Firstrand Limited · JSE:FSR
Firstrand — Investor Day (May 2004)
169 slides from Firstrand's investor day presentation, May 25, 2004
Slide 1: Introduction
Introduction Michael Pfaff RMB Investment Analyst Day 25 May 2004
Slide 2: Rand Merchant Bank
Rand Merchant Bank RMB is not: Project • RMB Private Bank Finance • RMB Asset Management Structured Other • RMB Structured Insurance Finance • RMB Properties • RMB Holdings SPJ Equities RMB Internat’l Treasury Corporate Trading Finance Private Equity
Slide 3: Group Legal Structure
Group Legal Structure FirstRand FirstRand Insurance Bank RMB RMB Asset Management
Slide 4: RMB contacts today
RMB contacts today Michael Pfaff Chief Executive Officer LP Collet Chief Operating Officer Derek Prout-Jones Chief Investment Officer Michael Field Chief Financial Officer Rob Hamer and James Teeger Co-Heads of Structured Finance Ketso Gordon and Martin Keyser Co-Heads of Private Equity Herman Bosma
Slide 5: Agenda for today
Agenda for today Topic Presenter Area 08h30 Strategy and Culture Michael Pfaff CEO 09h20 Financial Breakdown Mike Field CFO 09h55 Current Market Conditions Derek Prout-Jones CIO 10h15 BEE Positioning Buhle Ngcobo Transformation 10h30 Tea / Coffee and Biscuits 11h00 Market positioning in a competitiv
Slide 6: Strategy & Culture
Strategy & Culture Michael Pfaff RMB Investment Analyst Day 25 May 2004
Slide 7: Nature of RMB
Nature of RMB Project Independent Businesses Finance • Different Structured Other • Complex Finance • Rapidly evolving SPJ Equities RMB Internat’l Treasury Corporate Microcosm of Trading Finance FirstRand Private Equity
Slide 8: Predictability of Income
Predictability of Income 50 Issues 40 1. Sustainable earnings growth? 30 % 20 10 0 -10 Treasury Equity Structure Project SPJ Private Equity Corporate Trading Trading Finance Finance International Finance 2001 2002 2003
Slide 9: Growth History
Growth History How? 1. Portfolio effect CAGR 33.6 % over 7 years 2. Prudent accounting 3. SA Model 1200 1000 800 R’m 600 400 200 0 1996 1997 1998 1999 2000 2001 2002 2003
Slide 10: Predictability of Income
Predictability of Income 50 Issues 40 2. Consolidated strategy? 30 % 20 10 0 -10 Treasury Equity Structure Project SPJ Private Equity Corporate Trading Trading Finance Finance International Finance 2001 2002 2003
Slide 11: Strategy In Merchant Banking
Strategy In Merchant Banking “McKinsey’s techniques of strategy don’t work. Things move too fast. We have had three different key products in four years. So what is strategy? You simply get great people and back them. And they can’t even tell you what they’ll be doing next year.” Phillip Purcell CEO
Slide 12: RMB Vision
RMB VISION “To be the South African Merchant Bank of choice - as the employer of choice.”
Slide 13: Nature of RMB
Nature of RMB Project Independent Businesses Finance • Different Structured Other • Complex Finance • Rapidly evolving SPJ Equities RMB Internat’l Treasury Corporate Trading Finance Private Equity
Slide 14: Strategy in RMB
Strategy in RMB Project 1. Detailed Strategies Finance Structured 2. Autonomy & Innovation Other Finance 3. Dynamic Organisation SPJ Equities RMB Internat’l Treasury Corporate 1. Framework Trading Finance 2. Consistency & Discipline Private 3. Enduring Organisation Equity
Slide 15: RMB Strategy
RMB Strategy “To nurture an environment where our intellectual capital can thrive and our businesses can grow.”
Slide 16: Strategic Framework
Sirale sie Erdimewonrk
Slide 17: Core Driver – Intellectual Capital
Core Driver – Intellectual Capital
Slide 18: Intellectual Capital - People
Intellectual Capital - People Alignment with : Environment Values Innovation Traditional Values, Innovative Ideas.
Slide 19: Intellectual Capital - People
Intellectual Capital - People Smart; Hard Working; Ambitious; Self Starters; Values Core
Slide 20: Intellectual Capital - People
Intellectual Capital - People Youth vs Chaos vs Experience Order Smart; Hard Working; Traders vs Ambitious; Quick Decision Risk Managers Self Starters; vs Info Decision Values Big Picture Core Entrepreneurs vs Detail vs Administrators Diversity
Slide 21: Intellectual Capital - Culture
Intellectual Capital - Culture Empowerment Self Esteem Pride
Slide 22: Intellectual Capital - Culture
Intellectual Capital - Culture Empowerment Trust
Slide 23: Trust - The Book Of Rules
Trust - The Book Of Rules Book Of Rules
Slide 24: Intellectual Capital - Culture
Intellectual Capital - Culture Empowerment Trust Recognition Open Debate
Slide 25: Intellectual Capital - Culture
Intellectual Capital - Culture Self Esteem Care, Dignity & Respect
Slide 26: Simply the Best Company to Work For
SIMPLY THE BEST COMPANY TO WORK FOR RAND MERCHANT BANK TRADITIOMAL VALUES. INMOVATIVE IDEAS THEY SPARKLE - WE SHINE f? is o RAND MERCHANT BANK
Slide 27: And the Next Year we Said …
And the Next Year we Said … Congratulations SAB “Maybe a drunk employee is a happy employee.”
Slide 28: Intellectual Capital - Culture
Intellectual Capital - Culture Self Esteem Care, Dignity & Respect Who Counts
Slide 29: Self Esteem - Who Counts
Self Esteem - Who Counts Traditionally RMB VIP VIP NSIP NSIP NIAAP
Slide 30: Intellectual Capital - Culture
Intellectual Capital - Culture Self Esteem Care, Dignity & Respect Who Counts Passion
Slide 31: Intellectual Capital - Culture
Intellectual Capital - Culture Pride Values Reputation
Slide 32: Financial Mail Survey
Financial Mail Survey All Categories - Banks Intellectual Capability RMB 19.0% RMB 23.4% SCMB 13.1% SCMB 10.7% Investec 7.8% Investec 9.6% Managerial Quality Balance Sheet Capability RMB 19.5% SCMB 19.9% SCMB 12.1% Nedcor 9.7% Nedcor 6.7% RMB 8.3%
Slide 33: Best company to work for ...
Best company to work for ... … as selected by our people
Slide 34: Intellectual Capital - Culture
Intellectual Capital - Culture Pride Values Reputation Success
Slide 35: Intellectual Capital - Culture
Intellectual Capital - Culture Empowerment Self Esteem Pride Soft on People, Hard on Results.
Slide 36: Strategic Framework
Strategic Framework Innovation 1. Economic Capital 2. FR Ratings 3. Focused committees
Slide 37: Strategic Framework
Strategic Framework Innovation 1. Economic Capital 2. FR Ratings 1. Brand 3. Focused committees 2. Values
Slide 38: Strategic Framework
Sirale sie Erdimewonrk
Slide 39: Thank you
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 40: Financial Overview
Financial Overview Mike Field RMB Investment Analyst Day 25 May 2004
Slide 41: 5 year earnings review
5 year earnings review • Consistent profit growth in all market conditions • CAGR 33.6 % over 7 years Rand surge and Flat market low corporate conditions growth Rand collapse 1200 & interest spike High yield 1000 market collapse 1071 Equity market 910 800 collapse R m’s 600 700 630 540 400 200 0 199
Slide 42: 5 year earnings review (cont.)
5 year earnings review (cont.) • At least 1 “rabbit” a year… • Benefits of diversification and “owner manager” Equities and 1200 Private Equity Treasury and Structured Finance 1000 Structured Finance 800 Treasury R m’s Private Equity 600 and Treasury 1071 400 910 700 540 630 200 0 1999 2000 2001 200
Slide 43: Return on utilised capital (Tier 1)
Return on utilised capital (Tier 1) • Superior ROE through active capital management 50% 6,000 44% 40% 5,000 37% 37% 35% 35% 4,000 30% 3,302 3,385 3223 3,000 20% 2,571 2,399 2,000 10% 1,000 0% 0 2000 2001 2002 2003 2004 Reg capital utilisation RORC (pre tax on notional Tier 1)
Slide 44: Financial control to sustain profits
Financial control to sustain profits • Understanding the business portfolios and diversification • Risk and capital management • Regulatory and economic capital • Identify, measure, price for risk • Appropriate incentive structures • Risk based capital allocation and incentivisation
Slide 45: Unpacking the profit
Unpacking the profit Dec 2003 Dec 2002 June 2003 R m’s (6 months) (6 months) (12 months) Trading income 247 233 469 Fee income 47 30 77 Investment income 499 348 943 Gross income 793 611 1 489 Operational expenditure 220 198 418 NIBT 573 413 1 071
Slide 46: Business unit NIBT % contribution
Business unit NIBT % contribution 50% 40% 30% 2002 2003 20% 2004 Int 10% 0% -10% T reasury Equity Structured Project SPJ Private Corporate Other T rading T rading Finance Finance International Equity Finance
Slide 47: Diversity of earnings
Diversity of earnings • RMB has increasingly diversified its earnings mix 100% 100% 5% 7% 8% 18% 80% 80% 23% 25% 20% 60% 70% 60% 19% 17% 19% 40% 40% 20% 50% 50% 20% 42% 25% 0% 0% 1992 2002 2003 2004 Int Annuity Risk based Fee Annuity (existing) Annuity (new) Risk based Fee income
Slide 48: Diversity of earnings per BU
Diversity of earnings per BU 100% 90% 80% 70% 60% Risk Fee 50% Annuity (new) 40% Annuity (existing) 30% 20% 10% 0% Treasury Corporate Equity Private Project Other Structured SPJ Trading Finance Trading Equity Finance Finance International
Slide 49: Debt versus Equity NIBT mix
Debt versus Equity NIBT mix Rm’s 800 700 600 500 400 Debt Equity 300 200 100 0 2001 2002 2003 2004
Slide 50: Diversity of clients
Diversity of clients • Service a range of client segments Parastatal Other 13% Large 4% Corporate Government 35% 8% Financial Industry 7% Medium Corporate 33%
Slide 51: Portfolio of businesses
Portfolio of businesses • Geographical split 10% 5% G7 Emerging Markets SA 85%
Slide 52: Risk and capital management
Risk and capital management • Deployed risk model supported by independent unit • Risk built into frontline decision making • Sophisticated measurement of risks • Market, credit, investment and operational risk • Pricing for risk • Multi-period pricing models • Direct link between risk, reward and r
Slide 53: Market risk
Rand Rand • Stress tests 0 10,000,000 20,000,000 30,000,000 40,000,000 (50,000,000) (40,000,000) (30,000,000) (20,000,000) (10,000,000) 0 10,000,000 20,000,000 30,000,000 40,000,000 (50,000,000) (40,000,000) (30,000,000) (20,000,000) (10,000,000) 1-Jul-02 1-Jul-02 Market risk 16-Jul-02 • Risk attrib
Slide 54: Credit risk
Credit risk • Corporate counterparty distribution (National Scale) as at Dec 03 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% CCC /D AAA/AA/A BBB BB B South Africa Offshore
Slide 55: Operational, compliance and other
Operational, compliance and other • Risk self-assessments • Loss data collection • Compliance risk management • Tax risk • Regulatory risk • Accounting • Internal audit • Insurance
Slide 56: Risk based capital allocation
Risk based capital allocation….. 100% 6% 12% 80% 17% 60% 12% 40% 55% 20% 0% RMB Economic capital % Credit risk direct Credit pre settlement risk Investment risk Market risk Operational risk
Slide 57: Looking forward
Looking forward • Active capital management • Regulatory • Economic • Basel II • Meeting compliance challenges • Tax and Accounting • Technology upgrade • Platform for growth
Slide 58: Thank You
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 59: Current Market Conditions
Current Market Conditions Derek Prout-Jones RMB Investment Analyst Day 25 May 2004
Slide 60: Areas of interest
Areas of interest Interest Rates Forex Stock Market BEE Regulatory Credit Spreads Other
Slide 61: Operating Environment: Interest Rates
Operating Environment Interest Rates • Downward trending market good for Treasury • Lower rates stimulate lending which impacts: structured finance, project finance and corporate bond market (issuers) • Cost of interest on highly leveraged Private Equity book decreases, can pay/leverage more • Gener
Slide 62: Operating Environment: Forex
Operating Environment Forex • Volatile ZAR (intra-day) with low liquidity - problematic for Treasury Trading • International USD earnings worth less due to strong Rand • Reduced activity in Resources Sector – impact on Structured and Project Finance, M&A and Commodity Trading • Negative impact on ex
Slide 63: Operating Environment: Stock Market
Operating Environment Stock Market • ‘Flat’ market so far in 2004 – uncertainty prevails! • No listings • Less pure M&A • Low liquidity leads to less trading leads to less arbitrage opportunities – Equities going offshore • Private Equity realisations affected by lower valuations but increased inves
Slide 64: M&A Activity
M&A Activity 600 1200 500 1002 1000 914 897 783 790 400 800 78 Value (offshore) Rbn's 300 416 600 Value (local) Number of deals 2 200 400 132 293 13 229 100 200 110 137 85 0 0 1999 2000 2001 2002 2003
Slide 65: Relative Market Cap Comparison
Relative Market Cap Comparison 100% 35% 30% 80% 25% 60% 20% 15% 40% 10% 20% Mkt Cap of the ALSI 40 Relative to MKt Cap of JSE 5% Mkt Cap of Stocks Outside the Top 100 Relative to MKt Cap of JSE 0% 0% 97 96 98 99 00 01 02 03 7 8 9 0 1 2 3 4 -9 -9 -9 -0 -0 -0 -0 -0 p- p- p- p- p- p- p- p- ar ar ar ar
Slide 66: Relative Value Traded Comparison
Relative Value Traded Comparison (cont) 60% 18 Value Traded on the JSE Accounted for by Stocks Outside the ALSI40 Value Traded on the JSE by Stocks Outside the AlSI 40 16 50% 14 40% 12 ZAR (Billions) 10 30% 8 20% 6 4 10% 2 0% 0 6 7 8 0 2 9 1 3 6 7 8 9 0 1 2 3 -9 -9 -9 -0 -0 -9 -0 -0 -9 -9 -9 -9 -0 -
Slide 67: Operating Environment: BEE
Operating Environment BEE • RMB faces same pressures to meet all the BEE requirements • But, BEE has also created immediate business opportunities for us in: Advisory – Corporate Finance Lending – Structured Finance Investing – Private Equity losing direct funding of BEE deals to BEE Private E
Slide 68: Operating Environment: Regulatory
Operating Environment Regulatory • AC133: More volatile earnings and NAV Impact on Treasury business as clients are reluctant to hedge Reduces willingness to ride through cycles • Mineral & Royalty Bill and Mining Charter – uncertainty leading to decreased Project Finance activity • Basel II /
Slide 69: Operating Environment: International Risk Spreads
Operating Environment International Risk Spreads High yield and emerging markets spreads have contracted resulting in increased portfolio values and far fewer defaults in the corporate market
Slide 70: Credit Rating Spread Comparison
Credit Rating Spread Comparison
Slide 71: Emerging Market Credit Spreads
Emerging Market Credit Spreads
Slide 72: Other
Other • Low inflation Resulted in shift from bonds to equities – lowest allocation from local asset managers to bonds Despite this, no further reduction in interest rates to stimulate economic growth And low interest rates – corporates disinclined to hedge L-T funding • Government roll out of
Slide 73: In Conclusion
In Conclusion Overall the big positives for RMB emanating from the market conditions of the recent past are: • Low interest rates • BEE • Contraction of international credit spreads
Slide 74: Thank you
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 75: Transformation Progress
Transformation Progress Buhle Ngcobo RMB Investment Analyst Day 25 May 2004
Slide 76: Introduction
Introduction The FirstRand Group is a signatory to the Financial Sector Charter for Black Economic Empowerment Rand Merchant Bank is 100% owned by FirstRand Bank
Slide 77: Charter Scorecard – Applicable to FirstRand
Charter Scorecard – Applicable to FirstRand Component Max Human resource development • Employment Equity 15 • Skills Development 5 Procurement & Enterprise Development 15 Access to Financial Services 18 Empowerment Financing • BEE transactions 5 • Targeted Investment 17 Ownership & control • Ownersh
Slide 78: RMB Human Resource Development
RMB Human Resource Development Employment Equity: RMB EE Policy & Plan – Divisional EE Plans Incentive in place for achievement of plans 5% improvement year-to-date on EE appointments Diversity Training Have an HIV/Aids Awareness Campaign and subscribe to an interactive HIV/Aids website th
Slide 79: RMB Human Resource Development
RMB Human Resource Development Skills development: RMB Academy 5 Internship programmes – 3 to be launched Charter 5 year target = 1.5% RMB already at 0.87%
Slide 80: RMB Procurement
RMB Procurement Accreditation of suppliers Business units are aligned with the long term goal of sourcing 50% expenditure in a way that advances black economic empowerment Awaiting Charters in ICT (technology spend approx 40% of total)
Slide 81: RMB Empowerment Financing
RMB Empowerment Financing BEE Transactions: RMB voted Top Commercial BEE Funder (2nd year running) BusinessMap R900m new deals each year the total book approximately R5bn !
Slide 82: RMB Empowerment Financing
RMB Empowerment Financing Targeted Investments : Transformational Infrastructure Investment in low-income housing RMB has credit approval totalling R456m, which will build 8,888 houses spread throughout SA Agriculture pre-crop and capital finance SME’s being addressed by FNB
Slide 83: Ownership and Control
Ownership and Control The FirstRand Limited board is fully Charter compliant in terms of black complement and black women. The FirstRand Group is currently in discussion with an empowerment partner at holding company level.
Slide 84: RMB Corporate Social Investment
RMB Corporate Social Investment All group companies contribute 1% of after-tax earnings to the FirstRand Foundation. The RMB Fund is one of four company funds operating under the umbrella of the FirstRand Foundation. Since 2000, RMB has given over R20 million to nearly 300 upliftment projects, m
Slide 85: Thank You
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 86: Corporate Finance
Corporate Finance “Market positioning in a competitive and BEE-dominated industry” Herman Bosman RMB Investment Analyst Day 25 May 2004
Slide 87: Role in investment bank
Role in investment bank • Profile in market place • Profitability • Generation of M&A fee income • Generation of income from capital markets • Generation of opportunities for other areas
Slide 88: The competitive South African M&A market
The competitive South African M&A market • Small informed market • Traditional loyalty less prevalent • Commodisation of advice • Price competition • Funding support • Brand quality attracts transactions and key dealmakers • (International) profile driven • Equity distribution requirement
Slide 89: The advice value chain
The advice value chain ® Advice value chain B/S - • Capital raising • Pro-active Principal equity • Exclusive M&A involvement • IPO • Structuring • Strategic in deal • U/w • Negotiation making • Valuation • Arbitrage • Implementation • Principal • Sponsor positions
Slide 90: The advice value chain
The advice value chain Advice value chain • Capital raising • Pro-active Principal • Exclusive M&A involvement • Structuring • Strategic in deal B/S - • Negotiation making equity • Valuation • Implementation • Sponsor Profile generation Profit generation Equity risk related profits Lower profitabili
Slide 91: The advice value chain – RMB historically
The advice value chain – RMB historically Advice value chain • Capital raising • Pro-active Principal • Exclusive M&A involvement • Structuring • Strategic in deal B/S - • Negotiation making • Valuation equity • Implementation • Sponsor
Slide 92: The advice value chain – changes implemented
The advice value chain – changes implemented Advice value chain • Capital raising • Pro-active Principal • Exclusive M&A involvement • Structuring • Strategic in deal • Negotiation making B/S - • Valuation equity • Implementation • Sponsor Position as strategic thought partner/trusted Focused Equity
Slide 93: The advice value chain – RMB currently
The advice value chain – RMB currently Advice value chain • Capital raising • Pro-active Principal • Exclusive M&A involvement • Structuring • Strategic in deal B/S - • Negotiation making equity • Valuation • Implementation • Sponsor Strengths Weaknesses Strengths Strengths • Technical skills • Mark
Slide 94: The advice value chain – BEE environment
The advice value chain – BEE environment Advice value chain • Capital raising • Pro-active Principal • Exclusive M&A involvement • Structuring • Strategic in deal B/S - • Negotiation making equity • Valuation • Implementation • Sponsor Implementation capability Market profile Network to facilitate p
Slide 95: Thank you
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 96: RMB Private Equity
RMB PRIVATE EQUITY Ketso Gordon RMB Investment Analyst Day 25 May 2004
Slide 97: Agenda
Agenda Background The Market RMB Private Equity - The model - Performance BEE Conclusions
Slide 98: Why does RMB invest in PE?
Why does RMB invest in PE? • Like the returns associated with PE - good risk/reward relationship • Believe there is a value arbitrage between public and private equity • The so called liquidity discount is miss-priced • Management commitment makes the difference • Provides the framework for doing BE
Slide 99: Traditional Deal philosophy
Traditional Deal philosophy • Equity and/or debt investments • Typically hold 20% - 50% of enterprise • Management are partners and on risk • Medium to long term approach • Avoid start ups – invest in good companies • Target IRR’s of 30% Partners with management
Slide 100: Two Structural Models for Private Equity
Two Structural Models for Private Equity 3rd party asset management model Raise funds every 5 - 7 years Closed ended fund Earn management fee plus carry This is the internationally accepted model On balance sheet model Use (mainly banks) balance sheet Open ended fund Compensation: inve
Slide 101: Funds Under Management – Dec 03
Funds Under Management – Dec 03 R41.5bn (R 37.6 bn Dec-02) R5.8 bn Captives - R16.0 bn Government Captives - Other (6 Firms) (12 Firms) 14% 39% 37% 10% R15.4 R4.3 bn Independents Captives - Banks (26 Firms) (6 Firms) Source: KPMG
Slide 102: The RMB Private Equity Structure
The RMB Private Equity Structure Ethos Private Equity RMB Ventures • 3rd party fund manager Australia • Balance sheet investor RMB Corvest >100 deals • Balance sheet investor RMB Private Equity (RMBPE) RMB Ventures • Balance sheet investor R2.4 billion RMB Private Equity Debt • Kagiso JV - R300m • B
Slide 103: Our Business Model
Our Business Model EQUITY Returns: (new deals) Hurdle IRR 30% p.a. (been exceeded past 14 years). Cost of funds 10% p.a. (estimated) Net IRR 20% p.a. Funds invested: Total Cost R1 700 m Market value R2 400 m DEBT Returns: Senior 400 bps (gross margin) Mezzanine 600 - 1 000 bps (gross margin)
Slide 104: Financial Position
Financial Position • Over 100 investments/loans • Book value of investments R1.6bn • Market/Directors’ valuation of R 2.4bn • Loan book of R0.833bn • Budgeting for realisations unpredictable
Slide 105: Financial History
Financial History Net income ( R'm ) 400 350 300 250 “Lost” R133m due to AC 133 200 2001 - 2002 150 100 50 0 1999 2000 2001 2002 2003 Carrying value of Gross Assets ( R'm ) Growth due to: 3000 2500 • Australian business 2000 1500 • Debt book 1000 Note: recon of asset number = this number excludes un
Slide 106: Sources of income – June ‘03
Sources of income – June ‘03 % Equity - equity accounted earnings 71.2 interest on shareholders loans 21.4 realisations 10.0 Interest on debt book 9.1 Costs (11.7)
Slide 107: Current regulatory implications for Banks
Current regulatory implications for Banks • Regulated capital: 10% = ROC over 250% Basel II capital: 40% = ROC over 60% (based on 25% IRR assumption) • AC 133 - intention to take out earnings smoothing - leads to smoothing in PE earnings due to equity accounting • PE moved from volatile realisation
Slide 108: The Private Equity Players
The Private Equity Players Old New • BOE/Nedbank/Treacle • Kagiso Ventures • SCMB • Mvelaphanda • AMB • Tiso Capital • Gensec • Safika • Old Mutual • MCI • RMB • Aloecap • ABSA • J&J • Ethos • Pamodzi • Brait • Development Bank • NEF
Slide 109: BEE – threat or opportunity?
BEE – threat or opportunity? • Deal flow that historically came from traditional institutions now resides with BEE players • Charter requirements favour BEE solutions • BEE players are opening up opportunities that are not traditional PE plays – AECI and Mondi • BEE players need non-traditional PE f
Slide 110: Prognosis for the future
Prognosis for the future • Dealflow will continue to reside with BEE groups • Banks will be funders rather than equity partners • Management equity replaced by corporate / BEE corporate partnering • Very high levels of gearing • “Not available” assets will become available to BEE • Quality of invest
Slide 111: Strategic Objectives
Strategic Objectives • Aim to see the significant deal flow in SA • Have a sustainable approach to BEE • Attract and retain key staff • Attaining EE targets • No compromise on risk evaluation and inv criteria • Growth – larger deals , debt and equity BEE the KEY
Slide 112: Thank you
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 113: RMB’s International High Yield Credit Business
RMB’s International High Yield Credit Business Raphael Martin RMB Investment Analyst Day 25 May 2004
Slide 114: The Logic Behind the Business
The Logic Behind the Business • Potential of building a portfolio of liquid and transparent risks with attractive margins where we had equal access to information and a cost advantage • Original issues facing RMB (10 years ago): • Specific knowledge of emerging markets • Inability to fund cheaply •
Slide 115: EM and HY Credit Spreads (1997-2004)
12 / 31 1000 1200 1400 1600 0 200 400 600 800 0 6 /19 / 30 96 1 2 /19 / 31 97 Asia 0 6 /19 / 30 97 LTCM Russia 1 2 /19 Implosion / 31 98 Default & 0 6 /19 / 30 98 1 2 /19 / 31 99 0 6 /19 / 30 99 Real Crisis Brazil 1 2 /20 / 31 00 0 6 /20 / 30 00 1 2 /20 / 31 01 0 6 / 20 Default / 30 01 Argentina 1 2
Slide 116: Corporate Spreads + Defaults % (1997-2004)
12 /3 07 1/1 0 2 4 6 8 10 /3 99 12 02 1/1 6 /2 99 09 8/1 7 /3 99 04 0/1 8 LTCM /3 99 11 0/1 8 /3 99 06 0/1 9 /3 99 01 0/2 9 /3 00 08 1/2 0 /3 00 03 1/2 1 /3 00 Primary Ramp Up 10 1/2 1 Telcoms/911 Enron /3 00 05 1/2 2 /3 00 12 1/2 2 /3 00 1/2 3 00 3 WorldCom B BB Corporate Spreads + Defaults % (1997
Slide 117: The Strategy and the Performance
The Strategy and the Performance • Trading and Investment Approach to Higher Yielding international fixed income classes: • Sovereign and Quasi-sovereign debt • High Yield Corporate Debt – mostly US/UK • Structured Debt • Investment Objectives: • Absolute Return focused • Take advantage of when the
Slide 118: Thank You
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 119: Structured Finance: Value added debt solutions
Structured Finance “Value added debt solutions” James Teeger RMB Investment Analyst Day 25 May 2004
Slide 120: Contents
CONTENTS • Section A: Change in Strategy • Section B: How do we Execute on our Strategy? • Section C: International Strategy • Section D: Growth • Annexure: Deals Done 2004
Slide 121: Section A: Change in Strategy
Section A: Change in Strategy
Slide 122: In the headlines…
In the headlines… “Structured Finance faces the axe” -13 May 2004 “SARS probe into finance deals rakes in R2.5 billion” - 3 November 2003 “Convertible loans draw taxman’s eye” - 5 April 2002 “SARS media release” - 11 September 2001
Slide 123: Confronting the Brutal Facts
Confronting the Brutal Facts Not Sustainable Sustainable • Tax structuring • Value added debt • Regulatory arbitrage solutions – driven by credit • Regulators controlled • We control our our destiny destiny
Slide 124: Change in strategy
Change in strategy • Core purpose = provide clients with value added debt solutions • New core competence = credit analysis • Uncontrollables (tax & regulatory) are not the core drivers of value • Retained our structuring competences • Implemented over the last 3 years “High intellect applied to a t
Slide 125: Section B: How do we Execute on our Strategy?
Section B: How do we Execute on our Strategy?
Slide 126: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE ZAR165 million BEE deal BEE Deal
Slide 127: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources ZAR2.7 billion Senior & mezzanine debt arranger
Slide 128: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) City of Cape Town ZAR300 million Infrastructure Finance
Slide 129: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) o Cross Border (multinational/SA companies offshore)
Slide 130: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) o Cross Border (multinational/SA companies offshore) • Product Focus Group o Debt Capital Markets (corporate bonds & commercial paper, securitisation)
Slide 131: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) o Cross Border (multinational/SA companies offshore) • Product Focus Group o Debt Capital Markets (corporate bonds & commercial paper, securitisation)
Slide 132: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) o Cross Border (multinational/SA companies offshore) • Product Focus Group o Debt Capital Markets (corporate bonds & commercial paper, securitisation)
Slide 133: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) o Cross Border (multinational/SA companies offshore) • Product Focus Group o Debt Capital Markets (corporate bonds & commercial paper, securitisation)
Slide 134: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) o Cross Border (multinational/SA companies offshore) ZAR175 million Fleet financing • Product Focus Group o Debt Capital Markets (corporate bonds & co
Slide 135: Execution of our strategy is driven by our focus groups
Execution of our strategy is driven by our focus groups • Client Focus Groups o BEE o Resources o Infrastructure (Non taxpaying entities/parastatals) o Cross Border (multinational/SA companies offshore) • Product Focus Group o Debt Capital Markets (corporate bonds & commercial paper, securitisation)
Slide 136: Focus group approach to clients
Focus group approach to clients CLIENTS DEBT SOLUTIONS • SA Corporates Product/Client Groups Key Competencies RMB - Debt capital markets - Credit • Multi-nationals Origination - Property - Excon - Asset based finance - Tax • Parastatals FNB Corporate - ELCM - Legal Relationships - Cross border - Ban
Slide 137: Solutions create debt assets
Solutions create debt assets Client Solution DEBT ASSETS RMB Market Balance Sheet Distribution Credit analysis and distribution teams “A significant annuity income base for the investment bank is the outcome”
Slide 138: Innovation through deals
Innovation through deals • Imperial: o Deferred share transaction o Earnings based • Goldfields: o Unique mezzanine funding • On The Cards: o Securitisation with a domestic medium term note programme • Grainflow: o First securitisation of soft commodities
Slide 139: Strategic differentiators
Strategic differentiators Credit analysis approach + Dedicated distribution team + Equity linked capability + Integrated capital market and non capital market team = Competitive Advantage
Slide 140: Shift in debt origination dynamics
Shift in debt origination dynamics Before Now • Corporates + BEE • Corporates drive companies drive activity activity • Require sophisticated credit and structuring • Lend to corporate skills for new deal types balance sheet • Lend to new companies with varying degrees of corporate balance sheet sup
Slide 141: PWC Ratings – Structured Finance
PWC Ratings – Structured Finance • 2000 ⋕ 1 RMB • 2001 ⋕ 1 RMB • 2002 ⋕ 1 RMB • 2003 ⋕ 1 RMB
Slide 142: Section C: International Strategy
Section C: International Strategy
Slide 143: International Strategy
International Strategy • ZAR specialist • Cross Border focus group assists SA companies offshore in their “start-up” phase of expansion and focuses on multi-nationals requiring funding in SA • Cross Border aircraft and asset finance in Africa could be a potential starting point • Harsh reality – “su
Slide 144: Section D: Growth
Section D: Growth
Slide 145: Strategic Initiatives
Strategic Initiatives • One RMB/FNB Corporate credit analyst team with sector specialisation • Key personnel recruited in growth areas: o Infrastructure o Resources • BEE and mezzanine solutions developed by our ELCM and BEE teams • Aggressive EE targets to transform team • Origination effort togeth
Slide 146: Growth
Growth • Driven by business activity in following areas: o BEE funding o Resource sector funding o Infrastructure funding o Capital market investor demand • AND • Driven by: o Intellectual capital of team o Strategic approach to credit o Multidisciplinary teams
Slide 147: Conclusion
Conclusion • Change of strategy is bearing fruit • Structured Finance is the debt origination engine of RMB
Slide 148: Annexure: Deals done 2004
Annexure Deals done 2004 (some of the bigger ones)
Slide 149: Deals done 2004
Deals done 2004 AUTO LOAN INVESTMENTS 1 & 2 ZAR2.3 billion R2 billion StoreCard Receivable ZAR1.3 billion Auto Loan & Lease Securitisation Securitisation BEE deal ZAR4 billion ZAR2.7 billion Advise on underwriting & commitment to Anglo Plats Senior & mezzanine debt BEE deal convertible perpetual pre
Slide 150: Deals done 2004
Deals done 2004 ZAR1 billion ZAR1.1 billion ZAR165 million Bond BEE Deal BEE Deal Senior debt arranger ZAR675 million ZAR904 million ZAR1.6 billion Leveraged Buy-out Leveraged Buy-out Structured lending Senior debt funder Senior debt participant
Slide 151: Deals done 2004
Deals done 2004 ZAR125 million ZAR265 million ZAR433 million Property Finance Property Finance Loan Funding Senior debt co-arranger ZAR380 million ZAR100 million ZAR285 million Property Finance Term Loan Aircraft Finance
Slide 152: Deals done 2004
Deals done 2004 Real Africa Holdings ZAR75million Property Finance ZAR80 million R175 million Property Finance Preference share funding GRAINFLOW City of Cape Town ZAR175 million ZAR6 billion ZAR300 million Fleet Financing Soft Commodities Infrastructure Finance Securitisation
Slide 153: Thank You
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 154: Project Finance: African Expertise
PROJECT FINANCE African Expertise RMB Investment Analyst Day 25 May 2004
Slide 155: Our African Footprint
Our African Footprint
Slide 156: RMBPF structured as a Global Product House
RMBPF RMBPF is is structured structured as as aa Global Global Product Product House House combining combining Financial Financial structuring structuring expertise, expertise, industry industry knowledge knowledge andand jurisdictional jurisdictional understanding understanding •• Relationships Rel
Slide 157: Size of Lending Book
Size of Lending Book Zimbabwe Ghana Mozambique Benin Currently on book USD120M Congo Brazzaville Botswana Cameroon DRC Angola Angola Already Guinea repaid USD180M DRC Zambia Sudan Cameroon In pipeline (mandated) USD150M Nigeria Angola Ghana
Slide 158: Thank You
RAND MERCH HANT BANK - A division of FirstRand Bank Limited
Slide 159: Unpacking Treasury in FirstRand
RMB Investment Analyst Day 25 May 2004 UNPACKING TREASURY IN FIRSTRAND
Slide 160: Play Video
PLAY VIDEO
Slide 161: Treasury Business Lines
Treasury Business Lines Capital Investment FirstRand Bank Balance Sheet Group NII Protection (IRRM) Group Liquidity Risk Management Professional Funding International Product House Corporate Loans & Investments Financial Markets Client Solutions
Slide 162: Treasury Profit in context
Treasury Profit in context Capital Investment FirstRand Bank Balance Sheet Group NII Protection (IRRM) Group Liquidity Risk Management Professional Funding International Product House 100% Corporate Loans & Investments ALMU & Liquidity Financial Markets 90% Capital Investment Client Solutions 80% Co
Slide 163: “Normal” Treasury Businesses
“Normal” Treasury Businesses Financial Markets Client Services Debt Capital FX Client Markets Business Money Corporate Loans Market & Deposits Metals, Mining & Energy Foreign Exchange Hedging & Funding Solutions Agrics Equities
Slide 164: FRB Treasury
FRB Treasury Treasury RMB Treasury Trading Client Services FirstRand Group Treasury Debt Capital FX Client ALMU Markets Business Money Corporate Loans Group Market & Deposits Funding Metals, Mining Trade Finance Capital Investment & Energy Foreign Exchange Custody Services Hedging & Funding Solution
Slide 165: Treasuries add value or destroy it !
Treasuries add value or destroy it !
Slide 166: Global capabilities
Global capabilities Our treasury capabilities extend beyond our home market Expertise and presence on the ground in : United Kingdom Ireland Mauritius Australia Botswana Namibia Swaziland
Slide 167: Reputation for pioneering new products
Reputation for pioneering new products First rand-based diesel and petrol hedging and structuring facilities First CPI-linked bonds and inflation-linked swaps First listed Bond Index notes Handled Botswana’s first sovereign bond issue Assisted Bank of Botswana in development of the Botswana Bond Mar
Slide 168: Global Rankings
Global Rankings Currency Forwards 1 Interest Rate Caps / Floors 2 Interest Rate Swaptions 2 Cross-Currency Swaps 2 Interest Rate Swaps 10+ Years 3 Best Debt House in Africa 1 1 FM Fixed Income Desk & Analyst 2 Source: Risk Magazine, Euromoney
Slide 169: Thank You
RAND MERCHANT BANK TREASURY