Creating and protecting shareholder value

Transcription

1 Creating and protecting shareholder value Johan Burger (CEO: FirstRand) 29 January 2016

2 Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 2

3 Track record of superior returns % % 18.7% 20.7% 22.7% 24.2% 24.7% % 21% % % 6% 1% % Normalised earnings NIACC ROE 2010 comparatives is for FirstRand Banking Group. 3

4 relative to peer group ROE 30% 25% 20% 17.7% 18.7% 20.7% 22.7% 24.2% 24.7% 15% 10% 13.4% 13.3% 14.4% 13.8% 14.7% 16.1% 5% 0% FSR Big 4 (excl. FSR) 2010 comparatives is for FirstRand Banking Group. 4

5 Same picture on a through-the-cycle basis ROE using normalised impairment (105bps) 25% 20% 20.0% 18.0% 20.8% 22.3% 22.9% 22.9% 15% 10% 15.6% 13.0% 14.3% 14.8% 14.0% 14.8% 5% 0% FSR Big 4 (excl. FSR) 2010 comparatives is for FirstRand Banking Group. 5

6 Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? FRANCHISE VALUE DEPLOYMENT OF FINANCIAL RESOURCES BUSINESS MODEL AND CULTURE MEASURE THROUGH PERFORMANCE MANAGEMENT 6

7 Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? FRANCHISE VALUE DEPLOYMENT OF FINANCIAL RESOURCES BUSINESS MODEL AND CULTURE MEASURE THROUGH PERFORMANCE MANAGEMENT 7

8 How we think about long-term franchise value Client base Customer base underpins sustainability. Market-leading financial services franchises Market-leading operating businesses deliver customers, distribution and products. FRANCHISE VALUE Diversified portfolios (operating franchises, segments, countries, products) Differentiated offerings strengthen competitive position (innovation) Diversified portfolio reduces volatility from overconcentrations in product lines, segments or activities. Appropriate mix of capital-light and capital-intensive businesses. Differentiation in customer offerings strengthens relative positioning and ensures growth, but only possible through ongoing innovation. Flexible and brand-neutral platforms (skills, technology, customer bases, distribution, licences) Platforms provide building blocks to operate across all financial services profit pools. Franchise value = resilient earnings 8

9 Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? FRANCHISE VALUE DEPLOYMENT OF FINANCIAL RESOURCES BUSINESS MODEL AND CULTURE MEASURE THROUGH PERFORMANCE MANAGEMENT 9

10 Disciplined financial resource management Strategic framework Strategy executed through operating franchises RETURN Achieve appropriate balance between capital-light and capital-intensive businesses RISK Balance between risk, return and growth GROWTH Risk management framework Through-the-cycle approach/ countercyclical origination and capital allocation Understand and price for risk Risk appetite minimise volatility Performance measurement framework Net income after capital charge (NIACC) Financial resource management framework Capital, funding, liquidity, risk appetite 10

11 Proactive and dynamic financial resource management WHAT? Group Treasury manages financial resources (capital, funding, liquidity, risk appetite) Group Treasury: Determines level of capital, capital structure and gearing Allocates capital and cost of capital to business units and sets hurdle rates Decides on availability and pricing of funding and liquidity to BUs (funds transfer pricing) Set capital, funding, liquidity and volatility targets Align franchise growth, return and volatility targets to FSR objectives Financial resource management is linked to macros WHY? Allows operating franchises to focus on operational profits To ensure that BUs price appropriately for financial resources in their underlying business activities, i.e. focus on ROA To maintain desired credit rating To ensure Group meets its overall objectives To enable Group to be countercyclical in origination and capital allocation 11

12 Shareholder value creation driven by consistent and unique approach THINK AND BEHAVE LIKE SHAREHOLDERS How is this operationalised? FRANCHISE VALUE DEPLOYMENT OF FINANCIAL RESOURCES BUSINESS MODEL AND CULTURE MEASURE THROUGH PERFORMANCE MANAGEMENT 12

13 Business model allows franchises access to all platforms within appropriate governance frameworks FirstRand Bank Limited (FRB) FirstRand EMA (Pty) Ltd (FREMA) FirstRand Investment Holdings (Pty) Ltd (FRIHL) Ashburton Investments Holdings Limited FirstRand Insurance Holdings (Pty) Ltd BANKING AFRICA AND EMERGING MARKETS OTHER ACTIVITIES INVESTMENT MANAGEMENT INSURANCE 13

14 Model also facilitates cross-sell and up-sell for franchises FIRSTRAND ACTIVITY VIEW PER FRANCHISE TRANSACT LEND INVEST DEPOSITS INSURANCE INVESTMENT MANAGEMENT 14

15 Owner-manager culture aligns employees and shareholders Culture empowers employees to think like owners/shareholders employees know and understand: Business strategy The business case always prevails Capital is only deployed to achieve required returns Treat company assets as their own Remuneration aligned to shareholder value creation 15

16 Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 16

17 Macros deteriorating Real GDP growth very subdued going forward 0% 1.5% Above inflation target (average) inflation for next two years 6% 7% Low nominal GDP growth expected over the medium term 5% 7.5% Low real income growth will place pressure on topline and bad debts 0.5% 1.5% Interest rate normalisation to continue (repo) Peak: 7.75% 17

18 Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 18

19 What has changed since the previous cycle? % 27.6% 24.2% 24.7% 22.7% 21.3% 20.7% 18.7% % % % 26% 21% 16% 11% 6% 1% -4% Normalised earnings NIACC ROE 19 We believe the business is more resilient Comparatives prior to 2011 are for FirstRand Banking Group.

20 Improved balance between risk and return = lower volatility RETURN Premium above cost of capital ROA 1.03% ROA 2.13% 2007 ROA 1.95% ROA 2.47% RISK Volatility of return profile FNB WesBank RMB FCC GROWTH Above nominal GDP over the long term 20

21 resulting in structurally higher and more sustainable ROA RETURN 18% 22% ROE and ROA at cyclical highs ROA 1.82% ROA 1.41% 2015 ROA 2.12% ROA 3.32% RISK Volatility of return profile FNB WesBank RMB GROWTH Nominal GDP + 3% to 5% over the long term 21

22 Improved quality of earnings underpinned by growth and mix of client businesses 4% 2% 8% 7% Client Investing Risk income 85% 94% Driven by proactive strategies in all operating franchises Based on gross revenue. 22

23 RMB portfolio reflects shift to client businesses Investment banking and advisory 23% 29% Client activities 39% Investing activities 2% 2007 Proprietary trading activities % Investment management 32% Markets and structuring 24% 18% Corporate and transactional banking Total client = 75% Based on gross revenue. Excludes RMB Resources, legacy and head office portfolios. 23

24 WesBank improved risk-adjusted returns and diversification PBT (R million) ROA 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% SA retail VAF Personal loans Corporate VAF MotoNovo* Other international * MotoNovo was previously known as Carlyle Finance. # Other International includes WorldMark Australia and MotorOne Finance Australia. # Balance between risk, return and growth Better pricing for risk and improved risk profile should result in less volatile return profile vs. previous cycle Franchise value Diversification of products MotoNovo, personal loans and corporate Differentiated Retail VAF unique distribution model (partnership models) Access different distribution channel/client bases through Direct Axis Efficiencies ROA also benefited from turn-around at MotoNovo 24

25 . FNB grew its transactional and deposit franchises FNB retail normalised profit before tax (R million) FNB SA deposits (R billion) % CAGR % CAGR Personal loans Residential mortgages Card Transactional and other retail Strategy shift from credit-led to transactional- and liability-led 25

26 Adjusted credit appetite and improved pricing across retail portfolios (e.g. FNB HomeLoans) 100% 90% 80% % of registered deals 70% 60% 50% 40% 30% 20% 10% 0% Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Average DISCOUNT to Prime: 1.50% Average PREMIUM above Prime: 0.25% A B C D E F Low risk High risk 26

27 Gross advances (R billion) 900 Advances portfolio rebalanced for more appropriate mix between corporate and retail % 8% % 45% 6% 46% 5% 6% 44% 5% 5% 43% 37% 35% 43% 42% 7% 7% 7% 5% 5% 6% 5% 5% 53% 55% 47% 47% 45% 43% 41% 40% Retail secured Retail unsecured Corporate FNB Africa and other 27

28 Started early with prudent provisioning Portfolio impairments (R million) Portfolio impairments as % of performing book % 1.05% Bad debt charge 0.77% 0.83% Portfolio impairments (R million) Franchise portfolio impairments Franchise overlay Central overlay 28

29 Balance sheet more liquid Total assets (R billion) Cash and liquid assets (R billion) CAGR 7% CAGR 15% % of total assets % of total assets

30 with reduced reliance on institutional funding and improved funding mix % of total funding Retail as % of total funding 50% 20% 48% 46% Corporate and public sector 19% 19% 44% 44% 18% 42% Retail (RHS) 40% 17% 38% 36% 36% 16% 34% 32% 15% Institutional funding 34% 15% 30% Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 14% 30

31 Stronger capital position despite more punitive RWA requirements CET1 ratio as at 30 June % 12% CET1 target range: 10% 11% 14.0% Economic view of surplus adjusted for: Volatile reserves Trapped capital Regulatory changes 12.9% R12.2bn surplus 10% 8% FSR management buffer 2.5% 6% 4% 2% SARB end-state minimum requirement 8.5% 0% Column2 Target Regulatory X Economic Column1 31

32 Agenda TRACK RECORD OF SUPERIOR RETURNS TOUGH CYCLE RAPIDLY EMERGING HOW IS THE GROUP POSITIONED FOR THIS CYCLE? FOCUS REMAINS ON DELIVERING SUSTAINABLE RETURNS 32

33 Despite short-term pressures, continue to execute on stated growth strategies CURRENT REVENUE MIX WE WOULD LIKE REVENUE MIX TO LOOK MORE LIKE THIS Insure Invest Insure Transact Transact Lend Invest Lend 33

34 Rest of Africa still represents opportunity for growth, but need to navigate elevated risks South Africa 88% Rest of Africa and corridors 10% Other 2% Higher risk, but higher growth than SA Namibia and Botswana dominate current contribution Focus has shifted to building in-country franchises in chosen markets 34

35 In summary Macros very difficult, but franchise well prepared for short-term pressures ROA/ROE structurally higher than previous cycle; ROE expected to trend down into the target range (18% to 22%) Strong balance sheet FirstRand s return profile is resilient, but not immune to cycles 35