In 2013, we formed Barclays Africa by acquiring the majority of Barclays PLC’s African operations. It was at this point when we set our vision to create a proudly pan-African financial services group. This was the biggest ever acquisition by an African bank, and was a crucial strategy play, giving us a significant footprint and creating a platform for us to deliver on our vision. Four years on, I believe we are delivering on our ambitions.
At the heart of our One Africa strategy were four key commitments:
- Achieve a return on equity range of 18 – 20%
- Reduce our cost-to-income ratio to the low 50s
- Become top three in revenue in our five key markets
- Grow the percentage of revenue generated by our Rest of Africa businesses to between 20 and 25%
Our plan to achieve these commitments comprised four key foundations, built through a process of turnaround and transformation:
- The turnaround of our Retail and Business Banking (RBB) franchise in South Africa
- The development of our Corporate Banking business
- The growth of a fully integrated Wealth, Investment Management and Insurance (WIMI) business
- Investment in our technical platforms and operating infrastructure
Progressing our One Africa strategy
Our first priority was the turnaround of our RBB franchise in South Africa. The country is our biggest market, and RBB is our largest profit centre. From a deteriorating position a few years ago, we have transformed RBB’s performance; we have stemmed customer losses, added new customers and generated strong returns. The turnaround remains a priority.
Secondly, we invested significantly in Corporate Banking across the continent to close the gap with other leading banks in our markets. Today our Corporate Bank is achieving double-digit revenue growth and contributes over half of Corporate and Investment Bank’s (CIB) earnings. Rest of Africa accounts for 44% of CIB’s headline earnings.
Thirdly, we seized the opportunity in WIMI, especially through the expansion of our insurance business. We comprehensively restructured WIMI, made acquisitions and sold non-core operations. Today, WIMI is a fully integrated business, achieving a 24% return on equity.
Finally, we set out to transform our technology infrastructure. Over and above our annual spend, we have incrementally invested R3bn over the last three years to improve our IT, and the services we offer across the continent. We are investing in innovation and creating new ways for customers and clients to access our services. We have created ChatBanking, the world’s first secure, private and fully integrated banking service linked to social media platforms.
These four building blocks have all added to the momentum in our business performance.
We now have a balance sheet of over R1.1trn with strong levels of capital and liquidity. Our return on equity has increased since 2013, and our cost-to-income ratio has improved. We have realised our objective of growing the proportion of revenue we receive from Rest of Africa. Our earnings performance has been resilient throughout, and we have continued to provide good dividend growth.
In summary, we are doing what we set out to do – we are building momentum towards achieving our Goal to be the financial service group of choice in Africa.
Separation terms with Barclays PLC have been agreed on
On 23 February 2017, we advised our stakeholders that we agreed on the terms of separation with Barclays PLC1. This agreement will see Barclays PLC contributing GBP765m (R12.8bn2), primarily to fund the investments required for the separation process.
This is a good outcome, and enables us to complete the separation, provide certainty to our stakeholders, and invest in technology and re‑branding over time. We have set up dedicated teams to manage the separation.
We are progressing the required regulatory approvals and will continue working closely with our Board and our regulators to ensure the separation is managed in an appropriate way.
An important feature of our discussions has been the provision for a broad-based black economic empowerment scheme. While the scheme’s specifics are under consideration, Barclays PLC will contribute an amount equal to 1.5% of Barclays Africa’s market capitalisation (R2.1bn3) towards establishing the scheme.
Alongside this broad-based black economic empowerment scheme, we plan to create an equity proposition for our employees in the next 12 to 18 months. This will give our people the opportunity to benefit from share ownership and to share in the future growth of our business.
|1||Barclays PLC’s sell down of its shares in Barclays Africa (‘the sell-down’) refers to the regulated disposal of its shares with the aim to achieve regulatory deconsolidation. The ‘separation process’ refers to the broader short, medium and long-term operational and administrative activities which disengage the businesses from one another.|
|2||Based on the exchange rate at 31 December 2016|
|3||Based on the Barclays Africa closing share price on 31 December 2016.|
We delivered resilient results
Our 2016 performance has been resilient, as we sustained the positive direction outlined in our three-year strategy:
- Group headline earnings increased 5% as growth in revenue and continued cost discipline saw income outpacing cost increases. Headline earnings from the Rest of Africa grew 17%, with South Africa lower at 2%.
- We achieved revenue growth of 8% overall, underpinned by a consistently strong contribution from our Rest of Africa business, partially offsetting the 2% revenue growth from our South African market. Rest of Africa’s contribution to total Group revenue grew to 23% year‑on‑year.
- Our cost-to-income ratio improved from 56% in 2015 to 55.2% in 2016.
Our performance over the past year was, to an extent, hindered by the weakening economic conditions across the continent, and market volatility brought about by global events such as Brexit. The fact that these events did not throw us off track testifies to the effectiveness and resilience of our strategy.
We are strongly focused on executing our strategy
While we are managing risks related to the operating environment and the separation process, we are strongly focused on the opportunities and strategy execution in each of our businesses.
In RBB, we are focused on growing across all our markets, as we believe we can capture further opportunities, paying particular attention to the core middle market customer segment.
In Corporate Banking, the last three years have delivered significant growth opportunities. We believe there are further opportunities to expand our Corporate and Markets businesses, and we have the depth and expertise to do so.
Finally, in WIMI, we continue benefiting from closer co-operation with our Retail and Corporate Banking businesses. WIMI also benefits from investments in its footprint outside South Africa and its asset management business. We are now focused on extracting the full value from our investments in technology and in markets outside South Africa.
These businesses benefit from their long-standing presence and knowledge across our markets which results in deep insight into customer and client needs and local conditions. This means we combine pan-African and local understandings into a competitive advantage.
Effective leaders and a culture of shared values and shared growth
Our continued momentum depends upon a number of factors.
Firstly, effective leadership is a prerequisite for any business. At Barclays Africa, we have recognised the need to grow and expand our leadership. We are investing in our people across the business, but I have also restructured the top team to align with the restructure of our business.
David Hodnett runs South Africa Banking, Peter Matlare heads our Rest of Africa Banking operations, and Nomkhita Nqweni leads our WIMI business. Peter was an independent non-executive director from 2011 until his appointment as Deputy Chief Executive Officer on 1 August 2016. He remains on our Board as an executive director.
Jason Quinn was appointed as our Financial Director from 1 September 2016. Arrie Rautenbach – in addition to his risk responsibilities – assumed responsibility for our strategy function and the Barclays PLC separation process. Zameera Ally was appointed as Head of Internal Audit and serves as an ex officio member of the Executive Committee.
With a strengthened Executive Committee, we have the right people in the right positions to provide strategic focus and take our business forward.
Secondly, our culture and Values are a fundamental part of our DNA. They need to be nurtured and shaped. When we encounter behaviour which is not in accordance with our Values we take appropriate action.
We take the issue reported by the South African Competition Commission regarding breaches in Competition Law relating to foreign exchange trading of the South African rand extremely seriously, and we have cooperated fully with the commission. Along with Barclays PLC, we were the first to bring the conduct to the attention of the Commission under its leniency programme and will continue to cooperate with them in relation to this matter.
We will continue to cooperate with the Office of the Public Protector with respect to the provisional report relating to the Bankorp matter, dating back to 1985. Our response addresses several legal and factual inaccuracies contained in the provisional report. Our position remains that all obligations relating to the South African Reserve Bank’s assistance were discharged in full by October 1995 in line with the requirements set out as part of the assistance programme to Bankorp.
I want to assure our stakeholders that we remain committed to ensuring we conduct ourselves in accordance with both the law and our Values; that we act in the right way and treat our customers and clients fairly. Conducting ourselves in the best interests of our customers and clients is a critical element of our Values.
One of our core Values is Stewardship – leaving things better than we found them. We are systemically significant in all the counties where we operate and so have a responsibility to show leadership. At Barclays Africa, we understand that the broader transformation of society cannot take place unless large institutions like ours play a major part. We know we need to do more in this respect.
For us, transformation goes beyond compliance with the local and international legislation and regulation. Our task is to create a truly transformed organisation where we empower our people to fulfil their purpose. Our commitment is to ensure that our organisation’s culture aligns with our Shared Growth philosophy which in turn informs our strategic decisions.
The areas we have chosen for Shared Growth are fundamental to development of society as a whole and we are committed to using our resources, people and expertise in order to make a positive difference to society. We need to continue to work in partnership with governments, corporate partners and civil society to create more opportunities for inclusive growth and development.
We are investing in education and entrepreneurship across the continent. We also have an ongoing commitment to financial inclusion, providing wider access to communities. We have chosen these areas, as they are powerful enablers of inclusive growth and development.
I believe our 2016 performance is evidence of the resilience and momentum that are hallmarks of our business.
Our resilience in withstanding economic headwinds, remaining focused on our strategy and effectively managing the Barclays PLC separation process will stand us in good stead in unlocking the full potential of our business and seizing opportunities.
We rely on support and commitment of all our stakeholders – from governments and regulators to the individual communities in which we operate. Above all, none of our achievements this year would have been possible without our customers and clients. We thank you for entrusting us with your financial prosperity. We strive to help you fulfil your ambitions in the right way, and I wish to thank you for your ongoing support.
I also thank my leadership team for their commitment and drive and, on behalf of my leadership team, I extend our gratitude to our Board as well as to our 41 241 employees without whom we could not deliver on our Goal.
I believe Barclays Africa is now at another inflection point. We have already achieved so much. But we are now determined to maintain our hard-won momentum, which is why our strategic targets remain unchanged.
Our Goal of becoming the financial services provider of choice in Africa is within our reach.