Standard Bank Group Limited · JSE:SBK
Standard Bank — FY2003 Earnings Presentation
70 slides from Standard Bank's earnings presentation, 2004
Slide 1: Annual results presentation
Annual results presentation For the year ended 31 December 2003 1
Slide 2: Agenda
Agenda Financial highlights Simon Ridley Business unit overviews - Retail Banking Peter Wharton-Hood - Stanbic Africa Sim Tshabalala - Corporate and Investment Banking Ben Kruger - International Ben Kruger Conclusion Jacko Maree 2
Slide 3: Financial highlights
Financial highlights 2003 2002 % % Return on equity 22.8 20.3 Growth in headline earnings 18.7 19.1 Cost-to-income 56.2 57.3 Provision for credit losses 0.91 1.08 Headline EPS growth 18.2 18.3 DPS growth 21.8 21.6 3
Slide 4: Main drivers of group performance
Main drivers of group performance • Strong growth in loans and advances • Declining domestic interest rates • Further improvements in credit experience • Rand strength • Recovery in emerging markets 4
Slide 5: Group income statement highlights
Group income statement highlights 2003 % 2002 Rm change Rm Net interest income 11 437 9 10 520 Non-interest revenue 12 790 12 11 448 Total income 24 227 10 21 968 Provisions for credit losses 1 848 (5) 1 955 Operating expenses 13 608 8 12 587 Taxation 2 773 14 2 435 Group headline earnings 6 248 19
Slide 6: Financial performance
Financial performance 470 64 420 62 370 247 320 215 60 270 182 cents 220 156 58 % 170 124 92 56 120 93 221 181 70 127 153 86 103 54 72 20 -30 1997 1998 1999 2000 2001 2002 2003 52 Headline EPS - first half Headline EPS - second half Cost-to-income ratio 6
Slide 7: Return on equity
Return on equity 32 24 21 27 * 18 22 15 Rbn % 17 12 9 12 6 7 3 2 0 1997 1998 1999 2000 2001 2002 2003 Net asset value (Rbn) Headline ROE (%) * Includes R1.8bn reversal of translation reserve 7
Slide 8: Headline earnings analysis
Headline earnings analysis 2003 % change 2002 Rm Rm Domestic Banking 4 609 16 3 960 Retail Banking 2 542 18 2 162 Corporate and Investment 2 150 19 1 814 Banking Central services (83) (16) Africa 489 1 482 International 866 >100 429 Stanlib 40 (35) 62 Central funding (26) 32 Standard Bank operations
Slide 9: Returns on equity
Returns on equity 2003 Cost of 2003 2002 equity * % % % Domestic Banking 31.4 31.2 15.2 Retail Banking 32.3 31.1 Corporate and Investment Banking 31.5 31.7 Africa 28.3 27.4 19.0 International 14.7 6.3 GBP 15.2 6.2 11.9 Standard Bank operations 24.0 21.2 15.4 Liberty 11.1 12.3 13.4 Standard Bank Grou
Slide 10: Headline earnings mix
Headline earnings mix 13% (8%) 40% (41%) Retail Banking Liberty Africa Stanlib Corporate and Investment Banking 34% (35%) 4% (6%) International 1% (1%) 8% (9%) 2002 figures in brackets 10
Slide 11: Product reporting – headline earnings
Product reporting – headline earnings 2003 % 2002 Summary Rm change Rm Global retail 2 760 17 2 358 Global wholesale 3 167 27 2 496 Global fund management 81 (16) 96 Life insurance 270 (9) 298 Other (30) 15 Group headline earnings 6 248 19 5 263 11
Slide 12: AC 133 – key 2003 ratios restated
AC 133 – key 2003 ratios restated Excl Incl AC 133 AC 133 % % Headline earnings growth 17.3 18.7 Return on equity 22.6 22.8 Cost-to-income 57.0 56.2 Credit loss ratio 0.80 0.91 Income statement impact for the period Profit after tax R76m 12
Slide 13: Group funds margin analysis
Group funds margin analysis % Margin at December 2002 3.22 Domestic Banking (0.07) Africa 0.04 International 0.01 Central funding 0.06 Increased Domestic proportion of total group assets 0.24 Margin pre gross-up effect 3.50 Balance sheet gross-up effect (0.73) Margin at December 2003 2.77 13
Slide 14: Domestic funds margin analysis
Domestic funds margin analysis % Margin at December 2002 3.83 Endowment effect 0.02 Retail deposit growth 0.04 Wholesale funding (mix & repricing gap) (0.33) AC 133 discounting effect 0.14 Lending margin 0.08 Other (0.05) Margin at December 2003 pre gross up effect 3.73 14
Slide 15: Non-interest revenue
Non-interest revenue 2003 % 2002 Rm increase Rm Fees & commission revenue 7 984 8 7 416 Trading income 3 917 21 3 240 Other income 889 12 792 Total non-interest revenue 12 790 12 11 448 15
Slide 16: Operating expenditure
Operating expenditure 2003 % 2002 Rm increase Rm Staff costs 7 581 9 6 934 Other operating costs 6 027 7 5 653 Total costs 13 608 8 12 587 • Domestic staff costs +15% • Emphasis on variable pay had positive effect on group performance • IT spend +11% 16
Slide 17: Cost-to-income ratios
Cost-to-income ratios 2003 2002 % % Domestic Banking 54.5 53.4 Retail Banking 60.2 60.8 Corporate and Investment 44.4 44.5 Banking Africa 57.2 60.8 International 61.2 71.4 Standard Bank operations 56.2 57.3 17
Slide 18: Balance sheet highlights
Balance sheet highlights Dec ’03 % Dec ’02 Rbn change Rbn Cash and short-term securities 44 (8) 48 Loans and advances 220 23 179 Derivative assets * 105 9 Total banking assets 444 44 308 Asset growth excluding gross up 13 effect Shareholders’ funds 29 10 26 Deposits 273 14 240 Derivative liabilities
Slide 19: Loans and advances
Loans and advances Dec ’03 % Dec ’02 Rbn change Rbn Domestic Banking 169.8 20 142.1 Retail Banking 112.7 27 88.5 Corporate and Investment 57.1 7 53.6 Banking International 43.3 19 36.5 Africa 10.7 20 8.9 Central funding and eliminations (3.4) (8.6) Group 220.4 23 178.9 19
Slide 20: Credit provisioning
Credit provisioning 2003 % 2002 Rm change Rm Provision for non-performing loans (specific) 1 398 (22) 1 794 Provision for performing loans (general) 450 >100 161 Total income statement charge 1 848 (5) 1 955 Credit loss ratios (%) Group - non performing loans 0.69 0.99 Group - performing loans 0.22
Slide 21: NPLs and balance sheet provisions
NPLs and balance sheet provisions Dec ’03 Dec ’02 % of adv % of adv Gross NPLs 2.15 2.64 Provision for NPLs 1.08 1.01 Provision for performing loans 0.66 0.85 Total provisions 1.74 1.86 NPL coverage ratio (provision for NPLs as a percentage of gross NPLs) increased from 38% to 42% 21
Slide 22: Credit loss history
Credit loss history 6 5 4 % of advances 3 2 1 0 1998 1999 2000 2001 2002 2003 Income statement charge Balance sheet provision NPLs 22
Slide 23: Capital adequacy
Capital adequacy 16 400 % Rbn Dec ’03 Dec ’02 14 350 % % 12 300 Group 10 250 Primary 11.4 10.9 8 200 6 150 Total 14.8 14.3 4 100 SBSA 2 50 0 0 Primary 8.5 7.5 1999 2000 2001 2002 2003 Total 12.5 11.3 Primary capital Secondary capital Tertiary capital Risk-weighted assets 23
Slide 24: Retail Banking
Retail Banking Peter Wharton-Hood 24
Slide 25: Highlights
Highlights • 18% profit growth • Improved branch service levels – Joint 1st place in interbank CUSSATS survey – Customer evaluation of branch service scores at record levels – Banking Adjudicator award for service excellence • Improved customer segmentation data • Vigorous sales emphasis led to good
Slide 26: Highlights cont.
Highlights cont. • Established executive team with clear roles and responsibilities • Integrated smaller Business Banking customers into Retail • Close interaction, co-ordination and teamwork • Appropriately structured to deliver sustainable growth 26
Slide 27: Sales results
Sales results • Refined sales measurement processes • Improved sophistication in credit granting, particularly in scored environment • Home Loans – Grants +32% – Registrations +28% to R24bn • Vehicle and asset finance – Sales +22% to R17bn • Card – Card openings +66% - 272k accounts opened – Turnove
Slide 28: Sales results cont.
Sales results cont. • Transactional banking – Current accounts +8% (2002: +1%) – Active E Plan accounts +13% to 2.8m • ABIL JV – Disbursements +45% to R366m • Bancassurance – Embedded products • sales +20% and 28% increase in active policies – Complex life assurance product sales +1% • Incentivisati
Slide 29: Asset growth
Asset growth • Achieved through improved service and sales focus • Home Loans +33% to R63bn – New business market share maintained at 25% • Vehicle and asset finance +24% to R28bn • Card balances +28% to R5.6bn • Branch lending balances +12% to R15.2bn 29
Slide 30: Select retail market share information
Select retail market share information Dec ’03 Dec ’02 % % Home loans 19.9 17.3 Vehicle and asset finance 21.3 20.3 Credit card 28.8 24.9 Branch lending (personal and unincorporated businesses) 22.7 20.9 Branch deposits (personal and unincorporated businesses) 24.9 24.4 Source: December DI 900 30
Slide 31: Credit
Credit Gross NPLs as a % of book Dec ’03 Dec ’02 Mortgages 2.8 3.5 Vehicle and asset finance 1.0 0.7 Loans and overdrafts 3.2 6.1 Card debtors * 1.1 0.9 • Provision coverage ratios have increased • PIPs reduced from 2 577 to 1 936 and from R204m to R159m • Significantly improved alignment with Retai
Slide 32: Retail Banking revenue by product
Retail Banking revenue by product 8 000 + 11% 7 000 6 000 Rm 5 000 4 000 3 000 + 19% 2 000 + 17% + 9% + 20% 1 000 0 Instalment Mortgage Card products Retail Bancassurance finance lending transactional products 2002 2003 32
Slide 33: Home Loans
Home Loans • Good relationship with originators – 35% (2002: 26%) via independent originators – 30% (2002: 37%) via mobile sales force • Fairly young book with low fall off – >60% by value is less than 3 years old • Clear focus to improve processing capabilities 33
Slide 34: Vehicle and asset finance
Vehicle and asset finance • Name change from Stannic to Standard Bank Vehicle and Asset Finance • Closer alignment with Retail at branch and support services level • Well diversified book (motor business 61%) 34
Slide 35: Credit card
Credit card • Card processing previously outsourced to EDS successfully integrated • Sold Bluebean division into Barclaycard collaborative division – Appointed former Barclaycard MD 35
Slide 36: Branch lending
Branch lending • Improved risk-based pricing • Improved collection processes • Pre-approved loan offerings bundled with account opening 36
Slide 37: Transaction products
Transaction products • Simplified and transparent pricing • Improved customer proposition • Key focus on youth market • Good growth in debit and cheque card volumes (105%) 37
Slide 38: Distribution channels
Distribution channels • Branch network – Bank at any centre processes implemented – Net 26 new PORs and 21 revamped/relocated – 14 additional AutoBank E’s – Provincial structures consolidated from 11 to 3 • Electronic banking – Total number of internet subscribers 287 000 (2002: 228 000) – 27% volum
Slide 39: Bancassurance
Bancassurance Embedded products # of Policies Penetration Funeral + 32% 19% (2002: 15%) Home loan + 39% 15% (2002: 13%) Personal loan + 21% 33% (2002: 29%) Complex products • Performance affected by poor market conditions • Continued strategy to increase distribution capacity 39
Slide 40: Slightly changed focus in structure
Slightly changed focus in structure Segment Product Distribution Ops & IT Wealth What Build Sell & Support Add value customers product service customer through want solutions clients solutions & wealth service products 40
Slide 41: Going forward
Going forward • Sensible cost containment • Careful margin management • Africa Retail opportunities 41
Slide 42: Africa
Africa Sim Tshabalala Standard Bank
Slide 43: Highlights
Highlights • Most businesses performed well in local currency • Nominal growth in rand terms due to rand strength • Focus on non-interest revenue generating results • Complete risk management framework aligned with group • Quality of lending portfolio continues to improve • Reconfiguration of networ
Slide 44: Africa revenue by country
Africa revenue by country 8% Botswana 17% (7%) (12%) 9% Lesotho (8%) Malawi Mauritius 7% 8% (8%) (12%) Namibia Nigeria 1% Swaziland (1%) Tanzania 16% (17%) Uganda 21% Zambia 3% (20%) Other (5%) 7% 3% 2002 figures in brackets (7%) (3%) 44
Slide 45: Operating efficiency and customer service
Operating efficiency and customer service • Network re-configuration to improve – efficiency – customer service • Refurbishment and branding of branches • Upgrade of banking technology platform • Uniform operating policies and procedures • Standardisation of branch opening hours • Customer service m
Slide 46: Retail Banking
Retail Banking • Automation of fee collections • Uniform pricing principles introduced • Customer insights in target segments • Sales incentive campaigns • Expand and standardise product range 46
Slide 47: Wholesale Banking
Wholesale Banking • Continued integration with – Corporate and Investment Banking – International • Dedicated trade finance and payments team • Adoption of SA wholesale customer service methodology • Enhancing quality and training country relationship teams • Replicated SA treasury sales model 47
Slide 48: Acquisitions and integration
Acquisitions and integration • Malawi re-branding and technology rollout complete • Integration in Uganda progressing well – operating results exceeding expectations • Controlling shareholding in Banco Standard Totta de Mozambique • Enhanced affluent market position in Botswana – acquisition of Inve
Slide 49: Going forward
Going forward • Extract greater efficiencies from enhanced business processes and systems • Extend and upgrade – branch network – electronic banking • Bancassurance start up • Continue selective search for acquisitions 49
Slide 50: Corporate and Investment Banking
Corporate and Investment Banking Ben Kruger 50
Slide 51: Highlights
Highlights • Profit growth 19% • Cost containment • Customer focus and stronger franchise • Alignment with International and Africa • Credit quality • Investment revenue / Private equity • Capital optimisation • Name change 51
Slide 52: Corporate and Investment Banking revenue by product
Corporate and Investment Banking revenue by product 2500 + 12% 2000 - 5% Rm 1500 1000 + 27% 500 + 29% 0 Global markets Banking & trade Structured debt & Corporate finance & finance prop finance investments 2002 2003 52
Slide 53: Diversified income streams
Diversified income streams 100% 50% 0% 1999 2000 2001 2002 2003 2003 excl Business Banking Interest income Trading income Other income 53
Slide 54: Global markets
Global markets • Record levels achieved in 2002 • Local interest rate trading disappointing • Equity derivatives maintained position – largest market maker in Rand warrants • Money market and commodities fared well • Debt Origination had an active year • Forex revenues strong • All other desks perfo
Slide 55: Banking and trade finance
Banking and trade finance • Successful integration of larger Business Banking customers • Margins maintained – Planned slow asset growth +2% – Good deposit growth +7% • Improved quality of the book • Transactional volumes up – Physical +7% – Online +11% • Securities lending and custody performed wel
Slide 56: Structured debt and property finance
Structured debt and property finance • Strong structured finance asset growth 36% • Project finance reaching maturity, asset growth 32% • Property earnings increased by 45% – Growth in loan book – Buoyant property sector 56
Slide 57: Corporate finance and investments
Corporate finance and investments • Corporate finance achieved strong growth in advisory fees and market position – BEE deals – Good deal pipeline • Investment banking / Private Equity profit realisation 57
Slide 58: Going forward
Going forward • Opportunities arising from Financial Sector Charter • Client focus - further utilisation of CRM • Alignment with International and Africa • Risk management systems • Cost containment • Asset growth • People, people, people 58
Slide 59: International
International Ben Kruger Standard Bank
Slide 60: Highlights
Highlights • Strong performances across all major business units • Significant growth in customer revenues • Investment banks operative in Brazil and Russia • Franchise strengthened • Product capability enhanced • Management team expanded • Alignment with SA and the rest of Africa 60
Slide 61: International revenue by product
International revenue by product 160 + 54% 140 120 £m 100 + 44% 80 60 + 14% 40 - 15% 20 0 Global markets Commodities and Banking and trade Fund management resources finance 2002 2003 61
Slide 62: Global markets
Global markets • Strong revenue growth across all product lines • Debt origination – topped 2003 Brazil league tables for non-public international issues • Local markets – broader product range; enhanced geographic penetration • Foreign exchange and money markets – increased volumes; strengthening o
Slide 63: Commodities and resources
Commodities and resources • Strong brand • Precious metals – increased business flows off regional expansion • Base metals – strong growth in client activity • Mining project finance and structured commodity finance – activity levels buoyed by market conditions 63
Slide 64: Banking and trade finance
Banking and trade finance • Market conditions mixed • Telecommunications finance – African leadership position extended to other developing markets • Africa trade finance – active dealflow in conjunction with Africa and Corporate and Investment Banking • Forfaiting and syndications – maintain volume
Slide 65: Global fund management
Global fund management • Strong growth in 3rd party assets under management (approx US$ 2bn) • Regional development of private client services activities • Private client banking margins under pressure 65
Slide 66: Going forward
Going forward • Increase depth in core product areas • Enhance client focus • Expand banks in Hong Kong, Brazil and Russia • Extend efficiencies through improved systems and infrastructure • Continue process of Group alignment 66
Slide 67: Conclusion
Conclusion Jacko Maree Standard Bank
Slide 68: Striving for long-term growth
Striving for long-term growth • Retail Banking transformed, but a way to go • Corporate and Investment Banking continues to perform • International and Africa approaching critical mass • One brand • Liberty – getting the basics right • Good long-term macro-economic outlook (post Financial Sector Cha
Slide 69: The year ahead: financial objectives
The year ahead: financial objectives • ROE of 20%+ • Headline earnings growth of CPIX (estimate 5%) plus 10% • Cost-to-income below 56% • Credit loss ratio contained within 1% of average advances 69
Slide 70: Standard Bank
Standard Bank