Firstrand Limited · JSE:FSR
Firstrand — H1 2014 Earnings Presentation
52 slides from Firstrand's earnings presentation, February 2014
Slide 1: Results presentation for the six months ended 31 December 2013
Shareholders’ information continued –1– R E S U LT S p rese n t a t i o n for the SIX MONTHS ENDED 31 DECEMBER 2013
Slide 2: Slide 2
Slide 3: Introduction: Franchises performed well despite increasing headwinds
FirstRand Group Results presentation for the six months ended 31 December 2013 –1– INTRODUCTION Franchises performed well despite increasing headwinds Normalised profit before tax (R million) Dec 13 Dec 12 % change FNB 7 059 5 769 22 RMB 3 195 2 677 19 WesBank 2 022 1 968 3
Slide 4: Group continues to deliver growth and returns above hurdle rates
Introduction continued –2– Group continues to deliver growth and returns above hurdle rates Normalised earnings* (R million) 23.4% ROE 10 000 20% 8 000 6 000 8 691 4 000 8 177 6 959 7 243 5 771 2 000 0 6 months to Dec 11 Jun 12 Dec 12** Jun 13 ** Dec 13 * Normalised earnings shown on a continuing no
Slide 5: Performance highlights and key performance ratios
FirstRand Group Results presentation for the six months ended 31 December 2013 –3– Performance highlights Dec 13 Dec 12* Change Normalised earnings (R million) 8 691 7 243 20% Diluted EPS (cents) 154.2 128.5 20% Normalised net asset value per share (cents) 1 342.9 1 182.9 14% Dividend per shar
Slide 6: Franchises provide diversification and relative contribution stable
Financial review continued –4– Franchises provide diversification and relative contribution stable Normalised earnings (R million) Dec 13 Dec 12* % change Franchise contribution# FNB 4 769 4 016 19 17% RMB 2 268 1 943 17 WesBank 1 406 1 389 1 27% 56% Treasury and Corporate Centre** 248 (105)
Slide 7: Rest of Africa's absolute revenues increasing; economic profit
FirstRand Group Results presentation for the six months ended 31 December 2013 –5– Rest of Africa's absolute revenues increasing… Dec 12 Dec 13 3% 3% 10% 10% South Africa International Rest of Africa & corridors 87% 87% …with local franchises continuing to show strong growth Based on gross revenue,
Slide 8: ROA composition reflects quality of earnings
Financial review continued –6– ROA composition reflects quality of earnings % 8 6 3.5 3.2 3.5 4.0 3.6 4 1.82 1.97 2 1.35 1.58 1.22 2.6 2.9 3.3 3.4 3.7 - (2) (3.7) (3.5) (3.6) (3.7) (3.8) (4) (0.7) (0.5) (0.6) (0.6) (1.0) (6) Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 NIR as % of assets Operating expenses as
Slide 9: Strong topline underpins earnings growth
FirstRand Group Results presentation for the six months ended 31 December 2013 –7– Strong topline underpins earnings growth Normalised earnings (R million) 12 000 +9% +14% 1 305 +20% (3%) (2 000) 10 000 +21% 64 (689) 20% 2 768 8 000 8 691 7 243 6 000 4 000 2 000 0 Dec 12 NII Impairments NIR Opex T
Slide 10: Client franchise contributes 94% of gross revenue
Financial review continued –8– Consistent strategies are driving performance • Diversification Earnings resilience • Client franchise businesses and growth (income statement) • Appropriate risk appetite • Positive operating jaws • Appropriate action in new business origination Asset quality Balance
Slide 11: Normalised income statement
FirstRand Group Results presentation for the six months ended 31 December 2013 –9– Normalised income statement Normalised (R million) Dec 13 Dec 12 Movement % change Net interest income before impairment of advances 16 397 13 629 2 768 20 Impairment of advances (2 445) (2 509) 64 (3) Net interest in
Slide 12: Lending and deposit franchises drive net interest income
Financial review continued – 10 – Lending and deposit franchises drive net interest income Net interest income* (R million) Dec 13 Dec 12 Change % change Lending 9 283 7 663 1 620 21 Deposits 1 990 1 885 105 6 Deposit endowment 1 299 1 136 163 14 Capital endowment 1 356 1 236 120 10 African subsidia
Slide 13: Structural SA Inc and FirstRand balance sheet composition
FirstRand Group Results presentation for the six months ended 31 December 2013 – 11 – This reflects structural SA Inc and FirstRand balance sheet composition Assets Liabilities and equity Other Other assets liabilities Cash and cash equivalents 3% 3% 6% 11% Liquid assets Equity and pref shares Retai
Slide 14: Risk appetite adjusted to reflect view on macros
Financial review continued – 12 – … risk appetite adjusted to reflect view on macros Mortgages VAF 5% 14% 12% 4% 10% 3% 8% 2% 6% 4% 1% 2% 0% 0% Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Card Unsecured (excl. Card) 12% 50% 40% Retail other 8% 30% 4% 20% 0% 10
Slide 15: Successful lending strategies in RMB IB and FNB Commercial
FirstRand Group Results presentation for the six months ended 31 December 2013 – 13 – Successful lending strategies in RMB IB and FNB Commercial Corporate R million Dec 13 Dec 12 % change advances breakdown FNB Commercial 44 902 39 300 14 16% WesBank Corporate 35 133 32 279 9 12% RMB corporate banki
Slide 16: 90% of liability growth attributed to better source and term
Financial review continued – 14 – 90% of liability growth attributed to better source and term 13% of growth 10% of growth 77% of growth R15bn R18bn R112bn WART** R243bn 23 months WART** R210bn 19.1 months R414bn R302bn Dec 10 Deposit x Capital y Other institutional z Dec 13 franchise markets fundin
Slide 17: Asset pricing and term funding cost improves margin
FirstRand Group Results presentation for the six months ended 31 December 2013 – 15 – Asset pricing and term funding cost improves margin Margin (bps) Margin before treasury 515 impacts: 503 (Jun 13: 507) 11 513 510 505 8 (1) (1) 500 2 6 (1) 495 (1) (1) 490 491 485 480 Dec 12 Capital and Change in A
Slide 18: NPLs declining
Financial review continued – 16 – NPLs declining NPLs (R billion) 25 4.2% 4.8% 3.6% 3.5% 3.8% 3.1% 2.8% 20 2.6% 2% 2.8% 6% 3% 2% 7% 8% 3% 13% 4% 1.8% 10% 4% 13% 14% 12% 15 13% 14% 0.8% 26% 15% 27% 18% 28% -0.2% 10 29% 29% 28% -1.2% 53% -2.2% 5 51% 47% 44% 40% 37% -3.2% 0 -4.2% Jun 11 Dec 11 Jun 12 D
Slide 19: Mix and portfolio impairments drive higher coverage ratios
FirstRand Group Results presentation for the six months ended 31 December 2013 – 17 – Mix and portfolio impairments drive higher coverage ratios, despite lower NPLs NPLs (R billion) Coverage ratios (%) Dec 13 Dec 12 20 Retail – secured 24.5 23.7 Thousands 3% (8%) 4% Residential mortgages 21.0 20.4 1
Slide 20: Residential mortgage strategies; proactive provisioning
Financial review continued – 18 – … and residential mortgage origination/workout strategies Credit loss ratio (%) 1.4 1.2 Long-run average: 100 – 110 bps 1.0 0.93 0.90 0.89 0.80 0.8 0.77 0.76 0.70 0.73 0.6 0.4 0.2 0.0 Jun 11 Dec 11 Dec 12 Dec 13 Credit loss ratio Credit loss ratio excl. overlays and
Slide 21: Portfolio provisions reflect countercyclical actions
FirstRand Group Results presentation for the six months ended 31 December 2013 – 19 – Portfolio provisions reflect countercyclical actions Portfolio impairments (R million) 7 000 Dec 13 Jun 13 Dec 12 6 000 11% 14% Portfolio impairments as 0.97% 0.97% 0.95% 5 000 % of performing book 15% 23% 20% 4 00
Slide 22: Non-interest revenue driven by client franchise strategies
Financial review continued – 20 – Non-interest revenue driven by client franchise strategies R million Transactional Franchise split* 12 000 10% 10 000 17% FNB 4% FNB Africa 8 000 WesBank 9% RMB CB 62% RMB IB 6 000 8% 4 000 * Excluding Treasury and Corporate Centre (3%) 2 000 66% (46%) 55% - Retail,
Slide 23: Strong topline drives positive operating jaws
FirstRand Group Results presentation for the six months ended 31 December 2013 – 21 – Strong topline drives positive operating jaws R billion 50 70% 45 55.0% 55.0% 60% 40 53.0% 52.5% 35 50% 30 +15% 40% 25 30% 20 15 +14% 20% 10 10% 5 - 0% Dec 10 Dec 11 Dec 12 Dec 13 Total income Operating expenditure
Slide 24: Strong capital position maintained
Financial review continued – 22 – Consistent strategies are driving performance • Diversification Earnings resilience • Client franchise businesses and growth (income statement) • Appropriate risk appetite • Positive operating jaws • Appropriate action in new business origination Asset quality Balan
Slide 25: ROE remains cyclically high
FirstRand Group Results presentation for the six months ended 31 December 2013 – 23 – ROE remains cyclically high ROE 26% 24% 23.4% 22.3% 22% 20% 19.5% Target range 18.0% 18% 17.1% 16% 14% 12% 10% Dec 09* Dec 10* Dec 11 Dec 12 Dec 13 * Comparatives prior to Dec 11 are for FirstRand Banking Group. Re
Slide 26: Strategic overview: consistent growth strategy
Strategic overview – 24 – STRATEGIC OVERVIEW FirstRand’s consistent growth strategy • Objectives • Be the African financial services group of choice • Create long-term franchise value • Deliver superior and sustainable returns within acceptable earnings volatility • Maintain balance sheet strength •
Slide 27: Building good momentum in the rest of Africa and corridors
FirstRand Group Results presentation for the six months ended 31 December 2013 – 25 – Building good momentum in the rest of Africa and corridors • Consistent execution through operating franchises matched with disciplined capital deployment • Country selection focused on main economic hubs of east a
Slide 28: FNB operating review
FNB operating review – 26 – FNB OPERATING REVIEW FNB franchise continues to outperform macros Normalised profit before tax (R million) • Strong topline growth 8 000 • NII +17% 36.8% ROE • NIR +12% 7 000 22% • Good advances growth 6 000 • Origination strategies reflect reduced 5 000 risk appetite 4 0
Slide 29: Strong growth across all segments
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 27 – Strong growth across all segments Normalised profit before tax (R million) 4 500 Dec 12 25% 4 000 Dec 13 3 500 3 000 2 500 16% 2 000 1 500 27% 1 000 500 - Retail Commercial* Rest of Africa * Commercial
Slide 30: NPLs continue to fall on the back of management actions
FNB operating review continued – 28 – NPLs continue to fall on the back of management actions R million % of advances • Residential mortgage NPLs have reduced by R1.7 billion 8 000 7% • Offered customer solutions 6% • QuickSell 6 000 (>7 330 properties sold to date) 5% • QuickFix 4% • Restructures s
Slide 31: Platform investment and customer proposition delivering for Commercial
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 29 – Platform investment and customer proposition delivering for Commercial Normalised profit before tax (R million) • Good performance from both segments 2 500 • Business +24% 16% • Commercial +11% 2 000 •
Slide 32: Rest of Africa remains a key focus area
FNB operating review continued – 30 – Rest of Africa remains a key focus area • Solid growth in established subsidiaries • Healthy advances and deposit growth Established • Particularly strong performances Growing from Namibia (PBT +18%) and Priorities for expansion Swaziland (PBT +32%), growing bot
Slide 33: Growth in volumes driven by electronic channels
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 31 – Growth in volumes driven by electronic channels Transactions processed • Continued shift to electronic channels 11% • Manual transactions down 4% • Electronic transactions up 15% • Banking app volumes u
Slide 34: NII growth driven by asset and deposit franchise
FNB operating review continued – 32 – NII growth driven by asset and deposit franchise Total FNB NII (R million) 3 000 Dec 12 17% Dec 13 2 000 30% 22% 6% 9% 1 000 11% 0 Transactional Investments Secured lending Card Personal loans Rest of Africa (incl. O/D and deposits) Positive jaws despite continu
Slide 35: Prospects underpinned by consistent strategies
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 33 – Prospects underpinned by consistent strategies • Growth will be primarily driven through • Driving core transactional account activity and cross-sell • Targeted advances and deposit origination strategi
Slide 36: Performance reflects strength of domestic and rest of Africa franchises
RMB operating review continued – 34 – Performance reflects strength of domestic and rest of Africa franchises Normalised profit before tax (R million) • Growth across all business units, 4 000 25.0% ROE major core activities and rest of Africa 3 500 • Strong balance sheet growth 24%* 3 000 • Further
Slide 37: Significant contribution from financing and deposit taking
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 35 – Significant contribution from financing and deposit taking Gross income* (R million) 45% 3 000 Dec 12 Dec 13 2 000 Rest of Africa 1 000 - Advisory Financing & Capital raising Structuring Client Flow tra
Slide 38: Good growth in asset management activities
RMB operating review continued – 36 – Good growth in asset management activities Gross income* (R million) 3 000 Dec 12 Dec 13 2 000 Rest of Africa 1 000 67% - Advisory Financing & Capital raising Structuring Client Flow trading Asset Investing deposit taking and solutions execution and residual man
Slide 39: All business units contributed; prospects
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 37 – All business units contributed Normalised profit before tax (R million) 1 750 13% Dec 12 1 500 Dec 13 1 250 13% 1 000 750 500 94% 19% 250 - ((250) 250) Investment Banking Global Markets Private Equity C
Slide 40: WesBank operating review
WesBank operating review – 38 – WESBANK OPERATING REVIEW WesBank’s profit growth and return profile resilient Normalised profit before tax (R million) • Increases in impairments and 27.5% ROE 2 250 NPLs in retail portfolio 3% 2 000 • Solid new business origination within desired risk profile 1 750 •
Slide 41: Where the profits came from
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 39 – Where the profits came from Normalised profit before tax (R million) 1 500 Dec 12 4% Dec 13 1 250 1 000 750 (3%) 500 17% 250 - Retail VAF Personal loans Corporate and commercial Domestic VAF performance
Slide 42: Domestic retail VAF credit performance within expectations
WesBank operating review continued – 40 – Domestic retail VAF credit performance continues within expectations Credit impairment charge (R million) Credit loss ratio 900 3.5% 800 3.0% 700 2.5% 600 Long-run credit loss range: 125 – 150 bps 500 2.0% 400 1.5% 300 1.0% 200 0.5% 100 0 0.0% Dec 08 Dec 09
Slide 43: Personal loans performing as expected
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 41 – Personal loans performing as expected Normalised profit before tax (R million) • Strong advances growth driven by new alliances 600 (3%) • Systematic tightening in the 500 scorecard over the past 18 mon
Slide 44: Corporate and commercial secured lending gaining traction
WesBank operating review continued – 42 – Where the profits came from Normalised profit before tax (R million) 1 500 Dec 12 4% Dec 13 1 250 1 000 750 (3%) 500 17% 250 - Retail VAF Personal loans Corporate and commercial Corporate and commercial secured lending gaining traction Normalised profit befo
Slide 45: Cost-to-income ratio; prospects driven by economic outlook
FRANCHISE OPERATING REVIEWS Results presentation for the six months ended 31 December 2013 – 43 – Cost-to-income ratio reflects investment in future growth initiatives R million Cost-to-income ratio 2 500 50% 2 000 45% 1 500 40% 1 000 35% 500 30% 0 25% 6m to Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Total
Slide 46: Ashburton Investments operating review
Ashburton Investments operating review – 44 – ASHBURTON INVESTMENTS OPERATING REVIEW Ashburton organic growth plans on track • Since launch in June 2013, AUM up 10% to R111 billion • Business benefiting from product origination of RMB and distribution footprint of FNB and RMB Private Bank • Good gro
Slide 47: Conclusion
FIRSTRAND GROUP Results presentation for the six months ended 31 December 2013 – 45 – CONCLUSION The economy needs to rebalance, so macros will remain challenging and risk is elevated • Wage inflation, consumption and government spending expected to slow, resulting in • Ongoing weak GDP growth • Inc
Slide 48: Appendix: Product diversification underpins quality of earnings
Appendix – 46 – APPENDIX Product diversification underpins quality of earnings Asset management FNB Africa Structuring solutions Other* VAF 8% 10% Investing 2% 2% Flow trading and residual risk 1% Personal 1% loans** Client execution 2% 9% 4% Retail 5% Commercial Mortgages Financing 11% Corporate 2%
Slide 49: Breakdown of NPLs illustrates coverage is appropriate
FirstRand Group Results presentation for the six months ended 31 December 2013 – 47 – Breakdown of NPLs illustrates coverage is appropriate RESIDENTIAL MORTGAGES Specific Type R million coverage ratio Property sold 304 27% Litigation 2 183 24% Debt review 985 18% Deceased 338 19% Non-debt review pay
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Slide 51: FirstRand Group Results presentation
FirstRand Group Results presentation for the six months ended 31 December 2013 – 49 –
Slide 52: Shareholders' information continued
Shareholders’ information continued – 50 – w w w. f i r s t r a n d . c o . z a