Growing shareholder value despite challenging macros · #1 Digital direct market share #1 Banks...

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

• 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)



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




Capture full customer value chain through integrated ecosystem




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.)


Using appropriate BRANDS








DATA (storage and analytics)

OPERATING PLATFORMS(IT systems, risk management, governance)



PEOPLE








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)



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


Group customers are already buying investment and insurance products from insurance providers (including us)


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)


Offer better products at better price

Use data analytics to offer product to customer when required



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)


Supported by rewards programme






Strategy already showing good traction…

Supported by rewards programme





-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

Growing shareholder value despite challenging macros · #1 Digital direct market share #1 Banks...

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