FirstRand reports 10% rise in headline earnings despite UK motor commission provisions

FirstRand increased headline earnings per share by 10% to 748.8 cents in the year to June 30 despite a further R2.7 billion provision for the motor commission legal issue in the UK.

The dividend was raised 12% to 466 cents a share. Normalised net asset value per share was up 11% to 3,884.1 cents. The return on equity increased marginally to 20.2% from 20.1%.

A consistent approach to new business origination and disciplined financial resources allocation resulted in a strong operational performance, in spite of macroeconomic challenges  - all its large domestic businesses delivered “high-quality growth in earnings,” said Group CEO Mary Vilakazi.

She said in a telephone interview this enabled the group to absorb the impact of a further pre-tax accounting provision of R2.7bn for the previously disclosed UK motor commission matter. This compares to R3bn raised in the prior year. In addition, a further R253 million of legal and professional fees were incurred.

Vilakazi said that “based on what we know," they were “hopeful” of not having to make any more provisions on this matter. Much would depend on a redress scheme to be issued by the regulatory authorities in October. Without the provision, headline earnings would have increased by 16%.

Normalised earnings increased 10%, to R41.8bn, and the group produced a "good" return on equity of 20.2%, which was well within the group's stated range of 18% to 22%, she said. Net income after cost of capital grew 12% to R11.6bn, with net asset valueincreasing 11%.

The overall credit performance was trending in line with the group's expectations with the credit loss ratio at 85 basis points remaining at the bottom end of its target range.

The 4 basis points increase in the credit loss ratio was driven mainly by: the non-repeat of the UK notice of sums in arrears credit provision releases in the comparative year of R1.08bn; early emerging strain in FNB commercial given the macro cycle and good book growth; and a net increase in the group's central overlay of R350m year-on-year.

Vilakazi said they had grown advances in the SME sector over the past few years, not only to grow the business, but also because faster growth of the sector would boost badly needed economic growth.

She said the group had some 1.2 million SME clients, about 256 000 of whom could be said to be operating in the informal economic sector.

FNB delivered normalised profit before tax (PBT) growth of 7% and a return on equity of 37.4%. Net interest income (NII) growth of 6% resulted from growth in both advances and deposits. FNB grew its customer base by 1%.

The deposit franchise in South Africa grew 7% off a high base, with broader Africa’s deposits also continuing to scale, delivering 11% growth. FNB delivered 6% growth in net interest ravenue (NIR) benefiting from growth in customers, improved volumes and cross-sell.

NIR growth was also from value-added services, such as FNB Connect, Send Money and eBucks.Total retail revenue from these services grew 15% to more than R2.9bn.

FNB’s insurance activities contributed strongly, with insurance income up 9% and insurance PBT up 8%, driven by growth in premiums, better claims experience and cost management.

WesBank delivered strong normalised PBT growth of 15% and an ROE of 21.8%. The business benefited from strong origination in retail vehicle and asset finance and momentum in commercial, which contributed to NII growth of 5%.

RMB produced normalised PBT growth of 11%, benefiting from a solid performance by the SA business. RMB’s ROE improved to 20.7%, a significant rebound from the 18.3% ROE in the first half. There were strong performances from the Investment Banking Division and Private Equity.

Aldermore Group increased underlying PBT by 2%, driven by healthy growth across its three lending franchises. Total advances rose 8% to £16.9bn, reflecting enhancements to product offerings and increased operational capacity.

Vilakazi further said that the level of operational momentum in FNB, RMB, WesBank and Aldermore had set the group up for another strong performance in the coming year.

BUSINESS REPORT