FirstRand Limited · JSE:FSR
FirstRand — FY2017 Earnings Presentation
60 slides from FirstRand's earnings presentation, June 2017
Slide 1: Results Presentation for the year ended 30 June 2017
R E S U LT S P R E S E N TAT I O N for the year ended 30 June 2017
Slide 2: Slide 2
Slide 3: Continued track record of growth in earnings and superior returns
® FIRSTRAND RESULTS PRESENTATION for the year ended 30June 2017 introduction Continued track record of growth in earnings and superior returns Cents 500 23.4% ROE . 450 +7% 436.2 400 407.4 350 378.5 300 331.0 +13% 250 273.5 255.0 200 226.0 210.0 150 174.0 136.0 100 50 0 2013 2014 2015 2016 2017 Dilu
Slide 4: Group continued to deliver growth in NIACC
FIRSTRAND GROUP Introduction continued Group continued to deliver growth in NIACC NIACC* R million ROE and COE 24.2% 24.7% 24.0% 12 000 23.4% 25% 22.7% 10 000 20% 9 694 9 548 9 086 8 000 8 172 13.6% 15% 6 000 14.5% 14.3% 6 169 13.6% 13.5% 10% 4 000 5% 2 000 0 0% 2013 2014 2015 2016 2017 NIACC ROE Co
Slide 5: FirstRand's strategy is to diversify portfolio for growth and returns
FirstRand’s strategy is to diversify portfolio for growth and returns Other markets Rest of (incl. UK and India) WesBank Investing Other Transact Africa 2% Insure FNB 8% Save and 17% invest† Revenue split Geographic Franchise split of by activity* PBT mix** normalised earnings# 54% 29% Lend 90% RMB
Slide 6: Transactional and lending franchises continue to be substantial contributors
FIRSTRAND GROUP Unpacking performance against strategy continued Transactional and lending franchises continue to be substantial contributors Gross revenue* R million 45 000 40 000 35 000 Transactional and lending franchises = 83% of revenue 30 000 25 000 20 000 15 000 10 000 5 000 0 Transactional L
Slide 7: Quality reflected in sustainably higher ROA
Quality reflected in sustainably higher ROA… % 8 7 6 3.50 3.41 3.30 3.32 5 3.41 4 3 2.06 2.12 2.07 2.07 1.89 2 1 3.44 3.69 3.85 3.96 3.94 0 (1) (2) (3.53) (3.67) (3.66) (3.71) (3.70) (3) (4) (0.70) (0.61) (0.58) (0.65) (0.68) (5) 2013 2014 2015 2016 2017 NIR as % of assets Operating expenses as % of
Slide 8: Further growth opportunities lie in execution of diversification strategies
FIRSTRAND GROUP Unpacking performance against strategy continued Further growth opportunities lie in execution of diversification strategies Gross revenue* R million 45 000 40 000 35 000 30 000 25 000 20 000 Significant opportunity in group’s 15 000 client base to grow in save, 10 000 invest and ins
Slide 9: Save and invest – wealth and investment management integrated into FNB
Save and invest – wealth and investment management (WIM) integrated into FNB from 1 July 2017 • WIM building blocks will be better leveraged inside FNB • Proven customer ecosystem of products, channels and rewards • Significantly increase the penetration of investment products into FNB clients • Nec
Slide 10: FirstRand's strategy is to diversify geographically for growth and returns
FIRSTRAND GROUP Unpacking performance against strategy continued FirstRand’s strategy is to diversify geographically for growth and returns Other markets Rest of (incl. UK and India) WesBank Investing Other Transact Africa 2% Insure FNB 8% Save and invest† Revenue split Geographic Franchise split of
Slide 11: Group's rest of Africa performance reflects mixed picture between retail and CIB
Group’s rest of Africa performance reflects mixed picture between retail and CIB Group rest of Africa PBT * FNB rest of Africa PBT * RMB rest of Africa PBT * R million R million R million 3 500 1 800 1 400 (9%) 1 600 3 000 1 200 +29% 1 400 2 500 1 000 1 200 (32%) 2 000 1 000 800 1 500 800 600 600 1
Slide 12: Rest of Africa key to RMB's strategy at 13% of total profits
FIRSTRAND GROUP Unpacking performance against strategy continued Rest of Africa key to RMB’s strategy at 13% of total profits and growing strongly Normalised PBT per core activity* • Rest of Africa delivered 29% growth R million year-on-year: 1 400 +29% • IB&A benefited from balance sheet 1 200 +8%
Slide 13: FirstRand's strategy is to diversify franchises for growth and returns
FirstRand’s strategy is to diversify franchises for growth and returns Other markets Rest of (incl. UK and India) WesBank Investing Other Transact Africa Insure FNB Save and 17% invest† Revenue split Geographic Franchise split of by activity* PBT mix** normalised earnings# 54% 29% Lend 90% RMB South
Slide 14: FNB: Strong domestic franchise performance impacted by weak macros in rest of Africa
REVIEW OF OPERATIONS FNB Strong domestic franchise performance impacted by weak macros in the rest of Africa Normalised PBT R million 37.4% ROE . 20 000 +5% 18 000 18 828 17 883 16 000 16 536 14 000 14 459 FNB SA: 12 000 +8% 11 644 10 000 8 000 6 000 FNB Africa: 4 000 (32%) 2 000 - 2013 2014 2015 20
Slide 15: Reflects success of consistent strategy
Reflects success of consistent strategy • Grow and retain core transactional accounts • Digital platforms provide cost effective and innovative transactional volume propositions to customers • Use rewards programme, customer relationships and data analytics to cross-sell and up-sell broad range of f
Slide 16: Transactional franchise resilient despite headwinds
REVIEW OF OPERATIONS FNB continued Transactional franchise resilient despite headwinds Normalised PBT R million Transactional franchise contributes 65% of FNB PBT 14 000 +8% 12 000 10 000 8 000 6 000 4 000 2 000 0 (2 000) Transactional * Term lending Save and invest ** Insurance # Rest of Africa Oth
Slide 17: Transactional franchise benefiting from e-migration strategy
Transactional franchise benefiting from e-migration strategy despite short-term revenue squeeze • Digitisation strategies support: Faster-than-expected e-migration • Customer acquisition and retention results in revenue squeeze • Cross-sell Year-on-year change in • Shift in branch activity from serv
Slide 18: Strong growth in deposits of 12%, but at lower margins
REVIEW OF OPERATIONS FNB continued Strong growth in deposits of 12%, but at lower margins Normalised PBT R million 14 000 • Client acquisition strategies also driving good growth in deposits 12 000 • Product innovation supports growth 10 000 • Deposit acquisition through digital channels gaining fur
Slide 19: RMB: Solid operational performance sustained premium returns
Solid operational performance sustained premium returns Normalised PBT R million 12 000 26.2% ROE . 10 000 +10% 9 832 8 918 8 000 8 136 7 688 6 000 6 150 4 000 2 000 0 2013 2014 2015 2016 2017 Years prior to 2015 have not been restated for refined rest of Africa segmentation. Years prior to 2014 hav
Slide 20: Focused client strategies and cost management underpinned performance
REVIEW OF OPERATIONS RMB continued Focused client strategies and cost management underpinned performance Normalised PBT * R million 4 000 +11% +7% 3 000 2 000 +18% +16% 1 000 (50%) 0 Investment banking and Corporate and Markets and structuring Investing Investment advisory (IB&A) transactional banki
Slide 21: C&TB performance benefited from investment into rest of Africa strategy
C&TB performance benefited from investment into rest of Africa strategy and platforms Normalised PBT * • Strong demand for structured and traditional trade products R million • Liability-raising strategy in the rest of Africa gained traction 4 000 • Global FX adversely impacted by changes in certain
Slide 22: Large realisation underpinned Investing performance
REVIEW OF OPERATIONS RMB continued Large realisation underpinned Investing performance • Solid annuity earnings despite tough macros Normalised PBT * • New acquisitions contributed towards replenishment of diversified portfolio R million • Quality of portfolio underpins healthy R3.7 billion unrealis
Slide 23: WesBank: Resilient performance in difficult environment
Resilient performance in difficult environment Normalised PBT R million 20.0% ROE . 6 000 +2% 5 518 5 612 5 000 4 643 4 000 4 315 3 983 3 000 2 000 1 000 0 2013 2014 2015 2016 2017 Years prior to 2015 have not been restated for refined rest of Africa segmentation. Years prior to 2014 have not been r
Slide 24: Operational performance from local VAF enhanced by MotoVantage acquisition
REVIEW OF OPERATIONS WesBank continued Operational performance from local VAF enhanced by MotoVantage acquisition Normalised PBT R million • New business production growth of 9.7% (2016: 5.8%) +6% excl. MotoVantage • Book growth of 10% normalised for the rundown of 3 000 +13% incl. MotoVantage busin
Slide 25: Corporate and commercial impacted by lower demand and protection of returns
Corporate and commercial impacted by lower demand and protection of returns Normalised PBT R million 3 000 • Declining ABF book on the back of credit appetite and suppressed demand 2 500 • Muted new vehicle sales suppressed dealer funding portfolio 2 000 • Continued investment drag in FML business 1
Slide 26: Performance highlights (normalised)
FIRSTRAND GROUP Financial review Performance highlights (normalised) 2017 2016 % change Diluted EPS (cents) 436.2 407.4 7 Dividend per share (cents) 255.0 226.0 13 Earnings (R million) 24 471 22 855 7 NIACC (R million) 9 548 9 086 5 Net asset value per share (cents) 1 941.7 1 779.0 9 Net inter
Slide 27: High quality topline growth
High quality topline growth Normalised earnings R million +8% +7% 28 000 +7% +13% 2 826 (2 831) +4% 7% 24 000 2 896 (895) (380) 24 471 22 855 20 000 16 000 12 000 8 000 4 000 0 2016 NII Impairments NIR Opex Tax and other 2017 Revenue composition reflects strength of client franchise NET INTEREST IN
Slide 28: Topline growth reflects execution of strategy
FIRSTRAND GROUP Financial review continued Topline growth reflects execution of strategy R million 2016 2017 5% 25 000 +3% 20 000 14% 15 000 10 000 +11% +26% 5 000 0 Lending Transactional NII Capital endowment Transactional NIR Insurance NET INTEREST INCOME NON-INTEREST REVENUE High quality topline
Slide 29: NII benefited from deposit strategy and endowment
NII benefited from deposit strategy and endowment Net interest income* 2017 2016# % change R million Lending 20 221 19 674 3 Transactional NII** 14 552 12 812 14 Deposits 2 811 2 782 1 Capital endowment 5 664 5 104 11 Group Treasury 583 730 (20) FNB Africa 3 178 2 730 16 Other NII in operating franc
Slide 30: Margin pressure mitigated by funding strategies and endowment
FIRSTRAND GROUP Financial review continued Margin pressure from pricing and regulatory drag mitigated by funding strategies and endowment Margin Basis points 535 Group Treasury impacts (8) bps – 528 (3) (5) 526 520 13 (5) 5 (2) (5) 505 490 475 2016 Interest rate Term funding Accounting HQLA and Chan
Slide 31: Retail and commercial deposit franchises showed strong growth
Retail and commercial deposit franchises showed strong growth Liabilities R billion 325 300 2016 2017 +10% 300.1 275 250 271.7 225 +14% 200 +12% 204.7 175 188.3 180.1 (2%) 150 167.4 147.3 144.4 125 100 (22%) 75 +3% 50 +21% 68.9 55.3 56.7 53.9 +5% 25 29.3 35.4 18.0 18.9 0 Retail Commercial CIB Rest o
Slide 32: Average deposit growth underpins quality NII
FIRSTRAND GROUP Financial review continued Average deposit growth underpins quality NII Corporate banking average deposits • CIB point-in-time balance cyclical – down 2%* +2% 36% • Corporate banking average operational deposits up 3%, impacted by: 49% +3% • Tough client operating environment 2017 •
Slide 33: Retail advances growth reflects specific origination strategies
Retail advances growth reflects specific origination strategies R million 2017 2016 % change Residential mortgages 195 498 189 453 3 Retail unsecured 16% VAF 155 579 149 925 4 3% – SA 102 322 99 702 3 7% – MotoNovo* 53 257 50 223 6 6% Card 23 800 21 968 8 Retail advances 47% Personal loans 27 946 26
Slide 34: Advances growth driven by cross-sell in premium offset by appetite cutbacks
FIRSTRAND GROUP Financial review continued On a segment view, advances growth driven by cross-sell in premium offset by appetite cutbacks in consumer Consumer unsecured Premium unsecured R billion R billion 25 40 (5%) 35 +13% 20 20.7 33.8 19.8 30 30.0 15 25 20 10 15 10 5 5 0 0 2016 2017 2016 2017 We
Slide 35: Corporate and commercial advances growth remained resilient
Corporate and commercial advances growth remained resilient R million 2017 2016 % change CIB core advances – South Africa 235 999 209 090 13 5% 21% – Investment banking 185 625 162 671 14 – HQLA corporate advances 18 544 20 297 (9) Corporate and commercial – Corporate banking* 31 830 26 122 22 8% ad
Slide 36: Customer acquisition and cross-sell strategies drive advances in commercial
FIRSTRAND GROUP Financial review continued Customer acquisition and cross-sell strategies drive advances in commercial FNB commercial advances Other R billion 4% 90 Overdrafts +7% Commercial 21% property 75 83.6 78.0 finance 23% 60 FNB commercial 45 advances breakdown 30 15 Specialised Agric finance
Slide 37: NPLs trending in line with expectations
NPLs trending in line with expectations NPLs* NPLs* R million R billion Origination Credit cycle worsening Specific Higher rates, 25 7 000 action and counterparties liquidity and Overall NPLs +3% workout currency pressures in 6 000 +19% certain countries 20 4.3 5.4 (2%) (26%) 5 000 +17% 15 4 000 10
Slide 38: Overall coverage remains appropriate
FIRSTRAND GROUP Financial review continued Overall coverage remains appropriate NPLs Coverage ratios % 2017 2016 R million Retail – secured 26.9 26.6 25 000 Residential mortgages 21.8 21.8 VAF 30.7 31.0 20 000 9% 12% – SA 29.3 29.5 20% 27% – MotoNovo 58.5 60.7 15 000 20% Retail – unsecured 56.6 61.2
Slide 39: Credit performance reflects macros but remains below TTC
Credit performance reflects macros but remains below TTC Credit loss ratio % 2017 2016 4.2 Retail – secured 0.74 0.72 Residential mortgages 0.15 0.22 3.5 VAF 1.49 1.38 – SA 1.54 1.39 2.8 – MotoNovo 1.38 1.35 2.5 2.4 Retail – unsecured 5.92 5.71 2.3 2.2 Credit card 3.05 2.73 Personal loans 7.66 8.24
Slide 40: Credit performance as expected given origination strategies
FIRSTRAND GROUP Financial review continued Credit performance as expected given origination strategies, and prudent provisioning maintained Contribution to Credit Specific Portfolio I/S impairment Asset class loss ratio coverage coverage Commentary charge • Charge below TTC with balance sheet Card 9
Slide 41: Credit metrics in line with risk appetite and cycle
Credit metrics in line with risk appetite and cycle PORTFOLIO PROVISION +1% to R8.5 billion Still prudent SPECIFIC PROVISION +3% to R8.5 billion Appropriate coverage INCOME STATEMENT CHARGE 91 bps (still below TTC) In line with expectations High quality topline growth Normalised earnings R million +
Slide 42: FNB's NIR benefited from customer acquisition and volumes
FIRSTRAND GROUP Financial review continued FNB’s NIR benefited from customer acquisition and volumes Non-interest revenue* R million FNB NIR +6% 25 000 +7% • Growth in customers and volumes 22 500 • Channel migration reduced cash fees 20 000 • Manual transactions +1% 17 500 • Electronic transactions
Slide 43: RMB's client franchises deliver solid NIR growth
RMB’s client franchises deliver solid NIR growth Non-interest revenue* R million 25 000 +7% RMB NIR +5% 22 500 • Solid ancillary income generated from key client transactions off a high base 20 000 • C&TB benefited from increased trade products, offset by lower profits in global FX 17 500 • Strong c
Slide 44: Good cost containment
FIRSTRAND GROUP Financial review continued High quality topline growth Normalised earnings R million +8% +7% 28 000 +7% +13% 2 826 (2 831) +4% 7% 24 000 2 896 (895) (380) 24 471 22 855 20 000 16 000 12 000 8 000 4 000 0 2016 NII Impairments NIR Opex Tax and other 2017 Good cost containment R billio
Slide 45: FNB SA costs well contained despite investment drag
FNB SA costs well contained despite investment drag • Overall cost growth of 7% Rest of Africa +13% • Cost-to-income ratio slightly down 16% to 54.0% (2016: 54.1%) • Domestic growth initiatives: • Insurance FNB cost mix • Investment businesses • Card acquiring (Power Card) • Enhancements to FNB app
Slide 46: WesBank's costs reflect operational efficiencies, offset by growth investment
FIRSTRAND GROUP Financial review continued WesBank’s costs reflect operational efficiencies in core business, offset by investment in growth initiatives • Operating expenses +11% 10% 2% • New expansion +19% 7% • Platform investment +23% WesBank cost mix • FML depreciation +18% • Operating efficienci
Slide 47: High return profile against a backdrop of low RWA growth
High return profile against a backdrop of low RWA growth… Surplus R billion ROE and RWA growth 24.2% 24.7% 25 24.0% 25% 23.4% 22.7% 20 20% 15 15% 10 10% 10.3% 10.7% 10.2% 10.1% 5 5% 5.7% 0 0% 2013 2014 2015 2016 2017 Surplus ROE (RHS) RWA growth (RHS) 45
Slide 48: Strong capital position enabled dividend outside the cover range
FIRSTRAND GROUP Capital and dividend continued …and strong capital position Economic view of surplus adjusted for: • Volatile reserves • Ring-fenced capital CET1 ratio • Known regulatory changes 14.3% 14% CET1 target range: 0.7% 13.6% 10% – 11% R19.1 billion 12% FirstRand 10% management buffer 2.5%
Slide 49: Surplus appropriate for growth initiatives and uncertain macros
Surplus appropriate for growth initiatives and uncertain macros Capture larger share of profits from broader financial services markets in SA 2.0 • Insurance, asset management and other 2.0 Incremental dividend growth above expected net capital generation (3 months) 2.7 Existing organic strategy in
Slide 50: Macros remain challenging, but…
FIRSTRAND GROUP Prospects continued Macros remain challenging, but… …group is committed to: • investing for growth and diversification (activities and geographies) • allocating financial resources to maximise economic profits • maintaining a strong and prudently positioned balance sheet • delivering
Slide 51: Unpacking the 8% increase in total NIR
Unpacking the 8% increase in total NIR Non-interest revenue 2017 2016 % change R million Fee and commission income 29 681 27 681 7 +7% reflects strength of Markets, clients and other fair value 4 255 3 361 27 transactional franchises Other 2 113 2 583 (18) Investment income 2 178 1 364 60 Realisatio
Slide 52: Retail advances growth reflects appropriate origination strategies
FIRSTRAND GROUP Appendix continued Retail advances growth reflects appropriate origination strategies RETAIL ADVANCES Mortgages Affordable housing SA VAF UK VAF (MotoNovo) Continued focus Credit demand and Volumes resilient and appetite Market position and origination quality. performance remain rob
Slide 53: Continue to improve funding profile and mix
Continue to improve funding profile and mix % of total funding Retail as % of total funding 44% 27% Institutional funding Retail and SME (RHS) 26% 42% 25% 25% 40% 24% 38% 36% 23% 36% 22% 34% 21% 32% 31% 20% 30% 19% Corporate and public sector 28% 18% Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14
Slide 54: Coverage breakdown: residential mortgages and retail VAF
FIRSTRAND GROUP Appendix continued Coverage breakdown: residential mortgages Specific Type R million coverage ratio Sold property awaiting registration 116 17.7% Deceased 216 17.3% Debt review – mostly paying per agreement 845 18.7% Insolvencies and litigation 1 255 23.6% Non-debt review – payments
Slide 55: Debt review driving NPL growth in retail
Debt review driving NPL growth in retail NPLs* R million NPLs* Origination Credit cycle worsening Specific Commodities R billion 7 000 action and counterparties downturn workout and credit 25 +19% cycle in some +3% 6 000 countries 2 995 5 800 (26%) (2%) 20 5 000 2 484 4.3 5.4 +17% 375 470 4 000 4 28
Slide 56: WesBank credit – all portfolios trending in line with expectations
FIRSTRAND GROUP Appendix continued WesBank credit – all portfolios trending in line with expectations DOMESTIC RETAIL VAF MOTONOVO (UK RETAIL VAF) Impairment charge (R million) Credit loss ratio Impairment charge (GBP million) Credit loss ratio 1 000 2.5% 25 3.0% Long-run credit loss ratio = 1.40% L
Slide 57: Recalibration of branch network underway, but there is a lag
Recalibration of branch network underway, but there is a lag SOME EARLY COST INVESTMENT TO TAKE LONG-TERM STICKY COSTS REDUCTION WINS OUT MORE COSTS • Branch costs (3%) • Electronic channels • Long-term leases +6% • Growth in ADT device +9% • Staff costs (6%) • Smartbox devices (business • Rationali
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