Firstrand Limited · JSE:FSR
Firstrand — H1 2017 Earnings Presentation
56 slides from Firstrand's earnings presentation, December 2016
Slide 1: Results presentation for the six months ended 31 December 2016
for the six months ended 31 December 2016 results presentation
Slide 2: Slide 2
Slide 3: Real EPS and DPS growth continued, return remained above target range
RESULTS PRESENTATION 31 DECEMBER 2016 Real EPS and DPS growth continued, return remained above target range Cents 250 22.9% ROE . +7% 200 207.6 194.6 177.3 150 154.2 +10% 128.5 119.0 100 108.0 93.0 77.0 50 55.0 0 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Diluted normalised earnings per share Dividend per s
Slide 4: Higher cost of equity impacted NIACC growth; results themes – income statement
FIRSTRAND GROUP Introduction continued Higher cost of equity impacted NIACC growth NIACC* (R million) ROE and COE 6 000 24.0% 25% 23.4% 23.4% 22.9% 22.3% 20% (8%) 4 475 4 129 4 000 4 383 3 645 13.6% 15% 14.8% 13.6% 13.5% 13.8% 2 822 10% 2 000 5% 0 0% Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 NIACC ROE Cost
Slide 5: Results themes – balance sheet; franchises produced solid operational performances
RESULTS PRESENTATION 31 DECEMBER 2016 Results themes – balance sheet STRONG CAPITAL POSITION ROBUST FUNDING AND LIQUIDITY POSITION • CET 1 ratio = 14.1% (regulatory minimum 6.9%) • LCR = 95% (minimum requirement 70%) • Basel III leverage = 8.4% (regulatory minimum 4%) • Available HQLA = R173 billion
Slide 6: FNB: Domestic franchise resilient, weak macros impacted rest of Africa
REVIEW OF OPERATIONS FNB Domestic franchise resilient, weak macros impacted rest of Africa NORMALISED PBT (R million) 38.5% ROE 10 000 (total FNB) . 9 000 +6% 8 894 8 000 8 366 7 000 7 392 6 000 6 410 5 000 5 000 4 000 3 000 2 000 1 000 (29%) 769 838 853 771 547 - Dec 12 Dec 13 Dec 14 Dec 15 Dec 16
Slide 7: Segment view of FNB SA presents a mixed picture
RESULTS PRESENTATION 31 DECEMBER 2016 Segment view of FNB SA presents a mixed picture NORMALISED PBT (R million) 6 000 +1% 5 000 4 000 +16% 3 000 2 000 1 000 0 Commercial Retail Dec 15 Dec 16 Strong performance from FNB Commercial underpinned by growth in customers and cross-sell NORMALISED PBT (R m
Slide 8: Retail performance unpacked – product view
REVIEW OF OPERATIONS FNB continued Retail performance unpacked – product view NORMALISED PBT (R million) 3 500 • Topline impacted by strategic actions • Sticky branch costs lagging e-migration success (4%) 3 000 2 500 Appropriate origination actions resulted in good performance across asset classes
Slide 9: Success of FNB's e-migration strategy results in revenue squeeze
RESULTS PRESENTATION 31 DECEMBER 2016 Success of FNB’s e-migration strategy results in revenue squeeze… DEPOSIT CHANNEL MIX ILLUSTRATES SCALE FASTER-THAN-EXPECTED E-MIGRATION OF MIGRATION OVER PAST FIVE YEARS RESULTS IN REVENUE SQUEEZE Year-on-year DEC 11 DEC 16 change in Smartbox transaction volume
Slide 10: Activity view of FNB performance
REVIEW OF OPERATIONS FNB continued Activity view of FNB performance NORMALISED PBT (R million) 7 000 +10% 6 000 5 000 4 000 3 000 2% 2 000 4% (29%) 1 000 +4% >100% 0 (1 000) Transactional* Term lending Save and invest Insurance** Rest of Africa Other Dec 15 Dec 16 * Transactional includes transactio
Slide 11: Term lending performance reflects origination strategies
RESULTS PRESENTATION 31 DECEMBER 2016 Term lending performance reflects origination strategies NORMALISED PBT (R million) • Remained conservative in mortgage lending 7 000 • Further cutbacks in high risk buckets • Cross-sell of lending products to existing commercial customers 6 000 • Moderate growt
Slide 12: Good traction in insurance revenues; Rest of Africa
REVIEW OF OPERATIONS FNB continued Good traction in insurance revenues up 13%, but continued investment drag NORMALISED PBT (R million) • Ongoing cross-sell into existing base 7 000 • Strong new product pipeline 6 000 • Good traction in funeral policies, especially in Consumer (policy sales +24%) 5
Slide 13: RMB's diversified portfolio delivered good growth despite lack of Private Equity realisations
RESULTS PRESENTATION 31 DECEMBER 2016 RMB’s diversified portfolio delivered good growth despite lack of Private Equity realisations NORMALISED PBT (R million) 21.3% ROE 4 500 . +3% 4 000 3 956 4 055 3 500 3 488 3 000 2 500 2 622 2 000 2 005 1 500 1 000 500 0 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Period
Slide 14: Performance underpinned by client-focused portfolio
REVIEW OF OPERATIONS RMB continued Performance underpinned by client-focused portfolio NORMALISED PBT * (R million) 2 000 +28% (54%) 1 000 +16% +15% (57%) 0 Investment banking Corporate and Markets and Investing Investment and advisory (IB&A) transactional banking structuring (M&S) management (C&TB)
Slide 15: C&TB remains focused on leveraging platforms; M&S delivered a balanced performance
RESULTS PRESENTATION 31 DECEMBER 2016 C&TB remains focused on leveraging platforms and growing the client franchise • Sustained demand for structured and traditional trade products NORMALISED PBT * (R million) • Liability-raising strategy gained traction particularly in the rest of Africa • Regulato
Slide 16: Robust portfolio annuity earnings; traction in RMB's rest of Africa franchise
REVIEW OF OPERATIONS RMB continued Robust portfolio annuity earnings, despite lack of realisations – still in harvesting cycle NORMALISED PBT * (R million) • Strong private equity realisations in prior year of approximately R1 billion 2 000 • Significant unrealised value in the portfolio of R4.4 bil
Slide 17: Resilient performance from WesBank in difficult environment
RESULTS PRESENTATION 31 DECEMBER 2016 Resilient performance from WesBank in difficult environment NORMALISED PBT (R million) 3 000 19.9% ROE . +9% 2 755 2 500 2 518 2 287 2 000 2 149 1 968 1 500 1 000 500 0 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Years prior to 2015 have not been restated for refined res
Slide 18: Diversity underpins resilience; strong local VAF performance
REVIEW OF OPERATIONS WesBank continued Diversity underpins resilience NORMALISED PBT SPLIT Rest of Africa Insurance – South Africa* 1% 17% Corporate and Retail VAF – South Africa commercial 6% 41% 14% Personal loans 21% Retail VAF – MotoNovo (UK) * Insurance profits are included in SA retail VAF, pe
Slide 19: Increased prudence and investment initiatives impacted MotoNovo performance
RESULTS PRESENTATION 31 DECEMBER 2016 Increased prudence and investment initiatives impacted MotoNovo performance • Strong advances growth at good margins in GBP NORMALISED PBT (R million) • Normalised core motor operations increased 17% in GBP, offset by: • Increased prudence in provisioning – incr
Slide 20: Personal loans impacted by investment drag and regulatory changes
REVIEW OF OPERATIONS WesBank continued Personal loans impacted by investment drag and regulatory changes • Advances increased 11%, on the back of new business production growth of 9.1% NORMALISED PBT (R million) • Cutback in risk appetite and NCA rate caps resulted in slowing advances growth and red
Slide 21: Performance highlights (normalised)
RESULTS PRESENTATION 31 DECEMBER 2016 Performance highlights (normalised) Normalised Dec 16 Dec 15 % change Diluted EPS (cents) 207.6 194.6 7 Dividend per share (cents) 119.0 108.0 10 Earnings (R million) 11 646 10 915 7 Net asset value per share (cents) 1 843.0 1 709.2 8 Net interest margin
Slide 22: ROA held up despite lack of realisations and emerging credit cycle
FIRSTRAND GROUP Financial review continued ROA held up despite lack of realisations and emerging credit cycle % 8 7 6 3.40 3.50 3.11 3.53 3.22 5 4 3 2.07 1.82 1.97 1.99 2.00 2 1 3.43 3.72 3.95 3.79 3.99 0 (1) (2) (3.69) (3.70) (3.79) (3.58) (3.64) (3) (4) (0.63) (0.55) (0.64) (0.57) (0.64) (5) Dec 1
Slide 23: Topline growth satisfactory; NII benefited from lending, deposit strategy and endowment
RESULTS PRESENTATION 31 DECEMBER 2016 Topline growth satisfactory given lack of realisations NORMALISED EARNINGS (R million) 14 000 +12% +19% +2% +8% (596) 2 420 410 (1 543) (1%) 7% 12 000 40 11 646 10 915 10 000 8 000 6 000 4 000 2 000 0 Dec 15 NII Impairments NIR Opex Tax and other Dec 16 NII ben
Slide 24: Unpacking Group Treasury and capital endowment
FIRSTRAND GROUP Financial review continued Unpacking Group Treasury and capital endowment Capital endowment benefited from higher level of rates and capital • Interest on capital endowment +>R400 million Group Treasury activities • Interest rate risk hedges +>R235 million • Foreign currency balance
Slide 25: FNB unsecured advances growth linked to transactional strategy
RESULTS PRESENTATION 31 DECEMBER 2016 FNB unsecured advances growth linked to transactional strategy within adjusted risk appetite FNB PERSONAL LOANS (R billion) FNB CARD (R billion) OTHER RETAIL* (R billion) +5% +4% 20 25 +2% 15 +5% 14.3 14.9 +6% 0% 20 22.5 13.7 20.9 22.0 15 14.4 14.4 10 13.6 15 10
Slide 26: WesBank advances growth reflects specific origination actions
FIRSTRAND GROUP Financial review continued WesBank advances growth reflects specific origination actions RETAIL VAF SA ADVANCES (R billion) MOTONOVO (UK) ADVANCES (£ billion) PERSONAL LOANS ADVANCES (R billion) +1% 100 3.0 14 98.5 99.3 +11% 2.5 +37% 2.9 12 80 12.5 10 11.3 2.0 60 2.1 8 1.5 40 6 1.0 4
Slide 27: CIB advances reflect deal flow and ROE preservation
RESULTS PRESENTATION 31 DECEMBER 2016 CIB advances reflect deal flow and ROE preservation RMB CIB CORE ADVANCES (R billion) WHOLESALE CREDIT PERFORMING BOOK# 300 3% +8% 250 200 Investment grade 150 39% Sub-investment grade 100 58% Elevated risk 50 - Dec 15 Dec 16 Domestic and other Rest of Africa* H
Slide 28: Liability franchise continues to grow in all segments
FIRSTRAND GROUP Financial review continued Liability franchise continues to grow in all segments LIABILITIES (R billion) DEPOSIT FRANCHISE +7% INSTITUTIONAL FUNDING +5% OTHER FUNDING +2.5% +14% +8% 194 (1%) +12% 182 170 169 151 (3%) 158 150 141 115 112 (7%) 0% +23% 68 63 55 55 31 38 Retail Commercia
Slide 29: Growing client base underpins corporate operational deposit growth; LCR improvement
RESULTS PRESENTATION 31 DECEMBER 2016 Growing client base underpins 9% average corporate operational deposit growth CORPORATE BANKING AVERAGE DEPOSITS (R billion) 150 +6% 100 +9% 50 - Dec 15 Dec 16 Operational deposits Rest of Africa Other * * Other includes currency balances which were impacted by
Slide 30: Strategy to improve balance sheet liquidity; cost of funding remains elevated
FIRSTRAND GROUP Financial review continued …resulting from the group’s strategy to improve balance sheet liquidity TOTAL ASSETS (R billion) CASH AND AVAILABLE LIQUIDITY* (R billion) 1 200 220 1 180 200 CAGR 10% 202 1 000 180 160 CAGR 25% 895 800 140 17.1% of 120 total 600 assets 100 103 80 400 60 11
Slide 31: Offset by endowment benefit; margin composition reflects deposit franchise
RESULTS PRESENTATION 31 DECEMBER 2016 …but offset by endowment benefit MARGIN (bps) 535 529 Group Treasury impacts 520 22 4 (6) 4 (2) (1) 510* (9) 7 505 490 475 Dec 15 Interest rate Accounting MTM vs Impact of Change in Deposit Advances mix Capital and Dec 16 normalised risk hedges mismatches accrua
Slide 32: Operational NPL trends in line with expectations
FIRSTRAND GROUP Financial review continued Topline growth satisfactory given lack of realisations NORMALISED EARNINGS (R million) 14 000 +12% +19% +2% +8% (596) 2 420 410 (1 543) (1%) 7% 12 000 40 11 646 10 915 10 000 8 000 6 000 4 000 2 000 0 Dec 15 NII Impairments NIR Opex Tax and other Dec 16 Op
Slide 33: Paying debt review customers require lower coverage
RESULTS PRESENTATION 31 DECEMBER 2016 Paying debt review customers require lower coverage DEBT REVIEW COVERAGE NON-DEBT REVIEW TOTAL NPL COVERAGE COVERAGE RATIOS (%) Dec 16 Dec 15* Dec 16 Dec 15* Dec 16 Dec 15* FNB credit card 42.2 - 75.7 71.8 67.6 71.8 FNB retail other 43.4 - 79.8 78.3 71.6 78.3
Slide 34: Overall coverage remains appropriate
FIRSTRAND GROUP Financial review continued Overall coverage remains appropriate COVERAGE RATIOS (%) Dec 16 Dec 15 NPLs (R million) Retail – secured 26.6 28.5 22 000 20 000 9% 10% Residential mortgages 22.1 21.9 9% 18 000 VAF 30.2 34.7 16 000 27% 23% – SA 28.5 33.4 31% 14 000 – MotoNovo (UK) 59.9 59.
Slide 35: Credit performance mitigated by proactive provisioning
RESULTS PRESENTATION 31 DECEMBER 2016 Credit performance mitigated by proactive provisioning CREDIT LOSS RATIO (%) Dec 16 Dec 15 Retail – secured 0.70 0.62 Residential mortgages 0.14 0.17 VAF 1.42 1.22 5.7 – SA 1.42 1.28 5.0 0.1% impact due to – MotoNovo (UK) 1.40 1.06 D7 reclassification 4.2 Retail
Slide 36: Unpacking the 2% increase in total NIR
FIRSTRAND GROUP Financial review continued Topline growth satisfactory given lack of realisations NORMALISED EARNINGS (R million) 14 000 +12% +19% +2% +8% (596) 2 420 410 (1 543) (1%) 7% 12 000 40 11 646 10 915 10 000 8 000 6 000 4 000 2 000 0 Dec 15 NII Impairments NIR Opex Tax and other Dec 16 Un
Slide 37: FNB's NIR impacted by product and pricing actions in Consumer segment
RESULTS PRESENTATION 31 DECEMBER 2016 FNB’s NIR impacted by product and pricing actions in Consumer segment NON-INTEREST REVENUE (R million) +4% FNB NIR +6% 12 000 • Growth in customers and volumes 11 000 10 000 • Channel migration reduced cash fees 9 000 • Manual transactions +2% 8 000 • Electronic
Slide 38: RMB remains a steady contributor to NIR
FIRSTRAND GROUP Financial review continued RMB remains a steady contributor to NIR NON-INTEREST REVENUE (R million) +4% 12 000 • Significant fee income generated from key lending transactions and 11 000 underwriting mandates 10 000 • C&TB benefited from increased demand for trade products 9 000 • So
Slide 39: Cost-to-income ratio impacted by investment cycle
RESULTS PRESENTATION 31 DECEMBER 2016 Topline growth satisfactory given lack of realisations NORMALISED EARNINGS (R million) 14 000 +12% +19% +2% +8% (596) 2 420 410 (1 543) (1%) 7% 12 000 40 11 646 10 915 10 000 8 000 6 000 4 000 2 000 0 Dec 15 NII Impairments NIR Opex Tax and other Dec 16 Cost-to
Slide 40: FNB costs reflect ongoing investment in the rest of Africa
FIRSTRAND GROUP Financial review continued FNB costs reflect ongoing investment in the rest of Africa FNB COST MIX • Overall cost growth of 10% Rest of • Cost-to-income ratio slightly up to 53.5% Africa +20% y/y (Dec 15: 53.1%) • Funded domestic growth initiatives in: • Insurance • Investment busine
Slide 41: WesBank costs; strong capital position maintained
RESULTS PRESENTATION 31 DECEMBER 2016 WesBank’s costs reflect diversification initiatives, offset by continued operational efficiencies in core business WESBANK COST MIX 2% • Operating expenses +10% 5% • Business-as-usual costs +8% • Cost-to-income ratio decreased to 40.6% (Dec 15: 41.2%) • Operatin
Slide 42: Surplus appropriate for growth strategies; interim dividend growth
FIRSTRAND GROUP Financial review continued Surplus appropriate for growth strategies Committed Capture larger share of profits from the broader financial services markets domestically 2.2 • FirstRand Insurance, Ashburton Investments, Regent VAPS and other 2.7 Existing organic strategy in the rest of
Slide 43: Diversifying FirstRand's portfolio creates growth opportunities
RESULTS PRESENTATION 31 DECEMBER 2016 Diversifying FirstRand’s portfolio creates growth opportunities REVENUE SPLIT BY ACTIVITY* GEOGRAPHIC PBT MIX# Other Other markets (incl. UK and India) Insure Save and Rest of Africa 4% invest** 10% Transact Lend South Africa 86% Transact and lend = 85% SOUTH AF
Slide 44: Protect and grow transactional and lending franchises
FIRSTRAND GROUP Progress on strategy continued Protect and grow transactional and lending franchises Other Insure • Good growth in customers across all segments Save and invest • Cross-sell and up-sell contributed to growth in lending, transactional and deposit franchises • E-migration continues to
Slide 45: Broaden financial services offering – insurance
RESULTS PRESENTATION 31 DECEMBER 2016 Broaden financial services offering – insurance LIFE Other Insure • Strong growth from leveraging FNB’s distribution Save and channels invest • Funeral product sales +46% • Number of policies increased from 470k to 2.96 million • In-force API increased from R575
Slide 46: Rest of Africa retail and CIB franchises resilient despite macro headwinds
FIRSTRAND GROUP Progress on strategy continued Rest of Africa retail and CIB franchises resilient despite macro headwinds and ongoing investment GROSS REVENUE* (R million) PBT* (R million) 6 000 1 800 1 600 5 000 1 400 4 000 1 200 1 000 3 000 800 2 000 600 400 1 000 200 0 0 Dec 12 Dec 13 Dec 14 Dec
Slide 47: Diversification in UK still presents growth opportunities
RESULTS PRESENTATION 31 DECEMBER 2016 Diversification in UK still presents growth opportunities Other markets (incl. UK and India) • Continued growth in motor distribution 4% Rest of Africa footprint 10% • Investing in product diversification • Funding strategies still supportive of growth plans Sou
Slide 48: Macros remain challenging, but…
FIRSTRAND GROUP Propspects continued Macros remain challenging, but… …committed to: • Investing for growth • Allocating financial resources to maximise economic profits • Maintaining a strong and prudently positioned balance sheet • Delivering superior returns • Quality of portfolio will ensure resi
Slide 49: Advances portfolio mix between corporate and retail remains appropriate
RESULTS PRESENTATION 31 DECEMBER 2016 Advances portfolio mix between corporate and retail remains appropriate GROSS ADVANCES (R billion) 900 9% 9% 800 8% 9% 700 6% 600 6% 45% 45% 45% 45% 500 6% 46% 5% 6% 44% 5% 5% 400 43% 7% 7% 7% 37% 35% 43% 42% 7% 300 7% 7% 5% 5% 6% 5% 5% Retail 200 39% 40% 39% 39
Slide 50: Targeted lending strategies in corporate and commercial
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 on C
Slide 51: Coverage breakdown: residential mortgages and retail VAF
RESULTS PRESENTATION 31 DECEMBER 2016 Coverage breakdown: residential mortgages Specific TYPE R million coverage ratio Sold property awaiting registration 106 24.6% Deceased 240 23.0% Debt review – mostly paying per agreement 765 20.0% Insolvencies and litigation 1 347 21.6% Non-debt review – paymen
Slide 52: Margin pressure from shift in rate mix in WesBank's VAF book
FIRSTRAND GROUP Appendix continued Margin pressure from shift in rate mix in WesBank’s VAF book PROPORTION OF SA RETAIL VAF NEW BUSINESS % OF TOTAL ADVANCES Dec 16 Dec 15 80% Fixed rate 48 52 69% Floating rate 52 48 70% 61% 60% 60% 55% 55% 51% 50% 49% 45% 45% 40% 39% 40% 30% 31% 20% Dec 11 Dec 12 De
Slide 53: AUM growth from good penetration of institutional and retail markets
RESULTS PRESENTATION 31 DECEMBER 2016 AUM growth from good penetration of institutional and retail markets R billion 250 • RMB’s origination franchise 16 19 200 facilitating strategy 9 67 150 69 • Good take up in fixed income 58 mandates of multi-asset credit 51 54 100 41 from RMB 33 27 132 50 100 1
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