FirstRand Limited · JSE:FSR
FirstRand — FY2016 Earnings Presentation
54 slides from FirstRand's earnings presentation, September 2016
Slide 1: Results presentation for the year ended 30 June 2016
for the year ended 30 June 2016 results presentation
Slide 2: Slide 2
Slide 3: EPS and DPS continued to grow off a high base
RESULTS PRESENTATION 30 JUNE 2016 EPS and DPS continued to grow off a high base Cents 450 24.0% ROE . 400 +8% 407 350 379 331 300 274 +8% 250 200 226 226 210 150 174 136 100 102 50 0 2012 2013 2014 2015 2016 Diluted normalised earnings per share Dividend per share p01
Slide 4: Strong economic profit generation despite impact of higher cost of equity
FIRSTRAND GROUP Introduction continued Strong economic profit generation despite impact of higher cost of equity NIACC* (R million) ROE and COE 24.2% 24.7% 24.0% 24.0% 12 000 25% 22.7% 20.7% 10 000 20% 9 694 9 706 9 086 8 000 8 172 13.6% 15% 6 000 14.5% 13.6% 13.6% 13.5% 13.8% 6 169 10% 4 000 4 163
Slide 5: FirstRand's portfolio represents good opportunities for growth
RESULTS PRESENTATION 30 JUNE 2016 FirstRand’s portfolio represents good opportunities for growth 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 = 81% SOUTH AFRICA
Slide 6: FNB performance reflects success of consistent strategy
REVIEW OF OPERATIONS FNB FNB performance reflects success of consistent strategy NORMALISED PBT (R million) 38.6% ROE 20 000 . 18 000 +8% 17 864 16 000 16 536 14 000 14 240 12 000 11 644 10 000 9 668 8 000 6 000 4 000 2 000 0 2012 2013 2014 2015 2016 Years prior to 2015 have not been restated for re
Slide 7: Domestic franchise performed well in tough environment
RESULTS PRESENTATION 30 JUNE 2016 Domestic franchise performed well in tough environment NORMALISED PBT (R million) 12 000 +8% 10 000 8 000 +17% 6 000 4 000 (20%) 2 000 0 Retail Commercial Rest of Africa 2015 2016 Transactional franchise very resilient NORMALISED PBT (R million) Strong growth driven
Slide 8: Term lending performance reflects credit cycle
REVIEW OF OPERATIONS FNB continued Term lending performance reflects credit cycle NORMALISED PBT (R million) • Maintained conservative approach to mortgage lending 12 000 • Normalisation of mortgages bad debt charge • Cross-selling lending products to existing commercial customers 10 000 • Strong gr
Slide 9: Good traction in insurance despite ongoing platform investment costs
RESULTS PRESENTATION 30 JUNE 2016 Good traction in insurance despite ongoing platform investment costs NORMALISED PBT (R million) • Good traction in funeral policies, especially in Consumer • Policy sales doubled during the year 12 000 • Strong growth in annualised premium income • Pre-emptive reduc
Slide 10: RMB: Diversified portfolio delivers sustainable growth and strong returns
REVIEW OF OPERATIONS RMB Diversified portfolio delivers sustainable growth and strong returns NORMALISED PBT (R million) 10 000 25.2% ROE . +10% 8 918 8 000 8 136 7 688 6 000 6 150 4 936 4 000 2 000 0 2012 2013 2014 2015 2016 Years prior to 2015 have not been restated for refined rest of Africa segm
Slide 11: Balanced performance from an integrated, client-focused portfolio
RESULTS PRESENTATION 30 JUNE 2016 Balanced performance from an integrated, client-focused portfolio NORMALISED PBT* (R million) 4 000 +17% 3 000 +11% 2 000 +17% (5%) 1 000 +23% 0 Investment banking Corporate and Markets and Investing Investment and advisory (IB&A) transactional banking structuring (
Slide 12: Greater leverage of platforms and client focus bolstered C&TB profits
REVIEW OF OPERATIONS RMB continued Greater leverage of platforms and client focus bolstered C&TB profits • Healthy growth in average deposits contributed to enhanced NORMALISED PBT* (R million) liquidity profile • Higher demand for structured and traditional trade products 4 000 • Increased client f
Slide 13: Investing activities continued to benefit from realisation cycle
RESULTS PRESENTATION 30 JUNE 2016 Investing activities continued to benefit from realisation cycle • Resilient annuity earnings from investment subsidiaries and associates NORMALISED PBT* (R million) • Significant unrealised value of R4.2 billion maintained in the portfolio 4 000 3 000 +11% 2 000 1
Slide 14: WesBank's performance proves strength of franchise
REVIEW OF OPERATIONS WesBank WesBank’s performance proves strength of franchise… NORMALISED PBT (R million) 6 000 21.8 % ROE . +20% 5 537 5 000 4 632 4 000 4 315 3 983 3 667 3 000 2 000 1 000 0 2012 2013 2014 2015 2016 Years prior to 2015 have not been restated for refined rest of Africa segmentatio
Slide 15: Reflects increasing diversification
RESULTS PRESENTATION 30 JUNE 2016 …and reflects increasing diversification NORMALISED PBT SPLIT Rest of Africa Insurance – South Africa* 2% 18% Retail VAF – South Africa 34% Corporate and commercial 7% 14% Personal loans 25% Retail VAF – MotoNovo (UK) * Insurance profits are included in SA retail VA
Slide 16: Excellent operational performance from MotoNovo
REVIEW OF OPERATIONS WesBank continued Excellent operational performance from MotoNovo NORMALISED PBT (R million) • Strong advances growth at good margins on the back of: • New products • New geographies 2 500 • Expanded footprint • Bad debts remain within risk appetite 2 000 +45% (ZAR terms) +22% (
Slide 17: Personal loans impacted by regulatory changes and credit cycle
RESULTS PRESENTATION 30 JUNE 2016 Personal loans impacted by regulatory changes and credit cycle NORMALISED PBT (R million) • Advances increased 13%, however, new business production growth slowed to 5.4% (2015: +9%) • Cutback in risk appetite and NCA rate caps resulted in 2 500 slowing advances gro
Slide 18: Franchises are already utilising group building blocks to execute
FIRSTRAND GROUP Introduction continued Franchises are already utilising group building blocks to execute ACTIVITIES INVESTMENT TRANSACT LEND DEPOSIT INSURE MANAGEMENT BANKING LICENCE SHORT-TERM INSURANCE PLATFORMS LICENCE LIFE INSURANCE LICENCE ASSET MANAGEMENT LICENCE Leveraging the platform- and f
Slide 19: AUM growth from good penetration of institutional and retail markets
RESULTS PRESENTATION 30 JUNE 2016 AUM growth from good penetration of institutional and retail markets R billion 250 • RMB’s origination franchise facilitating strategy 200 9 14 3 67 • Good take up in fixed income 150 65 mandates of multi-asset credit 55 36 from RMB 100 44 30 25 22 125 • Differentia
Slide 20: Early days, but good traction in MotoVantage (VAPS)
FIRSTRAND GROUP Introduction continued Early days, but good traction in MotoVantage (VAPS) MONTHLY GWP ORIGINATED THROUGH WESBANK CHANNELS (R million) OCTOBER 2015 JUNE 2016 Brokers 120 000 100 000 +61% Telesales CHANNEL Telesales Point Point SPLIT of sale of sale 80 000 60 000 Warranty 40 000 Credi
Slide 21: Group's franchises building track record in the rest of Africa
RESULTS PRESENTATION 30 JUNE 2016 Group’s franchises building track record in the rest of Africa GROSS REVENUE* (R million) PROFIT BEFORE TAX* (R million) 12 000 3 500 10 000 3 000 2 500 8 000 2 000 6 000 1 500 4 000 1 000 2 000 500 - - 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 FNB RMB WesBa
Slide 22: MotoNovo offers platform for growth in DM
FIRSTRAND GROUP Introduction continued MotoNovo offers platform for growth in DM • Initiated projects to diversify product offering and expand footprint • Brexit impact • Currently industry impact is more muted than thought, but early days • Origination strategies adjusted – new business production
Slide 23: Performance highlights (normalised)
RESULTS PRESENTATION 30 JUNE 2016 Performance highlights (normalised) 2016 2015 % change Diluted normalised EPS (cents) 407.4 378.5 8 Dividend per share (cents) 226 210 8 Normalised earnings (R million) 22 855 21 286 7 Normalised net asset value per share (cents) 1 779.0 1 618.3 10 Net inter
Slide 24: Topline growth resilient
FIRSTRAND GROUP Financial review continued Topline growth resilient NORMALISED EARNINGS (R million) 30 000 +7% +11% +13% +24% (1 372) 2 234 25 000 (4 202) 5 120 +2% 7% (211) 22 855 20 000 21 286 15 000 10 000 5 000 0 2015 NII Impairments NIR Opex Tax and other 2016 As predicted, emergence of credit
Slide 25: Revenue growth still driven by client franchise
RESULTS PRESENTATION 30 JUNE 2016 Revenue growth still driven by client franchise NET INTEREST INCOME (NII) = 55% NON-INTEREST REVENUE (NIR) = 45% 28% Transactional NIR** Lending Transactional NII* 24% Investment banking transactional Flow trading and residual risk 16% Capital endowment Group Treasu
Slide 26: NII benefits from lending, deposit strategy and endowment
FIRSTRAND GROUP Financial review continued NII benefits from lending, deposit strategy and endowment NET INTEREST INCOME* (R million) 2016 2015 % change Lending 19 002 17 461 9 Transactional NII** 12 745 10 082 26 Deposits 2 794 2 441 14 Capital endowment 5 104 3 893 31 Group Treasury 730 1 594 (54)
Slide 27: Retail advances reflect both macros and specific origination strategies
RESULTS PRESENTATION 30 JUNE 2016 Retail advances reflect both macros and specific origination strategies R million 2016 2015 % change RETAIL ADVANCES BREAKDOWN Residential mortgages 187 806 180 208 4 Retail unsecured 16% VAF 149 925 132 743 13 4% - SA 99 702 98 131 2 7% 5% - MotoNovo (UK)* 50 223 3
Slide 28: Growth in FNB retail unsecured advances mainly in Premium segment
FIRSTRAND GROUP Financial review continued Growth in FNB retail unsecured advances mainly in Premium segment CONSUMER UNSECURED (R billion) PREMIUM UNSECURED (R billion) 25 (2%) 30 +11% +3% 29.7 23.1 22.7 +15% 22.4 25 26.7 20 23.3 20 15 15 10 10 5 5 0 0 Jun 15 Dec 15 Jun 16 Jun 15 Dec 15 Jun 16 WesB
Slide 29: Muted growth from domestic corporate book but commercial remains robust
RESULTS PRESENTATION 30 JUNE 2016 Muted growth from domestic corporate book but commercial remains robust CORPORATE ADVANCES BREAKDOWN R million 2016 2015 % change 5% RMB IB core South Africa 162 098 166 260 (3) 20% HQLA corporate advances 20 297 9 494 >100 Investment banking-related corporate adv.
Slide 30: FNB commercial portfolio is well diversified
FIRSTRAND GROUP Financial review continued FNB commercial portfolio is well diversified FNB COMMERCIAL ADVANCES BREAKDOWN • Expanded term-lending product offering to existing client base Total agriculture 30% • Commercial property finance +15% Other 15% • Leverage finance +10% • Drought-affected agr
Slide 31: Liability franchise continues to grow in all segments
RESULTS PRESENTATION 30 JUNE 2016 Liability franchise continues to grow in all segments LIABILITIES (R billion) INSTITUTIONAL FUNDING DEPOSIT FRANCHISE +10% AND OTHER +2% +9% 2015 2016 360 331 +14% +9% 180 +5% 158 167 153 134 140 +12% 50 56 39 17 Retail Commercial CIB Rest of Africa Institutional fu
Slide 32: RMB's liability-raising strategy yielding positive results
FIRSTRAND GROUP Financial review continued RMB’s liability-raising strategy yielding positive results CORPORATE BANKING DEPOSITS (R billion) 125 +6% NII benefited from a 16% increase in average 100 operational deposits and an enhanced liquidity profile with focus on: 75 • Transactional banking relat
Slide 33: More liquid balance sheet
RESULTS PRESENTATION 30 JUNE 2016 …more liquid balance sheet TOTAL ASSETS (R billion) CASH AND AVAILABLE LIQUIDITY* (R billion) 1 200 200 1 149 180 185 1 000 160 800 867 140 16.1% of total 120 assets 600 100 105 80 400 12.1% 60 of total assets 40 200 20 0 0 Jun 201313 Jun 16 2016 2013 Jun 13 2016 Ju
Slide 34: But offset by endowment benefit
FIRSTRAND GROUP Financial review continued …but offset by endowment benefit MARGIN (bps) 535 1 8 (5) Increased cost of 528 Group Treasury impacts funding and liquidity: 520 2 12 bps (3) 516* (5) 21 (7) 505 490 475 2015 Other MTM vs accrual Impact of Higher funding Capital and Advances mix Change in
Slide 35: Operational NPL trend reflects macros and cycle
RESULTS PRESENTATION 30 JUNE 2016 Operational NPL trend reflects macros and cycle NPLs* (R million) NPLs* (R billion) 8 000 25 Origination Credit cycle Specific Commodities action and worsening counterparties downturn and +16% workout credit cycle in some countries 20 +17% 20 6 000 +19% 5 800 18 (7%
Slide 36: WesBank coverage reflects higher proportion of debt review customers
FIRSTRAND GROUP Financial review continued WesBank coverage reflects higher proportion of debt review customers SA RETAIL VAF NPLs (R million) WESBANK PERSONAL LOANS NPLs (R million) 6 000 1 200 1 100 5 000 1 000 900 4 000 800 700 3 000 600 500 2 000 400 300 1 000 200 100 0 0 Dec 06 Dec 07 Dec 08 De
Slide 37: Total portfolio provisions increased with franchise overlays maintained
RESULTS PRESENTATION 30 JUNE 2016 Total portfolio provisions increased with franchise overlays maintained PORTFOLIO IMPAIRMENTS (R million) 9 000 +8% 8 000 7 000 Jun Dec Jun 6 000 2016 2015 2015 5 000 Portfolio impairments 0.99 0.97 1.00 as % of performing book 4 000 3 000 Credit loss ratio (%) 0.86
Slide 38: Despite reclassifications, credit metrics in line with risk appetite and cycle
FIRSTRAND GROUP Financial review continued Despite reclassifications, credit metrics in line with risk appetite and cycle PORTFOLIO IMPAIRMENTS +8% to R8.4 billion Still prudent SPECIFIC IMPAIRMENTS +17% to R8.2 billion Appropriate INCOME STATEMENT CHARGE 86 bps (still below TTC) In line with expect
Slide 39: FNB's NIR growth a good outcome given macro and regulatory pressure
RESULTS PRESENTATION 30 JUNE 2016 FNB’s NIR growth a good outcome given macro and regulatory pressure NON-INTEREST REVENUE (R million) FNB NIR +7% 24 000 • Strong transactional growth across all FNB segments +6% • Good client acquisition 20 000 • Rewards were higher on the back of a successful 16 00
Slide 40: WesBank NIR benefited from insurance/VAPS initiatives
FIRSTRAND GROUP Financial review continued WesBank NIR benefited from insurance/VAPS intiatives NON-INTEREST REVENUE (R million) 24 000 WESBANK NIR +12% +6% • Earnings uplift due to creation of MotoVantage, including acquisitions 20 000 • Further NIR growth linked to advances growth in retail portfo
Slide 41: Unrealised value in Private Equity remains robust despite large realisations
RESULTS PRESENTATION 30 JUNE 2016 Unrealised value in Private Equity remains robust despite large realisations GROSS INCOME (R million) UNREALISED VALUE (R million) 5 000 5 000 4 500 4 500 4 000 4 000 3 500 3 500 3 000 3 000 2 500 2 500 2 000 2 000 1 500 1 500 1 000 1 000 500 500 0 0 2012 2013 2014
Slide 42: Cost-to-income ratio impacted by investment cycle
FIRSTRAND GROUP Financial review continued Cost-to-income ratio impacted by investment cycle BREAKDOWN OF OPERATING EXPENSES R billion COST-TO-INCOME RATIO 53.4% 90 51.5% 51.1% 50.5% 51.1% 55% Other +7% 50% 80 45% 70 Marketing and 40% 14% 60 professional 35% fees +12% 8% 50 30% Depreciation 40 25% a
Slide 43: RMB operating costs impacted by investment in platforms
RESULTS PRESENTATION 30 JUNE 2016 RMB operating costs impacted by investment in platforms RMB COST MIX • Overall cost growth of 11% 11% • Cost-to-income ratio of 45.1% (2015: 43.9%), impacted by: • Expansion in the rest of Africa 24% • Increased regulatory and compliance 65% spend • Adverse forex mo
Slide 44: Strong capital position maintained
FIRSTRAND GROUP Financial review continued Strong capital position maintained Economic view of surplus adjusted for: • Volatile reserves CET1 RATIO • Ring-fenced capital • Known regulatory changes 14% 13.9% CET1 target range: 0.9% 13.0% 10% – 11% 12% R10.4bn R13.8 billion surplus FirstRand 10% manag
Slide 45: Dividend cover range remains appropriate
RESULTS PRESENTATION 30 JUNE 2016 Dividend cover range remains appropriate DIVIDEND COVER (times) 2.4 2.2 • Capital deployment plans Dividend cover range: 2.0 1.8 x to 2.2 x • Elevated risk in macros 1.8 • Regulatory and accounting 1.6 requirements 1.4 1.2 1.0 2012 2013 2014 2015 2016 p43
Slide 46: Global and SA growth constraints remain, however, the group is:
FIRSTRAND GROUP Prospects continued Global and SA growth constraints remain, however, the group is: • Confident that operating franchises will effectively navigate through this challenging environment and deliver growth • Committed to investing for growth • Committed to allocating financial resource
Slide 47: Advances portfolio mix between corporate and retail remains appropriate
RESULTS PRESENTATION 30 JUNE 2016 Advances portfolio mix between corporate and retail remains appropriate GROSS ADVANCES (R billion) 900 10% 800 9% 700 6% 600 6% 44% 45% 500 6% 46% 5% 6% 44% 5% 5% 400 43% 7% 37% 35% 43% 42% 7% 300 7% 7% 5% 5% 6% 5% 5% Retail 200 39% 39% 46% 43% 41% 100 53% 55% 47% 4
Slide 48: 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 49: Coverage breakdown: residential mortgages and retail VAF
RESULTS PRESENTATION 30 JUNE 2016 Coverage breakdown: residential mortgages Specific TYPE R million coverage ratio Sold property awaiting registration 116 24.6% Deceased 240 23.0% Debt review – mostly paying per agreement 762 20.0% Insolvencies and litigation 1 342 21.6% Non-debt review – payments b
Slide 50: 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 2016 2015 80% Fixed rate 50 56 70% 68% Floating rate 50 44 62% 60% 58% 56% 50% 52% 50% 50% 48% 40% 42% 44% 38% 30% 32% 20% 2011 2012 2013 2014
Slide 51: Innovation driving growth in volumes and value
RESULTS PRESENTATION 30 JUNE 2016 Innovation driving growth in volumes and value FNB banking app transactions Digital platforms VOLUMES (millions) VALUES (R billion) VOLUMES (millions) VOLUMES (millions) 7 16 300 70 6 14 250 60 5 12 50 200 10 40 4 150 8 30 3 6 100 2 20 4 1 50 10 2 0 0 0 0 Jun 12 Jun
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