Standard Bank Group Limited · JSE:SBK
Standard Bank — FY2007 Earnings Presentation
36 slides from Standard Bank's earnings presentation, 2008
Slide 1: Financial results for the year ended 31 December 2007
Financial results for the year ended 31 December 2007 Financial highlights Financial objectives 2007 Change % 2006 Headline EPS (HEPS) (cents) +16.5% 960.6 21 796.4 Diluted HEPS (cents) 947.5 21 783.7 DPS (cents) 386.0 21 320.0 NAVPS (cents) 4 255 20 3 548 ROE (%) 24.0 24.8 25.4 Credit loss ratio (%
Slide 2: Operating environment in 2007; Group income statement highlights
Operating environment in 2007 ● 1H07 – Generally favourable operating conditions • despite 50bp interest rate hike in South Africa – Headline earnings grew 27% ● 2H07 – Dislocation in global credit markets – Global tightening in liquidity – Retail slowdown towards the end of the year • interest rate
Slide 3: Group headline earnings and dividends per share; Business unit review
Group headline earnings and dividends per share CAGR 19% 1 200 CAGR 25% 1 000 961 800 796 600 666 558 400 471 396 386 335 320 200 267 232 102 124 151 0 cents 2001 2002 2003 2004 2005 2006 2007 Headline EPS DPS 5 Business unit review Headline Headline earnings earnings 2007 Rm growth % ROE % Personal
Slide 4: Geographic snapshot; Headline earnings mix
Business unit review Geographic snapshot Headline earnings Headline earnings 2007 Rm growth % South Africa (Banking operations) 9 832 15 South Africa (Liberty Life) 973 15 South Africa 10 805 15 Rest of Africa 1 269 58 Outside Africa 1 229 98 Outside South Africa 2 498 75 Central funding (150) Stand
Slide 5: Balance sheet analysis
Balance sheet analysis Loans and advances Dec 2007 Change Dec 2006 2007 mix Rbn % Rbn % Personal & Business Banking 345 29 268 52 Mortgage loans 219 29 170 33 Instalment sales 64 31 49 10 Card debtors 22 31 17 3 Other lending 40 24 32 6 Corporate & Investment Banking 308 29 239 48 Banks 99 11 89 15
Slide 6: Funding; Liquidity
Funding Dec 2007 Change Dec 2006 2007 mix Rbn % Rbn % Personal & Business Banking 329 30 253 46 Retail priced 152 26 120 21 Wholesale priced 177 33 133 25 Money market 29 71 17 4 Securitisation 19 36 14 3 Intragroup from CIB 129 27 102 18 Corporate & Investment Banking 380 27 300 54 Deposit and curr
Slide 7: Income statement analysis
Income statement analysis Margin on interest earnings assets NII Rm Margin % Restated margin on interest earning assets for 2006 17 472 3.63 Volume 4 397 Rate related changes Lending (147) (0.03) IAS 39 discount unwind 209 0.04 Funding (169) (0.03) Endowment effect of higher rates 1 625 0.28 Other t
Slide 8: Non-interest revenue; Credit impairment charges
Non-interest revenue 2007 Change % 2006 Net fee and commission revenue 14 511 23 11 825 Trading revenue 7 216 49 4 852 Other revenue 3 020 21* 2 488 Banking and other 1 016 24 819 MasterCard disposal 459 >100 157 Property related revenue 584 (21) 743 Insurance related revenue 961 25 769 Total non-in
Slide 9: Credit impairment trends; Operating expenses
Credit impairment trends 5 000 2.0 15.8 4 500 15.0 4 000 13.8 13.2 1.5 3 500 11.3 11.2 3 000 1.07 10.6 0.99 2 500 0.90 1.0 0.78 2 000 0.60 1 500 0.43 0.40 0.5 1 000 500 0 0.0 Rm 2001 2002 2003 2004 2005 2006 2007 Credit impairment charges on NPLs Credit impairment charges on PLs Credit loss ratio (%
Slide 10: Capital management
Cost-to-income ratio excluding MasterCard capital profit 64 35 62 30 60 25 58 20 56 15 54 10 52 50 5 57.2 56.9 55.7 56.9 55.2 52.7 52.0 48 0 % ratio 2001 2002 2003 2004 2005 2006 2007 % growth Cost-to-income ratio Income growth Cost growth 19 Capital management 10
Slide 11: Group return on equity; Capital adequacy; BII conversion
Group return on equity 4 500 CAGR 14% 40 4 000 3 500 30 25.2 25.4 24.8 3 000 22.6 23.7 2 500 20.1 20.3 20 2 000 17.8 17 1 500 14.8 13.4 12.6 13.4 10 1 000 12 500 1 939 1 957 2 154 2 464 2 830 3 548 4 255 0 0 cents 2001 2002 2003 2004 2005 2006 2007 % NAV per share ROE Average cost of equity 21 Capit
Slide 12: Capital adequacy ratios
Capital adequacy ratios SBSA Group Tier 1 % Total % Tier 1 % Total % Basel I 8.6 12.5 10.4 14.4 Basel II 8.1 11.4 8.5 11.3 Basel II regulatory minimum 7.0 9.75 7.0 9.75 Pro-forma Including ICBC capital 11.2 14.0 Debt capital headroom (Rbn) 15.0 23 Peter Wharton-Hood 12
Slide 13: Overview of results; Current market conditions
Overview of results ● Customer acquisition strategies over the past three years were appropriate ● Geographic diversification benefits starting to show ● Market pressures dampened retail momentum, but no surprises ● Substantial increase in credit impairments ● Interest income boosted by the endowmen
Slide 14: Financial highlights; Abridged income statement
Financial highlights ● Headline earnings up 18% to R5 661m ● Credit loss ratio 1.34% (2006: 1.00%) ● ROE 28.1% (2006: 31.6%) ● Cost-to-income ratio 52.1% (2006: 53.8%) ● External net advances up 28% to R340bn 27 Abridged income statement Dec 2007 Change Dec 2006 Rm % Rm Net interest income 15 457 39
Slide 15: Product reporting; Credit impairments
Product reporting Total income Headline earnings Dec Dec Dec Dec 2007 Change 2006 2007 Change 2006 Rm % Rm Rm % Rm Home loans 3 356 20 2 797 825 (15) 969 Vehicle and asset finance 2 191 40 1 561 110 (4) 114 Card 3 937 30 3 025 370 23 300 Transactional and lending products 15 731 30 12 061 3 614 24 2
Slide 16: Home loans NPLs; Early arrears in SBSA
Home loans NPLs - credit impairments Dec % of Jun 2007 % of Dec 2006 % of 2007 Rm NPLs Rm NPLs Rm NPLs Book size 219 177 193 914 170 112 NPLs 5 423 4 368 2 371 Net security (4 325) 79.8 (3 612) 82.7 (1 906) 80.4 Security (4 921) (3 965) (2 159) Time value discount 596 353 253 Net exposure 1 098 756
Slide 17: Non Performing Loans in SBSA; Retail market share
Non Performing Loans in SBSA 3.0 2.6 2.5 2.4 2.6 2.3 2.3 2.0 1.9 1.5 1.4 1.6 1.0 1.1 0.5 Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- 04 05 05 05 05 06 06 06 06 07 07 07 07 % Home loans VAF Card Source: DI500 33 Retail market share in South Africa 37 36.0 36.0 33 30.3 29.3 29 27.
Slide 18: Secured lending - Home loans
Secured lending - Home loans ● Globally the book increased 29% ● Value of new registrations in South Africa starting to slow, up 9% (2006: up 43%) ● Margin compression continues – Continued dependence on more expensive wholesale priced funding ● Contribution from Rest of Africa still small – introdu
Slide 19: Vehicle and asset finance; Unsecured lending - Card
Secured lending - Vehicle and asset finance ● Globally the book increased 31% ● Re-entry into dealership origination channel in South Africa ● Strong volume growth boosted by corporate and commercial market despite year-on-year decline of 5% in vehicle sales in South Africa ● Argentina performed wel
Slide 20: Unsecured lending - Other; Transaction and investment products
Unsecured lending - Other lending ● Good growth in credit utilisation, specifically in demand portfolios – Book increased by 24% – Number of accounts up 12% ● SMMEs starting to show signs of stress, SMEs more resilient in line with corporate sector ● Credit provisions in line with expectations 39 Tr
Slide 21: Distribution; Bancassurance
Distribution % South Africa Growth in ATM transactions 5 Growth in branch based transactions 5 Growth in number of branches* 0 Growth in number of ATMs 3 Growth in internet users 23 Rest of Africa Growth in ATM transactions 21 Growth in number of branches 28 Growth in number of ATMs 13 Growth in int
Slide 22: Outlook for Personal & Business Banking
Outlook for Personal & Business Banking - South Africa ● Interest rate outlook will continue to dampen consumer and SMME credit demand ● Volume and asset growth rates likely to moderate ● Continued focus on risk management and collections ● Focus on sensible cost management without compromising busi
Slide 23: Argentina
Argentina ● Headline earnings attributable to the group R129m in 2007 ● People, processes and systems aligned with and integrated into the group ● Significant “overnight” rebranding exercise completed – Achieved substantial awareness ● Service led sales strategies implemented in Personal & Business
Slide 24: Overview of results; Financial highlights
Overview of results ● Execution of our strategy starting to pay dividends ● Good diversification of earnings across all geographies and products ● Cross sell and leveraging of activities globally ● Integration of Nigeria and Turkey well under way ● No direct exposure to subprime, but some adverse ef
Slide 25: Abridged income statement; Operating expenses
Abridged income statement Dec 2007 Change Dec 2006 Rm % Rm Net interest income 6 804 33 5 117 Non-interest revenue 12 952 39 9 335 Net fee and commission revenue 4 094 40 2 929 Trading revenue 7 423 50 4 945 Other revenue 1 435 (2) 1 461 Total income 19 756 37 14 452 Credit impairment charges 250 (2
Slide 26: Income contribution; Divisional contribution
Income contribution 100 90 26 26 32 31 31 31 28 80 70 60 34 35 33 34 33 34 38 50 40 30 20 35 40 39 35 36 35 34 10 0 % 2001 2002 2003 2004 2005 2006 2007 Net Interest Income Trading revenue Fee and commission income 51 Divisional contribution Total income Headline earnings Dec Dec Dec Dec 2007 Change
Slide 27: Banking and trade finance; Investment banking
Banking and trade finance ● Income R7.9bn, up 27%, headline earnings R2.6bn, up 31% ● Good growth in term lending and commercial property finance ● Growth in cash management and overnight deposits ● Lower credit impairment charges ● Additional fee revenue from the first time inclusion of Argentina a
Slide 28: Global markets; Current market conditions
Global markets ● Income R8.5bn, up 54%, headline earnings R2.5bn, up 68% ● Strong result, notwithstanding volatile market conditions ● Excellent performance from debt capital markets, resources, foreign exchange and equity derivatives ● First time inclusion of Argentina and Nigeria ● Higher level of
Slide 29: Risk management: Interpretation of market events
Risk management Interpretation of market events iTraxx Main s7 vs EMBI+ 70 300 60 EMBI+ spread (bps) ITraxx spread (bps) During the first bout of stress, 250 EM reacts relatively slowly 50 and avoids the worst 40 200 30 In the second round, EM is 150 20 much more closely correlated with Western Cred
Slide 30: Risk management: Credit quality; Macro credit hedge
Risk management Credit quality ● Credit quality of portfolio has improved ● Approval obtained from Regulator for AIRB approach to credit risk ● No direct exposure to sub prime ● Moving to an economic capital credit decision making model 59 Macro credit hedge ● Implemented Macro Credit Hedge during f
Slide 31: Risk management: Value at Risk / Trading Revenue
Risk management – Value at Risk / Trading Revenue 200 150 100 50 0 -50 -100 -150 4-Jun-07 14-Jun-07 26-Jun-07 6-Jul-07 18-Jul-07 30-Jul-07 9-Nov-07 21-Nov-07 2-Jan-07 12-Jan-07 24-Jan-07 11-May-07 23-May-07 10-Aug-07 22-Aug-07 5-Feb-07 15-Feb-07 27-Feb-07 9-Mar-07 22-Mar-07 3-Apr-07 17-Apr-07 30-Apr
Slide 32: Nigeria update; Outlook
Nigeria update ● Headline earnings R247m (2006: R49m) ● Merger effective 24 September 2007 ● Group risk governance framework introduced ● Operations and systems integration completed December 2007 ● Staff integration complete, Chris Newson appointed CEO ● Market leading position in Global Markets, I
Slide 33: Liberty Life
Jacko Maree Liberty Life ● Liberty Life now owns 100% of Stanlib ● Contribution to headline earnings up 15% – 7% of group headline earnings ● Weighted average investment return 14.76% (2006: 33.00%) ● Return on embedded value 19.5% (2006: 22.4%) ● Indexed premiums up 14% 66 33
Slide 34: 2007 – a momentous year
Jacko Maree 2007 – a momentous year ● Weathered global financial market stresses not seen in the last decade ● Finalised acquisitions in the important emerging markets of Nigeria, Argentina and Turkey ● Negotiated and gained necessary approvals for the historic transaction between Standard Bank and
Slide 35: Post year end; Conclusion
Post year end ● Global economy ● South African economy and business environment ● Basel II ● ICBC – New capital injection is dilutive in the short term but extends our growth horizon in the longer term – Strong capital ratios a competitive advantage – Business co-operation commences in March 2008 69
Slide 36: Financial objectives
Financial objectives 2008 Medium term Normalised ROE 21.0% 22.5% Normalised growth in headline earnings per share CPIX + 5% CPIX + 10% Credit loss ratio ≤ 1.00% ≤ 1.00% Continuous Cost-to-income ratio ≤ 51% improvement Medium term objectives remain unchanged 71 36