Old Mutual Ltd. · JSE:OMU
Old Mutual — Investor Presentation (May 2003)
43 slides from Old Mutual's investor presentation, May 28, 2003
Slide 1: Old Mutual SA Businesses Day
Old Mutual SA Businesses Day 28 May 2003 Richard Laubscher Chief Executive
Slide 2: Programme
Programme • The marketplace • Nedcor’s position • Strategic framework / SWOT • Key drivers / issues • Bancassurance • Conclusion
Slide 3: The marketplace
e The marketplace :
Slide 4: The Big 4: their models
The Big 4: their models • Nedcor (R266bn) / Old Mutual – Alliance / JV strategy with parent – Combined assets: R500bn • Absa (R253bn) / Sanlam – Loose distribution arrangement with major shareholder – Combined assets: R440bn • FirstRand (FNB (R295bn) & Momentum) – Integrated bancassurance group – Co
Slide 5: Ranking the Big 4
Ranking the Big 4 Measure Nedcor Absa FirstRand Standard Bank SA-based loans & 1 2 4 3 advances ** Mortgage lending ** 2 1 4 3 Other private sector loans 1 2 4 3 ** Instalment credit ** 4 2 1 3 SA-based 3 rd party 2 1 4 3 lending ** Deposits ** 2 1 4 3 Total bank assets * 3 4 2 1 Market capitalisati
Slide 6: Nedcor's position
e Nedcor’s position
Slide 7: Structure
Structure 100%/50% 74.5% R56m R206m DIVISIONS Stenham Gestinor & 70% 50.1% Chiswell R2 114m R354m R299m R72m Capital One Amex/ JD Group Capital One Old Mutual Group Schemes Contributions to F2002 core earnings shown above BoE contributed R265m in its standalone form
Slide 8: The Big 4: Retail vs Corporate Banking
The Big 4: Retail vs Corporate Banking Total bank assets Total bank earnings Banc- assurance contribution Retail Corporate Retail Corporate Rm (%) (%) (%) (%) Absa 78 22 68 32 550 FirstRand 55 45 67 33 114 Nedcor 23 77 19 81 110 Standard 25 75 36 64 350 Bank Big 4 (weighted) 45 55 47 53 Source: JP M
Slide 9: Market share – March 2003 Loans & advances
Market share – 31 March 2003 Loans & advances 18% 22% 22% 20% 18% Nedcor Standard FirstRand Absa Other Overall credit growth rate y-o-y: 7,1% (Nedcor: 7,1%) Source: SARB DI 900 returns
Slide 10: Market share – Mortgages
Market share – 31 March 2003 30% Mortgages 27% 24% 21% 18% 15% 12% 97 98 8 99 00 01 02 7 9 0 1 2 -9 -9 -9 -0 -0 -0 n- n- n- n- n- n- ec ec ec ec ec ec Ju Ju Ju Ju Ju Ju D D D D D D ABSA Firstrand Nedcor Standard Growth rate: 11,4% y-o-y (Nedcor 11,0%) Source: SARB DI 900 returns
Slide 11: Market share – Loans to non-banks
Market share – 31 March 2003 30% Loans to non-banks 26% 22% 18% 14% 97 98 99 00 01 02 7 9 0 2 8 1 -9 -9 -0 -0 -9 -0 n- n- n- n- n- n- ec ec ec ec ec ec Ju Ju Ju Ju Ju Ju D D D D D D ABSA Firstrand Nedcor Standard Growth rate: 6,9% y-o-y (Nedcor 11,5%) Source: SARB DI 900 returns
Slide 12: Market share – Instalment credit
Market share – 31 March 2003 Instalment credit 30% 27% 24% 21% 18% 15% 12% 9% O 97 O 8 O 99 O 00 O 01 O 02 Ju 0 Ju 2 Fe 7 Fe 00 Fe 2 Ju 98 03 Fe 98 Fe 99 Fe 01 Ju 9 Ju 1 9 0 0 -9 -0 9 0 n- n- n- n- n- n- b- b- b- b- - b- b- - - - ct ct ct ct ct ct Ju ABSA Firstrand Nedcor Standard Growth rate: 13,3%
Slide 13: Market share – Deposits
Market share – 31 March 2003 Deposits 28% 25% 22% 19% 16% 13% O 97 O 8 O 99 O 00 O 01 O 02 Ju 0 Ju 2 Fe 7 Fe 00 Fe 2 Ju 98 03 Fe 98 Fe 99 Fe 01 Ju 9 Ju 1 9 0 0 -9 -0 9 0 n- n- n- n- n- n- b- b- b- b- - b- b- - - - ct ct ct ct ct ct Ju ABSA Firstrand Nedcor Standard Growth rate: 1,9% y-o-y (Nedcor –0
Slide 14: Net interest margin
Net interest margin Rbn % 210 4.5 190 4 170 150 3.5 Advances 130 Margin 3 110 90 2.5 70 50 2 1997 1998 1999 2000 2001 2002 Growth rate: 103% y-o-y (Nedcor 217%)
Slide 15: Strategic framework / SWOT
Strategic framework / SWOT
Slide 16: Strategy
Strategy Wealth International Management SA Banking Peoples Bank Corporates Individuals Treasury Bancassurance Businesses Alliances T&O platform Outsourcing
Slide 17: Strategic scorecard
Strategic scorecard Acquisitions BoE (primarily Commercial) P Imperial (Retail & Commercial) P Gerrard Private Bank (Retail WM) P FBC Fidelity (Retail) P ENF (Corporate & Commercial) P Didata (IT) O Alliances Old Mutual Bank/Bancassurance (Retail) P Pick ’n Pay Go Banking (Retail) P JD/Capital One m
Slide 18: Strengths
Strengths • Brand – aspirational • Enterprise-wide Risk Management • Corporate & Commercial banking • Treasury operations (diversified operational focus) • Middle to high income retail • Competitive advantage in cost-efficient operations resulting from drive to develop strong technology-based delive
Slide 19: Weaknesses
Weaknesses • Brand – Not strong in middle and lower end • Media and domestic investor perception • Equity exposure to Didata • Limited international & African franchise • Earnings uncertainty • Material in-market consolidation over • SME • Microlending
Slide 20: Opportunities
Opportunities • Retail • Gearing on operational platform • BEE charter • Insourcing of card processing • Increased low-cost reach (points of presence) through alliances • Alternative delivery – smart cards • International private banking – in alliance with Old Mutual • Bancassurance and other cross-
Slide 21: Threats
Threats • Foreign entrants • Prescribed lending and regulatory issues – Community Reinvestment Act – BEE • AIDS • Managing alliances without complete control • Internationalisation of information technology processing is an unproven strategy • Mortgage originators and integrators
Slide 22: Key drivers / issues
Key drivers / issues
Slide 23: Macro issues
Macro issues • A challenging and volatile operating climate – Rand strength beyond expectations – High interest rate with drops on hold – Margin squeeze – Credit demand constrained – Weak equity markets globally and domestically – 2,3 % GDP growth in 2003; 3,0% in 2004 – 8,6% average CPI in 2003; 4,
Slide 24: Nedcor's experience
Nedcor’s experience • Core banking business resilient – Nedbank Retail, Peoples Bank ,Nedbank Corporate (including Commercial & Treasury) • Investment Banking and Wealth Management well below target • International earnings down more than 20% due to strong Rand • Organic advances’ growth in line wit
Slide 25: Nedcor's experience (cont.)
Nedcor’s experience (cont.) • Non-interest revenue well below expectations – Private equity, investment banking assets, advisory fees and trading profits – One-off items in NIB in F2002 • Credit quality satisfactory and provisions stable • Expense growth in line with expectations – Additional expens
Slide 26: Nedcor's experience (cont.)
Nedcor’s experience (cont.) • Translation losses • AC133 impact not accounted for • Capital adequacy expected to remain sound • Group integration on track – Synergy estimates unchanged from R110m in F2003 growing to R905m in F2006
Slide 27: Capital adequacy
Capital adequacy 2002 2001 Rbn %* Rbn %* – Ordinary capital & reserves 12,5 6,0 14,1 8,6 – Preference capital 2,0 1,0 – – Tier 1 14,5 7,0 14,1 8,6 – Callable notes 6,0 2,6 2,0 1,2 – Other 2,5 1,4 2,6 1,6 Tier 2 8,5 4,0 4,6 2,8 Total 23,0 11,0 18,7 11,4 *Percentage of risk-weighted assets
Slide 28: AC 133 (IAS 39) – recognition and measurement of financial instruments
AC 133 (IAS 39) – recognition and measurement of financial instruments • Deviation from standard IAS approach • Applicable on year-ends commencing 1 July 2002 (IAS only in 2005) – Complex, rule-based – Components approach – Form over substance – Inconsistent measurement bases – Increased use of fair
Slide 29: Core earnings to headline earnings
Core earnings to headline earnings Dec Dec % 2002 2001 change Rm Rm Core earnings 9 3 366 3 093 Translation gains/(losses) (1 011) 1 096 General risk provision 400 (400) Merger costs (170) – Headline earnings -32 2 585 3 789 Headline eps -35 1 022 1 574
Slide 30: Translation gains / losses
Translation gains / losses 31 Dec 2002 Offshore capital of USD 200m = R1 720m (Closing exchange rate = 8.60) 31 Dec 2003 Offshore capital of USD 200m = R1 600m (Closing exchange rate = 8.00) If an “integrated operation” as defined: Translation loss recognised in income statement = R 120m
Slide 31: The Financial Services Charter
The Financial Services Charter • Ownership – Peoples Bank = 30% – Quaystone Asset Management = 50% – Nedcor = 17% + • Banking services to PDIs – Peoples Bank – JD – Aplitec – Pick ‘n Pay Go Banking
Slide 32: The Financial Services Charter (continued)
The Financial Services Charter (continued) • Employment Equity – AIC = 49% of total staff – 20% of management – Females = 63% of total staff – Female = 35% of management • Empowerment alliances • Empowerment financing – Southern Sun/Tsogo Sun – African Legend/Caltex – Harmony/Armgold – Shell/Thebe –
Slide 33: The Financial Services Charter (continued)
The Financial Services Charter (continued) • Procurement • Awards –2001 • Enterprise Development Forum (EDF), Black Business Executive Circle and Black Business Council - Empowerment Company of the Year • Business Map - Empowerment Deal of the Year –2002 • Black Management Forum - Most Progressive C
Slide 34: Bancassurance
e Bancassurance
Slide 35: Gerrard Private Bank
Gerrard Private Bank • 25,5 % interest held by Old Mutual • Fairbairn Trust business incorporated • A range of banking, treasury, trust and discretionary asset management products • Target market: clients with investable assets of at least £50 000 • Based in Isle of Man and Jersey, with Rep offices
Slide 36: Nedcor Wealth Management
Nedcor Wealth Management Jointly-owned Businesses with Old Wholly-owned Businesses Mutual Private Clients Credit Protection Retail Investment International Products & Services Companies (South Africa) (South Africa) (On and Offshore) • Scope of offering to High Net Worth Individuals: – Discretionary
Slide 37: Nedcor Wealth Management
Nedcor Wealth Management Jointly-owned Businesses with Old Wholly-owned Businesses Mutual Private Clients Credit Protection Retail Investment International Products & Services Companies (South Africa) (South Africa) (On and Offshore) • Scope of providing banking customers with credit protection – Ne
Slide 38: Nedbank
Nedbank • 150 Personal Financial Planners • Branch-based insurance specialists • 50% of overall insurance product sold is sourced from Old Mutual • F2002 contribution of R110m provides vast scope for growth
Slide 39: Peoples Bank
Peoples Bank • Old Mutual Group Schemes (“OMGS”) • Public and private sector entities targeted • Pre-packaged insurance product provided by OMGS – 16 000 assurance policies sold in F2002 – 68 000 credit life policies sold in F2002 – 80 advisers • Banking product provided by Peoples Bank – 12 000 new
Slide 40: Old Mutual Bank
Old Mutual Bank • Division of Nedbank Ltd – 50/50 JV • Leverage dominant Old Mutual brand • Banking products, systems and processes supplied by Nedcor • Sales, marketing and channel management supplied by Old Mutual • 2 million OMPF customers • 300 000 ex-Permanent Bank customers • Huge intermediary
Slide 41: Conclusion
Conclusion . :
Slide 42: Key targets
Key targets • RoE 25% (21,9%) • RoA 2% (1,6%) • Cost-to-income ratio < 50% (55,4%) • Non-interest revenue : net interest income > 50% (52,4%) • Provisions : average advances < 0,7% (1%) • Capital adequacy 12% (11%) RoE and RoA must be viewed in the light of the inflation level
Slide 43: Conclusion
Conclusion • Challenging environment • Maintain market share while completing merger • Opportunity in Retail and Bancassurance • Limited offshore aspirations • Low-cost expanded reach