40% 17% 38% 36% 16% 36% 34% Institutional funding 34% 15% 15% 32% 30% 14% Jan 08 Jan 09 Jan 10 Jan
Slide 31: Stronger capital position despite more punitive RWA requirements
Stronger capital position despite more punitive RWA requirements Economic view of surplus adjusted for: • Volatile reserves CET1 ratio as at 30 June 2015 • Trapped capital • Regulatory changes 14.0% 14% 12.9% CET1 target range: 12% 10% – 11% R12.2bn surplus FSR 10% management buffer 2.5% 8% 6% SARB
Slide 32: Agenda
Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 32
Slide 33: Despite short-term pressures, continue to execute on stated growth strategies
Despite short-term pressures, continue to execute on stated growth strategies CURRENT REVENUE MIX WE WOULD LIKE REVENUE MIX TO LOOK MORE LIKE THIS… Insure Invest Insure Transact Transact Lend Invest Lend 33
Slide 34: Rest of Africa still represents opportunity for growth, but need to navigate elevated risks
Rest of Africa still represents opportunity for growth, but need to navigate elevated risks Rest of Africa South Africa Other and corridors 88% 2% 10% • Higher risk, but higher growth than SA • Namibia and Botswana dominate current contribution • Focus has shifted to building in-country franchises i
Slide 35: In summary
In summary • Macros very difficult, but franchise well prepared for short-term pressures • ROA/ROE structurally higher than previous cycle; ROE expected to trend down into the target range (18% to 22%) • Strong balance sheet FirstRand’s return profile is resilient, but not immune to cycles 35