FirstRand Limited (FSR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the 28th Annual General Meeting of FirstRand Limited. Kindly note that the proceedings of this meeting are being broadcast via live web. The formal proceedings for this meeting are outlined in the agenda, which are projected for your information. We have 18 resolutions to be voted on by shareholders at the meeting, namely 12 ordinary resolutions, 11 requiring 50% support and 1 requires 75% support. Then 2 nonbinding advisory votes on the company's remuneration policy and remuneration implementation report. Then also 4 special resolutions requiring 75% support. Let me move to the formal proceedings of the AGM. Firstly, to left myself, physically in attendance is the group company secretary, Ms. Carnita Low, and the following Board committee chairpersons and members. Chairperson of the Audit Committee, Mr. Grant Gelink, is online. He's not in the room. Chairperson of the Risk Capital Management and Compliance Committee, Zelda Roscherr; Chairperson of the Remuneration Committee, Mr. Louis Von Zeuner; Chairman of the Social Ethics and Transformation Committee, Ms. Shireen Naidoo and Chairperson of the Directors Affairs and Governance Committee, Dr. Sibisi. We also have other nonexecutives in the room, and Ms. Tamara Isaacs, Mr. Tom Winterboer and Mr. Paballo Makosholo. We also have present our Executive Directors, Ms. Mary Vilakazi, our Chief Executive Officer; and Mr. Markos Davias, our Chief Financial Officer. Our audit partners Mr. Keith Ackerman from PwC; and Mr. Ernest van Rooyen from Ernst & Young, are available to respond to questions from shareholders that may arise from the audit of the annual financial statements or the integrated report suit of documents. Our internal and external legal advisers and various senior executives are also present, either in person or online to respond to questions if needed. I would like to acknowledge our meeting facilitators being Computershare, that will be hosting our AGM. We shall now proceed to the business of the meeting. Firstly, the notice and the constitution of the meeting. Proper notice convening the meeting has been given to shareholders in terms of the Companies Act and the memorandum of incorporation. The notice of the AGM was published on our website and mailed to those shareholders who have so elected. I will take the notice as read. It is the intention that voting at this meeting shall be by poll in terms of the MOI of the company. Such poll voting shall be conducted electronically through the electronic online facility provided. Shareholders entitled to vote at the AGM would have already been completed the mandatory registration process with Computershare and have been successfully authenticated. As there are more than 3 members present in person and persons entitled to exercise more than 25% of the voting rights exercisable on the proposed resolutions are present, I confirm that we have a quorum present. I therefore declare this meeting properly constituted, AGM of the shareholders of the company. The scrutineers will facilitate the electronic voting. The voting on the electronic online facility has been opened, and voting can be performed at any time during the meeting on the like close voting on all the resolutions. Accordingly, shareholders will be able to vote on any resolution and do not have to wait for the resolution to be tabled. Order of questions from shareholders. Shareholders or their appointed proxies attending this meeting are eligible to ask questions in the following order. Firstly, verbally from the floor, then from the teleconference and then via the shareholder platform. Questions may be posed from commencement of the meeting until the poll is closed. Ms. Marara will read out the questions on the shareholder platform, and I shall either respond or direct the question to the most appropriate person. Questions will be invited on each resolution as it's tabled. Additional questions will also be invited again after the final resolutions on the agenda has been tabled and the voting closed. I just want to repeat that what we'd like to see is meet -- questions being asked on the specific resolution. And at the end of the meeting, we will open for more questions under general. So everybody will have an opportunity to ask questions, but please let's stick to the questions relevant to the resolution as we go through the agenda. Ms. Low will now advise you on the voting procedures and how to cast your vote on the electronic platform.

Thank you, Mr. Chairman. If you have registered as a shareholder, you will see a vote icon at the top of the screen. To vote, click on the vote icon after which the resolution will appear on the screen. You can select your voting direction from the options on the screen. And once your vote has been cast, a green tick will appear. A confirmation message will also appear to indicate that your vote has been received. You are able to change your vote if you need to at any time before the voting closes by clicking on the change your vote icon or link and selecting another voting direction. If you want to cancel your vote, please use this functionality provided and resubmit your vote. Additionally, instructions on how to vote have also been included on the meeting guide available on the FirstRand Integrated Reporting Hub. These are available for ease of reference at any time during the meeting. As mentioned, voting can close at any time during the meeting once the voting has opened on any resolution. And once the Chairman has indicated that the voting has closed, your last selection will be submitted. Voting procedure is the same for individuals, both online and in the room. Thank you, Mr. Chairman.

Thanks, Ms. Low. I will proceed with the matters as contained within Notice of the AGM. Firstly, number 4, presentation of the audited financial statements. As required in terms of the Companies Act, the audited financial statements of the company for the year ended June 30, 2024, as approved by the Board of the company, includes the reports of the internal auditors, the Directors' Report and the Group Audit Committee are presented to shareholders. These were distributed and published to shareholders and are available on the company's website. Are there any questions on the presentation of the audited financial statements? The Chairman of the Audit Committee, Mr. Grant Gelink, and the external auditors are available for any questions in this regard. Are there any questions from the floor? I don't see any. Any questions from the teleconference?

There are no questions from the teleconference.

Any questions from the shareholder platform?

There are no questions on the shareholder platform.

No questions. Right. Thank you. Thank you very much. Then presentation of the Social, Ethics and Transformation Committee report, the FirstRand Social Ethics and Transformation Committee report is contained in the 2024 FirstRand Corporate Governance Report on the integrated report hub and reflects matters within the committee's mandate. The report is presented to shareholders. Are there any questions on the Social Ethics and Transformation Committee report? The Chairperson of the SET-Comm Ms. Shireen Naidoo is available for any questions in this regard. Let me first go to the room. Any questions from the room? There's one at the back there. Do you mind just stating your name that so we can know where you're from. There is a mic at the back.

My name is Ayabulela. I'm from Just Share. And 2 of my colleagues are also attending the AGM virtually. So my question is on the employment equity targets. In 2024, 2024 transformation and employment equity report, FirstRand states that until the promulgation of the amended Employment Equity Act, FirstRand continues to track its annual targets. Given that your current employment equity targets are more ambitious than the proposed financial sector baselines, can you provide clarity on whether the group will lower its targets to align with these baselines or maintain the current ambition targets to continue driving meaningful transformation at management levels?

Shireen, do you want to respond?

I'm happy to. Thank you, Chair, and thank you sir, thank you for your question. I think if you look at the employment equity targets that we currently have in place, we take those extremely seriously. And as you will see, and if you had a look at our transformation report, we're actually meeting all of those except for one. But until the sector targets are finally promulgated, we will have to see what those finally come out as. But in all sincerity, we as an organization and as a Board, I can't see that we will go back on those. But to make a final decision, obviously, we'll need to see what those come out as and then make a final decision. So that is why you will see from our current Employment Equity Report, we're actually tracking our employment equity targets as we set them as, but we haven't, even though there are some drafts that are out, we haven't put those into our report. We're currently tracking as we are standing. And we, as a management, will have a look at that. And then we, as a Board, will finally take a look at that as those are finalized as well.

You comfortable?

Yes.

Thank you. We then move to the resolutions for consideration and adoption. We will proceed with the tabling of each resolution. The full wording of the resolution has been made available to shareholders and will not be repeated Instead, reference will be made only to the item for approval. Please note that more than 50% of the voting rights exercised on each ordinary resolution that followed is required for each resolution to be adopted.

Sorry, Mr. Chairman, apologies, you skipped online, and there is a question online on the Social Ethics report.

My apologies. Can we get the question from the shareholder platform?

So the question is from [indiscernible]. He says finance emissions, pricing and net zero commitment. FirstRand has committed to achieving net zero finance emissions by 2050. Given the new attribute of finance emissions, what specific steps is the group taking to establish a robust and transparent pricing mechanism for finance emissions and reducing the challenge of measuring and accounting for scope 3 emissions?

Gert?

Thank you for the question. We are indeed considering that closely and have taken a number of steps. They are set out in quite a bit of detail in our climate change strategies report, but worthwhile calling out for particulars. One is we ensure that we are aware of the technical requirements by being a member of the PCAF committee that sets the standards in terms of finance emission measurement. So we've got a front row seat in terms of understanding what is actually required. Secondly, we are engaging with our clients and where possible contract with them to do physical scientific measurements of actual emissions so we can get better information on that. And then thirdly, what we have done is we've developed the ability to show our balance sheet with its climate attributes. In fact, there's a copy of that in our Climate Strategies report. And that allows us to show the different emission intensity of our various assets. And what we have done through the group treasury function is to develop a pricing methodology that takes account of those emissions intensities as well as supply and demand of funding in the market linked to that. And to see that over time, we evolve the way that we do fund transfer pricing to capture that particular attribute. So it is something which is well underway and something that we'll refine also going forward.

Thank you, Gert. Is the question satisfactorily answered? I'm not getting a question, further questions. So let's go to the ordinary resolution then. Apologies for...

Sorry sir, the teleconference.

Was there something on the teleconference?

Chair, no, we read it out.

There are no questions on the teleconference.

Thanks, Kevin.

Thank you. So ordinary resolutions, reelection of directors. 2 directors namely Mr. Louis Von Zeuner and Dr. Sibisi retire by rotation in terms of the MOI and offer themselves for reelection. Their CVs have been included in the Notice of the AGM, and the reelection will be conducted on an individual basis. The Board has considered the proposal of the DAG and recommends that they be reelected as independent nonexecutive directors. So firstly, ordinary resolution #1.1, to reelect Mr. Louis Von Zeuner as an Independent Non-Executive Director. And ordinary resolution 1.2, to reelect Dr. Sibisi as an Independent Nonexecutive Director. Are there any questions on ordinary resolution 1.1 and 1.2? Firstly from the room. It doesn't look like it. Teleconference?

There are no questions.

Thank you. And then from the shareholder platform?

Chair, there is one general question. It's from Mr. Anthony Walker. There's 2 questions. The first one is, we understand that the MOI is being considered for amendment with the Companies Act, and that in this process, the MOI will be amended to ensure that the Chairman is put up for election as an NED, which is currently excluded. This would be in line with good governance practices. Please, can you confirm?

Mr. Walker, thank you for your question. And we've had a number of very, very meaningful engagements with shareholders on this topic. We have taken head of our shareholder raised concerns on this. And we indicated that as soon as the listing requirements have adjusted in terms of their simplification project, we will absolutely consider the provisions there of and comply if required. It has been provided in the draft, but we've not received the final versions of the JSE's listing requirements. Additionally, the MOI will require an overhaul in terms of a number of sections in terms of the Companies Act that requires review. So I can confirm that FirstRand agrees and supports that it is a good governance principle. And absolutely, the Board will take that into account and will include at the relevant time, if required by the JSE as well as by intention. I'm not sure if that answers your question. If you have a follow-up question?

Chair, there's a second question. It's a follow-up, and the same response would apply. Please confirm the Chair will be up for election at the next AGM given he is an NED regardless of the amendment of the MOI. This would align with best practice.

It would be very difficult to do something that is contrary to our MOI. I'm not sure that, that is good governance. So we would have to do the amendment to the MOI to allow for that because the MOI, which was amended in 2015, approved by the JSE, the regulator and shareholders cannot be ignored. So we would have to follow the Companies Act procedure in this regard and amend the MOI first.

Okay. Has that one been dealt with? Right. Next, vacancy filled by Director, Ordinary Resolution 1.3 to elect Mr. Paballo Makosholo as an Independent Non-Executive Director to fill a Board vacancy in accordance with the provisions of the MOI. Mr. Makosholo's CV has been included in the Notice of the AGM. Mr. Makosholo was appointed by the Board upon recommendation of the DAG committee, and the Board recommends that Mr. Makosholo be elected by shareholders. I put before the meeting that Mr. Makosholo be elected as an Independent Nonexecutive Director. Are there any questions on this ordinary resolution 1.3? Firstly in the room. It doesn't look like it. Then teleconference?

There are no questions.

Then the shareholder platform.

Chair, no questions from the platform relating directly to those 2 resolutions.

Thank you. Please then cast your vote. Appointment and reappointment of joint external auditors, ordinary resolution #2.1 to 2.3 relates to the appointment of KPMG and the reappointment of PricewaterhouseCoopers and Ernst & Young are joint auditors for the ensuing year. It is accordingly proposed that the appointment and reappointment be made on a joint basis. However, if either resolution 2.1, 2.2 or 2.3 is not passed, the resolutions passed shall be still be effective. So, then ordinary resolution 2.1, that KPMG be appointed as auditors is put to the meeting. Ordinary resolution 2.2, that PricewaterhouseCoopers in corporate be reappointed as auditors of the company is put to the meeting. Ordinary resolution 2.3, that Ernst & Young be reappointed as auditors of the company is put to the meeting. Are there any questions on ordinary resolution 2.1 to 2.3. Firstly from the room? Doesn't look like it. Then from teleconference?

There are no questions.

And then the shareholder platform.

Chair, no questions from the platform.

Thank you. So if not, please cast your vote. [Voting]

Thank you. Election and reelection of Audit Committee members by way of separate resolutions. Ordinary resolution #3 relates to the reelection of the Audit Committee members by way of a separate resolution. The Audit Committee and Board as elected to propose the reelection of the group Audit Committee members to the shareholders of the company. The Audit and Board has reviewed the composition of the Group Audit Committee, and that the members have the necessary skills, knowledge and experience to enable the committee to perform its duties in terms of the relevant statutes. The CVs of all the Audit Committee members are included in the AGM notice. It's the intention that the election of the Audit Committee members be conducted on an individual basis. So let me go to ordinary resolution 3.1 first, to let Ms. Zelda Roscherr as a member of the Audit Committee. Ordinary Resolution 3.2, to elect Tamara Isaacs as a member of the Audit committee. Ordinary Resolution 3.3, to elect Mr. Louis Von Zeuner as a member to the Audit Committee. And ordinary resolution 3.4, to reelect Mr. Tom Winterboer as a member of the Audit Committee. Are there any questions on the ordinary resolutions 3.1 to 3.4? In the room first? Don't look like there's any. Then teleconference?

There are no questions.

Shareholder platform?

No questions, Chair.

Thank you. So please cast your vote. [Voting]

Thank you. Next one, general authority to issue authorized but unissued ordinary shares for cash. Ordinary resolution #4 is the general authority to issue authorized but unissued ordinary shares for cash. The percentage of voting rights required for this order resolution #4 to be adopted is at least 75% of the voting rights exercised on the resolution. The directors are authorized to issue all or any of the authorized but unissued ordinary shares in the capital of the company for cash provided that the aggregate number of shares to be allotted and issued is limited to 1.5% of number of shares in issue. The motion for the general authority is put to the meeting. Any questions on ordinary Resolution 4, firstly, from the floor? If not, teleconference?

There are no questions.

Then the shareholder platform?

Chair, no questions from the platform.

Chair, if I may interject, sorry. There was a question that was raised about director elections, which I've seen on the screen. It relates to general Board expertise. I would ask the shareholder that would be an order that we dealt with this under the general section because it doesn't relate to the specific directors who were put up for reelection, but it will be addressed at a later point. I apologize.

Thank you, Ms. Low. I think it's important that we deal with that under the general section of the meeting. Right, so then -- we then go to signing authority to authorize directors and/or Group Company Secretary. Ordinary Resolution 5 pertains to the signing authority. It is proposed that each Director and/or Group Company Secretary of the company be and hereby authorized to do all such things and sign all such documents as may be necessary for or incidental to the implementation of resolutions passed at the AGM of the company and set out in this notice. The motion for the signing authority is put to the meeting. Are there any questions from the floor? If not, from the teleconference?

There are no questions.

Then from the shareholder platform?

Chair, no questions from the platform.

Please cast your vote. [Voting]

Thank you. Advisory endorsement, remuneration policy and implementation report. Advisory endorsements 6.1 proposes the endorsement by way of a nonbinding advisory vote of the company's remuneration policy, excluding the remuneration of the nonexecutive directors and the members of Board committees for services as directors and members of the committees. Advisory Resolution 6.2 proposes the endorsement by way of a nonbinding advisory vote of the company's remuneration implementation report. Are there any questions on the advisory endorsements 6.1 and 6.2. Firstly, in the room?

Chair, I actually have 2 questions on this regard. The first one is on the internal minimum wage, and the second one is on the horizontal pay gaps. So the one on internal minimum wage. We actually as a shareholder would like to first commend FirstRand for its disclosure of your annual minimum pay for your banking roles and your non-banking roles. Last year, we were in this platform because you only had one amount. Last year, we were in this platform to ask the company for the disclosure of actually both the banking and nonbanking roles. So we're actually very happy to see those 2 disclosures. But when it comes to annual minimum pay, could the Chair confirm whether all workers at First Rand are in-sourced? If not, what proportion of workers are outsourced? And how does the company ensure that outsourced workers receive fair pay and benefits. So that's the one of the internal minimum wage and the horizontal pay gaps. In your remuneration report, it is stated that regular reports on the management and horizontal pay gaps are provided to both RemCo and Social, Ethics and Transformation Committee. Could the Chair clarify what are the current horizontal pay gaps at FirstRand? Additionally, will the company commit to disclosing these figures in the next set of annual reporting as some of your industry peers have done?

Louis?

Chair, thanks. I think, firstly, if I can comment on outsourcing, I think we pride ourselves, and that's why we are extremely sensitive to the remuneration of banking roles and nonbanking roles. And we think it's important that we have that approach to the nonbanking role because that is typically functions that elsewhere will get outsourced, and we would like to provide our employees with certainty in that regard. What I cannot, at this stage, give you information on is a percentage of outsource and Chair, I'm quite happy that we will revert on that because on outsourcing, I mean, there's IT contractors that will form part of outsourcing, and I don't think that's necessarily what is to your question. So that detailed information we will obtain and we will provide to you. And I think that spirit was exactly applied when we dealt with what we undertook in the previous year. So that's work in progress for us. Chair, on the horizontal as well as vertical pay gaps, we took a deliberate decision to wait for promulgation of the Act. And you will recall, we did mention in the previous year that we raise at necessary forums that there must be clarity on reporting so that if investors . [Audio Gap] Thanks for the question. we'll take the matter back to the Remuneration Committee to ensure that we firstly meet requirements of reporting. But secondly, if it is something that we deem necessary that will enhance the quality of our Rem report, the Remuneration Committee will consider that. So I can't even undertaking, but I do undertake that the Remuneration Committee will deliberate on it. And I do know that you have regular engagements with [ Zama and Twello ] and as and when we are ready to engage more and disclose more, there will be discussions with yourselves and others.

Okay. Is that the only question from the room, the teleconference?

There is a question from the line of Chris Logan from Opportune Investments.

Mr. Chairman, can you hear me?

Yes, I can Chris.

Just by way of background, I've been a shareholder in the group for decades. And I've interacted with a number of AGMs and one-on-ones with a number of you. And I must say I have 3 concerns which are going to impact my voting. First of all, your performance seems to be slipping across the board. In the past, I've raised this in relation to Capitec and the Chair assured me that performance is monitored monthly, and they're well aware of it. And then the CEO said, it was a very valid question and FirstRand didn't like just earning silver medals, they'd be back to getting gold. At the moment, I've got the relative -- FirstRand relative to Standard Bank, NedCo and Capitec and you're going down against all of them. So you're not even in the running for bronze. So that's my first concern. And my second concern, you always used to trumpet your owner-managed culture. It was on the first thing on your integrated annual report. I mean the group was basically formed by founders who instilled the owner-managed culture. And I've had numerous engagements with a variety of FirstRand people. And they all agree with me that high ownership leads to high performance, this, that and the next thing. Everyone agrees. I mean we've had these in the AGM, but nothing happens. Your -- I mean, if you just compare your shareholding levels to, say, for instance, Capitec, the Capitec CEO owns 103x his total guaranteed shares, 103x. You guys have got such [indiscernible] targets. I mean our CEO your -- CEO for Aldermore, 1x his salary and your actual 3x. It's a just I sent through JPMorgan Chase, one of the best banks in the world. There, the minimum shareholding target is 50x. And then they're allowed to pledge or hedge the shares, and they've actually got to build on that because any award, even if they had 50x, they've got to retain awards 50% thereafter. So Jamie Dimon is at 80x. So that's very disturbing. And then the further thing is, can you tell me what gives you a competitive advantage in the U.K. We've now got shocks emanating from there. The U.K. is hardly an attractive market. It's heavily competitive. I mean, they're being taxed to debt. There's a growth problem. Surely, as you're losing relative performance to your local peers, you should all hands on decks in the local market. So those are my concerns.

Thank you, Chris. Let me respond. I think you've raised 3 topics. The first one is like relative performance. I think it's well aware that there is this current motor commission thing in the U.K., and it has created a bit of pressure on the share price. So it's not about the operational performance of the business. I think that's just the first comment I'd like to make. The second comment on shareholding. We have heard you, the Remuneration Committee have heard you. We are going to as part of this cycle of remuneration policy, we are going to relook at a level of not minimum shareholding, but a level of retention of vesting because that way, you then build up a sizable shareholding in the company. So we definitely didn't not listen to you. We just thought it more appropriate to implement that in the next round of the Remuneration Committee process. So it's not -- we haven't ignored you, Chris. We've listened to it, and we're going to debate and discuss it properly at the next remuneration cycle. What was the third?

U.K.

U.K. Okay. So Chris, let me just -- and again, I wouldn't like to discuss the detailed strategic issues in this forum at the AGM. You can take it as a given that the management team will reassess existing capital allocations. I mean just take it as a given. they will reassess capital allocation, and they will bring that to the Board as and when they believe they need to bring it to the Board for discussion and interrogation. I mean this -- one of the key things as organization has always been exceptionally good at is capital allocation. So the management team have got this on their agenda. So -- and I'm not saying what the outcome will be. I'm just saying, for sure, it's on the agenda of the management team. Thank you.

Can I just respond, please?

Sure.

AGM is the one opportunity we have to really engage. And I'm not heartened by your responses. First of all, you've been underperforming Capitec forever. And you've been underperforming Nedbank and Standard Bank, not just since this U.K. problem. And it seems like a general malaise, you're resting on your laurels. That's the feeling I get. Sorry, I can just finish. The thing about a good company, when there's something to be done, they move, they move with momentum. Go read Elon Musk. There's just tremendous movements in action. I've been going on about the shareholding thing, I think, since 2021. And your previous CEO, he's on the radio talking about how important it is. We had a one-on-one. And I mean, so it's inexplicable that you guys are so slow. And at the same time, your competitor like Capitec keeps just outperforming.

Chris, can I suggest that we arrange an engagement with yourself and the senior leadership of...