Creating and protecting shareholder value

(1)

Creating and protecting shareholder value

Johan Burger (CEO: FirstRand)

(2)

Agenda

TRACK RECORD OF SUPERIOR RETURNS

TOUGH CYCLE RAPIDLY EMERGING

HOW IS THE GROUP POSITIONED FOR THIS CYCLE?

(3)

Track record of superior returns…

8 283 10 117 12 730 15 420 18 663 21 286 1 594 2 364 _{4 163} 6 169 8 172 9 694 17.7% 18.7% 20.7% 22.7% 24.2% 24.7% -4% 1% 6% 11% 16% 21% 26% 31% 5 000 10 000 15 000 20 000 25 000 30 000 2010 2011 2012 2013 2014 2015

(4)

…relative to peer group

ROE 17.7% 18.7% 20.7% 22.7% 24.2% 24.7% 13.4% _13.3% 14.4% 13.8% 14.7% 16.1% 0% 5% 10% 15% 20% 25% 30% 2010 2011 2012 2013 2014 2015 FSR Big 4 (excl. FSR) 4

(5)

Same picture on a through-the-cycle basis

ROE using normalised impairment (105bps)

20.0% 18.0% 20.8% 22.3% 22.9% 22.9% 15.6% 13.0% 14.3% 14.8% _14.0% 14.8% 0% 5% 10% 15% 20% 25% 2010 2011 2012 2013 2014 2015 FSR Big 4 (excl. FSR)

(6)

BUSINESS MODEL AND

CULTURE

Shareholder value creation driven by consistent and unique approach

THINK AND BEHAVE LIKE SHAREHOLDERS

FRANCHISE

VALUE

How is this operationalised?

DEPLOYMENT

OF FINANCIAL

RESOURCES

(7)

FRANCHISE

VALUE

How is this operationalised?

DEPLOYMENT

OF FINANCIAL

RESOURCES

BUSINESS MODEL AND

CULTURE

MEASURE THROUGH PERFORMANCE MANAGEMENT

Shareholder value creation driven by consistent and unique approach

(8)

How we think about long-term franchise value

FRANCHISE

VALUE

Franchise value = resilient earnings

Client base Customer base underpins sustainability.

Market-leading

financial services franchises

Market-leading operating businesses deliver customers, distribution and products.

Diversified portfolios

(operating franchises, segments, countries, products)

Diversified portfolio reduces volatility from

over-concentrations in product lines, segments or activities. Appropriate mix of capital-light and capital-intensive businesses.

Differentiated offerings strengthen competitive

position

(innovation)

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.

(9)

Shareholder value creation driven by consistent and unique approach

THINK AND BEHAVE LIKE SHAREHOLDERS

FRANCHISE

VALUE

How is this operationalised?

DEPLOYMENT

OF FINANCIAL

RESOURCES

BUSINESS MODEL AND

CULTURE

(10)

Disciplined financial resource management

• Strategic framework

• Strategy executed through operating franchises

• Achieve appropriate balance between capital-light and capital-intensive

businesses

• 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

RISK

GROWTH

Balance

between risk,

return and

growth

RETURN

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Proactive and dynamic financial resource management

WHAT? WHY?

Group Treasury manages financial resources (capital, funding, liquidity, risk appetite)

Allows operating franchises to focus on operational profits

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)

To ensure that BUs price appropriately for financial resources in their underlying business activities, i.e. focus on ROA

Set capital, funding, liquidity and volatility

targets To maintain desired credit rating

Align franchise growth, return and volatility

targets to FSR objectives To ensure Group meets its overall objectives Financial resource management is linked to

macros

To enable Group to be countercyclical in origination and capital allocation

(12)

Shareholder value creation driven by consistent and unique approach

THINK AND BEHAVE LIKE SHAREHOLDERS

FRANCHISE

VALUE

How is this operationalised?

DEPLOYMENT

OF FINANCIAL

RESOURCES

BUSINESS MODEL

AND CULTURE

(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



(14)

FIRSTRAND ACTIVITY VIEW PER FRANCHISE

TRANSACT LEND INVEST DEPOSITS INSURANCE INVESTMENT MANAGEMENT



(15)

• 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

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Agenda

TRACK RECORD OF SUPERIOR RETURNS

TOUGH CYCLE RAPIDLY EMERGING

HOW IS THE GROUP POSITIONED FOR THIS CYCLE?

(17)

Macros deteriorating

Real GDP growth very subdued going forward

Above inflation target (average) inflation for next two years

Low nominal GDP growth expected over the medium term

Low real income growth will place pressure on topline and bad debts

Interest rate normalisation to continue (repo)

0% – 1.5%

6% – 7%

5% – 7.5%

0.5% – 1.5%

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Agenda

TRACK RECORD OF SUPERIOR RETURNS

TOUGH CYCLE RAPIDLY EMERGING

HOW IS THE GROUP POSITIONED FOR THIS CYCLE?

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7 210 9 857 8 541 5 747 8 283 10 117 12 730 15 420 18 663 21 286 3 971 5 639 2 719 -474 1 594 2 364 4 163 6 169 8 172 9 694 27.6% 30.9% 21.3% 13.1% 17.7% 18.7% 20.7% 22.7% 24.2% 24.7% -4% 1% 6% 11% 16% 21% 26% 31% -5 000 5 000 10 000 15 000 20 000 25 000 30 000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Normalised earnings NIACC ROE

What has changed since the previous cycle?

(20)

Improved balance between risk and return = lower volatility…

RISK

Volatility of return profile

GROWTH

Above nominal GDP over the long term

RETURN

Premium above cost of capital

ROA 2.13% ROA 2.47% ROA 1.03% 2007 ROA 1.95% FNB WesBank RMB FCC

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…resulting in structurally higher and more sustainable ROA

RISK

Volatility of return profile

GROWTH

Nominal GDP + 3% to 5% over the long term

RETURN

18% – 22% FNB WesBank RMB 2015 ROA 2.12% ROA 3.32% ROA 1.82% ROA 1.41%

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94%

4%

2%

Improved quality of earnings underpinned

by growth and mix of client businesses

85% 8% 7%

2015

2007

Client Investing Risk income 22

(23)

33%

18% 24%

2%

23%

RMB portfolio reflects shift to client businesses

39%

32%

29% Client activities

Investing activities

Proprietary trading activities

Investment management 2007 ₂₀₁₅ Investment banking and advisory Corporate and transactional banking Markets and structuring Total client = 75%

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0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 2007 2008 2009 2010 2011 2012 2013 2014 2015 -1 000 0 1 000 2 000 3 000 4 000 5 000 2007 2008 2009 2010 2011 2012 2013 2014 2015

SA retail VAF Personal loans Corporate VAF MotoNovo Other international

WesBank improved risk-adjusted returns and diversification

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

PBT (R million)

ROA

24

* MotoNovo was previously known as Carlyle Finance.

#

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FNB grew its transactional and deposit franchises

50 100 150 200 250 300 350 2007 2008 2009 2010 2011 2012 2013 2014 2015 12% CAGR FNB SA deposits (R billion) -1 000 2 000 3 000 4 000 5 000 6 000

Personal loans Residential mortgages

Card Transactional and other retail

2012 2013 2014 2015

FNB retail normalised profit before tax (R million)

17% CAGR

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Adjusted credit appetite and improved pricing across retail portfolios

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15

A B C D E F % of r e gister ed deals

Low risk _{High risk}

(e.g. FNB HomeLoans)

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53% 55% _47% _47% 45% 43% 41% 40% 5% 5% 5% 5% 6% 7% 7% 7% 37% _35% 43% 42% 43% 44% 46% 45% 5% 5% 5% 6% 6% 6% 6% 8% 100 200 300 400 500 600 700 800 900 2008 2009 2010 2011 2012 2013 2014 2015

Advances portfolio rebalanced for more

appropriate mix between corporate and retail

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Started early with prudent provisioning

0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 2013 2014 2015

Portfolio impairments (R million)

Franchise portfolio impairments Central overlay

2015 2014

Portfolio impairments as

% of performing book 1.00% 1.05%

Bad debt charge 0.77% 0.83%

Portfolio impairments

(R million) 7 760 7 259

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658 1 059 0 200 400 600 800 1 000 1 200 2008 2015 60 155 0 20 40 60 80 100 120 140 160 180 2008 2015

Balance sheet more liquid…

CAGR 7% Total assets (R billion)

CAGR 15%

Cash and liquid assets (R billion)

9% of total assets 14.7% of total assets

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…with reduced reliance on institutional funding

and improved funding mix

36% 44% 34% 15% 19% 14% 15% 16% 17% 18% 19% 20% 30% 32% 34% 36% 38% 40% 42% 44% 46% 48% 50%

Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15

Retail (RHS)

Corporate and public sector

Institutional funding

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0% 2% 4% 6% 8% 10% 12% 14% Column2 X Column1

Stronger capital position despite more punitive RWA requirements

12.9% 14.0% R12.2bn surplus SARB end-state minimum requirement 8.5%

CET1 target range: 10% – 11%

CET1 ratio as at 30 June 2015

FSR management

buffer 2.5%

Regulatory Economic

Target

Economic view of surplus adjusted for:

• Volatile reserves

• Trapped capital

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Agenda

TRACK RECORD OF SUPERIOR RETURNS

TOUGH CYCLE RAPIDLY EMERGING

HOW IS THE GROUP POSITIONED FOR THIS CYCLE?

(33)

Despite short-term pressures, continue

to execute on stated growth strategies

Transact Lend Invest Insure Transact Lend Invest Insure

CURRENT REVENUE MIX

WE WOULD LIKE REVENUE MIX

TO LOOK MORE LIKE THIS…

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Rest of Africa still represents opportunity for growth,

but need to navigate elevated risks

• Higher risk, but higher growth than SA

• Namibia and Botswana dominate current

contribution

• Focus has shifted to building in-country

franchises in chosen markets

South Africa 88% Rest of Africa and corridors 10% Other 2%

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