Nedbank Group · JSE:NED

Nedbank — 17th UBS Annual Financial Services Conference (October 2014)

33 slides from Nedbank's conference presentation, Oct 16, 2014

  1. Slide 1: Growing shareholder value

    NEDBANK GROUP LIMITED 17th UBS Annual Financial Services Conference Growing shareholder value 16 October 2014

  2. Slide 2: Consistent focus on growing shareholder value

    Consistent focus on growing shareholder value NAV ROE > COE Dividends NAV per share ROE & Cost of Equity Interim dividend per share (cents) (%) (cents) 16,5 16,1 15,8 EP 14,2 13,7 13,5 13,0 13,1 13,0 13 596 460 12 180 12,2 390 11 143 10 128 340 9 397 265 212 2010 2011 2012 2013 2014 2010 2011 2012 2

  3. Slide 3: … evident in past performance

    … evident in past performance Share price relative Nedbank dividend yield (based to 100) (%) 350 10 300 286 8 251 250 243 200 6 171 150 149 4,2% 4 100 2,8% 2 50 0 0 09 10 11 12 13 14 09 10 11 12 13 14 Nedbank Bank A Bank B Nedbank ALSI 40 Bank C FINI 15 Source: I-Net. Share price relative graph refl

  4. Slide 4: How to grow shareholder value

    How to grow shareholder value Total shareholder return Value Dividends = + (TSR) appreciation paid Valuation model Dividend paid function of:  Earnings growth Implied (ROE – g) = x NAV value (COE – g)  Dividend cover  Availability of capital Long-term value creation Short-term cash flow (Building

  5. Slide 5: Agenda: Key drivers of shareholder value

    Agenda: Key drivers of shareholder value Increase net asset value (NAV) Increase Return on equity (ROE) Maintain / lower cost of equity (COE) Sustainable growth (g) Dividends Non-financial drivers 5

  6. Slide 6: NAV growth a function of HE growth, dividends paid but also impacted by non operational drivers

    NAV growth a function of HE growth, dividends paid but also impacted by non operational drivers… Nedbank NAV & drivers (Rbn) Headline earnings (Rm) 5 000 CAGR 4 000 16,8% Available for sale: ($4,1bn) 3 000 Cash flow hedging: (£1,9bn) 2 000 Fx translation reserve: (£1,2bn) 1 000 - H2 H1 H2 H1 H2 H1 H

  7. Slide 7: Agenda: Key drivers of shareholder value

    Agenda: Key drivers of shareholder value Increase net asset value (NAV) Increase Return on equity (ROE) Maintain / lower cost of equity (COE) Sustainable growth (g) Dividends Non-financial drivers 7

  8. Slide 8: Economic profit / return on equity (ROE) & share performance have historically shown strong correlation

    Economic profit / return on equity (ROE) & share performance have historically shown strong correlation Nedbank Group Big-4 SA bank 17,2% 16,4% 15,3% 220 13,4% 13,0% 2114 158 1521 100 924 100 57 (289) 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Economic profit (Rm) ROE excl GW (%) Share price

  9. Slide 9: Allocating, managing & measuring ROE a key underpin

    Allocating, managing & measuring ROE a key underpin CAPITAL(1): Risk based capital allocation (denominator) Excess of CET1 R61,9bn(1) over 11% Not allocated R52,5bn(1) Centre & Goodwill Rest of Africa Capital buffer Top Wealth down  Home loans Excess downturn EL  Commercial property  Vehicle fina

  10. Slide 10: Inappropriate allocation methodologies may lead to incorrect risk based decision making

    Inappropriate allocation methodologies may lead to incorrect risk based decision making Homeloans Homeloans NPLs in a rising rate cycle Nedbank actuals Illustrative approach  CLR: 22bps  CLR: 22bps In addition to the potential impact of  Capitalisation ratio: 4,8%  Capitalisation ratio: 3,5% sub

  11. Slide 11: ROE drivers: Strong wholesale & wealth franchises, with opportunities in retail & rest of Africa

    ROE drivers: Strong wholesale & wealth franchises, with opportunities in retail & rest of Africa ROE (%) & Capital (Rm) 40 35 Wealth Return on equity (%) Capital 30 25 Corporate 20 BB 15 Cost of equity Retail 10 5 0 0 5 10 15 20 25 Capital deployed (Rbn) 11

  12. Slide 12: ROE driver: Nedbank Retail

    ROE driver: Nedbank Retail Historically ROE impacted by… Invested in physical presence Mispriced HL back-book (’06 - ’08) R62bn CAGR 300bps higher 3 445 margin required +86% (13,7%) R37bn 1 853 543 +40% 762 2009 H1 2014 2010 H1 2014 ATMs Outlets Advances Sub-optimal transactional banking franchise P

  13. Slide 13: ROE driver: Nedbank Retail

    ROE driver: Nedbank Retail Looking forward…  Maintain prudent origination strategies & provisioning levels  Risk based pricing eg HL & PL  More clients doing more with Nedbank - Increase main banked clients - Migration of existing ELB & youth clients to middle market - Increase cross sell  Lever

  14. Slide 14: ROE driver: Grow our transactional banking franchise

    ROE driver: Grow our transactional banking franchise Share of fee & commission income of SA market Continued client growth across all clusters 100% +1,2% 100% Total clients (m) 6,9 Bank D 2,2% 3,4% 6,4 5,8 (2,7%) 5,0 Bank C 31,9% 29,2% 4,4 +0,8% 2010 2011 2012 2013 2014 Bank B 25,6% 26,4% H1 Retail

  15. Slide 15: ROE driver: Managing excess capital

    ROE driver: Managing excess capital Nedbank Group CET 1 ratios Managing excess capital (in order of preference): 1 2019 target range: 12,1  Selective opportunities 12,5% 11,3 Organic in a challenging local to 10,5% growth macro economic environment 2  Disciplined processes Acquisitions  Don’t ove

  16. Slide 16: ROE driver: Rest of Africa

    ROE driver: Rest of Africa ‘One bank’ experience for clients across 39 countries & >2 000 staffed outlets A: SADC & East Africa B: West & Central Africa  Own managed & controlled network  Partnership approach (underpinned by  Expand from 6 to 10 countries over time strategic alliance with Ecobank

  17. Slide 17: Agenda: Key drivers of shareholder value

    Agenda: Key drivers of shareholder value Increase net asset value (NAV) Increase Return on equity (ROE) Maintain / lower cost of equity (COE) Sustainable growth (g) Dividends Non-financial drivers 17

  18. Slide 18: Cost of equity – driven by LT bond yields & market assumptions

    Cost of equity – driven by LT bond yields & market assumptions, but guidance & transparency can enable lower company specific volatility Cost of equity (COE) = Rf + β x Rerp Equity risk premium Risk free rate (Rf) ~8% Beta (β) - volatility of share 1% 5-6% (Rerp) - equity risk BEASSA 10-year rate(1)

  19. Slide 19: Agenda: Key drivers of shareholder value

    Agenda: Key drivers of shareholder value Increase net asset value (NAV) Increase Return on equity (ROE) Maintain / lower cost of equity (COE) Sustainable growth (g) Dividends Non-financial drivers 19

  20. Slide 20: Long-term sustainable growth underpinned by sound strategy

    Long-term sustainable growth underpinned by sound strategy TO BE AFRICA’S MOST ADMIRED BANK Grow Optimise transactional and banking franchise invest Client‐centred innovation Strategic Pan‐African portfolio banking tilt network 20

  21. Slide 21: A tough macro environment – wholesale growth to exceed retail growth

    A tough macro environment – wholesale growth to exceed retail growth 2014 GDP expectations revised downward Credit growth: corporates vs households Credit growth (%) 6 40 4 3,2 2,6 Households 35 1,8 1,5 Corporates 2 30 0 Aug Feb Aug SARB 25 13 14 14 (Sept '14) Nedbank forecasts 20 Consumers remain u

  22. Slide 22: Strategic portfolio tilt - origination strategies

    Strategic portfolio tilt - origination strategies Six-monthly advances growth in key categories (% growth2) 25 20 Grow 15 faster 10 #1 in CPF Strong in wholesale 5 #2 in VAF 0 -5 Selective growth -10 10 11 12 13 14 Commercial property Credit card Vehicle finance Home loans Personal loans Wholesale a

  23. Slide 23: Underpinned by a strong & well positioned balance sheet

    Underpinned by a strong & well positioned balance sheet Wholesale biased profile (% of group) Total & specific coverage (%) 65,9% 58,8% 52,9% Wholesale 45,4% 39% advances 38,6% 61% Retail advances 31,6% 35,8% 39,0% 40,9% 42,7% 10 11 12 13 14 Endowment sensitivity (Rm) CET 1 Capital ratios (%) 12,1%

  24. Slide 24: …and still good longer-term growth potential

    …and still good longer-term growth potential Nedbank large SA capital project schedule GDP growth forecasts from IMF, robust for RoA (R billion - constant 2014 prices) (%) 10 Sub-Saharan Africa Private sector South Africa 800 R3 trillion 8 Public sector potential by 600 2030 6 4 400 2 200 0 0 -2 93

  25. Slide 25: Agenda: Key drivers of shareholder value

    Agenda: Key drivers of shareholder value Increase net asset value (NAV) Increase Return on equity (ROE) Maintain / lower cost of equity (COE) Sustainable growth (g) Dividends Non-financial drivers 25

  26. Slide 26: Progressive dividend payout, towards mid-point of 1,75 – 2,25x

    Progressive dividend payout, towards mid- point of 1,75 – 2,25x In a tougher economic environment where earnings growth slows, DPS growth > HEPS growth Dividend cover HEPS, DPS growth (x) (%) HEPS growth 2.5 30 Div growth Range: 2.4 2,25 – 2,75x 25 2.3 20 2.2 2.1 15 2.0 10 1.9 Range: 5 1.8 1,75 – 2,

  27. Slide 27: Agenda: Key drivers of shareholder value

    Agenda: Key drivers of shareholder value Increase net asset value (NAV) Increase Return on equity (ROE) Maintain / lower cost of equity (COE) Sustainable growth (g) Dividends Non-financial drivers 27

  28. Slide 28: Aligning management & shareholder interests: Short-term incentives

    Aligning management & shareholder interests: Short-term incentives Economic Profit Headline earnings growth Change in STI pool (Rm) (%) (%) 35,8% 2 114 1 790 26,2% 1 521 21,4% 17,8% 18,7% 15,9% 15,9% 924 14,6% 5,8% 57 (0,2%) (2,6%) (289) (25,8%) -5.0% 08 09 10 11 12 13 08 09 10 11 12 13 08 09 10 11

  29. Slide 29: Aligning management & shareholder interests: Long-term incentives

    Aligning management & shareholder interests: Long-term incentives Long-term incentive charges (Rm) Vesting criteria 600 ROE vs. Fini 15 Vesting % 554 COE -20% or +0% or 0% worse worse 449 -15% 25% +1,25% -10% 50% +2,5% 400 -5% 75% +3,75% 0% 100% 5% 262 10% 110% 6% 20% 120% 7% 200 +30% or +8% or 130%

  30. Slide 30: If investment decisions were only made on spread sheets…

    If investment decisions were only made on spread sheets… 30

  31. Slide 31: Most importantly, don’t forget…

    Most importantly, don’t forget… Governance, Culture & Leadership experience, strength & independence staff morale depth & credibility of the Board  Worldclass governance  Staff morale & culture  Stable management team metrics close to world class  Diversified & experienced  More than 23 years l

  32. Slide 32: THANK YOU

    THINGS HAPPEN NEDBANK GROUP THANK YOU

  33. Slide 33: Disclaimer

    Disclaimer Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities le

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