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Group overview


FirstRand Logo Sizwe Nxasana
Outgoing chief executive, FirstRand
  Sizwe Nxasana Johan Burger
Incoming chief executive, FirstRand
  Johan Burger


FirstRand consists of a portfolio of leading financial services franchises. These are First National Bank
(the retail and commercial bank)
, Rand Merchant Bank (the investment bank), WesBank (the instalment
finance business)
and Ashburton Investments (the newly established investment management business).

Key facts

As at 30 June
  30 June
Market capitalisation   R299 billion     R230 billion     30
RMH'S share  34.1%   33.9%      
Total normalised assets   R1 059 billion   R947 billion     12 
Return on assets 2.12%   2.06%    
Income R67.9 billion   R60.8 billion   12
Operating profit R29.2 billion   R25.3 billion   15
Headline earnings R21.1 billion   R18.7 billion   13
Normalised earnings R21.2 billion   R18.7 billion   14
Dividends paid R10.7 billion   R8.7 billion   24
Full-time employees 42 263   38 542   10
Social investment portfolio   R175.4 million   R124.2 million     41 

FirstRand's strategic objectives

FirstRand's vision is to be the African financial services group of choice, create long-term franchise value, deliver superior and sustainable economic returns to shareholders within acceptable levels of volatility and maintain
balance sheet strength. The group seeks to achieve this through specific growth strategies in both its domestic market and the rest of Africa, supported by the effective allocation of capital, funding and risk appetite:

  • In its domestic market, the group will continue to protect and grow its lending and transactional franchises through innovation, disruption and specific cross-sell initiatives across group customer bases. In addition, FirstRand believes it can capture a larger share of profits from the broader financial services markets, through leveraging its platforms, skills and proven culture of innovation to deliver highly differentiated channels, products and solutions, which enable customers to transact, borrow, save, invest and insure.
  • In the rest of Africa, FirstRand is actively seeking to establish meaningful banking franchises in those countries that the group has prioritised as markets expected to show above average economic growth, and which are well positioned to benefit from the trade and investment flows between Africa, India and China. These markets are mainly in the SADC region and the west and east African hubs.

Measuring performance

FirstRand believes that the true measures of value creation are return on equity (ROE) and net income after capital charge (NIACC). FirstRand's ROE target range for normal economic circumstances is 18% to 22% and it believes that this range is sustainable going forward.

Operational review

FirstRand increased normalised earnings to R21.3 billion and delivered a normalised ROE of 24.7%, very good results in the current macroeconomic environment.

The operational performance was mainly driven by a strong net interest income (NII) performance. This was on the back of a 12% increase in advances and 13% in deposits. Asset repricing in certain areas, such as cards and retail (other) were off-set by lower margins in vehicle asset finance (VAF), WesBank Corporate and the investment banking book.

Non-interest revenue (NIR), including profits from associates and joint ventures, increased 8%. Another strong performance by FNB in line with its strategy to grow fee and commission income was experienced, increasing NIR by 9%.Operating cost increased 10% despite further investment in infrastructure. Nonperforming loans (NPLs) were varied: The negative commodity price cycle led to specific provisions in RMB, whilst residential mortgages and FNB personal loans decreased due to disciplined origination. Increases were experienced in FNB Card and the business segment. All three franchises, FNB, RMB and WesBank, delivered strong operational performances and continued to outperform the market. Below is a summary of the performance by franchise:

FNB represents FirstRand's activities in the retail and commercial segments in South Africa and the broader African continent. It is growing its franchise strongly in both existing and new markets on the back of innovative products and delivery channels, particularly focusing on electronic and digital platforms.

RMB represents the group's activities in the corporate and investment banking segments in South Africa, the broader African continent and India. RMB's primary strategy is to generate more income from client-driven activities, anchored around a risk appetite designed to effectively manage the trade-offs between earnings volatility, profit growth and returns. This strategy, coupled with steady investment return and a growing focus on originating asset management products, is delivering a high quality and sustainable earnings and return profile.

WesBank represents the group's activities in instalment finance in the retail and corporate and commercial segments in South Africa, the UK and the rest of Africa. There are five distinct business units delivering these services into their chosen markets, using a partnership model which includes leading manufacturers and large dealer groups in the automotive market, equipment suppliers in the corporate space and companies with large diversified client bases in the personal loans space. This represents a unique business model, differentiated through highly innovative products and processes.

Ashburton Investments is the new generation investment manager, bringing together the investment expertise from across FirstRand. Assets under management exceed R126 billion as at 30 June 2015.

FNB increased pre-tax profits 16%. The South African franchise posted growth in both NII (+16%) and NIR (+9%). FNB produced an improved ROE of 38.3%, which remains well above hurdle rates, despite ongoing investment in platforms and new territories. This is a reflection of the strength and quality of FNB's transactional franchise, its optimisation of credit risk capital and a growing deposit franchise. FNB's results were further influenced by the following:

  • strong growth in both existing and new markets on the back of innovative products and delivery channels;
  • a particular focus on electronic and digital platforms, ongoing customer acquisition in target segments and increasing crosssell up 23%;
  • a continuation of the migration of its customer base onto electronic channels; electronic transactional volumes were up 14%, online transactions up 15%, banking application up 69% and mobile up 25%;
  • the drive for credit card as a transactional product resulted in 13% growth in volumes, underpinned by good growth in new active accounts of 6%;
  • the bad debt charge dropped to 0.79% of advances, with NPLs trending down to 2.63%, whilst overall provisioning levels remained conservative with overlays maintained.

FNB's subsidiaries in the rest of Africa performed well, growing pretax profits 16%. Namibia, in particular, generated significantly higher profits on the back of balance sheet growth, improved margins and increased transactional volumes. Botswana and Mozambique experienced some cyclical and funding headwinds; Zambia and Tanzania continued to invest in footprint and product roll-out.

RMB produced solid results for the year, with pre-tax profits increasing 8% to R8.3 billion and the business delivering a very satisfactory ROE of 25%. RMB's results were influenced by the following:

  • the changed strategy of generating more income from client driven activities, coupled with steady investment return and a growing focus on originating asset management products, delivered a high quality and sustainable earnings and return profile;
  • corporate and transactional banking activities performed well, benefiting from focused client coverage initiatives, increased demand for trade and working capital products and higher deposit balances. This was, however, offset by increased credit provisions against specific NPL exposures;
  • markets and structuring activities delivered a solid performance, despite challenging market conditions and increased competitive pressures;
  • bespoke structuring transactions produced significant earnings growth, as did the operations in the rest of Africa;
  • additional benefits from increased local and international price volatility within fixed income currency and commodity markets;
  • Private Equity producing excellent growth and continuing to benefit from the quality and diversity of its portfolio, reporting strong equity accounted earnings and solid income from investment subsidiaries; and
  • a significant realisation and, despite this, the unrealised value of the portfolio increasing to R4.9 billion (June 2014: R3.9 billion).

WesBank continues to deliver a resilient performance despite its sensitivity to the local retail credit cycle. Solid growth in new business volumes underpinned a 9% increase in profits to R4.7 billion, an ROE of 23.2% and an ROA of 1.82%. These results reflect the strength of WesBank's franchise, adherence to disciplined credit origination and effective sales channels. WesBank's results were influenced by the following:

  • new business volumes increased across all of WesBank's retail portfolios, but remain within appropriate risk parameters;
  • overall production was up 9% year-on-year, with personal loans and MotoNovo origination volumes increasing 9% and 44% (in GBP terms) respectively
  • local retail VAF's performance continues to be impacted by the pressures facing consumers, with advances fairly flat yearon- year;
  • NPLs as a percentage of advances are up 22% year-on-year, but remain inflated by the high proportion of restructured debt review accounts (39% of NPLs), most of which are still paying according to arrangement;;
  • NIR, including income from associates, increased 12% mainly as a result of stronger inflows from insurance income in the VAF and personal loans portfolios as well as robust fee income on the back of advances growth; and
  • growth in core operating costs remained below inflation, increasing 3%, and WesBank's cost-to-income ratio decreased year-on-year, reflecting excellent cost containment.

WesBank's rest of Africa business grew advances 10% year-on-year. Interest margins are trending down, mainly due to higher funding and liquidity costs and the ongoing shift in mix from fixed rate to floating rate business.


FirstRand has maintained its very strong capital position, FirstRand's total capital requirement is 16.7%, exceeding the regulatory minimum requirement of 10%. Capital planning is undertaken on a three-year forward-looking basis and the level and composition take into account organic growth, stress-testing scenario outcomes, regulatory and accounting changes and macroeconomic conditions. FirstRand believes it current levels of capital are appropriate.

Strategies to ensure sustainability of growth and returns

FirstRand's strategy for the last 5 years was to achieve significant market share of profits in traditional banking activities, namely retail and wholesale lending, transactional and related endowment. The high quality of the lending and transactional franchises that reside in FNB, RMB and WesBank are a direct result of this strategy.

This market positioning will stand the domestic franchises in good stead moving into what is expected to be a more difficult operating environment. FirstRand, however, recognises the imperative to continue to protect and grow these franchises. The group believes this can be achieved through executing on disruptive and innovative strategies to deliver differentiated offerings to customers. In addition, the appropriate level of crosssell available through collaboration across all of the franchises is still not fully realised.

Opportunities which exist:

  • 60% of WesBank's customer base is not banked by FNB; and
  • the recent acquisition of 100% of Direct Axis, which has a customer base that is also significantly underpenetrated by FNB.

FirstRand believes that an opportunity exists to capture a larger share of profits from the broader financial services markets, including savings, insurance and investment products, currently the domain of asset managers and insurance companies. These activities currently represent only 12% of gross revenue and many of them have become more attractive following changes in regulations. FirstRand is currently investing in a number of initiatives in the insurance space and in March 2015 acquired its own life insurance license. FNB is driving the long-term insurance strategy on behalf of the group and is building an appropriate platform to launch risk products. It is envisaged that the current activities of FNB Life will move onto this platform.

Post the year-end, WesBank and Hollard formalised its longstanding relationship by establishing a new holding company of which WesBank will own 81% and Hollard 19%. This entity will consolidate the existing insurance products and include the acquisition of two other entities, Motorite and SMART. The objective of this initiative will be to offer the best value-added motor products in the market. Motorite offers a variety of vehicle warranty and maintenance products, while SMART specialises in body repair cover and offers paint and dent protection products. By combining resources, it is envisaged that, going forward, WesBank will be in a very strong position to provide innovative and competitively priced solutions for vehicle buyers. This initiative is conditional upon receiving approval from the applicable regulatory bodies.

Investment management is another market where FirstRand believes it can build a differentiated offering. Ashburton Investments will play an integral part of the group's investment management strategy. Ashburton Investments offers both traditional and alternative products. It is well positioned to utilise the distribution channels of FNB and RMB's asset origination skills. Ashburton's expanded growth strategy is now achieving traction.

As the group's primary objective is to produce superior returns for its shareholders and its key performance measurement is net income after capital charge (NIACC), the majority of the growth initiatives outlined above are "capital light" and seek to drive growth in NIR and enhance ROE. The group's revenues and earnings are also geographically highly concentrated, with less than 12% of gross revenue generated from outside of its domestic market. Therefore, in parallel with its domestic growth strategy, the group is also actively seeking to establish meaningful banking franchises in those countries in the rest of Africa prioritised as markets expected to show above average economic growth and which are well positioned to benefit from the trade and investment flows between Africa, India and China. These markets are mainly in the SADC region and the west and east African hubs.

FirstRand is not targeting a preferred level of earnings from outside of South Africa, as it believes the ultimate outcome of its strategy must be predicated on a disciplined approach to capital allocation and result in appropriate returns on the cost of that capital for shareholders. The group does, however, believe that certain territories in the rest of Africa offer attractive opportunities with execution currently taking the form of the following three pillars:

  1. utilise the capabilities of the South African franchise, particularly the domestic balance sheet, intellectual capital, international platforms and the existing operating footprint in the rest of Africa;
  2. start an in-country franchise and grow organically; and
  3. acquire small-to medium-sized in-country franchises where it makes commercial sense.

It is anticipated that the deployment of capital going forward will be concentrated on pillars 2 and 3.

For a comprehensive, in-depth review of FirstRand's performance, RMH shareholders are referred to FirstRand's integrated report, which is available on www.firstrand.co.za.

R21.2 billion
Normalised earnings
RMH interest