FirstRand Limited · JSE:FSR
FirstRand — FY2011 Earnings Presentation
53 slides from FirstRand's earnings presentation, June 2011
Slide 1: Results presentation for the year ended 30 June 2011
20 11 results presentation for the year ended 30 June 2011
Slide 2: Introduction: earnings above 2007 peak and ROE tracking up
1 introduction Sizwe Nxasana Earnings above 2007 peak and ROE continues to track up Group continuing operations – normalised earnings* R million 12 000 ROE = 19% 10 000 +22% 10 117 9 561 8 000 8 401 8 283 6 000 5 540 4 000 2 000 0 Jun '07 Jun '08 Jun '09 Jun '10 Jun '11 * Excludes contributions from
Slide 3: Strong performance from all franchises
2 Strong performance from all franchises Profit before tax (R million) 2011 2010 Change FNB 6 944 5 806 ▲ 20% FNB Africa 1 350 1 146 ▲ 18% RMB 4 959 4 728 ▲ 5% WesBank 2 548 1 300 ▲ 96% Cumulative build-up of leverage... 30% “Golden” years “New normal” 25% 20% 15% 10% 5% 0% -5% Nominal GDP growth y/
Slide 4: Financial review: managing for the new normal
3 financial review Johan Burger Managing our business for the “new normal” • Maintain conservative capital ratios • Keep appropriate liquidity buffers • Lengthen funding profile • Increase deposit franchise • Ensure appropriate risk/reward pricing and origination strategies R E S U LT S P R E S E N
Slide 5: Group actual performance
4 All of the data contained in the Financial review section of this presentation are presented on a normalised basis, for continuing operations. Please refer to pages 14 and 15 of the Analysis of financial results for a detailed description. Group actual performance R million (normalised) Jun ’11 Ju
Slide 6: Evaluating EPS performance pre- and post corporate actions
5 Evaluating EPS performance pre- and post corporate actions 400 OUTsurance Special 350 5.1 dividend 300 Momentum 24.7 Unbundled +22% 250 200 150 FirstRand banking 146.9 179.4 FirstRand Ltd operations 100 50 - 2010 FSR 2011 FSR MMI OUTsurance actual continuing Performance highlights – Group’s contin
Slide 7: Key ratios and income statement
6 Key ratios – Group’s continuing operations Jun ’11 Jun ’10 Change Return on equity (%) 18.7 17.7 Return on average assets (%) 1.5 1.3 Credit loss ratio (%) 0.93 1.39 Cost-to-income ratio (%) 55.4 55.0 – Tier 1 ratio* (%) 15.0 13.5 Core Tier 1 ratio* (%) 13.8 12.6 Net interest margin (%)
Slide 8: Client franchise contributes 93% of gross revenue
7 Client franchise contributes 93% of gross revenue NIR breakdown Gross revenue breakdown 43% 64% Transactional income 57% 8% RMB client flows Client activity 10% Insurance 88% 1% WesBank associates 5% Other client 4% Private equity 2% Resources Investment & trading NII before impairments 12% 3% Oth
Slide 9: NII still a lending story
8 NII still a lending story Jun ’10 Jun ’11 9% 9% 19% Lending 19% Deposit-taking Endowment/Group Treasury 58% FNB Africa 59% 14% 13% Based on net interest income before impairment of advances NII still a lending story Jun ’10 Jun ’11 Lending 58% 59%
Slide 10: Retail lending where underweight and returns better
9 Retail +6% – lending where underweight and risk-adjusted returns better Advances (R million) Change 108 541 Residential mortgages FNB HomeLoans (2%) Origination strategy 106 864 37 710 Wealth 8% Targeted segment 40 913 6 261 Affordable housing 31% Targeted segment 8 197 53 391 WesBank Motor 12% Ma
Slide 11: Analysing profitability of mortgage new business
10 What to consider when analysing profitability of mortgage new business • Client risk • Repayment-to-income (RTI) • Expected losses (bad debts) • Pricing • Asset risk • Loan-to-value (LTV) • ROE • Area • Market share • Liquidity mismatch • Short vs long • Earnings volatility • Non-interest revenue
Slide 12: Lower risk customers and improved pricing
11 Lower risk customers and improved pricing 100% 1.60% Higher discount 90% 1.40% 80% 1.20% 70% % of registered deals 1.00% 60% 50% 0.80% 40% 0.60% 30% 0.40% 20% 0.20% 10% Lower 0% discount 0.00% Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr '07 '07 '07 '07 '08 '08 '08 '08
Slide 13: Deposit-taking franchise growing but smaller than lending
12 Deposit-taking franchise growing, but remains smaller than lending… Jun ’10 Jun ’11 Deposit-taking 14% 13% … given structural funding issues in SA banking sector Industry FirstRand Bank 5% 4% Institutional 5% 8% 5% Retail 1% 9% Corporate 40% 44% 21% Public sector Foreign 21% Other 21% SME 16% Sou
Slide 14: NII endowment remains significant
13 NII – endowment remains significant Jun ’10 Jun ’11 19% 19% Endowment/Group Treasury Endowment impacts R750 million per 100bps per annum Repo rate (%) 8.0 7.5 7.0 Average Repo 6.9% 6.5 Approx. R75bn* 6.0 Average Repo 5.8% 5.5 5.0 Jun '09 Dec '09 Jun '10 Dec '10 Jun '11 * Average endowment book fo
Slide 15: Margin remained stable
14 Margin remained stable – pricing and mix offset by endowment % Advances Deposits Endowment/Group Treasury 4.8 0.03 (0.04) 4.7 (0.06) 0.11 (0.09) 4.6 0.06 4.58 0.06 4.58 (0.10) 4.5 0.03 4.4 4.3 Jun '10 Change in Advances Cash Term Deposits Deposit Capital Interest Accounting Jun '11 normalised bal
Slide 16: Bad debts within long-run average
15 Bad debts within long-run average, but don’t expect further benefit Impairment charge (%) 3.5 2.97 3.0 2.5 2.08 1.85 2.0 1.87 1.5 1.38 1.39 1.26 1.16 Retail 1.0 0.79 0.87 0.90 0.93 0.93 Total 0.72 0.66 0.54 0.75 0.66 Corporate 0.5 0.43 0.58 0.37 0.62 0.49 0.36 0.30 Africa 0.18 0.29 0.20 0.0 Jun '
Slide 17: Bad debt charge benefited from lower inflows; NPLs ageing
16 Bad debt charge benefited from lower inflows, however, NPLs ageing FNB HomeLoans NPL book Average time in NPL (months) 1 400 25 1 200 20 1 000 15 800 600 10 400 5 200 - 0 New inflows Write-offs Average time in NPL (RHS) NPLs continue to reduce, however levels remain high 7 5.7 6 5.0 5 4.2 4 4.9 4
Slide 18: Income statement and unpacking NIR
17 Income statement – Group’s continuing operations Normalised (R million) Jun ’11 Jun ’10 % change Net interest income before impairment of advances 20 501 18 787 9% Impairment of advances (4 292) (6 052) (29%) Net interest income after impairment of advances 16 209 12 735 27% Non-interest revenue
Slide 19: Sustainability of NIR driven by client franchises
18 Sustainability of NIR driven by strength of client franchises Normalised NIR* (R million) Jun ’11 Jun ’10 Change Jun ’11 mix Client 23 380 21 150 11% 87% Investment 2 586 2 156 20% 10% Trading & other fair value 771 734 5% 3% Non-interest revenue 26 737 24 040 11% 100% Businesses disposed
Slide 20: Increased activity across all franchises provides annuity
19 Increased activity across all franchises provides annuity Normalised (R million) Jun ’11 Jun ’10 Change - Transactional income 17 149 15 485 11% - RMB client activity 2 073 1 400 48% - Insurance 2 650 2 183 21% - WesBank associates 318 210 51% - Other 1 190 1 872 (36%) Client activities
Slide 21: Investment banking drives growth in RMB client activity
20 Investment banking activities drive growth in RMB client activity R million 2 500 R million Jun ’11 Jun ’10 % change 48% 2 000 FICC 1 262 1 108 14% 1 500 Equities 130 189 (31%) Investment Banking 634 322 97% 1 000 Other * 47 (219) (>100%) 500 RMB client activity 2 073 1 400 48% 0 * Incl
Slide 22: Strong growth in investment income
21 Strong growth in investment income, however, mixed picture Normalised (R million) Jun ’11 Jun ’10 Change Private equity activities 1 138 1 493 (24%) Resources 449 245 83% ELI returns 339 126 >100% Other* 660 292 >100% Investment NIR 2 586 2 156 20% * Includes non-private equity dividend
Slide 23: Subdued performance from trading businesses
22 Subdued performance from trading businesses Jun ’10 Jun ’11 3% 3% R million Jun ’11 Jun ’10 Change RMB trading 964 871 11% Other fair value (193) (137) 41% Trading & 771 734 5% other fair value Income statement – Group’s continuing operations Normalised (R million) Jun ’11 Jun ’10 % change
Slide 24: Maintained cost-to-income ratio at 55%
23 Maintained cost-to-income ratio at 55% R million 50 000 9% 60% 45 000 55% 40 000 50% 35 000 45% 30 000 Actual 9% 40% 25 000 Core 8% 35% 20 000 30% 15 000 10 000 25% 5 000 20% Jun '07 Jun '08 Jun '09 Jun '10 Jun '11 Costs Top line Cost-to-income ratio (RHS) OUTsurance included in Jun ’07 to Jun ’0
Slide 25: Accounting policy impact on cost-to-income; balance sheet soundness
24 Impact of changes in accounting policies on cost-to-income ratio • IFRS allows “direct and incremental costs” to be reflected net against fee and commission income earned • FirstRand has historically reflected the majority of these expenses as part of operating expenses – not in line with peers •
Slide 26: Strong capital position
25 Strong capital position 16.5 1.5 14.2 1.2 FirstRand Group Core Tier 1 % Tier 1% 1.8 Capital adequacy ratio 13.8 15.0 1.0 Regulatory minimum 5.25 7.0 Target 9.5 – 11.0 11.0 13.8 FirstRand Bank Core Tier 1 % Tier 1% 11.4 Capital adequacy ratio 11.4 12.4 Regulatory minimum 5.25 7.0 Target 9.0 – 10.5
Slide 27: Strategies to bring capital into target range
26 Strategies to bring capital into target range Core Tier 1 ratio 14% 13.8% Special dividend 13% 12.6% 12% Expansion, regulatory 11% changes, etc.* Target range: 10% 9.5 – 11.0% 9% 8% 7% 6% 5% 4% Jun '10 Jun '11 * Illustrative ROE returns to target and capital actions will further improve returns 3
Slide 28: Strong capital position provides flexibility
27 Strong capital position provides flexibility NAV split Expansion, regulatory changes, etc. FNB ROE 36% Special dividend Africa* WesBank RMB ROE 21% ROE 26% ROE 28% * ROE and NAV for African subsidiaries (includes FNB Africa and RMB Africa) Understanding diversity of earnings Geography* Activity*
Slide 29: Franchise review
28 Segmental diversification Jun ’10 Jun ’11 9% 8% 36% Retail Commercial 43% 40% 34% Corporate FNB Africa 15% 15% Based on PBT, excluding Corporate Centre and consolidation adjustments franchise review Sizwe Nxasana
Slide 30: Excellent performance from FNB SA
29 Excellent performance from FNB SA as a result of strong and growing franchise Profit before tax R million ROE = 36% Characterised by: 7 000 + Improving bad debts +20% 6 000 + Transactional volumes still growing, mix changing to more electronic 5 000 + Good growth of retail deposits 4 000 + Improv
Slide 31: FNB HomeLoans returns to profitability
30 FNB HomeLoans returns to profitability Jun ’09 Jun ’10 Jun ’11 Profit before tax* (R million) (1 753) (305) 63 • Year-on-year improvement of R368 million – mainly attributed to • Improved bad debts • Reduction in value of PIPs • Increased NIR • Repricing of credit NPLs (R million) Credit impairme
Slide 32: Healthy NIR growth and cost management
31 Healthy NIR growth of 10% on robust transactional growth of 14% Transaction volumes (millions) 1600 1400 +14% +20% 1200 1000 Electronic transactions 800 CAGR: 22% 600 400 200 Manual transactions CAGR: 0% 0 Jun '09 Jun '10 Jun '11 Manual transactions Electronic transactions Manual transactions – c
Slide 33: FNB EasyPlan rollout and innovation
32 FNB EasyPlan rollout ahead of schedule Number of EasyPlan branches 120 100 80 60 40 20 0 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Target Actual • 117 EasyPlan branches • Over R100m per month loan payout currently • Investment in presence and staff reflec
Slide 34: Strong performance from FNB Africa
33 Strong performance from FNB Africa despite continued investment spend Profit before tax* (R million) Characterised by: 1 600 ROE = 21% + Good performances from Namibia, 1 400 +18% Botswana and Swaziland 1 200 + Ongoing investment in newer subsidiaries (Zambia, Mozambique 1 000 and Tanzania) 800 +
Slide 35: RMB good performance off high base
34 RMB good performance off high base Profit before tax Characterised by: R million 6 000 + Strong performance from Investment ROE = 29% Banking Division 5 000 +5% + Positive advances growth 4 000 + Private Equity realisations and good growth from underlying portfolio 3 000 + Reduced losses on legac
Slide 36: Mixed picture across portfolio: Investment Banking and FICC
35 Mixed picture across portfolio PBT (R million) 3 000 Jun '10 Jun '11 2 500 2 000 1 500 1 000 500 - ( 500) (1 000) Investment Banking FICC Private Equity Equities Other Investment Banking • Strong performance despite sluggish corporate activity • Significant contributions from advisory, leveraged
Slide 37: Mixed picture across portfolio: Private Equity and Equities
36 Mixed picture across portfolio PBT (R million) 3 000 Jun '10 Jun '11 2 500 2 000 1 500 1 000 500 - ( 500) (1 000) Investment Banking FICC Private Equity Equities Other Private Equity* • Good result given base from Life realisation in 2010 • Income from Private Equity investments** R559 million (J
Slide 38: Rebalancing portfolio and improving earnings quality
37 Mixed picture across portfolio PBT (R million) 3 000 Jun '10 Jun '11 2 500 2 000 1 500 1 000 500 - ( 500) (1 000) Investment Banking FICC Private Equity Equities Other Other • Strong performance from Resources – well positioned for favourable commodities environment, particularly gold • Legacy lo
Slide 39: Wholesale credit growth +9%
38 Progress on strategy: Wholesale credit growth +9%* • Adjustment in appetite resulted in growth over market • Improved quality of portfolio • Growth in investment grade counters – improved rating distribution • Grew in low volatility industries June 2010 June 2011 11% 12% Investment grade 21% 26%
Slide 40: CIB and corridors; WesBank earnings above 2006 peak
39 Progress on strategy: CIB and corridors build momentum • Corporate and Investment Banking (CIB) • Grown CIB Coverage teams in key sectors and expanded team to cover Africa and corridors • Refined transactional banking strategy • Focus on African and Asian corridors yielding results • RMB skills d
Slide 41: Payout of R57 billion drives advances growth
40 Payout of R57 billion drives advances growth • Local advances increased 12% • Overall new business up 28% • Retail new business production up 32% • Corporate new business production up 16% R million R million 100 000 4 500 4 000 95 000 3 500 90 000 3 000 2 500 85 000 2 000 80 000 1 500 Gross adva
Slide 42: Focus on cost management paying off
41 Focus on cost management paying off • Core operating costs in the lending business flat year-on-year • Headcount in core business declined 12% during the year • 32% headcount reduction from 4 650 in 2009 to 3 200 • Higher cost increases in certain growth areas including: • Personal loans direct m
Slide 43: Strategy & prospects: FirstRand's strategy
42 strategy & prospects Sizwe Nxasana FirstRand’s strategy • Objectives • To be the African financial services group of choice • By creating long-term franchise value • Through delivering superior and sustainable returns • Within acceptable levels of earnings volatility • Underpinned by alignment of
Slide 44: The case for expanding in Africa is persuasive
43 The case for expanding in Africa is persuasive • Sub-Saharan region has been growing at 5.6% per annum over the past decade • 6 of the 10 fastest growing economies in the world since 2000 were in Sub-Saharan Africa • Africa represents a large market = 840 million people with USD1.9 trillion in pu
Slide 45: Geographic expansion framework
44 FirstRand’s geographic expansion framework • A profitable African franchise does not require a presence in every country • Africa represents different opportunities in different jurisdictions and our franchises respond appropriately • Current priority countries outside the established network • N
Slide 46: Strategic framework: create long-term franchise value
45 Our strategic framework = create long-term franchise value and returns • It is possible to “buy” growth in Africa • However, it is imperative to protect returns in the process • Apply a disciplined risk appetite framework • Capital deployment • ROE “drag” • Growth “sacrifice” • Integrated platfor
Slide 47: Executing on all our options; Prospects
46 Executing on all our options Grow organically Acquire (“greenfields”) – + – + Protect returns Price paid can Achieve Takes longer to In-country create long-term immediate scale achieve scale presence drag on ROE and earnings in-country facilitates “bolt- on” acquisitions Prospects • Macros are be
Slide 48: Appendix: retail bad debt unwind continued
47 appendix Retail bad debt unwind continued Credit impairments Jun ’11 Jun ’10 Percentage of average advances Retail 1.16 1.85 - Residential mortgages 0.79 0.95 - Credit card 1.39 6.92 - Vehicle and asset finance 1.11 1.80 - Other retail 6.12 10.00 Corporate/Wholesale 0.66 0.93 FNB Africa 0.30 0.37
Slide 49: Retail still dominates NPLs
48 Retail still dominates NPLs NPL Jun ’11 Jun ’10 Percentage of advances Retail 5.80 7.35 - Residential mortgages 6.74 8.24 - Credit card 4.15 6.29 - Vehicle and asset finance 3.84 5.17 - Other retail 5.85 7.71 Corporate/Wholesale 2.62 2.50 FNB Africa 1.63 2.07 Total NPL ratio* 4.17 4.98 * Total NP
Slide 50: Corporate segment; investment banking activities
49 Corporate segment R million Jun ’11 Jun ’10 Change PBT (R million) 6 000 Segment PBT 5 556 5 252 6% 5 000 4 000 Jun ’10 Jun ’11 3 000 2 000 1 000 0 Investment banking Corporate banking & asset finance Corporate segment comprises RMB, FNB Corporate and WesBank corporate activities Investment ban
Slide 51: Commercial segment; retail composition
50 Commercial segment R million Jun ’11 Jun ’10 Change PBT (R million) Segment PBT 2 337 2 044 14% 5 000 4 000 3 000 Jun ’10 2 000 Jun ’11 1 000 - (1 000) (2 000) (3 000) (4 000) (5 000) Lending Deposit-taking Bad debts Non-interest Expenses Indirect tax revenue Commercial segment comprises FNB Co
Slide 52: Mass segment; consumer segment
51 Mass segment R million Jun ’11 Jun ’10 Change PBT (R million) Segment PBT 1 449 1 321 10% 4 000 3 000 2 000 Jun ’10 Jun ’11 1 000 0 -1 000 -2 000 -3 000 -4 000 Lending Deposit-taking Bad debts Insurance Other NIR Expenses Indirect tax Mass segment comprises FNB Mass Consumer segment R million J
Slide 53: www.firstrand.co.za
www.firstrand.co.za FIRSTRAND