Firstrand Limited · JSE:FSR
Firstrand — H1 2016 Earnings Presentation
56 slides from Firstrand's earnings presentation, February 2016
Slide 1: Results presentation for the six months ended 31 December 2015
for the six months ended 31 December 2015 R E S U LT S P R E S E N TAT I O N
Slide 2: Slide 2
Slide 3: Introduction: group continues to deliver growth and returns above hurdle rates
Results presentation for the six months ended 31 December 2015 1 INTRODUCTION Group continues to deliver growth and returns above hurdle rates Normalised earnings (R million) 12 000 23.4% ROE . 9% 10 915 10 000 9 993 8 000 8 691 7 243 6 000 5 771 4 000 2 000 0 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15
Slide 4: Economic profit reflects superior shareholder value creation
2 FIRSTRAND GROUP Introduction continued Economic profit reflects superior shareholder value creation NIACC* (R million) ROE and COE 6 000 24.0% 25% 23.4% 23.4% 22.3% 19.5% 2% 20% 4 383 4 475 4 000 15.1% 3 645 14.0% 13.6% 15% 13.6% 13.5% 13.8% 2 822 10% 2 000 1 621 5% 0 0% Dec 11 Dec 12 Dec 13 Dec 1
Slide 5: Financial review
Results presentation for the six months ended 31 December 2015 3 Six months ago the group indicated that its domestic franchise faced some challenges… WHAT WE SAID WHAT PLAYED OUT Moved to the bottom end of expected Even tougher macros growth forecast Actual increase in funding and liquidity costs I
Slide 6: Performance highlights (normalised)
4 FIRSTRAND GROUP Financial review continued Performance highlights (normalised) Dec 15 Dec 14 % change Diluted normalised EPS (cents) 194.6 177.3 10 Dividend per share (cents) 108.0 93.0 16 Normalised earnings (R million) 10 915 9 993 9 Normalised net asset value per share (cents) 1 709.2 1 5
Slide 7: Normalised income statement
Results presentation for the six months ended 31 December 2015 5 Normalised income statement R million Dec 15 Dec 14 % change Net interest income before impairment of advances 20 823 19 033 9 Impairment of advances (3 145) (3 086) 2 Net interest income after impairment of advances 17 678 15 947
Slide 8: NII benefits from lending, deposit strategy and endowment
6 FIRSTRAND GROUP Financial review continued As expected, topline growth has come under further pressure Normalised earnings (R million) 14 000 +5% +8% 12 000 +9% +2% 851 (1 470) +4% (59) 9% 1 790 (190) 10 915 10 000 9 993 8 000 6 000 4 000 2 000 0 Dec 14 NII Impairments NIR Opex Tax and other Dec
Slide 9: Accounting volatility in Group Treasury NII
Results presentation for the six months ended 31 December 2015 7 Accounting volatility in Group Treasury NII Increased liquidity costs recovered from franchises in the prior period, now incurred in rollover and new funding – (R390 million) Accounting mismatches • Fair value of interest rate risk hed
Slide 10: Retail advances reflect both macros and specific origination strategies
8 FIRSTRAND GROUP Financial review continued Retail advances reflect both macros and specific origination strategies R million Dec 15 Dec 14 % change Retail unsecured Residential mortgages 184 641 175 097 5 15% VAF 146 977 124 501 18 3% 7% - SA 98 530 97 575 1 5% - MotoNovo (UK)* 48 447 26 926 80 Re
Slide 11: Contextualising risk in the RMB CIB credit portfolio
Results presentation for the six months ended 31 December 2015 9 Contextualising risk in the RMB CIB credit portfolio South Africa 87% RMB CIB Rest of RMB CIB advances Africa* performing split 13% book Elevated risk 2.2% • Elevated risk exposures represent 2.2% of the performing book (oil and gas ex
Slide 12: Liability franchise continues to grow in all segments
10 FIRSTRAND GROUP Financial review continued Liability franchise continues to grow in all segments Liabilities (R billion) Deposit franchise +15% Funding +9% Other Dec 14 +9% Dec 15 329 303 +14% +14% +12% 171 169 150 149 154 137 +25% +10% 55 44 20 22 Retail Commercial CIB deposits Rest of Africa In
Slide 13: Downward trend in margin has continued
Results presentation for the six months ended 31 December 2015 11 Downward trend in margin has continued Margin (bps) 535 520 521 15 505 501 (Jun 15: 507 bps) 490 475 Dec 14 Other accounting MTM vs accrual Impact of Higher funding Capital and Advances mix Change in Deposit pricing Dec 15 normalised
Slide 14: Significant pricing pressures in funding markets
12 FIRSTRAND GROUP Financial review continued Downward trend in margin has continued Margin (bps) 535 520 521 505 501 12 (Jun 15: 507 bps) 490 475 Dec 14 Other accounting MTM vs accrual Impact of Higher funding Capital and Advances mix Change in Deposit pricing Dec 15 normalised mismatches and on te
Slide 15: NPL trend reflects macros and cycle
Results presentation for the six months ended 31 December 2015 13 As expected, topline growth has come under further pressure Normalised earnings (R million) 14 000 +5% +8% 12 000 +9% +2% 851 (1 470) +4% (59) 9% 1 790 (190) 10 915 10 000 9 993 8 000 6 000 4 000 2 000 0 Dec 14 NII Impairments NIR Op
Slide 16: Credit performance not yet fully reflecting that cycle has turned
14 FIRSTRAND GROUP Financial review continued …but actual credit performance not yet fully reflecting that cycle has turned Credit loss ratio (%) Dec 15 Dec 14 Retail – secured 0.63 0.45 5.7 Residential mortgages 0.18 0.06 5.0 VAF 1.22 1.01 4.2 Retail – unsecured 4.98 5.35 Credit card 2.18 0.19 3.5
Slide 17: Unsecured portfolios – post write-off recoveries resilient
Results presentation for the six months ended 31 December 2015 15 Unsecured portfolios – post write-off recoveries resilient Post write-off recoveries split Retail credit loss ratios and recoveries (%) 1% 2% 100% 12 3% 4% 10.72 90% 10 9.62 80% 2.39 41% 70% 45% 8 3.58 60% 5.97 50% 6 0.63 4.66 40% 29%
Slide 18: NIR increased 5% despite regulatory impact at FNB
16 FIRSTRAND GROUP Financial review continued As expected, topline growth has come under further pressure Normalised earnings (R million) 14 000 +5% +8% 12 000 +9% +2% 851 (1 470) +4% (59) 9% 1 790 (190) 10 915 10 000 9 993 8 000 6 000 4 000 2 000 0 Dec 14 NII Impairments NIR Opex Tax and other Dec
Slide 19: RMB remains a significant contributor to NIR
Results presentation for the six months ended 31 December 2015 17 RMB remains a significant contributor to NIR across all activities Non-interest revenue (R million) 12 500 +1% 10 500 8 500 6 500 4 500 +10% +7% 2 500 +13% +38% +1% +11% 0% +55% 500 ( 1 500) Transactional Insurance Investment Corporat
Slide 20: Still investing for growth, but core costs sticky
18 FIRSTRAND GROUP Financial review continued As expected, topline growth has come under further pressure Normalised earnings (R million) 14 000 +5% +8% 12 000 +9% +2% 851 (1 470) +4% (59) 9% 1 790 (190) 10 915 10 000 9 993 8 000 6 000 4 000 2 000 0 Dec 14 NII Impairments NIR Opex Tax and other Dec
Slide 21: ROE trend above target range; dividend growth driven by lower cover
Results presentation for the six months ended 31 December 2015 19 ROE trend remains above target range, but still cyclically high 30% 24.2% 24.7% 25% 23.4% 24.0% 23.4% 22.3% 22.7% 19.5% 20% 18.7% Target range: 18% to 22% 20.7% 15% 14.3% 14.0% 13.8% 13.6% 13.6% 13.6% 13.6% 13.6% 13.5% 13.5% 10% 5% 0%
Slide 22: Franchise operating review
20 FRANCHISE OPERATING REVIEW FRANCHISE OPERATING REVIEW Franchises produced resilient operating performances Normalised earnings (R million) Dec 15 Dec 14 % change FNB 6 208 5 674 9 RMB 2 805 2 449 15 WesBank 1 856 1 619 15 Franchise contribution 10 869 9 742 12 FCC (incl. Group Treasury) a
Slide 23: FNB performance reflects success of consistent strategy
Results presentation for the six months ended 31 December 2015 21 FNB performance reflects success of consistent strategy Normalised profit before tax (R million) 40.5% ROE 10 000 . 9 000 10% 9 040 8 000 8 245 7 000 7 248 6 000 5 777 5 000 4 895 4 000 3 000 2 000 1 000 0 Dec 11 Dec 12 Dec 13 Dec 14
Slide 24: Strong domestic growth has continued
22 FRANCHISE OPERATING REVIEW FNB continued Strong domestic growth has continued Normalised profit before tax (R million) 6 000 11% 5 000 4 000 3 000 14% 2 000 (10%) 1 000 0 Retail Commercial Rest of Africa Dec 14 Dec 15 FNB activity view Normalised profit before tax (R million) 6 000 Dec 14 Dec 15
Slide 25: Transactional franchises resilient despite headwinds
Results presentation for the six months ended 31 December 2015 23 Transactional franchises resilient despite headwinds Transactional* PBT (R million) Retail and commercial • Ongoing gains in new customers 6 000 • Growing deposit base resulted in positive endowment impact 5 000 8% • Success of e-migr
Slide 26: Channel migration strategy continues to drive growth in volumes
24 FRANCHISE OPERATING REVIEW FNB continued Channel migration strategy continues to drive growth in volumes Number of transactions processed 11% Increase in transaction volumes % Mobile 19 13% 88% 87% Internet banking 7 Banking app 60 ADT/ATM cash deposits 20 1% 13% 12% Dec 14 Dec 15 Manual transact
Slide 27: Targeted term lending focused on existing client base
Results presentation for the six months ended 31 December 2015 25 Targeted term lending also focused on existing client base Term lending* PBT (R million) Commercial Expanded product offering to existing client 1 800 base 1 600 8% • Commercial property finance +19% 1 400 • Leverage finance +18% 1 20
Slide 28: Focus on growing deposit franchise delivering
26 FRANCHISE OPERATING REVIEW FNB continued Focus on growing deposit franchise delivering Deposit taking PBT (R million) • Continued product innovation delivered 800 strong growth in the upper end of retail and in commercial 700 22% 600 • Focus on process efficiency and migration to digital platform
Slide 29: Mixed picture from FNB's rest of Africa businesses
Results presentation for the six months ended 31 December 2015 27 FNB activity view Normalised profit before tax (R million) 6 000 Dec 14 Dec 15 8% 5 000 4 000 3 000 2 000 8% 4% (10%) 22% 1 000 >100% 0 Transactional Term lending Deposit taking Insurance Rest of Africa Other (1 000) Transactional inc
Slide 30: RMB: solid results from a resilient and diversified portfolio
28 FRANCHISE OPERATING REVIEW RMB Solid results from a resilient and diversified portfolio Normalised profit before tax (R million) 22.2% ROE . 4 000 13% 3 956 3 488 3 000 2 622 2 297 2 000 2 005 1 000 0 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Periods prior to Dec 14 have not been restated for rest of Af
Slide 31: Integrated business delivers balanced performance
Results presentation for the six months ended 31 December 2015 29 Integrated business delivers balanced performance Normalised profit before tax* (R million) 1 800 INVESTMENT 1 600 CLIENT (65%) INVESTING MANAGEMENT 1 400 1 200 1 000 800 600 400 200 0 Investment banking Corporate and Markets and Inve
Slide 32: Solid performance from C&TB; M&S supported by volatility
30 FRANCHISE OPERATING REVIEW RMB continued Solid performance from C&TB Normalised profit before tax (R million) • Liability raising strategy contributed to an enhanced liquidity profile 900 800 12% • Strong demand for structured trade 700 advances 600 • Increased forex flows from key clients in 500
Slide 33: Robust investing performance off a high base
Results presentation for the six months ended 31 December 2015 31 Robust investing performance off a high base Normalised profit before tax (R million) • Strong attributable earnings from investee companies 1 500 0% • Results continued to benefit from 1 250 realisation cycle 1 000 • Marginal decreas
Slide 34: WesBank's performance proves resilience of franchise
32 FRANCHISE OPERATING REVIEW WesBank continued WesBank’s performance proves resilience of franchise… Normalised profit before tax (R million) 3 000 20.5% ROE . 2 500 13% 2 615 2 309 2 000 2 136 1 961 1 500 1 682 1 000 500 0 Dec 11 Dec 12 Dec 13 Dec 14 * Dec 15 * * The results of WesBank’s rest of A
Slide 35: Domestic VAF performed well; MotoNovo benefiting from alliances
Results presentation for the six months ended 31 December 2015 33 Domestic VAF business performed well, but not cycle proof Normalised profit before tax (R million) • Production growth increased 5% (Dec 14: 4%) 1 200 • Industry new vehicle sales declined 2% 4.2% year-on-year (passenger 1 000 vehicle
Slide 36: Personal loans moderating; corporate and commercial recovering
34 FRANCHISE OPERATING REVIEW WesBank continued Growth in personal loans business moderating Normalised profit before tax (R million) • New business volumes growth decreased to 7% from 9% year-on-year reflecting 700 1% reduced credit appetite 600 • Good NIR growth from transactional 500 and insuranc
Slide 37: New products, platforms and channels drive investment management strategy
Results presentation for the six months ended 31 December 2015 35 New products, platforms and internal distribution channels provide traction to investment management strategy Assets under management* (R billion) • Strong CAGR in AUM since launch: 140 • Growth in both alternative (+20%) 15% 121 and
Slide 38: Strategic update: current strategic framework
36 FIRSTRAND GROUP Strategic update STRATEGIC UPDATE Current strategic framework • In South Africa • Protect and grow lending and transactional franchises through disruption and differentiation • Capture a larger share of profits from the broader financial services markets • Establish meaningful in-
Slide 39: Strategy reviewed given structural and cyclical shifts
Results presentation for the six months ended 31 December 2015 37 This was reviewed given significant structural and cyclical shifts in the operating environment South Africa Rest of Africa • Low GDP growth • Negative commodity cycle • High inflation • Undiversified markets • Higher interest rates s
Slide 40: Ultimately create more balanced revenue mix
38 FIRSTRAND GROUP Strategic update continued Ultimately create more balanced revenue mix CURRENT REVENUE MIX* POTENTIAL REVENUE MIX Insure Other Save and invest** Insure Transact Transact Lend Save and Lend invest Large opportunity given our market share * Current revenue mix is based on gross reve
Slide 41: New initiatives already utilising group building blocks
Results presentation for the six months ended 31 December 2015 39 New initiatives already utilising group building blocks INVESTMENT TRANSACT LEND INVEST DEPOSITS INSURANCE MANAGEMENT Adjusted strategic framework looks to find protection and growth • Greater balance in ac
Slide 42: Objective remains to be a dominant regional player
40 FIRSTRAND GROUP Strategic update continued Objective remains to be a dominant regional player Rest of Africa • Chosen markets remain attractive • Elevated risk means execution time frames extended • Portfolio view will inform approach • Not necessarily universal banking • Discipline in capital al
Slide 43: Look for protection, growth and diversification in other markets
Results presentation for the six months ended 31 December 2015 41 Look for protection, growth and diversification in other markets Other markets Protection • Access to hard currency will enable rest of Africa strategy • Protect counterparty status in order to access financial markets Growth and dive
Slide 44: Revised statement of intent
42 FIRSTRAND GROUP Strategic update continued Resulting in a revised statement of intent… • FirstRand’s portfolio of leading financial services franchises: • provides a universal set of transactional, lending, investment and insurance products and services • seeks to operate in markets and segments
Slide 45: Prospects: how is the group positioned for tough cycle?
Results presentation for the six months ended 31 December 2015 43 PROSPECTS How is the group positioned for tough cycle? What has changed since the previous cycle? 30,000 30.9% 31% 27.6% 25,000 24.2% 24.7% 26% 22.7% 21.3% 20.7% 20,000 18.7% 21 286 21% 17.7% 18 663 15,000 13.1% 16% 15 420 12 730 10,0
Slide 46: Structurally different ROA; balance sheet more liquid
44 FIRSTRAND GROUP Prospects continued 87 The group has a structurally different ROA due to specific strategies ROA = 1.95% ROA = 1.99% . WesBank . • Better pricing for risk and improved risk profile ROA • Diversification: MotoNovo 1.03% and personal loans ROA • Efficiencies 1.80% Jun 07 ROA Dec 15
Slide 47: Reduced reliance on institutional funding; proactive provisioning
Results presentation for the six months ended 31 December 2015 45 …with reduced reliance on institutional funding and improved funding mix % of total funding Retail as % of total funding 48% 20% 46% 19% 19% 44% Institutional funding Retail (RHS) 42% 18% 40% 38% 17% 36% 36% 16% 34% 33% 32% 15% 30% 15
Slide 48: Stronger capital position; cycle will place pressure on growth
46 FIRSTRAND GROUP Prospects continued Stronger capital position despite more punitive RWA requirements Economic view of surplus adjusted for: CET1 ratio • Volatile reserves • Ring-fenced capital 14% 13.7% • Known regulatory changes CET1 target range: 1.2% 12.5% 10% – 11% 12% R10.4bn surplus FSR 10%
Slide 49: Retail advances growth reflects appropriate origination strategies
Results presentation for the six months ended 31 December 2015 47 APPENDIX Retail advances growth reflects appropriate origination strategies RETAIL ADVANCES Mortgages Affordable housing SA VAF UK VAF (MotoNovo) Further tightening with Credit demand and Volumes declining with Strong market position
Slide 50: Targeted lending strategies in corporate and commercial
48 FIRSTRAND GROUP Appendix continued Targeted lending strategies in corporate and commercial COMMERCIAL ADVANCES Commercial Asset-backed Small businesses Rest of Africa Working capital Agri finance property finance finance (SMEs) and India Organic growth to Remain focused Continue to Growth focus o
Slide 51: Coverage breakdown: VAF
Results presentation for the six months ended 31 December 2015 49 Coverage breakdown: VAF Specific coverage Type R million ratio Other (includes absconded, insurance and alienations) 419 64.3% Repossession 195 53.2% Legal action for repossession 505 43.2% Not restructured debt review 680 38.7% Arrea
Slide 52: WesBank – all portfolios trending in line with expectations
50 FIRSTRAND GROUP Appendix continued WesBank – 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 800 2.5% 12 3.0% Long-run credit loss ratio = 1.40% Long-ru
Slide 53: Innovation driving growth in volumes and value
Results presentation for the six months ended 31 December 2015 51 Innovation driving growth in volumes and value FNB banking app transactions Digital platforms Volumes (thousands) Values (R billion) Volumes (thousands) Volumes (thousands) 6 000 16 140 50 5 000 14 120 12 40 4 000 100 10 30 80 3 000 8
Slide 54: FirstRand Group
feyag ~FIRSTRAND GROUP
Slide 55: sTUDIO®
sTUDIO®
Slide 56: FirstRand
WWW.FIRSTRAND.CO.ZA FIRSTRAND