BEYOND THE EUPHORIA: Growing shareholder value despite challenging macros
Alan Pullinger, CEO: FirstRand
UBS conference, Cape Town18 October 2018
Group strategic framework
DELIVERED THROUGH CURRENT STRATEGIES:
Increase diversification – activity and geographyProtect and grow
banking businesses Broaden financial services offering
Portfolio approach to the rest of Africa
Build a sustainable UK business
FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength
SOUTH AFRICA UK
Integrate, scale and grow
Build a truly integrated financial services business
REST OF AFRICA
Better leverage existing portfolio
Underpinned by disciplined management of financial resources (FRM)
Enabled by disruptive digital and data platforms
Group strategic framework
DELIVERED THROUGH CURRENT STRATEGIES:
Increase diversification – activity and geographyProtect and grow
banking businesses Broaden financial services offering
Portfolio approach to the rest of Africa
Build a sustainable UK business
FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength
SOUTH AFRICA UK
Integrate, scale and grow
Build a truly integrated financial services business
REST OF AFRICA
Better leverage existing portfolio
Underpinned by disciplined management of financial resources (FRM)
Enabled by disruptive digital and data platforms
Group strategic framework
DELIVERED THROUGH CURRENT STRATEGIES:
Increase diversification – activity and geographyProtect and grow
banking businesses Broaden financial services offering
Portfolio approach to the rest of Africa
Build a sustainable UK business
FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength
SOUTH AFRICA UK
Integrate, scale and grow
Build a truly integrated financial services business
REST OF AFRICA
Better leverage existing portfolio
Underpinned by disciplined management of financial resources (FRM)
Enabled by disruptive digital and data platforms
• Grew and retained customers across all segments
• Advances and deposit growth in retail and commercial driven by cross-sell and up-sell
• E-migration underpinned sustainability of transactional franchise and delivered rich data
• Targeted origination strategies across all portfolios delivered good risk-adjusted margins
• Continued disciplined allocation of financial resources
• Rewards programme supported customer value proposition
Protecting and growing SA banking businesses has delivered outperformance and shareholder value
3.69 3.85 3.96 3.94 3.89 3.73
3.50 3.41 3.30 3.32 3.25 3.05
(3.67) (3.66) (3.71) (3.70) (3.65) (3.47)
(0.61) (0.58) (0.65) (0.68) (0.66) (0.62)
2.06 2.12 2.07 2.07 2.03 1.92
(5)
(4)
(3)
(2)
(1)
0
1
2
3
4
5
6
7
8
2014 2015 2016 2017 2018 excl. ALD 2018 incl. ALD
%
NII as % of assets
NIR as % of assets Operating expenses as % of assets
Impairments as % of assets
ROA %
The graph shows each item before taxation and non-controlling interests as a percentage of average assets. ROA reflects normalised earnings after tax and non-controlling interests as a percentage of average assets.
Strategy has played out in structurally higher ROA…
95
100
105
110
115
120
125
130
135
140
2015 2016 2017 2018
Growth in NAV + DPS
Index, 2015 = 100
…and enabled the group to deliver above-system growth
FirstRand 10.0% CAGR
Nominal GDP 6.7% CAGR
Group strategic framework
DELIVERED THROUGH CURRENT STRATEGIES:
Increase diversification – activity and geographyProtect and grow
banking businesses Broaden financial services offering
Portfolio approach to the rest of Africa
Build a sustainable UK business
FirstRand aims to create long-term franchise value, ensure sustainable and superior returns for shareholders within acceptable levels of volatility and maintain balance sheet strength
SOUTH AFRICA UK
Integrate, scale and grow
Build a truly integrated financial services business
REST OF AFRICA
Better leverage existing portfolio
Underpinned by disciplined management of financial resources (FRM)
Enabled by disruptive digital and data platforms
Integrated financial services is not bancassurance
Insurance company uses bank’s sales channel
Bank’s sales channels
Insurance company’s sales
channels
Partnership or one owns the other
BANK INSURANCE COMPANY
BANCASSURANCE MODEL INTEGRATED MODEL
DEMAND FOR MONEY (ASSETS)
SUPPLY OF MONEY (LIABILITIES)
VAF OTHERMORTGAGES CORPORATE/CIB
INSURANCE BANKING ASSET MANAGEMENT OTHER
UNSECURED
INTEGRATED FRM
What does an integrated model look like?
CUSTOMERS (retail, commercial, corporate and institutional)
What does an integrated model look like?
CUSTOMERS (retail, commercial, corporate and institutional)
Identify CUSTOMER NEEDS/understand CONTEXT
Short-term insurance (protect assets), life insurance (protect family)
Understanding customer context
Student/early career Building wealth (asset accumulation)
Preserving wealth (asset protection/distribution)
LIFE STAGES
WEALTH
Student loan
Save for children’s education
Buy a house (mortgage)
Save for retirement
Retire comfortably
Ensure family welfare
Structure financial affairs for continuity
Buy a car
What does an integrated model look like?
CUSTOMERS (retail, commercial, corporate and institutional)
Identify CUSTOMER NEEDS/understand CONTEXT
Capture full customer value chain through integrated ecosystem
What does an integrated model look like?
CUSTOMERS (retail, commercial, corporate and institutional)
Identify CUSTOMER NEEDS/understand CONTEXT
Provide PRODUCTS AND SERVICES to meet customer needs
(transact, lend, insure, save and invest)
Delivered through appropriate CHANNELS
(banking app, ATMs, branches, mobile, online, dealer network, direct marketing, advice, etc.)
Capture full customer value chain through integrated ecosystem
Using appropriate BRANDS
What does an integrated model look like?
CUSTOMERS (retail, commercial, corporate and institutional)
Identify CUSTOMER NEEDS/understand CONTEXT
Provide PRODUCTS AND SERVICES to meet customer needs
(transact, lend, insure, save and invest)
Delivered through appropriate CHANNELS
(banking app, ATMs, branches, mobile, online, dealer network, direct marketing, advice, etc.)
DATA (storage and analytics)
OPERATING PLATFORMS(IT systems, risk management, governance)
Capture full customer value chain through integrated ecosystem
Using appropriate BRANDS
PEOPLE
What does an integrated model look like?
CUSTOMERS (retail, commercial, corporate and institutional)
Identify CUSTOMER NEEDS/understand CONTEXT
Provide PRODUCTS AND SERVICES to meet customer needs
(transact, lend, insure, save and invest)
Delivered through appropriate CHANNELS
(banking app, ATMs, branches, mobile, online, dealer network, direct marketing, advice, etc.)
DATA (storage and analytics)
INTEGRATED FINANCIAL RESOURCE MANAGEMENT• Funding and liquidity, capital, risk appetite• Utilise most efficient platforms (i.e. banking,
short-term insurance, life insurance or asset management licences) OPERATING PLATFORMS
(IT systems, risk management, governance)
Capture full customer value chain through integrated ecosystem
Using appropriate BRANDS
PEOPLE
Our right to compete in the save, invest and insure space
Banking businesses provide deep and loyal customer bases, distribution, product capabilities, data and platforms
Our right to compete in the save, invest and insure space
Group customers are already buying investment and insurance products from insurance providers (including us)
Banking businesses provide deep and loyal customer bases, distribution, product capabilities, data and platforms
Significant opportunity in our customer base
Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18
FNB share of insurance premium flows Debit order premiums to other insurers
Monthly insurance debit order flows from FNB customers (life and short-term insurance)
Our right to compete in the save, invest and insure space
Offer better products at better price
Use data analytics to offer product to customer when required
Banking businesses provide deep and loyal customer bases, distribution, product capabilities, data and platforms
Group customers are already buying investment and insurance products from insurance providers (including us)
E-migration strategy enables integrated financial services through rich data and low-cost distribution
Success of FNB’s strategy to migrate customers from physical to digital…
Digital
Physical Digital
Physical
2009 2018
29%
71%
32%
68%
…results in rich transactional data Collected and stored digitally Data analytics
Understand and anticipate client needs = CONTEXT
…targeted value proposition (e.g. Big 3) through existing channels (low distribution cost)
Our right to compete in the save, invest and insure space
Supported by rewards programme
Offer better products at better price
Use data analytics to offer product to customer when required
Banking businesses provide deep and loyal customer bases, distribution, product capabilities, data and platforms
Group customers are already buying investment and insurance products from insurance providers (including us)
Our right to compete in the save, invest and insure space
Strategy already showing good traction…
Supported by rewards programme
Offer better products at better price
Use data analytics to offer product to customer when required
Banking businesses provide deep and loyal customer bases, distribution, product capabilities, data and platforms
Group customers are already buying investment and insurance products from insurance providers (including us)
-15%
-10%
-5%
0%
5%
All Risk Credit Assitance
Chan
ge in
mar
ket s
hare
by
sum
insu
red
Insurance – industry survey shows FNB Life is scaling fast
Source: Swiss Re Individual Risk Market New Business Volume Survey 2018. Market share and change in market share are by sum assured for the 2017 calendar year.
Growth in mortality classes
FNB Life Other participants
Overall growth (all lines of business)
#1 Digital direct market share
#1 Banks market share
#1 Growth in overall market share
#1 Growth in mortality market share for risk products, credit and funeral
#1 in growth in new business in 2017
2.2%2.9%
4.2%3.5%
FuneralCreditRiskAll
Save and invest – strong growth in deposit franchise and good traction in AUM
31 3544 48 50
2937
4346
52
0
20
40
60
80
100
120
2014 2015 2016 2017 2018
Traditional AUM Alternative AUM
Assets under management*
R billion
95
105
115
125
135
145
155
165
175
Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18
Index
June 2012 = 100
Outperformance>R100 billion over 6 years
FirstRand’s domestic deposit
franchise
M3 moneysupply
• Banking businesses already outperforming system growth
• Targeted origination strategies and liability focus provide underpin to superior risk-adjusted margin
and momentum to NII
• Focus on core transactional relationship, e-migration and customer acquisition driving NIR
• Enabling integrated financial services – customer bases, distribution, product capabilities, data,
platforms
• Integrated financial services underpins sustainable outperformance
• Further entrenches customer relationships
• Targeted offerings on the back of data analytics will drive better take-up and higher cross-sell
• Digital channels will result in low distribution costs for all products
• Efficiencies
• Insurance and investment revenue streams will provide further diversification of NIR
and sustain superior ROE
SA strategy will drive outperformance and deliver sustainable shareholder value
Ongoing disciplined financial resource management remains key to execution and value creation